TIDMBOCH
RNS Number : 4354X
Bank of Cyprus Holdings PLC
28 August 2020
Announcement
Group Financial Results for the six months ended 30 June
2020
Nicosia, 28 August 2020
Key Highlights for the six months ended 30 June 2020
COVID-19
-- Confirmed COVID-19 cases remain amongst the lowest within EU,
despite relaxation of measures
-- Continue to support colleagues, customers affected by COVID-19 and wider Cypriot economy
-- Nascent signs of economic recovery post lockdown
EUR1.3 bn NPE reduction in 1H2020, including NPE sales
-- EUR0.9 bn NPE sale (Helix 2) agreed in August 2020
-- Organic NPE reduction of EUR137 mn in 2Q2020, despite lockdown
-- Completion of EUR133 mn NPE sale (Velocity 2) in 2Q2020
-- NPEs reduced to EUR2.6 bn (EUR1.1 bn net) pro forma for Helix 2
-- Gross NPE ratio reduced to 22% (11% net) and coverage
maintained at 58%, pro forma for Helix 2
Good Capital and Strong Liquidity Position
-- Total Capital ratio of 17.9% and CET1 ratio of 14.4% (IFRS 9
transitional), pro forma for Helix 2
-- Deposits at EUR16.3 bn, broadly flat qoq; significant surplus
liquidity of EUR3.9 bn (LCR at 257%)
Operational efficiency
-- Cost to income ratio (excluding special levy and
contributions to SRF and DGF) at 57% for 2Q2020, broadly flat on
prior quarter
-- Total operating expenses reduced to EUR81 mn for 2Q2020, down
by 18% year on year and by 3% quarter on quarter
-- Increased usage of digital channels sustained post lockdown
Performance in 2Q2020
-- New lending of EUR238 mn for 2Q2020 (down by 47% quarter on
quarter), impacted by COVID-19 lockdown
-- Underlying result of profit after tax from organic operations of EUR4 mn for 2Q2020
-- Provisions/net loss relating to NPE sales (including
restructuring expenses) of EUR104 mn for 2Q2020, including Helix 2
loss of EUR68 mn and loan credit losses of EUR21 mn for potential
future NPE sales
-- Loss after tax of EUR100 mn for 2Q2020 and EUR126 mn for 1H2020
Group Chief Executive Statement
"In the second quarter of the year, we faced the current peak of
the health pandemic crisis in Cyprus, followed by the gradual
easing of the restrictive measures leading to increased economic
activity. The global impact from the pandemic, however, continues
to affect the economy and uncertainty remains.
Despite the lockdown we have continued to deliver on our
strategic priorities of strengthening our balance sheet and
improving our asset quality and efficiency, while supporting our
customers, colleagues and community through COVID-19.
We have continued to support the Cypriot economy by granting
EUR689 mn new loans in the first half of the year, via prudent
underwriting standards; 98% of new exposures in Cyprus since 2016
are performing.
Despite the challenging market conditions, we reached agreement
for the sale of EUR0.9 bn NPEs in Project Helix 2 earlier this
month. We further reduced our NPEs organically by EUR279 mn in the
first half of the year and completed the sale of EUR133 mn NPEs in
Project Velocity 2. These combined de-risking actions have reduced
NPEs in the first six months of 2020 by EUR1.3 bn. Overall, since
the peak in 2014, we have now reduced the stock of NPEs by EUR12.4
bn or 83% to EUR2.6 bn and our NPE ratio is now reduced to 22% on a
pro forma basis.
We remain committed to further de-risking of the balance sheet
and will continue to seek solutions, both organic and inorganic to
achieve this. We will continue to assess the potential to
accelerate the reduction in NPEs on our balance sheet through
additional sales of NPEs in the future. At the same time, we are
working closely with our clients to arrest potential future asset
quality deterioration and NPE inflows once moratoria periods and
other government support schemes come to an end.
The Bank's capital and liquidity position remains good and in
excess of our regulatory requirements. As at 30 June 2020, our
capital ratios (IFRS 9 transitional) were Total Capital ratio of
17.9% and CET1 of 14.4%, both pro forma for Helix 2. We continue to
operate with significant liquidity surplus of EUR3.9 bn (LCR at
257%).
At the same time, we are focusing on improving our operational
efficiency. Our cost to income ratio stood at 57%, whilst total
operating expenses for the second quarter of the year were reduced
by 18% yoy, enabled by our digital transformation programme which
continues to progress well. Currently, 72% of our customers are
digitally engaged and 83% of total transactions are performed
through digital channels, up by 5 p.p. and 9 p.p. respectively year
on year.
During the second quarter of the year, we generated total income
of EUR143 mn and a positive operating result of EUR56 mn. The
underlying result for the quarter was a profit of EUR4 mn and the
overall result a loss after tax of EUR100 mn, including the loss on
Project Helix 2 of EUR68 mn and loan credit losses of EUR21 mn for
potential future NPE sales.
The results this quarter mark further progress against
delivering on our strategic objectives of becoming a stronger,
safer and more efficient institution, and we are now better
positioned to manage the challenges resulting from the impact of
the ongoing COVID-19 crisis and to support the recovery of the
Cypriot economy. Whilst it is too early to claim that Cyprus has
overcome the COVID-19 crisis, we stand ready to continue to protect
and support our customers, colleagues and the community in which we
operate".
Panicos Nicolaou
A . Group Financial Results - Statutory Basis
Interim Consolidated Income Statement for the six months ended
30 June 2020
Six months ended
30 June
2020 2019
(restated)
---------- ------------
EUR000 EUR000
---------- ------------
Turnover 376,652 485,646
========== ============
Interest income 198,749 251,805
Income similar to interest income 24,398 26,683
Interest expense (31,998) (50,415)
---------- ------------
Expense similar to interest expense (23,349) (23,964)
---------- ------------
Net interest income 167,800 204,109
---------- ------------
Fee and commission income 74,909 85,968
---------- ------------
Fee and commission expense (3,664) (5,201)
---------- ------------
Net foreign exchange gains 10,543 14,117
---------- ------------
Net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates 4,848 12,155
---------- ------------
Insurance income net of claims and commissions 28,915 30,036
---------- ------------
Net losses from revaluation and disposal of investment
properties (2,329) (1,349)
---------- ------------
Net gains on disposal of stock of property 2,676 17,747
---------- ------------
Other income 8,043 15,679
---------- ------------
291,741 373,261
---------- ------------
Staff costs (96,208) (114,244)
---------- ------------
Special levy on deposits on credit institutions
in Cyprus, contribution to Single Resolution Fund
and other levies (15,323) (18,732)
---------- ------------
Other operating expenses (94,564) (112,967)
---------- ------------
85,646 127,318
---------- ------------
Net gains on derecognition of financial assets
measured at amortised cost 2,617 5,429
---------- ------------
Credit losses to cover credit risk on loans and
advances to customers (183,711) (108,911)
========== ============
Credit losses of other financial instruments (626) (7,367)
========== ============
Impairment of non-financial assets (28,584) (11,585)
========== ============
(Loss)/profit before share of profit from associates
and remeasurement (124,658) 4,884
---------- ------------
Remeasurement of investment in associate upon
classification as held for sale - (25,943)
---------- ------------
Share of (loss)/profit from associates (206) 5,312
---------- ------------
Loss before tax (124,864) (15,747)
---------- ------------
Income tax (4,259) 115,144
---------- ------------
(Loss)/profit after tax for the period (129,123) 99,397
========== ============
Attributable to:
---------- ------------
Owners of the Company (125,618) 97,398
---------- ------------
Non-controlling interest (3,505) 1,999
---------- ------------
(Loss)/profit for the period (129,123) 99,397
========== ============
Basic and diluted (loss)/profit per share attributable
to the owners of the Company (EUR cent) (28.2) 21.8
========== ============
A. Group Financial Results - Statutory Basis (continued)
Interim Consolidated Balance Sheet as at 30 June 2020
30 June 31 December
2020 2019
Assets EUR000 EUR000
----------- ------------
Cash and balances with central banks 5,276,398 5,060,042
----------- ------------
Loans and advances to banks 621,960 320,881
----------- ------------
Derivative financial assets 16,250 23,060
----------- ------------
Investments 1,821,413 1,682,869
----------- ------------
Investments pledged as collateral 177,517 222,961
----------- ------------
Loans and advances to customers 10,104,240 10,721,841
----------- ------------
Life insurance business assets attributable to
policyholders 446,773 458,852
----------- ------------
Prepayments, accrued income and other assets 254,606 243,930
----------- ------------
Stock of property 1,344,126 1,377,453
----------- ------------
Deferred tax assets 341,333 379,126
----------- ------------
Investment properties 134,152 136,197
----------- ------------
Property and equipment 280,783 288,054
----------- ------------
Intangible assets 176,478 178,946
----------- ------------
Investments in associates and joint venture 2,188 2,393
----------- ------------
Non-current assets and disposal groups held for
sale 372,591 26,217
----------- ------------
Total assets 21,370,808 21,122,822
=========== ============
Liabilities
----------- ------------
Deposits by banks 406,357 533,404
----------- ------------
Funding from central banks 999,806 -
----------- ------------
Repurchase agreements 123,098 168,129
----------- ------------
Derivative financial liabilities 55,734 50,593
----------- ------------
Customer deposits 16,302,896 16,691,531
----------- ------------
Insurance liabilities 628,457 640,013
----------- ------------
Accruals, deferred income, other liabilities
and other provisions 313,217 324,246
----------- ------------
Pending litigation, claims, regulatory and other
matters 112,972 108,094
----------- ------------
Subordinated loan stock 260,727 272,170
----------- ------------
Deferred tax liabilities 47,343 46,015
----------- ------------
Total liabilities 19,250,607 18,834,195
----------- ------------
Equity
----------- ------------
Share capital 44,620 44,620
----------- ------------
Share premium 1,294,358 1,294,358
----------- ------------
Revaluation and other reserves 190,888 210,701
----------- ------------
Retained earnings 345,327 490,286
----------- ------------
Equity attributable to the owners of the Company 1,875,193 2,039,965
----------- ------------
Other equity instruments 220,000 220,000
----------- ------------
Total equity excluding non-controlling interests 2,095,193 2,259,965
----------- ------------
Non-controlling interests 25,008 28,662
----------- ------------
Total equity 2,120,201 2,288,627
----------- ------------
Total liabilities and equity 21,370,808 21,122,822
=========== ============
Comparative Information on Statutory Basis
Please refer to Note 3.1 of the Consolidated Condensed Interim
Financial Statements for the six months ended 30 June 2020 for
details on the restatements on comparative information. The changes
did not have an impact on the results for the period or the equity
of the Group.
B. Group Financial Results - Underlying Basis
Consolidated Condensed Interim Income Statement
------
qoq
EUR mn 1H2020 1H2019(1) 2Q2020 1Q2020 + % yoy +%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Net interest income 168 170 83 85 -2% -1%
Net fee and commission income 71 75 33 38 -13% -5%
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution
of subsidiaries and associates 12 26 6 6 21% -53%
Insurance income net of claims and commissions 29 30 18 11 54% -4%
Net gains/ (losses) from revaluation and disposal of investment
properties and on disposal
of stock of properties 0 16 (1) 1 - -98%
Other income 8 16 4 4 -20% -49%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Total income 288 333 143 145 -1% -13%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Staff costs (96) (112) (47) (49) -4% -14%
Other operating expenses (69) (84) (34) (35) -2% -19%
Special levy and contributions to Single Resolution Fund (SRF) and
Deposit Guarantee Fund
(DGF) (15) (12) (6) (9) -33% 23%
Total expenses (180) (208) (87) (93) -6% -14%
------ --------- ------ ------ ----
Operating profit 108 125 56 52 7% -13%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Loan credit losses (87) (87) (23) (64) -63% 1%
Impairments of other financial and non-financial assets (29) (10) (25) (4) - -
(Provisions)/reversal of provisions for litigation, claims,
regulatory and other matters (4) 3 (2) (2) 10% -
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Total loan credit losses, impairments and provisions (120) (94) (50) (70) -28% 27%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
(Loss)/profit before tax and non-recurring items (12) 31 6 (18) - -
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Tax (5) 0 (3) (2) 47% -
Profit/(loss) attributable to non-controlling interests 4 (2) 4 (0) - -
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
(Loss)/profit after tax and before non-recurring items
(attributable to the owners of the
Company) (13) 29 7 (20) - -
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Advisory and other restructuring costs - organic (6) (10) (3) (3) 0% -39%
=================================================================== ====== ========= ====== ====== ==== ======
(Loss)/profit after tax - organic (attributable to the owners of
the Company) (19) 19 4 (23) - -
=================================================================== ====== ========= ====== ====== ==== ======
Provisions/net loss relating to NPE sales, including restructuring
expenses(2) (107) (2) (104) (3) - -
Loss on remeasurement of investment in associate upon
classification as held for sale (CNP)
net of share of profit from associates - (21) - - - -
Reversal of impairment of DTA and impairment of other tax
receivables - 101 - - - -
(Loss)/profit after tax (attributable to the owners of the Company) (126) 97 (100) (26) - -
------ --------- ------ ------ ----
B. Group Financial Results - Underlying Basis (continued)
Consolidated Condensed Interim Income Statement - Key Performance Ratios
----------------------------------------------------------------------------------------------------------- -------
qoq
Key Performance Ratios(3) 1H2020 1H2019(1) 2Q2020 1Q2020 + % yoy + %
------------------------------------------------------------- ------- --------- ------- ------ ------- -------
Net Interest Margin (annualised) 1.90% 1.88% 1.88% 1.95% -7 bps +2 bps
------------------------------------------------------------- ------- --------- ------- ------ ------- -------
Cost to income ratio 62% 63% 61% 64% -3 p.p. -1 p.p.
------------------------------------------------------------- ------- --------- ------- ------ ------- -------
Cost to income ratio excluding special levy and contributions
to SRF and DGF 57% 59% 57% 58% -1 p.p. -2 p.p.
------------------------------------------------------------- ------- --------- ------- ------ ------- -------
Operating profit return on average assets (annualised) 1.0% 1.2% 1.1% 1.0% +10 bps -20 bps
------------------------------------------------------------- ------- --------- ------- ------ ------- -------
Basic losses/earnings per share attributable to the owners of
the Company - organic (EUR cent) (4.32) 4.01 0.82 (5.14) 5.96 (8.33)
------------------------------------------------------------- ------- --------- ------- ------ ------- -------
Basic (losses)/earnings per share attributable to the owners
of the Company (EUR cent) (28.16) 21.84 (22.35) (5.81) (16.54) (50.00)
------------------------------------------------------------- ------- --------- ------- ------ ------- -------
1. The interest income, non-interest income, staff costs, other operating expenses and loan
credit losses related to Project Helix are disclosed under 'Provisions/net loss relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. 2. 'Provisions/net loss relating to NPE
sales including restructuring expenses' refer to the net loss on transactions completed during
each period, net loan credit losses on transactions under consideration and for potential
further sales at each reporting date, as well as the restructuring costs relating to these
trades. For further details please refer to Section B.3.4. 3. Including the NPE portfolios
classified as "Non-current assets and disposal groups held for sale".
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point
Commentary on Underlying Basis
The financial information presented in this Section provides an
overview of the Group financial results for the six months ended 30
June 2020 on the 'underlying basis' which the management believes
best fits the true measurement of the performance and position of
the Group.
Reconciliations between statutory basis and underlying basis are
included in section B.1 'Reconciliation of Income Statement for the
six months ended 30 June 2020 between statutory basis and
underlying basis' and in 'Definitions and explanations on
Alternative Performance Measures Disclosures' of the 'Interim
Financial Report 2020', to allow for the comparability of the
underlying basis to statutory information.
