Source - LSE Regulatory
RNS Number : 0277U
Bank of Cyprus Holdings PLC
30 November 2021
 

                                                                                                                                                                                      

 

Announcement                              

 

Group Financial Results for the nine months ended 30 September 2021

 

Nicosia, 30 November 2021

                  

 

Key Highlights for the nine months ended 30 September 2021

 

Strong Recovery Continues

·      5.3% GDP growth in 3Q2021, well above the eurozone average of 3.7%

·      GDP expected to grow by c.5.5%1 in FY2021 and recover to pre-pandemic levels by year-end

·      Continuing to support the recovery; new lending of €1.3 bn in 9M2021, up 35% yoy

 

Positive Operating Performance

·      Total income of €139 mn for 3Q2021, down 8% qoq, partly impacted by Helix 2 completion; operating profit of €41 mn for 3Q2021

·      Strong net fees and commissions at €44 mn for 3Q2021; 32% of total income

·      Profit after tax and before non-recurring items of €13 mn for 3Q2021 and €64 mn for 9M2021

·      Profit after tax of €19 mn for 3Q2021 and €20 mn for 9M2021

 

Operating Efficiency

·      Total operating expenses2 of €89 mn for 3Q2021, flat qoq

·      Cost to income ratio2 at 64% for 3Q2021, up 6 p.p. qoq, mainly impacted by Helix 2 completion

 

Strong Capital and Liquidity

·      CET1 ratio of 15.3%3,4 and Total Capital ratio of 20.4%3,4

·      Deposits at 17.1 bn up 2% qoq; significant surplus liquidity of 6.0 bn (LCR 294%)

 

Single Digit NPE Ratio4

·      NPE sale signed in November 2021 (Helix 3), reducing NPE ratio to 8.6%4 (3.6%4 net), already in line with 2022 target

·      NPEs reduced to €0.9 bn4 (€0.4 bn4 net)

·      Organic NPE reduction of c.€300 mn in 9M2021

·      96% of performing loans5 under expired payment deferrals with an instalment due by 22 November 2021, presented no arrears

 

On-track to achieve our medium term targets

 

 

 

 

 

 

 

 

1.     Source: Ministry of Finance

2.     Excluding special levy on deposits and other levies/contributions

3.     Allowing for IFRS 9 and temporary treatment for certain FVOCI instruments transitional arrangements

4.     Pro forma for Helix 3

5.     As at 30 September 2021

Group Chief Executive Statement

"As the strong recovery in economic activity continued into the third quarter of the year, we continued to deliver against our medium term strategic targets.

 

Earlier this month, we reached a milestone agreement for the sale of €0.6 bn NPEs in Project Helix 3, reducing our pro forma NPE ratio to single digit of 8.6%, a year earlier than anticipated, in a profitable and capital accretive transaction. Overall, since the peak in 2014, we have now reduced the stock of NPEs by €14.1 bn or 94% to less than €1 bn and the NPE ratio by 54 percentage points, from 63% to less than 9% on a pro forma basis.

 

Our cost of risk stood at 66 bps year to date and the performance of the loans under expired payment deferrals remains strong. Our remaining stock of NPEs at the quarter end amounts to €0.9 bn pro forma for Helix 3 and we remain on track to achieve an NPE ratio of c.5% in the medium term.

We recorded a reported profit of €20 mn for the first nine months of the year, impacted by NPE sales and restructuring expenses. Recurring profit - a more indicative measure of our performance - totalled €64 mn year to date. Revenues remain stable despite the impact of the derecognition of non-performing loans following the completion of Helix 2 at the end of June. Our net fees and commissions remain strong, up 20% year to date and now amounting to 30% of total income. We continue working on our business model in order to improve our profitability and our operating expenses were flat in the quarter. Our cost to income ratio (excluding levies and contributions) for the year to date stood at 61%. We stand by our commitment to reduce our cost to income ratio to our target of mid-50% in the medium term.

The Bank's capital position remains sound and comfortably in excess of our regulatory requirements. As at 30 September 2021, our capital ratios (on a transitional basis) were 20.4% for the Total Capital ratio and 15.3% for CET1 ratio, both pro forma for Helix 3.

 

We continue to support the domestic economy and extended €1.3 bn of new loans in the first nine months of the year, an increase of 35% compared to the same period last year. We remain committed to being part of the country's economic growth, which is expected to fully offset the contraction in 2020 by the end of the year, and, with the implementation of the Cyprus Recovery and Resilience Plan, is expected to be sustained at pre-pandemic levels. At the same time, we remain focused and on track with achieving our medium term targets."

 

 

Panicos Nicolaou

 

 

A. Group Financial Results - Underlying Basis

Unaudited Interim Condensed Consolidated Income Statement

€ mn

9M2021

9M2020

3Q2021

2Q2021

qoq +%

yoy +%

Net interest income

223

250

71

76

-6%

-11%

Net fee and commission income

128

106

44

45

-2%

20%

Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates

14

14

6

6

1%

-3%

Insurance income net of claims and commissions

43

42

12

18

-36%

2%

Net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties

8

2

2

4

-42%

-

Other income

11

11

4

3

42%

-3%

Total income

427

425

139

152

-8%

0%

Staff costs

(152)

(145)

(51)

(51)

0%

4%

Other operating expenses

(108)

(104)

(38)

(38)

2%

3%

Special levy on deposits and other levies/contributions

(24)

(24)

(9)

(6)

52%

2%

Total expenses

(284)

(273)

(98)

(95)

4%

4%

Operating profit

143

152

41

57

-29%

-6%

Loan credit losses

(57)

(118)

(22)

(15)

42%

-52%

Impairments of other financial and non-financial assets

(13)

(36)

(2)

(6)

-62%

-63%

Provisions for litigation, claims, regulatory and other matters

(6)

(4)

(2)

(3)

-56%

34%

Total loan credit losses, impairments and provisions

(76)

(158)

(26)

(24)

3%

-52%

Profit/(loss) before tax and non-recurring items

67

(6)

15

33

-52%

-

Tax

(3)

(7)

(2)

