TIDMBOCH
RNS Number : 1406P
Bank of Cyprus Holdings PLC
29 August 2017
Mid-Year Financial Report 30 June 2017
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Contents Page
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Board of Directors and Executives 1
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Forward Looking Statements and Notes 2
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Interim Management Report 3
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Interim Consolidated Income Statement 18
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Interim Consolidated Statement of Comprehensive
Income 19
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Interim Consolidated Balance Sheet 20
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Interim Consolidated Statement of Changes in
Equity 21
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Interim Consolidated Statement of Cash Flows 23
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Notes to the Interim Condensed Consolidated
Financial Statements
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1. Corporate information 25
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2. Unaudited financial statements 25
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3. Summary of significant accounting policies 25
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4. Going concern 28
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5. Operating environment 29
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6. Significant judgements, estimates and assumptions 31
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7. Segmental analysis 35
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8. Net gains on financial instrument transactions 42
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9. Staff costs and other operating expenses 42
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10. Impairment of financial and non-financial
instruments 43
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11. Income tax 44
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12. Earnings per share 44
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13. Investments 45
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14. Derivative financial instruments 46
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15. Fair value measurement 47
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16. Loans and advances to customers 51
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17. Stock of property 52
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18. Prepayments, accrued income and other assets 53
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19. Non-current assets held for sale 53
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20. Funding from central banks 54
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21. Customer deposits 54
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22. Subordinated loan stock 56
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23. Accruals, deferred income and other liabilities 56
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24. Share capital 61
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25. Cash and cash equivalents 63
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26. Analysis of assets and liabilities by expected
maturity 65
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27. Risk management - Credit risk 66
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28. Risk management - Market risk 90
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29. Risk management - Liquidity risk and funding 90
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30. Capital management 95
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31. Related party transactions 95
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32. Group companies 98
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33. Acquisitions and disposals 101
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34. Investments in associates and joint ventures 102
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35. Capital commitments 103
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Independent Review Report to the Bank of Cyprus
Holdings Public Limited Company 104
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Additional Risk and Capital Management Disclosures
including Pillar 3 semi-annual disclosures 106
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Definitions and explanations on Alternative
Performance Measures Disclosures 141
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Board of Directors and Executives
as at 28 August 2017
Board of Directors
of Prof. Dr. Josef Ackermann
Bank of Cyprus CHAIRMAN
Holdings Public
Limited Company Maksim Goldman
VICE CHAIRMAN
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Arne Berggren
Lyn Grobler
Dr. Michael Heger
John Patrick Hourican
Dr. Christodoulos Patsalides
Michalis Spanos
Ioannis Zographakis
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Executive Committee
John Patrick Hourican
CHIEF EXECUTIVE OFFICER
Dr. Christodoulos Patsalides
DEPUTY CHIEF EXECUTIVE OFFICER AND
CHIEF OPERATING OFFICER
Michalis Athanasiou
CHIEF RISK OFFICER
Nick Fahy
CHIEF EXECUTIVE OFFICER, BANK OF CYPRUS
UK
Eliza Livadiotou
FINANCE DIRECTOR
Panicos Nicolaou
DIRECTOR CORPORATE BANKING
Louis Pochanis
DIRECTOR INTERNATIONAL BANKING SERVICES
AND WEALTH, BROKERAGE
AND ASSET MANAGEMENT
Dr. Charis Pouangare
DIRECTOR CONSUMER AND SME BANKING
Nicolas Scott Smith
DIRECTOR RESTRUCTURING AND RECOVERIES
DIVISION
Anna Sofroniou
DIRECTOR REAL ESTATE MANAGEMENT UNIT
Aristos Stylianou
EXECUTIVE CHAIRMAN, INSURANCE BUSINESSES
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Company Secretary Katia Santis
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Legal Advisers Arthur Cox
as to matters of
Irish Law
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Legal Advisers Sidley Austin LLP
as to matters of
English and US
Law
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Legal Advisers Chryssafinis & Polyviou LLC
as to matters of
Cypriot Law
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Independent Auditors Ernst & Young Chartered Accountants
Ernst & Young Building
Harcourt Centre
Harcourt Street
Dublin 2
Ireland
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Registered Office Arthur Cox,
Ten Earlsfort Terrace
Dublin 2
D02 T380
Ireland
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Forward Looking Statements and Notes
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. These
forward-looking statements include, but are not limited to,
statements relating to the Bank of Cyprus Holdings Public Limited
Company Group (the Group) intentions, beliefs or current
expectations and projections about the Group's future results of
operations, financial condition, liquidity, performance, prospects,
anticipated growth, provisions, impairments, 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.
The definitions and explanation on Alternative Performance
Measures Disclosures are presented in 'Definitions and explanations
on Alternative Performance Measures Disclosures' of the Mid-Year
Financial Report for the six months ended 30 June 2017.
The Mid-Year Financial Report for the six months ended 30 June
2017 is available at the Bank of Cyprus Holdings Public Limited
Company Registered Office (at Ten Earlsfort Terrace, Dublin 2, D02
T380, Ireland) and on the Group's website www.bankofcyprus.com
(Investor Relations/Financial Results).
Interim Management Report
A. Analysis of Group Financial Results for the six months ended 30 June 2017
A.1 Group reorganisation
On 18 January 2017 Bank of Cyprus Holdings Public Limited
Company (the Company) became the sole shareholder of Bank of Cyprus
Public Company Ltd (BOC PCL). This reorganisation was treated as a
reorganisation of an existing entity that has not changed the
substance of the reporting entity.
The owners of BOC PCL before the reorganisation have the same
absolute and relative interests in the net assets of the Group
(being the Company, BOC PCL and its subsidiaries) immediately
before and after the reorganisation, since the assets and
liabilities of the Group and the BOC group (being BOC PCL and its
subsidiaries) are the same immediately before and after the
reorganisation. Hence, the Group is considered as a continuation of
BOC group.
As this transaction did not result in any change of economic
substance it also did not have any effect on the total equity of
the Group. The Group's financial statements reflect the difference
in the amounts of share capital, share premium and capital
reduction reserves as an adjustment in equity.
A.2 Balance Sheet Analysis
A.2.1 Capital Base
Shareholders' equity totalled EUR2,543 million at 30 June 2017,
compared to EUR3,071 million at 31 December 2016. The Common Equity
Tier 1 capital (CET1) ratio (transitional basis) stood at 12.3% at
30 June 2017, compared to 14.5% at 31 December 2016. During the six
months ended 30 June 2017 the CET1 ratio was negatively affected by
the loss for the period and by the phase in of transitional
adjustments mainly deferred tax assets, despite the reduction in
risk weighted assets (RWA). Adjusting for Deferred Tax Assets, the
CET1 ratio on a fully-loaded basis totalled 11.8% at 30 June 2017,
decreased by 2.1 percentage points when compared to 13.9% at 31
December 2016. As at 30 June 2017, the Total Capital ratio stood at
13.8%, decreased by 0.8 percentage points when compared to 14.6% at
31 December 2016.
The Group's capital ratios are above the minimum CET1 regulatory
capital ratio of 9.50% (comprising of a 4.5% Pillar I requirement,
a 3.75% Pillar II requirement and a phased-in Capital Conservation
Buffer (CCB) of 1.25%) and the overall Total Capital Ratio
requirement of 13.00%, comprising of a Pillar I requirement of 8%
(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 Pillar II
requirement of 3.75% (in the form of CET1), as well as a phased-in
CCB of 1.25%. The European Central Bank (ECB) has also provided
non-public guidance for an additional Pillar II CET1 buffer.
The Group continues to develop its processes to enable IFRS 9 to
be implemented on 1 January 2018. The Group expects to be in a
position to provide a robust estimate on the effect on its CET1
ratio later in the year, when the implementation programme,
validation and testing is further advanced. The capital impact of
any opening IFRS 9 adjustment to the provision stock is expected to
be largely phased-in over a five year period in line with the
proposal of the Council of the European Union. As a result, the
effect of introducing IFRS 9 on CET1 in 2018 is expected to be
small on a phased-in basis.
In January 2017, the Group raised EUR250 million of Tier 2
capital. The Group will continue, subject to market conditions, to
examine opportunities to raise additional Tier 2 and/or AT1 bonds
in the next 12 months. This will further strengthen the Group's
capital base well ahead of the Minimum Required Eligible
Liabilities ('MREL') and create greater versatility into the
future.
A. Analysis of Group Financial Results for the six months ended 30 June 2017 (continued)
A.2 Balance Sheet Analysis (continued)
A.2.2 Funding and Liquidity
Funding
Funding from Central Banks
At 30 June 2017, BOC PCL's funding from central banks totalled
EUR900 million, which relates wholly to ECB funding, compared to
funding from central banks at 31 December 2016 of EUR850 million,
which comprised Emergency Liquidity Assistance (ELA) funding of
EUR200 million and ECB funding of EUR650 million. The ECB funding
of EUR900 million at 30 June 2017 comprises EUR830 million through
Targeted Longer-Term Refinancing Operations (TLTRO II), EUR40
million through Longer-Term Refinancing Operations (LTRO) and EUR30
million through the Main Refinancing Operations (MRO).
BOC PCL has fully repaid ELA in January 2017.
Deposits
Group customer deposits totalled EUR16,584 million at 30 June
2017, compared to EUR16,510 million at 31 December 2016. During the
six months ended 30 June 2017, deposits remained broadly stable,
with the focus shifting towards the deposit mix and now more than
fully fund the loan book. Cyprus deposits stood at EUR15,010
million at 30 June 2017, accounting for 91% of Group customer
deposits. In constant exchange rates, Group customer deposits
increased by EUR288 million and customer deposits in Cyprus
increased by EUR143 million during the first six months of 2017.
BOC PCL's deposit market share in Cyprus reached 31.3% at 30 June
2017. Customer deposits accounted for 75% of total assets at 30
June 2017. The Loan to Deposit ratio (L/D) stood at 90% at 30 June
2017, down from 95% at 31 December 2016, compared to a high of 151%
at 31 March 2014.
Subordinated loan stock
In January 2017 BOC PCL tapped the debt capital markets and
issued a EUR250 million unsecured and subordinated Tier 2 Capital
Note.
Liquidity
As at 30 June 2017 the Group Liquidity Coverage Ratio (LCR)
stood at 108% (compared to 49% at 31 December 2016) and is in
compliance with the minimum regulatory requirement of 80% (which
will increase to 100% by 1 January 2018). As at 30 June 2017, BOC
PCL was not in compliance with the local regulatory liquidity
requirements with respect to its operations in Cyprus. The Net
Stable Funding Ratio (NSFR ratio) is currently expected to be
introduced on 1 January 2018, with a minimum requirement of 100%.
As at 30 June 2017 the Group's NSFR, on the basis of Basel 3
standards, was 102% (compared to 95% at 31 December 2016). After
repayment of ELA in January 2017, the Group has been focusing on
measures to improve its liquidity position so as to be in
compliance with both LCR and NSFR.
A.2.3 Loans
Group gross loans totalled EUR19,505 million at 30 June 2017,
compared to EUR20,130 million at 31 December 2016. Gross loans in
Cyprus totalled EUR17,687 million at 30 June 2017 and accounted for
91% of Group gross loans. BOC PCL is the single largest credit
provider in Cyprus with a 38.7% loan market share at 30 June 2017.
Gross loans in the UK amounted to EUR1,434 million at 30 June 2017
and accounted for 7% of Group total gross loans. New loan
originations for the Group reached EUR1,143 million for the six
months ended 30 June 2017 (of which EUR845 million were granted in
Cyprus and EUR298 million by the UK subsidiary), more than double
the new lending in the corresponding period in the previous
year.
At 30 June 2017, Group net loans and advances to customers
totalled EUR14,913 million (31 December 2016: EUR15,649 million),
including net loans and advances to customers with carrying value
of EUR20 million which were classified as held for sale as at 30
June 2017 in line with IFRS 5.
A. Analysis of Group Financial Results for the six months ended 30 June 2017 (continued)
A.2 Balance Sheet Analysis (continued)
A.2.4 Loan portfolio quality
Tackling the Group's loan portfolio quality remains the top
priority for management. The Group continues to make steady
progress across all asset quality metrics and the loan
restructuring activity continues. The Group has been successful in
engineering restructuring solutions across the spectrum of its loan
portfolio. There is a shift of focus on the Retail and SME
portfolios, as well as the terminated Non-performing exposures NPEs
(in the Recoveries department), with recoveries via foreclosures to
unlock solutions with problematic cases and non-cooperative
borrowers, and collections via the specialised unit Retail Arrears
Management and other available tools to ensure early and continuous
engagement with clients.
Loans in arrears for more than 90 days (90+ DPD) were reduced by
EUR748 million in the first six months ended 30 June 2017. The
decrease was the result of restructuring activity, debt for asset
swaps and write offs. 90+ DPD stood at EUR7,561 million at 30 June
2017, accounting for 39% of gross loans (90+ DPD ratio), compared
to 41% at 31 December 2016. The provisioning coverage ratio of 90+
DPD improved to 61% at 30 June 2017, compared to 54% at 31 December
2016. When taking into account tangible collateral at fair value,
90+ DPD loans are fully covered. The provisioning coverage ratio of
90+ DPD, calculated with reference to the contractual balances of
customers, totalled 73% at 30 June 2017, compared to 67% as at 31
December 2016.
30 June 31 December
2017 2016
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EURmillion % of gross EURmillion % of gross
loans loans
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90+ DPD 7,561 38.8% 8,309 41.3%
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Comprising:
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* Loans with arrears for over 90 days but not impaired 1,420 7.3% 1,408 7.0%
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* impaired loans 6,141 31.5% 6,901 34.3%
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Of which:
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* impaired with no arrears 409 2.1% 472 2.3%
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* impaired with arrears less than 90 days 29 0.1% 91 0.5%
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NPEs as defined by the European Banking Authority (EBA) were
reduced by
EUR1.3 billion or 12% during the six months ended 30 June 2017
to EUR9,752 million at 30 June 2017, accounting for 50% of gross
loans, compared to 55% at 31 December 2016. This is the fourth
consecutive quarter during which the quarterly reduction of NPEs
exceeded the reduction of 90+ DPD mainly due to the curing of
restructured performing NPEs that met the exit criteria following
satisfactory performance post their restructuring. The Group
expects the reduction in non-performing loans to continue and is in
parallel actively exploring alternative avenues to accelerate this
reduction. The provisioning coverage ratio of NPEs improved to 48%
at 30 June 2017, up from 41% at 31 December 2016. When taking into
account tangible collateral at fair value, NPEs are fully covered.
The provisioning coverage ratio of NPEs, calculated with reference
to the contractual balances of customers, stood at 60% at 30 June
2017, compared to 54% at 31 December 2016.
30 June 2017 31 December 2016
============================ ======================== ========================
EURmillion % of gross EURmillion % of gross
loans loans
============================ =========== =========== =========== ===========
NPEs as per EBA definition 9,752 50.0% 11,034 54.8%
============================ =========== =========== =========== ===========
Of which:
============================ =========== =========== =========== ===========
- NPEs with forbearance
measures, no impairments
and no arrears 1,558 8.0% 2,037 10.1%
============================ =========== =========== =========== ===========
A. Analysis of Group Financial Results for the six months ended 30 June 2017 (continued)
A.2 Balance Sheet Analysis (continued)
A.2.5 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) on-boarded EUR229 million
of assets via the execution of debt for asset swaps during the six
months ended 30 June 2017. 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
disposals of EUR140 million during the six months ended 30 June
2017. In addition the Group disposed of a property with carrying
value EUR10 million, previously classified as investment property.
Post 30 June 2017, the Group completed additional disposals of
EUR35 million. As at 30 June 2017, assets held by REMU had a
carrying value of EUR1.5 billion.
Six months 2016
ended
30 June
2017
============================= =========== ===========
Assets held by REMU (Group) EURmillion EURmillion
============================= =========== ===========
Opening balance 1,427 542
============================= =========== ===========
On-boarded assets 229 1,086
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Sales (140) (166)
============================= =========== ===========
Closing balance 1,502 1,427
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A.2.6 Non-core overseas exposures
The remaining non-core overseas net exposures (including both
on-balance sheet and off-balance sheet exposures) at 30 June 2017
are as follows:
30 June 31 December
2017 2016
========= =========== ============
EURmillion EURmillion
========= =========== ============
Greece 240 283
========= =========== ============
Romania 108 149
========= =========== ============
Serbia 9 42
========= =========== ============
Russia 38 44
========= =========== ============
In accordance with Group's strategy to exit from overseas
non-core operations, the operations of the Bank of Cyprus branch in
Romania are expected to be terminated during 2017, subject to
regulatory approvals. The remaining assets and liabilities of the
branch are in the process to be transferred to other entities of
the Group.
In addition to the above, at 30 June 2017 there were overseas
exposures of EUR173 million in Greece (compared to exposures of
EUR189 million in Greece and EUR57 million in Romania as at 31
December 2016), not identified as non-core exposures, since they
are considered by management as exposures arising in the normal
course of business. There were no overseas exposures not identified
as non-core exposures in Romania as at 30 June 2017.
A. Analysis of Group Financial Results for the six months ended 30 June 2017 (continued)
A.3 Income Statement Analysis
A.3.1 Total income
Net interest income (NII) and net interest margin (NIM) for the
six months ended 30 June 2017 amounted to EUR316 million and 3.37%
respectively. NII was down by 12% compared to EUR360 million during
the corresponding period in the prior year, reflecting the low
interest rate environment and the lower volume of loans primarily
as a result of the debt for asset swaps.
Average interest earning assets for the six months ended 30 June
2017 amounted to EUR18,952 million down by 6% on a yearly basis,
largely due to debt for asset swaps.
Non-interest income for the six months ended 30 June 2017
amounted to EUR154 million, with recurring income comprising net
fee and commission income of EUR88 million and net insurance income
of EUR25 million. Non-interest income for the six months ended 30
June 2017 increased by 27% yoy, largely driven by the new and
increased commission charges introduced in the fourth quarter of
2016. Except from insurance income which remained nearly constant
compared to the corresponding period last year, the remaining
component of non-interest income for the six months ended 30 June
2017 was a profit of EUR41 million which includes a net gain of
EUR12 million on the disposal of assets by REMU.
Total income for the six months ended 30 June 2017 amounted to
EUR470 million, compared to EUR482 million for the corresponding
period last year (2% decrease yoy), with the reduction primarily
reflecting the yoy reduction in NII.
A.3.2 Total expenses
Total expenses for the six months ended 30 June 2017 were EUR214
million, 52% of which related to staff costs (EUR111 million), 40%
to other operating expenses (EUR85 million) and 8% to special levy
and contribution to Single Resolution Fund (SRF) (EUR18
million).
The cost to income ratio for the six months ended 30 June 2017
was 46%. Excluding the special levy and contribution to the SRF,
the cost to income ratio for the six months ended 30 June 2017 was
42%.
A.3.3 (Loss)/profit before tax, advisory, voluntary exit plan
(VEP) and other restructuring costs
Operating profit for the six months ended 30 June 2017 was
EUR256 million, compared to EUR280 million for the same period last
year (down by 9% yoy). The decrease mainly reflects the lower net
interest income and higher non-staff costs including contribution
to the SRF.
Provision charge for the six months ended 30 June 2017 totalled
EUR656 million, compared to EUR158 million for the same period last
year following increased provisions which increased the provision
coverage to 48%, close to the medium term target of 50%. The
elevated provisioning levels reflect changes in BOC PCL's
provisioning assumptions as a result of the Group's reconsideration
of its strategy to more actively explore other innovative strategy
solutions to further accelerate balance sheet de-risking. Following
this, the annualised provisioning charge for the six months ended
30 June 2017 accounted for 4.2% of gross loans. An amount of c.
EUR500 million reflecting the one-off effect of the change in the
provisioning assumptions is included in the calculation of Cost of
Risk but is not annualised.
At 30 June 2017, accumulated provisions, including fair value
adjustment on initial recognition and provisions for off-balance
sheet exposures, totalled EUR4,638 million (compared to EUR4,519
million at 31 December 2016) and accounted for 23.8% of gross loans
(compared to 22.4% at 31 December 2016).
Impairments of other financial and non-financial assets for the
six months ended 30 June 2017 totalled EUR36 million (compared to
EUR22 million for the same period last year up by 67% yoy) and were
primarily affected by impairment charges relating to legacy
exposures and impairment losses of stock of properties in Greece
and Romania.
A. Analysis of Group Financial Results for the six months ended 30 June 2017 (continued)
A.3 Income Statement Analysis (continued)
A.3.3 Loss before tax, advisory, voluntary exit plan (VEP) and
other restructuring costs (continued)
Provisions for litigation and regulatory matters for the six
months ended 30 June 2017 amounted to EUR35 million. The charge
relates mainly to a fine imposed by the Cyprus Commission for the
Protection of Competition, the increase in provision for litigation
for securities issued by BOC PCL between 2007 and 2011 and redress
provision for the UK operations. The fine related to complaints
filed in 2010 relating to BOC PCL's alleged abuse of its dominant
market position in its cards business.
A.3.4 (Loss)/profit after tax
The tax charge for the six months ended 30 June 2017 totalled
EUR72 million, compared to EUR12 million in the corresponding
period in the previous year. The increase is mainly due to the
reduction of deferred tax asset by EUR62 million, following the
increase in provision for impairment of loans and advances to
customers and evaluation of the recoverability assessment of the
deferred tax asset balance.
Loss after tax and before advisory, VEP and other restructuring
costs for the six months ended 30 June 2017 totalled EUR540 million
compared to a profit after tax and before advisory, VEP and other
restructuring costs of EUR84 million for the same period last
year.
Advisory, VEP and other restructuring costs for the six months
ended 30 June 2017 totalled EUR14 million compared to EUR87 million
for the same period last year (down by 84%). The elevated levels in
the previous year relate mainly to the VEP.
Loss after tax attributable to the owners of the Company for the
six months ended 30 June 2017 was EUR554 million compared to a
profit after tax of EUR56 million for the corresponding period last
year.
B. Operating Environment
After a protracted recession Cyprus returned to growth in 2015
and continued to expand in the subsequent period. Real GDP
increased by 2.8% in 2016, and by 3.7% and 3.5% respectively on a
seasonally adjusted basis, in the first and second quarters of
2017. The growth momentum is expected to be maintained over the
medium term supported by private consumption, gradually increasing
investment, declining unemployment and favourable developments in
tourism and business services.
Tourism remains robust aided by geopolitical tensions in
competing destinations. Arrivals had reached record levels of 3.2
million people in 2016 according to the Cyprus Statistical Service
and continued to expand in the first seven months of the year,
rising by about 15% from the same period the year before. In the
labour market the unemployment rate declined significantly to 11%
in the second quarter on a seasonally adjusted basis, according to
Eurostat, compared with a peak of 16.6% in the first quarter of
2015. Consumer inflation turned modestly positive in the first
seven months of the year rising by 1% after falling for four
consecutive years according to data from the Cyprus Statistical
Service. In property markets demand has been rising as evidenced by
an increasing number of sales contracts. The Central Bank's
Residential Property Price Index increased by 0.2% year-on-year in
the first quarter of 2017 and increased by 0.3% on a
quarter-on-quarter basis, from the fourth quarter 2016.
In the area of public finance, the general government budget has
been near balance since 2014 excluding recapitalisation costs of
the cooperative credit sector, and public debt relative to GDP had
risen to 107.8% at the end of 2016 according to Eurostat. Cyprus
has consistently outperformed its fiscal targets during and after
the economic adjustment programme. According to Eurostat, the
primary surplus in 2016 was 3% of GDP and the general government
budget was also a surplus of 0.4% of GDP.
Overall, the outlook for the medium term remains favourable and
an average of real GDP growth of 2.8% is expected in the period
2017-2019 according to the Ministry of Finance. Upside factors
relate to a longer period of low oil prices, further improvement of
economic fundamentals in the euro area and stronger investment
spending as property prices are stabilising and as projects in
tourism, energy and public works are being implemented.
B. Operating Environment (continued)
Downside risks to the outlook are associated with the still high
levels of non-performing loans, and public debt ratio, and with a
possible deterioration of the external environment for Cyprus. This
may involve slower growth in the UK with a weakening of the pound
as a result of uncertainty resulting from Brexit. The direct
consequences on Cyprus from Brexit, will mostly emanate from
tourist activity. The possible loss of UK tourist arrivals may be
mitigated at least in part, by increases in arrivals of tourists
from other destinations as airline connectivity improves. Political
uncertainty in Europe triggered by a British exit or by the refugee
crisis could also lead to increased economic uncertainty and
undermine economic confidence.
In this context of a strengthening economy and narrowing
imbalances, the Cyprus government benefited from a series of rating
upgrades. Most recently in July 2017, Moody's Investors Service
upgraded the long-term issuer rating of the Cyprus sovereign to Ba3
from B1 previously and maintained its outlook to positive. In March
2017, S&P Global Ratings upgraded the Cyprus sovereign to BB+
which is one notch below investment grade. The key drivers for
rating upgrades have been stronger economic performance than
expected, progress in the banking sector and consistent fiscal
outperformance.
C. Business Overview
With the Cypriot operations accounting for 91% of gross loans
and 91% of customer deposits, the Group's financial performance is
highly correlated to the economic and operating conditions in
Cyprus and will consequently benefit from the country's
recovery.
The strategic focus of the Group is to reshape its business
model to grow in the core Cypriot market through prudent new
lending and carefully developing the UK franchise. The Group
expects to continue to be able to support the recovery of the
Cyprus economy through the provision of new lending. Growth in new
lending in Cyprus is focused on selected industries that are more
in line with BOC PCL's target risk profile, such as tourism, trade,
professional services, information/communication technologies,
energy, education and green projects. BOC PCL is currently looking
to carefully expand its UK operations, remaining consistent with
the Group's overall credit appetite and regulatory environment.
With selective presences in London and Birmingham and a
predominantly retail funded franchise, the UK strategy is to
support its core proposition in the property market, specifically
targeting the professional buy-to-let market and further expanding
its mortgage business and its savings, current accounts and
trade-related products for SMEs, professionals and Cypriot
residents.
Aiming at supporting investments by SMEs and mid-caps to boost
the Cypriot economy and create new jobs for young people, BOC PCL
continues to provide joint financed schemes. BOC PCL 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 boosting 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, constitute a leading player in the insurance business
in Cyprus, with such businesses providing a recurring income,
further diversifying the Group's income streams. The insurance
income net of insurance claims for the six months ended 30 June
2017 amounted to EUR25 million (at the same levels as the six
months ended 30 June 2016), contributing to 16% of non-interest
income.
In order to further improve its funding structure, BOC PCL is
stepping up its efforts to grow lower cost deposits, and take
advantage of the increased customer confidence towards BOC PCL, as
well as improving macroeconomic conditions.
On 19 January 2017, the Company was admitted to listing and
trading on the London Stock Exchange ('LSE') and the Cyprus Stock
Exchange ('CSE'). The listing on the LSE is another significant
milestone in the execution of the Group's strategy. It is expected
to improve the liquidity of the Group's stock, which will enhance
the Group's visibility and lead to a broader base of investors
capable of supporting the Group in the long-term. This will further
enhance the confidence of all stakeholders in the Group. The
Company continues to work towards a premium listing on the LSE, and
intends to apply for a step up to the premium segment of the LSE at
a future date, with the intention of becoming eligible for
inclusion in the FTSE UK Index series.
D. Outlook
The Group remains on track for implementing its strategic
objectives aiming 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:
-- Materially reduce the level of delinquent loans
-- Further improve the funding structure
-- Maintain an appropriate capital position by internally generating capital
-- Focus on the core Cyprus market and the UK operations
-- Achieve a lean operating model
-- Deliver value to shareholders and other stakeholders
KEY PILLARS PLAN OF ACTION
------------------------------------------------------ --------------------------------------------------------------
1. Materially reduce the level of delinquent loans
* Sustain momentum in restructuring
* Focus on terminated portfolios (in Recovery Unit) -
'accelerated consensual foreclosures'
* Real estate management via REMU
* Explore alternative NPE reduction measures such as
NPE sales, securitisations etc.
------------------------------------------------------ --------------------------------------------------------------
2. Further improve the funding structure
* Focus on shape and cost of deposit franchise
* Increase loan pool for the Additional Credit Claim
framework of ECB
* Further diversify funding sources
------------------------------------------------------ --------------------------------------------------------------
3. Maintain an appropriate capital position
* Internally generate capital
* Potential AT1 issuance
------------------------------------------------------ --------------------------------------------------------------
4. Focus on core markets
* Targeted lending in Cyprus into promising sectors to
fund recovery
* New loan origination, while maintaining lending
yields
* Revenue diversification via fee income from
international business, wealth, and insurance
* Careful expansion of UK franchise by leveraging the
UK subsidiary
------------------------------------------------------ --------------------------------------------------------------
5. Achieve a lean operating model
* Tangible savings through a targeted reduction program
* Introduce technology/processes to improve
distribution channels and reduce costs
* Human Resource policies aimed at enhancing
productivity
------------------------------------------------------ --------------------------------------------------------------
6. Deliver returns
* Deliver appropriate medium term risk-adjusted returns
------------------------------------------------------ --------------------------------------------------------------
D. Outlook (continued)
The table below shows the Group's performance against the Medium
Term Targets.
Group Key Performance Indicators Actual Actual Medium-Term
December June Targets
2016 2017
========================================= ========== ======== ============
90+ Days Past Due
Asset Quality ratio 41% 39% <20%
=============== ======================== ========== ======== ============
NPEs ratio 55% 50% <30%
======================================== ========== ======== ============
NPEs coverage ratio 41% 48% >50%
======================================== ========== ======== ============
Provisioning charge 1.7% 4.2%* <1.0%
(Cost of Risk)
(annualised)
======================== ========== ======== ============
Net Loans % Deposits 95% 90% 90-110%
======================================== ========== ======== ============
Capital CET 1 Ratio 14.5% 12.3% >13%
=============== ======================== ========== ======== ============
Total Capital Ratio 14.6% 13.8% >15%
======================================== ========== ======== ============
Net interest margin
Efficiency (annualised) 3.47% 3.37% 3.00%
=============== ======================== ========== ======== ============
Net fee and commission 17%** 19% >20%
income / total
income
=============== ======================== ========== ======== ============
Cost to Income
ratio 41% 46%*** 40-45%
======================================== ========== ======== ============
Balance Total assets EUR22.2 EUR22.1 >EUR25
Sheet bn bn bn
=============== ======================== ========== ======== ============
* An amount of provisions of c. EUR500 million reflecting the
one-off effect of the change in the provisioning assumptions are
included in the calculation of Cost of Risk but is not
annualised.
** The net fee and commission income over total income for
December 2016 excludes non-recurring fees of approximately EUR7
million.
*** The cost to income ratio for the six months ended 30 June
2017 excluding the special levy and contribution to the SRF was
42%, compared to 40% for the corresponding period last year.
E. Financial Results
Interim Condensed Consolidated Income Statement
EURmillion 1H2017 1H2016 +/-%
========================================= ======= ======= ======
Net interest income 316 360 -12%
========================================= ======= ======= ======
Net fee and commission income 88 74 19%
========================================= ======= ======= ======
Net foreign exchange gains and
net gains on other financial
instruments 23 15 48%
========================================= ======= ======= ======
Insurance income net of insurance
claims 25 25 -1%
========================================= ======= ======= ======
Net gains from revaluation and
disposal of investment properties
and on disposal of stock of properties 10 2 354%
========================================= ======= ======= ======
Other income 8 6 50%
========================================= ------- ------- ------
Total income 470 482 -2%
========================================= ------- ------- ------
Staff costs (111) (117) -5%
========================================= ======= ======= ======
Other operating expenses (85) (75) 13%
========================================= ======= ======= ======
Special levy and contribution
to Single Resolution Fund (18) (10) 85%
========================================= ------- ------- ------
Total expenses (214) (202) 6%
========================================= ------- ------- ------
Operating profit 256 280 -9%
========================================= ======= ======= ======
Provision charge (656) (158) 316%
========================================= ======= ======= ======
Impairments of other financial
and non-financial assets (36) (22) 67%
========================================= ======= ======= ======
Provisions for litigation and
regulatory matters (35) 0 -
========================================= ------- ------- ------
Total provisions and impairments (727) (180) 306%
========================================= ------- ------- ------
Share of profit from associates
and joint ventures 4 2 146%
========================================= ------- ------- ------
(Loss)/profit before tax and
restructuring costs (467) 102 -
========================================= ------- ------- ------
Tax (72) (12) 490%
========================================= ======= ======= ======
Profit attributable to non-controlling
interests (1) (6) -90%
========================================= ------- ------- ------
(Loss)/profit after tax and before
restructuring costs (540) 84 -
========================================= ------- ------- ------
Advisory, VEP and other restructuring
costs (14) (87) -84%
========================================= ======= ======= ======
Net gain on disposal of non-core
assets - 59 -100%
========================================= ------- ------- ------
(Loss)/profit after tax (554) 56 -
========================================= ======= ======= ======
In the Interim Consolidated Income Statement, within the Interim
Condensed Consolidated Financial Statements for the six months
ended 30 June 2017:
-- Provision charge includes gain on derecognition of loans and
advances to customers and changes in expected cash flows.
-- Advisory, VEP and other restructuring costs of EUR14 million
are presented within 'Other operating expenses' (corresponding
period of 2016: EUR25 million within 'Other operating expenses' and
EUR62 million within 'Staff costs').
-- The net gain on disposal of non-core assets for the six
months ended 30 June 2016 of EUR1 million and EUR58 million are
presented within 'Other income' and 'Net gains on financial
instrument transactions' respectively.
E. Financial Results (continued)
Key Performance Ratios 1H2017 1H2016 +/-%
==================================== ========= ======= ===============
Net Interest Margin (annualised) 3.37% 3.59% * 22 bps*
==================================== ========= ======= ===============
Cost to income ratio 46% 42% +4 p.p.*
==================================== ========= ======= ===============
Cost to income ratio excluding
special levy and contribution
to Single Resolution Fund 42% 40% +2 p.p.*
==================================== ========= ======= ===============
Operating profit return on average -20
assets (annualised) 2.3% 2.5% bps*
==================================== ========= ======= ===============
Basic earnings per share
(EUR cent) (124.19) 0.63 (124.82)
==================================== ========= ======= ===============
Interim Condensed Consolidated Balance Sheet
EURmillion 30.06.2017 31.12.2016 +/-
%
===================================== =========== =========== =====
Cash and balances with central
banks 2,317 1,506 54%
===================================== =========== =========== =====
Loans and advances to banks 708 1,088 -35%
===================================== =========== =========== =====
Debt securities, treasury bills
and equity investments 918 674 36%
===================================== =========== =========== =====
Net loans and advances to customers 14,913 15,649 -5%
===================================== =========== =========== =====
Stock of property 1,502 1,427 5%
===================================== =========== =========== =====
Other assets 1,729 1,828 -5%
===================================== ----------- ----------- -----
Total assets 22,087 22,172 0%
===================================== =========== =========== =====
Deposits by banks 415 435 -5%
===================================== =========== =========== =====
Funding from central banks 900 850 6%
===================================== =========== =========== =====
Repurchase agreements 256 257 0%
===================================== =========== =========== =====
Customer deposits 16,584 16,510 0%
===================================== =========== =========== =====
Subordinated loan stock 257 - -
===================================== =========== =========== =====
Other liabilities 1,097 1,014 8%
===================================== =========== =========== =====
Total liabilities 19,509 19,066 2%
===================================== ----------- ----------- -----
Shareholders' equity 2,543 3,071 -17%
===================================== ----------- ----------- -----
Non-controlling interests 35 35 2%
===================================== ----------- ----------- -----
Total equity 2,578 3,106 -17%
===================================== ----------- ----------- -----
Total liabilities and equity 22,087 22,172 0%
===================================== =========== =========== =====
* p.p = percentage points, bps = basis points, 100 basis points
(bps) = 1 percentage point
E. Financial Results (continued)
Key Balance Sheet figures and 30.06.2017 31.12.2016 +/-
ratios %
===================================== =========== =========== =========
Gross loans (EURmillion) 19,505 20,130 -3%
===================================== =========== =========== =========
Accumulated provisions (EURmillion) 4,638 4,519 +3%
===================================== =========== =========== =========
Customer deposits (EURmillion) 16,584 16,510 0%
===================================== =========== =========== =========
Loan to deposit ratio (net) 90% 95% -5 p.p.*
===================================== =========== =========== =========
90+ DPD ratio 39% 41% -2 p.p.*
===================================== =========== =========== =========
90+ DPD provisioning coverage
ratio 61% 54% +7 p.p.*
===================================== =========== =========== =========
NPE ratio 50% 55% -5 p.p.*
===================================== =========== =========== =========
NPE provisioning coverage ratio 48% 41% +7 p.p.*
===================================== =========== =========== =========
Quarterly average interest earning
assets (EURmillion) 18,996 19,060 0%
===================================== =========== =========== =========
-2.2
Leverage ratio 11,0% 13.2% p.p.*
===================================== =========== =========== =========
Capital ratios and risk weighted 30.06.2017 31.12.2016 +/-
assets %
=================================== =========== =========== ========
Common Equity Tier 1 capital -2.2
ratio (CET1) (transitional) 12.3% 14.5% p.p.*
=================================== =========== =========== ========
-2.1
CET1 (fully loaded) 11.8% 13.9% p.p.*
=================================== =========== =========== ========
Total capital ratio 13.8% 14.6% -8 bps*
=================================== =========== =========== ========
Risk weighted assets (EURmillion) 17,368 18,865 -8%
=================================== =========== =========== ========
* p.p = percentage points, bps = basis points, 100 basis points
(bps) = 1 percentage point
F. Going concern
The management has made an assessment of the Group's ability to
continue as a going concern.
The conditions that existed during the six months ended 30 June
2017 and the developments up to the date of approval of these
Financial Statements that have been considered in management's
going concern assessment include, amongst others, the operating
environment in Cyprus and of the Group (Note 5).
The management believes that the Group is taking all necessary
measures to maintain its viability and the development of its
business in the current economic environment.
The management, taking into consideration the factors described
below and the uncertainties that existed at the reporting date, is
satisfied that the Group has the resources to continue in business
for the foreseeable future and, therefore, the going concern
principle is appropriate for the reasons set out below, despite the
fact that, as disclosed in Notes 5.2.3 and 29 of the Financial
Statements, the Group is currently not in compliance with its
liquidity regulatory requirements with respect to its operations in
Cyprus and is therefore dependent on continuing regulatory
forbearance which can be considered as a material uncertainty as to
its ability to continue as a going concern. Following the repayment
of ELA in January 2017 (31 December 2016: EUR200 million), the
Group has achieved compliance with the Liquidity Coverage Ratio
(LCR).
-- he Group's Common Equity Tier 1 (CET1) ratio at 30 June 2017
stands at 12.3% (transitional) and the total capital ratio at
13.8%, higher than the minimum required ratios (Note 5.2.1).
-- The increase in the liquid assets of the Group and compliance
with the LCR ratio requirements. The ELA funding was repaid in full
on 5 January 2017 (Note 5.2.3).
-- The increasing level of Group customer deposits (increase of
EUR74 million during the six months ended 30 June 2017). At 30 June
2017 customer deposits stood at EUR16,584 million.
F. Going concern (continued)
-- The Cyprus government rating has been repeatedly upgraded. In
July 2017 Moody's Investors Service upgraded the long-term issuer
rating of the Cyprus sovereign to Ba3 from B1 and maintained its
outlook to positive. In March 2017 S&P Global Ratings upgraded
the Cyprus sovereign to BB+ which is one notch below investment
grade.
-- BOC PCL regained access to the debt capital markets in
January 2017 with the issuance of EUR250 million unsecured
subordinated Tier 2 Capital Note.
G. Principal risks and uncertainties
Like other financial organisations, the Group is exposed and
expects to continue to be exposed for the remaining of the
financial year to risks, the most significant of which are credit
risk, liquidity risk and market risk (arising from adverse
movements in exchange rates, interest rates and security prices)
and insurance risk.
Since the Group is considered as a continuation of the BOC
group, detailed information relating to Group risk management is
set out in Notes 43 to 46 of the Annual Consolidated Financial
Statements of the BOC group for the year ended 31 December 2016 and
in the Additional Risk and Capital Management Disclosures which
form part of the 2016 Annual Financial Report of the BOC group.
Aside from the risks set out below and those described in Notes
27 to 29 of the Interim Condensed Consolidated Financial Statements
and in the Additional Risks and Capital Management Disclosures
including Pillar 3 semi-annual disclosures section of this Mid-Year
Financial Report there has been no other significant change to the
significant risks and uncertainties during the period or no change
is expected for the remaining six months of the financial year.
The Group monitors and manages these risks through various
control mechanisms.
Additionally, the Group is exposed to the risk of changes in the
fair value of property which is held either for own use or as stock
of property or as investment property. Stock of property is
generally acquired in debt satisfaction and is intended to be
disposed of in line with the Group's strategy. Further information
for stock of property is disclosed in Note 17 of the Interim
Condensed Consolidated Financial Statements.
In addition, details of the significant judgements, estimates
and assumptions which may have a material impact on the Group's
financial performance and position are set out in Note 6 of these
Interim Condensed Consolidated Financial Statements and in Note 5
of the Annual Consolidated Financial Statements of the BOC group
for the year ended 31 December 2016.
H. Events after the reporting date
There are no material events which occurred after the reporting
date.
I. Responsibility Statement
The members of the Board of Directors are responsible for
preparing the Mid-Year Financial Report in accordance with
International Accounting Standard (IAS) 34 'Interim Financial
Reporting' as adopted by the European Union (EU), the Transparency
(Directive 2004/109/EC) Regulations 2007 and the Transparency Rules
of the Central Bank of Ireland.
Each of the members of the Board of Directors (who are listed on
page 1 of the Mid-Year Financial Report) confirm that to the best
of their knowledge and belief the Interim Condensed Consolidated
Financial Statements for the period ended 30 June 2017 have been
prepared in accordance with IAS 34 (adopted pursuant to the
procedure provided for under Article 6 of Regulation EC No.
1606/2002 of the European Parliament and of the Council of 19 July
2002) and that they give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group and
that as required by the Transparency (Directive 2004/109/EC)
Regulations 2007, the Mid-Year Financial Report includes a fair
review of:
-- the important events that have occurred during the first six
months of the financial year, and their impact on the Interim
Condensed Consolidated Financial Statements;
-- a description of the principal risks and uncertainties for
the remaining six months of the financial year (Notes 27 to 29);
and
-- details of any related party transactions that have
materially affected the Group's financial position or performance
in the six months ended 30 June 2017, or material changes to
related parties transactions described in the Annual Consolidated
Financial Statements of the BOC group for the year ended 31
December 2016.
The members of the Board of Directors are responsible for the
maintenance and integrity of the corporate and financial
information included on the Group's website.