With the respect to the 'Balance Sheet Analysis', please note
the following in relation to the disclosure of pro forma figures
and ratios with respect to Project Helix 2. In August 2020 the
Group reached agreement with funds affiliated with Pacific
Investment Management Company LLC ("PIMCO"), for the sale of a
portfolio of loans with gross book value of EUR0.9 bn, known as
Project Helix 2. Further details on the transaction are provided in
Section B.2.5 'Loan Portfolio quality'. All relevant figures are
based on 30 June 2020 financial results, unless otherwise stated.
Numbers on a pro forma basis are based on the 30 June 2020
underlying basis figures and are adjusted for the Project Helix 2
and assume completion of the transaction, which remains subject to
customary regulatory and other approvals. Where numbers are
provided on a pro forma basis this is stated.
In addition, the following change was made in the underlying
basis, when compared with previous disclosures.
Reclassifications effected to comparative information were made
so that 'advisory and other restructuring costs' for 1H2019 of c.
EUR1.5 mn (relating to the Project Helix 2 loan portfolio, which
was classified as held for sale as at 30 June 2020), were
reclassified as non-recurring items within 'Provisions/net loss
relating to NPE
sales, including restructuring expenses' in the underlying basis.
B. Group Financial Results - Underlying Basis (continued)
Consolidated Condensed Interim Balance Sheet
============================================================================================================
EUR mn 30.06.2020 31.12.2019 + %
============================================= =============== ================== ========================
Cash and balances with central
banks 5,276 5,060 4%
Loans and advances to banks 622 321 94%
Debt securities, treasury bills
and equity investments 1,999 1,906 5%
Net loans and advances to customers 10,104 10,722 -6%
Stock of property 1,344 1,378 -2%
Investment properties 134 136 -2%
Other assets 1,519 1,574 -4%
Non-current assets and disposal
groups held for sale 373 26 -
============================================= =============== ================== ========================
Total assets 21,371 21,123 1%
============================================= =============== ================== ========================
Deposits by banks 406 533 -24%
Funding from central banks 1,000 - -
Repurchase agreements 123 168 -27%
Customer deposits 16,303 16,692 -2%
Subordinated loan stock 261 272 -4%
Other liabilities 1,158 1,169 -1%
============================================= =============== ================== ========================
Total liabilities 19,251 18,834 2%
============================================= =============== ================== ========================
Shareholders' equity 1,875 2,040 -8%
============================================= =============== ================== ========================
Other equity instruments 220 220 -
============================================= =============== ================== ========================
Total equity excluding non-controlling
interests 2,095 2,260 -7%
============================================= =============== ================== ========================
Non-controlling interests 25 29 -13%
============================================= =============== ================== ========================
Total equity 2,120 2,289 -7%
============================================= =============== ================== ========================
Total liabilities and equity 21,371 21,123 1%
============================================= =============== ================== ========================
Key Balance Sheet figures and 30.06.2020
ratios (proforma)(1) 30.06.2020 +(2)
(as reported)(2) 31.12.2019
============================================= =============== ================== ============ ==========
Gross loans (EUR mn) 11,593 12,491 12,822 -3%
============================================= =============== ================== ============ ==========
Allowance for expected loan
credit losses (EUR mn) 1,497 2,043 2,096 -3%
============================================= =============== ================== ============ ==========
Customer deposits (EUR mn) 16,303 16,303 16,692 -2%
============================================= =============== ================== ============ ==========
Loans to deposits ratio (net) 62% 64% 64% +0 p.p.
============================================= =============== ================== ============ ==========
NPE ratio 22% 28% 30% -2 p.p.
============================================= =============== ================== ============ ==========
NPE coverage ratio 58% 59% 54% +5 p.p.
============================================= =============== ================== ============ ==========
Leverage ratio 9.1% 9.1% 10.0% -0.9 p.p.
============================================= =============== ================== ============ ==========
Capital ratios and risk weighted
assets 30.06.2020 30.06.2020 31.12.2019 +(2)
(proforma)(1) (as reported)(2)
============================================= =============== ================== ============ ==========
Common Equity Tier 1 (CET1)
ratio (transitional for IFRS
9)(3) 14.4% 14.3% 14.8% -50 bps
============================================= =============== ================== ============ ==========
Total capital ratio 17.9% 17.8% 18.0% -20 bps
============================================= =============== ================== ============ ==========
Risk weighted assets (EUR mn) 11,848 11,960 12,890 -7 %
============================================= =============== ================== ============ ==========
1, Pro forma for the sale of NPEs of EUR0.9 bn (Project Helix 2);
calculations on a pro forma basis assume completion of Project Helix
2, which remains subject to customary regulatory and other approvals.
2. As reported: Including the NPE portfolios classified as "Non-current
assets and disposal groups held for sale". 3.The CET1 fully loaded
ratio as at 30 June 2020 (including the full impact of IFRS 9) amounts
to 12.6%, and 12.7% pro forma for Helix 2 (compared to 12.9% as at
31 March 2020 and 13.1% as at 31 December 2019). p.p. = percentage
points, bps = basis points, 100 basis points (bps) = 1 p.p.
B. Group Financial Results - Underlying Basis (continued)
B.1 Reconciliation of Income Statement for the six months ended
30 June 2020 between statutory basis and underlying basis
EUR mn Underlying NPE Other Statutory
basis Sales basis
Net interest income 168 - - 168
=========== ======= ====== ==========
Net fee and commission income 71 - - 71
=========== ======= ====== ==========
Net foreign exchange gains and net
gains on financial instrument transactions
and disposal/dissolution of subsidiaries
and associates 12 - 3 15
=========== ======= ====== ==========
Insurance income net of claims and
commissions 29 - - 29
=========== ======= ====== ==========
Net gains from revaluation and disposal
of investment properties and on disposal
of stock of properties 0 - - 0
=========== ======= ====== ==========
Other income 8 - - 8
----------- ------- ------ ----------
Total income 288 - 3 291
=========== ======= ====== ==========
Total expenses (180) (16) (10) (206)
----------- ------- ------ ----------
Operating profit 108 (16) (7) 85
=========== ======= ====== ==========
Loan credit losses (87) (91) (3) (181)
=========== ======= ====== ==========
Impairments of other financial and
non-financial assets (29) - - (29)
=========== ======= ====== ==========
Provisions for litigation, claims,
regulatory and other matters (4) - 4 -
=========== ======= ====== ==========
Loss before tax and non-recurring
items (12) (107) (6) (125)
=========== ======= ====== ==========
Tax (5) - - (5)
=========== ======= ====== ==========
Loss after tax attributable to non-controlling
interests 4 - - 4
----------- ------- ------ ----------
Loss after tax and before non-recurring
items (attributable to the owners
of the Company) (13) (107) (6) (126)
=========== ======= ====== ==========
Advisory and other restructuring
costs-organic (6) - 6 -
----------- ------- ------ ----------
Loss after tax - organic* (attributable
to the owners of the Company) (19) (107) - (126)
=========== ======= ====== ==========
Provisions/net loss relating to NPE
sales, including restructuring expenses (107) 107 - -
=========== ======= ====== ==========
Loss after tax (attributable to the
owners of the Company) (126) - - (126)
=========== ======= ====== ==========
*This is the loss after tax ( attributable to the owners of the
Company), before the provisions/net loss relating to NPE sales,
including restructuring expenses.
The reclassification differences between the statutory basis and
underlying basis mainly relate to the impact from 'non-recurring
items' and are explained as follows:
NPE sales
-- Total expenses include restructuring costs of EUR4 mn and
operating expenses of EUR12 mn mainly relating to the sale of
portfolios of NPEs and are presented within 'Provisions/net loss
relating to NPE sales, including restructuring expenses' under the
underlying basis.
-- Loan credit losses under the statutory basis include the loan
credit losses relating to Project Helix 2 of EUR68 mn, additional
loan credit losses of EUR21 mn within the context of IFRS 9 as a
result of potential further NPE sales in the future and EUR2 mn of
additional loan credit losses groups on an NPE portfolio (other
than Helix 2) classified as held for sale; these are disclosed
under non-recurring items within 'Provisions/net loss relating to
NPE sales, including restructuring expenses' under the underlying
basis.
Other reclassifications
-- Advisory and other restructuring costs of c.EUR6 mn included
in 'Other operating expenses' under the statutory basis are
separately presented under the underlying basis since they
represent one-off items.
-- Provisions for litigation, claims, regulatory and other
matters amounting to EUR4 mn included in 'Other operating expenses'
under the statutory basis, are separately presented under the
underlying basis, since they mainly relate to cases that arose
outside the normal activities of the Group.
-- Net gains on loans and advances to customers at FVPL of EUR3
mn included in 'Loan credit losses' under the underlying basis are
included in 'Net gains on financial instrument transactions and
disposal/dissolution of subsidiaries and associates' under the
statutory basis. Their classification under the underlying basis is
done as such in order to align them to the net losses on loans and
advances to customers at amortised cost.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis
B.2.1 Capital Base
Total equity excluding non-controlling interests totalled
EUR2,095 mn at 30 June 2020, compared to EUR2,206 mn at 31 March
2020 and EUR2,260 mn at 31 December 2019. Shareholders' equity
totalled EUR1,875 mn at 30 June 2020, compared to EUR1,986 mn at 31
March 2020 and EUR2,040 mn at 31 December 2019.
The Common Equity Tier 1 capital (CET1) ratio on an IFRS 9
transitional basis stood at 14.3% at 30 June 2020 (and 14.4% pro
forma for the Project Helix 2 sale agreement signed in 3Q2020
(referred to as "pro forma for Helix 2"), compared to 14.3% at 31
March 2020 and 14.8% at 31 December 2019.
During 2Q2020 the CET1 ratio was negatively affected by c.70 bps
relating to both the loan credit losses recorded as a result of the
anticipated Project Helix 2 agreement and the net loss relating to
all other items under the 'provisions/net loss on NPE sales,
including restructuring expenses', and positively impacted by c.50
bps relating to the amendments to the capital regulations
introduced in June 2020 as a response to COVID-19 with regards to
the extension of the IFRS 9 transitional period and the
acceleration of changes to the SME supporting factor (which reduces
RWAs).
The Group has elected to apply the EU transitional arrangements
for regulatory capital purposes (EU Regulation 2017/2395) where the
impact on the impairment amount from the initial application of
IFRS 9 on the capital ratios is phased-in gradually. The amount
added each year decreases based on a weighting factor until the
impact of IFRS 9 is fully absorbed back to CET1 at the end of the
five years. The impact on the capital position for the year 2018
was 5% of the impact on the impairment amounts from the initial
application of IFRS 9, increasing to 15% (cumulative) for the year
2019 and to 30% (cumulative) for the year 2020. In June 2020,
Regulation (EU) 2020/873, regarding certain adjustments in response
to the COVID-19 pandemic, came into force, extending the IFRS 9
transitional arrangements and introducing further relief measures
to CET1. Further details are set out further below under
'Implications on capital from the Outbreak of COVID-19'.
The CET1 ratio on a fully loaded basis (including the full
impact of IFRS 9) amounted to 12.6% as at 30 June 2020 and 12.7%
pro forma for Helix 2), compared to 12.9% as at 31 March 2020 and
13.1% as at 31 December 2019. On a transitional basis and on a
fully phased-in basis, after the transition period is complete, and
also considering the relaxations announced by the ECB, the impact
of IFRS 9 is expected to be manageable and within the Group's
capital plans.
The Total Capital ratio stood at 17.8% as at 30 June 2020 (and
17.9% pro forma for Helix 2), compared to 17.7% as at 31 March 2020
and 18.0% as at 31 December 2019.
The Group's capital ratios are above the Supervisory Review and
Evaluation Process (SREP) requirements.
Based on the final 2019 SREP decision received in December 2019,
the Group's minimum phased-in CET1 capital ratio was set at 11.0%
(comprising a 4.5% Pillar I requirement, a 3.0% Pillar II
requirement (in the form of CET1), the Capital Conservation Buffer
of 2.5% (fully phased-in as of 1 January 2019) and the Other
Systemically Important Institution Buffer of 1.0%) and the overall
Total Capital requirement at 14.5%, comprising an 8.0% Pillar I
requirement (of which up to 1.5% can be in the form of Additional
Tier 1 capital and up to 2.0% in the form of Tier 2 capital), a
3.0% Pillar II requirement (in the form of CET1), the Capital
Conservation Buffer of 2.5% and the Other Systemically Important
Institution Buffer of 1.0%. The ECB has also provided non-public
guidance for an additional Pillar II CET1 buffer. Pillar II add-on
capital requirements derive from the context of the SREP, which is
a point in time assessment, and are therefore subject to change
over time. The final 2019 SREP decision became effective on 1
January 2020. In the context of ECB's capital easing measures for
COVID-19, the Bank received an amendment to the December 2019 SREP
decision effective as of 12 March 2020, reducing the Group's
minimum phased-in CET1 capital ratio to 9.7% (comprising a 4.5%
Pillar I requirement, a 1.7% Pillar II requirement, the Capital
Conservation Buffer of 2.5% and the Other Systemically Important
Institution Buffer of 1.0%), following the frontloading of the new
rules on the Pillar II Requirement composition, to allow banks to
use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to meet
Pillar II Requirements and not only by CET1, initially scheduled to
come into effect in January 2021. The Total SREP capital
requirement remains unchanged at 14.5%.
Further analysis on the recent developments on the regulatory
capital ratios due to the COVID-19 outbreak is set out further
below under 'Implications on capital from the Outbreak of
COVID-19'.
In accordance with the provisions of the Macroprudential
Oversight of Institutions Law of 2015, the CBC is the responsible
authority for the designation of banks that are Other Systemically
Important Institutions (O-SIIs) and for the setting of the O-SII
buffer requirement for these systemically important banks. The
Group has been designated as an O-SII and the O-SII buffer
currently set by the CBC for the Group is 2%. This buffer is being
phased-in gradually, having started from 1 January 2019 at 0.5% and
increasing by 0.5% every year thereafter, until being fully
implemented (2.0%). In April 2020, the CBC decided to delay the
phasing-in (0.5%) of the O-SII buffer on 1 January 2021 and 1
January 2022 by 12 months. Consequently, the O-SII buffer will be
fully phased-in on 1 January 2023, instead of 1 January 2022 as
originally set.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
The European Banking Authority (EBA) final guidelines on SREP
and supervisory stress testing and the Single Supervisory
Mechanism's (SSM) 2018 SREP methodology provide that own funds held
for the purposes of Pillar II Guidance cannot be used to meet any
other capital requirements (Pillar I, Pillar II requirements or the
combined buffer requirement), and therefore cannot be used twice.
Following the annual SREP performed by the ECB in 2019 and based on
the final 2019 ECB decision received in December 2019, the new
provisions are effective from January 2020.
Based on the SREP decisions of prior years, the Company and the
Bank were under a regulatory prohibition for equity dividend
distribution and therefore no dividends were declared or paid
during years 2019 and 2018. Following the 2019 SREP decision, the
Company and the Bank are still under equity dividend distribution
prohibition. This prohibition does not apply if the distribution is
made via the issuance of new ordinary shares to the shareholders,
which are eligible as CET1 capital. No prohibition applies to the
payment of coupons on any AT1 capital instruments issued by the
Company or the Bank.
The ECB, as part of its supervisory role, has completed an
onsite inspection and review on the value of the Group's foreclosed
assets with reference date 30 June 2019. The findings, which relate
to a possible prudential charge of up to c.50 bps, are currently
being reviewed by the Bank's Joint Supervisory Team and no decision
has been communicated to the Bank at this stage. The size and
timing of the prudential charge (if any) that the Bank may be
requested to take in order to address the findings of this review
remain uncertain and will depend in part on the Bank's progress in
de-risking its balance sheet.