1

-

-59%

(Profit)/loss attributable to non-controlling interests

(0)

4

(0)

(0)

-

-

Profit/(loss) after tax and before non-recurring items (attributable to the owners of the Company)

64

(9)

13

34

-59%

-

Advisory and other restructuring costs - organic

(19)

(9)

(1)

(15)

-93%

102%

Profit/(loss) after tax - organic (attributable to the owners of the Company)

45

(18)

12

19

-31%

-

Provisions/net (loss)/profit relating to NPE sales1

(6)

(87)

10

(14)

-

-94%

Restructuring and other costs relating to NPE sales1

(19)

(17)

(3)

(12)

-71%

22%

Profit/(loss) after tax (attributable to the owners of the Company)

20

(122)

19

(7)

-

-

 

 

 

 

 

 

A. Group Financial Results - Underlying Basis (continued)

Unaudited Interim Condensed Consolidated Income Statement - Key Performance Ratios

Key Performance Ratios2

9M2021

9M2020

3Q2021

2Q2021

qoq +%

yoy +%

Net Interest Margin (annualised)

1.49%

1.87%

1.34%

1.49%

-15 bps

-38 bps

Cost to income ratio

66%

64%

71%

62%

+9 p.p.

+2 p.p.

Cost to income ratio excluding special levy on deposits and other levies/contributions

61%

59%

64%

58%

+6 p.p.

+2 p.p.

Operating profit return on average assets (annualised)

0.8%

1.0%

0.7%

1.0%

-0.3 p.p.

-0.2 p.p.

Basic earnings/(losses) per share attributable to the owners of the Company (€ cent)

4.39

(27.25)

4.22

(1.66)

5.88

31.64

Basic earnings/(losses) after tax and before non-recurring items per share attributable to the owners of the Company (€ cent)3

14.31

(1.99)

3.08

7.48

(4.40)

16.30

 

1. 'Provisions/net (loss)/profit relating to NPE sales' refer to the net (loss)/profit on transactions completed and the net loan credit losses on transactions under consideration, whilst  'Restructuring and other expenses relating to NPE sales' refer mainly to the restructuring costs relating to these trades. For further details please refer to Section A.2.4. 2. Including the NPE portfolios classified as "Non-current assets and disposal groups held for sale", where relevant. 3. As of 30 June 2021, the management monitors 'basic earnings/(losses) per share attributable to the owners of the Company' calculated using 'Profit/(loss) after tax and before non-recurring items (attributable to the owners of the Company)', rather than 'Profit/(loss) after tax - organic (attributable to the owners of the Company)' which was previously the case, as the management believes it is a more appropriate measure of monitoring recurring performance, as it excludes 'Advisory and other restructuring costs - organic' which do not relate to the underlying or recurring business of the Group as a banking and financial services institution, but mainly to the cost of the Tier 2 Capital Notes tender offer of €12 mn, as well as certain costs relating to restructuring activities the Bank has associated with the organic reduction of NPEs, which have been decreasing as the level of NPEs is being reduced. 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 nine months ended 30 September 2021 on the 'underlying basis' which the management believes best fits the true measurement of the performance and position of the Group, as this presents separately the exceptional and one-off items.

 

Reconciliations between the statutory basis and the underlying basis are included in Section F.1 'Reconciliation of income statement between statutory and underlying basis' and in Section H 'Definitions and Explanations', to facilitate the comparability of the underlying basis to the statutory information.

 

With respect to the 'Balance Sheet Analysis', please note the following in relation to the disclosure of pro forma figures and ratios with respect to Projects Helix 3 and Helix 2. Further details are provided in Section A.1.5 'Loan portfolio quality'.

 

Project Helix 2 refers to the sale of portfolios of loans with a total gross book value of €1.3 bn on completion, secured over real estate collateral, to funds affiliated with Pacific Investment Management Company LLC ("PIMCO"), the agreements for which were announced on 3 August 2020 and on 18 January 2021. Project Helix 2 sale was completed in June 2021.  In relation to the disclosure of pro forma figures and ratios with respect to Project Helix 2, in comparative periods, where numbers are provided on a pro forma basis this is stated.

 

Project Helix 3 refers to the agreement the Group reached in November 2021 with funds affiliated with PIMCO, for the sale of a portfolio of NPEs with gross book value of €568 mn, as well as real estate properties with book value of c.€120 mn. All relevant figures are based on 30 September 2021 financial results, unless otherwise stated. Numbers on a pro forma basis are based on 30 September 2021 underlying basis figures and are adjusted for Project Helix 3 and assume its completion, currently expected to occur in 1H2022, which remains subject to customary regulatory and other approvals. Where numbers are provided on a pro forma basis this is stated.

 

 

 

A. Group Financial Results - Underlying Basis (continued)

Unaudited Interim Condensed Consolidated Balance Sheet

€ mn

 

30.09.2021

31.12.2020

+%

Cash and balances with central banks

 

8,750

5,653

55%

Loans and advances to banks

 

284

403

-29%

Debt securities, treasury bills and equity investments

 

2,143

1,913

12%

Net loans and advances to customers

 

9,787

9,886

-1%

Stock of property

 

1,154

1,350

 -14%

Investment properties

 

118

128

 -8%

Other assets

 

1,954

1,550

26%

Non-current assets and disposal groups held for sale

 

361

631

-43%

Total assets

 

24,551

21,514

14%

Deposits by banks

 

402

392

3%

Funding from central banks

 

2,978

995

-

Customer deposits

 

17,128

16,533

4%

Loan stock

 

649

272

-

Other liabilities

 

1,303

1,247

5%

Total liabilities

 

22,460

19,439

16%

 

 

 

 

 

Shareholders' equity

 

1,846

1,831

1%

Other equity instruments

 

220

220

-

Total equity excluding non-controlling interests

 

2,066

2,051

1%

Non-controlling interests

 

25

24

3%

Total equity

 

2,091

2,075

1%

Total liabilities and equity

 

24,551

21,514

14%

 

 

 

 

 

Key Balance Sheet figures and ratios

30.09.2021

(pro forma)1

30.09.2021

(as reported)2

31.12.2020

(as reported)2

+2

Gross loans (€ mn)

10,295

10,864

12,261

-11%

Allowance for expected loan credit losses (€ mn) 

530

849

1,902

-55%

Customer deposits (€ mn) 

17,128

17,128

16,533

4%

Loans to deposits ratio (net)

57%

58%

63%

-5 p.p.