Prof. Dr. Josef Ackermann
Chairman
John Patrick Hourican
Chief Executive Officer
28 August 2017
Interim Condensed Consolidated Financial Statements 30 June 2017
for the six months ended
Interim Consolidated Income Statement
Six months
ended
30 June
--------------------------------------------------- ----------------------
2017 2016
------------------------------------------- ------ ---------- ----------
Notes EUR000 EUR000
------------------------------------------- ------ ---------- ----------
Turnover 606,230 640,822
------------------------------------------- ------ ========== ==========
Interest income 423,257 467,658
------------------------------------------- ------ ---------- ----------
Interest expense (106,972) (107,196)
------------------------------------------- ------ ---------- ----------
Net interest income 316,285 360,462
------------------------------------------- ------ ---------- ----------
Fee and commission income 93,416 78,412
------------------------------------------- ------ ---------- ----------
Fee and commission expense (5,201) (4,544)
------------------------------------------- ------ ---------- ----------
Net foreign exchange gains 20,570 16,313
------------------------------------------- ------ ---------- ----------
Net gains on financial instrument
transactions 8 2,439 57,389
------------------------------------------- ------ ---------- ----------
Insurance income net of claims and
commissions 24,422 24,633
------------------------------------------- ------ ---------- ----------
(Losses)/gains from revaluation
and disposal of investment properties (1,925) 5,806
------------------------------------------- ------ ---------- ----------
Gains/(losses) on disposal of stock
of property 12,235 (3,533)
------------------------------------------- ------ ---------- ----------
Other income 7,861 7,577
------------------------------------------- ------ ---------- ----------
470,102 542,515
------------------------------------------- ------ ---------- ----------
Staff costs 9 (111,475) (179,279)
------------------------------------------- ------ ---------- ----------
Other operating expenses 9 (151,690) (109,556)
------------------------------------------- ------ ---------- ----------
206,937 253,680
------------------------------------------- ------ ---------- ----------
Gain on derecognition of loans and
advances to customers and changes
in expected cash flows 94,900 22,166
------------------------------------------- ------ ---------- ----------
Provisions for impairment of loans
and advances to customers and other
customer credit losses 10 (750,920) (179,925)
------------------------------------------- ------ ========== ==========
Impairment of other financial instruments 10 (22,497) (12,228)
------------------------------------------- ------ ========== ==========
Impairment of non-financial instruments 10 (13,484) (9,362)
------------------------------------------- ------ ========== ==========
(Loss)/profit before share of profit
from associates and joint ventures (485,064) 74,331
------------------------------------------- ------ ---------- ----------
Share of profit from associates
and joint ventures 3,949 1,606
------------------------------------------- ------ ---------- ----------
(Loss)/profit before tax (481,115) 75,937
------------------------------------------- ------ ---------- ----------
Income tax 11 (72,282) (13,695)
------------------------------------------- ------ ---------- ----------
(Loss)/profit for the period (553,397) 62,242
------------------------------------------- ------ ========== ==========
Attributable to:
------------------------------- ---------- -------
Owners of the Company/BOC PCL (553,959) 56,372
-------------------------------- ---------- -------
Non-controlling interests 562 5,870
-------------------------------- ---------- -------
(Loss)/profit for the period (553,397) 62,242
-------------------------------- ========== =======
Basic and diluted (losses)/earnings
per share (cent) attributable to
the owners of the Company/BOC PCL 12 (124.2) 0.6
------------------------------------- --- ======== ====
Interim Consolidated Statement of Comprehensive Income
Six months ended
30 June
---------------------------------------------- ---------------------
2017 2016
---------------------------------------------- ---------- ---------
EUR000 EUR000
---------------------------------------------- ---------- ---------
(Loss)/profit for the period (553,397) 62,242
---------------------------------------------- ---------- ---------
Other comprehensive income (OCI)
---------------------------------------------- ---------- ---------
OCI to be reclassified in the consolidated
income statement in subsequent periods
---------------------------------------------- ---------- ---------
Foreign currency translation reserve
---------------------------------------------- ---------- ---------
Loss on translation of net investment
in foreign branches and subsidiaries (553) (33,993)
---------------------------------------------- ---------- ---------
Profit on hedging of net investments
in foreign branches and subsidiaries 125 36,286
---------------------------------------------- ---------- ---------
Transfer to the consolidated income
statement on dissolution/disposal
of foreign operations - 1,049
---------------------------------------------- ---------- ---------
(428) 3,342
---------------------------------------------- ---------- ---------
Available-for-sale investments
---------------------------------------------- ---------- ---------
Net gains/(losses) from fair value
changes before tax 23,428 (1,181)
---------------------------------------------- ---------- ---------
Share of net gains from fair value
changes of associates 1,347 662
---------------------------------------------- ---------- ---------
Transfer to the consolidated income
statement on impairment (98) 530
---------------------------------------------- ---------- ---------
Transfer to the consolidated income
statement on sale (498) (51,264)
---------------------------------------------- ---------- ---------
24,179 (51,253)
---------------------------------------------- ---------- ---------
23,751 (47,911)
---------------------------------------------- ---------- ---------
OCI not to be reclassified in the
consolidated income statement in subsequent
periods
---------------------------------------------- ---------- ---------
Property revaluation
---------------------------------------------- ---------- ---------
Tax 445 (21)
---------------------------------------------- ---------- ---------
Actuarial gain/(loss) on the defined
benefit plans
---------------------------------------------- ---------- ---------
Remeasurement gains/(losses) on defined
benefit plans 1,317 (15,143)
---------------------------------------------- ---------- ---------
1,762 (15,164)
---------------------------------------------- ---------- ---------
Other comprehensive income/(loss)
loss after tax for the period 25,513 (63,075)
---------------------------------------------- ---------- ---------
Total comprehensive loss for the period (527,884) (833)
---------------------------------------------- ========== =========
Attributable to:
---------------------------------------------- ---------- ---------
Owners of the Company /BOC PCL (528,533) (2,004)
---------------------------------------------- ---------- ---------
Non-controlling interests 649 1,171
---------------------------------------------- ---------- ---------
Total comprehensive loss for the period (527,884) (833)
---------------------------------------------- ========== =========
Interim Consolidated Balance Sheet
30 June 31 December
2017 2016
----------------------------------- ------ ----------- ------------
Assets Notes EUR000 EUR000
----------------------------------- ------ ----------- ------------
Cash and balances with central
banks 25 2,317,297 1,506,396
----------------------------------- ------ ----------- ------------
Loans and advances to banks 25 707,913 1,087,837
----------------------------------- ------ ----------- ------------
Derivative financial assets 14 7,644 20,835
----------------------------------- ------ ----------- ------------
Investments 13 621,498 373,879
----------------------------------- ------ ----------- ------------
Investments pledged as collateral 13 296,325 299,765
----------------------------------- ------ ----------- ------------
Loans and advances to customers 16 14,892,661 15,649,401
----------------------------------- ------ ----------- ------------
Life insurance business assets
attributable to policyholders 509,726 499,533
----------------------------------- ------ ----------- ------------
Prepayments, accrued income
and other assets 18 244,280 269,911
----------------------------------- ------ ----------- ------------
Stock of property 17 1,501,731 1,427,272
----------------------------------- ------ ----------- ------------
Investment properties 26,333 38,059
----------------------------------- ------ ----------- ------------
Property and equipment 279,010 280,893
----------------------------------- ------ ----------- ------------
Intangible assets 153,342 146,963
----------------------------------- ------ ----------- ------------
Investments in associates and
joint ventures 34 113,993 109,339
----------------------------------- ------ ----------- ------------
Deferred tax assets 383,581 450,441
----------------------------------- ------ ----------- ------------
Non-current assets held for
sale 19 31,561 11,411
----------------------------------- ------ ----------- ------------
Total assets 22,086,895 22,171,935
----------------------------------- ------ =========== ============
Liabilities
----------------------------------- ------ ----------- ------------
Deposits by banks 414,750 434,786
----------------------------------- ------ ----------- ------------
Funding from central banks 20 900,000 850,014
----------------------------------- ------ ----------- ------------
Repurchase agreements 256,234 257,367
----------------------------------- ------ ----------- ------------
Derivative financial liabilities 14 73,496 48,625
----------------------------------- ------ ----------- ------------
Customer deposits 21 16,583,798 16,509,741
----------------------------------- ------ ----------- ------------
Insurance liabilities 595,943 583,997
----------------------------------- ------ ----------- ------------
Accruals, deferred income and
other liabilities 23 382,952 335,925
----------------------------------- ------ ----------- ------------
Subordinated loan stock 22 256,503 -
----------------------------------- ------ ----------- ------------
Deferred tax liabilities 44,998 45,375
----------------------------------- ------ ----------- ------------
Total liabilities 19,508,674 19,065,830
----------------------------------- ------ ----------- ------------
Equity
----------------------------------- ------ ----------- ------------
Share capital 24 44,620 892,294
----------------------------------- ------ ----------- ------------
Share premium 24 2,794,358 552,618
----------------------------------- ------ ----------- ------------
Capital reduction reserve 24 - 1,952,486
----------------------------------- ------ ----------- ------------
Revaluation and other reserves 240,254 218,678
----------------------------------- ------ ----------- ------------
Accumulated losses (536,619) (544,930)
----------------------------------- ------ ----------- ------------
Equity attributable to the owners
of the Company/BOC PCL 2,542,613 3,071,146
----------------------------------- ------ ----------- ------------
Non-controlling interests 35,608 34,959
----------------------------------- ------ ----------- ------------
Total equity 2,578,221 3,106,105
----------------------------------- ------ ----------- ------------
Total liabilities and equity 22,086,895 22,171,935
----------------------------------- ------ =========== ============
Prof. Dr. J. Ackermann Chairman Mr. J. P. Hourican Chief
Executive Officer
Mr. I. Zographakis Director Mrs. E. Livadiotou Finance
Director
Interim Consolidated Statement of Changes in Equity
Attributable to the owners of the Company Non-controlling Total
interests equity
---------------- ------------------------------------------------------------------------------------------------------------------------------------------------- ---------------- ----------------
Share Share Capital Treasury Accumulated Property Revaluation Other Life Foreign Total
capital premium reduction shares losses revaluation reserve reserves insurance currency
(Note (Note reserve (Note reserve of in-force translation
24) 24) (Note 24) available-for-sale business reserve
24) investments reserve
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ----------------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ----------------
1 January
2017 892,294 552,618 1,952,486 (25,333) (544,930) 90,936 7,139 6,059 103,251 36,626 3,071,146 34,959 3,106,105
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ----------------
(Loss)/profit
for the
period - - - - (553,959) - - - - - (553,959) 562 (553,397)
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ----------------
Other
comprehensive
income/(loss)
after
tax for
the period - - - - 1,317 445 24,092 - - (428) 25,426 87 25,513
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ----------------
Total
comprehensive
(loss)/income
for the
period - - - - (552,642) 445 24,092 - - (428) (528,533) 649 (527,884)
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ----------------
Increase
in value
of in-force
life insurance
business - - - - (1,143) - - - 1,143 - - - -
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ----------------
Tax on
increase
in value
of in-force
life insurance
business - - - - 143 - - - (143) - - - -
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ----------------
Transfer
of realised
profits
on disposal
of properties - - - - 7,403 (7,403) - - - - - - -
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ----------------
Cancellation
of shares
due to
reorganisation
(Note
3.1) (892,294) - - - - - - - - - (892,294) - (892,294)
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ----------------
Change
of parent
company
to Bank
of Cyprus
Holdings
Public
Limited
Company
and issue
of new
shares
(Note
3.1) 44,620 2,241,740 (1,952,486) - 558,420 - - - - - 892,294 - 892,294
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ----------------
Disposal
of treasury
shares - - - 3,870 (3,870) - - - - - - - -
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ----------------
30 June
2017 44,620 2,794,358 - (21,463) (536,619) 83,978 31,231 6,059 104,251 36,198 2,542,613 35,608 2,578,221
---------------- ========== ========== ============ ========= ============ ============ =================== ========= ========== ============ ========== ================ ================ ----------
Attributable to the owners of BOC PCL Non-controlling Total
interests equity
---------------- ------------------------------------------------------------------------------------------------------------------------------------------------------------------- ---------------- ----------
Share Share Capital Treasury Accumulated Property Revaluation Other Life Foreign Reserve Total
capital premium reduction shares losses revaluation reserve reserves insurance currency of
(Note (Note reserve (Note reserve of in-force translation disposal
24) 24) (Note 24) available-for-sale business reserve group
24) investments reserve and
assets
held
for
sale
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ---------------- ----------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ---------------- ----------
1 January
2016 892,294 552,618 1,952,486 (41,301) (601,152) 99,218 47,125 6,059 99,050 30,939 17,619 3,054,955 22,376 3,077,331
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ---------------- ----------
Profit
for the
period - - - - 56,372 - - - - - - 56,372 5,870 62,242
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ---------------- ----------
Other
comprehensive
(loss)/income
after
tax for
the period - - - - (15,137) (21) (46,554) - - 3,336 - (58,376) (4,699) (63,075)
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ---------------- ----------
Total
comprehensive
income
/(loss)
for the
period - - - - 41,235 (21) (46,554) - - 3,336 - (2,004) 1,171 (833)
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ---------------- ----------
Increase
in value
of in-force
life insurance
business - - - - (852) - - - 852 - - - - -
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ---------------- ----------
Disposal
of subsidiary
(Note
33.3.1) - - - - 17,619 - - - - - (17,619) - - -
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ---------------- ----------
Acquisition
of subsidiary
(Note
33.2.1) - - - - - - - - - - - - 18,753 18,753
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ---------------- ----------
Disposals
of treasury
shares - - - 41,301 (40,560) - - - - - - 741 - 741
---------------- ---------- ---------- ------------ --------- ------------ ------------ ------------------- --------- ---------- ------------ ---------- ---------------- ---------------- ----------
30 June
2016 892,294 552,618 1,952,486 - (583,710) 99,197 571 6,059 99,902 34,275 - 3,053,692 42,300 3,095,992
---------------- ========== ========== ============ ========= ============ ============ =================== ========= ========== ============ ========== ================ ================ ==========
Interim Consolidated Statement of Cash Flows
Six months ended
30 June
---------------------------------------------------- ------------------------
2017 2016
--------------------------------------------- ----- ---------- ------------
Note EUR000 EUR000
--------------------------------------------- ----- ---------- ------------
Net cash flows from operating activities
--------------------------------------------- ----- ---------- ------------
(Loss)/profit for the period before
tax (481,115) 75,937
--------------------------------------------- ----- ---------- ------------
Share of profit from associates and
joint ventures (3,949) (1,606)
--------------------------------------------- ----- ---------- ------------
Provisions for impairment of loans
and advances to customer and other
customer credit losses and gain on
derecognition of loans and advances
and changes in expected cash flows 656,020 157,759
--------------------------------------------- ----- ---------- ------------
Depreciation of property and equipment
and amortisation of intangible assets 10,133 9,294
--------------------------------------------- ----- ---------- ------------
Change in value of in-force life
insurance business (1,143) (852)
--------------------------------------------- ----- ---------- ------------
Impairment of other financial instruments 22,497 12,228
--------------------------------------------- ----- ---------- ------------
Profit upon disposal of disposal
group held for sale - (2,545)
--------------------------------------------- ----- ---------- ------------
Amortisation of discounts/premiums,
catch-up adjustment on debt securities
and interest on debt securities and
subordinated loan stock (10,121) (13,447)
--------------------------------------------- ----- ---------- ------------
Dividend income (41) (119)
--------------------------------------------- ----- ---------- ------------
Net gains on disposal of available-for-sale
investments in equity securities
and available-for-sale investments
and investments classified as loans
and receivables in debt securities (1,699) (58,391)
--------------------------------------------- ----- ---------- ------------
Loss/(profit) from revaluation of
debt securities designated as fair
value hedges 11,006 (1,323)
--------------------------------------------- ----- ---------- ------------
Interest on funding from central
banks 28 21,483
--------------------------------------------- ----- ---------- ------------
Interest on subordinated loan stock 10,416 -
--------------------------------------------- ----- ---------- ------------
Impairment of stock of property 13,484 9,362
--------------------------------------------- ----- ---------- ------------
Loss on dissolution of subsidiaries - 1,049
--------------------------------------------- ----- ---------- ------------
(Gains)/losses on disposal of stock
of property (12,235) 3,533
--------------------------------------------- ----- ---------- ------------
Losses/(gains) from revaluation and
disposals of investment properties,
investment properties held for sale,
equipment and intangible assets 1,927 (5,844)
--------------------------------------------- ----- ---------- ------------
215,208 206,518
--------------------------------------------- ----- ---------- ------------
Net decrease in loans and advances
to customers and other accounts 63,910 212,987
--------------------------------------------- ----- ---------- ------------
Net increase in customer deposits
and other accounts 138,142 733,385
--------------------------------------------- ----- ---------- ------------
417,260 1,152,890
--------------------------------------------- ----- ---------- ------------
Tax paid (2,672) (2,352)
--------------------------------------------- ----- ---------- ------------
Net cash flow from operating activities 414,588 1,150,538
--------------------------------------------- ----- ---------- ------------
Cash flows (used in)/ from investing
activities
--------------------------------------------- ----- ---------- ------------
Purchases of debt securities and
equity securities (279,381) (10,302)
--------------------------------------------- ----- ---------- ------------
Proceeds on disposal/redemption of
investments:
- debt securities 61,405 130,521
- equity securities 1,564 46,650
--------------------------------------------- ----- ---------- ------------
Interest received from debt securities
and treasury bills 4,490 9,420
--------------------------------------------- ----- ---------- ------------
Dividend income from equity securities 41 119
--------------------------------------------- ----- ---------- ------------
Proceeds on disposal of disposal
group held for sale - 26,500
--------------------------------------------- ----- ---------- ------------
Purchases of property and equipment (4,122) (6,539)
--------------------------------------------- ----- ---------- ------------
Proceeds on disposal of property
and equipment and intangible assets 41 216
--------------------------------------------- ----- ---------- ------------
Purchases of intangible assets (9,623) (7,561)
--------------------------------------------- ----- ---------- ------------
Proceeds on disposal of investment
properties and investment properties
held for sale 10,000 13,790
--------------------------------------------- ----- ---------- ------------
Net cash flow (used in)/from investing
activities (215,585) 202,814
--------------------------------------------- ----- ---------- ------------
Cash flows from financing activities
--------------------------------------------- ----- ========== ============
Net proceeds/(repayment) of funding
from central banks 49,986 (1,352,183)
--------------------------------------------- ----- ---------- ------------
Proceeds from the issue of subordinated 248,089 -
loan stock
--------------------------------------------- ----- ---------- ------------
Redemption of debt securities in
issue - (712)
--------------------------------------------- ----- ---------- ------------
Proceeds from disposal of treasury
shares - 741
--------------------------------------------- ----- ---------- ------------
Interest on funding from central
banks (28) (21,483)
--------------------------------------------- ----- ---------- ------------
Net cash flow from/(used in) financing
activities 298,047 (1,373,637)
--------------------------------------------- ----- ---------- ------------
Net increase/(decrease) in cash and
cash equivalents for the period 497,050 (20,285)
--------------------------------------------- ----- ========== ============
Cash and cash equivalents
--------------------------------------------- ----- ---------- ------------
1 January 2,231,028 2,406,344
--------------------------------------------- ----- ---------- ------------
Foreign exchange adjustments 473 6,421
--------------------------------------------- ----- ---------- ------------
Net increase/(decrease) in cash and
cash equivalents for the period 497,050 (20,285)
--------------------------------------------- ----- ---------- ------------
30 June 25 2,728,551 2,392,480
--------------------------------------------- ----- ========== ============
Non-cash transactions
Six months ended 30 June 2017
Repossession of collaterals
During the six months ended 30 June 2017, the Group acquired
stock of property by taking possession of collaterals held as
security for loans and advances to customers of EUR229,247 thousand
(Note 17).
Six months ended 30 June 2016
Acquisition of S.Z. Eliades Leisure Ltd
During the six months ended 30 June 2016 the Group acquired a
70% interest in the share capital of S.Z. Eliades Leisure Ltd in
exchange for the settlement of the majority of the borrowing due
from S.Z. Eliades Leisure Ltd to BOC PCL, as part of the
restructuring of its debt. The acquisition did not include any cash
consideration. Further information is disclosed in Note 33.2.1.
Sale of shares held in Visa Europe Limited
During the six months ended 30 June 2016 the Group sold its
shares held in Visa Europe Limited following the purchase of Visa
Europe Limited by Visa Inc. The transaction in addition to the cash
paid, involved the granting of preferred stock in Visa Inc. with a
carrying value of approximately EUR8 million and a deferred cash
component of a carrying value of approximately EUR4 million.
Repossession of collaterals
During the six months ended 30 June 2016, the Group acquired
stock of property by taking possession of collaterals held as
security for loans and advances to customers of EUR641,856
thousand.
Notes to the Interim Condensed Consolidated Financial
Statements
1. Corporate information
Bank of Cyprus Holdings Public Limited Company (the 'Company')
was incorporated in the Republic of Ireland on 11 July 2016 as a
public limited company in accordance with the provisions of the
Companies Act 2014 of Ireland. The Company's name on incorporation
was Aion Cyprus Public Limited Company and on 10 August 2016 it
changed to Bank of Cyprus Holdings Public Limited Company. Its
registered office for the period from 11 July 2016 to 20 March 2017
was at Arthur Cox, Earlsfort Centre, Earlsfort Terrace, Dublin 2,
Ireland. On 20 March 2017 it was changed to Ten Earlsfort Terrace,
Dublin 2, D02 T380, Ireland.
The Company is the holding company of the Bank of Cyprus Public
Company Limited (BOC PCL). The Bank of Cyprus Group (the 'Group')
comprises the Company, its subsidiary BOC PCL and the subsidiaries
of BOC PCL.
The Company was incorporated with the intention of becoming the
holding company of the Group for the purposes of the Group's
listing on the London Stock Exchange (LSE). The Company is tax
resident in Cyprus. The principal activities of the BOC PCL and its
subsidiary companies involve the provision of banking, financial,
insurance services and management and disposal of property
predominately acquired in debt satisfaction.
On 13 December 2016, at an Extraordinary General Meeting of the
shareholders of BOC PCL and together with its subsidiaries, the
'BOC group', a scheme of arrangement between the Company, BOC PCL
and the shareholders of BOC PCL has been approved. The scheme of
arrangement which became effective on 18 January 2017 introduces
the Company as the new holding company of the Group which is also
the sole shareholder of BOC PCL.
On 19 January 2017 the shares of the Company were admitted to
listing and trading on the LSE and the Cyprus Stock Exchange
(CSE).
Interim Condensed Consolidated Financial Statements
The Interim Condensed Consolidated Financial Statements for the
six months ended 30 June 2017 (the 'Financial Statements') include
the financial statements of the Company and its subsidiaries. They
were approved and authorised for issue by a resolution of the Board
of Directors on 28 August 2017.
The Financial Statements have been prepared in both, the English
and the Greek language. In case of a difference or inconsistency
between the two, the English version prevails.
2. Unaudited financial statements
The Financial Statements have not been audited by the Group's
external auditors.
The Group's external auditors have conducted a review in
accordance with the International Standard on Review Engagements
2410 'Review of Interim Financial Information performed by the
Independent Auditor of the Entity'.
3. Summary of significant accounting policies
3.1 Group reorganisation
As described in Note 1 above, on 18 January 2017 the Company
became the sole shareholder of BOC PCL. This reorganisation was
treated as a reorganisation of an existing entity that has not
changed the substance of the reporting entity.
The owners of BOC PCL before the reorganisation have the same
absolute and relative interests in the net assets of Group
immediately before and after the reorganisation, since the assets
and liabilities of the Group and the BOC group are the same
immediately before and after the reorganisation. Hence, the Group
is considered as a continuation of BOC group.
As this transaction did not result in any change of economic
substance it also did not have any effect on the total equity of
the Group. The Group's financial statements reflect the difference
in the amounts of share capital, share premium and capital
reduction reserves as an adjustment in equity.
3. Summary of significant accounting policies (continued)
3.2 Basis of preparation
The Financial Statements have been prepared on a historical cost
basis, except for properties held for own use and investment
properties, available-for-sale investments, derivative financial
instruments and financial assets at fair value through profit or
loss, that have been measured at fair value, non-current assets
held for sale measured at fair value less costs to sell and stock
of property measured at net realisable value where this is lower
than cost. The carrying values of recognised assets and liabilities
that are hedged items in fair value hedges, and otherwise carried
at cost, are adjusted to record changes in fair value attributable
to the risks that are being hedged.
Presentation of the Financial Statements
The Financial Statements are presented in Euro (EUR) and all
amounts are rounded to the nearest thousand, except where otherwise
indicated. A comma is used to separate thousands and a dot is used
to separate decimals.
Comparative information
As described in Note 3.1 above, the Group is considered to be a
continuation of the BOC group. As a result the Financial
Statements, including comparative amounts, were prepared as if the
Group existed at the beginning of the earlier period presented in
the Financial Statements.
3.3 Statement of compliance
The Financial Statements have been prepared in accordance with
the International Accounting Standard (IAS) applicable to interim
financial reporting as adopted by the EU ('IAS 34'), the
Transparency (Directive 2004/109/EC) Regulations 2007 and the
related Transparency Rules of the Central Bank of Ireland.
The Financial Statements do not comprise statutory financial
statements for the purposes of the Companies Act 2014 of Ireland.
The Company's statutory financial statements for the purposes of
Chapter 4 of Part 6 of the Companies Act 2014 of Ireland for the
period 11 July 2016 to 31 December 2016, upon which the auditors
have expressed an unqualified opinion (with emphasis of matter on
material uncertainty related to going concern), were published on
27 April 2017 and are expected to be delivered to the Registrar of
Companies of Ireland within 28 days of 30 September 2017.
The Financial Statements do not include all the information and
disclosures required for the annual financial statements and should
be read in conjunction with the Annual Consolidated Financial
Statements of Bank of Cyprus Public Company Ltd for the year ended
31 December 2016, prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European
Union, which are available at the Group's website
(www.bankofcyprus.com).
3.4 Changes in accounting policies and disclosures
As described in Note 3.1 above, the Group is considered to be a
continuation of the BOC group. A summary of the significant
accounting policies of the Group is presented in Note 2 of the
Annual Consolidated Financial Statements of BOC group for the year
ended 31 December 2016.
Additionally, in January 2017 BOC PCL has issued subordinated
loan stock as disclosed in Note 22. The subordinated loan stock is
initially measured at the fair value of the consideration received,
net of any issue costs. It is subsequently measured at amortised
cost using the effective interest rate method, in order to amortise
the difference between the cost at inception and the redemption
value, over the period to the earliest date that BOC group has the
right to redeem the subordinated loan stock.
Interest on subordinated loan stock is included in 'Interest
expense' in the consolidated income statement.
3. Summary of significant accounting policies (continued)
3.4 Changes in accounting policies and disclosures (continued)
3.4.1 New and amended standards and interpretations
The accounting policies adopted for the preparation of the
Financial Statements are consistent with those followed for the
preparation of the Annual Consolidated Financial Statements of BOC
group for the year ended 31 December 2016 as disclosed in Note 3.4.
In addition, the Group has adopted the following new standards,
amendments and interpretations, which did not have a material
impact on the Financial Statements:
-- Amendments to IAS 7: Disclosure Initiative
-- Amendments to IAS 12 Income Taxes: Recognition of Deferred
Tax Assets for Unrealised Losses
-- Annual Improvements IFRSs 2014-2016 Cycle issued by the
International Accounting Standards Board (IASB), which is a
collection of amendments to IFRSs. These improvements include:
-- IFRS 12 Disclosure of Interests in Other Entities.
3.4.2 Standards and Interpretations that are issued but not yet effective
3.4.2.1 Standards and Interpretations issued by the IASB and
adopted by the EU
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial
Instruments: Recognition and Measurement and introduces new
requirements for classification and measurement, impairment and
hedge accounting. The standard is effective for annual periods
beginning on or after 1 January 2018 with early adoption
permitted.
Classification and measurement
The classification and measurement of financial assets will
depend on the entity's business model for their management and
their contractual cash flow characteristics and result in financial
assets being measured at amortised cost, fair value through other
comprehensive income (FVOCI) or fair value through profit or loss.
The combined effect of the application of the business model and
the contractual cash flow characteristics tests may result in some
differences in the population of financial assets measured at
amortised cost or fair value compared with IAS 39. The
classification of financial liabilities is essentially unchanged,
except that, for certain liabilities measured at fair value, gains
or losses relating to changes in the entity's own credit risk are
to be included in other comprehensive income.
Impairment
The impairment requirements apply to financial assets measured
at amortised cost and FVOCI, lease receivables, certain loan
commitments and financial guarantee contracts. At initial
recognition, allowance (or provision in the case of commitments and
guarantees) is required for expected credit losses (ECL) resulting
from default events that are possible within the next 12 months (12
month ECL), unless assets are deemed as purchased or originated
credit impaired. In the event of a significant increase in credit
risk, for assets deemed purchased or originated credit impaired and
all credit-impaired assets, allowance (or provision) is required
for ECL resulting from all possible default events over the
expected life of the financial instrument (lifetime ECL).
The assessment of whether credit risk has increased
significantly since initial recognition is performed for each
reporting period by considering the change in the risk of default
occurring over the remaining life of the financial instrument.
Hedge accounting
IFRS 9 includes an accounting policy choice to remain with IAS
39 hedge accounting. The standard does not explicitly address macro
hedge accounting strategies, which are being considered in a
separate project. To remove the risk of any conflict between
existing macro hedge accounting practice and the new general hedge
accounting requirements, the standard includes an accounting policy
choice to remain with IAS 39 hedge accounting.
Transition
The classification, measurement and impairment requirements are
applied retrospectively by adjusting the balance sheet at the date
of initial application, with no requirement to restate comparative
periods. Hedge accounting is generally applied prospectively from
that date.
3. Summary of significant accounting policies (continued)
3.4 Changes in accounting policies and disclosures (continued)
3.4.2 Standards and Interpretations that are issued but not yet effective (continued)
3.4.2.1 Standards and Interpretations issued by the IASB and adopted by the EU (continued)
IFRS 9 Financial Instruments (continued)
IFRS 9 implementation project
An IFRS 9 implementation project is currently under way by the
Group. The project is headed by the Group Chief Risk Officer and a
Steering Committee was set up to monitor the project, comprising of
members of the Executive Management team.
The project covers all aspects of IFRS 9 out of which the
majority of the effort has concentrated on the development of
methodologies for the calculation of impairment of customer loans
and advances based on expected credit losses, since IFRS 9 moves
away from the current incurred loss model to an expected credit
loss model. This change requires more judgment in considering
information for current and future provisioning. The expected
credit losses model will also result in earlier recognition of
credit losses and thus a higher provision charge because it
includes not only credit losses already incurred, but also losses
that are expected in the future. The Income Statement impact is
also likely to be more volatile as expectations and judgements may
change and/or due to movements within the three stages stipulated
by the standard. The assessment of the impact of IFRS 9 is ongoing
and may change upon its full application reflecting balance sheet
dynamics at the time of adoption.
The Group expects to be in a position to provide a robust
estimate of the IFRS 9 impact later in the year, when the
implementation programme, validation and testing is further
advanced. The capital impact of any opening IFRS 9 adjustment to
the provision stock is expected to be largely phased-in over a five
year period in line with the proposal of the Council of the
European Union. As a result, the effect of introducing IFRS 9 on
CET1 in 2018 is expected to be small on a phased-in basis.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model
that will apply to revenue earned from a contract with a customer
(with limited exceptions), regardless of the type of revenue
transaction or the industry. The standard's requirements will also
apply to the recognition and measurement of gains and losses on the
sale of some non-financial assets that are not an output of the
entity's ordinary activities (e.g., sales of property, plant and
equipment or intangibles). Extensive disclosures will be required,
including disaggregation of total revenue; information about
performance obligations; changes in contract asset and liability
account balances between periods and key judgements and estimates.
Either a full retrospective application or a modified retrospective
application is required for annual periods beginning on or after 1
January 2018. Early adoption is permitted. The Group is in the
process of assessing the impact of this standard on its results and
financial position.
IFRS 15 Revenue from Contracts with Customers
(Clarifications)
The objective of the Clarifications is to clarify the IASB's
intentions when developing the requirements in IFRS 15 Revenue from
Contracts with Customers, particularly the accounting of
identifying performance obligations amending the wording of the
'separately identifiable' principle, of principal versus agent
considerations including the assessment of whether an entity is a
principal or an agent as well as applications of control principle
and of licensing providing additional guidance for accounting of
intellectual property and royalties. The Clarifications also
provide additional practical expedients for entities that either
apply IFRS 15 fully retrospectively or that elect to apply the
modified retrospective approach. The Clarifications apply for
annual periods beginning on or after 1 January 2018 with earlier
application permitted. The Group is in the process of assessing the
impact of this standard on its results and financial position.
4. Going concern
The management has made an assessment of the Group's ability to
continue as a going concern.
The conditions that existed during the six months ended 30 June
2017 and the developments up to the date of approval of these
Financial Statements that have been considered in management's
going concern assessment include, amongst others, the operating
environment in Cyprus and of the Group (Note 5).
The management believes that the Group is taking all necessary
measures to maintain its viability and the development of its
business in the current economic environment.
4. Going concern (continued)
The management, taking into consideration the factors described
below and the uncertainties that existed at the reporting date, is
satisfied that the Group has the resources to continue in business
for the foreseeable future and, therefore, the going concern
principle is appropriate for the reasons set out below, despite the
fact that, as disclosed in Notes 5.2.3 and 29 of the Financial
Statements, the Group is currently not in compliance with its
liquidity regulatory requirements with respect to its operations in
Cyprus and is therefore dependent on continuing regulatory
forbearance which can be considered as a material uncertainty as to
its ability to continue as a going concern. Following the repayment
of ELA in January 2017 (31 December 2016: EUR200 million), the
Group has achieved compliance with the Liquidity Coverage Ratio
(LCR).
-- he Group's Common Equity Tier 1 (CET1) ratio at 30 June 2017
stands at 12.3% (transitional) and the total capital ratio at
13.8%, higher than the minimum required ratios (Note 5.2.1).
-- The increase in the liquid assets of the Group and compliance
with the LCR ratio requirements. The ELA funding was repaid in full
on 5 January 2017 (Note 5.2.3).
-- The increasing level of Group customer deposits (increase of
EUR74 million during the six months ended 30 June 2017). At 30 June
2017 customer deposits stood at EUR16,584 million.
-- The Cyprus government rating has been repeatedly upgraded. In
July 2017 Moody's Investors Service upgraded the long-term issuer
rating of the Cyprus sovereign to Ba3 from B1 and maintained its
outlook to positive. In March 2017 S&P Global Ratings upgraded
the Cyprus sovereign to BB+ which is one notch below investment
grade.
-- BOC PCL regained access to the debt capital markets in
January 2017 with the issuance of EUR250 million unsecured
subordinated Tier 2 Capital Note.
5. Operating environment
5.1 Cyprus
After a protracted recession Cyprus returned to growth in 2015
and continued to expand in the subsequent period. Real Gross
Domestic Product (GDP) increased by 2.8% in 2016, and by 3.7% and
3.5% respectively on a seasonally adjusted basis, in the first and
second quarters of 2017. The growth momentum is expected to be
maintained over the medium term supported by private consumption,
gradually increasing investment, declining unemployment and
favourable developments in tourism and business services.
Tourism remains robust aided by geopolitical tensions in
competing destinations. Arrivals had reached record levels of 3,2
million people in 2016 according to the Cyprus Statistical Service
and continued to expand in the first seven months of the year,
rising by about 15% from the same period the year before. In the
labour market the unemployment rate declined significantly to 11%
in the second quarter on a seasonally adjusted basis, according to
Eurostat, compared with a peak of 16.6% in the first quarter of
2015. Consumer inflation turned modestly positive in the first
seven months of the year rising by 1% after falling for four
consecutive years according to data from the Cyprus Statistical
Service. In property markets demand has been rising as evidenced by
an increasing number of sales contracts. The Central Bank's
Residential Property Price Index increased by 0.2% year-on-year in
the first quarter of 2017 and increased by 0.3% on a
quarter-on-quarter basis from the fourth quarter 2016.
In the area of public finance, the general government budget has
been near balance since 2014 excluding recapitalisation costs of
the cooperative credit sector, and public debt relative to GDP had
risen to 107.8% at the end of 2016 according to Eurostat. Cyprus
has consistently outperformed its fiscal targets during and after
the economic adjustment programme. According to Eurostat, the
primary surplus in 2016 was 3% of GDP and the general government
budget was also a surplus of 0.4% of GDP.
Overall, the outlook for the medium term remains favourable and
an average of real GDP growth of 2.8% is expected in the period
2017-2019 according to the Ministry of Finance. Upside factors
relate to a longer period of low oil prices, further improvement of
economic fundamentals in the euro area and stronger investment
spending as property prices are stabilising and as projects in
tourism, energy and public works are being implemented.
5. Operating environment (continued)
5.1 Cyprus (continued)
Downside risks to the outlook are associated with the still high
levels of non-performing loans, and public debt ratio and with a
possible deterioration of the external environment for Cyprus. This
may involve slower growth in the UK with a weakening of the pound
as a result of uncertainty resulting from Brexit. The direct
consequences on Cyprus from Brexit, will mostly emanate from
tourist activity. The possible loss of UK tourist arrivals may be
mitigated at least in part, by increases in arrivals of tourists
from other destinations as airline connectivity improves. Political
uncertainty in Europe triggered by a British exit or by the refugee
crisis could also lead to increased economic uncertainty and
undermine economic confidence.
In this context of a strengthening economy and narrowing
imbalances, the Cyprus government benefited from a series of rating
upgrades. Most recently in July 2017, Moody's Investors Service
upgraded the long-term issuer rating of the Cyprus sovereign to Ba3
from B1 previously and maintained its outlook to positive. In March
2017, S&P Global Ratings upgraded the Cyprus sovereign to BB+
which is one notch below investment grade. The key drivers for
rating upgrades have been stronger economic performance than
expected, progress in the banking sector and consistent fiscal
outperformance.
5.2 The Group
5.2.1 Regulatory capital ratios
The CET1 ratio of the Group at 30 June 2017 stands at 12.3%
(transitional) and the total capital at 13.8%.
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 enactment of the amendments in
the Cypriot Banking Law in February 2017 regarding the gradual
phase-in of the Capital Conservation Buffer (CCB) and based on the
Supervisory Review and Evaluation Process (SREP) performed by the
European Central Bank (ECB) in 2016, the Group's minimum CET1
capital ratio as from 1 January 2017 has been reduced to 9.50%
compared to 10.75% fully phased-in of CCB (minimum CET1 capital
ratio at 31 December 2016: 11.75% fully phased-in of CCB),
comprising of a 4.5% Pillar I requirement, a 3.75% Pillar II
requirement and a phased-in CCB of 1.25%. The ECB has also provided
non-public guidance for an additional Pillar II CET1 buffer.
The overall Total Capital Ratio requirement as from 1 January
2017 following the amendments in the Cypriot Banking Law in
February 2017 regarding the gradual phase-in of CCB, has been
reduced to 13.00% compared to 14.25% (fully phased-in of CCB),
comprising of a Pillar I requirement of 8% (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 Pillar II requirement of 3.75% (in the
form of CET1), as well as a phased-in CCB of 1.25%.
The minimum CET1 requirement including Pillar II, applicable for
the year 2016 was determined by the ECB at 11.75% in November 2015
and included CCB on a fully loaded basis.
The Group's capital position at 30 June 2017 exceeds both its
Pillar I and its Pillar II add-on capital requirements. However,
the Group's Pillar II add-on capital requirements are a
point-in-time assessment and therefore are subject to change over
time.
5.2.2 Asset quality
The Group's loans that are impaired or past due for more than 90
days (90+ DPD) have decreased by 9% during the six months ended 30
June 2017 and totalled EUR7,560 million at 30 June 2017,
representing 39% of gross loans before fair value adjustment on
initial recognition (Note 27). The provisioning coverage ratio
improved to 61% compared to 54% at 31 December 2016. The Group
non-performing exposures (NPEs), as defined by the European Banking
Authority (EBA), totalled EUR9,752 million at 30 June 2017 and
accounted for 50% of gross loans before fair value adjustment on
initial recognition. The provisioning coverage ratio of NPEs
totalled 48% at 30 June 2017 compared to 41% at 31 December
2016.
5. Operating environment (continued)
5.2 The Group (continued)
5.2.2 Asset quality (continued)
The Group addresses the asset quality challenge through the
operation of the Restructuring and Recoveries Division which is
actively seeking to find innovative solutions to manage distressed
exposures. The Group has been successful in engineering
restructuring solutions across the spectrum of its loan portfolio.
90+ DPD have decreased by 42% since their peak of EUR13,003 million
as at 31 December 2013. NPEs have decreased by 36% since their peak
of EUR15,175 million as at 31 March 2015.
5.2.3 Liquidity
Group customer deposits totalled EUR16,584 million at 30 June
2017 compared to EUR16,510 million at 31 December 2016. Customer
deposits in Cyprus reached EUR15,010 million at 30 June 2017 and
EUR15,043 million at 31 December 2016. Customer deposits accounted
for 75% of total assets as at 30 June 2017 (compared to 74% at 31
December 2016 and a low of 48% at 31 March 2014).
ELA was fully repaid on 5 January 2017. ELA is available to
solvent Euro area credit institutions and although BOC PCL has
received no specific assurance, management expects that BOC PCL
will continue to have access to the central bank liquidity
facilities, in line with applicable rules if it were to face a
'stress event' that gave rise to temporary liquidity problems. If a
stress event were to occur in the future, BOC PCL would seek to
utilise ELA funding, assuming it has sufficient available eligible
collateral at the time.
The credit ratings of the Republic of Cyprus by the main credit
rating agencies albeit improving, continue to be below investment
grade. As a result, the ECB is not able to include Cyprus
Government bonds in its asset purchase programme, or as eligible
collateral for Eurosystem monetary operations, as was the case when
the waiver for collateral eligibility due to the country being
under an economic adjustment programme existed.
In January 2017 BOC PCL issued EUR250 million unsecured and
subordinated Tier 2 Capital Note under BOC PCL's EMTN Programme.
The note was priced at par, with a coupon of 9.25% (Note 22).
As at 30 June 2017 the LCR stood at 108% (compared to 49% at 31
December 2016) and is in compliance with the minimum regulatory
requirement of 80%. As at 30 June 2017, BOC PCL was not in
compliance with the local regulatory liquidity requirements with
respect to its operations in Cyprus and is therefore dependent on
continuing regulatory forbearance. The Net Stable Funding Ratio
(NSFR ratio) is currently expected to be introduced on 1 January
2018, with a minimum requirement of 100%. As at 30 June 2017 the
Group's NSFR, on the basis of Basel standards, was 102% (compared
to 95% at 31 December 2016). After repayment of ELA in January
2017, the Group is focusing on measures to improve its liquidity
position and remains on track to exceed the minimum requirement by
1 January 2018 with respect to LCR, which will increase to 100% as
of that date, and NSFR.
5.2.4 Pending litigation, claims and regulatory matters
The management has considered the potential impact of pending
litigation, claims and regulatory matters against the Group, which
include the bail-in of depositors and the absorption of losses by
the holders of equity and debt instruments of BOC PCL. The Group
has obtained legal advice in respect of these claims.
Despite the novelty of the said claims and the uncertainties
inherent in a unique situation, based on the information available
at present and on the basis of the law as it currently stands, the
management considers that the said claims are considered unlikely
to have a material adverse impact on the financial position and
capital adequacy of the Group (Note 23).
6. Significant judgements, estimates and assumptions
The preparation of the consolidated financial statements
requires the Company's Board of Directors and management to make
judgements, estimates and assumptions that can have a material
impact on the amounts recognised in the consolidated financial
statements and the accompanying disclosures, as well as the
disclosures of contingent liabilities. Uncertainty about these
assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets or liabilities
affected in future periods.
6. Significant judgements, estimates and assumptions (continued)
The key assumptions concerning the future and other key sources
of estimation of uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities are described in the Annual
Consolidated Financial Statements of BOC group for the year ended
31 December 2016, as detailed in the basis of preparation of these
Financial Statements (Note 3.2).
The critical judgements, estimates and assumptions are set out
below.
6.1 Provision for impairment of loans and advances to customers
The Group reviews its loans and advances to customers to assess
whether a provision for impairment should be recorded in the
consolidated income statement. In particular, management is
required to estimate the amount and timing of future cash flows in
order to determine the amount of provision required and the
calculation of the impairment allowance involves the use of
judgement. Such estimates are based on assumptions about a number
of factors and therefore actual impairment losses may differ.
The carrying amount of the loan is reduced through the use of a
provision account and the amount of the loss is recognised in the
consolidated income statement. Loans together with the associated
provisions are written off when there is no realistic prospect of
future recovery. Partial write-offs, including non contractual
write-offs, may also 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.