Share premium reduction
Bank
The Bank will proceed (subject to approvals by the ECB and the
Court of Cyprus) with a capital reduction process which will result
in the reclassification of up to c.EUR619 mn of the Bank's share
premium balance as distributable reserves, which shall be available
for distribution to the shareholders of the Bank. The reduction of
capital will not have any impact on regulatory capital or the total
equity position of the Bank or the Group.
The distributable reserves provide the basis for the calculation
of distributable items under the Capital Requirements Regulation
(EU) No. 575/2013 ( CRR), which provides that coupons on AT1
capital instruments may only be funded from distributable
items.
Company
The Company (Bank of Cyprus Holdings PLC) will proceed (subject
to approval by the ECB and the Irish High Court) with a capital
reduction process which will result in the reclassification of up
to EUR700 mn of the Company's share premium as distributable
reserves. The capital reduction has been approved at the Company's
Annual General Meeting in May 2020. The capital reduction will not
have any impact on regulatory capital or the total equity position
of the Company, the Bank or the Group.
The distributable reserves provide the basis for the calculation
of distributable items under the CRR, which provides that coupons
on AT1 capital instruments may only be funded from distributable
items.
Project Helix 2
In August 2020, the Group reached agreement for the sale of a
portfolio of loans with gross book value of c.EUR898 mn (of which
EUR886 mn relate to non-performing exposures) as at 30 June 2020,
known as Project Helix 2. The impact of this transaction on the
Group's CET1 ratio at 30 June 2020 is a decrease of c.50 bps
relating to the loan credit losses in relation to the anticipated
agreement of EUR68 mn, including transaction costs. At completion,
currently expected in 1H2021, the transaction is expected to have a
negative impact of 36 bps on the Group's CET1 ratio. Upon the full
payment of the deferred consideration and without taking into
consideration any positive impact from the earnout, depending on
the performance of the portfolio, the transaction is expected to
have an overall positive capital impact of 10 bps on the Group's
CET1 ratio.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
Project Helix 2 (continued)
All relevant figures and pro forma calculations are based on 30
June 2020 financial results, unless otherwise stated. Calculations
on a pro forma basis assume completion of the transaction, which
remains subject to customary regulatory and other approvals.
Further NPE sales in the future
The Group remains committed to assess the potential to
accelerate the decrease in NPEs through further NPE sales in the
future and in the context of IFRS 9, the Bank recognised additional
loan credit losses of EUR21 mn in 2Q2020 (compared to nil in
1Q2020), resulting in a decrease on the Group's CET1 ratio of c.14
bps. On completion of an NPE trade, the Group's capital ratios
would benefit from any associated RWA reduction, subject to
regulatory approval.
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific
deferred tax assets (DTA) into deferred tax credits (DTC) were
adopted by the Cyprus Parliament on 1 March 2019 and published in
the Official Gazette of the Republic on 15 March 2019. The law
amendments cover the utilisation of income tax losses transferred
from Laiki Bank to the Bank in March 2013. The introduction of CRD
IV in January 2014 and its subsequent phasing-in led to a more
capital-intensive treatment of this DTA for the Bank. The law
amendments resulted in an improved regulatory capital treatment,
under CRR , of the DTA amounting to c.EUR285 mn or a CET1 uplift of
c.190 bps in March 2019.
The Group understands that, in response to concerns raised by
the European Commission with regard to the provision of state aid
arising out of the treatment of such tax losses, the Cyprus
Government is considering the adoption of modifications to the Law,
potentially including requirements for an additional annual fee
over and above the 1.5% annual guarantee fee already acknowledged,
to maintain the conversion of such DTAs into tax credits. In
anticipation of such modifications the Group recorded an additional
amount of EUR13 mn in 4Q2019 by way of an estimated additional fee
(for the years 2018 and 2019), bringing the total guarantee fee
recognised for FY2019 to EUR19 mn .
Project Helix
In June 2019, Project Helix was completed resulting in a
positive impact of c.140 bps on both the Group's CET1 and Total
Capital ratios, mainly from the release of risk weighted assets.
Project Helix had an overall net positive impact on the Group
capital ratios of c.60 bps.
Sale of investment in CNP Cyprus Insurance Holdings Ltd
In October 2019, the sale of the Group's investment in its
associate CNP Cyprus Insurance Holdings Limited ("CNP") was
completed, resulting in a positive impact of c.30 bps on both the
Group's CET1 and Total Capital ratios, mainly from the release of
risk weighted assets. The shareholding had been acquired as part of
the acquisition of certain operations of Laiki Bank in 2013 and was
sold to CNP Assurances S.A. for a cash consideration of EUR97.5
mn.
Voluntary Staff Exit Plan
In October 2019, the Group completed a voluntary staff exit plan
(VEP) at a total cost of EUR81 mn, recorded in the consolidated
income statement in 4Q2019, resulting in a negative impact of c.60
bps on both the Group's CET1 and Total Capital ratios.
Implications on capital from the Outbreak of COVID-19
The Group continues to closely monitor developments in, and the
effects of COVID-19 on both the global and Cypriot economy. The ECB
announced a package of positive measures that should help to
support the capital position of the Bank, in order to secure
favourable conditions of financing for the economy with the aim to
mitigate the effects of the crisis. Specifically, the measures
increase the Group's capital base available to absorb potential
losses due to the crisis. In addition, the early adoption of CRD V
for the composition of the Pillar II Requirement provide
flexibility regarding the Group's compliance with the minimum
capital requirement of Pillar II.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
Implications on capital from the Outbreak of COVID-19
(continued)
In the context of the ECB's capital easing measures for
COVID-19, the Bank received an amendment to the December 2019 SREP
decision effective as of 12 March 2020, r educing the Group's
minimum phased-in CET1 capital ratio to 9.7%, following the
frontloading of the new rules on the Pillar II Requirement
composition, to allow banks to use Additional Tier 1 (AT1) capital
and Tier 2 (T2) capital to meet Pillar II Requirements and not only
by CET1, initially scheduled to come into effect in January 2021.
The Total SREP capital requirement remains unchanged. In addition,
the ECB allows banks to operate temporarily below the level of
Pillar II Guidance (P2G), the capital conservation buffer (CCB) and
the countercyclical buffer. The CBC has set the level of the
countercyclical buffer for Cyprus at 0% for the six months up to 30
June 2020 and the year 2019. The CBC has also set the level of the
countercyclical buffer for Cyprus at 0% for the period 1 July 2020
to September 2020. In July 2020, the ECB committed to allow banks
to operate below the P2G and the combined buffer requirement until
at least end of 2022, without automatically triggering supervisory
actions.
In addition, in April 2020 the CBC decided to delay the
phasing-in of the 1 January 2021 and 1 January 2022 O-SII buffer
(0.5% for the Bank) by 12 months. Consequently, the O-SII buffer
will be fully phased-in on 1 January 2023, instead of 1 January
2022 as originally set.
Moreover, in June 2020, Regulation (EU) 2020/873, in response to
the COVID-19 pandemic, came into force, bringing forward some of
the capital-relieving measures that were due to come into force at
a later stage and introducing modifications as part of the wider
efforts of competent authorities to provide the support necessary
to the institutions. The main adjustments affecting the Group's own
funds relate to accelerating the implementation of the new SME
discount factor under CRR II in June 2020, instead of June 2021,
extending the IFRS 9 transitional arrangements and introducing
further relief measures to CET1, advancing the application of
prudential treatment of software assets as amended by CRR II, and
introducing temporary treatment of unrealized gains and losses to
exposures to central governments, regional governments or local
authorities, measured at fair value through other comprehensive
income.
With respect to the SME discount factor, banks will be required
to hold less capital against SMEs as revised capital discount
factors come into effect. These changes became effective in June
2020 and added to capital 44 bps.
The amendments to the existing IFRS 9 transitional arrangements
relate to the extension of the transitional period for the
recalculation of the transitional adjustment on credit losses on
Stages 1 and 2 loans (dynamic component). A 100% add back of IFRS 9
provisions is allowed for the years 2020 and 2021 reducing to 75%
in 2022, to 50% in 2023 and to 25% in 2024. The calculation at each
reporting period is to be made against Stage 1 and Stage 2
provisions as at 1 January 2020, instead of 1 January 2018. The
calculation of the static component has not been amended. These
amendments became effective in June 2020 and added to capital 8 bps
as at 30 June 2020.
In relation to the prudential treatment of intangibles, software
assets will no longer need to be deducted in full in CET1
calculations, subject to certain criteria. This change shall apply
when the associated EBA regulatory technical standard is approved
and shall become effective.
Finally, institutions may remove from the calculation of their
CET1 the amount of unrealised gains and losses accumulated since 31
December 2019 accounted for as 'fair value changes of debt
instruments measured at fair value through other comprehensive
income' in the balance sheet, corresponding to exposures to central
governments, to regional governments or to local authorities and to
public sector entities, excluding those financial assets that are
credit-impaired, subject to a scaling factor set at 100% from
January to December 2020, at 70% from January to December 2021 and
at 40% from January to December 2022. The Bank expects to apply the
temporary relief starting 3Q2020.
Since 30 June 2020, and up to 17 August 2020, the mark-to market
valuation of the debt securities in the portfolio held at FVOCI
remained broadly flat. Any change is recognised directly in equity
i.e. through Other Comprehensive Income (OCI).
Furthermore, on 17 August 2020, the Group held Cyprus sovereign
debt securities of a nominal amount of EUR740 mn (compared to
EUR715 mn on 30 June 2020), of which EUR336 mn is held at FVOCI
portfolio and EUR404 mn is held at amortised cost portfolio. The
increase in 1H2020 is mainly due to the Group's participation on
the issuance of 52-week treasury bills of the Cyprus Government in
April 2020.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.2 Regulations and Directives
B.2.2.1 Revised rules on capital and liquidity (CRR II and CRD
V)
On 27 June 2019, the revised rules on capital and liquidity (CRR
II and CRD V) came into force. As an amending regulation, the
existing provisions of CRR apply, unless they are amended by CRR
II. Member states are required to transpose the CRD V into national
law. Certain provisions took immediate effect (primarily relating
to Minimum Requirement for Own Funds and Eligible Liabilities,
MREL), but most changes will start to apply from mid-2021. Certain
aspects of CRR II are dependent on final technical standards to be
issued by the EBA and adopted by the European Commission. The key
changes introduced consist of, among others, changes to qualifying
criteria for CET1, AT1 and Tier 2 instruments, introduction of
requirements for MREL and a binding Leverage Ratio requirement and
a Net Stable Funding Ratio (NSFR).
B.2.2.2 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that
from January 2016 EU member states shall apply the BRRD's
provisions requiring EU credit institutions and certain investment
firms to maintain a minimum requirement for own funds and eligible
liabilities (MREL), subject to the provisions of the Commission
Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part of
the reform package for strengthening the resilience and
resolvability of European banks, the BRRD came into effect and must
be transposed into national law. In addition, certain provisions on
MREL have been introduced in CRR which also came into force on 27
June 2019 as part of the reform package and took immediate
effect.
In May 2020, the Bank received formal notification from the CBC
in its capacity as National Resolution Authority, of the final
decision by the Single Resolution Board (SRB), for the binding
minimum requirement for own funds and eligible liabilities (MREL)
for the Bank, determined as the preferred resolution point of
entry. The MREL requirement was set at 28.36% of risk weighted
assets as of 30 June 2019 and must be met by 31 December 2025. This
MREL requirement would be equivalent to 18.54% of total liabilities
and own funds (TLOF) as at 30 June 2019. The MREL requirement is in
line with the Bank's expectations, and largely in line with its
funding plans.
This decision is based on the current legislation, it is
expected to be updated annually and could be subject to subsequent
changes by the resolution authorities, especially considering the
developments of the BRRD and its transposition into the local
legislation.
The MREL ratio of the Bank as at 30 June 2020, calculated
according to SRB's eligibility criteria currently in effect and
based on the Bank's internal estimate, stood at 18.21% of RWAs.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.3 Funding and Liquidity
Funding
Funding from Central Banks
At 30 June 2020, the Bank's funding from central banks amounted
to EUR1 bn, which relates to ECB funding, comprising solely of
funding through the Targeted Longer-Term Refinancing Operations
(TLTRO III) (compared to no funding from central banks as at 31
December 2019). In June 2020, the Bank borrowed EUR1 bn from the
fourth TLTRO III operation, despite its comfortable liquidity
position, given the favourable borrowing rate, in combination with
the relaxation of collateral terms.
Deposits
Customer deposits totalled EUR16,303 mn at 30 June 2020
(compared to EUR16,246 mn at 31 March 2020 and EUR16,692 mn at 31
December 2019), remaining broadly flat in the second quarter and
reduced by 2% since the year end.
The Bank's deposit market share in Cyprus reached 35.0% as at 30
June 2020, compared to 34.8% at 31 March 2020 and 35.1% as at 31
December 2019. Customer deposits accounted for 76% of total assets
and 85% of total liabilities at 30 June 2020 (compared to 79% of
total assets and 89% of total liabilities at 31 December 2019).
The net Loans to Deposit ratio (L/D) stood at 64% as at 30 June
2020 (compared to 65% as at 31 March 2020 and 64% as at 31 December
2019). The L/D ratio had reached a peak of 151% as at 31 March
2014.
Subordinated Loan Stock
At 30 June 2020 the Bank's subordinated loan stock (including
accrued interest) amounted to EUR261 mn (compared to EUR255 mn at
31 March 2020 and EUR272 mn at 31 December 2019) and relates to
unsecured subordinated Tier 2 Capital Notes of nominal value EUR250
mn, issued by the Bank in January 2017.
Liquidity
At 30 June 2020 the Group Liquidity Coverage Ratio (LCR) stood
at 257% (compared to 219% at 31 March 2020 and 208% at 31 December
2019), in compliance with the minimum regulatory requirement of
100%.
The liquidity surplus in LCR at 30 June 2020 amounted to EUR3.9
bn (compared to EUR3.0 bn at 31 March 2020 and EUR3.2 bn at 31
December 2019). The increase in 2Q2020 is driven by the borrowing
of EUR1 bn TLTRO III in June 2020.
The Net Stable Funding Ratio (NSFR) has not yet been introduced.
It will be enforced as a regulatory ratio under CRR II in 2021,
with the limit set at 100%. At 30 June 2020, the Group's NSFR, on
the basis of Basel standards, stood at 134% (compared to 126% at 31
March 2020 and 127% at 31 December 2019).
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.3 Funding and Liquidity (continued)
Regulatory measures to mitigate the impact of COVID-19 crisis on
banks' liquidity position
Resulting from the outbreak of COVID-19, the ECB has announced a
package of measures to mitigate the economic impact of the crisis
and to ensure that its directly supervised banks can continue to
fulfil their role in funding the real economy. The main measures
which have an impact on the banks' liquidity position are
summarised below:
-- The ECB will allow banks to operate below the defined level
of 100% of the LCR until at least end-2021 .
-- Collateral easing measures: The package included a set of
collateral easing measures, which resulted in increasing the banks'
borrowing capacity at the ECB operations and improving the
liquidity buffers due to the lower haircuts applied to the ECB
eligible collaterals the bank holds, that comprises of bonds and
Credit Claims. The collateral easing packages are designed mainly
as temporary measures, that will remain in place until September
2021 with the flexibility to be extended or modified. Furthermore,
the ECB enlarged the scope of the Additional Credit Claim (ACC)
framework, increasing the universe of eligible loans. In addition,
the ECB announced changes in collateral rules, temporarily
accepting collaterals with a rating below investment grade, up to a
certain rating level.