NPE ratio

8.6%

13.3%

25.2%

-11.9 p.p.

NPE coverage ratio

60%

59%

62%

-3 p.p.

Leverage ratio

7.8%

7.8%

8.8%

-1 p.p.

Capital ratios and risk weighted assets

30.09.2021

(pro forma)1

30.09.2021

(as reported)2

31.12.2020

(as reported)2

+2

Common Equity Tier 1 (CET1) ratio (transitional)3

15.3%

14.7%

14.8%

-10 bps

Total capital ratio

20.4%

19.7%

18.4%

+130 bps

Risk weighted assets (€ mn)

10,637

10,991

11,636

-6%

1. Pro forma for the sale of NPEs (Project Helix 3) of €0.6 bn on the basis of 30 September 2021 figures; calculations assume completion of Project Helix 3, which remains subject to required customary regulatory and other approvals. 2. Including the NPE portfolios classified as "Non-current assets and disposal groups held for sale", where relevant. 3.The CET1 fully loaded ratio as at 30 September 2021 amounts to 13.3% and 13.9% pro forma for Helix 3 (compared to 12.9% as at 30 June 2021 and to 12.9% and 13.3% pro forma for Helix 2 (Portfolios A and B) as at 31 December 2020). p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 p.p.

                   

 

 

 

 

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis

A.1.1 Capital Base

Total equity excluding non-controlling interests totalled €2,066 mn at 30 September 2021, compared to €2,046 mn at 30 June 2021 and €2,051 mn at 31 December 2020. Shareholders' equity totalled €1,846 mn at 30 September 2021, compared to €1,826 mn at 30 June 2021 and €1,831 mn at 31 December 2020.

 

The Common Equity Tier 1 capital (CET1) ratio on a transitional basis stood at 14.7% as at 30 September 2021 and 15.3% pro forma for the Project Helix 3 agreement reached in November 2021 (referred to as "pro forma for Helix 3"), compared to 14.2% as at 30 June 2021 and 14.8% as at 31 December 2020 (and 15.2% pro forma for the Project Helix 2 Portfolios A and B, referred to as "pro forma for Helix 2"). During 3Q2021, the CET1 ratio was positively affected mainly by the pre-provision income, the impact of Helix 3 and the decrease in risk-weighted assets (RWA), and negatively affected mainly by provisions and impairments. Throughout, the capital ratios (and pro forma capital ratios) as at 30 September 2021 include unaudited / unreviewed profits for 9M2021, unless otherwise stated.

 

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 back to CET1 each year decreases based on a weighting factor until the impact of IFRS 9 is fully absorbed at the end of the five years. The impact on the capital position for year 2018 was 5% of the impact on the impairment amount from the initial application of IFRS 9, increased to 15% (cumulative) for year 2019, 30% (cumulative) for year 2020 and 50% (cumulative) for year 2021. This will increase to 75% (cumulative) for year 2022 and will be fully phased in (100%) by 1 January 2023. The phasing-in of the impairment amount from the initial application of IFRS 9 had a negative impact of c.45 bps on the CET1 ratio on 1 January 2021.

 

The CET1 ratio on a fully loaded basis amounted to 13.3% as at 30 September 2021 and 13.9% pro forma for Helix 3, compared to 12.9% as at 30 June 2021 and 12.9% as at 31 December 2020 (and 13.3% pro forma for Helix 2). On a transitional basis and on a fully phased-in basis, after the transition period is completed, the impact of IFRS 9 is expected to be manageable and within the Group's capital plans.

 

The Total Capital ratio stood at 19.7% as at 30 September 2021 and 20.4% pro forma for Helix 3, compared to 19.2% as at 30 June 2021 and 18.4% as at 31 December 2020 (and 18.7% pro forma for Helix 2).

 

The Group's capital ratios are above the Supervisory Review and Evaluation Process (SREP) requirements.

 

The Group's minimum phased-in Common Equity Tier 1 (CET1) capital ratio is currently at 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%).

 

The SREP Total Capital Requirement is at 14.5%, comprising an 8.0% Pillar I requirement (of which up to 1.5% can be in the form of AT1 capital and up to 2.0% in the form of T2 capital), a 3.0% Pillar II requirement, 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 SREP, which is a point in time assessment, and are therefore subject to change over time.

 

In accordance with the provisions of the Macroprudential Oversight of Institutions Law of 2015, the Central Bank of Cyprus (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 Bank has been designated as an O-SII and the O-SII buffer was initially set by the CBC at 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. In November 2021, the Bank received notification from the CBC that the total O-SII buffer is reduced by 50 bps to 1.50%, therefore the phasing-in of the O-SII buffer on 1 January 2022 and 1 January 2023 has been revised to 0.25% for each period.

In the context of the SREP conducted by the ECB in 2021, the Pillar II requirement is expected to be c.3.27%, compared to the current level of 3.00%. The additional Pillar II requirement add-on of c.0.27% relates to ECB's prudential provisioning expectations as per the 2018 ECB Addendum and subsequent ECB announcements and press release in July 2018 and August 2019. This component of the Pillar II requirement add-on takes into consideration Helix 3. It is dynamic and can be reduced during 2022 on the basis of in-scope NPEs and level of provisioning.