The Group may change certain estimates from period to period,
however it is impracticable to estimate the effect of such
individual estimates due to interdependencies between estimates and
as the profile of the population of loans changes from period to
period.
A very important factor for the estimation of provisions is the
timing and net recoverable amount from repossession or realisation
of collaterals which mainly comprise real estate assets.
Assumptions have been made about the future changes in property
values, as well as the timing for the realisation of 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. The
Group at 30 June 2017, following a reconsideration of its strategy,
to more actively explore other innovative strategic solutions to
further accelerate balance sheet de-risking, has modified certain
of its provisioning assumptions and estimates.
At 30 June 2017 the average haircut (including liquidity haircut
and selling expenses) used in the collective provisions calculation
is 32% (31 December 2016: average of 10% of the current market
value of the property for those collaterals for which the increase
in their value is capped to zero and 10% of the projected market
value of the property for those collaterals for which their value
is expected to drop).
The timing of recovery from real estate collaterals used in the
collective provision calculation has been estimated to be on
average 6 years (31 December 2016: average of 3 years except for
customers in Debt Recovery, average of 6 years).
For the calculation of specific provisions, the timing of
recovery of collaterals as well as the haircuts used were based on
the specific facts and circumstances of each case.
In accordance with the Loan Impairment and Provisioning
Procedures Directives of 2014 and 2015 of the Central Bank of
Cyprus (CBC), the cumulative average future change in property
values during the year has been capped to zero.
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 EBA,
which provide guidance and expectations as to relevant definitions
and the treatment/classification of certain parameters/assumptions
used in the estimation of provisions.
6. Significant judgements, estimates and assumptions (continued)
6.1 Provision for impairment of loans and advances to customers (continued)
Any changes in these assumptions or difference between
assumptions made and actual results could result in significant
changes in the amount of required provisions for impairment of
loans and advances.
For individually significant assets, impairment allowances are
calculated on an individual basis and all relevant considerations
that have a bearing on the expected future cash flows are taken
into account (for example, the business prospects for the customer,
the realisable value of collateral, the Group's position relative
to other claimants, the reliability of customer information and the
likely cost and duration of the work-out process). The level of the
impairment allowance is the difference between the value of the
discounted expected future cash flows (discounted at the loan's
original effective interest rate) and its carrying amount.
Subjective judgements are made in the calculation of future cash
flows. Furthermore, judgements change with time as new information
becomes available or as work-out strategies evolve, resulting in
frequent revisions to the impairment allowance as individual
decisions are taken. Changes in these estimates would result in a
change in the allowances and have a direct impact on the impairment
charge.
In addition to provisions for impairment on an individual basis,
the Group also makes collective impairment provisions. The Group
adopts a formulaic approach for collective provisions, which
includes assigning probabilities of default and loss given default
for portfolios of loans. This methodology is subject to estimation
uncertainty, partly because it is not practicable to identify
losses on an individual loan basis because of the large number of
loans in each portfolio. In addition, the use of historical
information for probabilities of default and loss rates is
supplemented with significant management judgement to assess
whether current economic and credit conditions are such that the
actual level of incurred losses is likely to be greater or less
than that suggested by historical experience.
Impairment assessment also includes off-balance sheet credit
exposures represented by guarantees given and by irrevocable
commitments to disburse funds. Off-balance sheet credit exposures
of the individually assessed assets require assumptions on the
probability, timing and amount of cash outflows; otherwise the
provision is calculated on a collective basis, taking into account
the probability of loss for the portfolio in which the customer is
included for on-balance sheet exposures impairment assessment. The
Group may change certain estimates from period to period, however
it is impracticable to estimate the effect of such individual
estimates due to interdependencies between estimates and as the
profile of the population of off-balance sheet exposure changes
from period to period.
In normal circumstances, historical experience provides the most
objective and relevant information from which to assess inherent
loss within each portfolio. In certain circumstances, historical
loss experience provides less relevant information about the
incurred loss in a given portfolio at the reporting date, for
example, where there have been changes in economic, regulatory or
behavioural conditions such that the most recent trends in the
portfolio risk factors are not fully reflected. In these
circumstances, such risk factors are taken into account when
calculating the appropriate levels of impairment allowances, by
adjusting the provision for impairment derived solely from
historical loss experience.
The total amount of the Group's provision for impairment of
loans and advances is inherently uncertain because it is highly
sensitive to changes in economic and credit conditions across a
number of geographical areas.
Loans subject to collective impairment assessment whose terms
have been renegotiated are no longer considered past due, but are
treated as up to date loans for measurement purposes. Loans subject
to collective impairment assessment whose terms have been
renegotiated are taken into account in determining the inputs for
collective impairment calculation. Loans subject to individual
impairment assessment, whose terms have been renegotiated, are
subject to ongoing review to determine whether they remain
impaired. The carrying amounts of loans that have been classified
as renegotiated retain this classification in accordance with the
rules of the technical standard of the EBA.
6. Significant judgements, estimates and assumptions (continued)
6.1 Provision for impairment of loans and advances to customers (continued)
Economic and credit conditions within geographical areas are
influenced by many factors with a high degree of interdependency so
that there is no one single factor to which the Group's loan
impairment provisions as a whole are particularly sensitive.
Different factors are applied in each country to reflect the local
economic conditions, laws and regulations and the assumptions
underlying this judgement are highly subjective. The methodology
and the assumptions used in calculating impairment losses are
reviewed regularly. It is possible that the actual results could be
different from the assumptions made, resulting in a material
adjustment to the carrying amount of loans and advances.
Further details on impairment allowances and related credit
information are set out in Note 27.
6.2 Tax
The Group operates and is therefore subject to tax in various
countries. Estimates are required in determining the provision for
taxes at the reporting date. The Group recognises income tax
liabilities for transactions and assessments whose tax treatment is
uncertain. Where the final tax is different from the amounts
initially recognised in the consolidated income statement, such
differences will impact the income tax expense, the tax liabilities
and deferred tax assets or liabilities of the period in which the
final tax is agreed with the relevant tax authorities.
Deferred tax assets are recognised by the Group in respect of
tax losses to the extent that it is probable that future taxable
profits will be available against which the losses can be utilised.
Judgement is required to determine the amount of deferred tax
assets that can be recognised, based upon the likely timing and
level of future taxable profits, together with future tax-planning
strategies. These variables have been established on the basis of
significant management judgement and are subject to uncertainty. It
is possible that the actual future events could be different from
the assumptions made, resulting in a material adjustment to the
carrying amount of deferred tax assets.
6.3 Stock of property - estimation of net realisable value
Stock of property is measured at the lower of cost and net
realisable value. The net realisable value is determined with
reference to the fair value of properties adjusted for any impact
of specific circumstances on the sale process of each property.
Depending on the value of the underlying asset and available market
information, the determination of costs to sell may require
professional judgement which involves a large degree of uncertainty
due to the relatively low level of market activity.
More details on the stock of property are presented in Note
17.
6.4 Provisions
Judgement is involved in determining whether a present
obligation exists and in estimating the probability, timing and
amount of any outflows. Provisions for pending litigations, claims
and regulatory matters usually require a higher degree of judgement
than other types of provisions. It is expected that the Group will
continue to have a material exposure to litigation and regulatory
proceedings and investigations relating to legacy issues in the
medium term. The matters for which the Group determines that the
probability of a future loss is more than remote will change from
time to time, as will the matters as to which a reliable estimate
can be made and the estimated possible loss for such matters.
Actual results may prove to be significantly higher or lower than
the estimate of possible loss in those matters, where an estimate
was made. In addition, loss may be incurred in matters with respect
to which the Group believed the probability of loss was remote.
For a detailed description of the nature of uncertainties and
assumptions and the effect on the amount and timing of pending
litigation and claims refer to Note 23.
6.5 Exercise of significant influence
The Group determines whether it exercises significant influence
on companies in which it has shareholdings of less 20% if other
factors exist that demonstrate significant influence. In performing
this assessment it considers its representation in the Board of
Directors which gives rise to voting rights of more than 20% and
participation in policy-making processes, including participation
in decisions about dividends and other distributions.
7. Segmental analysis
The Group is organised into operating segments based on the
geographic location of each unit. The main geographical locations
that the Group operates in, are Cyprus and the United Kingdom. In
addition, the Cyprus segment is further organised into operating
segments based on the line of business.
The remaining Group's activities in Greece, Romania and Russia
are separate operating segments for which information is provided
to management but, due to their size, have been grouped for
disclosure purposes into one segment, namely 'Other countries'.
The Group's activities in Cyprus, United Kingdom and other
countries include mainly the provision of banking, financial and
insurance services, as well as management of properties either held
as stock or as investment property.
Management monitors the operating results of each business
segment separately for the purposes of performance assessment and
resource allocation. Segment performance is evaluated based on
profit after tax and non-controlling interests. Inter-segment
transactions and balances are eliminated on consolidation and are
made on an arm's length basis.
Operating segment disclosures are provided as presented to the
Group Executive Committee.
The loans and advances to customers, the customer deposits and
the related income and expense are generally included in the
segment where the business is originated, instead of the segment
where the transaction is recorded. Loans and advances to customers
which are originated in countries where the Group does not have
operating entities are included in the segment where they are
managed.
7. Segmental analysis (continued)
Cyprus United Other Total
Kingdom countries
------------------------------------- ---------- --------- ----------- ----------
Six months ended 30 June
2017 EUR000 EUR000 EUR000 EUR000
------------------------------------- ---------- --------- ----------- ----------
Net interest income 297,146 17,870 1,269 316,285
------------------------------------- ---------- --------- ----------- ----------
Net fee and commission
income 84,743 3,262 210 88,215
------------------------------------- ---------- --------- ----------- ----------
Net foreign exchange gains 20,380 171 19 20,570
------------------------------------- ---------- --------- ----------- ----------
Net gains/(losses) on
financial instrument transactions 2,499 (48) (12) 2,439
------------------------------------- ---------- --------- ----------- ----------
Insurance income net of
claims and commissions 23,744 - 678 24,422
------------------------------------- ---------- --------- ----------- ----------
Losses from revaluation
and disposal of investment
properties (1,925) - - (1,925)
------------------------------------- ---------- --------- ----------- ----------
Gains on disposal of stock
of property 12,214 - 21 12,235
------------------------------------- ---------- --------- ----------- ----------
Other income 7,206 - 655 7,861
------------------------------------- ---------- --------- ----------- ----------
446,007 21,255 2,840 470,102
------------------------------------- ---------- --------- ----------- ----------
Staff costs (Note 9) (100,247) (10,398) (830) (111,475)
------------------------------------- ---------- --------- ----------- ----------
Other operating expenses
(excluding advisory and
other restructuring costs)
(Note 9) (121,420) (12,274) (4,218) (137,912)
------------------------------------- ---------- --------- ----------- ----------
Other operating expenses
- advisory and other restructuring
costs (Note 9) (13,451) - (327) (13,778)
------------------------------------- ---------- --------- ----------- ----------
210,889 (1,417) (2,535) 206,937
------------------------------------- ---------- --------- ----------- ----------
Gain on derecognition
of loans and advances
to customers and changes
in expected cash flows 94,885 15 - 94,900
------------------------------------- ---------- --------- ----------- ----------
Provisions for impairment
of loans and advances
to customers and other
customer credit losses (733,100) (1,206) (16,614) (750,920)
------------------------------------- ---------- --------- ----------- ----------
(Impairment)/reversal
of impairment of other
financial instruments (24,585) - 2,088 (22,497)
------------------------------------- ---------- --------- ----------- ----------
Impairment of non-financial
instruments (379) - (13,105) (13,484)
------------------------------------- ---------- --------- ----------- ----------
Share of profit from associates
and joint ventures 3,949 - - 3,949
------------------------------------- ---------- --------- ----------- ----------
Loss before tax (448,341) (2,608) (30,166) (481,115)
------------------------------------- ---------- --------- ----------- ----------
Income tax (70,370) (881) (1,031) (72,282)
------------------------------------- ---------- --------- ----------- ----------
Loss for the period (518,711) (3,489) (31,197) (553,397)
------------------------------------- ---------- --------- ----------- ----------
Non-controlling interests
- profit (562) - - (562)
------------------------------------- ---------- --------- ----------- ----------
Loss after tax attributable
to the owners of the Company (519,273) (3,489) (31,197) (553,959)
------------------------------------- ========== ========= =========== ==========
7. Segmental analysis (continued)
Cyprus United Other Total
Kingdom countries
------------------------------------- ---------- --------- ----------- ----------
Six months ended 30 June
2016 EUR000 EUR000 EUR000 EUR000
------------------------------------- ---------- --------- ----------- ----------
Net interest income 336,440 15,386 8,636 360,462
------------------------------------- ---------- --------- ----------- ----------
Net fee and commission
income 70,512 2,919 437 73,868
------------------------------------- ---------- --------- ----------- ----------
Net foreign exchange gains 4,997 289 11,027 16,313
------------------------------------- ---------- --------- ----------- ----------
Net gains/(losses) on
financial instrument transactions 57,856 223 (690) 57,389
------------------------------------- ---------- --------- ----------- ----------
Insurance income/(loss)
net of claims and commissions 24,646 - (13) 24,633
------------------------------------- ---------- --------- ----------- ----------
Gains/(losses) from revaluation
and disposal of investment
properties 6,147 - (341) 5,806
------------------------------------- ---------- --------- ----------- ----------
Losses on disposal of
stock of property (3,428) - (105) (3,533)
------------------------------------- ---------- --------- ----------- ----------
Other income 6,628 - 949 7,577
------------------------------------- ---------- --------- ----------- ----------
503,798 18,817 19,900 542,515
------------------------------------- ---------- --------- ----------- ----------
Staff costs (excluding
voluntary exit plan and
other termination benefits)
(Note 9) (108,661) (7,139) (1,066) (116,866)
------------------------------------- ---------- --------- ----------- ----------
Staff costs - voluntary
exit plan and other termination
benefits (Note 9) (62,413) - - (62,413)
------------------------------------- ---------- --------- ----------- ----------
Other operating expenses
(excluding advisory and
other restructuring costs)
(Note 9) (71,942) (6,916) (5,739) (84,597)
------------------------------------- ---------- --------- ----------- ----------
Other operating expenses
- advisory and other restructuring
costs (Note 9) (23,666) - (1,293) (24,959)
------------------------------------- ---------- --------- ----------- ----------
237,116 4,762 11,802 253,680
------------------------------------- ---------- --------- ----------- ----------
Gain on derecognition
of loans and advances
to customers and changes
in expected cash flows 22,137 29 - 22,166
------------------------------------- ---------- --------- ----------- ----------
(Provisions)/reversal
of provisions for impairment
of loans and advances
to customers and other
customer credit losses (148,024) 1,118 (33,019) (179,925)
------------------------------------- ---------- --------- ----------- ----------
(Impairment)/reversal
of impairment of other
financial instruments (12,895) - 667 (12,228)
------------------------------------- ---------- --------- ----------- ----------
Impairment of non-financial
instruments (4,112) - (5,250) (9,362)
------------------------------------- ---------- --------- ----------- ----------
Share of profit from associates
and joint ventures 1,606 - - 1,606
------------------------------------- ---------- --------- ----------- ----------
Profit/(loss) before tax 95,828 5,909 (25,800) 75,937
------------------------------------- ---------- --------- ----------- ----------
Income tax (12,453) (954) (288) (13,695)
------------------------------------- ---------- --------- ----------- ----------
Profit/(loss) for the
period 83,375 4,955 (26,088) 62,242
------------------------------------- ---------- --------- ----------- ----------
Non-controlling interests
- profit (5,870) - - (5,870)
------------------------------------- ---------- --------- ----------- ----------
Profit/(loss) after tax
attributable to the owners
of BOC PCL 77,505 4,955 (26,088) 56,372
------------------------------------- ========== ========= =========== ==========
7. Segmental analysis (continued)
Analysis of total revenue
Total revenue includes net interest income, net fee and
commission income, net foreign exchange gains, net gains on
financial instrument transactions, insurance income net of claims
and commissions, (losses)/gains from revaluation and disposal of
investment properties, gains/(losses) on disposal of stock of
property and other income.
Cyprus United Other Total
Kingdom countries
--------------------------------- -------- --------- ----------- --------
Six months ended 30 June
2017 EUR000 EUR000 EUR000 EUR000
--------------------------------- -------- --------- ----------- --------
Total revenue from third
parties 441,882 22,128 6,092 470,102
--------------------------------- -------- --------- ----------- --------
Inter-segment revenue/(expense) 4,125 (873) (3,252) -
--------------------------------- -------- --------- ----------- --------
Total revenue 446,007 21,255 2,840 470,102
--------------------------------- ======== ========= =========== ========
Six months ended 30 June
2016
--------------------------------- -------- ------- -------- --------
Total revenue from third
parties 496,369 19,814 26,332 542,515
--------------------------------- -------- ------- -------- --------
Inter-segment revenue/(expense) 7,429 (997) (6,432) -
--------------------------------- -------- ------- -------- --------
Total revenue 503,798 18,817 19,900 542,515
--------------------------------- ======== ======= ======== ========
The revenue for Cyprus operating segment is further analysed in
analysis by business line in this note.
The revenue for other countries segment mainly relates to
banking and financial services for both 2017 and 2016.
Analysis of assets
Cyprus United Other Total
Kingdom countries
---------------------- ----------- ---------- ----------- ------------
30 June 2017 EUR000 EUR000 EUR000 EUR000
---------------------- ----------- ---------- ----------- ------------
Assets 20,720,487 1,779,393 644,335 23,144,215
---------------------- =========== ========== =========== ------------
Inter-segment assets (1,057,320)
---------------------- ----------- ---------- ----------- ------------
Total assets 22,086,895
---------------------- ----------- ---------- ----------- ============
31 December 2016
---------------------- ----------- ---------- -------- ------------
Assets 20,851,999 1,658,337 754,645 23,264,981
---------------------- =========== ========== ======== ------------
Inter-segment assets (1,093,046)
---------------------- ----------- ---------- -------- ------------
Total assets 22,171,935
---------------------- ----------- ---------- -------- ============
7. Segmental analysis (continued)
Analysis of liabilities
Cyprus United Other Total
Kingdom countries
--------------------------- ----------- ---------- ----------- ------------
30 June 2017 EUR000 EUR000 EUR000 EUR000
--------------------------- ----------- ---------- ----------- ------------
Liabilities 17,996,339 1,668,877 903,642 20,568,858
--------------------------- =========== ========== =========== ------------
Inter-segment liabilities (1,060,184)
--------------------------- ----------- ---------- ----------- ------------
Total liabilities 19,508,674
--------------------------- ----------- ---------- ----------- ============
31 December 2016
--------------------------- ----------- ---------- -------- ------------
Liabilities 17,577,993 1,595,805 988,457 20,162,255
--------------------------- =========== ========== ======== ------------
Inter-segment liabilities (1,096,425)
--------------------------- ----------- ---------- -------- ------------
Total liabilities 19,065,830
--------------------------- ----------- ---------- -------- ============
Segmental analysis of customer deposits and loans and advances
to customers is presented in Notes 21 and 27, respectively.
Analysis by business line
In addition to monitoring operations by geographical location,
management also monitors the operating results of each business
line for the Cyprus segment of the Group, and such information is
presented to the Group Executive Committee.
Income and expenses directly associated with each business line
are included in determining the line's performance. Transfer
pricing methodologies are applied between the business lines to
present their results on an arm's length basis. Total other
operating income includes net foreign exchange gains, net gains on
financial instrument transactions, insurance income net of claims
and commissions, gains/(losses) from revaluation and disposal of
investment properties, gains/(losses) on disposal of stock of
property and other income. Total other operating income, staff
costs and other operating expenses incurred directly by the
business lines are allocated to the business lines as incurred.
Indirect other operating income and indirect other operating
expenses are allocated to the head office function. Management
monitors the profit/(loss) before tax of each business line.
Additionally, for the purposes of the Cyprus analysis by business
line, notional tax at the 12.5% Cyprus tax rate is charged/credited
on profit or loss before tax of each business line and therefore
any taxable and non-taxable items are excluded from this notional
charge/credit.
The business line 'Other' includes Group and head office
functions such as treasury, finance, risk management, compliance,
legal, corporate affairs and human resources. Head office functions
provide services to the operating segments.
7. Segmental analysis (continued)
Analysis by business line (continued)
Corporate Small Retail Restructuring International Wealth REMU Insurance Other Total
and and banking management Cyprus
medium-sized recoveries services
enterprises
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Six months ended
30
June 2017 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Net interest
income/(expense) 50,027 26,285 114,156 74,233 36,147 5,472 (8,581) 226 (819) 297,146
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Net fee and
commission
income/(expense) 6,882 5,055 25,306 5,802 33,029 1,111 - (2,483) 10,041 84,743
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Total other
operating
income 346 314 2,185 178 3,663 1,858 11,443 24,235 19,896 64,118
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
57,255 31,654 141,647 80,213 72,839 8,441 2,862 21,978 29,118 446,007
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Staff costs and
other
operating
expenses (5,887) (5,970) (57,166) (15,030) (13,342) (2,105) (3,976) (8,184) (110,007) (221,667)
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Advisory and
other
restructuring
costs
- other
operating
expenses - - - (8,338) - - (2,763) - (2,350) (13,451)
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
51,368 25,684 84,481 56,845 59,497 6,336 (3,877) 13,794 (83,239) 210,889
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Gain on
derecognition
of loans and
advances
to customers and
changes
in expected cash
flows 9,809 2,394 8,560 71,095 655 51 - - 2,321 94,885
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Provisions for
impairment
of loans and
advances
to customers and
other
customer credit
losses (9,451) (31,215) (38,997) (644,821) (7,380) (86) - - (1,150) (733,100)
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Impairment of
other
financial
instruments - - - - - - - - (24,585) (24,585)
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Impairment of
non-financial
instruments - - - - - - - - (379) (379)
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Share of profit
from
associates and
joint
ventures - - - - - - - - 3,949 3,949
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Profit/(loss)
before
tax 51,726 (3,137) 54,044 (516,881) 52,772 6,301 (3,877) 13,794 (103,083) (448,341)
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Income tax (6,466) 392 (6,756) 64,610 (6,596) (788) 485 (1,400) (113,851) (70,370)
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Profit/(loss) for
the period 45,260 (2,745) 47,288 (452,271) 46,176 5,513 (3,392) 12,394 (216,934) (518,711)
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Non-controlling
interests
- profit - - - - - - - - (562) (562)
------------------ ---------- ------------- --------- -------------- -------------- ----------- -------- ---------- ---------- ----------
Profit/(loss)
after
tax attributable
to
the owners of
the
Company 45,260 (2,745) 47,288 (452,271) 46,176 5,513 (3,392) 12,394 (217,496) (519,273)
------------------ ========== ============= ========= ============== ============== =========== ======== ========== ========== ==========
7. Segmental analysis (continued)
Analysis by business line (continued)
Corporate Small Retail Restructuring International Wealth REMU Insurance Other Total
and and banking management Cyprus
medium-sized recoveries services
enterprises
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Six months ended 30
June 2016 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Net interest
income/(expense) 39,099 32,459 126,092 114,361 31,405 3,631 (4,982) 199 (5,824) 336,440
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Net fee and commission
income/(expense) 4,639 4,231 22,168 6,499 24,971 1,090 - (2,140) 9,054 70,512
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Total other operating
income/(expense) 350 284 2,114 302 3,473 2,022 (3,111) 25,029 66,383 96,846
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
44,088 36,974 150,374 121,162 59,849 6,743 (8,093) 23,088 69,613 503,798
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Staff costs and other
operating expenses (5,286) (5,958) (59,799) (17,634) (12,986) (2,538) (4,888) (7,007) (64,507) (180,603)
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Restructuring costs
- voluntary exit plan
and other termination
benefits (968) (1,139) (22,930) (8,237) (4,468) (224) (97) (3,230) (21,120) (62,413)
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Advisory and other
restructuring costs
- other operating
expenses (16) (3) (54) (6,047) (44) (3) (1,857) - (15,642) (23,666)
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
37,818 29,874 67,591 89,244 42,351 3,978 (14,935) 12,851 (31,656) 237,116
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Gain/(loss) on
derecognition
of loans and advances
to customers and
changes
in expected cash flows 3,342 2,184 6,019 9,622 1,731 868 - - (1,629) 22,137
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Reversal of
provisions/(provisions)
for impairment of
loans and advances
to customers and other
customer credit losses 8,049 (19,789) 21,706 (157,815) 329 (1,081) - - 577 (148,024)
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Impairment of other
financial instruments - - - - - - - - (12,895) (12,895)
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Impairment of
non-financial
instruments - - - - - - (3,726) - (386) (4,112)
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Share of profit from
associates and joint
ventures - - - - - - - - 1,606 1,606
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Profit/(loss) before
tax 49,209 12,269 95,316 (58,949) 44,411 3,765 (18,661) 12,851 (44,383) 95,828
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Income tax (6,151) (1,534) (11,914) 7,369 (5,551) (471) 2,333 (1,390) 4,856 (12,453)
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Profit/(loss) for
the period 43,058 10,735 83,402 (51,580) 38,860 3,294 (16,328) 11,461 (39,527) 83,375
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Non-controlling
interests
- profit - - - - - - - - (5,870) (5,870)
------------------------- ---------- ------------- --------- -------------- -------------- ----------- --------- ---------- --------- ----------
Profit/(loss) after
tax attributable to
the owners of BOC
PCL 43,058 10,735 83,402 (51,580) 38,860 3,294 (16,328) 11,461 (45,397) 77,505
------------------------- ========== ============= ========= ============== ============== =========== ========= ========== ========= ==========
In addition, loans and advances to customers and deposits of the
above business lines are reported to the Group Executive Committee.
Such an analysis is disclosed in Notes 27 and 21 respectively.
8. Net gains on financial instrument transactions
Six months ended
30 June
--------------------------------------------- -------------------
2017 2016
--------------------------------------------- --------- --------
EUR000 EUR000
--------------------------------------------- --------- --------
Trading portfolio:
--------------------------------------------- --------- --------
- equity securities 157 (316)
--------------------------------------------- --------- --------
- debt securities 48 7
--------------------------------------------- --------- --------
- derivative financial instruments 209 870
--------------------------------------------- --------- --------
Other investments at fair value through
profit or loss:
--------------------------------------------- --------- --------
- debt securities (57) (236)
--------------------------------------------- --------- --------
- equity securities 289 377
--------------------------------------------- --------- --------
Net gains on disposal of available-for-sale
investments:
--------------------------------------------- --------- --------
- equity securities 1,520 58,330
--------------------------------------------- --------- --------
- debt securities 179 18
--------------------------------------------- --------- --------
Net gains on disposal/repayment of
loans and receivables:
--------------------------------------------- --------- --------
- debt securities - 43
--------------------------------------------- --------- --------
Realised losses on disposal of loans (12) (690)
--------------------------------------------- --------- --------
Revaluation of financial instruments
designated as fair value hedges:
--------------------------------------------- --------- --------
- hedging instruments 6,631 (3,818)
--------------------------------------------- --------- --------
- hedged items (6,525) 3,853
--------------------------------------------- --------- --------
Loss on dissolution of subsidiaries - (1,049)
--------------------------------------------- --------- --------
2,439 57,389
--------------------------------------------- ========= ========
In the comparative period, the gains on disposal of
available-for-sale equity securities primarily relate to gain on
sale of shares held in Visa Europe Limited following the approved
purchase of Visa Europe Limited by Visa Inc.
9. Staff costs and other operating expenses
Staff costs
Six months ended
30 June
--------------------------------------- -------------------
2017 2016
--------------------------------------- --------- --------
EUR000 EUR000
--------------------------------------- --------- --------
Salaries 92,921 95,093
--------------------------------------- --------- --------
Employer's contributions to state
social insurance 11,237 13,985
--------------------------------------- --------- --------
Retirement benefit plan costs 7,317 7,788
--------------------------------------- --------- --------
111,475 116,866
--------------------------------------- --------- --------
Restructuring costs - voluntary exit
plans and other termination benefits - 62,413
--------------------------------------- --------- --------
111,475 179,279
--------------------------------------- ========= ========
9. Staff costs and other operating expenses (continued)
Staff costs (continued)
The number of persons employed by the Group as at 30 June 2017
was 4,311 (31 December 2016: 4,284,
30 June 2016: 4,279). In February and June 2016 the BOC group
proceeded with voluntary exit plans for its employees in Cyprus,
the cost of which is included in staff costs and amounted to
EUR62,413 thousand. In total 429 employees accepted the voluntary
exit plans. During the six months ended 30 June 2016, 358 employees
left the Group under the plans.
Other operating expenses
Six months ended
30 June
---------------------------------------- -------------------
2017 2016
---------------------------------------- --------- --------
EUR000 EUR000
---------------------------------------- --------- --------
Repairs and maintenance of property
and equipment 13,627 14,000
---------------------------------------- --------- --------
Other property-related costs 8,595 6,182
---------------------------------------- --------- --------
Operating lease rentals for property
and equipment 5,159 4,837
---------------------------------------- --------- --------
Special levy on deposits of credit
institutions in Cyprus 17,700 9,581
---------------------------------------- --------- --------
Consultancy and other professional
services fees 8,578 4,326
---------------------------------------- --------- --------
Insurance 4,336 5,732
---------------------------------------- --------- --------
Advertising and marketing 8,751 8,104
---------------------------------------- --------- --------
Depreciation of property and equipment 5,809 5,788
---------------------------------------- --------- --------
Amortisation of intangible assets 4,324 3,506
---------------------------------------- --------- --------
Communication expenses 4,507 3,551
---------------------------------------- --------- --------
Provisions/(reversal of provisions)
and settlements of litigations,
claims and provisions for regulatory
matters (Note 23) 34,929 (191)
---------------------------------------- --------- --------
Printing and stationery 1,586 1,690
---------------------------------------- --------- --------
Local cash transfer expenses 1,282 1,406
---------------------------------------- --------- --------
Contribution to depositor protection
scheme 120 24
---------------------------------------- --------- --------
Other operating expenses 18,609 16,061
---------------------------------------- --------- --------
137,912 84,597
---------------------------------------- --------- --------
Advisory and other restructuring
costs 13,778 24,959
---------------------------------------- --------- --------
151,690 109,556
---------------------------------------- ========= ========
Advisory and other restructuring costs comprise mainly fees of
external advisors in relation to: (i) customer loan restructuring
activities which are not part of the effective interest rate, (ii)
the listing on the London Stock Exchange and (iii) disposal of
operations and non-core assets.
10. Impairment of financial and non-financial instruments
Six months ended
30 June
------------------------------------------- -------------------
2017 2016
------------------------------------------- --------- --------
EUR000 EUR000
------------------------------------------- --------- --------
Provisions net of reversals of provisions
for impairment of loans and advances
to customers and other customer credit
losses
------------------------------------------- --------- --------
Loans and advances to customers (Note
27) 741,327 179,758
------------------------------------------- --------- --------
Financial guarantees and commitments 9,593 167
------------------------------------------- --------- --------
750,920 179,925
------------------------------------------- ========= ========
10. Impairment of financial and non-financial instruments (continued)
Impairment/(reversal of impairment) Six months ended
of other financial instruments 30 June
-------------------------------------- -------------------
2017 2016
-------------------------------------- -------- ---------
EUR000 EUR000
-------------------------------------- -------- ---------
Available-for-sale equity securities (98) 530
-------------------------------------- -------- ---------
Available-for-sale mutual funds - 56
-------------------------------------- -------- ---------
Loans and advances to banks 21,684 13,820
-------------------------------------- -------- ---------
Other assets 911 (2,625)
-------------------------------------- -------- ---------
Deposits by banks - 447
-------------------------------------- -------- ---------
22,497 12,228
-------------------------------------- ======== =========
Impairment of non-financial instruments
----------------------------------------- ------- ------
Stock of property (Note 17) 13,484 9,362
----------------------------------------- ======= ======
11. Income tax
Six months ended
30 June
------------------------------------- -------------------
2017 2016
------------------------------------- --------- --------
EUR000 EUR000
------------------------------------- --------- --------
Current tax:
------------------------------------- --------- --------
- Cyprus 2,219 2,063
------------------------------------- --------- --------
- overseas 1,118 1,104
------------------------------------- --------- --------
Cyprus special defence contribution 50 31
------------------------------------- --------- --------
Deferred tax 66,927 5,570
------------------------------------- --------- --------
Prior year tax adjustments 968 2,993
------------------------------------- --------- --------
Other tax charges 1,000 1,934
------------------------------------- --------- --------
72,282 13,695
------------------------------------- ========= ========
The increase in the deferred tax charge is due to the reduction
of the level of deferred tax asset by EUR62 million following
increase in provision for impairment of loans and advances to
customers and evaluation of the recoverability assessment of the
deferred tax asset balance.
12. Earnings per share
Six months ended
30 June
------------------------------------------- ----------------------
2017 2016
------------------------------------------- ---------- ----------
Basic and diluted (losses)/earnings
per share attributable to the owners
of the Company/BOC PCL
------------------------------------------- ---------- ----------
(Loss)/profit for the period attributable
to the owners of the Company/BOC
PCL (EUR thousand) (553,959) 56,372
------------------------------------------- ========== ==========
Weighted average number of shares
in issue during the period, excluding
treasury shares (thousand) 446,056 8,919,162
------------------------------------------- ========== ==========
Basic and diluted (losses)/earnings
per share (EUR cent) (124.2) 0.6
------------------------------------------- ========== ==========
13. Investments
30 June 31 December
2017 2016
----------------------------------- -------- ------------
EUR000 EUR000
----------------------------------- -------- ------------
Investments
----------------------------------- -------- ------------
Investments at fair value through
profit or loss 32,453 43,016
----------------------------------- -------- ------------
Investments available-for-sale 519,088 262,789
----------------------------------- -------- ------------
Investments classified as loans
and receivables 69,957 68,074
----------------------------------- -------- ------------
621,498 373,879
----------------------------------- ======== ============
The amounts pledged as collateral under repurchase agreements
with banks are shown below:
30 June 31 December
2017 2016
----------------------------------- -------- ------------
EUR000 EUR000
----------------------------------- -------- ------------
Investments pledged as collateral
----------------------------------- -------- ------------
Investments available-for-sale 296,325 299,765
----------------------------------- ======== ============
All investments pledged as collateral under repurchase
agreements can be sold or repledged by the counterparty.
Loans and receivables at 30 June 2017 include EUR49,956 thousand
(31 December 2016: EUR49,185 thousand) of debt securities issued by
the Cyprus government and listed on the Cyprus Stock Exchange which
have been determined to be individually impaired, in prior
years.
There were no reclassifications of investments between
categories in the current period or in 2016.
14. Derivative financial instruments
The contract amount and fair value of the derivative financial
instruments is set out below:
30 June 2017 31 December 2016
--------------------- --------------------------------- ---------------------------------
Contract Fair value Contract Fair value
amount amount
--------------------- ---------- --------------------- ---------- ---------------------
Assets Liabilities Assets Liabilities
---------- ------- ------------ ---------- ------- ------------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
--------------------- ---------- ------- ------------ ---------- ------- ------------
Trading derivatives
--------------------- ---------- ------- ------------ ---------- ------- ------------
Forward exchange
rate contracts 23,638 210 283 43,820 794 589
--------------------- ---------- ------- ------------ ---------- ------- ------------
Currency
swaps 1,865,252 2,575 24,556 1,774,916 15,875 8,215
--------------------- ---------- ------- ------------ ---------- ------- ------------
Interest
rate swaps 116,545 180 943 230,874 480 1,901
--------------------- ---------- ------- ------------ ---------- ------- ------------
Currency
options 626 7 372 7,986 85 198
--------------------- ---------- ------- ------------ ---------- ------- ------------
2,006,061 2,972 26,154 2,057,596 17,234 10,903
--------------------- ---------- ------- ------------ ---------- ------- ------------
Derivatives
qualifying
for hedge
accounting
--------------------- ---------- ------- ------------ ---------- ------- ------------
Fair value
hedges
- interest
rate swaps 1,071,959 4,199 46,038 418,293 87 37,463
--------------------- ---------- ------- ------------ ---------- ------- ------------
Net investments
- forward
exchange
rate contracts 117,819 473 1,304 178,605 3,514 259
--------------------- ---------- ------- ------------ ---------- ------- ------------
1,189,778 4,672 47,342 596,898 3,601 37,722
--------------------- ---------- ------- ------------ ---------- ------- ------------
Total 3,195,839 7,644 73,496 2,654,494 20,835 48,625
--------------------- ========== ======= ============ ========== ======= ============
Hedge accounting
Hedges of net investments
The Group's consolidated balance sheet is affected by foreign
exchange differences between the Euro and all non-Euro functional
currencies of overseas subsidiaries and branches and other foreign
operations. The Group hedges its structural currency risk when it
considers that the cost of such hedging is within an acceptable
range (in relation to the underlying risk). This hedging is
effected by financing with borrowings in the same currency as the
functional currency of the overseas subsidiaries and branches, as
well as overseas associates and joint ventures and forward exchange
rate contracts.
As at 30 June 2017, deposits and forward exchange rate contracts
amounting to EUR136,251 thousand and EUR117,819 thousand
respectively (31 December 2016: EUR100,756 thousand and EUR178,605
thousand respectively) have been designated as hedging instruments
and have given rise to a gain of EUR125 thousand (corresponding
period of 2016: gain of EUR36,286 thousand; year ended 31 December
2016: gain of EUR53,408 thousand) which was recognised in the
'Foreign currency translation reserve' in the consolidated
statement of comprehensive income, against the profit or loss from
the retranslation of the net assets of the overseas subsidiaries
and branches.
15. Fair value measurement
The following table presents the carrying value and fair value
of the Group's financial assets and liabilities.
30 June 2017 31 December 2016
-------------------------------- ------------------------ ------------------------
Carrying Fair Carrying Fair
value value value value
-------------------------------- ----------- ----------- ----------- -----------
EUR000 EUR000 EUR000 EUR000
-------------------------------- ----------- ----------- ----------- -----------
Financial assets
-------------------------------- ----------- ----------- ----------- -----------
Cash and balances with
central banks 2,317,297 2,317,297 1,506,396 1,506,396
-------------------------------- ----------- ----------- ----------- -----------
Loans and advances
to banks 707,913 652,658 1,087,837 1,092,964
-------------------------------- ----------- ----------- ----------- -----------
Investments at fair
value through profit
or loss 32,453 32,453 43,016 43,016
-------------------------------- ----------- ----------- ----------- -----------
Investments available-for-sale 815,413 815,413 562,554 562,554
-------------------------------- ----------- ----------- ----------- -----------
Investments classified
as loans and receivables 69,957 74,380 68,074 69,451
-------------------------------- ----------- ----------- ----------- -----------
Derivative financial
assets 7,644 7,644 20,835 20,835
-------------------------------- ----------- ----------- ----------- -----------
Loans and advances
to customers 14,892,661 15,194,534 15,649,401 16,791,164
-------------------------------- ----------- ----------- ----------- -----------
Life insurance business
assets attributable
to policyholders 495,536 495,536 485,633 485,633
-------------------------------- ----------- ----------- ----------- -----------
Assets held for sale 20,179 18,698 - -
-------------------------------- ----------- ----------- ----------- -----------
Other assets 123,918 123,918 131,811 131,811
-------------------------------- ----------- ----------- ----------- -----------
19,482,971 19,732,531 19,555,557 20,703,824
-------------------------------- =========== =========== =========== ===========
Financial liabilities
-------------------------------- ----------- ----------- ----------- -----------
Obligations to central
banks and deposits
by banks 1,314,750 1,314,750 1,284,800 1,284,800
-------------------------------- ----------- ----------- ----------- -----------
Repurchase agreements 256,234 285,321 257,367 292,752
-------------------------------- ----------- ----------- ----------- -----------
Derivative financial
liabilities 73,496 73,496 48,625 48,625
-------------------------------- ----------- ----------- ----------- -----------
Customer deposits 16,583,798 16,594,948 16,509,741 16,492,715
-------------------------------- ----------- ----------- ----------- -----------
Subordinated loan stock 256,503 283,632 - -
-------------------------------- ----------- ----------- ----------- -----------
Other liabilities 190,813 190,813 168,422 168,422
-------------------------------- ----------- ----------- ----------- -----------
18,675,594 18,742,960 18,268,955 18,287,314
-------------------------------- =========== =========== =========== ===========
The fair value of financial assets and liabilities in the above
table is as at the reporting date and does not represent any
expectations about their future value.
The Group uses the following hierarchy for determining and
disclosing fair value:
Level 1: investments valued using quoted prices in active
markets.
Level 2: investments valued using models for which all inputs
that have a significant effect on fair value are market
observable.
Level 3: investments valued using models for which inputs that
have a significant effect on fair value are not based on observable
market data.
For assets and liabilities that are recognised in the
consolidated financial statements at fair value, the Group
determines whether transfers have occurred between levels in the
hierarchy by re-assessing categorisation at the end of each
reporting period.
15. Fair value measurement (continued)
The following is a description of the determination of fair
value for financial instruments which are recorded at fair value on
a recurring and on a non-recurring basis and for financial
instruments which are not measured at fair value but for which fair
value is disclosed, using valuation techniques. These incorporate
the Group's estimate of assumptions that a market participant would
make when valuing the instruments.
Derivative financial instruments
Derivative financial instruments valued using a valuation
technique with market observable inputs are mainly interest rate
swaps, currency swaps, currency rate options, forward foreign
exchange rate contracts, equity options and interest rate collars.
The most frequently applied valuation techniques include forward
pricing and swap models, using present value calculations. The
models incorporate various inputs including the credit quality of
counterparties, foreign exchange spot and forward rates and
interest rate curves.
Credit Valuation Adjustments (CVA) and Debit Valuation
Adjustments (DVA)
The CVA and DVA are incorporated into derivative valuations to
reflect the impact on fair value of counterparty risk and the
Group's own credit quality respectively.
The Group calculates the CVA by applying the probability of
default (PD) of the counterparty, conditional on the non-default of
the Group, to the Group's expected positive exposure to the
counterparty and multiplying the result by the loss expected in the
event of default. Conversely, the Group calculates the DVA by
applying its own PD, conditional on the non-default of the
counterparty, to the expected positive exposure of the counterparty
to Group and multiplying the result by the loss expected in the
event of default. Both calculations are performed over the life of
the potential exposure.
The expected exposure of derivatives is calculated as per the
Capital Requirement Regulations (CRR) and takes into account the
netting agreements where they exist. A standard loss given default
(LGD) assumption in line with industry norms is adopted.
Alternative LGD assumptions may be adopted when both the nature of
the exposure and the available data support this.
The Group does not hold any significant derivative instruments
which are valued using a valuation technique with significant
non-market observable inputs.
Investments available-for-sale and investments at fair value
through profit or loss
Available-for-sale investments and investments at fair value
through profit or loss which are valued using a valuation technique
or pricing models, primarily consist of unquoted equity securities
and debt securities. These assets are valued using valuation models
which sometimes only incorporate market observable data and at
other times use both observable and non-observable data. The rest
of the investments are valued using quoted prices in active
markets.
Loans and advances to customers
The fair value of loans and advances to customers is based on
the present value of expected future cash flows. Future cash flows
have been based on the future expected loss rate per loan
portfolio, taking into account expectations for the credit quality
of the borrowers. The discount rate includes components that
capture the funding cost and the cost of capital.
Customer deposits
The fair value of customer deposits is determined by calculating
the present value of future cash flows. The discount rate takes
into account current market rates and the credit profile of the
Company. The fair values of deposits repayable on demand and
deposits protected by the Deposit Protection Guarantee Scheme are
approximated by their carrying values.
Repurchase agreements
Repurchase agreements are collateralised bank takings. Given
that the collateral provided by the Group is greater than the
amount borrowed, the fair value calculation of these repurchase
agreements only takes into account the time value of money.