-- Favourable terms of LTRO operations: the package contained
measures to provide liquidity support to the euro area financial
system, such as a series of LTROs which ran from March to June 2020
so participants could shift their outstanding LTRO amounts to TLTRO
III, as well as significant favourable amendments in the terms and
characteristics of TLTRO III. Furthermore, a new series of
additional longer-term refinancing operations, called Pandemic
Emergency longer-term refinancing operations (PELTROs), were
introduced with an interest rate of 25 basis points below the
average rate applied in the Eurosystem's main refinancing
operations (currently 0%) over the life of the respective PELTRO
that are maturing in the third quarter of 2021.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.4 Loans
Group gross loans totalled EUR12,491 mn at 30 June 2020 ,
compared to EUR12,709 mn at 31 March 2020 and EUR12,822 mn at 31
December 2019. Gross loans in the Group's Cyprus operations
totalled EUR12,416 mn at 30 June 2020 accounting for 99% of Group
gross loans. Pro forma for Helix 2, gross loans are reduced by
EUR898 mn to EUR11,593 mn as at 30 June 2020.
New loans granted in Cyprus reached EUR689 mn for 1H2020,
compared to EUR1,111 mn for 1H2019 (down by 38% yoy). New loans
granted in Cyprus reached EUR238 mn for 2Q2020, compared to EUR451
mn for 1Q2020 (down by 47% qoq) and to EUR548 mn for 2Q2019 (down
by 56% yoy). The reduction in new loans follows the restrictive
measures as a result of the outbreak of COVID-19.
At 30 June 2020, the Group net loans and advances to customers
totalled EUR10,104 mn (compared to EUR10,597 mn at 31 March 2020
and EUR10,722 mn at 31 December 2019). In addition, at 30 June 2020
net loans and advances to customers of EUR362 mn were classified as
held for sale in line with IFRS 5 and relate to Helix 2 (EUR352 mn)
and Helix Tail (EUR10 mn), compared to EUR24 mn as at 31 March 2020
and EUR26 mn as at 31 December 2019 relating to Helix Tail and
Velocity 2.
The Bank is the single largest credit provider in Cyprus with a
market share of 41.7% at 30 June 2020, compared to 41.0% at 31
March 2020 and to 41.1% at 31 December 2019.
B.2.5 Loan portfolio quality
Tackling the Group's loan portfolio quality remains the top
priority for management. The Group has continued to make steady
progress across all asset quality metrics and the loan
restructuring activity has continued. The Group has been successful
in engineering restructuring solutions across the spectrum of its
loan portfolio.
Non-performing exposures (NPEs) as defined by the European
Banking Authority (EBA) were reduced by EUR270 mn or 7% during
2Q2020 (comprising an organic reduction of NPEs of EUR137 mn and a
reduction through the completion of Project Velocity 2 of EUR133
mn) to EUR3,468 mn at 30 June 2020 (compared to EUR3,738 mn at 31
March 2020 and EUR3,880 mn at 31 December 2019), despite the
COVID-19 lockdown in March 2020. The Group has recorded organic NPE
reductions for twenty-one consecutive quarters. Pro forma for Helix
2, NPEs are reduced by a further EUR886 mn to EUR2,582 mn on the
basis of 30 June 2020 figures.
The NPEs account for 28% of gross loans as at 30 June 2020,
compared to 29% as at 31 March 2020 (improved by 1 p.p. qoq) and
30% at 31 December 2019, on the same basis, i.e. including the NPE
portfolios classified as "Non-current assets and disposal groups
held for sale". Pro forma for Helix 2 the NPE ratio is reduced to
22% on the basis of the 30 June 2020 figures.
The NPE coverage ratio improved to 59% at 30 June 2020, compared
to 56% at 31 March 2020 (improved by 3 p.p. qoq) and 54% at 31
December 2019, on the same basis, i.e. including the NPE portfolios
classified as "Non-current assets and disposal groups held for
sale". When taking into account tangible collateral at fair value,
NPEs are fully covered. Pro forma for Helix 2 the NPE coverage
ratio is reduced to 58% on the basis of the 30 June 2020
figures.
30.06.2020 31.12.2019
% gross % gross
EUR loans EUR mn loans
mn
=============================== ==== === ======== ======== ========= ========
NPEs as per EBA definition 3,468 27.8% 3,880 30.3%
Of which, in pipeline
to exit: 346 2.8% 428 3.3%
-NPEs with forbearance
measures, no arrears(1)
========================================== ======== ======== ========= ========
1. The analysis is performed on a customer basis.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Project Helix 2
In August 2020, the Group reached agreement for the sale of a
portfolio of loans with gross book value of c.EUR898 mn (of which
EUR886 mn relate to non-performing exposures) as at 30 June 2020,
known as Project Helix 2.
This portfolio had a contractual balance of EUR1.46 bn as at the
reference date of 30 September 2019 and comprises mainly retail and
small-to-medium-sized enterprises, secured by real estate
collateral. As at 30 June 2020, this portfolio is classified as a
disposal group held for sale and it also includes other assets
comprising properties and cash already received since the reference
date of c.EUR34 mn.
The gross consideration amounts to 46% of the gross book value
and 29% of the contractual balance, payable in cash, of which 35%
is payable at completion, currently expected in 1H2021, and the
remaining 65% is deferred without any conditions attached. The
deferred component is payable in three broadly equal instalments
over 48 months from completion. The consideration can be increased
through an earnout arrangement, depending on the performance of the
portfolio.
This portfolio will be transferred to a licensed Cypriot Credit
Acquiring Company (the "CyCAC") by the Bank. The shares of the
CyCAC will then be acquired by certain funds affiliated with
Pacific Investment Management Company LLC (PIMCO), the purchaser of
the portfolio.
Following a transitional period where servicing will be retained
by the Bank, it is intended that the servicing of the portfolio
will be carried out by a third party servicer selected and
appointed by the CyCAC. Arrangements in relation to the migration
of servicing from the Bank to the servicer, including the timing of
the migration, remain under discussion between the parties.
Project Helix 2 accelerates the Group's strategy of de-risking
its balance sheet, by reducing its stock of NPEs by 26% to EUR2,582
mn pro forma on the basis of the 30 June 2020 figures, and its NPE
ratio by 6 p.p., to 22% pro forma on the basis of the 30 June 2020
figures.
All relevant figures and pro forma calculations are based on 30
June 2020 financial results, unless otherwise stated. Calculations
on a pro forma basis assume completion of the transaction, which
remains subject to customary regulatory and other approvals.
Project Velocity 2
In May 2020, the Group completed the sale of a non-performing
loan portfolio of primarily retail unsecured exposures, with a
contractual balance of EUR398 mn and gross book value of EUR144 mn
as at the reference date of 31 August 2019 (known as Project
Velocity 2) to B2Kapital Cyprus Ltd. This portfolio comprised
c.10.000 borrowers, including c.8.400 private individuals and
c.1.600 small-to-medium-sized enterprises. The gross book value of
this portfolio as at the date of disposal was EUR133 mn. The sale
was broadly neutral to both the profit and loss and to capital.
Project Helix
In June 2019, the Group announced the completion of Project
Helix, that refers to the sale of a portfolio of loans with a gross
book value of EUR2.8 bn (of which EUR2.7 bn related to
non-performing loans) secured by real estate collateral to certain
funds affiliated with Apollo Global Management LLC, the agreement
for which was announced on 28 August 2018. Cash consideration of
c.EUR1.2 bn was received on completion, reflecting adjustments
resulting from, inter alia, loan repayments received on the Helix
portfolio since the reference date of 31 March 2018. The
participation of the Bank in the senior debt in relation to
financing the transaction was syndicated down from the initial
level of EUR450 mn to c.EUR45 mn, representing c.4% of the total
acquisition funding. Upon completion, the NPE ratio was reduced by
c.11 p.p. to 33% as at 30 June 2019, c.70% lower than its peak in
2014.
Project Velocity 1
In June 2019, the Group completed the sale of a non-performing
loan portfolio of primarily retail unsecured exposures, with a
contractual balance of EUR245 mn and a gross book value of EUR34 mn
as at the reference date of 30 September 2018 (known as Project
Velocity 1) to APS Delta s.r.o. This portfolio comprised 9,700
heavily delinquent borrowers, including 8,800 private individuals
and 900 small-to-medium-sized enterprises. The gross book value of
this portfolio as at the date of disposal was EUR30 mn. The sale
was broadly neutral to both the profit and loss and to capital.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
ESTIA
In July 2018 the Government announced a scheme aimed at
addressing NPEs backed by primary residence, known as ESTIA (the
'Scheme'). The ESTIA eligible portfolio of EUR0.8 bn of retail core
NPEs as at 30 June 2020, referred to the potentially eligible
portfolio following on-going detailed assessment based on the
Bank's available data on Open Market Value (OMV) and NPE status.
The eligibility criteria act as a clear definition of socially
protected borrowers, acting as an enabler against strategic
defaulters. In accordance with the Scheme, the eligible loans are
to be restructured to the lower of the contractual balance and the
OMV. The Government subsidises one third of the instalment of the
restructured loan, subject to the borrowers servicing their
restructured loans.
The Scheme is expected to resolve part of the ESTIA-eligible
portfolio (EUR61 mn as per latest available figures in August
2020), to identify non-viable customers for which alternative
restructuring solutions are being considered, including by the
Government (EUR45 mn as per latest available figures in August
2020), and to facilitate the resolution of the remaining customers
(EUR695 mn as per latest available figures in August 2020), mainly
by focusing on realising collateral through consensual and
non-consensual foreclosures.
Following the outbreak of COVID-19, the scheme opened for new
applicants for a two-week period in June 2020, and the deadline for
borrowers to complete their application was further extended to the
end of July 2020.
Additional strategies to accelerate de-risking
The Group remains committed to assess the potential to
accelerate the decrease in NPEs through further NPE sales in the
future and in the context of IFRS 9, other than the loan credit
losses of EUR68 mn recorded for Project Helix 2, the Bank
recognised additional loan credit losses of EUR21 mn in 2Q2020
(compared to nil in 1Q2020), resulting in a decrease on the Group's
CET1 ratio of c.14 bps. In December 2019, additional loan credit
losses of EUR75 mn were recognised as a result of the anticipated
balance sheet de-risking at the time.
As at 30 June 2020, a portfolio of credit facilities related to
Project Helix of mainly secured non-performing exposures (known as
'Helix Tail') with gross book value of EUR44 mn (compared to EUR45
mn as at 31 March 2020 and EUR46 mn as at 31 December 2019), was
classified as a disposal group held for sale.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.6 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) on-boarded EUR30 mn of
assets in 1H2020 (down by 76% yoy), via the execution of debt for
asset swaps and repossessed properties. The focus for REMU is
increasingly shifting from on-boarding of assets resulting from
debt for asset swaps towards the disposal of these assets. The
Group completed organic disposals of EUR24 mn in 1H2020 (compared
to EUR92 mn in 1H2019), resulting in a profit on disposal of nil
for 1H2020 (compared to a profit on disposal of EUR16 mn for
1H2019).
During the six months ended 30 June 2020, the Group executed
sale-purchase agreements (SPAs) with contract value of EUR27 mn
(170 properties), compared to EUR110 mn (258 properties) for
1H2019, excluding the sale of Cyreit. In addition, the Group had
signed SPAs for disposals of assets with contract value of EUR53 mn
as at 30 June 2020, compared to EUR49 mn as at 31 March 2020 and
EUR89 mn as at 30 June 2019 . Stock of property with a carrying
value of EUR11 mn as at 30 June 2020 was transferred to non-current
assets and disposal groups held for sale as it was included in the
Helix 2 portfolio.
Completion of sale of Cyreit
In November 2018, the Bank signed an agreement for the disposal
of its entire holding in the investment shares of the Cyreit
Variable Capital Investment Company PLC (Cyreit). During 2Q2019,
the Group completed the sale of the Cyreit (21 properties),
recognising a loss of c. EUR1 mn. The total proceeds from the
disposal of Cyreit were EUR160 mn.
Completion of Project Helix
With the completion of Project Helix in 2Q2019, properties with
a carrying value of EUR109 mn, in the Project Helix portfolio, were
derecognised as of 30 June 2019.
Assets held by REMU
As at 30 June 2020, assets held by REMU had a carrying value of
EUR1,456 mn (comprising properties of EUR1,344 mn classified as
'Stock of property' and EUR112 mn as 'Investment properties'),
compared to EUR1,490 mn as at 31 December 2019 (comprising
properties of EUR1,378 mn classified as 'Stock of property' and
EUR112 mn as 'Investment properties').
In addition to assets held by REMU, properties classified as
'Investment properties' with carrying value of EUR23 mn as at 30
June 2020 (compared to EUR24 mn as at 31 December 2019), relate to
legacy properties held by
the Bank before the set-up of REMU in January 2016.
Assets held by REMU (Group) qoq
EUR mn 1H2020 1H2019 2Q2020 1Q2020 + % yoy +%
------ ------ ------ ------ ----
Opening balance 1,490 1,530 1,484 1,490 -0% -3%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
On-boarded assets (including construction cost) 30 126 18 12 46% -76%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Sales (24) (92) (10) (14) -31% -74%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Impairment loss (29) (10) (25) (4) - -
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Transfer to non-current assets and disposal groups held for sale (11) (6) (11) - - 71%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Closing balance 1,456 1,548 1,456 1,484 -2% -6%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.6 Real Estate Management Unit (REMU) (continued)
Analysis by type and country Cyprus Greece Romania Total
30 June 2020 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 182 25 0 207
Offices and other commercial
properties 194 28 6 228
Manufacturing and industrial
properties 74 29 0 103
Hotels 24 0 - 24
Land (fields and plots) 619 7 3 629
Golf courses and golf-related
property 265 - - 265
Total 1,358 89 9 1,456
------- ------- --------
Cyprus Greece Romania Total
31 December 2019 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 182 26 0 208
Offices and other commercial
properties 200 29 6 235
Manufacturing and industrial
properties 73 32 0 105
Hotels 24 0 - 24
Land (fields and plots) 628 7 3 638
Golf courses and golf-related
property 280 - - 280
Total 1,387 94 9 1,490
------- ------- --------
B.2.7 Non-core overseas exposures
The remaining non-core overseas net exposures (including both
on-balance sheet and off-balance sheet exposures) at 30 June 2020
are as follows:
EUR mn 30 June 2020 31 December 2019
-------------
Greece 135 139
Romania 23 25
Russia 16 19
Total 174 183
-------------
The Group continues its efforts for further deleveraging and
disposal of non-essential assets and operations in Greece, Romania
and Russia.
In addition to the above, as at 30 June 2020, there were
overseas exposures of EUR269 mn in Greece, relating to both loans
and properties (compared to EUR265 mn at 31 March 2020 and at 31
December 2019), not identified as non-core exposures, since they
are considered by management as exposures arising in the normal
course of business.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis
B.3.1 Total income
qoq
EUR mn 1H2020 1H2019(1) 2Q2020 1Q2020 + % yoy +%
------ --------- ------ ------ ------
Net interest income 168 170 83 85 -2% -1%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Net fee and commission income 71 75 33 38 -13% -5%
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution
of subsidiaries and associates 12 26 6 6 21% -53%
Insurance income net of claims and commissions 29 30 18 11 54% -4%
Net gains/(losses) from revaluation and disposal of investment
properties and on disposal
of stock of properties 0 16 (1) 1 - -98%
Other income 8 16 4 4 -20% -49%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Non-interest income 120 163 60 60 0% -26%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Total income 288 333 143 145 -1% -13%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Net Interest Margin (annualised)(2) 1.90% 1.88% 1.88% 1.95% -7 bps +2 bps
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Average interest earning assets
(EUR mn)(2) 17,741 18,271 17,690 17,539 1% -3%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
1. The interest income, non-interest income, staff costs, other operating expenses and loan
credit losses related to Project Helix are disclosed under 'Provisions/net loss relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. 2. Including the NPE portfolios classified
as "Non-current assets and disposal groups held for sale". p.p. = percentage points, bps =
basis points, 100 basis points (bps) = 1 percentage point
Net interest income (NII) and net interest margin (NIM) for
1H2020 amounted to EUR168 mn and 1.90% respectively, broadly flat
year on year, as the pressure on effective loan yields is offset by
the decreased cost of deposits. NII and NIM for 2Q2020 amounted to
EUR83 mn (compared to EUR85 mn for 1Q2020) and 1.88% (compared to
1.95% for 1Q2020) respectively, mainly due to higher cash
collections on interest not previously recognised of EUR4 mn in
1Q2020.