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.1 Capital Base (continued)

As a result, the Group's minimum phased-in CET1 capital ratio is expected to be set at c.10.09% compared to the current level of 9.69% (comprising a 4.50% Pillar I requirement, a c.1.84% Pillar II requirement, the Capital Conservation Buffer of 2.50% and the O-SII Buffer of 1.25%) and the Group's Total Capital requirement is expected to be c.15.02% compared to the current level of 14.50% (comprising an 8.00% Pillar I requirement, of which up to 1.5% can be in the form of AT1 capital and up to 2.0% in the form of T2 capital, a c.3.27% Pillar II requirement, the Capital Conservation Buffer of 2.50% and the O-SII Buffer of 1.25%). The ECB has also provided revised lower non-public guidance for an additional Pillar II CET1 buffer. The new SREP requirements are expected to be effective from 1 March 2022 and remain subject to ECB final confirmation. The Group's CET1 and Total Capital ratio remain above the expected new requirements.

 

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, as of 1 January 2020, own funds held for the purposes of P2G 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.

 

Based on the SREP decision of prior years, the Company (Bank of Cyprus Holdings PLC) and the Bank are under a regulatory prohibition for equity dividend distribution and hence no dividends were declared or paid during 2020. Following the 2021 SREP pre-notification received in November 2021, the Company and the Bank will still be under equity dividend distribution prohibition for 2022. 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 relate to a prudential charge which will decrease based on the Bank's progress in disposing the properties in scope. The amount was directly deducted from own funds as at 30 June 2021 resulting in a decrease in the Group's CET1 ratio by c.44 bps as at 30 June 2021.

The Group participated in the ECB SREP Stress Test of 2021, the results of which were published by the ECB on 30 July 2021. For further information please refer to the 'Additional Risk and Capital Management Disclosures' of the 'Interim Financial Report 2021'.

Project Helix 3

In November 2021, the Group reached agreement for the sale of a portfolio of NPEs with gross book value of €568 mn as at 30 September 2021, as well as real estate properties with book value of c.€120 mn as at 30 September 2021, known as Project Helix 3.

The impact of this transaction on the Group's CET1 ratio is an increase of 8 bps as at 30 September 2021. Overall, by completion (currently expected to occur in 1H2022), and including the positive impact already recorded in the income statement for 3Q2021, the transaction is expected to have a total positive impact of c.67 bps on the Group's CET1 ratio.

All relevant figures and pro forma calculations are based on 30 September 2021 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 details are provided in Section A.1.5 'Loan portfolio quality'.

 

Project Helix 2

In June 2021, the Company completed Project Helix 2 (Portfolios A and B), which refers to the sale of portfolios of loans with a total gross book value of €1,331 mn on completion (of which €1,305 mn relate to non-performing exposures), secured over real estate collateral, the agreements for which were announced on 3 August 2020 and on 18 January 2021. 

The consideration for the sale amounts to c.€560 mn, of which c.€165 mn were received in cash by completion. The remaining amount is payable in four instalments up to December 2025 without any conditions attached. The consideration can be increased through an earnout arrangement, depending on the performance of each of the Portfolios.

The capital impact of Project Helix 2 on the Group's CET1 ratio during 2Q2021 was an increase of c.20 bps, of which c.10 bps arose on completion. Post completion, the transaction is expected to have an additional positive capital impact of c.64 bps on the Group's CET1 ratio on the basis of 30 June 2021 figures, upon the full payment of the deferred consideration and without taking into consideration any positive impact from the earnout, thus making the transaction overall capital accretive. Further details are provided in Section A.1.5 'Loan portfolio quality'.

 

 

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.1 Capital Base (continued)

Tier 2 Capital Notes

In April 2021, the Company issued €300 mn unsecured and subordinated Tier 2 Capital Notes (the 'New T2 Notes').

 

Immediately after, the Company and the Bank entered into an agreement pursuant to which the Company on-lent to the Bank the entire €300 mn proceeds of the issue of the New T2 Notes (the 'Tier 2 Loan') on terms substantially identical to the terms and conditions of the New T2 Notes. The Tier 2 Loan constitutes an unsecured and subordinated obligation of the Bank.

 

The New T2 Notes were priced at par with a fixed coupon of 6.625% per annum, payable annually in arrears and resettable on 23 October 2026. The maturity date for the New T2 Notes is 23 October 2031. The Company will have the option to redeem the New T2 Notes early on any day during the six-month period from 23 April 2026 to 23 October 2026, subject to applicable regulatory consents.

 

At the same time, the Bank invited the holders of its €250 mn Fixed Rate Reset Tier 2 Capital Notes due January 2027 (the 'Old T2 Notes') to tender their Old T2 Notes for purchase by the Bank at a price of 105.50%, after which Old T2 Notes of €43 mn remained outstanding.

 

During 3Q2021, Old T2 Notes of €4 mn were purchased by the Bank in the open market, as part of the Bank's ongoing active management of its capital position and liabilities. As at 30 September 2021, the Tier 2 Capital Notes comprise c.299 bps of the Group's Total Capital ratio, of which c.26 bps relate to the remaining Old T2 Notes of €39 mn. The Old T2 Notes are redeemable at the option of the Bank in January 2022.

 

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) became effective in 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. With this legislation, institutions are allowed to treat such DTAs as 'not relying on profitability', according to CRD IV and as a result not deducted from CET1, hence improving a credit institution's capital position.

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, 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. 

 

The Group, in anticipation of modifications in the Law, acknowledges that such increased annual fee may be required to be recorded on an annual basis until expiration of such losses in 2028. The determination and conditions of such amount will be prescribed in the Law to be amended and the amount determined by the Government on an annual basis. The Group, however, understands that contemplated amendments to the Law may provide that the minimum fee to be charged will be 1.5% of the annual instalment and can range up to a maximum amount of €10 mn per year. The Group estimates that such increased fees could range up to €5.3 mn per year (for each tax year in scope i.e. since 2018) although the Group understands that such fee may fluctuate annually as to be determined by the Ministry of Finance. In this respect, an amount of €3 mn was recorded in 4Q2020 to bring the total amount provided for years 2018-2020 to €16 mn, being the maximum expected increased amount for these years (€13 mn in 4Q2019 and €19 mn in FY2019).