15. Fair value measurement (continued)
Loans and advances to banks
Loans and advances to banks with maturity over one year are
discounted using an appropriate risk free rate plus the credit
spread of each counterparty. For short-term lending, the fair value
is approximated by the carrying value.
Deposits by banks
Since almost all deposits by banks are very short-term, the fair
value is an approximation of the carrying value.
Subordinated loan stock
The current issue is liquid with observable quoted prices in
active markets.
Model inputs for valuation
Observable inputs to the models for the valuation of unquoted
equity and debt securities include, where applicable, current and
expected market interest rates, market expected default rates,
market implied country and counterparty credit risk and market
liquidity discounts.
The following table presents the fair value measurement
hierarchy of the Group's assets and liabilities recorded at fair
value, by level of the fair value hierarchy:
Level Level Level Total
1 2 3
--------------------------------- -------- ------- ------- --------
30 June 2017 EUR000 EUR000 EUR000 EUR000
--------------------------------- -------- ------- ------- --------
Financial assets
--------------------------------- -------- ------- ------- --------
Trading derivatives
--------------------------------- -------- ------- ------- --------
Forward exchange rate contracts - 210 - 210
--------------------------------- -------- ------- ------- --------
Currency swaps - 2,575 - 2,575
--------------------------------- -------- ------- ------- --------
Interest rate swaps - 180 - 180
--------------------------------- -------- ------- ------- --------
Currency options - 7 - 7
--------------------------------- -------- ------- ------- --------
- 2,972 - 2,972
--------------------------------- -------- ------- ------- --------
Derivatives qualifying
for hedge accounting
--------------------------------- -------- ------- ------- --------
Fair value hedges-interest
rate swaps - 4,199 - 4,199
--------------------------------- -------- ------- ------- --------
Net investments-forward
exchange rate contracts - 473 - 473
--------------------------------- -------- ------- ------- --------
- 4,672 - 4,672
--------------------------------- -------- ------- ------- --------
Investments at fair value
through profit or loss
--------------------------------- -------- ------- ------- --------
Trading investments 11,452 - 644 12,096
--------------------------------- -------- ------- ------- --------
Other investments at fair
value through profit or
loss 19,446 750 161 20,357
--------------------------------- -------- ------- ------- --------
30,898 750 805 32,453
--------------------------------- -------- ------- ------- --------
Investments available-for-sale 797,581 42 17,790 815,413
--------------------------------- -------- ------- ------- --------
828,479 8,436 18,595 855,510
--------------------------------- ======== ======= ======= ========
For available-for-sale equity securities categorised as Level 3,
for one investment with a carrying amount of EUR9,703 thousand, a
change in the conversion factor by 10% would result in a change in
the value of the equity securities by EUR970 thousand.
15. Fair value measurement (continued)
Level Level Level Total
1 2 3
-------------------------------- -------- ------- ------- ----------
30 June 2017 EUR000 EUR000 EUR000 EUR000
-------------------------------- -------- ------- ------- ----------
Financial liabilities
-------------------------------- -------- ------- ------- ----------
Trading derivatives
-------------------------------- -------- ------- ------- ----------
Forward exchange rate
contracts - 283 - 283
-------------------------------- -------- ------- ------- ----------
Currency swaps - 24,556 - 24,556
-------------------------------- -------- ------- ------- ----------
Interest rate swaps - 943 - 943
-------------------------------- -------- ------- ------- ----------
Currency options - 372 - 372
-------------------------------- -------- ------- ------- ----------
- 26,154 - 26,154
-------------------------------- -------- ------- ------- ----------
Derivatives qualifying
for hedge accounting
-------------------------------- -------- ------- ------- ----------
Fair value hedges-interest
rate swaps - 46,038 - 46,038
-------------------------------- -------- ------- ------- ----------
Net investment-forward
exchange rate contracts - 1,304 - 1,304
-------------------------------- -------- ------- ------- ----------
- 47,342 - 47,342
-------------------------------- -------- ------- ------- ----------
- 73,496 - 73,496
-------------------------------- ======== ======= ======= ========
31 December 2016
-------------------------------- -------- ------- ------- --------
Financial assets
-------------------------------- -------- ------- ------- --------
Trading derivatives
-------------------------------- -------- ------- ------- --------
Forward exchange rate
contracts - 794 - 794
-------------------------------- -------- ------- ------- --------
Currency swaps - 15,875 - 15,875
-------------------------------- -------- ------- ------- --------
Interest rate swaps - 480 - 480
-------------------------------- -------- ------- ------- --------
Currency options - 85 - 85
-------------------------------- -------- ------- ------- --------
- 17,234 - 17,234
-------------------------------- -------- ------- ------- --------
Derivatives qualifying
for hedge accounting
-------------------------------- -------- ------- ------- --------
Fair value hedges-interest
rate swaps - 87 - 87
-------------------------------- -------- ------- ------- --------
Net investments-forward
exchange rate contracts - 3,514 - 3,514
-------------------------------- -------- ------- ------- --------
- 3,601 - 3,601
-------------------------------- -------- ------- ------- --------
Investments at fair value
through profit or loss
-------------------------------- -------- ------- ------- --------
Trading investments 11,787 - 686 12,473
-------------------------------- -------- ------- ------- --------
Other investments at fair
value through profit or
loss 19,189 11,176 178 30,543
-------------------------------- -------- ------- ------- --------
30,976 11,176 864 43,016
-------------------------------- -------- ------- ------- --------
Investments available-for-sale 545,898 41 16,615 562,554
-------------------------------- -------- ------- ------- --------
576,874 32,052 17,479 626,405
-------------------------------- ======== ======= ======= ========
For available-for-sale equity securities categorised as Level 3,
for one investment with a carrying amount of EUR8,740 thousand, a
change in the conversion factor by 10% would result in a change in
the value of the equity securities by EUR874 thousand.
15. Fair value measurement (continued)
Level Level Level Total
1 2 3
---------------------------- ------- ------- ------- -------
31 December 2016 EUR000 EUR000 EUR000 EUR000
---------------------------- ------- ------- ------- -------
Financial liabilities
---------------------------- ------- ------- ------- -------
Trading derivatives
---------------------------- ------- ------- ------- -------
Forward exchange rate
contracts - 589 - 589
---------------------------- ------- ------- ------- -------
Currency swaps - 8,215 - 8,215
---------------------------- ------- ------- ------- -------
Interest rate swaps - 1,901 - 1,901
---------------------------- ------- ------- ------- -------
Currency options - 198 - 198
---------------------------- ------- ------- ------- -------
- 10,903 - 10,903
---------------------------- ------- ------- ------- -------
Derivatives qualifying
for hedge accounting
---------------------------- ------- ------- ------- -------
Fair value hedges-interest
rate swaps - 37,463 - 37,463
---------------------------- ------- ------- ------- -------
Net investments-forward
exchange rate contracts - 259 - 259
---------------------------- ------- ------- ------- -------
- 37,722 - 37,722
---------------------------- ------- ------- ------- -------
- 48,625 - 48,625
---------------------------- ======= ======= ======= =======
During the six months ended 30 June 2017 and during the year
2016 there were no significant transfers between Level 1 and Level
2.
The movement in Level 3 financial instruments which are measured
at fair value is presented below:
2017 2016
------------------------------------------- ------- ---------
EUR000 EUR000
------------------------------------------- ------- ---------
1 January 17,479 55,253
------------------------------------------- ------- ---------
Additions 23 13,867
------------------------------------------- ------- ---------
Disposals and write offs (100) (51,937)
------------------------------------------- ------- ---------
Net gains from fair value changes
recognised in the consolidated statement
of comprehensive income 1,279 485
------------------------------------------- ------- ---------
Realised losses recognised in the (88) -
consolidated income statement
------------------------------------------- ------- ---------
Foreign exchange adjustments 2 (189)
------------------------------------------- ------- ---------
30 June/31 December 18,595 17,479
------------------------------------------- ======= =========
16. Loans and advances to customers
30 June 31 December
2017 2016
--------------------------------------- ------------ ------------
EUR000 EUR000
--------------------------------------- ------------ ------------
Gross loans and advances to customers 18,671,907 19,201,642
--------------------------------------- ------------ ------------
Provisions for impairment of loans
and advances to customers
(Note 27) (3,779,246) (3,552,241)
--------------------------------------- ------------ ------------
14,892,661 15,649,401
--------------------------------------- ============ ============
Additional analysis and information regarding credit risk and
analysis of the provisions for impairment of loans and advances to
customers are set out in Note 27.
17. Stock of property
The carrying value of stock is determined as the lower of cost
and net realisable value. Impairment is recognised if the net
realisable value is below the cost of the stock of property. During
the six months ended 30 June 2017 an impairment loss of EUR13,484
thousand was recognised in 'Impairment of non-financial
instruments' in the consolidated income statement arising from
measuring items at lower of cost and net realisable value. At 30
June 2017, stock of EUR491,422 thousand (31 December 2016:
EUR608,985 thousand) is carried at net realisable value which is
approximately the fair value less costs to sell.
The stock of property includes residential properties, offices
and other commercial properties, manufacturing and industrial
properties, hotels, land (fields and plots) and properties under
construction. The stock of property pledged as collateral for
central bank funding facilities under Eurosystem monetary policy
operations and ELA amounts to EUR20,963 thousand (31 December 2016:
EUR22,055 thousand).
The carrying value of the stock of property is analysed in the
tables below.
2017 2016
--------------------------------------- ---------- ----------
EUR000 EUR000
--------------------------------------- ---------- ----------
1 January 1,427,272 515,858
--------------------------------------- ---------- ----------
Acquisition of subsidiary - 75,632
--------------------------------------- ---------- ----------
Additions 229,247 1,010,059
--------------------------------------- ---------- ----------
Disposals (141,108) (139,316)
--------------------------------------- ---------- ----------
Transfer (to)/from own use properties (129) 1,371
--------------------------------------- ---------- ----------
Impairment (Note 10) (13,484) (36,220)
--------------------------------------- ---------- ----------
Foreign exchange adjustments (67) (112)
--------------------------------------- ---------- ----------
30 June/31 December 1,501,731 1,427,272
--------------------------------------- ========== ==========
Analysis by type and Cyprus Greece Romania Total
country
------------------------------- ---------- -------- -------- ----------
30 June 2017 EUR000 EUR000 EUR000 EUR000
------------------------------- ---------- -------- -------- ----------
Residential properties 115,230 31,700 8,564 155,494
------------------------------- ---------- -------- -------- ----------
Offices and other commercial
properties 279,392 53,821 10,091 343,304
------------------------------- ---------- -------- -------- ----------
Manufacturing and industrial
properties 87,022 52,630 510 140,162
------------------------------- ---------- -------- -------- ----------
Hotels 63,504 540 - 64,044
------------------------------- ---------- -------- -------- ----------
Land (fields and plots) 784,948 5,478 7,471 797,897
------------------------------- ---------- -------- -------- ----------
Properties under construction 830 - - 830
------------------------------- ---------- -------- -------- ----------
Total 1,330,926 144,169 26,636 1,501,731
------------------------------- ========== ======== ======== ==========
31 December 2016
------------------------------- ---------- -------- ------- ----------
Residential properties 90,308 36,810 9,641 136,759
------------------------------- ---------- -------- ------- ----------
Offices and other commercial
properties 256,152 55,676 12,340 324,168
------------------------------- ---------- -------- ------- ----------
Manufacturing and industrial
properties 81,572 53,735 511 135,818
------------------------------- ---------- -------- ------- ----------
Hotels 74,578 544 - 75,122
------------------------------- ---------- -------- ------- ----------
Land (fields and plots) 739,058 5,732 9,824 754,614
------------------------------- ---------- -------- ------- ----------
Properties under construction 791 - - 791
------------------------------- ---------- -------- ------- ----------
Total 1,242,459 152,497 32,316 1,427,272
------------------------------- ========== ======== ======= ==========
18. Prepayments, accrued income and other assets
30 June 31 December
2017 2016
---------------------------------- -------- ------------
EUR000 EUR000
---------------------------------- -------- ------------
Receivables relating to disposal
of operations 42,781 57,056
---------------------------------- -------- ------------
Reinsurers' share of insurance
contract liabilities 48,542 49,973
---------------------------------- -------- ------------
Taxes refundable 35,008 33,582
---------------------------------- -------- ------------
Debtors 25,044 24,571
---------------------------------- -------- ------------
Prepaid expenses 1,775 1,765
---------------------------------- -------- ------------
Retirement benefit plan assets 1,183 668
---------------------------------- -------- ------------
Other assets 89,947 102,296
---------------------------------- -------- ------------
244,280 269,911
---------------------------------- ======== ============
As at 30 June 2017 and 31 December 2016, the receivables
relating to disposal of operations related to the disposal of the
Ukrainian operations during 2014 which are secured and repayable in
June 2019.
During the six months ended 30 June 2017, an impairment of
EUR911 thousand was recognised in relation to other assets
(corresponding period of 2016: reversal of impairment loss of
EUR2,625 thousand) (Note 10).
19. Non-current assets held for sale
30 June 31 December
2017 2016
----------------------------------- -------- ------------
EUR000 EUR000
----------------------------------- -------- ------------
Non-current assets held for sale:
----------------------------------- -------- ------------
- investment properties 11,382 11,411
----------------------------------- -------- ------------
- loans and advances to customers 20,179 -
----------------------------------- -------- ------------
31,561 11,411
----------------------------------- ======== ============
The following non-current assets were classified as held for
sale as at 30 June 2017 and 31 December 2016:
Investment properties
The investment properties classified as held for sale are
properties which management is committed to sell and has proceeded
with an active programme to complete this plan. The disposals are
expected to take place within 12 months from the date of
classification. Investment properties classified as held for sale
are measured at fair value. The results of the fair value changes
are presented within '(Losses)/gains from revaluation and disposal
of investment properties' in the consolidated income statement and
are within the Cyprus or UK operating segments for investment
properties in Cyprus and in the UK and in the Other countries
operating segment for Greek and Romania investment properties.
Loans and advances to customers
The loans and advances to customers classified as held for sale
are loans and advances which management is committed to sell and
has proceeded with an active programme to complete this plan. The
plan is expected to be completed within 12 months from the
classification date. Further information is disclosed in Note
27.
20. Funding from central banks
Funding from central banks comprises funding from the ECB under
Eurosystem monetary policy operations and ELA from the CBC, as set
out in the table below:
30 June 31 December
2017 2016
-------------------------------------- -------- ------------
EUR000 EUR000
-------------------------------------- -------- ------------
Emergency Liquidity Assistance (ELA) - 200,014
-------------------------------------- -------- ------------
Main Refinancing Operations (MRO) 30,000 -
-------------------------------------- -------- ------------
Longer-Term Refinancing Operations
(LTRO) 40,000 50,000
-------------------------------------- -------- ------------
Targeted Longer-Term Refinancing
Operations (TLTRO) 830,000 600,000
-------------------------------------- -------- ------------
900,000 850,014
-------------------------------------- ======== ============
In December 2016, BOC PCL borrowed an amount of EUR600 million
through the new series of TLTRO (TLTRO II) announced by the ECB in
March 2016 and an amount of EUR50 million through the LTRO. In
March 2017, the EUR50 million borrowed through the LTRO matured and
EUR40 million was re-borrowed. In March 2017, BOC PCL raised an
additional EUR230 million funding from ECB, through TLTRO II. In
April 2017, an additional EUR40 million was borrowed through the
MRO and in May 2017 EUR10 million of the MRO was repaid.
As at 30 June 2017, ECB funding was at EUR900 million of which
EUR30 million was from the weekly MRO, EUR40 million was from the
3-month LTRO and EUR830 million was from the 4-year TLTRO II.
The interest rate applied to TLTRO II will be fixed for each
operation at the rate applied in the MRO prevailing at the time of
allotment and is subject to a lower rate for counterparties whose
eligible net lending in the pre-specified period exceeds their
benchmark. This lower rate will be linked to the interest rate on
the deposit facility prevailing at the time of the allotment of
each operation.
ELA funding was repaid in full by BOC PCL on 5 January 2017.
Details on encumbered assets related to the above funding
facilities are disclosed in Note 29.
21. Customer deposits
30 June 31 December
2017 2016
---------------------- ----------- ------------
EUR000 EUR000
---------------------- ----------- ------------
By type of deposit
---------------------- ----------- ------------
Demand 5,922,807 6,182,096
---------------------- ----------- ------------
Savings 1,109,629 1,061,786
---------------------- ----------- ------------
Time or notice 9,551,362 9,265,859
---------------------- ----------- ------------
16,583,798 16,509,741
---------------------- =========== ============
By geographical area
---------------------- ----------- ------------
Cyprus 15,010,106 15,043,362
---------------------- ----------- ------------
United Kingdom 1,570,261 1,464,651
---------------------- ----------- ------------
Romania 3,431 1,728
---------------------- ----------- ------------
16,583,798 16,509,741
---------------------- =========== ============
By currency
---------------------- ----------- ------------
Euro 12,827,176 12,397,828
---------------------- ----------- ------------
US Dollar 1,797,257 2,201,980
---------------------- ----------- ------------
British Pound 1,805,319 1,690,118
---------------------- ----------- ------------
Russian Rouble 40,782 92,472
---------------------- ----------- ------------
Romanian Lei 3,379 1,669
---------------------- ----------- ------------
Swiss Franc 9,505 18,087
---------------------- ----------- ------------
Other currencies 100,380 107,587
---------------------- ----------- ------------
16,583,798 16,509,741
---------------------- =========== ============
21. Customer deposits (continued)
By customer sector Cyprus United Romania Total
Kingdom
----------------------- ----------- ---------- -------- -----------
30 June 2017 EUR000 EUR000 EUR000 EUR000
----------------------- ----------- ---------- -------- -----------
Corporate 1,382,851 49,419 3,252 1,435,522
----------------------- ----------- ---------- -------- -----------
SMEs 630,626 201,540 76 832,242
----------------------- ----------- ---------- -------- -----------
Retail 8,038,945 1,319,302 103 9,358,350
----------------------- ----------- ---------- -------- -----------
Restructuring
----------------------- ----------- ---------- -------- -----------
- Corporate 115,721 - - 115,721
----------------------- ----------- ---------- -------- -----------
- SMEs 39,494 - - 39,494
----------------------- ----------- ---------- -------- -----------
Recoveries
----------------------- ----------- ---------- -------- -----------
- Corporate 7,956 - - 7,956
----------------------- ----------- ---------- -------- -----------
International banking
services 4,096,277 - - 4,096,277
----------------------- ----------- ---------- -------- -----------
Wealth management 698,236 - - 698,236
----------------------- ----------- ---------- -------- -----------
15,010,106 1,570,261 3,431 16,583,798
----------------------- =========== ========== ======== ===========
31 December 2016
----------------------- ----------- ---------- -------- -----------
Corporate 1,184,681 53,457 1,446 1,239,584
----------------------- ----------- ---------- -------- -----------
SMEs 566,172 204,166 178 770,516
----------------------- ----------- ---------- -------- -----------
Retail 7,778,136 1,207,028 104 8,985,268
----------------------- ----------- ---------- -------- -----------
Restructuring
----------------------- ----------- ---------- -------- -----------
- Corporate 192,442 - - 192,442
----------------------- ----------- ---------- -------- -----------
- SMEs 27,685 - - 27,685
----------------------- ----------- ---------- -------- -----------
Recoveries
----------------------- ----------- ---------- -------- -----------
- Corporate 11,176 - - 11,176
----------------------- ----------- ---------- -------- -----------
International banking
services 4,494,755 - - 4,494,755
----------------------- ----------- ---------- -------- -----------
Wealth management 788,315 - - 788,315
----------------------- ----------- ---------- -------- -----------
15,043,362 1,464,651 1,728 16,509,741
----------------------- =========== ========== ======== ===========
Deposits by geographical area are based on the originator
country of the deposit.
22. Subordinated loan stock
Contractual 30 June 31 December
interest 2017 2016
rate
----------------------------- ------------ ------------------- -------------
EUR000 EUR000
----------------------------- ------------ ------------------- -------------
Subordinated Tier 2 Capital
Note 9.25% 256,503 -
----------------------------- ------------ =================== =============
BOC PCL maintains a Euro Medium Term Note ( ) Programme with an
aggregate nominal amount up to EUR4,000 million.
In January 2017, BOC PCL issued a EUR250 million unsecured and
subordinated Tier 2 Capital Note (Note) under BOC PCL's EMTN
Programme. The Note was priced at par with a coupon of 9.25%
payable in January, yearly. The Note matures on 19 January 2027.
BOC PCL has the option to redeem the Note early on 19 January 2022,
subject to applicable regulatory consents.
The Note is listed on the Luxembourg Stock Exchange's Euro
Multilateral Trading Facility (MTF) market.
23. Accruals, deferred income and other liabilities
Other liabilities at 30 June 2017 include retirement benefit
plan liabilities of EUR20,759 thousand (31 December 2016: EUR22,776
thousand) and provisions for pending litigations, claims and
regulatory matters of EUR81,313 thousand (31 December 2016:
EUR48,882 thousand) for which the movement is presented below.
23.1 Provisions for pending litigation, claims and regulatory matters
The movement for the period in the provisions for pending
litigation, claims and regulatory matters is as follows:
2017 2016
--------------------------------------------------- -------- --------
EUR000 EUR000
--------------------------------------------------- -------- --------
1 January 48,882 34,749
--------------------------------------------------- -------- --------
Increase of provisions during the period (Note 9) 36,149 4,533
--------------------------------------------------- -------- --------
Utilisation of provisions (2,008) (7,813)
--------------------------------------------------- -------- --------
Release of provisions during the period (Note 9) (1,220) (4,724)
--------------------------------------------------- -------- --------
Foreign exchange adjustments (490) (95)
--------------------------------------------------- -------- --------
30 June 81,313 26,650
--------------------------------------------------- ======== ========
The provisions for pending litigation, claims and regulatory
matters are analysed as follows:
2017 2016
------------------------------ ------- -------
EUR000 EUR000
------------------------------ ------- -------
Pending litigation or claims 37,525 25,234
------------------------------ ------- -------
Regulatory matters 43,788 23,648
------------------------------ ------- -------
30 June/31 December 81,313 48,882
------------------------------ ======= =======
The recognition of provisions for pending litigation, claims and
regulatory matters is determined in accordance with the accounting
policies set out in Note 2.30.1 of the Annual Consolidated
Financial Statements of BOC group for the year ended 31 December
2016, as detailed in Note 3.4.
23. Accruals, deferred income and other liabilities (continued)
23.2 Pending litigation, claims and regulatory 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. 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.
Apart from what is described below, the Group considers that
none of these matters is material, either individually or in
aggregate. The Group has not disclosed an estimate of the potential
financial effect on its contingent liabilities arising from these
matters where it is not practicable to do so because it is too
early or the outcome is too uncertain or, in cases where it is
practicable, where disclosure could prejudice conduct of the
matters. Provisions have been recognised for those cases where the
Group is able to estimate probable losses. Where an individual
provision is material, the fact that a provision has been made is
stated. 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 matters as at
30 June 2017 and hence it is not believed that such matters, when
concluded, will have a material impact upon the financial position
of the Group.
23.2.1 Pending litigation and claims
Investigations and litigation relating to securities issued by
BOC PCL
A number of institutional and retail customers have filed
various separate actions against BOC PCL alleging that BOC PCL is
guilty of misselling in relation to securities issued by BOC PCL
between 2007 and 2011. Remedies sought include the return of the
money investors paid for these securities. Claims are currently
pending before the courts in Cyprus and in Greece, as well as the
decisions and fines imposed upon BOC PCL in related matters by
Cyprus Securities and Exchange Commission (CySEC) and/or Hellenic
Capital Market Commission (HCMC).
The bonds and capital securities in respect of which claims have
been brought are the following: 2007 Capital Securities, 2008
Convertible Bonds, 2009 Convertible Capital Securities (CCS) and
2011 Convertible Enhanced Capital Securities (CECS).
BOC PCL is defending these claims, particularly with respect to
institutional investors and retail purchasers who received
investment advice from independent investment advisors. In the case
of retail investors, if it can be documented that the relevant BOC
PCL officers 'persuaded' them to proceed with the purchase and/or
purported to offer 'investment advice', BOC PCL may face
significant difficulties. To date, a small number of cases have
been tried in Greece. BOC PCL has appealed against any such cases
which were not ruled in its favour. The resolution of the claims
brought in the courts of Greece is expected to take a number of
years. Provision has been made based on management's best estimate
of probable outflows and based on advice of legal counsel.
Bail-in related litigation
Depositors
A number of the BOC PCL's depositors, who allege that they were
adversely affected by the bail-in, filed claims against BOC PCL and
other parties (such as the CBC and the Ministry of Finance of
Cyprus) on the grounds that, inter alia, the 'Resolution Law of
2013' and the Bail-in Decrees were in conflict with the
Constitution of the Republic of Cyprus and the European Convention
on Human Rights. They are seeking damages for their alleged losses
resulting from the bail-in of their deposits. BOC PCL is defending
these actions.
23. Accruals, deferred income and other liabilities (continued)
23.2 Pending litigation, claims and regulatory matters (continued)
23.2.1 Pending litigation and claims (continued)
Shareholders
Numerous claims were filed by shareholders in 2013 (some of whom
were shareholders of BOC PCL) against the Government and the CBC
before the Supreme Court in relation to the dilution of their
shareholding as a result of the recapitalisation pursuant to the
Resolution Law and the Bail-in Decrees issued thereunder. These
proceedings sought the cancellation and setting aside of the
Bail-in Decrees as unconstitutional and/or unlawful and/or
irregular. BOC PCL appeared in these proceedings as an interested
party to support the position that the cases should be adjudicated
upon in the context of private law. The Supreme Court ruled in
these cases in October 2014 that the proceedings fall within
private and public law and thus fall within the jurisdiction of the
District Courts.
As at the present date, both the Resolution Law and the Bail-in
Decrees have not been annulled by a court of law and thus remain
legally valid and in effect. It is expected that actions for
damages will be instituted by the shareholders in due course before
the District Courts of Cyprus.
Claims based on set-off
Certain claims have been filed by customers against BOC PCL
alleging that the implementation of the bail-in under the Bail-in
Decrees was not carried out correctly in relation to them and, in
particular, that their rights of set-off were not properly
respected. BOC PCL intends to contest such claims.
Laiki Bank depositors and shareholders
BOC PCL has been joined as a defendant with regards to certain
claims which have been brought against Laiki Bank by its
depositors, shareholders and holders of debt securities. These
claims have been brought on grounds similar to the claims brought
by BOC PCL's bailed-in depositors and shareholders as described
above. BOC PCL, inter alia, maintains the position that it should
not be a party to these proceedings.
Implementation of Decrees
Occasionally, other claims are brought against BOC PCL in
respect of the implementation of the Decrees issued following the
adoption of the Resolution Law (as regards the way and methodology
whereby such Decrees have been implemented).
Legal position of the Group
All above claims are being vigorously disputed by the Group, in
close consultation with the appropriate state and governmental
authorities. The position of the Group is that the Resolution Law
and the Decrees take precedence over all other laws. As matters now
stand, both the Resolution Law and the Decrees issued thereunder
are constitutional and lawful, in that they were properly enacted
and have not so far been annulled by any court.
Provident fund case
In December 2015, the Bank of Cyprus Employees Provident Fund
(the Provident Fund) filed an action against BOC PCL claiming EUR70
million allegedly owed as part of BOC PCL's contribution by virtue
of an agreement with the union dated 31 December 2011. Based on
facts currently known, it is not practicable at this time for BOC
PCL to predict the resolution of this matter, including the timing
or any possible impact on BOC PCL, however at this stage the Group
does not expect a material impact on its financial position.
Employment litigation
Former senior officers of BOC PCL have instituted a total of
three claims for unfair dismissal and for Provident Fund
entitlements against BOC PCL and Trustees of the Provident Fund. As
at the present date one case had been dismissed as filed out of
time, but the plaintiff has appealed against this ruling. The Group
does not consider that these cases will have a material impact upon
its financial position.
23. Accruals, deferred income and other liabilities (continued)
23.2 Pending litigation, claims and regulatory matters (continued)
23.2.1 Pending litigation and claims (continued)
Greek case
In connection with a legal dispute (one case by BOC PCL against
Themis and one by Themis against BOC PCL) relating to the BOC PCL's
discontinued operations in Greece (Themis case), a provision was
recognised in previous periods (30 September 2014: EUR38,950
thousand) following a court judgement of the Athens Court of Appeal
(dismissing BOC PCL's case and upholding the Themis case). This
provision was reversed as at 31 December 2014 following the
dismissal of the judgement by the Greek Supreme Court in March
2015. The Supreme Court further ruled that these claims (BOC PCL 's
claim against Themis for approximately EUR25 million which had been
transferred to Piraeus Bank SA in March 2013, as well as Themis'
claim against BOC PCL for a similar amount) are reconsidered by the
Supreme Court on the merits at the instigation of the affected
party. Both cases were heard in December 2016 and the court
reserved its judgement. The Group does not consider that this case
will have a material impact upon its financial position.
Swiss Francs loans litigation in Cyprus and UK
A number of actions have been instituted against BOC PCL by
borrowers who obtained loans in foreign currencies (mainly Swiss
Francs). The central allegation in these cases is that BOC PCL
misled these borrowers and/or misrepresented matters, in violation
of applicable law. BOC PCL intends to contest such proceedings. The
Group does not expect that these actions will have a material
impact upon its financial position.
UK property lending claims
BOC PCL is the defendant in certain proceedings alleging that
BOC PCL is legally responsible for allegedly, inter alia, advancing
and misselling loans for the purchase by UK nationals of property
in Cyprus. The proceedings in the United Kingdom are currently
stayed in order for the parties to have time to negotiate possible
settlements.
General criminal investigations and proceedings
The Attorney General and the Cypriot Police (the Police) are
conducting various investigations and inquiries following and
relating to the financial crisis which culminated in March 2013.
BOC PCL is cooperating fully with the Attorney General and the
Police and is providing all information requested of it. Based on
the currently available information, the Group is of the view that
any further investigations or claims resulting from these
investigations will not have a material impact on its financial
position.
The Attorney General has filed a criminal case against BOC PCL
and five former members of the Board of Directors for alleged
breach of Article 302 (conspiracy to defraud) of Cyprus' criminal
code and Article 19 of the Manipulation of Insider Information and
Market Manipulation (Market Abuse) Law. The alleged offence refers
to the non-publication in a timely manner of the increased capital
shortfall of BOC PCL in 2012. BOC PCL denies all allegations. The
case is pending in court. The maximum penalty on BOC PCL, if found
guilty, will be the imposition of a fine that is not expected to
have a material impact on the financial position of the Group.
The Attorney General has filed a separate criminal case against
BOC PCL and six former members of the Board of Directors of BOC PCL
for alleged breach of Article 19 of the Manipulation of Insider
Information and Market Manipulation (Market Abuse) Law, with
respect to the Greek Government Bonds. The alleged offence refers
to the non-disclosure of the purchase of the Greek Government Bonds
during a specified period. BOC PCL denies all allegations. The case
is pending in court. The maximum penalty on BOC PCL, if found
guilty, will be the imposition of a fine that is not expected to
have a material impact on the financial position of the Group.
In January 2017 the Attorney General has filed a criminal case
against a number of current and former officers of BOC PCL relating
to the reclassification of Greek Government Bonds in April 2010. No
charges were instituted against BOC PCL in this case.
23. Accruals, deferred income and other liabilities (continued)
23.2 Pending litigation, claims and regulatory matters (continued)
23.2.2 Provisions for regulatory matters
The Hellenic Capital Market Commission (HCMC) Investigation
The HCMC is currently in the process of investigating matters
concerning the Group's investment in Greek Government Bonds from
2009 to 2011, including, inter-alia, related non-disclosure of
material information in BOC PCL's CCS and CECS and rights issue
prospectus (tracking the investigation carried out by CySEC in
2013), Greek government bonds' reclassification, ELA disclosures
and allegations by some Greek Government Bond investors regarding
BOC PCL's non-compliance with Markets in Financial Instruments
Directive (MiFID) in respect of investors' direct investments in
Greek Government Bonds.
A specific estimate of the outcome of the investigations or of
the amount of possible fines cannot be given at this stage, though
it is not expected that any resulting liability or damages will
have a material impact on the financial position of the Group.
Additionally, the HCMC has imposed a fine of EUR3 thousand on
BOC PCL regarding the sale of Greek Government Bonds on behalf of
the Greek Government. BOC PCL will consider the decision once
served on it and will decide whether or not to file an appeal.
The Cyprus Securities and Exchange Commission (CySEC)
Investigations
CySEC investigations concerning possible price manipulation
attributable to BOC PCL for the period from 1 November 2009 to 30
June 2010 post the investment in Banca Transylvania and the
adequacy of provisions for the impairment of loans and advances in
year 2011 were completed and they are currently pending with the
CySEC Board.
As the above investigations are in progress or decisions have
been reserved, it is not practical at this stage for the Group to
estimate reliably the possible consequences thereof, though it is
not expected that any resulting liability or damages will have a
material impact on the financial position of the Group.
Additionally, in late 2014 CySEC completed an investigation into
the value of goodwill in CB Uniastrum Bank LLC disclosed in the
interim financial statements of the Group in 2012. In October 2016,
CySEC issued a decision, concluding that BOC PCL was in breach of
certain laws regarding disclosure in accordance, inter alia, with
the Market Manipulation (Market Abuse) Law of 2005 and has imposed
an administrative fine upon BOC PCL of EUR25 thousand. CySEC also
imposed higher fines upon certain former members of the Board of
Directors and former management of BOC PCL. BOC PCL filed a
recourse before the Administrative Court against the decisions of
CySEC and the fine imposed upon BOC PCL. In March 2017, CySEC filed
a legal action against BOC PCL, claiming the amount of EUR25
thousand imposed as a fine.
In 2015, CySEC carried out an investigation into the
reclassification of Greek Government Bonds in April 2010, which was
also completed in 2016 with no findings against BOC PCL.
The investigation regarding the adequacy of provisions for
impairment of loans and advances in year 2013 in light of the
results of the Asset Quality Review was also completed in 2016 with
no finding against BOC PCL.
Commission for the Protection of Competition Investigation
In April 2014, following an investigation which began in 2010,
the Cypriot Commission for the Protection of Competition (the CPC)
issued a statement of objections, alleging violations of Cypriot
and EU competition law relating to the activities and/or omissions
in respect of card payment transactions by, among others, BOC PCL
and JCC Payment Systems Ltd (JCC), a card-processing business
currently 75% owned by BOC PCL.
There was also an allegation concerning BOC PCL's arrangements
with American Express, namely that such exclusive arrangements
violated Cypriot and EU competition law. On both matters, the CPC
has concluded that BOC PCL (in common with other banks and JCC) has
breached the relevant provisions of the applicable law for the
protection of competition. In May 2017 the CPC imposed a fine of
EUR18 million upon BOC PCL and BOC PCL filed a recourse against the
decision and the fine. The payment of the fine has been staying
pending the final outcome of the recourse.
23. Accruals, deferred income and other liabilities (continued)
23.2 Pending litigation, claims and regulatory matters (continued)
23.2.2 Provisions for regulatory matters (continued)
UK regulatory matters
During 2016 BOC group reported on a conduct principle issue for
which a provision for EUR21,508 thousand has been recorded. The
level of the provision represents the best estimate of all probable
outflows arising from customer redress based on information
available to management. Management has continued to reassess the
adequacy of the provision, as well as the assumptions underlying
the calculations based upon experience and other relevant factors
prevailing at that time. A pilot mailing of invitations to complain
is in progress to a statistically representative group of
customers. The results of this pilot will be used to reassess the
adequacy of the provision.
23.3 Other contingent liabilities
The Group, as part of its disposal process of certain of its
operations, has provided various representations, warranties and
indemnities to the buyers. These relate to, among other things, the
ownership of the loans, the validity of the liens, tax exposures
and other matters agreed with the buyers. As a result, the Group
may be obliged to compensate the buyers in the event of a valid
claim by the buyers with respect to the above representations,
warranties and indemnities.
A provision has been made, based on management's best estimate
of probable outflows, where it was assessed that such an outflow is
probable.
24. Share capital
Company BOC PCL
---------------------------- ------------------------ ------------------------
30 June 2017 31 December
2016
---------------------------- ------------------------ ------------------------
Shares Shares
(thousand) EUR000 (thousand) EUR000
---------------------------- ------------ ---------- ------------ ----------
Authorised
---------------------------- ------------ ---------- ------------ ----------
Ordinary shares of EUR0.10
each 10,000,000 1,000,000 47,677,593 4,767,759
---------------------------- ============ ========== ============ ==========
Issued
---------------------------- ------------ ---------- ------------ ----------
1 January 8,922,945 892,294 8,922,945 892,294
---------------------------- ============ ========== ============ ==========
Cancellation of shares
due to reorganisation (8,922,945) (892,294) - -
---------------------------- ------------ ---------- ------------ ----------
Issue of shares 446,200 44,620 - -
---------------------------- ------------ ---------- ------------ ----------
30 June 2017/31 December
2016 446,200 44,620 8,922,945 892,294
---------------------------- ============ ========== ============ ==========
Authorised and issued share capital
2017
The Extraordinary General Meeting (EGM) of the shareholders of
BOC PCL held on 13 December 2016 approved a scheme of arrangement
between the Company, BOC PCL and its shareholders. The scheme of
arrangement introduces the Company as the new holding company of
the Group. Additionally the EGM authorised the directors of BOC PCL
to take all actions necessary or appropriate to carry the scheme of
arrangement into effect. The scheme of arrangement was sanctioned
by the District Court of Nicosia on 21 December 2016.
24. Share capital (continued)
Authorised and issued share capital (continued)
2017 (continued)
Following the submission of the Court Order to the Registrar of
Companies and the Registration, by the latter, of the reduction of
capital, the scheme of arrangement became effective on 18 January
2017. As a result on the same date, the authorised share capital of
BOC PCL which amounted to EUR4,767,759,272.00 divided into
47,677,592,720 ordinary shares with a nominal value of EUR0.10 each
was reduced to EUR3,875,464,818.70 divided into 38,754,648,453.30
ordinary shares with a nominal value of EUR0.10 each and its issued
share capital which amounted to EUR892,294,453.30 divided into
8,922,944,533 ordinary shares with a nominal value of EUR0.10 each
was reduced to nil by cancelling all the shares comprising the
issued share capital of BOC PCL (the Existing Shares) resulting in
the creation of a capital reduction reserve in the accounts of BOC
PCL, equal to the aggregate nominal value of the Existing Shares so
cancelled, and which shall be retained as a non-distributable
capital reserve in accordance with the provisions of subsection (e)
of section 64 of the Companies Law, Cap. 113 (the Reduction of
Capital).
Following the reduction of the share capital of BOC PCL, the
authorised share capital was increased to EUR4,767,759,272 divided
into 47,677,592,720 ordinary shares with a nominal value of EUR0.10
each through the creation of 8,922,944,533 ordinary shares with a
nominal value of EUR0.10 each, each of which shall have the same
rights and shall rank pari passu with the existing ordinary shares
of BOC PCL. Also, the reserve arising in the books of account of
BOC PCL as a result of the cancellation of the Existing Shares was
applied in paying up in full at par 8,922,944,533 new ordinary
shares with a nominal value of EUR0.10 each in the capital of BOC
PCL, which were issued and allotted, credited as fully paid, to the
Company or its nominee(s) in accordance with the scheme of
arrangement.
As mentioned above, all of the shares comprising the issued
share capital of BOC PCL were cancelled and BOC PCL issued and
allotted 8,922,944,533 new ordinary shares of nominal value EUR0.10
each, credited as fully paid to the Company; and the Company issued
and allotted New Shares and procured the issue of Depositary
Interests representing New Shares, in accordance with the terms of
the scheme of arrangement. Each one New Share or one Depository
Interest represents one New Share for each individual holding of 20
Existing Shares. As a result, the Company issued 446,199,933
ordinary shares with a nominal value of EUR0.10 each.
2016
There were no changes to the issued share capital during the
year 2016.
All issued ordinary shares carry the same rights.
Share premium reserve
2017
As a result of the implementation of the scheme of arrangement,
the share premium reserve was created in an amount equal to the
difference between the nominal value of the shares issued pursuant
to the terms of the scheme of arrangement and the net asset value
of BOC PCL.
2016
The share premium reserve was maintained pursuant to the
provisions of section 55 of the Companies Law, Cap. 113 and was not
available for distribution to equity holders in the form of a
dividend.
The share premium as at 31 December 2016 was created in 2014 and
2015 by the issuance of 4,167,234 thousand shares of a nominal
value of EUR0.10 each of a subscription price of EUR0.24 each, and
was reduced by the relevant transaction costs of EUR30,794
thousand.
Reorganisation of the Group
Following the reorganisation of the Group on 18 January 2017 the
Company became the sole shareholder of BOC PCL and consequently the
new parent of the Group. This transaction did not result in any
change of economic substance and hence did not have any effect on
the total equity of the Group. The Group financial results reflect
the difference of EUR558,420 thousand in the amounts of share
capital, share premium and capital reduction reserves as an
adjustment in equity.
24. Share capital (continued)
Reorganisation of the Group (continued)
As these Financial Statements are a continuation of the
consolidated financial statements of the BOC group for the year
ended 31 December 2016, the components of equity for the year then
ended reflect the capital structure of BOC PCL and following the
reorganisation these components of equity reflect the capital
structure of the Company.
Capital reduction reserve
2016
The capital reduction reserve was maintained pursuant to the
provisions of section 55 of the Companies Law, Cap. 113 and was not
available for distribution to equity holders in the form of a
dividend.
The capital reduction reserve was created upon the reduction of
the nominal value of ordinary shares from EUR1.00 each to EUR0.10
each in 2014. The reduction in capital amounted to EUR4,280,140
thousand, of which an amount of EUR2,327,654 thousand was applied
against accumulated losses and an amount of EUR1,952,486 thousand
was credited to the capital reduction reserve.
Treasury shares of the Company
Shares of the Company held by entities controlled by the Group
are deducted from equity on the purchase, sale, issue or
cancellation of such shares. No gain or loss is recognised in the
consolidated income statement. During 2016 all treasury shares
other than those held by the life insurance subsidiary of BOC group
have been disposed of.
The life insurance subsidiary of the Group, as at 30 June 2017,
held a total of 142 thousand shares of the Company (31 December
2016: 2,889 thousand shares of BOC PCL), as part of its financial
assets which are invested for the benefit of insurance
policyholders. The cost of acquisition of these shares was
EUR21,463 thousand (31 December 2016: EUR25,333 thousand).
Share-based payments-share options
Following the incorporation of the Company and its introduction
as the new holding company of the Group in January 2017, the Long
Term Incentive Plan (as approved on 24 November 2015 by the Annual
General Meeting of BOC PCL) was replaced by the Share Option Plan
which operates at the level of the Company. The Share Option plan
is identical to the Long Term Incentive Plan except that the number
of shares in the Company to be issued pursuant to an exercise of
options under the Share Option Plan should not exceed 8,922,945
ordinary shares of a nominal value of EUR0.10 each and the exercise
price was set at EUR5.00 per share. The term of the options was
also extended to between 4-10 years after the grant date.
No share options were granted until the date of replacement of
the Long Term Incentive Plan by the Share Option Plan at the level
of the Company.