Average interest earning assets for 1H2020 amounted to EUR17,741
mn, down by 3% yoy, mainly driven by the reduction of liquid assets
following repayment of ECB funding (TLTRO II) in September 2019, as
well as the reduction in net loans. Quarterly average interest
earning assets for 2Q2020 amounted to EUR17,690 mn, compared to
EUR17,539 mn for 1Q2020 (up by 1% qoq), following the increase of
liquid assets resulting from the participation in TLTRO III in June
2020, partly offset by the reduction in net loans.
Non-interest income for 1H2020 amounted to EUR120 mn (compared
to EUR163 mn in 1H2019, down by 26% yoy), comprising net fee and
commission income of EUR71 mn, net foreign exchange gains and net
gains on financial instrument transactions and disposal/dissolution
of subsidiaries and associates of EUR12 mn, net insurance income of
EUR29 mn, net gains/(losses) from revaluation and disposal of
investment properties and on disposal of stock of properties of nil
and other income of EUR8 mn. Non-interest income for 2Q2020
amounted to EUR60 mn (flat qoq).
Net fee and commission income for 2Q2020 amounted to EUR33 mn,
compared to EUR38 mn for 1Q2020, reflecting the COVID-19 lockdown.
Net fee and commission income for 2Q2020 includes transactional
fees of EUR12 mn, down 22% qoq, mainly due to lower volume of
transactions, as well as non-transactional fees of EUR21 mn, down
5% qoq, due to the lower Project Helix servicing fee as a result of
the transfer of c.100 employees to the buyer in 1Q2020.
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and
associates of EUR12 mn for 1H2020 (comprising net foreign exchange
gains of EUR10 mn and net revaluation gains on financial instrument
transactions of EUR2 mn) decreased by 53% yoy. The yoy decrease is
mainly driven by the lower net revaluation gains. Net foreign
exchange gains and net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates of EUR6 mn
for 2Q2020 (comprising net foreign exchange gains of EUR2 mn and
net revaluation gains on financial instrument transactions of EUR4
mn) increased by 21% qoq, driven by net revaluation gains in 2Q2020
compared to net revaluation losses in 1Q2020.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.1 Total income (continued)
Net insurance income of EUR29 mn for 1H2020, compared to EUR30
mn for 1H2019 (broadly flat yoy). Net insurance income of EUR18 mn
for 2Q2020, compared to EUR11 mn for 1Q2020 (up by 54% qoq ),
mainly due to lower claims due to the COVID-19 lockdown and the
positive returns arising from the change in the valuation rate.
Net gains/(losses) from revaluation and disposal of investment
properties and on disposal of stock of properties for 1H2020
amounted to ni l, impacted by the COVID-19 lockdown, compared to
EUR16 mn in 1H2019, relating mainly to net gains on disposal of
stock of properties (REMU gains). Net losses from revaluation and
disposal of investment properties and on disposal of stock of
properties for 2Q2020 amounted to EUR1 mn impacted by the COVID-19
lockdown, compared to net gains of EUR1 mn in 1Q2020. REMU profit
remains volatile.
Total income for 1H2020 amounted to EUR288 mn, compared to
EUR333 mn for 1H2019 (down by 13% yoy ). Total income for 2Q2020
amounted to EUR143 mn, broadly flat compared to 1Q2020.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.2 Total expenses
qoq
EUR mn 1H2020 1H2019(1) 2Q2020 1Q2020 + % yoy +%
------ --------- ------ ------ -------
Staff costs (96) (112) (47) (49) -4% -14%
Other operating expenses (69) (84) (34) (35) -2% -19%
Total operating expenses (165) (196) (81) (84) -3% -16%
------ --------- ------ ------ -------
Special levy and contributions to Single Resolution Fund (SRF)
and Deposit Guarantee Fund
(DGF) (15) (12) (6) (9) -33% 23%
--------------------------------------------------------------- ------ --------- ------ ------ ------- -------
Total expenses (180) (208) (87) (93) -6% -14%
--------------------------------------------------------------- ------ --------- ------ ------ ------- -------
Cost to income ratio(2) 62% 63% 61% 64% -3 p.p. -1 p.p.
--------------------------------------------------------------- ------ --------- ------ ------ ------- -------
Cost to income ratio excluding special levy and contributions
to SRF and DGF(2) 57% 59% 57% 58% -1 p.p. -2 p.p.
--------------------------------------------------------------- ------ --------- ------ ------ ------- -------
1. The interest income, non-interest income, staff costs, other operating expenses and loan
credit losses related to Project Helix are disclosed under 'Provisions/net loss relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. 2. Including the NPE portfolios classified
as "Non-current assets and disposal groups held for sale". p.p. = percentage points, bps =
basis points, 100 basis points (bps) = 1 percentage point
Total expenses for 1H2020 were EUR180 mn (compared to EUR208 mn
for 1H2019 and down by 14% yoy), 53% of which related to staff
costs (EUR96 mn), 38% to other operating expenses (EUR69 mn) and 9%
(EUR15 mn) to special levy and contributions to Single Resolution
Fund (SRF) and Deposit Guarantee Fund (DGF). The yoy decrease is
driven by lower other operating expenses and lower staff costs.
Total operating expenses for 1H2020 were EUR165 mn, compared to
EUR196 mn for 1H2019 (down by 16% yoy). Total operating expenses
for 2Q2020 were EUR81 mn, compared to EUR84 mn for 1Q2020 (down by
3% qoq).
Staff costs of EUR96 mn for 1H2020 decreased by 14% yoy
(compared to EUR112 mn in 1H2019), mainly driven by cost savings
following the completion of the voluntary staff exit plan (VEP) in
4Q2019, through which c.11% of the Group's full-time employees were
approved to leave at a total cost of EUR81 mn, recorded in the
consolidated income statement in 4Q2019. The annual savings net of
the impact from the renewal of the collective agreement for 2019
and 2020, are estimated at EUR23 mn or 11% of staff costs. Staff
costs of EUR47 mn for 2Q2020 decreased by 4% qoq (compared to EUR49
mn in 1Q2020), reflecting the cost savings from the measures
relating to the COVID-19 lockdown (special annual leaves to
vulnerable groups and suspension of the contribution to the
national health system).
The Group employed 3,579 persons as at 30 June 2020 (compared to
3,566 as at 31 March 2020 and 3,672 as at 31 December 2019,
including c.100 persons relating to Project Helix who were
transferred to the buyer upon full migration in January 2020). The
staff costs related to these persons are included under
'Provisions/net loss relating to NPE sales, including restructuring
expenses' in the underlying basis.
Other operating expenses for 1H2020 were EUR69 mn, decreased by
19% yoy from EUR84 mn in 1H2019, mainly due to lower consultancy,
marketing and property-related expenses in 1H2020. Other operating
expenses for 2Q2020 were EUR34 mn, at similar levels as 1Q2020.
Special levy and contributions to Single Resolution Fund (SRF)
and Deposit Guarantee Fund (DGF) for 1H2020 was EUR15 mn, compared
to EUR12 mn in 1H2019 (increased by 23% yoy). Special levy and
contributions to Single Resolution Fund (SRF) and Deposit Guarantee
Fund (DGF) for 2Q2020 was EUR6 mn, compared to EUR9 mn in 1Q2020
(decreased by 33% qoq). The increase yoy and the decrease qoq is
driven by the contribution of the Bank to the Deposit Guarantee
Fund (DGF) of EUR3 mn, which relates to 1H2020 and recorded in
1Q2020 in line with IFRSs.
As from 1 January 2020 and until 3 July 2024 the Bank is subject
to contribution to the Deposit Guarantee Fund (DGF) on a
semi-annual basis. The contributions are calculated based on the
Risk Based Methodology (RBM) as approved by the management
committee of the Deposit Guarantee and Resolution of Credit and
Other Institutions Schemes (DGS) and is publicly available on the
CBC's website. In line with the RBM, the contributions are broadly
calculated on the covered deposits of all authorised institutions
and the target level is to reach at 0.8% of these deposits by 3
July 2024.
The cost to income ratio excluding special levy and
contributions to Single Resolution Fund (SRF) and Deposit Guarantee
Fund (DGF) for 1H2020 was 57%, compared to 59% in 1H2019,
reflecting a 16% yoy reduction in total operating expenses and a
13% yoy reduction in total income. The cost to income ratio
excluding special levy and contributions to SRF and DGF for 2Q2020
was 57%, compared to 58% in 1Q2020.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.3 (Loss)/profit before tax and non-recurring items
qoq
EUR mn 1H2020 1H2019(1) 2Q2020 1Q2020 + % yoy +%
------ --------- ------ ------ --------
Operating profit 108 125 56 52 7% -13%
--------------------------------------------------------------- ------ --------- ------ ------ -------- ------
Loan credit losses (87) (87) (23) (64) -63% 1%
Impairments of other financial and non-financial assets (29) (10) (25) (4) - -
(Provisions)/reversals of provision for litigation, claims,
regulatory and other matters (4) 3 (2) (2) 10% -
--------------------------------------------------------------- ------ --------- ------ ------ -------- ------
Total loan credit losses, impairments and provisions (120) (94) (50) (70) -28% 27%
--------------------------------------------------------------- ------ --------- ------ ------ -------- ------
(Loss)/profit before tax and non-recurring items (12) 31 6 (18) - -
--------------------------------------------------------------- ------ --------- ------ ------ -------- ------
Cost of risk 1.39% 1.34% 0.76% 2.00% -124 bps +5 bps
--------------------------------------------------------------- ------ --------- ------ ------ -------- ------
1. The interest income, non-interest income, staff costs, other operating expenses and loan
credit losses related to Project Helix are disclosed under 'Provisions/net loss relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. p.p. = percentage points, bps = basis points,
100 basis points (bps) = 1 percentage point
Operating profit for 1H2020 was EUR108 mn, compared to EUR125 mn
for 1H2019, down by 13% yoy, mainly due to lower total income.
Operating profit for 2Q2020 was EUR56 mn, compared to EUR52 mn for
1Q2020, up by 7% qoq.
The loan credit losses for 1H2020 totalled EUR87 mn, broadly
flat yoy. The loan credit losses for 2Q2020 totalled EUR23 mn,
compared to EUR64 mn for 1Q2020 (down by 63% qoq). The 2Q2020
charge included EUR10 mn reflecting the impact of IFRS 9 Forward
Looking Information (FLI) driven by the deterioration of the
macroeconomic outlook, as a result of the economic effects of the
COVID-19 outbreak (compared to EUR28 mn for 1Q2020).
The annualised loan credit losses charge (cost of risk) for
1H2020 accounted for 1.39% of gross loans, of which 59 bps reflect
the deterioration of the macroeconomic outlook in 1H2020 (compared
to an annualised loan credit losses charge of 1.34% for
1H2019).
At 30 June 2020, the allowance for expected loan credit losses,
including residual fair value adjustment on initial recognition and
credit losses on off-balance sheet exposures totalled EUR2,043 mn
(compared to EUR2,109 mn at 31 March 2020 and EUR2,096 mn at 31
December 2019) and accounted for 16.4% of gross loans (compared to
16.6% at 31 March 2020 and 16.3% at 31 December 2019). The decrease
in the allowance for expected loan credit losses in 2Q2020 amounted
to EUR66 mn, whilst the increase in 1Q2020 amounted of EUR13
mn.
Impairments of other financial and non-financial assets for
1H2020 amounted to EUR29 mn, compared to EUR10 mn for 1H2019 and to
EUR25 mn in 2Q2020, compared to EUR4 mn in 1Q2020. The increase in
2Q2020 relates mainly to specific, large, illiquid REMU
properties.
Provisions for litigation, claims, regulatory and other matters
for 1H2020 totalled EUR4 mn, compared to a reversal of provisions
of EUR3 mn for 1H2019. Provisions for litigation, claims,
regulatory and other matters for 2Q2020 totalled EUR2 mn, at the
same levels as for 1Q2020.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3. 4 (Loss)/profit after tax (attributable to the owners of
the Company)
qoq
EUR mn 1H2020 1H2019(1) 2Q2020 1Q2020 + % yoy +%
------ --------- ------ ------ ----
(Loss)/profit before tax and non-recurring items (12) 31 6 (18) - -
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Tax (5) 0 (3) (2) 47% -
Profit/(loss) attributable to non-controlling interests 4 (2) 4 (0) - -
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
(Loss)/profit after tax and before non-recurring items
(attributable to the owners of the
Company) (13) 29 7 (20) - -
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Advisory and other restructuring costs - organic (6) (10) (3) (3) 0% -39%
=================================================================== ====== ========= ====== ====== ==== ======
(Loss)/profit after tax - organic (attributable to the owners of
the Company) (19) 19 4 (23) - -
=================================================================== ====== ========= ====== ====== ==== ======
Provisions/net loss relating to NPE sales, including restructuring
expenses(2) (107) (2) (104) (3) - -
Loss on remeasurement of investment in associate upon
classification as held for sale (CNP)
net of share of profit from associates - (21) - - - -
Reversal of impairment of DTA and impairment of other tax
receivables - 101 - - - -
(Loss)/profit after tax (attributable to the owners of the Company) (126) 97 (100) (26) - -
------ --------- ------ ------ ----
1. The interest income, non-interest income, staff costs, other operating expenses and loan
credit losses related to Project Helix are disclosed under 'Provisions/net loss relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. 2. 'Provisions/net loss relating to NPE
sales including restructuring expenses' refer to the net loss on transactions completed during
each period, net loan credit losses on transactions under consideration and for potential
further sales at each reporting date, as well as the restructuring costs relating to these
trades. For further details please see below. p.p. = percentage points, bps = basis points,
100 basis points (bps) = 1 percentage point
The tax charge for 1H2020 is EUR5 mn, compared to nil for
1H2019. The tax charge for 2Q2020 is EUR3 mn, compared to EUR2 mn
for 1Q2020.
Loss after tax and before non-recurring items (attributable to
the owners of the Company) for 1H2020 was EUR13 mn, compared to a
profit of EUR29 mn for 1H2019. Profit after tax and before
non-recurring items (attributable to the owners of the Company) for
2Q2020 was EUR7 mn, compared to a loss of EUR20 mn for 1Q2020.
Advisory and other restructuring costs - organic for 1H2020
amounted to EUR6 mn, compared to EUR10 mn for 1H2019. Advisory and
other restructuring costs - organic for 2Q2020 amounted to EUR3 mn,
at the same level as for 1Q2020.
Loss after tax arising from the organic operations (attributable
to the owners of the Company) for 1H2020 amounted to EUR19 mn,
compared to a profit of EUR19 mn for 1H2019. Profit after tax
arising from the organic operations (attributable to the owners of
the Company) for 2Q2020 amounted to EUR4 mn, compared to a loss of
EUR23 mn for 1Q2020.