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.2. Regulations and Directives

A.1.2.1 Revised rules on capital and liquidity (CRR II and CRD V)

On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V) came into force. As this was an amending regulation, the existing provisions of CRR apply, unless they are amended by CRR II. Being a Regulation, CRR II is directly applicable in each member state. Member states were required to transpose the CRD V into national law. CRD V was transposed and implemented in Cyprus law in early May 2021. Certain provisions took immediate effect (primarily relating to Minimum Requirement for Own Funds and Eligible Liabilities, MREL), and most changes became effective as of June 2021. The key changes introduced consist of, among others, changes to qualifying criteria for CET1, AT1 and Tier 2 instruments, introduction of MREL requirements and binding Leverage Ratio and Net Stable Funding Ratio (NSFR) requirements. 

Some of the amendments were introduced in June 2020 as part of the "CRR quick-fix" which brought forward certain CRR II changes in light of the challenges posed to the banking sector by the COVID-19. The key measures in the CRR quick fix include an extension of the IFRS 9 transitional arrangements for the dynamic component by 2 years, the introduction of a prudential filter on exposures to central governments, regional governments or local authorities at FVOCI, the acceleration of CRR II amendments to exempt certain software assets from capital deduction and to revise the SME discount factors.

 

A.1.2.2 The 2021 Banking Package (CRR III and CRD VI and BRRD)

In October 2021, the European Commission adopted legislative proposals for further amendments to CRR, CRD IV and the BRRD (the "2021 Banking Package").  Amongst other things, the 2021 Banking Package would implement certain elements of Basel III that have not yet been transposed into EU law. Please refer to Note G.2. 'Capital management', for information on what the 2021 Banking Package includes. The 2021 Banking Package is subject to amendment in the course of the EU's legislative process; and its scope and terms may change prior to its implementation. In addition, in the case of the proposed amendments to CRD IV and the BRRD, their terms and effect will depend, in part, on how they are transposed in each member state.  As a general matter, it is likely to be several years until the 2021 Banking Package begins to be implemented; and certain measures are expected to be subject to transitional arrangements or to be phased in over time. 

A.1.2.3 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 ΙΙ came into effect and was required to be transposed into national law. BRRD II was transposed and implemented in Cyprus law in early May 2021. In addition, certain provisions on MREL have been introduced in CRR ΙΙ which also came into force on 27 June 2019 as part of the reform package and took immediate effect.

 

In April 2021, the Bank received notification from the Single Resolution Board (SRB) of the final decision for the binding minimum requirement for own funds and eligible liabilities (MREL) for the Bank, determined as the preferred resolution point of entry. As per the decision, the final MREL requirement was set at 23.32% of risk weighted assets and 5.91% of Leverage Ratio Exposure (LRE) and must be met by 31 December 2025. Furthermore, the Bank must comply by 1 January 2022 with an interim requirement of 14.94% of risk weighted assets and 5.91% of LRE. The own funds used by the Bank to meet the Combined Buffer Requirement (CBR) will not be eligible to meet its MREL requirements expressed in terms of risk-weighted assets. The Bank must comply with the MREL requirement at the consolidated level, comprising the Bank and its subsidiaries.

 

In November 2021, the Bank received a draft notification from the SRB regarding the 2022 MREL decision, by which the above requirements and timelines remain unchanged, except for the final MREL requirement for 31 December 2025 now set at 23.74% of risk weighted assets.  The revised MREL requirements remain subject to SRB and CBC final confirmation. 

 

In June 2021, the Bank executed its inaugural MREL transaction issuing €300 mn of senior preferred notes (the "SP Notes"). The SP Notes were priced at par with a fixed coupon of 2.50% per annum, payable annually in arrears and resettable on 24 June 2026. The maturity date of the SP Notes is 24 June 2027 and the Bank may, at its discretion, redeem the SP Notes on 24 June 2026, subject to meeting certain conditions as specified in the Terms and Conditions, including applicable regulatory consents. The SP Notes comply with the criteria for MREL and contribute towards the Bank's MREL requirements.

 

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.2. Regulations and Directives (continued)

A.1.2.3 Bank Recovery and Resolution Directive (BRRD) (continued)

Minimum Requirement for Own Funds and Eligible Liabilities (MREL) (continued)

The MREL ratio of the Bank as at 30 September 2021, calculated according to the SRB's eligibility criteria currently in effect and based on the Bank's internal estimate, stood at 18.97% of risk weighted assets (RWA) and at 10.17% of LRE. Pro-forma for Helix 3, the MREL ratio of the Bank as at 30 September 2021, calculated on the same basis, stood at 19.83% of risk weighted assets.  The MREL ratio expressed as a percentage of risk weighted assets does not include capital used to meet the CBR amount, currently at 3.5% and expected to increase to 3.75% on 1 January 2022. The MREL ratios (and pro forma MREL ratios) as at 30 September 2021 include unaudited / unreviewed profits for 9M2021, unless otherwise stated.

 

The Bank's MREL ratio as at 30 September 2021 includes 36 bps relating to the remaining Old T2 Notes of €39 mn. The Old T2 Notes are redeemable at the option of the Bank in January 2022.

 

The successful Tier 2 capital refinancing in April 2021 and the inaugural issuance of MREL-compliant senior notes in June 2021 are part of the Bank's funding plan to meet the interim and final MREL requirements. The MREL interim requirement of 1 January 2022 has already been achieved.

 

A.1.3 Funding and Liquidity

Funding

 

Funding from Central Banks

 

At 30 September 2021, the Bank's funding from central banks amounted to €2,978 mn, which relates to ECB funding, comprising solely of funding through the Targeted Longer-Term Refinancing Operations (TLTRO) III, compared to €2,985 mn as at 30 June 2021 and €995 mn as at 31 December 2020.

 

In June 2021 the Bank borrowed an amount of €300 mn under the eighth TLTRO III operation, increasing the borrowing under TLTRO III to €3.0 bn, as the Bank had already borrowed an amount of €1.7 bn under the seventh TLTRO III operation in March 2021 and an amount of €1 bn under the fourth TLTRO III operation in June 2020, despite its comfortable liquidity position, given the favourable borrowing terms, in combination with the relaxation of collateral requirements.