25. Cash and cash equivalents
Cash and cash equivalents comprise:
30 June 30 June
2017 2016
---------------------------------- ---------- ----------
EUR000 EUR000
---------------------------------- ---------- ----------
Cash and non-obligatory balances
with central banks 2,169,718 1,392,577
---------------------------------- ---------- ----------
Treasury bills repayable within
three months 20,001 9,992
---------------------------------- ---------- ----------
Loans and advances to banks
with original maturity less
than
three months 538,832 989,911
---------------------------------- ---------- ----------
2,728,551 2,392,480
---------------------------------- ========== ==========
25. Cash and cash equivalents (continued)
Analysis of cash and balances with central banks and loans and
advances to banks
30 June 31 December
2017 2016
---------------------------------- ---------- ------------
EUR000 EUR000
---------------------------------- ---------- ------------
Cash and non-obligatory balances
with central banks 2,169,718 1,363,699
---------------------------------- ---------- ------------
Obligatory balances with central
banks 147,579 142,697
---------------------------------- ---------- ------------
Total cash and balances with
central banks 2,317,297 1,506,396
---------------------------------- ========== ============
Loans and advances to banks
with original maturity less
than
three months 538,832 867,329
------------------------------- -------- ----------
Restricted loans and advances
to banks 143,107 136,398
------------------------------- -------- ----------
Other loans and advances to
banks 25,974 84,110
------------------------------- -------- ----------
Total loans and advances to
banks 707,913 1,087,837
------------------------------- ======== ==========
Restricted loans and advances to banks relate to collateral
under derivative transactions of EUR86,743 thousand (31 December
2016: EUR55,017 thousand) which is not immediately available for
use by the Group, but is released once the transactions are
terminated.
26. Analysis of assets and liabilities by expected maturity
30 June 2017 31 December 2016
----------------------- ------------------------------------ ------------------------------------
Less Over one Total Less Over Total
than year than one year
one year one year
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Assets EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Cash and balances
with central
banks 2,169,828 147,469 2,317,297 1,364,949 141,447 1,506,396
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Loans and advances
to banks 598,400 109,513 707,913 953,160 134,677 1,087,837
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Derivative financial
assets 3,325 4,319 7,644 20,590 245 20,835
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Investments 60,177 857,646 917,823 76,415 597,229 673,644
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Loans and advances
to customers 4,350,368 10,542,293 14,892,661 5,546,601 10,102,800 15,649,401
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Life insurance
business assets
attributable
to policyholders 15,659 494,067 509,726 19,510 480,023 499,533
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Prepayments,
accrued income
and other assets 105,022 139,258 244,280 110,968 158,943 269,911
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Stock of property 637,551 864,180 1,501,731 457,104 970,168 1,427,272
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Property, equipment
and intangible
assets 3,488 428,864 432,352 21 427,835 427,856
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Investment properties - 26,333 26,333 - 38,059 38,059
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Investments
in associates
and joint ventures - 113,993 113,993 - 109,339 109,339
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Deferred tax
assets 7,483 376,098 383,581 2,970 447,471 450,441
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Non-current
assets held
for sale 31,561 - 31,561 11,411 - 11,411
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
7,982,862 14,104,033 22,086,895 8,563,699 13,608,236 22,171,935
----------------------- ========== =========== =========== ========== =========== ===========
Liabilities
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Deposits by
banks 334,743 80,007 414,750 354,778 80,008 434,786
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Funding from
central banks 70,000 830,000 900,000 250,014 600,000 850,014
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Repurchase agreements - 256,234 256,234 - 257,367 257,367
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Derivative financial
liabilities 26,826 46,670 73,496 9,434 39,191 48,625
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Customer deposits 6,110,764 10,473,034 16,583,798 5,367,559 11,142,182 16,509,741
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Insurance liabilities 89,694 506,249 595,943 86,002 497,995 583,997
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Accruals, deferred
income and other
liabilities 269,096 113,856 382,952 273,332 62,593 335,925
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Subordinated
loan stock - 256,503 256,503 - - -
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
Deferred tax
liabilities 16 44,982 44,998 17 45,358 45,375
----------------------- ---------- ----------- ----------- ---------- ----------- -----------
6,901,139 12,607,535 19,508,674 6,341,136 12,724,694 19,065,830
----------------------- ========== =========== =========== ========== =========== ===========
The main assumptions used in determining the expected maturity
of assets and liabilities are set out below.
The investments are classified in the relevant time band based
on expectations as to their realisation. In most cases this is the
maturity date, unless there is an indication that the maturity will
be prolonged or there is an intention to sell, roll or replace the
security with a similar one. The latter would be the case where
there is secured borrowing, requiring the pledging of bonds and
these bonds mature before the maturity of the secured borrowing.
The maturity of bonds is then extended to cover the period of the
secured borrowing.
26. Analysis of assets and liabilities by expected maturity (continued)
Trading investments are classified in the 'less than one year'
time band.
Performing loans and advances to customers in Cyprus are
classified based on the contractual repayment schedule. Overdraft
accounts are classified in the 'over one year' time band. The
impaired loans as defined in
Note 27, net of specific and collective provisions, and the
loans which are past due for more than 90 days, are classified in
the 'over one year' time band except from expected receipts which
are included within time bands, according to historic amounts of
receipts in the last months.
Stock of property is classified in the relevant time band based
on expectations as to its realisation.
The ELA funding which forms part of the funding from central
banks has been included in the 'less than one year' time band as at
31 December 2016, since it was expected to be repaid within one
year. Funding under ELA has a contractual maturity of less than one
year.
A percentage of customer deposits in Cyprus maturing within one
year is transferred in the 'over one year' time band, based on the
observed behavioural analysis. In the United Kingdom deposits are
classified on the basis of contractual maturities.
The expected maturity of all prepayments, accrued income and
other assets and accruals, deferred income and other liabilities is
the same as their contractual maturity. If they don't have a
contractual maturity, the expected maturity is based on the timing
the asset is expected to be realised and the liability is expected
to be settled.
27. Risk management - Credit risk
In the ordinary course of its business the Group is exposed to
credit risk which is monitored through various control mechanisms
across all Group entities in order to prevent undue risk
concentrations and to price credit facilities and products on a
risk-adjusted basis.
Credit risk is the risk that arises from the possible failure of
one or more customers to discharge their obligations towards the
Group.
The Credit Risk department sets the Group's credit disbursement
policies and monitors compliance with credit risk policy applicable
to each business line and monitors the quality of the Group's loans
and advances portfolio through the timely assessment of problematic
customers. The credit exposures from related accounts are
aggregated and monitored on a consolidated basis.
Credit Risk department, safeguards the effective management of
credit risk at all stages of the credit cycle, monitors the quality
of decisions and processes and ensures that credit sanctioning
function is being properly managed.
The credit policies are combined with the methods used for the
assessment of the customers' creditworthiness (credit rating and
credit scoring systems).
The loan portfolio is analysed on the basis of assessments about
the customers' creditworthiness, their economic sector of activity
and the country in which they operate.
The credit risk exposure of the Group is diversified both
geographically and across the various sectors of the economy. The
Credit Risk department determines the prohibitive/dangerous sectors
of the economy and sets out stricter policy rules for these
sectors, according to their degree of riskiness.
The Group's significant judgements, estimates and assumptions
regarding the determination of the level of provisions for
impairment are described in Note 6 'Significant judgements,
estimates and assumptions' of these Financial Statements.
The Market Risk department assesses the credit risk relating to
investments in liquid assets (mainly loans and advances to banks
and debt securities) and submits its recommendations for limits to
be set for banks and countries to the Assets and Liabilities
Committee (ALCO) for approval.
27. Risk management - Credit risk (continued)
Maximum exposure to credit risk and collateral and other credit
enhancements
The table below presents the maximum exposure to credit risk
before taking into account the tangible and measurable collateral
and other credit enhancements held.
30 June 31 December
2017 2016
------------------------------------- ----------- ------------
EUR000 EUR000
------------------------------------- ----------- ------------
Balances with central banks 2,183,068 1,373,802
------------------------------------- ----------- ------------
Loans and advances to banks
(Note 25) 707,913 1,087,837
------------------------------------- ----------- ------------
Trading investments - debt
securities 517 476
------------------------------------- ----------- ------------
Debt securities at fair value
through profit or loss - 10,426
------------------------------------- ----------- ------------
Debt securities classified
as available-for-sale and
loans and receivables 862,203 608,666
------------------------------------- ----------- ------------
Derivative financial instruments
(Note 14) 7,644 20,835
------------------------------------- ----------- ------------
Loans and advances to customers
(Note 16) 14,892,661 15,649,401
------------------------------------- ----------- ------------
Loans and advances to customers 20,179 -
held for sale
(Note 19)
------------------------------------- ----------- ------------
Debtors (Note 18) 25,044 24,571
------------------------------------- ----------- ------------
Reinsurers' share of insurance
contract liabilities
(Note 18) 48,542 49,973
------------------------------------- ----------- ------------
Other assets and receivables
relating to disposal of operations 98,874 107,240
------------------------------------- ----------- ------------
On-balance sheet total 18,846,645 18,933,227
------------------------------------- ----------- ------------
Contingent liabilities
------------------------------------- ----------- ------------
Acceptances and endorsements 7,197 7,606
------------------------------------- ----------- ------------
Guarantees 744,239 797,269
------------------------------------- ----------- ------------
Commitments
------------------------------------- ----------- ------------
Documentary credits 25,159 27,636
------------------------------------- ----------- ------------
Undrawn formal stand-by facilities,
credit lines and other commitments
to lend 2,145,368 2,035,191
------------------------------------- ----------- ------------
Off-balance sheet total 2,921,963 2,867,702
------------------------------------- ----------- ------------
Total credit risk exposure 21,768,608 21,800,929
------------------------------------- =========== ============
27. Risk management - Credit risk (continued)
Maximum exposure to credit risk and collateral and other credit
enhancements (continued)
The Group's maximum exposure to credit risk is analysed by
geographic area as follows:
30 June 31 December
2017 2016
------------------ ----------- ------------
On-balance sheet EUR000 EUR000
------------------ ----------- ------------
Cyprus 16,970,134 17,067,617
------------------ ----------- ------------
Greece 53,266 57,314
------------------ ----------- ------------
Russia 34,357 40,974
------------------ ----------- ------------
United Kingdom 1,715,423 1,602,229
------------------ ----------- ------------
Romania 73,465 165,093
------------------ ----------- ------------
18,846,645 18,933,227
------------------ =========== ============
Off-balance sheet
------------------- ---------- ----------
Cyprus 2,818,574 2,738,382
------------------- ---------- ----------
Greece 80,278 112,596
------------------- ---------- ----------
Russia - -
------------------- ---------- ----------
United Kingdom 22,804 16,327
------------------- ---------- ----------
Romania 307 397
------------------- ---------- ----------
2,921,963 2,867,702
------------------- ========== ==========
Total on and off-balance sheet
-------------------------------- ----------- -----------
Cyprus 19,788,708 19,805,999
-------------------------------- ----------- -----------
Greece 133,544 169,910
-------------------------------- ----------- -----------
Russia 34,357 40,974
-------------------------------- ----------- -----------
United Kingdom 1,738,227 1,618,556
-------------------------------- ----------- -----------
Romania 73,772 165,490
-------------------------------- ----------- -----------
21,768,608 21,800,929
-------------------------------- =========== ===========
The Group offers guarantee facilities to its customers under
which the Group may be required to make payments on their behalf
and enters into commitments to extend credit lines to secure their
liquidity needs.
Letters of credit and guarantee (including standby letters of
credit) commit the Group to make payments on behalf of customers in
the event of a specific act, generally related to the import or
export of goods. Such commitments expose the Group to risks similar
to those of loans and advances and are therefore monitored by the
same policies and control processes.
Loans and advances to customers
The Credit Risk department determines the amount and type of
collateral and other credit enhancements required for the granting
of new loans to customers.
The main types of collateral obtained by the Group are mortgages
on real estate, cash collateral/blocked deposits, bank guarantees,
government guarantees, pledges of equity securities and debt
instruments of public companies, fixed and floating charges over
corporate assets, assignment of life insurance policies, assignment
of rights on certain contracts and personal and corporate
guarantees.
27. Risk management - Credit risk (continued)
Maximum exposure to credit risk and collateral and other credit
enhancements (continued)
The Group's management regularly monitors the changes in the
market value of the collateral and, where necessary, requests the
pledging of additional collateral in accordance with the relevant
agreement.
Other financial instruments
Collateral held as security for financial assets other than
loans and advances is determined by the nature of the financial
instrument. Debt securities and other eligible bills are generally
unsecured with the exception of asset-backed securities and similar
instruments, which are secured by pools of financial assets. In
addition, some debt securities are government-guaranteed.
The Group has chosen the ISDA Master Agreement for documenting
its derivatives activity. It provides the contractual framework
within which dealing activity across a full range of
over-the-counter (OTC) products is conducted and contractually
binds both parties to apply close-out netting across all
outstanding transactions covered by an agreement, if either party
defaults. In most cases the parties execute a Credit Support Annex
(CSA) in conjunction with the ISDA Master Agreement. Under a CSA,
the collateral is passed between the parties in order to mitigate
the market contingent counterparty risk inherent in their open
positions.
Settlement risk arises in any situation where a payment in cash
or securities is made in the expectation of a corresponding receipt
in securities or cash. The Group sets daily settlement limits for
each counterparty. Settlement risk is mitigated when transactions
are effected via established payment systems or on a delivery upon
payment basis.
Credit risk concentration of loans and advances to customers
There are restrictions on loan concentrations which are imposed
by the Banking Law in Cyprus, the relevant CBC Directives and CRR.
According to these restrictions, banks are prohibited from lending
more than 25% of the capital base to a single customer group. The
Group's risk appetite statement imposes stricter concentration
limits and the Group is taking actions to run down those exposures
which are in excess of these internal limits over time.
In addition to the above, the Group's overseas subsidiaries must
comply with guidelines for large exposures as set by the regulatory
authorities of the countries in which they operate.
BOC PCL categorises its loans using the following customer
sectors:
-- Retail - all personal customers and small businesses with
facilities from BOC PCL of up to EUR260 thousand, excluding
professional property loans;
-- SME - any company or group of companies (including personal
and housing loans to the directors or shareholders of a company)
with facilities with BOC PCL in the range of EUR260 thousand to
EUR6 million and a maximum annual credit turnover of EUR10 million;
and
-- Corporate - any company or group of companies (including
personal and housing loans to the directors or shareholders of a
company) with available credit lines with BOC PCL in excess of an
aggregate principal amount of EUR6 million or having a minimum
annual credit turnover of EUR10 million.
In addition, Bank of Cyprus UK Ltd defines corporate loans as
loans over EUR1 million. SME loans are loans less than EUR1 million
and retail loans relate to individuals.
Fair value adjustment on initial recognition
The fair value adjustment on initial recognition relates to the
loans and advances to customers acquired as part of the acquisition
of certain operations of Laiki Bank in 2013 and originated credit
impaired loans. In accordance with the provisions of IFRS 3, this
adjustment has decreased the gross balance of loans and advances to
customers. However, for IFRS 7 disclosure purposes as well as for
credit risk monitoring, the aforementioned adjustment is not
presented within the gross balances of loans and advances.
Loan and advances to customers classified as held for sale
All information presented in this note includes all loans and
advances to customers classified as held for sale with a gross
value after fair value adjustment on initial recognition of
EUR21,181 thousand.
27. Risk management - Credit risk (continued)
Credit risk concentration of loans and advances to customers
(continued)
Geographical and industry concentrations of Group loans and
advances to customers are presented below:
Cyprus Greece United Romania Russia Total Fair value Gross
Kingdom adjustment loans
on initial after
recognition fair value
adjustment
on initial
recognition
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
30 June 2017 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
By economic activity
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Trade 2,068,362 537 12,972 8,525 53,157 2,143,553 (76,746) 2,066,807
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Manufacturing 651,046 - 6,939 6,939 24,619 689,543 (21,371) 668,172
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Hotels and catering 1,409,114 - 104,787 3,176 - 1,517,077 (65,751) 1,451,326
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Construction 2,580,610 - 2,937 12,764 12,252 2,608,563 (177,825) 2,430,738
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Real estate 1,932,291 19,495 1,206,359 128,718 1 3,286,864 (86,197) 3,200,667
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Private individuals 6,836,528 214 40,545 262 - 6,877,549 (210,040) 6,667,509
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Professional and
other services 1,234,529 - 58,346 12,025 67,376 1,372,276 (77,818) 1,294,458
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Other sectors 975,009 336 1,298 32,541 - 1,009,184 (95,773) 913,411
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
17,687,489 20,582 1,434,183 204,950 157,405 19,504,609 (811,521) 18,693,088
--------------------- =========== ======= ========== ======== ======== =========== ============= =============
By customer sector
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Corporate 7,270,080 20,368 1,175,849 194,193 146,831 8,807,321 (396,073) 8,411,248
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
SMEs 3,902,655 - 229,904 10,498 10,574 4,153,631 (184,508) 3,969,123
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Retail
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- housing 4,140,815 - 11,401 99 - 4,152,315 (95,781) 4,056,534
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- consumer, credit
cards and other 2,038,166 214 17,029 160 - 2,055,569 (126,955) 1,928,614
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
International
banking
services 280,525 - - - - 280,525 (3,356) 277,169
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Wealth management 55,248 - - - - 55,248 (4,848) 50,400
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
17,687,489 20,582 1,434,183 204,950 157,405 19,504,609 (811,521) 18,693,088
--------------------- =========== ======= ========== ======== ======== =========== ============= =============
27. Risk management - Credit risk (continued)
Credit risk concentration of loans and advances to customers
(continued)
Cyprus Greece United Romania Russia Total Fair value Gross
Kingdom adjustment loans
on initial after
recognition fair value
adjustment
on initial
recognition
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
30 June 2017 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
By business line
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Corporate 3,214,853 20,368 1,171,288 127,371 146,831 4,680,711 (87,504) 4,593,207
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
SMEs 1,343,821 - 229,904 10,295 10,574 1,594,594 (22,037) 1,572,557
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Retail
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- housing 3,078,673 - 11,401 99 - 3,090,173 (32,915) 3,057,258
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- consumer, credit
cards and other 1,107,520 214 14,974 160 - 1,122,868 (15,543) 1,107,325
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Restructuring
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- major corporate 1,461,761 - - 33,875 - 1,495,636 (101,090) 1,394,546
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- corporate 920,056 - - - - 920,056 (11,056) 909,000
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- SMEs 1,154,590 - - - - 1,154,590 (43,929) 1,110,661
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- retail housing 393,531 - - - - 393,531 (5,687) 387,844
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- retail other 199,942 - - - - 199,942 (7,665) 192,277
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Recoveries
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- corporate 1,673,410 - 4,561 32,947 - 1,710,918 (196,423) 1,514,495
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- SMEs 1,404,244 - - 203 - 1,404,447 (118,542) 1,285,905
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- retail housing 668,611 - - - - 668,611 (57,179) 611,432
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- retail other 730,704 - 2,055 - - 732,759 (103,747) 629,012
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
International
banking
services 280,525 - - - - 280,525 (3,356) 277,169
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Wealth management 55,248 - - - - 55,248 (4,848) 50,400
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
17,687,489 20,582 1,434,183 204,950 157,405 19,504,609 (811,521) 18,693,088
--------------------- =========== ======= ========== ======== ======== =========== ============= =============
Restructuring major corporate business line includes customers
with exposures over EUR100,000 thousand, whereas restructuring
corporate business line includes customers with exposures between
EUR6,000 thousand and EUR100,000 thousand.
27. Risk management - Credit risk (continued)
Credit risk concentration of loans and advances to customers
(continued)
Cyprus Greece United Romania Russia Total Fair value Gross
Kingdom adjustment loans
on initial after
recognition fair value
adjustment
on initial
recognition
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
31 December 2016 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
By economic activity
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Trade 2,044,324 - 13,964 11,141 55,100 2,124,529 (87,576) 2,036,953
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Manufacturing 658,811 - 7,133 7,735 25,396 699,075 (25,734) 673,341
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Hotels and catering 1,302,543 - 112,773 3,263 - 1,418,579 (62,665) 1,355,914
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Construction 2,874,331 - 3,181 75,918 12,793 2,966,223 (210,436) 2,755,787
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Real estate 2,022,559 19,599 1,056,924 200,825 6,934 3,306,841 (114,140) 3,192,701
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Private individuals 6,980,383 214 45,557 3,093 - 7,029,247 (227,057) 6,802,190
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Professional and
other services 1,332,250 - 54,865 12,458 97,148 1,496,721 (80,501) 1,416,220
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Other sectors 1,054,255 337 1,361 32,927 - 1,088,880 (120,344) 968,536
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
18,269,456 20,150 1,295,758 347,360 197,371 20,130,095 (928,453) 19,201,642
--------------------- =========== ======= ========== ======== ======== =========== ============= =============
By customer sector
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Corporate 7,517,473 19,936 1,040,941 334,440 179,293 9,092,083 (481,340) 8,610,743
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
SMEs 4,100,298 - 222,337 12,641 11,144 4,346,420 (202,240) 4,144,180
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Retail
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- housing 4,202,358 - 13,314 100 - 4,215,772 (100,509) 4,115,263
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- consumer, credit
cards and other 2,064,802 214 19,166 179 6,934 2,091,295 (135,350) 1,955,945
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
International
banking
services 321,571 - - - - 321,571 (3,619) 317,952
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Wealth management 62,954 - - - - 62,954 (5,395) 57,559
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
18,269,456 20,150 1,295,758 347,360 197,371 20,130,095 (928,453) 19,201,642
--------------------- =========== ======= ========== ======== ======== =========== ============= =============
27. Risk management - Credit risk (continued)
Credit risk concentration of loans and advances to customers
(continued)
Cyprus Greece United Romania Russia Total Fair value Gross
Kingdom adjustment loans
on initial after
recognition fair value
adjustment
on initial
recognition
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
31 December 2016 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
By business line
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Corporate 2,557,653 19,936 1,036,331 237,203 165,592 4,016,715 (71,064) 3,945,651
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
SMEs 1,377,837 - 222,337 12,442 11,144 1,623,760 (29,071) 1,594,689
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Retail
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- housing 3,531,293 - 13,314 100 - 3,544,707 (40,640) 3,504,067
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- consumer, credit
cards and other 1,317,434 214 17,617 179 - 1,335,444 (26,435) 1,309,009
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Restructuring
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- major corporate 2,080,586 - - 33,947 - 2,114,533 (156,190) 1,958,343
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- corporate 1,014,853 - - - - 1,014,853 (22,795) 992,058
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- SMEs 1,219,572 - - - - 1,219,572 (50,393) 1,169,179
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Recoveries
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- corporate 1,864,381 - 4,610 63,290 13,701 1,945,982 (231,291) 1,714,691
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- SMEs 1,502,889 - - 199 - 1,503,088 (122,776) 1,380,312
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- retail housing 671,065 - - - - 671,065 (59,869) 611,196
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
- retail other 747,368 - 1,549 - 6,934 755,851 (108,915) 646,936
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
International
banking
services 321,571 - - - - 321,571 (3,619) 317,952
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Wealth management 62,954 - - - - 62,954 (5,395) 57,559
--------------------- ----------- ------- ---------- -------- -------- ----------- ------------- -------------
18,269,456 20,150 1,295,758 347,360 197,371 20,130,095 (928,453) 19,201,642
--------------------- =========== ======= ========== ======== ======== =========== ============= =============
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 EUR67,009
thousand (31 December 2016: EUR82,154 thousand) and lending
exposures in Cyprus with collaterals in Greece with a carrying
value of EUR105,562 thousand (31 December 2016: EUR106,968
thousand). Additionally as at 30 June 2017, the loans and advances
to customers in Cyprus include lending exposures to Serbian
entities or with collaterals in Serbia with a carrying value of
EUR15,000 thousand (31 December 2016: EUR9,700 thousand).
27. Risk management - Credit risk (continued)
Currency concentration of loans and advances to customers
Cyprus Greece United Romania Russia Total Fair value Gross
Kingdom adjustment loans
on initial after
recognition fair value
adjustment
on initial
recognition
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
30 June 2017 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Euro 16,835,586 20,582 227 203,426 16,072 17,075,893 (780,911) 16,294,982
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
US Dollar 129,527 - 442 - 44,303 174,272 (5,713) 168,559
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
British Pound 71,586 - 1,423,053 90 - 1,494,729 (456) 1,494,273
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Russian Rouble 197 - - - 97,030 97,227 (1) 97,226
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Romanian Lei - - - 1,434 - 1,434 - 1,434
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Swiss Franc 579,995 - 2,293 - - 582,288 (21,012) 561,276
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Other currencies 70,598 - 8,168 - - 78,766 (3,428) 75,338
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
17,687,489 20,582 1,434,183 204,950 157,405 19,504,609 (811,521) 18,693,088
------------------ =========== ======= ========== ======== ======== =========== ============= =============
31 December
2016
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Euro 17,202,680 20,150 229 345,931 16,079 17,585,069 (882,038) 16,703,031
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
US Dollar 217,503 - 490 - 73,457 291,450 (10,281) 281,169
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
British Pound 41,312 - 1,276,658 88 - 1,318,058 (538) 1,317,520
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Russian Rouble 142 - - - 107,835 107,977 (1) 107,976
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Romanian Lei 1 - - 1,341 - 1,342 - 1,342
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Swiss Franc 719,584 - 7,570 - - 727,154 (31,170) 695,984
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
Other currencies 88,234 - 10,811 - - 99,045 (4,425) 94,620
------------------ ----------- ------- ---------- -------- -------- ----------- ------------- -------------
18,269,456 20,150 1,295,758 347,360 197,371 20,130,095 (928,453) 19,201,642
------------------ =========== ======= ========== ======== ======== =========== ============= =============
27. Risk management - Credit risk (continued)
Credit quality of loans and advances to customers
The following table presents the credit quality of the Group's
loans and advances to customers:
30 June 2017 31 December 2016
--------------- ------------------------------------------- -------------------------------------------
Gross Fair value Gross Gross Fair Gross
loans adjustment loans loans value loans
before on initial after before adjustment after
fair value recognition fair value fair on initial fair
adjustment adjustment value recognition value
on initial on initial adjustment adjustment
recognition recognition on initial on initial
recognition recognition
--------------- ------------- ------------- ------------- ------------- ------------- -------------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
--------------- ------------- ------------- ------------- ------------- ------------- -------------
Neither
past due
nor impaired 11,154,272 (189,368) 10,964,904 10,990,773 (166,185) 10,824,588
--------------- ------------- ------------- ------------- ------------- ------------- -------------
Past due
but not
impaired 2,209,562 (33,703) 2,175,859 2,238,127 (38,743) 2,199,384
--------------- ------------- ------------- ------------- ------------- ------------- -------------
Impaired 6,140,775 (588,450) 5,552,325 6,901,195 (723,525) 6,177,670
--------------- ------------- ------------- ------------- ------------- ------------- -------------
19,504,609 (811,521) 18,693,088 20,130,095 (928,453) 19,201,642
--------------- ============= ============= ============= ============= ============= =============
Past due loans are those with delayed payments or in excess of
authorised credit limits. Impaired loans are those for which a
provision for impairment has been recognised on an individual basis
or for which incurred losses exist at their initial recognition or
customers in Debt Recovery.
During the six months ended 30 June 2017 the total
non-contractual write-offs recorded by the Group amounted to
EUR245,452 thousand (year 2016: EUR517,694 thousand). The remaining
gross loan balance of these customers as at 30 June 2017 was
EUR150,477 thousand (31 December 2016: EUR305,591 thousand), of
which EUR23,171 thousand (31 December 2016: EUR19,651 thousand)
were past due for more than 90 days but not impaired and EUR99,572
thousand (31 December 2016: EUR130,964 thousand) were impaired.
Loans and advances to customers that are past due but not
impaired
30 June 31 December
2017 2016
-------------------- ---------- ------------
Past due analysis: EUR000 EUR000
-------------------- ---------- ------------
- up to 30 days 467,401 455,394
-------------------- ---------- ------------
- 31 to 90 days 322,186 375,161
-------------------- ---------- ------------
- 91 to 180 days 216,789 128,675
-------------------- ---------- ------------
- 181 to 365 days 201,129 140,714
-------------------- ---------- ------------
- over one year 1,002,057 1,138,183
-------------------- ---------- ------------
2,209,562 2,238,127
-------------------- ========== ============
The fair value of the collateral that the Group holds (to the
extent that it mitigates credit risk) in respect of loans and
advances to customers that are past due but not impaired as at 30
June 2017 is
EUR1,792,138 thousand (31 December 2016: EUR1,762,528 thousand).
The fair value of the collateral is capped to the gross carrying
value of the loans and advances to customers.
27. Risk management - Credit risk (continued)
Credit quality of loans and advances to customers
(continued)
Impaired loans and advances to customers
30 June 2017 31 December 2016
---------------- ------------------------------- -------------------------------
Gross loans Fair value Gross Fair value
and advances of collateral loans of collateral
and advances
---------------- -------------- --------------- -------------- ---------------
EUR000 EUR000 EUR000 EUR000
---------------- -------------- --------------- -------------- ---------------
Cyprus 5,747,583 3,514,466 6,384,503 3,953,086
---------------- -------------- --------------- -------------- ---------------
Greece 20,368 18,215 19,936 17,962
---------------- -------------- --------------- -------------- ---------------
Russia 157,405 13,687 196,144 87,381
---------------- -------------- --------------- -------------- ---------------
United Kingdom 12,209 4,603 12,041 7,213
---------------- -------------- --------------- -------------- ---------------
Romania 203,210 51,407 288,571 54,436
---------------- -------------- --------------- -------------- ---------------
6,140,775 3,602,378 6,901,195 4,120,078
---------------- ============== =============== ============== ===============
The fair value of the collateral presented above has been
computed based on the extent that the collateral mitigates credit
risk and has been capped to the gross carrying value of the loans
and advances to customers.
30 June 31 December
2017 2016
------------------- ---------- ------------
Impaired: EUR000 EUR000
------------------- ---------- ------------
* no arrears 408,465 471,855
------------------- ---------- ------------
- up to 30 days 15,236 62,119
------------------- ---------- ------------
- 31 to 90 days 13,842 29,201
------------------- ---------- ------------
- 91 to 180 days 50,653 49,572
------------------- ---------- ------------
- 181 to 365 days 91,233 51,438
------------------- ---------- ------------
- over one year 5,561,346 6,237,010
------------------- ---------- ------------
6,140,775 6,901,195
------------------- ========== ============
Interest income on impaired loans
Interest income from loans and advances to customers includes
interest on the recoverable amount of impaired loans and advances
to customers amounting to EUR74,730 thousand (corresponding period
of 2016: EUR102,377 thousand).
27. Risk management - Credit risk (continued)
Provision for impairment of loans and advances to customers,
including loans and advances to customers held for sale
The movement in provisions for impairment of loans and advances,
including the loans and advances to customers held for sale, is as
follows:
Cyprus United Other Total
Kingdom countries
------------------------------- ---------- --------- ----------- ----------
2017 EUR000 EUR000 EUR000 EUR000
------------------------------- ---------- --------- ----------- ----------
1 January 3,170,161 10,782 371,298 3,552,241
------------------------------- ---------- --------- ----------- ----------
Transfer between geographical
areas 23 (23) - -
------------------------------- ---------- --------- ----------- ----------
Foreign exchange and
other adjustments 42,927 (128) (6,012) 36,787
------------------------------- ---------- --------- ----------- ----------
Applied in writing
off impaired loans
and advances (398,684) (81) (97,643) (496,408)
Interest accrued on
impaired loans and
advances (57,127) (2) (394) (57,523)
------------------------------- ---------- --------- ----------- ----------
Collection of loans
and advances previously
written off 3,822 - 2 3,824
------------------------------- ---------- --------- ----------- ----------
Charge for the period
(Note 10) 729,051 1,206 11,070 741,327
------------------------------- ---------- --------- ----------- ----------
30 June 3,490,173 11,754 278,321 3,780,248
------------------------------- ========== ========= =========== ==========
Individual impairment 2,658,569 9,342 278,315 2,946,226
------------------------------- ========== ========= =========== ==========
Collective impairment 831,604 2,412 6 834,022
------------------------------- ========== ========= =========== ==========
Cyprus United Other Total
Kingdom countries
----------------------------- ---------- --------- ----------- ----------
2016 EUR000 EUR000 EUR000 EUR000
----------------------------- ---------- --------- ----------- ----------
1 January 3,731,750 39,394 422,289 4,193,433
----------------------------- ---------- --------- ----------- ----------
Dissolution of subsidiaries - (6,154) - (6,154)
----------------------------- ---------- --------- ----------- ----------
Acquisition of subsidiary (8,577) - - (8,577)
----------------------------- ---------- --------- ----------- ----------
Foreign exchange and
other adjustments 84,110 (3,441) 1,721 82,390
----------------------------- ---------- --------- ----------- ----------
Applied in writing
off impaired loans
and advances (511,826) (3,699) (61,647) (577,172)
Interest accrued on
impaired loans and
advances (76,360) - (704) (77,064)
----------------------------- ---------- --------- ----------- ----------
Collection of loans
and advances previously
written off 445 - 25 470
----------------------------- ---------- --------- ----------- ----------
Charge/(reversal)
for the period
(Note 10) 152,474 (1,118) 28,402 179,758
----------------------------- ---------- --------- ----------- ----------
30 June 3,372,016 24,982 390,086 3,787,084
----------------------------- ========== ========= =========== ==========
Individual impairment 3,014,735 22,171 383,082 3,419,988
----------------------------- ========== ========= =========== ==========
Collective impairment 357,281 2,811 7,004 367,096
----------------------------- ========== ========= =========== ==========
The above table does not include the fair value adjustments on
initial recognition of loans acquired from Laiki Bank and
provisions for impairment on financial guarantees and commitments
which are part of other liabilities on the balance sheet. The
balance of provisions for impairment of loans and advances to
customers at 30 June 2017 includes EUR1,002 thousand for loans and
advances to customers classified as held for sale. There were no
loans and advances to customers classified as held for sale as at
30 June 2016 or as at 31 December 2016.
27. Risk management - Credit risk (continued)
Provision for impairment of loans and advances to customers,
including loans and advances to customers held for sale
(continued)
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. The
Group at 30 June 2017, following a reconsideration of its strategy,
to more actively explore other innovative strategic solutions to
further accelerate balance sheet de-risking, has modified certain
of its provisioning assumptions and estimates.
At 30 June 2017 the average haircut (including liquidity haircut
and selling expenses) used in the collective provisions calculation
is 32% (31 December 2016: average of 10% of the current market
value of the property for those collaterals for which the increase
in their value is capped to zero and 10% of the projected market
value of the property for those collaterals for which their value
is expected to drop).
The timing of recovery from real estate collaterals used in the
collective provision calculation has been estimated to be on
average 6 years (31 December 2016: average of 3 years except for
customers in Debt Recovery, average of 6 years).
For the calculation of specific provisions, the timing of
recovery of collaterals as well as the haircuts used were based on
the specific facts and circumstances of each case.
In accordance with the Loan Impairment and Provisioning
Procedures Directives of 2014 and 2015 of the Central Bank of
Cyprus (CBC), the cumulative average future change in property
values during the year has been capped to zero.
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 EBA,
which provide guidance and expectations as to relevant definitions
and the treatment/classification of certain parameters/assumptions
used in the estimation of provisions.
Any changes in these assumptions or difference between
assumptions made and actual results could result in significant
changes in the amount of required provisions for impairment of
loans and advances.
27. Risk management - Credit risk (continued)
Provision for impairment of loans and advances to customers
including loans and advances to customers held for sale
(continued)
Sensitivity analysis
The Group has performed sensitivity analysis on certain of the
loan impairment assumptions relating to the loan portfolio in
Cyprus with reference date 30 June 2017. The impact on the
provisions for impairment of loans and advances is presented
below:
Increase/(decrease)
on provisions
for impairment
of loans and
advances
-------------------------------------------------- --------------------
Change in provisions assumptions: EUR000
-------------------------------------------------- --------------------
Increase the timing of recovery from collaterals
by 1 year for all customers 127,834
-------------------------------------------------- --------------------
Decrease the timing of recovery from collaterals
by 1 year for all customers (136,845)
-------------------------------------------------- --------------------
Increase haircuts by 5% on all customers 132,929
-------------------------------------------------- --------------------
Decrease haircuts by 5% on all customers (134,077)
-------------------------------------------------- --------------------
Increase the average expected recovery
period by 1 year and decrease of haircuts
by 5% on all customers 20
-------------------------------------------------- --------------------
Decrease the average expected recovery
period by 1 year and increase haircuts
by 5% on all customers 2,286
-------------------------------------------------- --------------------
Forbearance
Forbearance measures occur in situations in which the borrower
is considered to be unable to meet the terms and conditions of the
contract due to financial difficulties. Taking into consideration
these difficulties, the Group decides to modify the terms and
conditions of the contract to provide the borrower the ability to
service the debt or refinance the contract, either partially or
fully.
The practice of extending forbearance measures constitutes a
grant of a concession whether temporarily or permanently to that
borrower. A concession may involve restructuring the contractual
terms of a debt or payment in some form other than cash, such as an
arrangement whereby the borrower transfers collateral pledged to
the Group. As such, it constitutes an objective indicator that
requires assessing whether impairment is needed.
Modifications of loans and advances that do not affect payment
arrangements, such as restructuring of collateral or security
arrangements are not regarded as sufficient to indicate impairment
as by themselves they do not necessarily indicate credit distress
affecting payment ability.
Rescheduled loans and advances are those facilities for which
the Group has modified the repayment programme (provision of a
grace period, suspension of the obligation to repay one or more
instalments, reduction in the instalment amount and/or elimination
of overdue instalments relating to capital or interest) and current
accounts/overdrafts for which the credit limit has been increased
with the sole purpose of covering an excess.
For an account to qualify for rescheduling it must meet certain
criteria including that the client's business must be considered to
be viable. The extent to which the Group reschedules accounts that
are eligible under its existing policies may vary depending on its
view of the prevailing economic conditions and other factors which
may change from year to year. In addition, exceptions to policies
and practices may be made in specific situations in response to
legal or regulatory agreements or orders.
27. Risk management - Credit risk (continued)
Forbearance (continued)
Forbearance activities may include measures that restructure the
borrower's business (operational restructuring) and/or measures
that restructure the borrower's financing (financial
restructuring).
Restructuring options may be of a short or long-term nature or
combination thereof. The Group has developed and deployed
restructuring solutions, which are suitable for the borrower and
acceptable for the Group.
Short-term restructuring solutions are defined as restructured
repayment solutions of duration of less than two years. In the case
of loans for the construction of commercial property and project
finance, a short-term solution may not exceed one year.
Short-term restructuring solutions can include the
following:
-- Interest only: during a defined short-term period, only
interest is paid on credit facilities and no principal repayment is
made.
-- Reduced payments: decrease of the amount of repayment
instalments over a defined short-term period in order to
accommodate the borrower's new cash flow position.
-- Arrears and/or interest capitalisation: the capitalisation of
arrears and/or of accrued interest arrears to the principal; that
is forbearance of the arrears and addition of any unpaid interest
to the outstanding principal balance for repayment under a
rescheduled program.
-- Grace period: an agreement allowing the borrower a defined
delay in fulfilling the repayment obligations usually with regard
to the principal.
-- Interest rate reduction: permanent or temporary reduction of
interest rate (fixed or variable) into a fair and sustainable
rate.
Long-term restructuring solutions can include the following:
-- Extension of maturity: extension of the maturity of the loan
which allows a reduction in instalment amounts by spreading the
repayments over a longer period.
-- Additional security: when additional liens on unencumbered
assets are obtained as additional security from the borrower in
order to compensate for the higher risk exposure and as part of the
restructuring process.
-- Forbearance of penalties in loan agreements: waiver,
temporary or permanent, of violations of covenants in the loan
agreements.
-- Rescheduling of payments: the existing contractual repayment
schedule is adjusted to a new sustainable repayment program based
on a realistic, current and forecasted, assessment of the cash flow
generation of the borrower.
-- Strengthening of the existing collateral: a restructuring
solution may entail the pledge of additional security for instance,
in order to compensate for the reduction in interest rates or to
balance the advantages the borrower receives from the
restructuring.
-- New loan facilities: new loan facilities may be granted
during a restructuring agreement, which may entail the pledge of
additional security and in the case of inter-creditor arrangements
the introduction of covenants in order to compensate for the
additional risk incurred by the Group in providing a new financing
to a distressed borrower.
-- Debt consolidation: the combination of multiple exposures
into a single loan or limited number of loans.
-- Debt/equity swaps: partial set-off of the debt and obtaining
of an equivalent amount of equity by the Group, with the remaining
debt right-sized to the cash flows of the borrower to allow
repayment to the Group from repayment on the re-sized debt and from
the eventual sale of the equity stake in the business. This
solution is used only in exceptional cases and only where all other
efforts for restructuring are exhausted and after ensuring
compliance with the banking law.
-- Debt/asset swaps: agreement between the Group and the
borrower to voluntarily dispose of the secured asset to partially
or fully repay the debt. The asset may be acquired by the Group and
any residual debt may be restructured within an appropriate
repayment schedule in line with the borrower's reassessed repayment
ability.
27. Risk management - Credit risk (continued)
Forbearance (continued)
-- Debt write-off: cancellation of part or the whole of the
amount of debt outstanding by the borrower. The Group applies the
debt forgiveness solution only as a last resort and in remote cases
having taken into consideration the ability of the borrower to
repay the remaining debt in the agreed timeframe and the moral
hazard.
-- Split and freeze: the customer's debt is split into
sustainable and unsustainable parts. The sustainable part is
restructured and continues to operate. The unsustainable part is
'frozen' for the restructured duration of the sustainable part. At
the maturity of the restructuring, the frozen part is either
forgiven pro-rata (based on the actual repayment of the sustainable
part) or restructured.
Rescheduled loans and advances to customers
The below tables present the Group's rescheduled loans and
advances to customers by industry sector, geography and credit
quality classification, as well as impairment provisions and
tangible collateral held for rescheduled loans.
27. Risk management - Credit risk (continued)
Rescheduled loans and advances to customers (continued)
Cyprus Greece Russia United Romania Total
Kingdom
------------------------------------ ---------- ------- --------- --------- --------- ----------
2017 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------------------------------ ---------- ------- --------- --------- --------- ----------
1 January 7,401,870 337 83,893 90,323 78,881 7,655,304
------------------------------------ ---------- ------- --------- --------- --------- ----------
New loans and advances rescheduled
in the period 270,153 - - 48,376 4,127 322,656
------------------------------------ ---------- ------- --------- --------- --------- ----------
Assets no longer classified
as rescheduled
(including repayments) (658,408) (1) (2,218) (36,142) (13,926) (710,695)
------------------------------------ ---------- ------- --------- --------- --------- ----------
Applied in writing off rescheduled
loans and advances (222,091) - - - (13,000) (235,091)
------------------------------------ ---------- ------- --------- --------- --------- ----------
Interest accrued on rescheduled
loans and advances 154,977 - - 8 745 155,730
------------------------------------ ---------- ------- --------- --------- --------- ----------
Foreign exchange adjustments (6,699) - (3,441) (2,394) (97) (12,631)
------------------------------------ ---------- ------- --------- --------- --------- ----------
30 June 6,939,802 336 78,234 100,171 56,730 7,175,273
------------------------------------ ========== ======= ========= ========= ========= ==========
2016
------------------------------------ ---------- ------- --------- --------- --------- ----------
1 January 8,391,624 24,865 138,376 116,232 119,185 8,790,282
------------------------------------ ---------- ------- --------- --------- --------- ----------
New loans and advances rescheduled
in the period 708,038 - - 31,480 20,514 760,032
------------------------------------ ---------- ------- --------- --------- --------- ----------
Assets no longer classified
as rescheduled
(including repayments) (781,846) - (71,306) (30,452) (1,396) (885,000)
------------------------------------ ---------- ------- --------- --------- --------- ----------
Applied in writing off rescheduled
loans and advances (386,597) - - (278) (83) (386,958)
------------------------------------ ---------- ------- --------- --------- --------- ----------
Interest accrued on rescheduled
loans and advances 170,695 22 575 346 537 172,175
------------------------------------ ---------- ------- --------- --------- --------- ----------
Foreign exchange adjustments 159 - 11,634 (10,796) (61) 936
------------------------------------ ---------- ------- --------- --------- --------- ----------
30 June 8,102,073 24,887 79,279 106,532 138,696 8,451,467
------------------------------------ ========== ======= ========= ========= ========= ==========
The classification as rescheduled loans is discontinued when all
EBA criteria for the discontinuation of the classification as
forborne exposure are met. These are set out in EBA Final draft
Implementing Technical Standards (ITS) on supervisory reporting and
non-performing exposures.