Provisions/net loss relating to NPE sales, including
restructuring expenses for 1H2020 amounts to EUR107 mn (compared to
EUR2 mn for 1H2019) and for 2Q2020 amounts to EUR104 mn (compared
to EUR3 mn for 1Q2020). The amount of EUR104 mn for 2Q2020 includes
mainly the loan credit losses in relation to the anticipated
Project Helix 2 agreement of EUR68 mn and additional loan credit
losses of EUR21 mn as a result of potential further NPE sales in
the future. In 4Q2019, loan credit losses of EUR75 mn were recorded
as a result of the anticipated balance sheet de-risking at the
time. Restructuring costs relating to NPE sales of EUR1 mn for
2Q2020 were also included, compared to EUR3 mn for 1Q2020.
Loss on remeasurement of investment in associate upon
classification as held for sale (CNP) net of share of profit from
associates totalled EUR21 mn for 1H2019, comprising a loss on
remeasurement of investment in associate upon classification as
held for sale of EUR26 mn and a share of profit from associates of
EUR5 mn. In October 2019, the Group completed the sale of its
entire shareholding of 49.9% in its associate CNP Cyprus Insurance
Holdings Limited (CNP) that had been acquired as part of the
acquisition of certain operations of Laiki Bank in 2013 , for a
cash consideration of EUR97.5 mn .
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3 .4 (Loss)/profit after tax (attributable to the owners of
the Company) (continued)
The reversal of impairment of DTA and impairment of other tax
receivables totalled EUR101 mn for 1H2019, comprising the net
positive impact of EUR109 mn following amendments to the Income Tax
legislation in Cyprus adopted in March 2019, and an impairment of
EUR8 mn relating to Greek tax receivables adversely impacted from
legislative changes. The carrying value of the remaining receivable
as at 30 June 2020 was EUR5 mn (compared to EUR5 mn as at 31 March
2020 and 31 December 2019).
Loss after tax attributable to the owners of the Company for
1H2020 was EUR126 mn , compared to a profit of EUR97 mn for 1H2019.
Loss after tax attributable to the owners of the Company for 2Q2020
was EUR100 mn , compared to a loss of EUR26 mn for 1Q2020.
C. Operating Environment
The global economy and certainly the European economy,
particularly the southern member states, are now faced with a
bleaker prospect in 2020 than initially projected. Economic
performance in the first half of the year has been worse than
expected and progress towards containing the pandemic has been
slower. The International Monetary Fund (IMF), in its summer update
released in late June 2020, expects the global economy to contract
by 4.9% in 2020 compared with a projected 3.0% contraction in their
May 2020 update. The Organisation for Economic Co-operation and
Development (OECD) now expects a 6.0% baseline contraction in the
year and the European Commission expects the EU to contract by
8.3%. The expected performance of the different countries in the EU
varies significantly from a contraction of 5.2% in Denmark to a
contraction of 11.2% in Italy.
European Union support
In response to the COVID-19 crisis, the ECB extended its
quantitative easing programme and negative interest rates, and
introduced additional measures, most importantly the Pandemic
Emergency Purchase Programme (PEPP). This programme was initiated
in March 2020 with an initial size of EUR750 bn and has been
increased to EUR1.35 trillion in June 2020 and extended until at
least mid-2021. The maturing principal payments from securities
purchased under the PEPP will be reinvested until at least the end
of 2022. The ECB also maintains ample liquidity in the banking
system through its refinancing operations, but also by easing the
rules around collateral that banks can use in exchange for central
bank liquidity. The ECB is strongly committed to preventing
financial fragmentation in the eurozone which keeps funding costs
low and minimises the risk of a sovereign debt crisis in highly
leveraged economies. The ECB is therefore the lender of last
resort, but the size of the current crisis requires large scale
fiscal intervention by governments and EU-led regional
transfers.
In April 2020, the EU introduced a significant fiscal programme
totalling EUR540 bn. This consisted of the European Stability
Mechanism (ESM) Pandemic crisis support for EUR240 bn; the European
Investment Bank (EIB) guarantee fund for loans to SMEs for EUR200
bn; and the SURE employment support for EUR100 bn.
In July 2020, following three days of intense negotiations, the
governments of the 27 member states of the European Union reached
an agreement on the initial proposals of the European Commission
for a COVID-19 recovery programme. This consists of a EUR750 bn
fund that will be incorporated into the EU's seven-year budget
framework 2021-2027. A total of EUR390 bn will be allotted as
grants (instead of the initial proposal for EUR500 bn grants), and
the remaining EUR360 bn will be allotted as loans. The European
Commission will be allowed to borrow from debt markets and will
primarily aid southern countries, including Cyprus, hit hard by the
pandemic.
Fiscal policy
Cyprus recorded a fiscal surplus of 1.7% of GDP in 2019 which
reduced the debt-to-GDP ratio to 95.5% from 100.6% at the end of
2018. The outbreak of the COVID-19 pandemic and the measures
introduced to contain it and support companies and employment are
expected to push the budget into a substantial deficit. Spending
will be significantly higher in the year reflecting the financial
support packages, and tax revenues will be lower as a result of the
deep recession.
The recovery of Cyprus following the financial crisis in 2013
was relatively solid. Real GDP grew annually at an average pace of
4.4% in 2015-2019. This was primarily driven by gross fixed
investment expenditures and the export of services. On the supply
side the recovery was broad, driven primarily by construction,
manufacturing, trade, tourism, information and communication, and
professional services. As a result, total output surpassed its
pre-crisis level by about 10% in 2019. In 2020, the Cyprus economy
faces the prospect of a deep recession as a result of the COVID-19
crisis. The Commission expects that the Cyprus economy will
contract by 7.8% in the year. The recovery in 2021 is expected to
be only partial with GDP rising by 5.3% and will thus take longer
to restore output to pre-COVID-19 levels.
The Cyprus economy exhibits an over-reliance on the tourism
sector which leaves it more exposed than most other countries, to
the travel restrictions and quarantine measures adopted in response
to the COVID-19 crisis. In the first quarter of the year, with
containment measures in place for less than one month, real GDP
increased by 0.8% year-on-year, seasonally adjusted compared with
an increase of 3.4% respectively the year before. Real GDP in the
second quarter dropped by 11.9% as containment measures were in
full effect and as there were no tourist arrivals at all in April
and May 2020.
The containment measures introduced in response to COVID-19, the
consequent loss of income and employment, despite the government's
support measures, are expected to affect private consumption.
Private consumption is expected to be recovering as the economy
will be emerging from the lockdown and confidence improves. Public
consumption is expected to increase significantly in the year
reflecting the government's substantial fiscal response to the
COVID-19 crisis. Fixed investment, which is more sensitive to
uncertainty and worsening economic conditions, is expected to drop
more steeply as projects get postponed and to recover gradually as
the recovery gets underway and projects are revived.
C. Operating Environment (continued)
Fiscal policy (continued)
The biggest hit to economic growth in Cyprus is expected to come
from a steep drop in external demand for travel and tourism
services and the indirect effects to related sectors including
trade, manufacturing and other services. The tourism related sector
'accommodation and food services', accounted for 6% of real gross
values added in 2019 and about 11.6% of employment. Total gross
tourist receipts amounted to 12.2% of GDP in 2019. Tourist activity
in Cyprus is highly seasonal with c.75% of arrivals and receipts
occurring in the second and third quarters, when the hit from
COVID-19 is expected to be the greatest. In the seven months
January-July 2020, total tourist arrivals were down by 85%,
compared to the corresponding period the prior year. Likewise,
tourist receipts in the six months to June declined by 88% against
the same period the year before.
Consumer prices have been moderating in the first half of the
year and are expected to continue to moderate in the second half,
driven by falling domestic demand and weak global energy prices. As
the economy starts to emerge from recession in 2021, and as energy
prices start to strengthen, inflation is expected to pick up
gradually.
In the external sector the current account deficit widened in
2019 driven by strong domestic demand that increased imports
disproportionately. In 2020 the current account deficit is not
expected to be significantly altered in comparison with the
previous year. The trade balance is expected to narrow sharply
reflecting the impact of the recession on imports. The steep
decline of travel and transport earnings expected are expected to
narrow the services balance, thus offsetting the narrowing of the
trade balance.
Banking sector and non-performing exposures
In the banking sector of Cyprus, total loans to residents and
non-residents alike, were EUR32.2 bn at the end of June 2020. This
corresponds to 157% of 2020 estimated nominal GDP. Total loans
consisted of EUR6.9 bn to non-residents and EUR25.4 bn to residents
or EUR25.1 bn excluding the Government. The latter, which include
EUR9 bn in non-performing in March 2020, were c.122% of nominal
GDP.
The stock of NPEs declined from EUR20.9 bn at the end of
December 2017 to EUR10.4 bn as at end-December 2018 after the sale
of loans by the Bank (Project Helix) and the resolution of the
Cyprus Cooperative Bank. NPEs dropped to EUR9.1 bn at the end of
December 2019 and were marginally lower at EUR9.0 bn at the end of
March 2020. NPEs consisted of EUR4.6 bn from households and EUR4.0
bn from non-financial companies mainly SMEs. Financial companies
comprised the remaining EUR0.4 bn.
The ratio of NPEs to gross loans in Cyprus was 27.8% at the end
of March 2020 from 28.0% at the end of December 2019 and 30.5% at
the end of December 2018. The share of restructured facilities was
44.5% and the coverage ratio stood at 57.3% at the end of March
2020.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved
considerably in recent years reflecting improvements in economic
resilience and consistent fiscal outperformance. Cyprus
demonstrated policy commitment to correcting fiscal imbalances
through reform and restructuring of its banking system. Cyprus
continues to face high public debt and a large remaining stock of
non-performing loans. While the COVID-19 crisis is expected to
cause a deep recession near-term reversing some of the gains
achieved in previous years, the longer-term outlook remains solid
and the impact on the credit profile is expected to be
temporary.
Moody's maintains a long-term credit rating of Ba2 since July
2018 and a positive outlook since September 2019. In April 2020
Moody's Investors Service issued an Update on their credit opinion
for the Cyprus Sovereign and revised their forecasts for the Cyprus
economy in view of the COVID-19 outbreak. According to the Update,
the outbreak will weigh on near term growth and fiscal prospects
but the impact on the credit profile is expected to be temporary.
S&P Global Ratings maintains an investment grade rating of BBB-
with a stable outlook since September 2018. The rating and the
outlook were last affirmed in March 2020. Fitch Ratings maintains a
Long-Term Issuer Default rating of investment grade at BBB- since
November 2018, last affirmed in April 2020. Its outlook was
upgraded to positive in October 2019 and revised it to stable in
April 2020, reflecting the significant impact the global COVID-19
pandemic might have on the Cyprus economy and fiscal position.
D. Business Overview
The Group's financial performance is highly correlated to the
economic and operating conditions in Cyprus. In July 2020, Standard
and Poor's affirmed their long-term issuer credit rating on the
Bank of 'B+' (stable outlook). In November 2019, Fitch Ratings
affirmed their long-term issuer default rating of B- (positive
outlook). In April 2020, Fitch Ratings revised their outlook to
negative, reflecting the significant impact the outbreak of
COVID-19 might have on the Cypriot economy and consequently on the
Bank. In June 2019, Moody's Investors Service affirmed the Bank's
long-term deposit rating of B3 (positive outlook).
The Group continued to deliver on its strategic priorities while
supporting its customers, colleagues and community in which it
operates through COVID-19. In light of the gradual reopening of the
economy, the Group is ensuring that all of its branches operate as
usual and in accordance with the guidelines and recommendations
issued by the Ministry of Health.
Additionally, the Group continues to closely monitor
developments in, and the effects of COVID-19 on both the global and
Cypriot economy. There have been early signs of recovery in the
Cypriot economy, but the outlook remains highly uncertain and the
impact of lower rates and economic fragility will continue for at
least the rest of the year. More specifically, there continues to
be much uncertainty related to COVID-19, in particular, the risk of
a second wave and the timeline for a vaccine to become widely
available. As a result, the longer-term impacts of COVID-19 on the
economy and the Group's financial performance remain uncertain.
The changed economic environment has resulted in lower levels of
economic activity and credit formation. In common with other
European banks, the prolonged low interest rate environment also
continues to present a challenge to the Group's profitability. As a
consequence of the pandemic, the Bank has updated its macroeconomic
assumptions underlying the IFRS 9 calculation of loan credit losses
in 1H2020 in line with the relevant regulatory guidance, resulting
in increased organic loan credit losses for 1H2020 of EUR38 mn.
While further improvement in economic activity is expected in the
second half of 2020, the Bank continues to expect, under the base
scenario, the Cypriot economy to contract by 6.3% in 2020, with
gradual recovery from 2021 onwards, with GDP growth of 5.6% for
2021. The Bank's projections are in line with those published by
the IMF, the Cyprus Ministry of Finance, the EBRD, the European
Commission and the Economics Research Centre of the University of
Cyprus.
The Bank's medium-term strategic priorities remain clear, with a
sustained focus on strengthening its balance sheet, and improving
asset quality and efficiency, whilst maintaining good capital
position, in order to continue to play a vital role in supporting
the recovery of the Cypriot economy. The Group continues to explore
opportunities to improve efficiency through its digital
transformation programme in order to provide products and services
while reducing operating costs.
Upon the outbreak of COVID-19 in March 2020, the Pandemic
Incident Management Plan (PIMP) of the Group was invoked and a
dedicated team has been monitoring the situation domestically and
globally and providing guidance on health and safety measures,
travel advice and business continuity for our Group. Local
government guidelines are being followed in response to the virus.
Also, the potential economic implications for the sectors where the
Group is active in are being assessed in order to identify possible
mitigating actions for supporting the economy, such as supporting
viable affected businesses and households with new lending to cover
liquidity, working capital, capital expenditure and investment
purposes related to the activity of the borrower.
In accordance with the Pandemic Plan, the Group adopted a set of
measures to ensure minimum disruption to its operations. The
measures comprise rules for quarantine for vulnerable employees due
to health conditions and for those returning from epicentres of the
infection. The Group replaced face-to-face meetings with
telecommunications, adjusting the customary etiquette of personal
contact, including those with customers. Staff for critical
functions have been split into separate locations. In addition, to
ensure continuity of business, a number of employees have been
working from home and the remote access capability has been
upgraded significantly. Additionally, the Group follows strict
rules of hygiene, increased intensity of cleaning and disinfection
of spaces, and other measures to protect the health and safety of
staff and customers. Some of these measures have gradually been
relaxed, whilst close monitoring of the situation continues.
The package of policy measures announced by the ECB and the
European Commission, as well as the unprecedented fiscal and other
measures of the Cyprus Government, should help reduce the negative
impact and support the recovery of the Cypriot economy.
As part of the measures to support borrowers affected by
COVID-19 and the wider Cypriot economy, the Cyprus Parliament voted
for the suspension of loan repayments for interest and principal
for the nine months remaining to the end of the year, for all
eligible borrowers with no arrears for more than 30 days as at the
end of February 2020. As at 30 June 2020, over 25,000 customers
were approved, relating to c.EUR6.0 bn gross loans (comprising
gross loans to individuals of EUR2.1 bn and gross loans to
businesses of EUR3.9 bn), representing 66% of total gross loans
excluding legacy. The Group continues to monitor the
creditworthiness of all customers who applied for the loan
moratorium.
The individual assessment of businesses under moratorium was
initiated in May 2020, with an initial focus on high risk
customers. The 30 largest businesses under moratorium comprise
nearly half of all business loans under moratorium and amount to
EUR1.7 bn. Over 70% of these have already been reviewed without
triggering a change in the unlikely to pay criterion (UTP). In
addition, c.9% of businesses under moratorium have paid at least
one instalment by 30 June 2020.