 

The Bank has exceeded the benchmark net lending threshold in the period 1 March 2020 - 31 March 2021 and qualified for the beneficial rate of -1% for the period from June 2020 to June 2021. The NII benefit from its TLTRO III borrowing for the period from June 2020 to June 2021 stood at c.€7 mn and was recognised over the respective period in the income statement.

 

The potential NII benefit from the TLTRO III borrowing for the period from June 2021 to June 2022 amounts to c.€15 mn, based on current ECB rates and provided the Bank meets the net lending thresholds, recognised over the respective period in the income statement.

The TLTRO III borrowing of €3.0 bn is expected to be repaid by mid-2022.

 

Deposits 

 

Customer deposits totalled €17,128 mn at 30 September 2021 (compared to €16,801 mn at 30 June 2021 and €16,533 mn at 31 December 2020) and increased by 2% in the third quarter and by 4% since the year end.

 

The Bank's deposit market share in Cyprus reached 34.8% as at 30 September 2021, compared to 34.6% as at 30 June 2021 and 35.0% at 31 December 2020. Customer deposits accounted for 70% of total assets and 76% of total liabilities at 30 September 2021 (compared to 77% of total assets and 85% of total liabilities at 31 December 2020).

 

The net Loans to Deposits (L/D) ratio stood at 58% as at 30 September 2021 (compared to 59% as at 30 June 2021 and 63% as at 31 December 2020 on the same basis). The decrease of 5 p.p. in the nine months to 30 September 2021 is mainly due to the completion of Project Helix 2 in June 2021 and the increase in deposits since the year end. Pro forma for Helix 3, the L/D ratio as at 30 September 2021 stood at 57%.

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.3 Funding and Liquidity (continued)

Funding (continued)

 

Loan Stock

 

At 30 September 2021 the Group's loan stock (including accrued interest) amounted to €649 mn (compared to €645 mn at 30 June 2021 and €272 mn at 31 December 2020) and relates to unsecured subordinated Tier 2 Capital Notes and senior preferred notes.

 

For further information please refer to Sections A.1.1 Capital Base and A.1.2.3 Bank Recovery and Resolution Directive (BRRD) / Minimum Requirement for Own Funds and Eligible Liabilities (MREL) respectively.

 

Liquidity

 

At 30 September 2021 the Group Liquidity Coverage Ratio (LCR) stood at 294% (compared to 303% at 30 June 2021 and 254% at 31 December 2020), above the minimum regulatory requirement of 100%. The liquidity surplus in LCR at 30 September 2021 amounted to €6.0 bn (compared to €5.7 bn at 30 June 2021 and €4.2 bn at 31 December 2020). The increase in 3Q2021 is mainly driven by the increase in customer deposits. The increase in 2Q2021 was mainly due to the issuance of €300 mn senior preferred notes, the completion of Project Helix 2 and the increase in deposits. The increase in 1Q2021 was driven mainly by the increase in the TLTRO III borrowing in March 2021.

 

The NSFR is calculated as the amount of "available stable funding" (ASF) relative to the amount of "required stable funding" (RSF). The regulatory limit, enforced in June 2021, has been set at 100% as per CRR II. The NSFR weights under CRR II do not have material deviations from those under Basel III guidelines which the Group followed prior to CRR II enforcement. At 30 September 2021 the Group's NSFR stood at 148% (compared to 150% at 30 June 2021 and 139% at 31 December 2020).

A.1.4 Loans

Group gross loans totalled €10,864 mn at 30 September 2021, compared to €10,893 mn at 30 June 2021 and €12,261 mn at 31 December 2020, reduced by 11% since the year end following the completion of Project Helix 2. 

 

New lending granted in Cyprus reached €427 mn for 3Q2021 (compared to €407 mn for 2Q2021 and €487 mn for 1Q2021) and totalled €1,321 mn for 9M2021 (up by 35% yoy). New lending in 3Q2021 comprised €188 mn of corporate loans, €151 mn of retail loans (of which €109 mn were housing loans), €39 mn of SME loans and €49 mn of shipping and international loans. New corporate loans in 3Q2021 have increased by c.60% yoy, as the economic activity continues to improve. At the same time, demand for retail housing loans remains strong, supported by Government schemes.

At 30 September 2021, the Group net loans and advances to customers totalled €9,787 mn (compared to €9,967 mn at 30 June 2021 and €9,886 mn at 31 December 2020). In addition, at 30 September 2021 net loans and advances to customers of €250 mn were classified as held for sale in line with IFRS 5 and related to Project Helix 3, compared to Nil as at 30 June 2021 and to €493 mn as at 31 December 2020, of which €485 mn related to Project Helix 2 and €8 mn to Helix Tail.

 

The Bank is the single largest credit provider in Cyprus with a market share of 39.1% at 30 September 2021, at the same level as at 30 June 2021 and compared to 42.4% at 31 March 2021 and 41.9% at 31 December 2020. The decrease in 2Q2021 is mainly due to the completion of Project Helix 2.

 

A.1.5 Loan portfolio quality

The Group has continued to make steady progress across all asset quality metrics and the loan restructuring activity has continued despite challenges brought upon by COVID-19. The Group has been successful in engineering restructuring solutions across the spectrum of its loan portfolio. The Group's near-term priorities include completing the balance sheet de-risking, whilst managing the post-pandemic NPE inflow.

 

The loan credit losses for 3Q2021 totalled €22 mn (excluding 'Provisions/net (loss)/profit relating to NPE sales'), compared to €15 mn for 2Q2021 and totalled €57 mn for 9M2021, compared to €118 mn in 9M2020. Further details regarding loan credit losses are provided in Section A.2.3 'Profit/(loss) before tax and non-recurring items'.

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.5 Loan portfolio quality (continued)

Loan moratorium

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 (loan moratorium) for the period to the end of the year 2020, for all eligible borrowers with no arrears for more than 30 days as at the end of February 2020. The payment holiday for all these loans expired on 31 December 2020.

Performing loans as at 30 September 2021 under expired payment deferrals amounted to €4.8 bn (compared to €4.9 bn as at 30 June 2021 and €5.3 bn as at 31 December 2020), of which €4.7 bn or 98% had an instalment due by 22 November 2021 with a strong performance; 96% present no arrears (of which €0.59 bn have been restructured) and only 4% (€186 mn) are in arrears (of which €178 mn are less than 30 days-past-due).