27. Risk management - Credit risk (continued)
Rescheduled loans and advances to customers (continued)
Credit quality
Cyprus Greece Russia United Romania Total
Kingdom
------------------------------- ---------- ------- ------- --------- -------- ----------
30 June 2017 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------------------------- ---------- ------- ------- --------- -------- ----------
Neither past due nor impaired 3,653,747 - - 85,597 113 3,739,457
------------------------------- ---------- ------- ------- --------- -------- ----------
Past due but not impaired 1,300,870 - - 12,601 60 1,313,531
------------------------------- ---------- ------- ------- --------- -------- ----------
Impaired 1,985,185 336 78,234 1,973 56,557 2,122,285
------------------------------- ---------- ------- ------- --------- -------- ----------
6,939,802 336 78,234 100,171 56,730 7,175,273
------------------------------- ========== ======= ======= ========= ======== ==========
31 December 2016
------------------------------- ---------- ------- ------- --------- -------- ----------
Neither past due nor impaired 4,021,923 - - 85,722 85 4,107,730
------------------------------- ---------- ------- ------- --------- -------- ----------
Past due but not impaired 1,212,177 - 671 2,509 225 1,215,582
------------------------------- ---------- ------- ------- --------- -------- ----------
Impaired 2,167,770 337 83,222 2,092 78,571 2,331,992
------------------------------- ---------- ------- ------- --------- -------- ----------
7,401,870 337 83,893 90,323 78,881 7,655,304
------------------------------- ========== ======= ======= ========= ======== ==========
27. Risk management - Credit risk (continued)
Rescheduled loans and advances to customers (continued)
Fair value of collateral
Cyprus Russia United Romania Total
Kingdom
------------------------------- ---------- ------- --------- -------- ----------
30 June 2017 EUR000 EUR000 EUR000 EUR000 EUR000
------------------------------- ---------- ------- --------- -------- ----------
Neither past due nor impaired 3,299,750 - 85,551 127 3,385,428
------------------------------- ---------- ------- --------- -------- ----------
Past due but not impaired 1,094,531 - 12,599 - 1,107,130
------------------------------- ---------- ------- --------- -------- ----------
Impaired 1,435,498 17,760 1,891 25,375 1,480,524
------------------------------- ---------- ------- --------- -------- ----------
5,829,779 17,760 100,041 25,502 5,973,082
------------------------------- ========== ======= ========= ======== ==========
31 December 2016
------------------------------- ---------- ------- --------- -------- ----------
Neither past due nor impaired 3,772,578 - 85,661 80 3,858,319
------------------------------- ---------- ------- --------- -------- ----------
Past due but not impaired 1,021,347 671 2,504 182 1,024,704
------------------------------- ---------- ------- --------- -------- ----------
Impaired 1,828,036 47,740 1,974 22,060 1,899,810
------------------------------- ---------- ------- --------- -------- ----------
6,621,961 48,411 90,139 22,322 6,782,833
------------------------------- ========== ======= ========= ======== ==========
The fair value of collateral presented above has been computed
based on the extent that the collateral mitigates credit risk.
27. Risk management - Credit risk (continued)
Rescheduled loans and advances to customers (continued)
Credit risk concentration
Cyprus Greece Russia United Romania Total
Kingdom
-------------------------- ---------- ------- ------- --------- -------- ----------
30 June 2017 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
-------------------------- ---------- ------- ------- --------- -------- ----------
By economic activity
-------------------------- ---------- ------- ------- --------- -------- ----------
Trade 660,763 - 33,930 233 2,325 697,251
-------------------------- ---------- ------- ------- --------- -------- ----------
Manufacturing 212,956 - 15,988 - 1,392 230,336
-------------------------- ---------- ------- ------- --------- -------- ----------
Hotels and catering 488,617 - - 4,347 3,162 496,126
-------------------------- ---------- ------- ------- --------- -------- ----------
Construction 1,381,037 - 8,435 165 11,361 1,400,998
-------------------------- ---------- ------- ------- --------- -------- ----------
Real estate 1,023,595 - - 84,997 38,009 1,146,601
-------------------------- ---------- ------- ------- --------- -------- ----------
Private individuals 2,408,860 - - 1,268 60 2,410,188
-------------------------- ---------- ------- ------- --------- -------- ----------
Professional and other
services 416,379 - 19,881 9,161 80 445,501
-------------------------- ---------- ------- ------- --------- -------- ----------
Other sectors 347,595 336 - - 341 348,272
-------------------------- ---------- ------- ------- --------- -------- ----------
6,939,802 336 78,234 100,171 56,730 7,175,273
-------------------------- ========== ======= ======= ========= ======== ==========
By customer sector
-------------------------- ---------- ------- ------- --------- -------- ----------
Corporate 3,128,248 336 73,131 85,114 55,786 3,342,615
-------------------------- ---------- ------- ------- --------- -------- ----------
SMEs 1,622,532 - 5,103 13,926 884 1,642,445
-------------------------- ---------- ------- ------- --------- -------- ----------
Retail
-------------------------- ---------- ------- ------- --------- -------- ----------
- housing 1,571,103 - - - - 1,571,103
-------------------------- ---------- ------- ------- --------- -------- ----------
- consumer, credit cards
and other 554,099 - - 1,131 60 555,290
-------------------------- ---------- ------- ------- --------- -------- ----------
International banking
services 61,720 - - - - 61,720
-------------------------- ---------- ------- ------- --------- -------- ----------
Wealth management 2,100 - - - - 2,100
-------------------------- ---------- ------- ------- --------- -------- ----------
6,939,802 336 78,234 100,171 56,730 7,175,273
-------------------------- ========== ======= ======= ========= ======== ==========
27. Risk management - Credit risk (continued)
Rescheduled loans and advances to customers (continued)
Credit risk concentration (continued)
Cyprus Greece Russia United Romania Total
Kingdom
-------------------------- ---------- ------- ------- --------- -------- ----------
30 June 2017 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
-------------------------- ---------- ------- ------- --------- -------- ----------
By business line
-------------------------- ---------- ------- ------- --------- -------- ----------
Corporate 924,822 336 73,131 85,114 51,438 1,134,841
-------------------------- ---------- ------- ------- --------- -------- ----------
SMEs 421,868 - 5,103 13,926 884 441,781
-------------------------- ---------- ------- ------- --------- -------- ----------
Retail
-------------------------- ---------- ------- ------- --------- -------- ----------
- housing 1,135,454 - - - - 1,135,454
-------------------------- ---------- ------- ------- --------- -------- ----------
- consumer, credit cards
and other 325,518 - - 1,131 60 326,709
-------------------------- ---------- ------- ------- --------- -------- ----------
Restructuring
-------------------------- ---------- ------- ------- --------- -------- ----------
- major corporate 951,788 - - - 113 951,901
-------------------------- ---------- ------- ------- --------- -------- ----------
- corporate 728,034 - - - - 728,034
-------------------------- ---------- ------- ------- --------- -------- ----------
- SMEs 802,252 - - - - 802,252
-------------------------- ---------- ------- ------- --------- -------- ----------
- retail housing 261,775 - - - - 261,775
-------------------------- ---------- ------- ------- --------- -------- ----------
- retail other 106,451 - - - - 106,451
-------------------------- ---------- ------- ------- --------- -------- ----------
Recoveries
-------------------------- ---------- ------- ------- --------- -------- ----------
- corporate 523,604 - - - 4,235 527,839
-------------------------- ---------- ------- ------- --------- -------- ----------
- SMEs 398,412 - - - - 398,412
-------------------------- ---------- ------- ------- --------- -------- ----------
- retail housing 173,874 - - - - 173,874
-------------------------- ---------- ------- ------- --------- -------- ----------
- retail other 122,130 - - - - 122,130
-------------------------- ---------- ------- ------- --------- -------- ----------
International banking
services 61,720 - - - - 61,720
-------------------------- ---------- ------- ------- --------- -------- ----------
Wealth management 2,100 - - - - 2,100
-------------------------- ---------- ------- ------- --------- -------- ----------
6,939,802 336 78,234 100,171 56,730 7,175,273
-------------------------- ========== ======= ======= ========= ======== ==========
27. Risk management - Credit risk (continued)
Rescheduled loans and advances to customers (continued)
Credit risk concentration (continued)
Cyprus Greece Russia United Romania Total
Kingdom
-------------------------- ---------- ------- ------- --------- -------- ----------
31 December 2016 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
-------------------------- ---------- ------- ------- --------- -------- ----------
By economic activity
-------------------------- ---------- ------- ------- --------- -------- ----------
Trade 668,305 - 35,229 261 1,624 705,419
-------------------------- ---------- ------- ------- --------- -------- ----------
Manufacturing 214,248 - 16,347 - 1,263 231,858
-------------------------- ---------- ------- ------- --------- -------- ----------
Hotels and catering 619,259 - - 12,139 3,249 634,647
-------------------------- ---------- ------- ------- --------- -------- ----------
Construction 1,539,773 - 8,934 176 25,175 1,574,058
-------------------------- ---------- ------- ------- --------- -------- ----------
Real estate 1,047,280 - - 69,426 47,192 1,163,898
-------------------------- ---------- ------- ------- --------- -------- ----------
Private individuals 2,515,157 - - 996 60 2,516,213
-------------------------- ---------- ------- ------- --------- -------- ----------
Professional and other
services 446,946 - 23,383 7,325 - 477,654
-------------------------- ---------- ------- ------- --------- -------- ----------
Other sectors 350,902 337 - - 318 351,557
-------------------------- ---------- ------- ------- --------- -------- ----------
7,401,870 337 83,893 90,323 78,881 7,655,304
-------------------------- ========== ======= ======= ========= ======== ==========
By customer sector
-------------------------- ---------- ------- ------- --------- -------- ----------
Corporate 3,418,231 337 78,488 74,987 77,556 3,649,599
-------------------------- ---------- ------- ------- --------- -------- ----------
SMEs 1,675,528 - 5,405 14,501 1,265 1,696,699
-------------------------- ---------- ------- ------- --------- -------- ----------
Retail
-------------------------- ---------- ------- ------- --------- -------- ----------
- housing 1,661,487 - - - - 1,661,487
-------------------------- ---------- ------- ------- --------- -------- ----------
- consumer, credit cards
and other 567,426 - - 835 60 568,321
-------------------------- ---------- ------- ------- --------- -------- ----------
International banking
services 74,704 - - - - 74,704
-------------------------- ---------- ------- ------- --------- -------- ----------
Wealth management 4,494 - - - - 4,494
-------------------------- ---------- ------- ------- --------- -------- ----------
7,401,870 337 83,893 90,323 78,881 7,655,304
-------------------------- ========== ======= ======= ========= ======== ==========
27. Risk management - Credit risk (continued)
Rescheduled loans and advances to customers (continued)
Credit risk concentration (continued)
Cyprus Greece Russia United Romania Total
Kingdom
-------------------------- ---------- ------- ------- --------- -------- ----------
31 December 2016 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
-------------------------- ---------- ------- ------- --------- -------- ----------
By business line
-------------------------- ---------- ------- ------- --------- -------- ----------
Corporate 711,872 337 78,488 74,987 77,391 943,075
-------------------------- ---------- ------- ------- --------- -------- ----------
SMEs 464,163 - 5,405 14,501 1,265 485,334
-------------------------- ---------- ------- ------- --------- -------- ----------
Retail
-------------------------- ---------- ------- ------- --------- -------- ----------
- housing 1,494,123 - - - - 1,494,123
-------------------------- ---------- ------- ------- --------- -------- ----------
- consumer, credit cards
and other 449,107 - - 835 60 450,002
-------------------------- ---------- ------- ------- --------- -------- ----------
Restructuring
-------------------------- ---------- ------- ------- --------- -------- ----------
- major corporate 1,371,448 - - - 165 1,371,613
-------------------------- ---------- ------- ------- --------- -------- ----------
- corporate 790,600 - - - - 790,600
-------------------------- ---------- ------- ------- --------- -------- ----------
- SMEs 815,597 - - - - 815,597
-------------------------- ---------- ------- ------- --------- -------- ----------
Recoveries
-------------------------- ---------- ------- ------- --------- -------- ----------
- corporate 544,311 - - - - 544,311
-------------------------- ---------- ------- ------- --------- -------- ----------
- SMEs 395,768 - - - - 395,768
-------------------------- ---------- ------- ------- --------- -------- ----------
- retail housing 167,364 - - - - 167,364
-------------------------- ---------- ------- ------- --------- -------- ----------
- retail other 118,319 - - - - 118,319
-------------------------- ---------- ------- ------- --------- -------- ----------
International banking
services 74,704 - - - - 74,704
-------------------------- ---------- ------- ------- --------- -------- ----------
Wealth management 4,494 - - - - 4,494
-------------------------- ---------- ------- ------- --------- -------- ----------
7,401,870 337 83,893 90,323 78,881 7,655,304
-------------------------- ========== ======= ======= ========= ======== ==========
27. Risk management - Credit risk (continued)
Rescheduled loans and advances to customers (continued)
Provisions for impairment
Cyprus Greece Russia United Romania Total
Kingdom
----------------------- ---------- ------- ------- --------- -------- ----------
30 June 2017 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
----------------------- ---------- ------- ------- --------- -------- ----------
Individual impairment 881,077 336 62,531 1,665 37,327 982,936
----------------------- ---------- ------- ------- --------- -------- ----------
Collective impairment 539,867 - - 409 - 540,276
----------------------- ---------- ------- ------- --------- -------- ----------
1,420,944 336 62,531 2,074 37,327 1,523,212
----------------------- ========== ======= ======= ========= ======== ==========
31 December 2016
----------------------- ---------- ------- ------- --------- -------- ----------
Individual impairment 899,178 337 65,297 1,855 59,791 1,026,458
----------------------- ---------- ------- ------- --------- -------- ----------
Collective impairment 200,069 - 359 365 2 200,795
----------------------- ---------- ------- ------- --------- -------- ----------
1,099,247 337 65,656 2,220 59,793 1,227,253
----------------------- ========== ======= ======= ========= ======== ==========
28. Risk management - Market risk
Market risk is the risk of loss from adverse changes in market
prices - namely from changes in interest rates, exchange rates and
security prices. The Market Risk department is responsible for
monitoring the risk resulting from such changes with the objective
to minimise the impact on earnings and capital. The department also
monitors liquidity risk and credit risk with counterparties and
countries. It is also responsible for monitoring compliance with
the various market risk policies and procedures.
Interest rate risk
Interest rate risk is the risk that the fair value of future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. It arises mainly as a result of
timing differences on the repricing of assets, liabilities and
off-balance sheet items.
Currency risk
Currency risk is the risk that the fair value of future cash
flows of a financial instrument will fluctuate because of changes
in foreign exchange rates.
Price risk
Equity securities price risk
The risk of loss from changes in the price of equity securities
arises when there is an unfavourable change in the prices of equity
securities held by the Group as investments.
Debt securities price risk
Debt securities price risk is the risk of loss as a result of
adverse changes in the prices of debt securities held by the Group.
Debt security prices change as the credit risk of the issuer
changes and/or as the interest rate changes for fixed rate
securities. The Group invests a significant part of its liquid
assets in debt securities issued mostly by governments.
The Group considers that the profile of its market risk has
remained similar to the one prevailing at 31 December 2016 as
presented in Note 44 of the nnual Consolidated Financial Statements
of BOC group for the year 2016.
29. Risk management - Liquidity risk and funding
Liquidity risk is the risk that the Group is unable to fully or
promptly meet current and future payment obligations as and when
they fall due. This risk includes the possibility that the Group
may have to raise funding at high cost or sell assets at a discount
to fully and promptly satisfy its obligations.
It reflects the potential mismatch between incoming and outgoing
payments, taking into account unexpected delays in repayment or
unexpectedly high payment outflows. Liquidity risk involves both
the risk of unexpected increases in the cost of funding of the
portfolio of assets and the risk of being unable to liquidate a
position in a timely manner on reasonable terms.
In order to limit this risk, management aims to achieve
diversified funding sources in addition to the Group's core deposit
base, and has adopted a policy of managing assets with liquidity in
mind and monitoring cash flows and liquidity on a daily basis. The
Group has developed internal control processes and contingency
plans for managing liquidity risk.
Management and structure
The Board of Directors sets the Group's Liquidity Risk Appetite
being the level of risk at which the Group should operate.
The Board of Directors, through its Risk Committee, approves the
Liquidity Policy Statement and reviews almost at every meeting the
liquidity position of the Group. Information on inflows/outflows is
also provided.
29. Risk management - Liquidity risk and funding (continued)
Management and structure (continued)
The ALCO is responsible for setting the policies for the
effective management and monitoring of liquidity across the Group.
It also monitors the liquidity position of its major banking units
at least monthly. Bank of Cyprus UK Ltd ALCO is responsible for
monitoring the liquidity position of the unit and ensuring
compliance with the approved policies. Given the current liquidity
position of BOC PCL, the ALCO considers the monitoring of liquid
assets and the cash inflows/outflows of BOC PCL in Cyprus, to be of
utmost importance.
Group Treasury is responsible for liquidity management at Group
level and for overseeing the operations of Bank of Cyprus UK Ltd,
to ensure compliance with internal and regulatory liquidity
policies and provide direction as to the actions to be taken
regarding liquidity needs. The Group Treasury also manages the
treasury business of Bank of Cyprus Romania, which is in run-down
mode. Every unit is responsible for managing its liquidity and
targets to finance its own needs in the medium term. Group Treasury
assesses on a continuous basis, and informs ALCO at regular time
intervals, the adequacy of the liquid assets and takes the
necessary actions to enhance the Group's liquidity position.
Liquidity is also monitored daily by Market Risk, which is an
independent department responsible to monitor compliance at the
level of individual units, as well as at Group level, with both
internal policies and limits, and with the limits set by the
regulatory authorities in the countries where the Group operates.
Market Risk reports to ALCO the regulatory liquidity position of
the various units of the Group, at least monthly. It also provides
the results of various stress tests to ALCO at least quarterly.
Liquidity is monitored and managed on an ongoing basis
through:
(i) Risk appetite: established Group Risk Appetite together with
the appropriate limits for the management of all risks including
liquidity risk.
(ii) Liquidity policy: sets the responsibilities for managing
liquidity risk as well as the framework, limits and stress test
assumptions.
(iii) Liquidity limits: a number of internal and regulatory
limits are monitored on a daily, monthly and quarterly basis. Where
applicable, a traffic light system (RAG) has been introduced for
the ratios, in order to raise flags when the ratios
deteriorate.
(iv) Early warning indicators: monitoring of a range of
indicators for early signs of liquidity risk in the market or
specific to the Group. These are designed to immediately identify
the emergence of increased liquidity risk to maximise the time
available to execute appropriate mitigating actions.
(v) Liquidity Contingency Plan: maintenance of a Liquidity
Contingency Plan (LCP) which is designed to provide a framework
where a liquidity stress could be effectively managed. The LCP
provides a communication plan and includes management actions to
respond to liquidity stresses.
(vi) Recovery Plan: the Group has developed a Recovery Plan. The
key objectives are to provide the Group with a range of options to
ensure its viability in a stress, to set consistent Early Warning
and Recovery Indicators and to enable the Group to be adequately
prepared to respond to stressed conditions.
Monitoring process
Daily
The daily monitoring of cash flows and highly liquid assets is
important to safeguard and ensure the uninterrupted operations of
the Group's activities. Market Risk prepares a report for
submission to the CBC and ECB/Single Supervisory Mechanism (SSM),
indicating the opening and closing liquidity position, net customer
movements and other movements analysed by the main currencies. In
addition, Group Treasury monitors daily and intraday the customer
inflows and outflows in the main currencies used by the Group.
Since May 2016, Market Risk also prepares daily stress testing
for bank-specific, market wide and combined scenarios. The
requirement is to have sufficient liquidity buffer to enable BOC
PCL to survive a two-week stress period, and adequate capacity to
raise funding under a three month period, under all scenarios.
The liquidity buffer is made up of: Banknotes, CBC balances
(excluding the Minimum Reserve Requirements (MRR)), nostro current
accounts, money market placements up to the stress horizon,
available ECB credit line and market value net of haircut of
eligible unencumbered/available bonds. These are all High Quality
Liquid Assets (HQLA) as per the LCR definitions and /or ECB
Eligible bonds and excludes domestic issues of Cyprus Government
Bonds.
29. Risk management - Liquidity risk and funding (continued)
Monitoring process (continued)
Daily (continued)
The designing of the stress tests followed best practice
guidance and was based on the liquidity risk drivers which are
recognised internationally by both the Prudential Regulation
Authority (PRA) and EBA SREP. The stress tests assumptions are
included in the Group Liquidity Policy which is reviewed on an
annual basis and approved by the Board. However, whenever it is
considered appropriate to amend the assumptions during the year,
approval is requested by ALCO and the Board Risk Committee. The
main items shocked in the different scenarios are: deposit
outflows, wholesale funding, loan repayments, off-balance sheet
commitments, marketable securities and cash collateral for
derivatives and repos.
Weekly
Market Risk prepares a weekly report of Euro and foreign
currency liquidity mismatch which is submitted to the CBC.
Monthly
Market Risk prepares reports monitoring compliance with internal
and regulatory liquidity ratios, for all banking units and for the
Group and submits them to the ALCO, the Executive Committee and the
Board Risk Committee. It also calculates the expected flows under a
stress scenario and compares them with the projected available
liquidity buffer in order to calculate the survival days. The fixed
deposit renewal rates and deposits by tenor are also presented to
the ALCO.
Market Risk reports the LCR and Additional Liquidity Monitoring
Metrics (ALMM) to the CBC/ECB monthly.
Group Treasury prepares a liquidity report which is submitted to
the ALCO on a monthly basis. The report indicates the liquidity
position of BOC PCL, data on monthly customer flows, as well as
other important developments related to liquidity.
Quarterly
The results of the stress testing scenarios prepared daily are
reported to ALCO and Board Risk Committee quarterly. Moreover,
Market Risk reports the Net Stable Funding Ratio (NSFR), Leverage
Ratio to the CBC/ECB quarterly and various other liquidity reports,
included in the short-term exercise of the SSM per their SREP
guidelines.
Annually
The Group prepares on an annual basis its report on Internal
Liquidity Adequacy Assessment Process (ILAAP). Market Risk
coordinates the preparation of ICAAP.
As part of the Group's procedures for monitoring and managing
liquidity risk, there is a Group Liquidity Contingency Plan for
handling liquidity difficulties. The plan details the steps to be
taken in the event that liquidity problems arise, which escalate to
a special meeting of the extended ALCO. The plan sets out the
members of this Committee and a series of the possible actions that
can be taken. This plan, as well as the Group's Liquidity Policy,
is reviewed by ALCO at least annually, during the ILAAP review. The
ALCO submits the updated policy with its recommendations to the
Board through the Board Risk Committee for approval. The approved
policy is notified to the SSM.
Liquidity ratios
The Group LCR presented in the table below, is calculated based
on the Delegated Regulation (EU) 2015/61. It is designed to
establish a minimum level of high-quality liquid assets sufficient
to meet an acute stress lasting for 30 calendar days. It became a
minimum standard on 1 July 2015. The minimum requirement began at
60% in 2015, rising in annual steps to reach 100% on 1 January
2018. During 2017 the minimum requirement is 80%.
The Group LCR is calculated monthly by Market Risk and sent to
CBC/ECB 15 days after the month end. Following ELA repayment in
January 2017, BOC PCL has been concentrating its efforts in
increasing liquid assets and thus improving its LCR.
29. Risk management - Liquidity risk and funding (continued)
Liquidity ratios (continued)
The Group's LCR ratio was as follows:
30 June 31 December
2017 2016
------------------------- -------- ------------
% %
------------------------- -------- ------------
End of reporting period 108 49
------------------------- -------- ------------
Average monthly ratio 85 5
------------------------- -------- ------------
Highest monthly ratio 108 49
------------------------- -------- ------------
Lowest monthly ratio 58 0
------------------------- -------- ------------
BOC PCL is currently not in compliance with the local regulatory
liquidity requirements (which are expected to be abolished by the
year-end) with respect to its operations in Cyprus and therefore is
dependent on continuing regulatory forbearance, however the Group
is currently in compliance with its regulatory liquidity
requirements with respect to the LCR.
As at 30 June 2017 and 31 December 2016 Bank of Cyprus UK Ltd
was in compliance with its regulatory liquidity requirements.
Sources of funding
During the six months ended 30 June 2017, the Group's main
sources of funding were its deposit base and central bank funding,
through the Eurosystem monetary policy operations.
ELA was fully repaid on 5 January 2017 (31 December 2016: EUR200
million).
The liquidity received from central banks is subject to the
relevant regulations and requires qualifying assets as
collateral.
The funding via Eurosystem monetary policy operations ranges
from short term to long term.
As at 30 June 2017, ECB funding was at EUR900 million Of which,
EUR30 million was from the weekly MRO, EUR40 million was from the-3
month LTRO and EUR830 million was from the 4-year TLTRO.
Funding to subsidiaries
The funding provided by BOC PCL to its subsidiaries for
liquidity purposes is repayable as per the terms of the respective
agreements. BOC PCL's subsidiary Bank of Cyprus UK Ltd cannot place
funds with the Group in excess of maximum limits set by the local
regulator.
Any new funding to subsidiaries requires approval from the ECB
and the CBC.
The subsidiaries may proceed with dividend distributions in the
form of cash to BOC PCL, provided that they are not in breach of
their regulatory capital and liquidity requirements. Certain
subsidiaries have a recommendation from their regulator to avoid
any dividend distribution at this point in time.
29. Risk management - Liquidity risk and funding (continued)
Collateral requirements
The carrying values of the Group's encumbered assets as at 30
June 2017 and 31 December 2016 are summarised below:
30 June 31 December
2017 2016
------------------------------ ---------- ------------
EUR000 EUR000
------------------------------ ---------- ------------
Cash and other liquid assets 146,418 139,975
------------------------------ ---------- ------------
Investments 334,317 359,813
------------------------------ ---------- ------------
Loans and advances 2,363,698 2,853,511
------------------------------ ---------- ------------
Property 92,111 93,574
------------------------------ ---------- ------------
2,936,544 3,446,873
------------------------------ ========== ============
Cash is mainly used to cover collateral required for (i)
derivatives and repurchase transactions and (ii) trade finance
transactions and guarantees issued. It is also used as part of the
supplementary assets for the covered bond.
Investments are mainly used as collateral for repurchase
transactions with commercial banks as well as supplementary assets
for the covered bond.
Loans and advances indicated as encumbered as at 30 June 2017
and 31 December 2016 are mainly used as collateral for funding from
the CBC, the covered bond and the ECB.
As at 30 June 2017 no loans and advances to customers were
pledged as collateral for ELA (31 December 2016: EUR787 million).
Loans and advances to customers include mortgage loans of a nominal
amount EUR998 million (31 December 2016: EUR1,002 million) in
Cyprus, pledged as collateral for the covered bond issued by BOC
PCL in 2011 under the Covered Bond Programme. Furthermore housing
loans of a nominal amount EUR1,186 million (31 December 2016:
EUR765 million) in Cyprus are pledged as collateral for the funding
from the ECB (Note 20). At 30 June 2017 BOC PCL's subsidiary Bank
of Cyprus UK Ltd has pledged EUR184 million (31 December 2016:
EUR244 million) of loans and advances to customers with the Funding
for Lending Scheme (FLS) of the Bank of England. These are
available for use as collateral for the subsidiary's participation
in the scheme. As at 30 June 2017 the subsidiary had drawn down
Treasury bills of EUR97 million (31 December 2016: EUR29 million)
under the FLS. These Treasury bills are not recorded on the
consolidated balance sheet as ownership remains with the Bank of
England.
BOC PCL maintains a Covered Bond Programme set up under the
Cyprus Covered Bonds legislation and the Covered Bonds Directive of
the CBC.
Under the Covered Bond Programme, BOC PCL has in issue covered
bonds of EUR650 million secured by residential mortgages originated
in Cyprus. The covered bonds have a maturity date of 18 December
2018, bear interest of 3 months Euribor plus 3.25% on a quarterly
basis and are traded on the Luxemburg Bourse. The covered bonds
have a conditional Pass-Through structure. All the bonds are held
by BOC PCL. The credit rating of the covered bonds was upgraded to
an investment grade rating and the covered bond has become eligible
collateral for the Eurosystem credit operations. As from 2 October
2015, it has been placed as collateral for accessing funding from
the ECB.
Recent developments
The credit ratings of the Republic of Cyprus by the main credit
rating agencies continue to be below investment grade. As a result,
the ECB does not include Cyprus Government Bonds in its asset
purchase programme, or as eligible collateral for Eurosystem
monetary operations.
29. Risk management - Liquidity risk and funding (continued)
Recent developments (continued)
Following the full repayment of ELA on 5 January 2017, all ELA
collateralised loans have been released, but ELA pledged properties
remained pledged as of 30 June 2017. As at 14 July 2017, all ELA
pledged properties have been released.
30. 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 shareholder
value.
The capital adequacy regulations which govern the Group's
operations are established by the CBC/ECB.
The Group complies with the minimum capital requirements (Pillar
I and Pillar II).
In addition, the Group's overseas banking subsidiaries comply
with the regulatory capital requirements of the local regulators in
the countries in which they operate. The insurance subsidiaries of
the Group comply with the requirements of the Superintendent of
Insurance including the minimum solvency ratio. The regulated
investment firms of the Group comply with the regulatory capital
requirements of the CySEC laws and regulations.
Additional information on regulatory capital is disclosed in the
Additional Risk and Capital Management Disclosures including Pillar
3 semi-annual disclosures (Unaudited) which are available on the
Group's Website www.bankofcyprus.com (Investor Relations).
31. Related party transactions
30 June 31 December
2017 2016
------------------------------------- -------- ------------
EUR000 EUR000
------------------------------------- -------- ------------
Loans and advances:
------------------------------------- -------- ------------
- members of the Board of Directors
and other key management personnel 2,717 2,811
------------------------------------- -------- ------------
- connected persons 440 458
------------------------------------- -------- ------------
3,157 3,269
------------------------------------- ======== ============
Deposits:
------------------------------------- ------ ------
- members of the Board of Directors
and other key management personnel 2,522 2,981
------------------------------------- ------ ------
- connected persons 2,850 3,559
------------------------------------- ------ ------
5,372 6,540
------------------------------------- ====== ======
The above table does not include period/year-end balances i.e.
30 June 2017 and 31 December 2016 respectively, for members of the
Board of Directors and their connected persons who resigned during
the period/year.
31. Related party transactions (continued)
Interest income and expense from members of the Board of
Directors and connected persons and other key management personnel
and connected persons from loans and advances and deposits for the
six months ended 30 June 2017 amounted to EUR43 thousand and EUR30
thousand respectively (corresponding period of 2016: EUR55 thousand
and EUR38 thousand respectively). The interest income and expense
are disclosed from the date of their appointment.
In addition to loans and advances, there were contingent
liabilities and commitments in respect of members of the Board of
Directors and their connected persons, mainly in the form of
documentary credits, guarantees and commitments to lend amounting
to EUR89 thousand (31 December 2016: EUR61 thousand). There were
also contingent liabilities and commitments to other key management
personnel and their connected persons amounting to EUR400 thousand
(31 December 2016: EUR385 thousand).
The total unsecured amount of the loans and advances and
contingent liabilities and commitments to members of the Board of
Directors, key management personnel and other connected persons
(using forced-sale values for tangible collaterals and assigning no
value to other types of collaterals) at 30 June 2017 amounted to
EUR652 thousand (31 December 2016: EUR635 thousand).
At 30 June 2017 the Group has a deposit of EUR90 thousand (31
December 2016: EUR4,614 thousand) with Piraeus Bank SA, in which Mr
Arne Berggren is a non-executive Director. The Group has also
provided certain indemnities to Piraeus Bank SA as part of the
disposal of Kyprou Leasing SA in 2015.
At 31 December 2016 the Group had an investment in Invesco Euro
Short Term Bond Fund, in which Mr Wilbur L. Ross Jr. was an
executive Director. The fair value of the investment at 31 December
2016 amounted to EUR4,047 thousand. Mr Ross resigned from the Board
of Directors of the Company on 1 March 2017.
During the six months ended 30 June 2017 premiums of EUR16
thousand and claims of EUR17 thousand were paid between the members
of the Board of Directors of the Company and their connected
persons and the insurance subsidiaries of the Group and commissions
amounting to EUR4 thousand were received by the Group for the
provision of investment services.
Additionally, during the six months ended 30 June 2017, BOC PCL
has signed an agreement to rent property owned by connected persons
to the director Mr Michalis Spanos covering the period from 1 June
2017 to 31 May 2027. The monthly rental expense amounts to EUR4
thousand commencing from June 2018.
There were no other transactions during the six months ended 30
June 2017 and 2016 with connected persons of the current members of
the Board of Directors nor with any members who resigned during the
period.
Connected persons include spouses, minor children and companies
in which directors/other key management personnel hold, directly or
indirectly, at least 20% of the voting shares in a general meeting,
or act as executive director or exercise control of the entities in
any way.
Additional to members of the Board of Directors, related parties
include entities providing key management personnel services to the
Group.
All transactions with members of the Board of Directors and
their connected persons are made on normal business terms as for
comparable transactions with customers of a similar credit
standing. A number of loans and advances have been extended to
other key management personnel and their connected persons on the
same terms as those applicable to the rest of the Group's
employees.
In the opinion of the Board of Directors, there have been no
related party transactions or changes there in, since the year
ended 31 December 2016, that have materially affected the Group's
financial position or performance during the six months ended 30
June 2017.
31. Related party transactions (continued)
Fees and emoluments of members of the Board of Directors and
other key management personnel
Six months ended
30 June
-------------------------------- ----------------------------------
2017 2016
-------------------------------- ----------------- ---------------
Director emoluments EUR000 EUR000
-------------------------------- ----------------- ---------------
Executives
-------------------------------- ----------------- ---------------
Salaries and other short term
benefits 1,075 934
-------------------------------- ----------------- ---------------
Employer's contributions 42 46
-------------------------------- ----------------- ---------------
Retirement benefit plan costs 94 84
-------------------------------- ----------------- ---------------
1,211 1,064
-------------------------------- ----------------- ---------------
Non-executives
-------------------------------- ----------------- ---------------
Fees 428 410
--------------------------------
Total directors' emoluments 1,639 1,474
-------------------------------- ----------------- ---------------
Other key management personnel
emoluments
-------------------------------- ----------------- ---------------
Salaries and other short term
benefits 1,602 1,524
-------------------------------- ----------------- ---------------
Termination benefits - 397
-------------------------------- ----------------- ---------------
Employer's contributions 119 97
-------------------------------- ----------------- ---------------
Retirement benefit plan costs 100 82
-------------------------------- ----------------- ---------------
Total other key management
personnel emoluments 1,821 2,100
-------------------------------- ----------------- ---------------
Total 3,460 3,574
-------------------------------- ===============
The fees of the non-executive Directors include fees as members
of the Board of Directors of the Company and its subsidiaries, as
well as of committees of the Board of Directors.
The termination benefits relate to compensation paid to members
of the Executive Committee who left the Group under the voluntary
exit plan.
The other key management personnel emoluments include the
remuneration of the members of the Executive Committee since the
date of their appointment to the Committee and other members of the
management team who report directly to the Chief Executive Officer
or to the Deputy Chief Executive Officer and Chief Operating
Officer.
32. Group companies
The main subsidiary companies and branches included in the
consolidated financial statements of the Group, their country of
incorporation, their activities, and the percentage held by the
Company (directly or indirectly) as at 30 June 2017 are:
Company Country Activities Percentage holding
(%)
Bank of Cyprus Holdings Public Limited Ireland Holding company N/A
Company
Bank of Cyprus Public Company Ltd Cyprus Commercial bank 100
The Cyprus Investment and Securities Investment banking,
Corporation Ltd (CISCO) Cyprus asset management and brokerage 100
General Insurance of Cyprus Ltd Cyprus General insurance 100
EuroLife Ltd Cyprus Life insurance 100
Kermia Ltd Cyprus Property trading and development 100
Kermia Properties & Investments Ltd Cyprus Property trading and development 100
Cytrustees Investment Public Company Ltd Cyprus Closed-end investment company 54
LCP Holdings and Investments Public Ltd Cyprus Holding company 67
JCC Payment Systems Ltd Cyprus Card processing transaction services 75
CLR Investment Fund Public Ltd Cyprus Investment company 20
Auction Yard Ltd Cyprus Auction company 100
BOC Secretarial Company Ltd Cyprus Secretarial services 100
Land development and operation of a
S.Z. Eliades Leisure Ltd Cyprus golf resort 70
Bank of Cyprus Public Company Ltd Greece Administration of guarantees and N/A
(branch of the Company) holding of real estate properties
Bank of Cyprus UK Ltd United Kingdom Commercial bank 100
Bank of Cyprus Financial Services Ltd
(formerly BOC Financial Services Ltd) United Kingdom Financial advisory services 100
Collection of the existing portfolio of
BOC Asset Management Romania S.A. receivables, including third party
(formerly Cyprus Leasing S.A.) Romania collections 100
MC Investment Assets Management LLC Russia Problem asset management company 100
Kyprou Finance (NL) B.V. Netherlands Financing services 100
Fortuna Astrum Ltd Serbia Problem asset management company 100
In addition to the above companies, at 30 June 2017 BOC PCL had
100% shareholding in the companies listed below whose activity is
the ownership and management of immovable property:
32. Group companies (continued)
Cyprus: Timeland Properties Ltd, Cobhan Properties Ltd, Bramwell
Properties Ltd, Birkdale Properties Ltd, Newington Properties Ltd,
Innerwick Properties Ltd, Ramendi Properties Ltd, Ligisimo
Properties Ltd, Polkima Properties Ltd, Nalmosa Properties Ltd,
Smooland Properties Ltd, Emovera Properties Ltd, Estaga Properties
Ltd, Skellom Properties Ltd, Blodar Properties Ltd, Spaceglowing
Properties Ltd, Threefield Properties Ltd, Ecunaland Properties
Ltd, Tebane Properties Ltd, Cranmer Properties Ltd, Vieman Ltd, Les
Coraux Estates Ltd, Natakon Company Ltd, Oceania Ltd, Dominion
Industries Ltd, Ledra Estate Ltd, Eurolife Properties Ltd, Laiki
Lefkothea Center Ltd, Labancor Ltd, Steparco Ltd, Joberco Ltd,
Zecomex Ltd, Domita Estates Ltd, Memdes Estates Ltd, Pamaco Platres
Complex Ltd, Vameron Properties Ltd, Thryan Properties Ltd, Otoba
Properties Ltd, Edoric Properties Ltd, Canosa Properties Ltd, Silen
Properties Ltd, Kernland Properties Ltd, Unduma Properties Ltd,
Kimrar Properties Ltd, Jobelis Properties Ltd, Pekiro Properties
Ltd, Melsolia Properties Ltd, Nimoland Properties Ltd, Lozzaria
Properties Ltd, Koralmon Properties Ltd, Petrassimo Properties Ltd,
Kedonian Properties Ltd, Lasteno Properties Ltd, Armozio Properties
Ltd, Spacous Properties Ltd, Calinora Properties Ltd, Marcozaco
Properties Ltd, Soluto Properties Ltd, Solomaco Properties Ltd,
Linaland Properties Ltd, Andaz Properties Ltd, Unital Properties
Ltd, Neraland Properties Ltd, Canemia Properties Ltd, Wingstreet
Properties Ltd, Nolory Properties Ltd, Lynoco Properties Ltd,
Fitrus Properties Ltd, Lisbo Properties Ltd, Mantinec Properties
Ltd, Syniga Properties Ltd, Colar Properties Ltd, Irisa Properties
Ltd, Valiro Properties Ltd, Avolo Properties Ltd, Bracando
Properties Ltd, Provezaco Properties Ltd, Hillbay Properties Ltd,
Jungax Properties Ltd, Ofraco Properties Ltd, Forenaco Properties
Ltd, Vidalaco Properties Ltd, Hovita Properties Ltd, Badrul
Properties Ltd, Belaland Properties Ltd, Bothwick Properties Ltd,
Fireford Properties Ltd, Citlali Properties Ltd, Endar Properties
Ltd, Astromeria Properties Ltd, Orzo Properties Ltd, Basiga
Properties Ltd, Regetona Properties Ltd, Arcandello Properties Ltd,
Camela Properties Ltd, Nerofarm Properties Ltd, Subworld Properties
Ltd, Jongeling Properties Ltd, Introserve Properties Ltd, Alomco
Properties Ltd, Cereas Properties Ltd, Fareland Properties Ltd,
Sindelaco Properties Ltd, Barosca Properties Ltd, Fogland
Properties Ltd, Tebasco Properties Ltd, Dolapo Properties Ltd,
Homirova Properties Ltd, Valecross Properties Ltd, Altco Properties
Ltd, Forsban Properties Ltd, Marisaco
Properties Ltd, Olivero Properties Ltd, Cavadino Properties Ltd,
Jaselo Properties Ltd, Elosa Properties Ltd, Garveno Properties
Ltd, Flona Properties Ltd, Toreva Properties Ltd, Resoma Properties
Ltd, Mostero Properties Ltd, Helal Properties Ltd, Yossi Properties
Ltd, Gozala Properties Ltd, Pendalo Properties Ltd, Frontyard
Properties Ltd, Bascot Properties Ltd, Bonsova Properties Ltd,
Nasebia Properties Ltd, Vanemar Properties Ltd, Garmozy Properties
Ltd, Orasmo Properties Ltd, Palmco Properties Ltd, Thermano
Properties Ltd, Indene Properties Ltd, Ingane Properties Ltd,
Venicous Properties Ltd, Lasmane Properties Ltd, Lorman Properties
Ltd, Caruzoco Properties Ltd, Consoly Properties Ltd, Eracor
Properties Ltd, Alomnia Properties Ltd, Rulemon Properties Ltd,
Thelemic Properties Ltd, Maledico Properties Ltd, Dentorio
Properties Ltd, Valioco Properties Ltd, Bascone Properties Ltd,
Artozaco Properties Ltd, Elizano Properties Ltd, Letimo Properties
Ltd (previously K. Athienitis Kalamon Ltd), Allodica Properties
Ltd, Balasec Properties Ltd, Bendolio Properties Ltd, Carnota
Properties Ltd, Desogus Properties Ltd, Diafor Properties Ltd,
Fantasio Properties Ltd, Kartama Properties Ltd, Nelipo Properties
Ltd, Paradexia Properties Ltd, Paramina Properties Ltd, Prosilia
Properties Ltd, Nouralia Properties Ltd, Resocot Properties Ltd,
Soblano Properties Ltd, Talamon Properties Ltd, Warmbaths
Properties Ltd, Weinar Properties Ltd and Zemialand Properties
Ltd.
32. Group companies (continued)
Romania: Otherland Properties Dorobanti SRL, Battersee Real
Estate SRL, Trecoda Real Estate SRL, Green Hills Properties SRL,
Bocaland Properties SRL, Commonland Properties SRL, Romaland
Properties SRL, Blindingqueen Properties SRL, Fledgego Properties
SRL, Hotel New Montana SRL, Loneland Properties SRL, Imoreth
Properties SRL, Inroda Properties SRL, Melgred Properties SRL,
Tantora Properties SRL, Zunimar Properties SRL, Allioma Properties
SRL and Nikaba Properties SRL.
Further, at 30 June 2017 BOC PCL had 100% shareholding in
Obafemi Holdings Ltd, Stamoland Properties Ltd, Gosman Properties
Ltd and Unoplan Properties Ltd whose main activities are the
holding of shares and other investments and the provision of
services and they are registered in Cyprus.