D. Business Overview (continued)
The individual assessment of private individuals under
moratorium has also commenced with priority to individuals with low
credit scoring and employed in high risk industries, such as
tourism. In addition, c.25% of private individuals under moratorium
have paid at least one instalment by 30 June 2020.
The strategic focus of the Group on asset quality, funding,
capital and efficiency aims to ensure that it maintains its
financial strength.
Tackling the Bank's loan portfolio quality is of utmost
importance for the Group. Despite the challenging market conditions
resulting from the outbreak of COVID-19, the Group reached
agreement for the sale of a portfolio of loans with gross book
value of c.EUR898 mn (of which EUR886 mn related to non-performing
exposures) as at 30 June 2020, known as Project Helix 2, another
significant disposal of NPEs by the Bank. The combined de-risking
actions in the first six months of 2020, including Project Helix 2,
have reduced NPEs by EUR1.3 bn. Overall, since the peak in 2014,
the stock of NPEs has been reduced by EUR12.4 bn or 83% to EUR2.6
bn and the NPE ratio is reduced to 22%.
Project Helix 2 marks further progress against delivering on the
Group's strategic objectives of becoming a stronger, safer and more
efficient institution. The Group is now better positioned to manage
the challenges resulting from the impact of the ongoing COVID-19
crisis, and to support the recovery of the Cypriot economy.
The Group remains committed to further de-risking of the balance
sheet and it will continue to seek solutions, both organic and
inorganic to achieve this. The Group will continue to assess the
potential to accelerate the decrease in NPEs on the balance sheet
through additional sales of NPEs in the future. At the same time,
following the outbreak of COVID-19 the Group will remain focused on
arresting any potential asset quality deterioration and early
managing arrears.
The July 2018 foreclosure law amendments have expedited the
process and limited options to frustrate execution. In July 2019,
the Cyprus Parliament voted through certain changes to the 2018 law
which, in the most part, seek to (a) provide additional checks and
balances where banks are seeking to foreclose small loans
(<EUR350 thousand) secured by a principal private residence, and
(b) extend the foreclosure timetable by extending various notice
periods. Following recent developments, the Supreme Court ruled
that the foreclosure amendments voted by the Parliament in July
2019 are constitutional and were passed into law in June 2020.
Following the outbreak of COVID-19, the foreclosure process has
been suspended until 31 August 2020, in line with the latest
decision of the Association of Cyprus Banks.
The Group continues to provide high quality new loans via
prudent underwriting standards and 98% of new exposures in Cyprus
since 2016 are performing. During the quarter ended 30 June 2020,
new lending amounted to EUR238 mn, reduced by 47% qoq reflecting
the COVID-19 lockdown. Growth in new lending in Cyprus has been
focused on selected industries more in line with the Bank's target
risk profile, such as tourism, trade, real estate, professional
services, information/communication technologies, energy, education
and green projects, and following the outbreak of COVID-19, the
focus remains to support the Cypriot economy in order to overcome
this crisis. The demand for new lending is expected to pick up in
2H2020, especially for new housing loans in the context of the
Government scheme for interest rate subsidy. The pipeline for new
housing loans is strong at over EUR65 mn as at 21 August 2020.
Following the outbreak of COVID-19, the sectors most adversely
affected are tourism, trade, transport and construction. The Group
has a well - diversified performing loan portfolio. As at 30 June
2020, the Group's non-legacy loan book exposure to tourism was
limited to EUR1.1 bn, out of a total non-legacy loan book of EUR9.1
bn. Respectively, the Group's non-legacy loan book exposure to
trade was also EUR1.0 bn, whilst to construction was limited to
EUR0.5 bn.
Aiming at supporting investments by SMEs and mid-caps to boost
the Cypriot economy, and create new jobs for young people, the Bank
continues to provide joint financed schemes. To this end, the Bank
continues its partnership with the European Investment Bank (EIB),
the European Investment Fund (EIF), the European Bank for
Reconstruction and Development (EBRD) and the Cyprus
Government.
Management is also placing emphasis on diversifying income
streams by optimising fee income from international transaction
services, wealth management and insurance. The Group's insurance
companies, EuroLife Ltd and General Insurance of Cyprus Ltd (GIC)
operating in the sectors of life and general insurance
respectively, are leading players in the insurance business in
Cyprus, as such business have been providing a stable, recurring
fee income, further diversifying the Group's income streams. The
insurance income net of claims and commissions for 1H2020 amounted
to EUR29 mn, down by 4% yoy, contributing to 24% of non-interest
income.
In order to further optimise its funding structure, the Bank
continues to focus on the shape and cost of deposit franchise,
taking advantage of the increased customer confidence towards the
Bank. The cost of deposits has been reduced by 68 bps to 8 bps over
the last 30 months, and the reduction is expected to continue. The
reduction in the cost of deposits amounts to 8 bps in 1H2020,
compared to a reduction of 17 bps in 1H2019.
D. Business Overview (continued)
In addition, there are efforts underway to improve credit
spreads, despite competition pressures. Moreover, liquidity fees
for specific customer groups were introduced in March 2020. The
introduction of liquidity fees to a broader group of corporate
clients, that was delayed due to the COVID-19 pandemic, is under
consideration, once allowed by market conditions. In August 2020
the Ministry of Finance issued three decrees, setting a limit on
charges and fees charged in a calendar year to accounts with
certain characteristics and for certain transactions. The review of
fees and commission charges is underway, whilst transactional fee
volumes are expected to recover to pre-COVID-19 levels, as the
Cypriot economy continues to recover. Finally, in June 2020, the
Bank borrowed EUR1 bn from the fourth TLTRO III operation, despite
its comfortable liquidity position, given the favourable borrowing
rate, in combination with the relaxation of collateral terms. The
annual potential benefit to the net interest income is estimated at
EUR5 mn.
A key focus of the Group remains the active management of
funding costs and on-going running expenses. The Digital
Transformation Programme that started in 2017 has begun to deliver
an improved customer experience (see section below), whilst the
branch footprint rationalisation continued in 4Q2019, further
improving the Bank's operating model. The number of branches was
reduced by 18% in 2019 and the branch network is now less than half
the size it was in 2013. Management remains focused on further
improvement in efficiency.
Digital Transformation
As part of its vision to be the leading financial hub in Cyprus,
the Bank continues its Digital Transformation Programme, which
focuses on three strategic pillars: developing digital services and
products that enhance the customer experience, streamlining
internal processes, and introducing new ways of working to improve
the workplace environment.
In recent months, various new features were introduced on the
new mobile app, to enhance self-service functionalities. Users can
now retrieve a forgotten user id, set a new passcode in case they
forgot their old one and activate their subscription without having
to contact the bank. Additionally, users can now purchase a
Digipass through the mobile app, a verification instrument that
allows them to perform a variety of transactions securely.
Moreover, customers can now register for a subscription to the
Bank's digital channels without having to fill in a physical form
or visit a branch. Integration with modern payment solutions has
been made easier as users can now add their Visa cards to the BoC
Wallet (Android) and the Apple Pay (iOS) through the mobile banking
app directly. Likewise, Visa cardholders are now able to make
secure and fast payments through their Garmin smartwatch (Garmin
Pay) without having to carry their mobile phone. Finally, eligible
subscribers for QuickPay (new users) are now prompted at login to
set up the QuickPay default account.
Moreover, the launch of the new Cards and Payments systems has
been completed. This is expected to offer customised solutions and
improve the customer banking experience. For example, it is
expected to offer new features through mobile banking in 2020, such
as the ability for the customer to freeze their credit or debit
card in the event of a loss (freeze and unfreeze), and the ability
to determine a maximum limit for specific transactions.
The adoption of digital products and services continued to grow
and gain momentum in 2019. As at the end of 2019, 78% of the number
of transactions involving deposits, cash withdrawals and
internal/external transfers were performed through digital channels
(compared to 67% two years earlier). Regarding the use of mobile
banking, the number of active users increased by 20% in 2019, and
by a further 13% in the seven months to the end of July 2020.
In 2020, as a result of the COVID-19 restrictive measures, a
reduction in cash withdrawals and deposits performed through the
branch network has been observed. An increase in the adoption of
digital products and services and in digital subscriber penetration
has also been observed as more customers have gained access to
digital channels and more cards have been issued. As at the end of
July 2020, 72% of customers were digitally engaged (up by 12 p.p.
from 60% since the digital transformation programme was initiated
in September 2017). A further increase is expected in 3Q2020 driven
by the increase in the number of subscribers and the number of
cards that have been issued. Within this context, the Bank has
launched various initiatives aiming to provide better, faster and
safer services. Such initiatives include amongst others the
issuance of debit cards free of charge and on a fast track basis
until the end of September 2020, the provision of SMS Digipass
devices free of charge, and the ability for new customers to apply
for account opening via the Bank's website.
As part of the Bank's ambition to be one of the cornerstones of
the digital economy, customers have been enabled to authorise the
release of their identification details to the Government, using
the internet banking credentials thus enabling a digital
registration on the Government Gateway Portal (Ariadni) where they
can use electronic services that are made available by the
Government of Cyprus (up until now citizens needed to be physically
present to identify themselves).
In addition, the Bank has taken the necessary actions to enable
customers to purchase Qualified Digital Signature certificates,
which can be used to digitally sign Bank, Government as well as any
other document that requires a signature, eliminating the need for
physical presence and enhancing the customer experience. It should
be noted that the Bank is one of the first banks in Europe to offer
a fully digital application process to acquire a Qualified Digital
Signature certificate.
Furthermore, changes in the workplace, with the introduction of
new technologies and tools that will drastically change the
employee experience, improving collaboration and knowledge sharing
across the organisation, are expected to be seen in 2020.
E. Strategy and Outlook
The strategic objectives for the Group are to become a stronger,
safer and a more efficient 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:
-- Reduce the level of delinquent loans, arrest any asset
quality deterioration and early manage arrears resulting from the
outbreak of COVID-19
-- Achieve a lean operating model
-- Maintain an appropriate capital position by internally generating capital
-- Further optimise the funding structure
-- Focus on the core Cyprus market
-- Deliver value to shareholders and other stakeholders
KEY PILLARS ACTION TAKEN IN 1H2020 and 2019 PLAN OF ACTION *
1. Reduce the
level of * Please refer to Sections B.2.5 'Loan Portfolio * Focus on realising collateral via consensual and non
delinquent Quality' and B.2.6 'Real Estate Management Unit' -consensual foreclosures
loans, arrest
any asset
quality * Real estate management via REMU
deterioration
and early
manage * Continue to explore alternative measures for
arrears accelerating NPE reduction, such as NPE sales,
resulting securitisations etc.
from the
outbreak of
COVID-19 * Continue to closely monitor the creditworthiness of
customers under moratorium with priority to high risk
customers
------------------------------------------------------------- -----------------------------------------------------------------
2. Achieve a
lean * Please refer to Section B.3.4 '(Loss)/profit after * Implementation of Digital Transformation Programme
operating tax (attributable to the owners of the Company)' and underway, aimed at enhancing productivity through
model Section B .3.2 'Total expenses' for further details alternative distribution channels and reducing
in relation to the voluntary staff exit plan that operating costs over time
took place in 4Q2019 and Section D 'Business
Overview'
* Management remains focused on further improvement in
efficiency
------------------------------------------------------------- -----------------------------------------------------------------
3. Maintain * Internally generating capital
an * Please refer to Section B.2.1 'Capital Base'
appropriate
capital
position
------------------------------------------------------------- -----------------------------------------------------------------
4. Further
optimise the * Please refer to Section B.2.3 'Funding and Liquidity * Focus on shape and cost of deposit franchise
funding '
structure
* Introduction of liquidity fees to a broader group of
corporate clients, that was delayed due to the
COVID-19 pandemic, under consideration, once allowed
by market conditions
------------------------------------------------------------- -----------------------------------------------------------------
E. Strategy and Outlook (continued)
KEY PILLARS ACTION TAKEN IN 1H2020 and 2019 PLAN OF ACTION *
5.
Focus * Please refer to Sections B.2.4 'Loans', B.3.1 'T * Targeted lending in Cyprus into growing sectors to
on core otal fund recovery
Cyprus income' and D 'Business Overview'
market
* New loan origination, while maintaining and improving
lending yields, despite competition pressures
* Revenue diversification via fee and commission income
from international banking, wealth and insurance
which provides stable, recurring income
--------------------------------------------------------- --------------------------------------------------------------
6.
Deliver * Please refer to page 8 for the Key Balance Sheet * Deliver appropriate medium-term risk-adjusted returns
value figures and ratios, as well as the Capital ratio
s and
risk weighted assets
--------------------------------------------------------- --------------------------------------------------------------
* For further information relating to the "Plan of Action"
please refer to Section D. 'Business Overview'.
The Group is closely monitoring developments in, and the effects
of COVID-19 on both the global and Cypriot economy. The gradual
easing of the restrictive measures has led to increased economic
activity, however uncertainty remains, in particular the risk of a
second wave and the timeline for a vaccine to become widely
available. As a result, the longer term impacts of COVID-19 on the
economy and the Group's financial performance remain uncertain.
In common with other European banks, the persistently low
interest rate environment continues to present a challenge to the
Group's profitability. As a consequence of the current challenging
economic conditions resulting from the COVID-19 outbreak, the Group
has updated its macroeconomic assumptions underlying the IFRS 9
calculation of loan credit losses for 1H2020 in line with the
relevant regulatory guidance, resulting in increased organic loan
credit losses for 1H2020 of EUR38 mn.
The Group's medium-term strategic priorities remain clear, with
a sustained focus on strengthening its balance sheet, and improving
asset quality and efficiency, whilst maintaining good capital
position, in order to continue to play a vital role in supporting
the Cypriot economy.
F. Definitions & Explanations
Advisory and Comprise mainly: fees of external advisors in relation
other restructuring to: (i) disposal of operations and non-core assets,
costs and (ii) customer loan restructuring activities.
Allowance for Comprises (i) allowance for expected credit losses
expected loan (ECL) on loans and advances to customers (including
credit losses allowance for expected credit losses on loans and
(previously advances to customers held for sale), (ii) the residual
'Accumulated fair value adjustment on initial recognition of loans
provisions') and advances to customers, (iii) allowance for expected
credit losses for off-balance sheet exposures (financial
guarantees and commitments) disclosed on the balance
sheet within other liabilities, and (iv) the aggregate
fair value adjustment on loans and advances to customers
classified and measured at FVPL.
AT1 AT1 (Additional Tier 1) is defined in accordance
with Articles 51 and 52 of the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II
applicable as at the reporting date.
CET1 capital CET1 capital ratio (transitional basis) is defined
ratio (transitional in accordance with the Capital Requirements Regulation
basis) (EU) No 575/2013, as amended by CRR II applicable
as at the reporting date.
CET1 fully loaded The CET1 fully loaded (FL) ratio is defined in accordance
(FL) with the Capital Requirements Regulation (EU) No
575/2013, as amended by CRR II applicable as at the
reporting date.
Contribution Relates to the contribution made to the Deposit Guarantee
to DGF Fund.
Contribution Relates to the contribution made to the Single Resolution
to SRF Fund.
Cost to Income Cost-to-income ratio comprises total expenses (as
ratio defined) divided by total income (as defined).
Data from the The latest data from the Statistical Service of the
Statistical Republic of Cyprus, Cyprus Statistical Service, was
Service published on 21 August 2020.
Digital transactions This is the ratio of the number of digital transactions
ratio performed by individuals and legal entity customers
to the total number of transactions. Transactions
include deposits, withdrawals, internal and external
transfers. Digital channels include mobile, browser
and ATMs.
Digitally engaged This is the ratio of digitally engaged individual
customers ratio customers to the total number of individual customers.