Performing loans to private individuals as at 30 September 2021 under expired payment deferrals amounted to €1.8 bn, of which 98% had an instalment due by 22 November 2021. Of those, 92% present no arrears (of which c.€36 mn have been restructured) and only 8% (€142 mn) are in arrears (of which €135 mn are less than 30 days-past-due).

Similarly, performing loans to businesses as at 30 September 2021 under expired payment deferrals amounted to €3.0 bn, of which 98% had an instalment due by 22 November 2021. Of those, 99% present no arrears (of which c.€556 mn have been restructured, mostly in the tourism sector) and only 1% (€44 mn) are in arrears.

In 3Q2021, net reclassifications of €157 mn of loans under expired payment deferrals were made from Stage 2 to Stage1, mainly due to improved macro assumptions. In addition, reclassifications of c.€8 mn of loans under expired payment deferrals were made mainly from Stage 2 to Stage 3 in 3Q2021. References made to 'loans under expired payment deferrals' in this paragraph include current account and overdrafts.

The Bank will continue to monitor this portfolio closely, to ensure that potential difficulties in the repayment ability are identified at an early stage, and appropriate solutions are provided to viable customers. To that end, the Bank has enhanced its monitoring process to include transactional analysis to establish funds availability to meet upcoming instalments and performance of daily monitoring of arrears and excesses, as well as NPEs inflows and outflows.

The Bank has a strong track record in dealing with restructurings. Targeted restructuring solutions are offered to alleviate pandemic-related short-term cash flow burden, following rigorous assessment of repayment ability. To date, most restructurings relate to tourism.

Following continuing signs of recovery in 3Q2021, the majority of COVID-19 related management overlays applied in FY2020 and 1H2021 were removed in 3Q2021. A reversal of loan impairments related to COVID-19 amounting to €17 mn (62 bps) was included in 3Q2021 loan credit losses of €22 mn (cost of risk of 78 bps for 3Q2021) as a result of stronger than expected economic performance. In comparison, loan impairments related to COVID-19 amounting to €3.5 mn (12 bps) were included in 2Q2021 loan credit losses of €15 mn (cost of risk of 52 bps for 2Q2021) and €9 mn (29 bps) were included in 1Q2021 loan credit losses of €20 mn (cost of risk of 66 bps for 1Q2021). Overall, a reversal of loan impairments related to COVID-19 amounting to c.€5 mn (5 bps) are included in 9M2021 loan credit losses of €57 mn (annualised cost of risk of 0.66%). Overall, in FY2020, the impact of IFRS 9 FLI driven by the update of the macroeconomic assumptions resulted in a €54 mn charge (43 bps) included in the FY2020 loan credit losses of €149 mn (cost of risk of 1.18%). Further details on the cost of risk are provided in Section A.2.3 Profit/(loss) before tax and non-recurring items.

 

While defaults have been limited, the additional monitoring and provisioning for sectors vulnerable under COVID-19 remain in place. The Group will continue to monitor the situation, so that any changes arising from the uncertainty on the macroeconomic outlook, impacted by the additional progress in vaccinations and medication, degree of recurrence of the disease due to virus mutations, such as the Omicron variant, and the persistent positive effect of fiscal and monetary policy, are timely captured.

Finally, the provision coverage of Stage 3 loans under payment deferrals that expired on 31 December 2020 of c.25% as at 30 September 2021 is considered to be adequate, as it is higher than the coverage of re-performing NPEs (NPEs in the pipeline to exit, subject to meeting all exit criteria) of 22%.   

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.5 Loan portfolio quality (continued)

Loan moratorium (continued)

The table below presents the loans under payment deferrals that expired on 31 December 2020, by IFRS 9 staging.

 

IFRS 9 staging for expired loan payment deferrals (€ bn)

 

 

€ bn

 

30.09.2021

 

 

30.06.2021

 

 

31.12.2020

 

Stage 1

 

3.61

3.58

3.96

 

Stage 2

 

1.46

1.62

1.58

 

Stage 3

 

0.23

0.25

0.33

 

Total

 

5.301

5.45

5.87

 

1 Includes overdrafts and current accounts of c.€0.25 bn (30 June 2021: c.€0.26 bn)

 

 

A second scheme for the suspension of loan repayments for interest and principal (loan moratorium) was launched in January 2021 for customers impacted by the second lockdown. Payment deferrals were offered to the end of June 2021, however, the total months under loan moratorium, including the loan moratorium offered in 2020, cannot exceed a total of nine months. The application period expired on 31 January 2021 and loans of c.€20 mn were approved for the second moratorium. Close monitoring of the credit quality of loans in moratoria continues.

Following the outbreak of COVID-19, the sectors most adversely affected are tourism and trade. The Group has a well - diversified performing loan portfolio. For further information on the Group's non-legacy loan book exposure to tourism and trade and the performance of these loans after the expiry of the loan moratorium, please refer to Section C. Business Overview.

For further information please refer to the presentation for the Group Financial Results for the nine months ended 30 September 2021 (slides 11 and 42).

Non-performing exposure reduction 

Non-performing exposures (NPEs) as defined by the European Banking Authority (EBA) were reduced by €140 mn, or 9%, in 3Q2021 comprising net organic NPE reductions of €131 mn and further net NPE reductions of €9 mn relating to Project Helix 3 loans during 3Q2021 (compared to a reduction of €1,423 mn in 2Q2021, including Project Helix 2 loans on completion of €1,305 mn) to €1,449 mn at 30 September 2021 (compared to €1,589 mn at 30 June 2021 and €3,086 mn at 31 December 2020). Pro forma for Helix 3, NPEs are reduced by a further €568 mn to €881 mn on the basis of 30 September 2021 figures.