At 30 June 2017 BOC PCL had 100% shareholding in the companies
listed below which are reserved to accept property:
Cyprus: Belvesi Properties Ltd, Tavoni Properties Ltd, Demoro
Properties Ltd, Primaco Properties Ltd, Amary Properties Ltd,
Hamura Properties Ltd, Gileco Properties Ltd, Meriaco Properties
Ltd, Venetolio Properties Ltd, Flymoon Properties Ltd, Senadaco
Properties Ltd, Intelamon Properties Ltd, Holstone Properties Ltd,
Mazima Properties Ltd, Lancast Properties Ltd, Alepar Properties
Ltd, Jomento Properties Ltd, Rosalica Properties Ltd, Zandexo
Properties Ltd, Calandomo Properties Ltd, Cramonco Properties Ltd,
Bigwaive Properties Ltd, Tasabo Properties Ltd, Coeval Properties
Ltd, Asianco Properties Ltd, Barway Properties Ltd, Fastflow
Properties Ltd, Kenelyne Properties Ltd, Monata Properties Ltd,
Pariza Properties Ltd, Riveland Properties Ltd, Secretsky
Properties Ltd, Valecast Properties Ltd, Nigora Properties Ltd,
Legamon Properties Ltd, Comenal Properties Ltd, Nivoco Properties
Ltd, Devoco Properties Ltd, Harimo Properties Ltd, Finacap
Properties Ltd, Teresan Properties Ltd and Ganina Properties
Ltd.
Romania: Selilar Properties SRL.
In addition, BOC PCL holds 100% of the following intermediate
holding companies:
Cyprus: Otherland Properties Ltd, Pittsburg Properties Ltd,
Battersee Properties Ltd, Trecoda Properties Ltd, Bonayia
Properties Ltd, Bocaland Properties Ltd, Buchuland Properties Ltd,
Commonland Properties Ltd, Romaland Properties Ltd, BC Romanoland
Properties Ltd, Blindingqueen Properties Ltd, Fledgego Properties
Ltd, Janoland Properties Ltd, Threerich Properties Ltd, Loneland
Properties Ltd, Unknownplan Properties Ltd, Frozenport Properties
Ltd, Imoreth Properties Ltd, Inroda Properties Ltd, Melgred
Properties Ltd, Tantora Properties Ltd, Zunimar Properties Ltd,
Selilar Properties Ltd, Mirodi Properties Ltd, Nallora Properties
Ltd, Nikaba Properties Ltd, Allioma Properties Ltd, Landanafield
Properties Ltd and Hydrobius Properties Ltd.
The Group also holds 100% of the following companies which are
inactive:
Cyprus: Laiki Bank (Nominees) Ltd, Fairford Properties Ltd,
Thames Properties Ltd, Paneuropean Ltd, Philiki Ltd, Cyprialife
Ltd, Imperial Life Assurance Ltd, Philiki Management Services Ltd,
Nelcon Transport Co. Ltd, Ilera Properties Ltd, Weinco Properties
Ltd, Calomland Properties Ltd, Lameland Properties Ltd, BOC Asset
Management Ltd, Renalandia Properties Ltd, Sylvesta Properties Ltd,
Crolandia Properties Ltd, Iperi Properties Ltd and Finerose
Properties Ltd.
Greece: Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki
(branch of General Insurance of Cyprus Ltd), Kyprou Commercial SA
and Kyprou Properties SA.
All Group companies are accounted for as subsidiaries using the
full consolidation method.
Control over CLR Investment Fund Public Ltd (CLR) without
substantial shareholding
The Group considers that it exercises control over CLR through
control of the members of the Board of Directors and is exposed to
variable returns through its holding.
32. Group companies (continued)
Dissolution and disposal of subsidiaries
As at 30 June 2017, the following subsidiaries were in the
process of dissolution or in the process of being struck off:
Samarinda Navigation Co Ltd, Kyprou Securities SA, BOC Ventures
Ltd, Salecom Ltd, Diners Club (Cyprus) Ltd, Leasing Finance LLC,
Corner LLC, Omiks Finance LLC, Unknownplan Properties SRL, Bank of
Cyprus (Channel Islands) Ltd, Buchuland Properties SRL, Frozenport
Properties SRL, Janoland Properties SRL, Mirodi Properties SRL,
Nallora Properties SRL and Pittsburg Properties SRL.
In accordance with the Group's strategy to exit from overseas
non-core operations, the operations of the Bank of Cyprus branch in
Romania are expected to be terminated during 2017. The remaining
assets and liabilities of the branch are in the process to be
transferred to other entities of the Group.
Longtail Properties Ltd and Tefkros Investments Ltd were
dissolved during the six months ended 30 June 2017. Moonland
Properties Ltd, Lepidoland Properties Ltd, Danoma Properties Ltd,
Metin Properties Ltd, Jemina Properties Ltd, Flitous Properties
Ltd, Belzeco Properties Ltd, Landeed Properties Ltd, Nabela
Properties Ltd, Singleserve Properties Ltd, Consento Properties
Ltd, Molla Properties Ltd, Lezanco Properties Ltd, Balisimo
Properties Ltd and Tezia Properties Ltd were disposed of during the
six months ended 30 June 2017 as part of BOC PCL's strategy to
dispose of repossessed properties.
33. Acquisitions and disposals
33.1 Acquisitions and disposals during the six months ended 30 June 2017
There were no acquisitions or disposals during the six months
ended 30 June 2017.
33.2 Acquisition during the six months ended 30 June 2016
33.2.1 Acquisition of S.Z. Eliades Leisure Ltd
In the context of its loan restructuring activities, the Group
acquired on 15 June 2016 a 70% interest in the share capital of
S.Z. Eliades Leisure Ltd in exchange for the settlement of
borrowings due from it of a total gross amount of EUR52,335
thousand. S.Z. Eliades Leisure Ltd operates in land development and
the operation of a golf resort in Cyprus. The fair value of the
consideration for the acquisition of the 70% share in S.Z. Eliades
Leisure Ltd amounts to EUR43,758 thousand. The acquisition did not
include any cash consideration. The Group considers that it
controls S.Z. Eliades Leisure Ltd.
The non-controlling interest is measured at the proportionate
share of the identifiable net assets acquired.
The fair value of assets and liabilities of S.Z. Eliades Leisure
Ltd at the date of acquisition are presented below:
EUR000
Assets
Property and equipment 20,308
Stock of property 48,632
Prepayments, accrued income and other assets 580
69,520
Liabilities
Deferred tax liability 3,807
Accruals, deferred income and other liabilities 3,202
7,009
Net identifiable assets acquired 62,511
Less non-controlling interest (18,753)
Net assets acquired 43,758
No cash and cash equivalents were acquired.
33. Acquisitions and disposals (continued)
33.3 Disposal during the six months ended 30 June 2016
33.3.1 Disposal of Kermia Hotels Ltd and adjacent land
In June 2016, the Group completed the sale of 100% of its
subsidiary Kermia Hotels Ltd and adjacent land which was classified
as a disposal group held for sale as at 31 December 2015.
The carrying value of assets and liabilities disposed of as at
the date of their disposal are presented below:
EUR000
-------
Assets
-------
Property and equipment 27,130
-------
Prepayments, accrued income and other assets 678
-------
Cash and cash equivalent 1,132
28,940
Liabilities
-------
Deferred tax liability 3,677
-------
Accruals, deferred income and other liabilities 1,308
4,985
Total net assets sold 23,955
=======
The cash consideration received amounts to EUR26,500 thousand
and the disposal resulted in a gain of EUR2,545 thousand.
34. Investments in associates and joint ventures
Carrying value of the investments in associates and joint
ventures
Percentage holding 30 June 31 December 2016
2017
(%) EUR000 EUR000
--------
CNP Cyprus Insurance Holdings Ltd 49.90 111,689 107,172
--------
Interfund Investments Plc 23.12 2,304 2,167
--------
Aris Capital Management LLC 30.00 - -
--------
Rosequeens Properties Limited 33.33 - -
--------
Rosequeens Properties SRL 33.33 - -
--------
Tsiros (Agios Tychon) Ltd 50.00 - -
--------
M.S. (Skyra) Vassas Ltd 15.00 - -
--------
D.J. Karapatakis & Sons Limited 7.50 - -
--------
Rodhagate Entertainment Ltd 7.50 - -
--------
Fairways Automotive Holdings Ltd 45.00 - -
--------
113,993 109,339
========
34. Investments in associates and joint ventures (continued)
Investments in associates
The carrying value of Rosequeens Properties Limited, Rosequeens
Properties SRL, Aris Capital Management LLC, M.S (Skyra) Vassas
Ltd, D.J. Karapatakis & Sons Ltd, Rodhagate Entertainment Ltd
and Fairways Automotive Holdings Ltd is restricted to zero.
M.S. (Skyra) Vassas Ltd
n the context of its loan restructuring activities, the Group
acquired 15.00% interest in the share capital of M.S. Skyra Vassas
Ltd. M.S. (Skyra) Vassas Ltd is the parent company of a group of
companies (Skyra Vassas group) with operations in the production,
processing and distribution of aggregates (crushed stone and sand)
and provision of other construction materials, and services based
on core products such as ready-mix concrete, asphalt and packing of
aggregates. The Group considers that it exercises significant
influence over the Skyra Vassas group as the Group has the power to
have representation to the Board of Directors and to vote for
matters relating to the relevant activities of the business. The
investment is considered to be fully impaired and its value is
restricted to zero.
D.J. Karapatakis & Sons Limited and Rodhagate Entertainment
Ltd
n the context of its loan restructuring activities, the Group
acquired a 7.50% interest in the share capital of D.J. Karapatakis
& Sons Limited and Rodhagate Entertainment Ltd, operating in
leisure, tourism, film and entertainment industries in Cyprus. The
Group considers that it exercises significant influence over the
two companies as the Group has the power to have representation to
the Board of Directors and to vote for matters relating to the
relevant activities of the businesses. The investments are
considered to be fully impaired and their value is restricted to
zero.
Investment in joint ventures
Tsiros (Agios Tychon) Ltd
The Group holds a 50% shareholding in Tsiros (Agios Tychon) Ltd.
The shareholder agreement with the other shareholder of Tsiros
(Agios Tychon) Ltd stipulates a number of matters which require
consent by both shareholders, therefore the Group considers that it
jointly controls the company. The carrying value of Tsiros (Ayios
Tychon) Ltd is restricted to zero.
35. Capital commitments
Capital commitments for the acquisition of property, equipment
and intangible assets as at 30 June 2017 amount to EUR12,533
thousand (31 December 2016: EUR14,830 thousand).
Independent review report to the Bank of Cyprus Holdings plc
Introduction
We have been engaged by the Bank of Cyprus Holdings plc (the
"Company" or the "Group") to review interim condensed consolidated
financial statements in the mid-year financial report for the six
months ended 30 June 2017 which comprises the interim consolidated
income statement, the interim consolidated statement of
comprehensive income, the interim consolidated balance sheet, the
interim consolidated statement of changes in equity, the interim
consolidated statement of cash flows and the related Notes 1 to 35.
We have read the other information contained in the half yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The mid-year financial report is the responsibility of, and has
been approved by, the directors. The directors are responsible for
preparing the mid-year financial report in accordance with the
Transparency (Directive 2004/109/EC) Regulations 2007 and the
Transparency Rules of the Central Bank of Ireland.
As disclosed in note 3.3, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this mid-year financial report has been prepared in accordance
with International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the mid-year financial
report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom and Ireland. A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the mid-year financial report for the six months ended 30 June
2017 are not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Transparency (Directive 2004/109/EC) Regulations 2007
and the Transparency Rules of the Central Bank of Ireland.
Emphasis of Matter
We draw your attention to Note 4 'Going concern' which discusses
management's assessment as to the ability of the Company to
continue as a going concern and the fact that the Company has
acquired the full shareholding of Bank of Cyprus Public Company
Limited during the period. Bank of Cyprus Public Company Limited
has not consistently maintained compliance with its regulatory
liquidity requirements, which indicates the existence of a material
uncertainty which may cast significant doubt on the Company's
ability to continue as a going concern. Our conclusion is not
qualified in respect of this matter.
Eoin MacManus
for and on behalf of Ernst & Young
Chartered Accountants and Statutory Audit Firm
28 August 2017
30 June
Additional Risk and Capital Management Disclosures, including Pillar 3 semi-annual disclosures 2017
Additional Risk and Capital Management Disclosures,
including Pillar 3 semi-annual disclosures (Unaudited)
This report includes additional risk and capital management
disclosures.
In addition, this report includes information prepared in
accordance with the Capital Requirements Regulation (CRR) and
amended Capital Requirements Directive IV (CRD IV). The disclosures
have been prepared in accordance with the European Banking
Authority (EBA) Guidelines on materiality, proprietary and
confidentiality and on disclosure frequency under Articles 432(1),
432(2) and 433 of Regulation (EU) No 575/2013 (EBA/2014/14) and EBA
Guidelines on disclosure requirements under Part Eight of
Regulation (EU) No 575/2013. These disclosures include all those
that were early adopted as at 31 December 2016, where they are
required to be disclosed on a semi-annual basis.
1. Credit risk
The Central Bank of Cyprus (CBC) issued to credit institutions
the Loan Impairment and Provisioning Procedures Directives of 2014
and 2015 (Directive), which provides guidance to banks for loan
impairment policy and procedures for provisions. The purpose of
this Directive is to ensure that credit institutions have in place
adequate provisioning policies and procedures for the
identification of credit losses and prudent application of
International Financial Reporting Standards (IFRSs) in the
preparation of their financial statements. The Directive requires
certain disclosures in relation to the loan portfolio quality,
provisioning policy and levels of provision. The disclosures
required by the Directive, in addition to those presented in Notes
3 and 27 of the interim condensed consolidated financial statements
for the period ended 30 June 2017 are set out in the following
tables. The tables disclose Non-Performing Exposures (NPEs) based
on the definitions of EBA standards.
According to the EBA standards, NPEs are defined as those
exposures that satisfy one of the following conditions:
(i) The debtor 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 CRR (Article 178).
(iii) Material exposures (as defined below) 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:
- Loans: Arrears amount greater than EUR500 or number of
instalments in arrears is greater than one.
- Overdrafts: Excess amount is greater than EUR500 or greater than 10% of the approved limit.
- Exposures other than retail: Total customer arrears/excesses
are greater than EUR1,000 or greater than 10% of the total customer
funded balances.
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.
Additional Risk and Capital Management Disclosures,
including Pillar 3 semi-annual disclosures (Unaudited)
1. Credit risk (continued)
The tables below present the analysis of loans and advances to
customers in accordance with the EBA standards.
Gross loans and advances to customers Provision for impairment and fair value adjustment
on initial recognition
30 June 2017 Group Of which Of which exposures with Total Of which Of which exposures with
gross NPEs forbearance measures provision NPEs forbearance measures
customer for
loans and impairment
advances and fair
value
adjustment
on initial
recognition
Total Of which on Total Of which on
exposures NPEs exposures NPEs
with with
forbearance forbearance
measures measures
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
General
governments 102,363 3,869 4,451 3,605 2,818 2,005 2,021 1,940
Other financial
corporations 440,042 330,703 230,988 203,541 189,600 187,131 108,827 107,776
Non-financial
corporations 11,177,341 5,793,650 4,612,497 3,079,130 2,998,982 2,887,871 1,315,151 1,264,209
Of which: Small
and Medium
sized
Enterprises
(SMEs) 8,637,533 5,067,663 3,583,370 2,577,593 2,615,572 2,533,852 1,092,176 1,054,448
Of which:
Commercial
real estate(2) 8,531,363 4,596,972 3,984,733 2,580,276 2,291,355 2,195,816 1,097,869 1,051,583
Non-financial
corporations by
sector
Construction 2,567,636 1,869,983 998,461
Wholesale and
retail trade 2,070,455 992,179 520,293
Accommodation
and food
service
activities 1,438,162 540,202 262,357
Real estate
activities 2,848,665 1,173,284 582,690
Manufacturing 673,706 366,388 179,169
Other sectors 1,578,717 851,614 456,012
Households 7,784,863 3,623,759 2,695,789 1,856,286 1,400,369 1,335,066 483,789 466,911
Of which:
Residential
mortgage
loans(2) 5,319,933 2,498,826 2,082,457 1,414,892 750,055 701,467 296,432 284,238
Of which:
Credit for
consumption(2) 1,025,488 535,017 301,052 231,958 282,436 272,979 82,250 78,905
Total
on-balance
sheet 19,504,609 9,751,981 7,543,725 5,142,562 4,591,769 4,412,073 1,909,788 1,840,836
Note: The above table includes loans and advances classified as
held for sale (Note 19 of the Interim Condensed Consolidated
Financial Statements for the period ended 30 June 2017).
1. Credit risk (continued)
Gross loans and advances to customers Provision for impairment and fair value adjustment
on initial recognition
Group gross Of which Of which exposures with Total Of which Of which exposures with
customer NPEs forbearance measures provision NPEs forbearance measures
loans and for
advances(1) impairment
and fair
value
adjustment
on initial
recognition
Total Of which Total Of which on
exposures on NPEs exposures NPEs
with with
forbearance forbearance
measures measures
31 December
2016 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
General
governments 103,626 4,241 4,978 4,073 2,685 1,615 1,861 1,555
Other financial
corporations 487,262 372,797 234,505 203,512 220,013 216,926 119,703 119,701
Non-financial
corporations 11,590,608 6,818,489 5,052,743 3,738,859 3,020,161 2,932,686 1,211,059 1,178,127
Of which: Small
and Medium
sized
Enterprises(2) 9,398,025 6,116,979 4,306,269 3,294,185 2,642,367 2,564,855 1,030,218 998,465
Of which:
Commercial
real estate(2) 8,951,533 5,535,377 4,413,488 3,252,816 2,240,852 2,168,019 1,004,617 974,143
Non-financial
corporations by
sector
Construction 2,921,229 2,242,250 1,009,104
Wholesale and
retail trade 2,060,864 1,060,451 445,368
Accommodation
and food
service
activities 1,334,040 705,634 262,566
Real estate
activities 2,900,224 1,438,774 664,801
Manufacturing 682,641 394,884 165,308
Other sectors 1,691,610 976,496 473,014
Households 7,948,599 3,838,722 2,803,740 1,942,888 1,237,835 1,168,475 334,936 317,645
Of which:
Residential
mortgage
loans(2) 5,413,446 2,601,852 2,166,098 1,469,563 603,504 551,690 192,535 179,947
Of which:
Credit for
consumption(2) 1,062,416 589,843 312,853 242,723 292,588 283,181 65,865 62,917
Total
on-balance
sheet 20,130,095 11,034,249 8,095,966 5,889,332 4,480,694 4,319,702 1,667,559 1,617,028
_________________________
[1] Excluding loans and advances to central banks and credit
institutions.
2 The analysis shown in lines 'non-financial corporations' and
'households' is non-additive across categories as certain customers
could be in both categories.
2. Liquidity risk and funding
2.1 Encumbered and unencumbered assets
Asset encumbrance arises from collateral pledged against secured
funding and other collateralised obligations.
An asset is classified as encumbered if it has been pledged as
collateral against secured funding and other collateralised
obligations and, as a result, is no longer available to the Group
for further collateral or liquidity requirements. The total
encumbered assets of the Group amounted to EUR2,936,544 thousand as
at 30 June 2017 (31 December 2016: EUR3,446,873 thousand).
An asset is classified as unencumbered if it has not been
pledged as collateral against secured funding and other
collateralised obligations. Unencumbered assets are further
analysed into those that are available and can be pledged and those
that are not readily available to be pledged. As at 30 June 2017,
the Group held EUR13,776,544 thousand (31 December 2016:
EUR12,608,521 thousand) of unencumbered assets that can be pledged
and can be used to support potential liquidity funding needs and
EUR3,937,645 thousand (31 December 2016: EUR4,595,181 thousand) of
unencumbered assets that are not readily available to be pledged
for funding requirements in their current form.
As at 30 June 2017 no loans and advances to customers were
pledged as collateral for Emergency Liquidity Assistance (ELA) (31
December 2016: EUR787 million). Loans and advances to customers
include mortgage loans of a nominal amount EUR998 million (31
December 2016: EUR1,002 million) in Cyprus, pledged as collateral
for the covered bond issued by Bank of Cyprus Public Company Ltd
(BOC PCL) in 2011 under the Covered Bond Programme. Furthermore
housing loans of a nominal amount EUR1,186 million (31 December
2016: EUR765 million) in Cyprus are pledged as collateral for the
funding from the ECB (Note 20 of the interim condensed consolidated
financial statements for the period ended 30 June 2017). At 30 June
2017 BOC PCL's subsidiary Bank of Cyprus UK Ltd has pledged EUR184
million (31 December 2016: EUR244 million) of loans and advances to
customers with the Funding for Lending Scheme (FLS) of the Bank of
England. These are available for use as collateral for the
subsidiary's participation in the scheme. As at 30 June 2017 the
subsidiary had drawn down Treasury bills of EUR97 million (31
December 2016: EUR29 million) under the FLS. These Treasury bills
are not recorded on the consolidated balance sheet as ownership
remains with the Bank of England.
The table below presents an analysis of the Group's encumbered
and unencumbered assets and the extent to which these assets are
currently pledged for funding or other purposes. The carrying
amount of such assets is disclosed below.
Encumbered Unencumbered Total
30 June 2017 Pledged as collateral which can be pledged which are not readily
available to be pledged
EUR000 EUR000 EUR000 EUR000
Cash and bank placements 146,418 2,565,769 313,023 3,025,210
Investments 334,317 564,448 19,058 917,823
Loans and advances to
customers 2,363,698 9,049,189 3,479,774 14,892,661
Non-current assets held for
sale - 11,044 20,517 31,561
Property 92,111 1,586,094 105,273 1,783,478
Total on-balance sheet 2,936,544 13,776,544 3,937,645 20,650,733
31 December 2016
Cash and bank placements 139,975 2,092,643 361,615 2,594,233
Investments 359,813 298,419 15,412 673,644
Loans and advances to customers 2,853,511 8,659,324 4,136,566 15,649,401
Non-current assets and disposal group classified as held for sale - 11,065 346 11,411
Property 93,574 1,547,070 81,242 1,721,886
Total on-balance sheet 3,446,873 12,608,521 4,595,181 20,650,575
2. Liquidity risk and funding (continued)
2.1 Encumbered and unencumbered assets (continued)
Encumbered assets primarily consist of loans and advances to
customers and investments in debt securities and property. These
are mainly pledged for the funding facilities under the Eurosystem
monetary policy operations and the ELA of the CBC (Note 20 of the
interim condensed consolidated financial statements for the six
months ended 30 June 2017) and for the covered bond. In the case of
ELA, as collateral is not usually released upon repayment of the
funding, there may be an inherent buffer which could be utilised
for further funding if required. Investments are mainly used as
collateral for repurchase transactions with commercial banks as
well as supplementary assets for the covered bond (Note 29 of the
interim condensed consolidated financial statements for the six
months ended 30 June 2017). Encumbered assets include cash and
other liquid assets placed with banks as collateral under ISDA/GMRA
agreements which are not immediately available for use by the Group
but are released once the transactions are terminated. Cash is
mainly used to cover collateral required for (i) derivatives and
repurchase transactions and (ii) trade finance transactions and
guarantees issued. It is also used as part of the supplementary
assets for the covered bond.
Under the Covered Bond Programme, BOC PCL has in issue covered
bonds of EUR650 million secured by residential mortgages originated
in Cyprus. The covered bonds have a maturity date of 18 December
2018, bear interest of 3 months Euribor plus 3.25% on a quarterly
basis and are traded on the Luxemburg Bourse. The covered bonds
have a conditional Pass-Through structure. All the bonds are held
by BOC PCL. The credit rating of the covered bonds was upgraded to
an investment grade rating and the covered bond has become eligible
collateral for the Eurosystem credit operations. As from 2 October
2015, it has been placed as collateral for accessing funding from
the ECB.
The credit ratings of the Republic of Cyprus by the main credit
rating agencies continue to be below investment grade. As a result,
the ECB does not include Cyprus Government Bonds in its asset
purchase programme, or as eligible collateral for Eurosystem
monetary operations.
Following the full repayment of ELA on 5 January 2017, all ELA
collateralised loans have been released, but ELA pledged properties
remained pledged as of 30 June 2017. As at 14 July 2017, all ELA
pledged properties have been released.
Unencumbered assets that are available and can be pledged
include Cyprus loans and advances which are less than 90 days past
due as well as loans of overseas subsidiaries and branches which
are not pledged. Customer loans of overseas subsidiaries and
branches cannot be pledged with the CBC as collateral for ELA.
Moreover, for some of the overseas subsidiaries and branches, these
assets are only available to be pledged for other purposes for the
needs of the particular subsidiary/branch and not to provide
liquidity to any other entity of the Group. Balances with central
banks are reported as unencumbered and can be pledged, to the
extent that there is excess available over the minimum reserve
requirement. The minimum reserve requirement is reported as
unencumbered since it is not readily available as collateral.
Unencumbered assets that are not readily available to be pledged
primarily consist of loans and advances which are prohibited by
contract or law to be encumbered or which are over 90 days past due
or for which there are pending litigations or other legal actions
against the customer, a proportion of which would be suitable for
use in secured funding structures but are conservatively classified
as not readily available for collateral. Properties whose legal
title has not been transferred in the name of the Company or the
subsidiary are not considered to be readily available as
collateral.
Insurance assets held by Group insurance subsidiaries are not
included in the table below as they are primarily due to the
insurance policyholders.
2. Liquidity risk and funding (continued)
2.1 Encumbered and unencumbered assets (continued)
The carrying and fair value of the encumbered and unencumbered
investments of the Group as at 30 June 2017 and 31 December 2016
are as follows:
Carrying value of Fair value of Carrying value of Fair value of
encumbered investments encumbered investments unencumbered unencumbered
investments investments
30 June 2017 EUR000 EUR000 EUR000 EUR000
Equity securities 1,698 1,698 53,405 53,405
Debt securities 332,619 332,619 530,101 534,524
Total investments 334,317 334,317 583,506 587,929
31 December 2016
Equity securities 1,562 1,562 52,514 52,514
Debt securities 358,251 358,454 261,317 262,491
Total investments 359,813 360,016 313,831 315,005
2.2 Liquidity regulation
In addition to the liquidity ratios applicable at each banking
location that the Group operates, it has to comply with the
Liquidity Coverage Ratio (EU) 2015/61 (LCR). It also monitors its
position against the Basel Quantitative Impact Study (QIS) Net
Stable Funding Ratio (NSFR). 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.
The CRR requires phased-in compliance with the LCR standard as
from 1 October 2015 with an initial minimum ratio of 60%,
increasing to 70% in 2016, 80% in 2017 and 100% as from January
2018. Starting from January 2016, the LCR is calculated monthly
based on the final published Delegated Regulation (EU) 2015/61. The
Delegated Regulation was enacted in September 2016 and the LCR is
calculated under this Regulation.
In October 2014, the Basel Committee on Banking Supervision
published a final standard for the NSFR with the minimum
requirement to be introduced in January 2018 at 100%. The
methodology for calculating the NSFR is based on an interpretation
of the Basel standards published in October 2014 and includes a
number of assumptions which are subject to change prior to adoption
by the European Commission through the CRR.
As at 30 June 2017 the Group is in compliance with its
regulatory liquidity requirements with respect to the LCR. On the
basis of Regulation (EU) 2015/61 the Group's LCR as at 30 June 2017
was 108% (31 December 2016: 49%); on the basis of Basel QIS
standards the Group's NSFR was 102% (31 December 2016: 95%).
Following the full repayment of ELA funding on 5 January 2017, the
Group is concentrating its efforts to comply with its regulatory
liquidity ratios.
Furthermore, BOC PCL and Bank of Cyprus UK Ltd must comply with
their local regulatory liquidity ratios. The minimum regulatory
liquidity ratios for the operations in Cyprus are set by the CBC.
As at 30 June 2017 BOC PCL was not in compliance with the local
regulatory liquidity requirements.
2. Liquidity risk and funding (continued)
2.3 Liquidity reserves
Composition of the 30 June 2017 31 December 2016
liquidity reserves
Liquidity reserves Liquidity reserves of Liquidity reserves Liquidity reserves of
which Delegated Reg. which Delegated Reg.
(EU) 2015/61 LCR (EU) 2015/61 LCR
eligible Level 1 eligible Level 1
EUR000 EUR000 EUR000 EUR000
Cash and balances with
central banks 2,297,259 1,975,988 1,505,120 1,146,015
Nostro and overnight
placements with banks 403,212 - 423,603 -
Other placements with
banks 51,756 - 376,145 -
Liquid investments 563,917 517,454 154,787 256,325
Available ECB Buffer 8,792 - 124,998 -
Other investments 7,437 - 6,340 -
Total 3,332,373 2,493,442 2,590,993 1,402,340
Investments under Liquidity Reserve are shown at market value
net of haircut (as prescribed by regulators) in order to reflect
the actual liquidity value that can be obtained. The Liquidity
Reserves exclude Local Law Government of Cyprus Issues. Liquid
investments include off balance sheet Bank of England Treasury
Bills acquired by Bank of Cyprus UK Ltd through the encumbrance of
customer loans with the Bank of England. Under LCR Liquidity
Reserves, all Cyprus Government Bonds remain eligible for inclusion
as Level 1 assets given that they are issued by a Member State. LCR
does not require liquid assets to be eligible as collateral for
central bank operations and are included at market value.
The Liquidity Reserves are managed by Group Treasury.
ELA was fully repaid on 5 January 2017. ELA is available to
solvent Euro area credit institutions and although BOC PCL has
received no specific assurance, management expects that BOC PCL
will continue to have access to the central bank liquidity
facilities, in line with applicable rules if it were to face a
'stress event' that gave rise to temporary liquidity problems. If a
stress event were to occur in the future, BOC PCL would seek to
utilise ELA funding, assuming it has sufficient available eligible
collateral at the time.
Following the full repayment of ELA on 5 January 2017, all ELA
collateralised loans have been released, but ELA pledged properties
remained pledged as of 30 June 2017. As at 14 July 2017, all ELA
pledged properties have been released.
As at 30 June 2017, ECB funding was at EUR900 million, of which
EUR30 million was from the weekly MRO, EUR40 million was from the
3-month LTRO and EUR830 million was from the 4-year TLTRO II.
In December 2016, BOC PCL borrowed an amount of EUR600 million
through the new series of TLTRO (TLTRO II) announced by the ECB in
March 2016 and an amount of EUR50 million through the LTRO. In
March 2017, the EUR50 million borrowed through the LTRO matured and
EUR40 million was re-borrowed. Moreover, in March 2017, BOC PCL
raised an additional EUR230 million funding from ECB, through TLTRO
II, using as collateral a pool of housing loans that satisfy the
criteria of the Additional Credit Claims as set out in accordance
with the Implementation of the Eurosystem Monetary Policy Framework
Directives of 2015 and 2016. In April 2017, an additional EUR40
million was borrowed through the MRO and in May 2017 EUR10 million
of the MRO was repaid.
2. Liquidity risk and funding (continued)
2.3 Liquidity reserves (continued)
In January 2017, BOC PCL issued a EUR250 million unsecured and
subordinated Tier 2 Capital Note (Note) under BOC PCL's EMTN
Programme. The Note was priced at par with a coupon of 9.25%. The
Note matures on 19 January 2027. BOC PCL has the option to redeem
the Note early on 19 January 2022, subject to applicable regulatory
consents.
3. Minimum Required Own Funds for Credit, Market and Operational Risk
Group's approach to assessing the adequacy of its internal
capital
The Group's capital projections are developed with the objective
of maintaining capital that is adequate in quantity and quality to
support the Group's risk profile, regulatory and business
needs.
The Group's capital projections are frequently monitored against
relevant internal target capital ratios to ensure they remain
appropriate and consider risks to the plan, including possible
future regulatory changes.
The overall key pillars, aiming to return the Group to
profitability and delivering value to shareholders, whilst
maintaining sufficient capital throughout are as follows:
-- Materially reduce the level of delinquent loans
-- Further improve the funding structure and liquidity ratios
-- Maintain an appropriate capital position by internally generating capital
-- Focus on the core Cyprus market and on the UK operations
-- Achieve a lean operating model
-- Deliver value to shareholders and other stakeholders
Overview of RWA
RWA Minimum capital requirements
30 June 31 March 30 June 2017
2017 2017
EUR000 EUR000 EUR000
1 Credit risk (excluding counterparty credit risk (CCR)) 14,581,725 15,720,644 1,166,538
2 Of which the standardised approach 14,581,725 15,720,644 1,166,538
6 CCR 50,151 50,688 4,012
7 Of which mark to market 24,763 25,188 1,981
11 Of which risk exposure amount for contributions to the - - -
default fund of a Central Counterparty
(CCP)
12 Of which Credit Valuation Adjustment (CVA) 25,388 25,500 2,031
13 Settlement Risk - - -
19 Market risk 5,061 6,424 405
20 Of which the standardised approach 5,061 6,424 405
22 Large Exposures - - -
23 Operational risk 1,888,975 1,888,975 151,118
25 Of which standardised approach 1,888,975 1,888,975 151,118
27 Amounts below the thresholds for deduction (subject to 250% 842,465 1,013,858 67,397
risk weight)
29 Total 17,368,377 18,680,589 1,389,470
The rows not applicable to the Group are not presented in the
table above.
3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)
Overview of RWA (continued)
The main changes in RWAs are observed in line 2 which mainly
derives from the redistribution of the exposures to lower risk
exposure classes. Particularly (a) a significant decrease in
balance sheet amounts in the higher risk exposure classes
(exposures in default and higher-risk categories) due to repayments
and increase in provisioning (b) a movement of exposure amounts
from higher risk exposure classes (exposures in default and
higher-risk categories) towards lower risk categories (Corporates,
Retail, Secured by mortgages on immovable properties, and Other
items) due to customer loan restructurings, new customer loans and
debt-for-property and debt-for-equity swaps deleveraging actions,
and (c) a significant increase in balance sheet amounts to
exposures with central governments or central banks which carry 0%
risk weight.
3.1 Credit Risk
The Standardised Approach has been applied to calculate the
minimum capital requirement in accordance with the requirements
laid down in Article 92 of the CRR:
Exposure Portfolio 30 June 2017 31 December 2016
EUR000 EUR000
Central governments or central banks - -
Regional governments or local authorities 111 50
Public sector entities - -
Multilateral development banks - -
International organisations - -
Institutions 18,986 27,392
Corporates 274,901 275,992
Retail 113,306 113,800
Secured by mortgages on immovable property 124,545 129,272
Exposures in default 268,574 325,800
Items associated with particular high risk 215,853 245,739
Covered bonds 315 93
Claims on institutions and corporates with a short-term credit assessment - -
Collective investments undertakings (CIU) 4 3
Equity 25,639 26,635
Other items 193,683 201,812
Total Capital Requirement for Credit Risk 1,235,917 1,346,588
A material decrease in credit risk capital requirements is
observed between the two periods due to (a) a significant decrease
in balance sheet amounts in the higher risk exposure classes
(exposures in default and higher-risk categories) due to repayments
and intense provisioning and (b) a movement of exposure amounts
from higher risk exposure classes (exposures in default and
higher-risk categories) towards lower risk categories (Corporates,
Retail, Secured by mortgages on immovable properties, and Other
items) due to customer loan restructurings, new customer loans and
debt-for-property and debt-for-equity swaps deleveraging
actions.
3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)
3.2 Market risk under the standardised approach
The minimum capital requirement calculated under the
standardised approach in accordance with Title IV: Own funds
requirements for Market Risk of the CRR is as follows:
30 June 2017 31 December 2016
RWAs Capital requirements RWAs Capital requirements
EUR000 EUR000 EUR000 EUR000
Outright products
1 Interest rate risk (general and specific) - - - -
2 Equity risk (general and specific) 3,877 310 3,847 308
3 Foreign exchange risk - - - -
4 Commodity risk - - - -
Options
5 Simplified approach - - - -
6 Delta-plus method - - - -
7 Scenario approach - - - -
8 Securitisation (specific risk) - - - -
9 Total 3,877 310 3,847 308
The table above does not include the minimum capital requirement
for Collective Investment Undertaking (CIUs) of EUR95 thousand
(RWA: EUR1,184 thousand) (31 December 2016: CIUs of EUR190 thousand
and RWA: EUR2,384 thousand).
There is no own funds requirement for the foreign exchange risk,
since the materiality threshold set by Article 351 of the CRR is
not met.
3.3 Operational Risk
The Group uses the Standardised Approach for the operational
risk capital calculation. The capital requirement calculated for
operational risk for 2016, includes a one-off regulatory adjustment
in relation to operations in Russia, which were sold in 2015, as
permission to be excluded from the calculation of the capital
requirement for operational risk was granted by the regulators at
the beginning of January 2017. The operations in Russia, which were
sold in 2015, followed the Basic Indicator Approach.
As at 30 June 2017, the minimum capital requirement in relation
to operational risk calculated in accordance with the Standardised
Approach amounts to EUR151,118 thousand (31 December 2016:
EUR159,776 thousand).
30 June 2017 Standardised approach
EUR000
Corporate finance (CF) 169
Trading and Sales (TS) 3,492
Retail Brokerage (RBr) 57
Commercial Banking (CB) 117,582
Retail Banking (RB) 18,077
Payment and Settlement (PS) 11,394
Agency Services (AS) 235
Asset Management (AM) 112
Total Capital Requirement for Operational Risk 151,118
3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)
3.3 Operational Risk (continued)
31 December 2016 Standardised approach Basic indicator approach Total
EUR000 EUR000 EUR000
Corporate finance (CF) 169 - 169
Trading and Sales (TS) 3,492 - 3,492
Retail Brokerage (RBr) 57 - 57
Commercial Banking (CB) 117,582 8,658 126,240
Retail Banking (RB) 18,077 - 18,077
Payment and Settlement (PS) 11,394 - 11,394
Agency Services (AS) 235 - 235
Asset Management (AM) 112 - 112
Total Capital Requirement for Operational Risk 151,118 8,658 159,776
3.4 Credit Valuation Adjustment (CVA) Risk
CVA captures the credit risk of derivative counterparties not
already included in Counterparty Credit Risk (i.e. the potential
loss on derivatives due to increase in the credit spread of the
counterparty).
30 June 31 December
2017 2016
EUR000 EUR000
CVA (Credit Valuation Adjustment) Capital Requirement 2,031 2,355
3.5 Non-deducted participations in insurance undertakings
30 June 31 December
2017 2016
EUR000 EUR000
Holdings of own funds instruments of a financial sector entity where the institution has a
significant investment not deducted
from own funds (before risk-weighting) 113,240 117,871
Total RWAs 283,100 294,678
4. Other risks
Political risk
External factors which are beyond the control of the Group, such
as developments in the European and the global economy, as well as
political and government actions in Cyprus can affect the
operations of the Group, its strategy and prospects, either
directly or indirectly through their possible impact on the
domestic economy.
Cyprus is a small open economy with a large export sector.
Exports of goods and services in 2016 were 62% of Gross Domestic
Product (GDP). As a result the Cyprus economy is exposed to
developments outside its borders, particularly in Russia, the UK
and Greece. Cyprus is also exposed to developments in the European
Union and the Eurozone that may lead to a payments crisis or
changes in the regulatory and supervisory framework.
The exit of the UK from the EU may lead to an economic recession
in the UK itself and to possible disruptions in the Eurozone with
pressure to bear on the euro and the pound sterling.
4. Other risks (continued)
Political risk (continued)
There are close trade and investment links between Cyprus and
the UK which means that the Cyprus economy is vulnerable to the
impact on the UK economy of UK's exit from the EU. The pound
sterling has already depreciated sharply against the euro losing
about 20% of its value since early June 2016. The initial impact on
the UK economy so far has been less severe than initially
forecasted but the economy is slowing down with inflation on the
rise because of the currency depreciation. The European Commission
expects growth of 1.8% in 2017 and 1.3% in 2018 in a baseline
scenario. In an adverse scenario, it is very likely for real GDP to
contract in 2018-2019.
A slowdown in economic activity in the UK and outright
contraction in an adverse scenario, coupled with the decline in the
exchange rate of the pound against the euro, will reduce the
competitiveness of Cypriot exports to the UK. Exports of goods to
the UK are about 8% of total exports of goods on average in the
three years to 2016. This compares to a share of about 29% on
average in the three years to 2004. Cyprus' trade has been
increasingly diverting toward the euro area after accession to the
EU.
On the services side, particularly tourism, the UK remains a
significant source country. Arrivals from the UK were 36.3% of
total arrivals in 2016. This compares with a share of 35.7% in 2014
and a share near 60% about a decade ago.
The exit of the UK from the EU poses risks for Cyprus and
mitigating actions will be required for trade diversion.
Developments in other non-EU countries with which Cyprus
maintains significant economic links, the unresolved Cyprus
problem, and political and social unrest or escalation of military
conflict in neighbouring countries and/or other overseas areas may
adversely affect the Cyprus economy.
Russia is an important economic partner of Cyprus both in terms
of tourism and international business flows. Any developments that
impact negatively on these linkages will have a negative impact on
the economy and will thus affect the Group's operations.
The economic situation in Russia has been gradually improving
driven by the stabilisation in oil prices, the return of foreign
direct investment and booms in certain sectors, for example
agriculture. These factors are helping the country pull out of
recession. Following a marginal drop in real GDP in 2016, a modest
rebound is expected in 2017-2018 according to the European
Commission (European Economic Forecast, Spring 2017). Real GDP is
expected to rise by 1.2% and 1.4% respectively in 2017 and 2018.
However, diversification of the economy and medium term growth are
hindered by structural factors.
Meantime, tensions between Russia and the West continue. The EU
maintains sanctions against Russia and the US has added more. This
situation may lead to escalating tensions in areas of conflict
including Ukraine and the Baltic countries.
Cyprus is less exposed to the crisis in Greece than it was prior
to its own crisis. However, the indirect effects in the case of a
disorderly default in Greece and/or Greece's departure from the
Eurozone could be severe if it damages confidence in the wider euro
area and dampens economic growth in the region. Greece is poised to
return to growth in 2017 and whilst its exit from the Eurozone is
now less likely than before, it is still a possible event within a
five year horizon.
The Greek economy stagnated in 2016 due to a setback in the
fourth quarter, but the recovery is expected to restart this year.
Real GDP increased by 0.8% in the first quarter from a year earlier
and expected to increase by 2.1% on average for the year as a whole
according to the European Commission (European Economic Forecast,
Spring 2017). The recovery is expected to continue into 2018 with
real GDP expected to increase by 2.5%.
4. Other risks (continued)
Political risk (continued)
Greece and the Eurozone reached an agreement on June 15 on the
bailout programme and Greece received EUR8,5 billion to pay debt
maturing in July. According to a statement released by the
Eurogroup after the meeting, debt relief for Greece, such as longer
maturities and lower interest rates, will be considered after the
end of the bailout programme in July 2018.
In another significant development, in July 2017, the board of
the International Monetary Fund provisionally approved a
contribution of $1,8 billion to the Greek bailout fund to be
provided after European creditors agree to debt relief. Also Greece
issued a EUR3 billion five year bond to private investors at a
yield of 4.625%. This was the first debt issuance by Greece in
three years and was a test run for the country's return to market
funding after its bailout programme ends next year.
Global economy risks remain elevated as highlighted by extremely
low interest rates. In the United States, the Federal Reserve,
after eight years of near zero interest rates, started hiking in
December 2015 and since then, raised the fed funds rate three times
to 1.25%. The yield curve is flattening, which indicates that the
probability of recession is rising. Fiscal expansionary policies,
once implemented, will stimulate growth and inflation, but as this
remains off by a couple of years, deflationary pressures
prevail.
In geopolitical terms the escalation of tensions over the North
Korean peninsula holds the prospect for market volatility. North
Korea remains under stiff UN sanctions and continues to hold the
threat of a nuclear escalation, which the United States cannot
ignore. Caution is thus warranted.