Digitally engaged customers are the individuals who
use the digital channels of the Bank (mobile banking
app, browser and ATMs) to perform banking transactions,
as well as digital enablers such as a bank-issued
card to perform online card purchases, based on an
internally developed scorecard.
ECB European Central Bank
Gross loans Gross loans are reported before the residual fair
value adjustment on initial recognition relating
to loans acquired from Laiki Bank (calculated as
the difference between the outstanding contractual
amount and the fair value of loans acquired) amounting
to EUR248 mn at 30 June 2020 (compared to EUR252
mn at 31 March 2020 and EUR271 mn at 31 December
2019).
Additionally, gross loans include loans and advances
to customers classified and measured at fair value
through profit and loss adjusted for the aggregate
fair value adjustment of EUR331 mn at 30 June 2020
(compared to EUR328 mn at 31 March 2020 and EUR427
mn at 31 December 2019).
Group The Group consists f Bank of Cyprus Holdings Public
Limited Company, "BOC Holdings" or the "Company",
its subsidiary Bank of Cyprus Public Company Limited,
the "Bank" and the Bank's subsidiaries.
Legacy exposures Legacy exposures are exposures relating to (i) Restructuring
and Recoveries Division (RRD), (ii) Real Estate Management
Unit (REMU), and (iii) non-core overseas exposures
Leverage ratio The leverage ratio is the ratio of tangible total
equity (including Other equity instruments) to total
assets as presented on the balance sheet.
F. Definitions & Explanations (continued)
Loan credit Loan credit losses comprise: (i) credit losses to
losses (PL) cover credit risk on loans and advances to customers,
(previously (ii) net gains on derecognition of financial assets
'Provision charge') measured at amortised cost and (iii) net gains on
loans and advances to customers at FVPL.
Loan credit Loan credit losses charge (cost of risk) (year to
losses charge date) is calculated as the annualised 'loan credit
(previously losses' (as defined) divided by average gross loans
'Provisioning (the average balance is calculated as the average
charge') (cost of the opening balance and the closing balance).
of risk)
Market Shares Both deposit and loan market shares are based on
data from the CBC.
The Bank is the single largest credit provider in
Cyprus with a market share of 41.7% at 30 June 2020,
compared to 41.0% at 31 March 2020, 41.1% at 31 December
2019, 40.8% at 30 September 2019, 41.3% at 30 June
2019, 46.7% at 31 March 2019, 45.4% at 31 December
2018 and as at 30 September 2018, 38.6% at 30 June
2018 and 37.4% at 31 March 2018.
The market share on loans was affected as at 30 June
2019 following the derecognition of the Helix portfolio
upon the completion of Project Helix announced on
28 June 2019.
The market share on loans was affected during the
quarter ended 31 March 2019 following a decrease
in total loans in the banking sector of EUR1 bn,
mainly attributed to reclassification, revaluation,
exchange rate and other adjustments (CBC).
The market share on loans was affected as at 30 September
2018 following a decrease in total loans in the banking
sector, mainly attributed to EUR6 bn non-performing
loans of Cyprus Cooperative Bank (CyCB) which remained
to SEDIPES as a result of the agreement between CyCB
and Hellenic Bank.
The market share on loans was affected as at 30 June
2018 following a decrease in total loans in the banking
sector of EUR2.1 bn, due to loan reclassifications,
revaluations, exchange rate or other adjustments
(CBC).
Net fee and Fee and commission income less fee and commission
commission income expense divided by total income (as defined).
over total income
Net Interest Net interest margin is calculated as the net interest
Margin income (annualised) divided by the 'quarterly average
interest earning assets' (as defined).
Net loans and Comprise gross loans (as defined) net of allowance
advances to for expected loan credit losses (as defined, but
customers excluding credit losses on off-balance sheet exposures).
Net loan to Net loan to deposit ratio is calculated as gross
deposit ratio loans (as defined) net of allowance for expected
loan credit losses (as defined) divided by customer
deposits.
Net Stable Funding The NSFR is calculated as the amount of "available
Ratio (NSFR) stable funding" (ASF) relative to the amount of "required
stable funding" (RSF), on the basis of Basel III
standards. Its calculation is a SREP requirement.
The EBA NSFR will be enforced as a regulatory ratio
under CRR II in 2021.
New lending New lending includes the average YTD change (if positive)
for overdraft facilities.
Non-interest Non-interest income comprises Net fee and commission
income income, Net foreign exchange gains and net gains
on financial instrument transactions and disposal/dissolution
of subsidiaries and associates (excluding net gains
on loans and advances to customers at FVPL), Insurance
income net of claims and commissions, Net gains/(losses)
from revaluation and disposal of investment properties
and on disposal of stock of properties, and Other
income.
F. Definitions & Explanations (continued)
Non-performing According to the EBA standards and ECB's Guidance
exposures (NPEs) to Banks on Non-Performing Loans (published in March
2017), NPEs are defined as those exposures that satisfy
one of the following conditions: (i) the borrower
is assessed as unlikely to pay its credit obligations
in full without the realisation of the collateral,
regardless of the existence of any past due amount
or of the number of days past due, (ii) defaulted
or impaired exposures as per the approach provided
in the Capital Requirement Regulation (CRR), which
would also trigger a default under specific credit
adjustment, distress restructuring and obligor bankruptcy,
(iii) material exposures as set by the CBC , which
are more than 90 days past due, (iv) performing forborne
exposures under probation for which additional forbearance
measures are extended, and (v) performing forborne
exposures under probation that present more than
30 days past due within the probation period. When
a specific part of the exposures of a customer that
fulfils the NPE criteria set out above is greater
than 20% of the gross carrying amount of all on balance
sheet exposures of that customer, then the total
customer exposure is classified as non-performing;
otherwise only the specific part of the exposure
is classified as non-performing. The NPEs are reported
before the deduction of allowance for expected loan
credit losses (as defined).
Non-recurring Non-recurring items as presented in the 'Consolidated
items Condensed Interim Income Statement - Underlying basis'
relate to the following items, as applicable: (i)
advisory and other restructuring costs - organic,
(ii) restructuring costs - Voluntary Staff Exit Plan
(VEP), (iii) Provisions/net loss relating to NPE
sales, including restructuring expenses, (iv) Loss
on remeasurement of investment in associate upon
classification as held for sale (CNP) net of share
of profit from associates, and (v) Reversal of impairment
of DTA and impairment of other tax receivables.
NPE coverage The NPE coverage ratio is calculated as the allowance
ratio (previously for expected loan credit losses (as defined) over
'NPE Provisioning NPEs (as defined).
coverage ratio')
NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as
defined) divided by gross loans (as defined).
NPE sales NPE sales refer to sales of NPE portfolios completed
in each period and contemplated sale transactions,
as well as potential further NPE sales, at each reporting
date, irrespective of whether or not they met the
held for sale classification criteria at the reporting
dates. They include both Project Helix and Project
Helix 2, as well as other portfolios.
Operating profit Comprises profit before Total loan credit losses,
impairments and provisions (as defined), tax, (profit)/loss
attributable to non-controlling interests and non-recurring
items (as defined).
Operating profit Operating profit return on average assets is calculated
return on average as the annualised operating profit (as defined) divided
assets by the quarterly average of total assets for the
relevant period. Average total assets exclude total
assets of discontinued operations at each quarter
end, if applicable.
Phased-in Capital In accordance with the legislation in Cyprus which
Conservation has been set for all credit institutions, the applicable
Buffer (CCB) rate of the CCB is 1.25% for 2017, 1.875% for 2018
and 2.5% for 2019 (fully phased-in).
Profit/(loss) This refers to the profit or loss after tax (attributable
after tax and to the owners of the Company) , excluding any 'non-recurring
before non-recurring items' (as defined).
items (attributable
to the owners
of the Company)
Profit/(loss) This refers to the profit or loss after tax (attributable
after tax - to the owners of the Company) , excluding any 'non-recurring
organic (attributable items' (as defined , except for the ' advisory and
to the owners other restructuring costs - organic') .
of the Company)
Project Helix Project Helix refers to the sale of a portfolio of
loans with a gross book value of EUR2.8 bn completed
in June 2019. For further information please refer
to section B.2.5 Loan portfolio quality.
F. Definitions & Explanations (continued)
Project Helix Project Helix 2 refers to the portfolio of loans
2 with a gross book value of EUR898 mn as at 30 June
2020 for which an agreement for sale was reached
on 3 August 2020. For further information please
refer to section B.2.5 Loan portfolio quality.
Quarterly average This relates to the average of 'interest earning
interest earning assets' as at the beginning and end of the relevant
assets quarter. Average interest earning assets exclude
interest earning assets of any discontinued operations
at each quarter end, if applicable. Interest earning
assets include: cash and balances with central banks,
plus loans and advances to banks, plus net loans
and advances to customers (including loans and advances
to customers classified as non-current assets held
for sale), plus investments (excluding equities and
mutual funds).
Qoq Quarter on quarter change
Special levy Relates to the special levy on deposits of credit
institutions in Cyprus.
Total Capital Total capital ratio is defined in accordance with
ratio the Capital Requirements Regulation (EU) No 575/2013
, as amended by CRR II applicable as at the reporting
date.
Total expenses Total expenses comprise staff costs, other operating
expenses and the special levy and contributions to
the Single Resolution Fund (SRF) and Deposit Guarantee
Fund (DGF). It does not include 'advisory and other
restructuring costs-organic', or any restructuring
costs relating to the Voluntary Staff Exit Plan,
or any restructuring costs relating to NPE sales.
'Advisory and other restructuring costs-organic'
amounted to EUR3 mn for 2Q2020 (compared to EUR3
mn for 1Q2020 and EUR8 mn for 4Q2019). Restructuring
costs relating to NPE sales amounted to EUR1 mn for
2Q2020 (compared to EUR3 mn for 1Q2020 and EUR10
mn for 4Q2019). Restructuring costs relating to the
Voluntary Staff Exit Plan amounted to nil for 2Q2020
and 1Q2020, compared to EUR81 mn for 4Q2019.
Total income Total income comprises net interest income and non-interest
income (as defined).
Total loan credit Total loan credit losses, impairments and provisions
losses, impairments comprises loan credit losses (as defined), plus impairments
and provisions of other financial and non-financial assets, plus
(provisions)/reversal of provisions for litigation,
claims, regulatory and other matters.
Underlying basis This refers to the statutory basis after being adjusted
for certain items as explained in the Basis of Presentation.
Write offs Loans together with the associated loan credit losses
are written off when there is no realistic prospect
of future recovery. Partial write-offs, including
non-contractual write-offs, may occur when it is
considered that there is no realistic prospect for
the recovery of the contractual cash flows. In addition,
write-offs may reflect restructuring activity with
customers and are part of the terms of the agreement
and subject to satisfactory performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings
Public Limited Company, "BOC Holdings" or "the Company", its
subsidiary Bank of Cyprus Public Company Limited, the "Bank" or
"BOC PCL", and together with the Bank's subsidiaries, the "Group",
for the six months ended 30 June 2020.
At 31 December 2016, the Bank was listed on the Cyprus Stock
Exchange (CSE) and the Athens Exchange. On 18 January 2017, BOC
Holdings, incorporated in Ireland, was introduced in the Group
structure as the new holding company of the Bank. On 19 January
2017, the total issued share capital of BOC Holdings was admitted
to listing and trading on the LSE and the CSE.
Financial information presented in this announcement is being
published for the purposes of providing an overview of the Group
financial results for the six months ended 30 June 2020. The
financial information in this announcement does not constitute
statutory financial statements of BOC Holdings within the meaning
of section 340 of the Companies Act 2014. The Group statutory
financial statements for the year ended 31 December 2019, upon
which the auditors have given an unqualified report, were published
on 29 April 2020 and are expected to be delivered to the Registrar
of Companies of Ireland within 28 days of 30 September 2020. The
Board of Directors approved the Group statutory financial
statements for the six months ended 30 June 2020 on 27 August
2020.
Statutory basis: S tatutory information is set out on pages 4-5.
However, a number of factors have had a significant effect on the
comparability of the Group's financial position and results.
Accordingly, the results are also presented on an underlying
basis.
Underlying basis: The statutory results are adjusted for certain
items (as described on page 9) to allow a comparison of the Group's
underlying performance, as set out on pages 6-8.
The financial information included in this announcement is
neither reviewed nor audited by the Group's external auditors.
The Consolidated Condensed Interim Financial Statements for the
six months ended 30 June 2020 have not been audited by the Group's
external auditors. The Group's external auditors have conducted a
review of the Consolidated Condensed Interim Financial Statements
in accordance with the International Standard on Review Engagements
2410 'Review of Interim Financial Information performed by the
Independent Auditor of the Entity (UK & Ireland)'.
The Interim Financial Report 2020 is available at the Bank of
Cyprus Holdings Public Limited Company Office (51, Stassinos
Street, Ayia Paraskevi, P.O. Box 24884, 1398, Nicosia, Cyprus) and
on the Group's website www.bankofcyprus.com (Investor
Relations/Financial Results).
This announcement and the presentation for the Group Financial
Results for the six months ended 30 June 2020 have been posted on
the Group's website www.bankofcyprus.com (Investor
Relations/Financial Results).
Definitions: The Group uses definitions in the discussion of its
business performance and financial position which are set out in
section F.
The Group Financial Results for the six months ended 30 June
2020 are presented in Euro (EUR) and all amounts are rounded as
indicated. A comma is used to separate thousands and a dot is used
to separate decimals.
Forward Looking Statements
This document contains certain forward-looking statements which
can usually be identified by terms used such as "expect", "should
be", "will be" and similar expressions or variations thereof or
their negative variations, but their absence does not mean that a
statement is not forward-looking. Examples of forward-looking
statements include, but are not limited to, statements relating to
the Group's near term and longer term future capital requirements
and ratios, intentions, beliefs or current expectations and
projections about the Group's future results of operations,
financial condition, expected impairment charges, the level of the
Group's assets, liquidity, performance, prospects, anticipated
growth, provisions, impairments, business strategies and
opportunities. By their nature, forward-looking statements involve
risk and uncertainty because they relate to events, and depend upon
circumstances, that will or may occur in the future. Factors that
could cause actual business, strategy and/or results to differ
materially from the plans, objectives, expectations, estimates and
intentions expressed in such forward-looking statements made by the
Group include, but are not limited to: general economic and
political conditions in Cyprus and other European Union (EU) Member
States, interest rate and foreign exchange fluctuations,
legislative, fiscal and regulatory developments and information
technology, litigation and other operational risks. Should any one
or more of these or other factors materialise, or should any
underlying assumptions prove to be incorrect, the actual results or
events could differ materially from those currently being
anticipated as reflected in such forward looking statements. The
forward-looking statements made in this document are only
applicable as from the date of publication of this document. Except
as required by any applicable law or regulation, the Group
expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward looking statement
contained in this document to reflect any change in the Group's
expectations or any change in events, conditions or circumstances
on which any statement is based.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial
services group in Cyprus, providing a wide range of financial
products and services which include retail and commercial banking,
finance, factoring, investment banking, brokerage, fund management,
private banking, life and general insurance. The Bank of Cyprus
Group operates through a total of 98 branches in Cyprus, of which
14 operate as cash offices. Bank of Cyprus also has representative
offices in Russia, Ukraine and China. The Bank of Cyprus Group
employs 3,579 staff worldwide. At 30 June 2020, the Group's Total
Assets amounted to EUR21.4 bn and Total Equity was EUR2.1 bn. The
Bank of Cyprus Group comprises Bank of Cyprus Holdings Public
Limited Company, its subsidiary Bank of Cyprus Public Company
Limited and its subsidiaries.
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