The European Union and the Eurozone remain fragmented despite
recent electoral successes by moderate forces, and there are
widespread disagreements regarding the nature of future reforms. As
such, the medium term will see policy inaction and the divisions at
national levels will deepen.
Regarding the ECB's monetary policy, the future will depend on
the outlooks for growth and inflation. The recent rekindle of
inflationary tendencies rests on weak foundations and is not
sustainable. Despite overly accommodative monetary policies,
deflationary pressures remain in place in the advanced world
including Europe and the United States. In this context, ECB is
expected to be particularly cautious in tapering its Quantitative
Easing programme and in tightening its monetary stance. Unless
economic activity accelerates further and inflation picks up,
tapering will be slow and tightening will start later rather than
early, by late 2020 or early 2021. Under an optimistic scenario
with growth accelerating and inflation expectations firming,
tightening is likely to start by late 2018 or early 2019.
Given the above, the Group recognises that unforeseen political
events can have negative effects on the fulfilment of contractual
relationships and obligations of its customers and other
counterparties, which may have a significant impact on the Group's
activities, operating results and position.
5. 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 shareholder
value.
The CRR and CRD IV became effective, comprising the European
regulatory package designed to transpose the new capital, liquidity
and leverage standards of Basel III into the European Union's legal
framework, on 1 January 2014. CRR establishes the prudential
requirements for capital, liquidity and leverage that entities need
to abide by. It is immediately binding on 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, CRD IV needs to be transposed
into national laws, and allows national regulators to impose
additional capital buffer requirements. CRR introduced significant
changes in the prudential regulatory regime applicable to banks
including amended minimum capital adequacy ratios, changes to the
definition of capital and the calculation of risk weighted assets
and the introduction of new measures relating to leverage,
liquidity and funding. CRR permits a transitional period for
certain of the enhanced capital requirements and certain other
measures, such as the leverage ratio, which will be largely fully
effective by 2019.
5. Capital management (continued)
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 2016/44.
The CET1 ratio of the Group at 30 June 2017 stands at 12.3%
(transitional) and the total capital ratio at 13.8%.
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 enactment of the amendments in
the Cypriot Banking Law in February 2017 regarding the gradual
phase-in of the Capital Conservation Buffer (CCB) and based on the
Supervisory Review and Evaluation Process (SREP) performed by the
ECB in 2016, the Group's minimum CET1 capital ratio as from 1
January 2017 has been reduced to 9.50% compared to 10.75% fully
phased-in of CCB (minimum CET1 capital ratio at 31 December 2016:
11.75% fully phased-in of CCB), comprising of a 4.5% Pillar I
requirement, a 3.75% Pillar II requirement and a phased-in CCB of
1.25%. The ECB has also provided non-public guidance for an
additional Pillar II CET1 buffer.
The overall Total Capital Ratio requirement as from 1 January
2017 following the amendments in the Cypriot Banking Law in
February 2017 regarding the gradual phase-in of CCB, has been
reduced to 13.00% compared to 14.25% (fully phased-in of CCB),
comprising of a Pillar I requirement of 8% (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 Pillar II requirement of 3.75% (in the
form of CET1), as well as a phased-in CCB of 1.25%.
The minimum CET1 requirement including Pillar II, applicable for
the year 2016 was determined by the ECB at 11.75% in November 2015
and included CCB on a fully loaded basis.
The Group's capital position at 30 June 2017 exceeds both its
Pillar I and its Pillar II add-on capital requirements. However,
the Group's Pillar II add-on capital requirements are a
point-in-time assessment and therefore are subject to change over
time.
Based on the provisions of the Macroprudential Oversight of
Institutions Law of 2015 which came into force on 1 January 2016,
the CBC is the designated Authority responsible for setting the
macroprudential buffers that derive from the CRD IV.
In accordance with the provisions of this law, the CBC sets, on
a quarterly basis, the Countercyclical Capital buffer (CCyB) level
in accordance with the methodology described in this law. The CCyB
is effective as from 1 January 2016 and is determined by the CBC
ahead of the beginning of each quarter. The CBC has set the level
of the CCyB at 0% for the years of 2016 and 2017.
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. The Group has been designated as an O-SII and the
CBC set the O-SII buffer for the Group at 2%. This buffer will be
phased-in gradually, starting from 1 January 2019 at 0.5% and
increasing by 0.5% every year thereafter, until being fully
implemented (2.0%) on 1 January 2022.
Following the enactment of the amendments in the Cypriot Banking
Law on 3 February 2017, the Capital Conservation Buffer (CCB) is
gradually phased-in at 0.625% in 2016, 1.25% in 2017, 1.875% in
2018 and is fully implemented on 1 January 2019 at 2.5%.
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. Although the precise
calibration and ultimate designation of the Group's MREL has not
yet been finalised, the Bank is monitoring developments in this
area very closely.
5. Capital management (continued)
The Group's overseas banking subsidiaries comply with the
regulatory capital requirements of the local regulators in the
countries in which they operate. The insurance subsidiaries of the
Group comply with the requirements of the Superintendent of
Insurance including the minimum solvency ratio. The regulated
investment firms of the Group comply with the regulatory capital
requirements of the CySEC laws and regulations.
5.1 Capital position
The capital position of the Group under CRD IV/CRR basis (after
applying the transitional arrangements) is presented below.
Regulatory capital 30 June 31 December
2017 2016
EUR000 EUR000
Transitional Common Equity Tier 1 (CET1) (3,4) 2,141,968 2,727,997
Transitional Additional Tier 1 capital (AT1) --
Tier 2 capital (T2) 247,909 21,423
Transitional total regulatory capital(4) 2,389,877 2,749,420
Risk weighted assets - credit risk (5) 15,474,341 16,861,793
Risk weighted assets - market risk 5,061 6,231
Risk weighted assets - operational risk 1,888,975 1,997,200
Total risk weighted assets 17,368,377 18,865,224
% %
Transitional Common Equity Tier 1 ratio 12.3 14.5
Transitional total capital ratio 13.8 14.6
During the six months ended 30 June 2017, the CET1 was
negatively affected by the loss for the period and by the phase in
of transitional adjustments, mainly deferred tax asset. The
Risk-Weighted Assets (RWA) were positively affected by the Group's
ongoing efforts for risk-weighted assets optimisation as well as of
the increased provisioning. As a result of the above, the CET1
ratio decreased by 220 bps during the period.
[3] CET1 includes regulatory deductions, primarily comprising
deferred tax assets and intangible assets amounting to EUR124,650
thousand and EUR88,407 thousand as at 30 June 2017 and 31 December
2016 respectively.
[4] Following the Regulation (EU) 2016/445 of the ECB of 14
March 2016 on the exercise of options and discretions available in
Union law (ECB/2016/4), the deferred tax asset phase-in period
reduced from 10 to 5 years, with effect as from the reporting of 31
December 2016.
[5] Includes Credit Valuation Adjustments (CVA)
6. 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:
30 June 31 December
2017 2016
Transitional basis EUR000 EUR000
---------- -----------
Capital measure (CET1) 2,141,968 2,727,997
Total exposure measure 22,030,648 22,833,225
Leverage ratio (%) 9.7 11.9
Fully loaded basis
---------- -----------
Capital measure (CET1) 2,043,454 2,611,563
Total exposure measure 22,036,744 22,785,112
Leverage ratio (%) 9.3 11.5
7. Internal Capital Adequacy Assessment Process (ICAAP),
Internal Liquidity Assessment Process (ILAAP), Pillar II and
Supervisory Review and Evaluation Process (SREP)
The Group prepared the ICAAP and ILAAP reports for the year
2016. Both reports were approved by the Board of Directors and have
been submitted to the ECB in April 2017.
The Group also undertakes a quarterly review of its ICAAP
results. During the quarterly review of the ICAAP, the Group's risk
profile and risk management policies and processes are reviewed and
any changes since the full ICAAP exercise are taken into
consideration. The quarterly review identifies whether the Group is
exposed to new risks and assesses the adequacy of capital resources
in order to cover its risks, as these have evolved (compared to the
full ICAAP exercise). Given completion of the full ICAAP report in
April 2017, the two quarterly reviews will take place in the third
quarter of 2017 and in the fourth quarter of 2017 covering the
period up to end of June 2017 and the period up to end of September
2017, respectively.
A quarterly review is also performed for the ILAAP through
quarterly stress tests submitted to the Assets and Liabilities
Committee (ALCO) and Board Risk Committee, as from 2016. During the
quarterly review, the liquidity risk drivers are assessed and, if
needed, the stress test assumptions are amended accordingly. The
quarterly review identifies whether the Group has an adequate
liquidity buffer to cover the stress outflows.
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-on capital requirements are a point-in-time assessment and
therefore subject to change over time.
8. Other Pillar 3 disclosures
8.1 Ageing of past-due exposures
30 June 2017 Gross carrying values
< 30 days >30 days < 60 days >60 days < 90 days >90 days >180 days < 1 year > 1 year
< 180 days
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Loans(6) 482,637 179,626 156,402 267,442 292,362 6,563,403
Debt securities - - - - - -
Total exposures 482,637 179,626 156,402 267,442 292,362 6,563,403
31 December 2016 Gross carrying values
< 30 days >30 days < 60 days >60 days < 90 days >90 days >180 days < 1 year > 1 year
< 180 days
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Loans(6) 517,513 181,480 222,883 178,247 192,152 7,375,193
Debt securities - - - - - -
Total exposures 517,513 181,480 222,883 178,247 192,152 7,375,193
[6] Amounts presented are before fair value adjustment on
initial recognition relating to the loans and advances to customers
acquired as part of the acquisition of certain operations of Laiki
Bank in 2013 and originated credit impaired loans. This adjustment
has decreased the gross balance of loans and advances to
customers.
8. Other Pillar 3 disclosures (continued)
8.2 Non-performing and forborne exposures
The table below discloses NPEs based on the definitions of the
EBA standards.
30 June 2017 Gross carrying amount of performing and non-performing exposures Accumulated impairment and provisions and Collaterals and financial
negative fair value adjustments due to guarantees received
credit risk
Of which Of which Of which non-performing On performing On non-performing On Of which
performing performing exposures exposures non-performing forborne
but past forborne exposures exposures
due > 30
days and
<= 90 days
Of which Of which Of which Of which Of which
defaulted impaired forborne forborne forborne
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Debt securities 862,161 - - - - - - - - - - - -
Loans and advances
Central Banks 2,183,069 - - - - - - - - - - - -
Credit
Institutions 695,543 - - - - - - - - - - - -
Loans and
advances to
customers(7) 19,504,609 67,812 2,401,163 9,751,981 8,100,931 6,140,772 5,142,562 178,134 68,952 4,413,635 1,840,836 4,872,120 5,176,877
Off-balance-sheet
exposures 2,920,487 n/a 25,473 409,206 340,009 n/a(8) 15,139 4,376 20 42,233 704 58,830 20,062
Note: The above table includes loans and advances classified as
held for sale (Note 19 of the Interim Condensed Consolidated
Financial Statements for the period ended 30 June 2017).
[7] Amounts presented are before fair value adjustment on
initial recognition relating to the loans and advances to customers
acquired as part of the acquisition of certain operations of Laiki
Bank in 2013 and originated credit impaired loans.
[8] Per EBA guidelines no disclosure is required.
8. Other Pillar 3 disclosures (continued)
8.2 Non-performing and forborne exposures (continued)
31 December 2016 Gross carrying amount of performing and non-performing exposures Accumulated impairment and provisions and Collaterals and financial
negative fair value adjustments due to credit guarantees received
risk
Of which Of which Of which non-performing On performing On non-performing On Of which
performing performing exposures exposures non-performing forborne
but past forborne exposures exposures
due > 30
days and
<= 90 days
Of which Of which Of which Of which Of which
defaulted impaired forborne forborne forborne
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Debt securities 619,568 - - - - - - - - - - - -
Loans and advances
Central Banks 1,373,803 - - - - - - - - - - - -
Credit
Institutions 1,075,199 - - - - - - - - - - - -
Loans and advances
to customers(9) 20,130,095(9) 107,160 2,206,634 11,034,249 8,837,158 6,886,890 5,889,332 160,992(9) 50,531 4,319,703(9) 1,617,028 7,854,750 6,760,774
Off-balance-sheet
exposures 2,881,262 n/a 11,817 481,273 365,335 n/a(10) 24,421 1,793 2 36,403 391 83,957 22,056
[9] Amounts presented are before fair value adjustment on
initial recognition relating to the loans and advances to customers
acquired as part of the acquisition of certain operations of Laiki
Bank in 2013 and originated credit impaired loans.
[10] Per EBA guidelines no disclosure is required.
8. Other Pillar 3 disclosures (continued)
8.3 Analysis of Counterparty Credit Risk (CCR) exposure by approach
The table below shows the analysis of CCR per approach. The
approach followed by the Group is the mark to market method.
30 June 2017 Notional Replacement Potential future Effective Multiplier Exposure at RWA
cost/current credit exposure expected Default (EAD)
market value positive post Credit
exposure (EEPE) Risk Mitigation
(CRM)
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Mark to market 320 11,279 11,599 5,188
Original exposure - - - -
Standardised - - - -
approach
Internal model - - - -
method (IMM) (for
derivatives and
Securities
Financing
Transactions
(SFTs))
Of which - - - -
securities
financing
transactions
Of which - - - -
derivatives and
long settlement
transactions
Of which from - - - -
contractual
cross- product
netting
Financial - -
collateral simple
method (for SFTs)
Financial - -
collateral
comprehensive
method (for SFTs)
Value at Risk - -
(VaR) for SFTs
Total 5,188
8. Other Pillar 3 disclosures (continued)
8.3 Analysis of Counterparty Credit Risk (CCR) exposure by approach (continued)
31 December 2016 Notional Replacement Potential future Effective Multiplier Exposure at RWA
cost/current credit exposure expected Default (EAD)
market value positive post Credit
exposure (EEPE) Risk Mitigation
(CRM)
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Mark to market 6,727 11,543 8,639 3,588
Original exposure - - - -
Standardised - - - -
approach
IMM (for - - - -
derivatives and
SFTs)
Of which - - - -
securities
financing
transactions
Of which - - - -
derivatives and
long settlement
transactions
Of which from - - - -
contractual
cross- product
netting
Financial - -
collateral simple
method (for SFTs)
Financial - -
collateral
comprehensive
method (for SFTs)
VaR for SFTs - -
Total 3,588
8.4 CVA capital charge
The table below provides CVA regulatory calculations (with a
breakdown by standardised and advanced approaches).
30 June 2017 31 December 2016
Exposure value RWA Exposure value RWA
EUR000 EUR000 EUR000 EUR000
1 Total portfolios subject to the advanced method - - - -
2 (i) VaR component (including the 3× multiplier) - -
3 (ii) SVaR component (including the 3× multiplier) - -
4 All portfolios subject to the standardised method 56,226 25,388 55,629 29,438
EU4 Based on the original exposure method - - - -
5 Total subject to the CVA capital charge 56,226 25,388 55,629 29,438
8. Other Pillar 3 disclosures (continued)
8.5 Standardised approach - CCR exposures by regulatory portfolio and risk
A breakdown of CCR exposures, calculated under the standardised
approach, by portfolio (type of counterparties) and by risk weight
(business attributed according to the Standardised approach), is
presented below:
30 June 2017 Risk weight Total Of
Exposure classes which
unrated
0% 2% 4% 10% 20% 50% 70% 75% 100% 150% Others
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Central
governments
or central
1 banks - - - - - - - - - - - - -
2 Regional - - - - - - - - - - - - -
governments
or local
authorities
Public sector
3 entities - - - - - - - - - - - - -
Multilateral
development
4 banks - - - - - - - - - - - - -
International
5 organisations - - - - - - - - - - - - -
6 Institutions - - - - 11,582 44,167 - - - - - 55,749 10,352
7 Corporates - - - - - - - - 476 - - 476 476
8 Retail - - - - - - - - - - - - -
9 Institutions - - - - - - - - - - - - -
and
corporates
with a
short-term
credit
assessment
10 Other items - - - - - - - - - - - - -
11 Total - - - - 11,582 44,167 - - 476 - - 56,225 10,828
8. Other Pillar 3 disclosures (continued)
8.5 Standardised approach - CCR exposures by regulatory portfolio and risk (continued)
31 December 2016 Risk weight
Exposure classes
Of
which
0% 2% 4% 10% 20% 50% 70% 75% 100% 150% Others Total unrated
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Central
governments
or central
1 banks - - - - - - - - - - - - -
2 Regional - - - - - - - - - - - - -
governments
or local
authorities
Public sector
3 entities - - - - - - - - - - - - -
Multilateral
development
4 banks - - - - - - - - - - - - -
International
5 organisations - - - - - - - - - - - - -
6 Institutions - - - - 12,977 41,929 - - - - - 54,906 11,757
7 Corporates - - - - - - - - 723 - - 723 723
8 Retail - - - - - - - - - - - - -
9 Institutions - - - - - - - - - - - - -
and
corporates
with a
short-term
credit
assessment
10 Other items - - - - - - - - - - - -
11 Total - - - - 12,977 41,929 - - 723 - - 55,629 12,480
8. Other Pillar 3 disclosures (continued)
8.6 Impact of netting and collateral held on exposure values
30 June 2017 Gross positive fair Netting benefits Netted current Collateral held Net credit exposure
value or net credit exposure
carrying amount
EUR000 EUR000 EUR000 EUR000 EUR000
Derivatives 7,439 7,119 320 - 320
SFTs 44,627 - 44,627 - 44,627
Cross-product - - - - -
netting
Total 52,066 7,119 44,947 - 44,947
31 December 2016
Derivatives 21,116 14,051 7,065 6,162 903
SFTs 46,990 - 46,990 - 46,990
Cross-product netting - - - - -
Total 68,106 14,051 54,055 6,162 47,893
8.7 Composition of collateral for exposures to CCR
A breakdown of all types of collateral posted or received to
support or reduce CCR exposures, is presented below:
30 June 2017 Collateral used in derivative transactions Collateral used in SFTs
Fair value of collateral received Fair value of posted collateral Fair value of Fair value of
collateral posted
received collateral
Segregated Unsegregated Segregated Unsegregated
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Cash - 92 - (72,100) - (14,736)
Total - 92 - (72,100) - (14,736)
31 December 2016
Cash -11,678 -(36,945) -(19,080)
Total -11,678 -(36,945) -(19,080)
8. Other Pillar 3 disclosures (continued)
8.8 Credit quality of exposures by exposure class and instrument
Customer loan restructurings, intense provisioning,
debt-for-property and debt-for equity swaps deleveraging actions
led to: (a) an overall decrease in the overall exposures between
the two periods and (b) an absolute and relative decrease in the
defaulted gross exposures compared to non-defaulted exposures since
31 December 2016. Debt-for-property and debt-for-equity swaps
resulted in a movement of exposures towards exposure class "Other
exposures".
"Credit risk adjustment charges of the period" include changes
in column (c) between the current and the previous period
calculated at exposure class level.
Materiality applied: All exposure classes that at the current
and previous reporting period do not exceed 1% of total net
exposures have been included in "Other".
The below table has been completed in accordance to the
regulatory requirements. Columns (c) and (e) represent the value
adjustments reported in regulatory reports relating to the
calculation of the RWA.
a b c d e f g
30 June 2017 Gross carrying values of Specific General Accumulated Credit risk adjustment charges Net values
credit credit risk write-offs of the period
risk adjustment
adjustment
Defaulted Non-defaulted (a+b-c-d-e)
exposures exposures
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Central
governments
or central
banks - 3,021,432 - - 1 - 3,021,431
Institutions - 775,281 6 - 1 - 775,274
Corporates - 4,908,674 41,774 - 129,516 8,356 4,737,384
Of which:
SMEs - 3,467,543 38,346 - 87,662 13,314 3,341,535
Retail - 3,233,961 43,957 - 62,523 10,036 3,127,481
Of which:
SMEs - 956,791 10,784 - 11,718 5,556 934,289
Secured by
mortgages on
immovable
property - 4,390,335 10,194 - 35,092 1,789 4,345,049
Of which:
SMEs - 1,758,040 2,379 - 16,000 1,469 1,739,661
Exposures in
default 10,130,843 - 3,442,670 - 3,306,295 302,544 3,381,878
Items
associated
with
particularly
high risk 2,685,260 1,392,359 946,274 - 1,076,733 (57,378) 2,054,612
Other
exposures - 2,281,608 - - - - 2,281,608
Other 37 298,388 52 - 866 45 297,507
Total
standardised
approach 12,816,140 20,302,038 4,484,927 - 4,611,027 265,392 24,022,224
Of which:
Loans 12,460,677 14,465,720 4,439,667 - 4,610,823 255,535 17,875,907
Of which: Debt
securities - 862,161 - - - - 862,161
Of which:
Off-balance
sheet
exposures 355,425 2,554,828 45,260 - 204 9,857 2,864,789
8. Other Pillar 3 disclosures (continued)
8.8 Credit quality of exposures by exposure class and instrument (continued)
a b c d e f g
31 December Gross carrying values of Specific General Accumulated Credit risk Net values
2016 credit risk credit risk write-offs adjustment
adjustment adjustment charges of
the period
Defaulted Non-defaulted (a+b-c-d-e)
exposures exposures
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Central
governments
or central
banks - 1,994,935 - - 1 - 1,994,934
Institutions - 1,157,808 6 - 2 (6) 1,157,800
Corporates - 4,849,022 33,418 - 154,317 2,256 4,661,287
Of which:
SMEs - 3,516,744 25,032 - 128,645 15,197 3,363,067
Retail - 3,255,099 33,921 - 65,999 (4,227) 3,155,179
Of which:
SMEs - 968,763 5,228 - 11,371 (445) 952,164
Secured by
mortgages on
immovable
property - 4,358,501 8,405 - 31,560 (1,936) 4,318,536
Of which:
SMEs - 1,693,832 910 - 13,627 (718) 1,679,295
Exposures in
default 10,363,863 - 3,140,126 - 3,259,821 (142,288) 3,963,916
Items
associated
with
particularly
high risk 3,048,843 1,318,004 1,003,652 - 1,085,061 (83,455) 2,278,134
Other
exposures - 2,268,656 - - - - 2,268,656
Other 107 281,628 7 - 1,258 (27) 280,470
Total
standardised
approach 13,412,813 19,483,653 4,219,535 - 4,598,019 (229,683) 24,078,912
Of which:
Loans 13,047,763 13,897,482 4,184,132 - 4,597,011 (223,408) 18,164,102
Of which: Debt
securities - 619,051 - - - - 619,051
Of which:
Off-balance
sheet
exposures 364,945 2,501,549 35,403 - 1,008 (6,275) 2,830,083
8. Other Pillar 3 disclosures (continued)
8.9 Credit quality of exposures by industry
"Credit risk adjustment charges of the period" include changes
in column (c) between the current and the previous period
calculated at industry level.
"Other services" include exposures to Private individuals,
Activities of extraterritorial organizations and bodies, Other
services activities, and Financial and Insurance activities.
Materiality applied: All industry sectors that at the current
and previous period do not exceed 1% of total net exposures have
been included in "Other".
The below table has been completed in accordance to the
regulatory requirements. Columns (c) and (e) represent the value
adjustment reports for the calculation of the RWA.
The defaulted gross exposures have absolutely and relatively
decreased in comparison to non-defaulted exposures since 31
December 2016, due to intense provisioning mainly to defaulted
portfolios, deleveraging and debt-for-asset swaps actions in the
defaulted portfolios. The relative increase observed in "Public
administration and defence, compulsory social security" exposures
results from an increase in balance sheet values relating to
investments in government bonds and balances with central
banks.
a b c d e f g
30 June 2017 Gross carrying values of Specific risk General Accumulated Credit risk Net values
adjustment credit risk write-offs adjustment
adjustment charges of
the period
Defaulted Non-defaulted (a+b-c-d-e)
exposures exposures
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Manufacturing 512,609 546,379 164,696 - 183,379 (3,734) 710,913
Construction 2,837,311 1,384,247 897,722 - 1,035,036 (80,271) 2,288,800
Wholesale and
retail trade 1,401,173 1,886,250 441,363 - 486,001 10,606 2,360,059
Accommo-dation
and food
service
activities 723,357 1,273,089 238,770 - 285,136 (7,515) 1,472,540
Information and
communication 159,676 145,681 60,318 - 44,861 1,909 200,178
Real estate
activities 1,392,013 2,359,054 508,874 - 445,699 (96,879) 2,796,494
Professional,
scientific and
technical
activities 546,569 431,939 119,233 - 281,132 (18,714) 578,143
Public
administra-tion
and defence,
compulsory
social security 12,337 3,132,559 1,292 - 2,456 455 3,141,148
Human health
services and
social work
activities 114,251 292,065 35,577 - 34,689 2,968 336,050
Other services 4,471,062 8,119,191 1,833,392 - 1,557,518 472,470 9,199,343
Other 645,782 731,584 183,690 - 255,120 (15,903) 938,556
Total 12,816,140 20,302,038 4,484,927 - 4,611,027 265,392 24,022,224
8. PILLAR 3 Disclosures (continued)
8.9 Credit quality of exposures by industry (continued)
a b c d e f g
31 December Gross carrying values of Specific risk General Accumulated Credit risk Net values
2016 adjustment credit risk write-offs adjustment
adjustment charges of
the period
Defaulted Non-defaulted (a+b-c-d-e)
exposures exposures
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Manufacturing 496,096 539,367 168,430 - 171,579 (42,629) 695,454
Construction 3,097,547 1,455,163 977,993 - 996,657 (129,720) 2,578,060
Wholesale and
retail trade 1,374,080 1,955,207 430,757 - 471,960 (21,303) 2,426,570
Accommodation
and food
service
activities 820,681 1,012,165 246,285 - 280,908 (2,407) 1,305,653
Information and
communication 152,082 211,164 58,409 - 42,119 (3,150) 262,718
Real estate
activities 1,584,212 2,240,633 605,753 - 457,437 35,236 2,761,655
Professional,
scientific and
technical
activities 583,573 438,748 137,947 - 291,561 (7,554) 592,813
Public
administration
and defence,
compulsory
social
security 12,539 2,111,859 837 - 2,678 209 2,120,883
Human health
services and
social work
activities 113,551 280,230 32,609 - 32,879 737 328,293
Other services 4,434,751 8,554,084 1,360,919 - 1,530,864 (14,090) 10,097,052
Other 743,701 685,033 199,596 - 319,377 (45,012) 909,761
Total 13,412,813 19,483,653 4,219,535 - 4,598,019 (229,683) 24,078,912
8. Other Pillar 3 disclosures (continued)
8.10 Credit quality of exposures by geography
"Credit risk adjustment charges of the period" include changes
in column (c) between the current and the previous period
calculated at exposure class level.
Materiality applied: All EU countries that the current and
previous reporting period do not exceed 1% of total net exposures
have been included in "Other countries" and all non-EU countries
that at the current and previous reporting period do not exceed 1%
of total net exposures, including exposures to supranational, have
been included in "Other geographical areas".
The below table has been completed in accordance to the
regulatory requirements. Columns (c) and (e) represent the value
adjustments as they are reported in the regulatory reports relating
to the calculation of the RWA.
The defaulted gross exposures have absolutely and relatively
decreased in comparison to non-defaulted exposures since 31
December 2016, due to intense provisioning mainly to defaulted
portfolios deleveraging and debt for asset swaps actions in the
defaulted portfolios.
a b c d e f g
30 June 2017 Gross carrying value of Specific General Accumulated Credit risk Net values
credit risk credit risk write-offs adjustment
adjustment adjustment charges of
the period
Defaulted Non-defaulted (a+b-c-d-e)
exposures exposures
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
EU Countries 12,407,757 19,681,836 4,282,117 - 4,533,296 320,464 23,274,180
Cyprus 11,381,134 16,769,119 3,835,856 - 4,165,010 271,335 20,149,387
United Kingdom 373,375 1,967,529 129,161 - 131,391 13,259 2,080,352
France 121 301,492 39 - 671 11 300,903
Greece 228,814 300,015 48,501 - 148,699 17,971 331,629
Other
countries 424,313 343,681 268,560 - 87,525 17,888 411,909
Non EU
Countries 408,383 620,202 202,810 - 77,731 (55,072) 748,044
Russian
Federation 223,843 83,426 137,265 - 16,084 (27,179) 153,920
Other
geographical
areas 184,540 536,776 65,545 - 61,647 (27,893) 594,124
Total 12,816,140 20,302,038 4,484,927 - 4,611,027 265,392 24,022,224
8. Other Pillar 3 disclosures (continued)
8.10 Credit quality of exposures by geography (continued)
a b c d e f g
31 December Gross carrying value of Specific General Accumulated Credit risk Net values
2016 credit risk credit risk write-offs adjustment
adjustment adjustment charges of
the period
Defaulted Non-defaulted (a+b-c-d-e)
exposures exposures
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
EU Countries 12,907,315 18,769,709 3,961,653 - 4,527,796 (226,857) 23,187,575
Cyprus 11,824,876 15,591,235 3,564,521 - 4,133,718 (170,185) 19,717,872
United Kingdom 387,916 1,852,573 115,902 - 127,614 (17,533) 1,996,973
France 106 303,578 28 - 671 (4) 302,985
Greece 213,333 382,630 30,530 - 147,797 (32,531) 417,636
Other
countries 481,084 639,693 250,672 - 117,996 (6,604) 752,109
Non EU
Countries 505,498 713,944 257,882 - 70,223 (2,826) 891,337
Russian
Federation 256,368 110,508 164,444 - 15,129 11,286 187,303
Other
geographical
areas 249,130 603,436 93,438 - 55,094 (14,112) 704,034
Total 13,412,813 19,483,653 4,219,535 - 4,598,019 (229,683) 24,078,912
8.11 Changes in the stock of defaulted and impaired loans and debt securities
Defaulted exposures are exposures that are defaulted in
accordance with Article 178 of the CRR.
Gross carrying value defaulted exposures
30 June 2017 31 December 2016
EUR000 EUR000
Opening balance 13,412,815 13,998,357
Loans and debt securities that have defaulted or impaired since the last
reporting period 733,355 968,108
Returned to non-defaulted status (267,912) (284,897)
Amounts written off (496,408) (1,055,265)
Other changes (565,710) (213,488)
Closing balance 12,816,140 13,412,815
8. Other Pillar 3 disclosures (continued)
8.12 Standardised approach - Credit risk exposure and Credit Risk Mitigation (CRM) effects
The table below illustrates the effect of all CRM techniques
applied in accordance with the CRR under the financial collateral
comprehensive method.
The RWA density has significantly decreased since 31 December
2016 due to redistribution of the exposures to lower risk exposure
classes. Particularly, (a) a significant decrease in balance sheet
amounts in the higher risk exposure classes (exposures in default
and higher-risk categories) due to repayments and intense increased
provisioning, (b) a movement of exposure amounts from higher risk
exposure classes (exposures in default and higher-risk categories)
towards lower risk categories (Corporates, Retail, Secured by
mortgages on immovable properties, and Other items) due to customer
loan restructurings, new customer loans, and debt-for-property and
debt-for-equity swaps deleveraging actions, and (c) a significant
increase in balance sheet amounts to exposures with central
governments or central banks which carry 0% risk weight.
Exposure classes with zero exposure values are not included in
the template below:
30 June 2017 Exposures before Credit Conversion Exposures post CCF and CRM RWAs and RWA density
Factor (CCF) and CRM
Exposure classes On-balance sheet Off-balance sheet On-balance sheet Off-balance sheet RWAs RWA density
amount amount amount amount
EUR000 EUR000 EUR000 EUR000 EUR000 %
Central
governments or
central banks 3,021,339 92 3,104,760 - - 0.0
Regional
government or
local
authorities 61,917 7,831 6,868 80 1,389 20.0
Public sector
entities 28,121 590 17,924 7 1 0.0
Multilateral
development
banks 9,148 - 9,148 - - 0.0
International
organisations 11,750 - 11,750 - - 0.0
Institutions 658,760 60,764 665,192 19,404 212,921 31.1
Corporates 3,378,856 1,358,052 3,203,500 297,404 3,435,902 98.1
Retail 2,204,261 923,220 1,962,715 40,230 1,416,324 70.7
Secured by
mortgages on
immovable
property 4,286,072 58,977 4,162,219 30,961 1,556,807 37.1
Exposures in
default 3,163,167 218,711 3,119,706 48,357 3,357,175 106.0
Higher-risk
categories 1,830,577 224,035 1,745,758 53,018 2,698,164 150.0
Covered bonds 39,341 - 39,341 - 3,934 10.0
Collective
investment
undertakings 52 - 52 - 52 100.0
Equity 138,757 - 138,757 - 320,490 231.0
Other items 2,269,091 12,517 2,269,091 12,517 2,421,032 106.1
Total 21,101,209 2,864,789 20,456,781 501,978 15,424,191 73.6
8. Other Pillar 3 disclosures (continued)
8.12 Standardised approach - Credit risk exposure and Credit
Risk Mitigation (CRM) effects (continued)
31 December 2016 Exposures before CCF and CRM Exposures post CCF and CRM RWAs and RWA density
Exposure classes On-balance sheet Off-balance sheet On-balance sheet Off-balance sheet RWAs RWA density
amount amount amount amount
EUR000 EUR000 EUR000 EUR000 EUR000 %
Central
governments or
central banks 1,994,906 28 2,045,333 - - 0.0
Regional
government or
local
authorities 58,384 12,552 3,036 95 626 20.0
Public sector
entities 32,270 600 18,041 7 1 0.0
Multilateral
development
banks 9,360 - 9,360 - - 0.0
International
organisations 11,823 - 11,823 - - 0.0
Institutions 1,019,117 74,146 1,027,587 31,190 318,843 30.1
Corporates 3,449,820 1,210,744 3,267,286 226,777 3,449,352 98.7
Retail 2,157,150 998,029 1,948,526 59,290 1,422,499 70.8
Secured by
mortgages on
immovable
property 4,255,562 62,974 4,145,741 29,571 1,615,895 38.7
Exposures in
default 3,726,558 237,358 3,675,261 34,704 4,072,498 109.8
Higher-risk
categories 2,058,042 220,092 2,003,647 44,177 3,071,736 150.0
Covered bonds 11,667 - 11,667 - 1,167 10.0
Collective
investment
undertakings 41 - 41 - 41 100.0
Equity 143,773 - 143,773 - 332,938 231.6
Other items 2,255,096 13,560 2,255,096 13,560 2,522,648 111.2
Total 21,183,569 2,830,083 20,566,218 439,371 16,808,244 80.0
8. Other Pillar 3 disclosures (continued)
8.13 Standardised approach
The table below presents the breakdown of exposures under the
standardised approach by asset class and risk weight (corresponding
to the riskiness attributed to the exposure according to the
standardised approach). The exposures are disclosed post conversion
factors and post risk mitigation techniques.
Risk weights or exposure classes with zero exposure values are
not included in the table below:
30 June 2017 Risk weight Total Of which
unrated(11)
Exposure
classes 0% 10% 20% 35% 50% 75% 100% 150% 250% Deducted
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Central
governments
or central
banks 3,104,760 - - - - - - - - - 3,104,760 -
Regional
government or
local
authorities - - 6,948 - - - - - - - 6,948 -
Public sector
entities 17,924 - 7 - - - - - - - 17,931 -
Multilateral
development
banks 9,148 - - - - - - - - - 9,148 9,148
International
organisations 11,750 - - - - - - - - - 11,750 11,750
Institutions 3,276 - 605,235 - 75,461 - 11,888 44,486 - - 740,346 -
Corporates - - - - - - 3,500,659 721 - - 3,501,380 3,501,380
Retail - - - - - 2,002,945 - - - - 2,002,945 2,002,945
Secured by
mortgages on
immovable
property - - - 3,106,616 1,086,443 - 121 - - - 4,193,180 4,193,180
Exposures in
default - - - - - - 2,789,839 378,224 - - 3,168,063 3,168,063
Higher-risk
categories - - - - - - - 1,798,776 - - 1,798,776 1,798,776
Covered bonds - 39,341 - - - - - - - - 39,341 -
Collective
investment
undertakings - - - - - - 52 - - - 52 52
Equity - - - - - - 17,602 - 121,155 - 138,757 138,757
Other items 134,217 - 62,632 - - - 1,868,928 - 215,831 197,466 2,479,074 2,479,074
Total 3,281,075 39,341 674,822 3,106,616 1,161,904 2,002,945 8,189,089 2,222,207 336,986 197,466 21,212,451 17,303,125
[11] Includes all exposures for which an issue/issuer or country
rating (where applicable) is not available or they follow uniform
regulatory treatment under the standardized approach of the
CRR.
8. Other Pillar 3 disclosures (continued)
8.13 Standardised approach (continued)
31 December Risk weight Total Of which
2016 unrated(12)
Exposure
classes 0% 10% 20% 35% 50% 75% 100% 150% 250% Deducted
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Central
governments
or central
banks 2,045,333 - - - - - - - - - 2,045,333 -
Regional
government or
local
authorities - - 3,131 - - - - - - - 3,131 -
Public sector
entities 18,041 - 7 - - - - - - - 18,048 -
Multilateral
development
banks 9,360 - - - - - - - - - 9,360 9,360
International
organisations 11,823 - - - - - - - - - 11,823 11,823
Institutions 3,543 - 944,899 - 85,098 - 18,619 61,524 - - 1,113,683 -
Corporates - - - - - - 3,493,834 952 - - 3,494,786 3,494,786
Retail - - - - - 2,007,816 - - - - 2,007,816 2,007,816
Secured by
mortgages on
immovable
property - - - 2,833,605 1,284,913 - 56,794 - - - 4,175,312 4,175,312
Exposures in
default - - - - - - 2,984,899 725,066 - - 3,709,965 3,709,965
Higher-risk
categories - - - - - - - 2,047,824 - - 2,047,824 2,047,824
Covered bonds - 11,667 - - - - - - - - 11,667 -
Collective
investment
undertakings - - - - - - 41 - - - 41 41
Equity - - - - - - 17,663 - 126,110 - 143,773 143,773
Other items 132,588 - 41,085 - - - 1,815,351 - 279,632 193,226 2,461,882 2,461,882
Total 2,220,688 11,667 989,122 2,833,605 1,370,011 2,007,816 8,387,201 2,835,366 405,742 193,226 21,254,444 18,062,582
[12] Includes all exposures for which an issue/issuer or country
rating (where applicable) is not available or they follow uniform
regulatory treatment under the standardised approach of the
CRR.
Accumulated provisions ccumulated provisions comprise (i) provisions for
impairment of customer loans and advances
to customers, (ii) the fair value adjustment on initial
recognition of loans, and (iii) provisions
for off-balance sheet exposures (contingent liabilities
and commitments) disclosed on the
balance sheet within other liabilities.
Cost to Income ratio Cost-to-income ratio is calculated as the total staff
costs and other operating expenses (excluding
advisory and other restructuring costs) divided by total
income (excluding gains/(losses)
on disposals of non-core assets).
Interest earning assets Interest earning assets is the sum of: cash and balances
with central banks, loans and advances
to banks, net loans and advances to customers, investments
(excluding equities and mutual
funds) and derivatives.
Leverage ratio The leverage ratio is calculated as the total equity to
total assets as presented on the balance
sheet.
Loans in arrears for more than 90 days (90+ DPD) Loans in arrears for more than 90 days (90+ DPD) are
defined as loans past-due for more than
90 days and loans that are impaired (impaired loans are
those (i) for which a provision for
impairment has been recognised on an individual basis or
(ii) for which incurred losses existed
at their initial recognition or (iii) customers in Debt
Recovery).
Loans in arrears for more than 90 days (90+ DPD) ratio Loans past-due for more than 90 days (as defined) divided
by loans before the deduction of
accumulated provisions (as defined).
Net fee and commission income over total income Fee and commission income less fee and commission expense
divided by total income (as defined),
but excluding gains/(losses) on disposals of non-core
assets.
Net Interest Margin Net interest margin is calculated as the net interest
income (annualised) divided by the average
interest earning assets.
Net loans to deposit ratio Net loans to deposits ratio is calculated as the net loans
and advances to customers divided
by customer deposits. Where applicable, loans and deposits
held for sale are added to the
numerator and denominator respectively.
Non-performing exposures (NPEs) According to the EBA standards, a loan is considered a
non-performing exposure if: (i) the
debtor 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, or (ii) the exposures are impaired i.e. in
cases where there is a specific
provision, or (iii) there are material exposures which are
more than 90 days past due, or
(iv) there are performing forborne exposures under
probation for which additional forbearance
measures are extended, or (v) there are performing
forborne exposures under probation that
present more than 30 days past due within the probation
period. The NPEs are reported before
the deduction of accumulated provisions (as defined).
NPE ratio NPE ratio is non-performing exposures (as defined) divided
by loans before the deduction of
accumulated provisions (as defined).
Operating profit return on average assets Operating profit return on average assets is calculated as
the operating profit divided by
the average of total assets for the relevant period.
Provisioning charge (cost of risk) Provisioning charge (cost of risk) is calculated as the
provisions for impairment of customer
loans plus the gain on derecognition of loans and advances
to customers for the period (annualised)
divided by average customer loans before accumulated
provisions (as defined).
Provisioning coverage ratio for 90+ DPD Provisioning coverage ratio for 90+ DPD is calculated as
the accumulated provisions (as defined)
divided by 90+ DPD (as defined).
Provisioning coverage ratio for 90+ DPD calculated with Provisioning coverage ratio for 90+ DPD is calculated as
reference to the contractual balances the accumulated provisions (as defined)
of customers divided by 90+DPD (as defined), after the addition of
total contractual interest due on those
loans to both to the numerator and denominator.
Provisioning coverage ratio for NPEs Provisioning coverage ratio for NPEs is calculated as
accumulated provisions (as defined)
over NPEs (as defined).
Total income Comprises total of net interest income, fee and commission
income, fee and commission expense,
net foreign exchange gains, net gains on financial
instrument transactions, insurance income
net of claims and commissions, (losses)/gains from
revaluation and disposal of investment
properties, gains/(losses) on disposal of stock of
property and other income.
Footnotes
1 Excluding loans and advances to central banks and credit
institutions.
2 The analysis shown in lines 'non-financial corporations' and
'households' is non-additive across categories as certain customers
could be in both categories.
3 CET1 includes regulatory deductions, primarily comprising
deferred tax assets and intangible assets amounting to EUR124,650
thousand and EUR88,407 thousand as at 30 June 2017 and 31 December
2016 respectively.
4 Following the Regulation (EU) 2016/445 of the ECB of 14 March
2016 on the exercise of options and discretions available in Union
law (ECB/2016/4), the deferred tax asset phase-in period reduced
from 10 to 5 years, with effect as from the reporting of 31
December 2016.
5 Includes Credit Valuation Adjustments (CVA)
6 Amounts presented are before fair value adjustment on initial
recognition relating to the loans and advances to customers
acquired as part of the acquisition of certain operations of Laiki
Bank in 2013 and originated credit impaired loans. This adjustment
has decreased the gross balance of loans and advances to
customers.
7 Amounts presented are before fair value adjustment on initial
recognition relating to the loans and advances to customers
acquired as part of the acquisition of certain operations of Laiki
Bank in 2013 and originated credit impaired loans.
8 Per EBA guidelines no disclosure is required.
9 Amounts presented are before fair value adjustment on initial
recognition relating to the loans and advances to customers
acquired as part of the acquisition of certain operations of Laiki
Bank in 2013 and originated credit impaired loans.
10 Per EBA guidelines no disclosure is required.
11 Includes all exposures for which an issue/issuer or country
rating (where applicable) is not available or they follow uniform
regulatory treatment under the standardized approach of the
CRR.
12 Includes all exposures for which an issue/issuer or country
rating (where applicable) is not available or they follow uniform
regulatory treatment under the standardised approach of the
CRR.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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