 

The NPEs account for 13.3% of gross loans as at 30 September 2021, compared to 14.6% as at 30 June 2021 and 25.2% as at 31 December 2020, on the same basis, i.e. including the NPE portfolios classified as 'Non-current assets and disposal groups held for sale'. The reduction in NPE ratio by c.12 p.p. in the year to date is driven by the completion of Project Helix 2. Pro forma for Helix 3, the NPE ratio is reduced to 8.6% on the basis of 30 September 2021 figures.

 

The NPE coverage ratio stands at 59% at 30 September 2021, compared to 60% at 30 June 2021 and 62% at 31 December 2020 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 3, NPE coverage ratio is 60% on the basis of 30 September 2021 figures.

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.5 Loan portfolio quality (continued)

Non-performing exposure reduction (continued)

As of 1 January 2021, the new regulation on Definition of Default has been implemented, affecting NPE exposures and the calculation of Days-Past-Due (please refer to Section H. Definitions & Explanations for the changes in the definition).

 

 

30.09.2021

Pro forma for Helix 3

30.09.2021

 

31.12.2020

Pro forma for Helix 2

31.12.2020

 

 

€ mn

% gross loans

€ mn

% gross loans

€ mn

% gross loans

€ mn

% gross loans

NPEs as per EBA definition

881

8.6%

1,449

13.3%

1,760

16.1%

3,086

25.2%

Of which, in pipeline to exit:

 

 

 

 

 

 

 

 

-NPEs with forbearance measures, no arrears1

172

1.7%

180

1.7%

245

2.2%

303

2.5%

1. The analysis is performed on a customer basis.

Project Helix 3

In November 2021, the Group reached agreement for the sale of a portfolio of NPEs with gross book value of €568 mn as at 30 September 2021, as well as real estate properties with book value of c.€120 mn as at 30 September 2021, to funds affiliated with Pacific Investment Management Company LLC (PIMCO), known as Project Helix 3. This portfolio of loans had a contractual balance of €993 mn as at the reference date of 31 May 2021 and comprises c.20,000 loans, mainly to retail clients. As at 30 September 2021, this portfolio of loans, as well as the real estate properties included in Helix 3, were classified as a disposal group held for sale. At completion, currently expected to occur in 1H2022, the Bank will receive gross cash consideration of c.€385 mn.

 

This portfolio of loans (as well as the real estate properties included in Helix 3) 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 of loans and the real estate properties included in Helix 3 will be carried out by a third party servicer selected and appointed by the purchaser.

 

Project Helix 3 represents a milestone in the delivery of one of the Group's core strategic priorities of improving asset quality through the reduction of NPEs. Pro forma for Helix 3, the Group's NPE ratio is in single digit. Helix 3 reduced the stock of NPEs by 39% to €881 mn pro forma on the basis of 30 September 2021 figures, and its NPE ratio by 5 p.p., to 8.6% pro forma on the basis of 30 September 2021 figures. Overall, since the peak in 2014 and pro forma for Helix 3, the stock of NPEs has been reduced by €14.1 bn or 94% to less than €1 bn and the NPE ratio by 54 percentage points, from 63% to less than 9%.

Project Helix 3 also reduced the Group's properties held by REMU by 9% to €1,264 mn pro forma on the basis of 30 September 2021 figures (see Section A.1.6. Real Estate Management Unit, REMU).

 

All relevant figures and pro forma calculations are based on 30 September 2021 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 Helix 2

 

In June 2021, the Company completed Project Helix 2 (Portfolios A and B), which refers to the sale of portfolios of loans with a total gross book value of €1,331 mn as at the completion date (of which €1,305 mn relate to non-performing exposures) ("Portfolios A and B") secured over real estate collateral, and stock of properties with carrying value amounting to €73 mn, to funds affiliated with Pacific Investment Management Company LLC (PIMCO), the agreements for which were announced on 3 August 2020 and on 18 January 2021. The Bank retained the servicing of these Portfolios for a transitional period to the end of 3Q2021, against a servicing fee (see Section A.2.1 Total income).

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.5 Loan portfolio quality (continued)

Project Helix 2 (continued)

The consideration for the sale amounts to c.€560 mn, of which c.€165 mn were received in cash by completion. The remaining amount is payable in four instalments up to December 2025 without any conditions attached. The consideration can be increased through an earnout arrangement, depending on the performance of each of the Portfolios.

Project Helix 2 represents another milestone in the delivery of one of the Group's strategic priorities of improving asset quality through the reduction of NPEs. Project Helix 2 (Portfolios A and B) reduced the NPE ratio by c.9 percentage points, on the basis of 30 June 2021 figures.

The Group has early achieved its 2022 target for single digit NPE ratio and remains on track to achieve an NPE ratio of c.5% in the medium term.

A.1.6 Real Estate Management Unit (REMU)

The Real Estate Management Unit (REMU) is focused on the disposal of on-boarded properties resulting from debt for asset swaps. Cumulative sales since the beginning of 2017 amount to €1.34 bn and exceed properties on-boarded for the same period of €1.32 bn.

 

The Group completed disposals of €107 mn in 9M2021 (compared to €48 mn in 9M2020), resulting in a profit on disposal of €9.5 mn for 9M2021 (compared to a profit on disposal of €6 mn for 9M2020), following the relaxation of restrictive measures. Asset disposals are across all property classes, with 53% of sales by value in 9M2021 relating to land.

 

The Group completed disposals of €26 mn in 3Q2021 resulting in a profit on disposal of €2 mn for 3Q2021, compared to disposals of €52 mn in 2Q2021, resulting in a profit on disposal of €4 mn for 2Q2021. In addition, disposals in 2Q2021 have been adjusted to include properties of €5 mn relating to Project Helix 2 that had been transferred to non-current assets and disposal groups held for sale in 1Q2021.

 

As at 30 September 2021, assets held by REMU with carrying value of €101 mn (comprising stock of property of €95 mn and investment properties of €6 mn) were classified as non-current assets and disposal groups held for sale, as they are included in Project Helix 3. Pro forma for Helix 3, assets held by REMU were reduced by 14% in 9M2021.

 

During the nine months ended 30 September 2021, the Group executed sale-purchase agreements (SPAs) for disposals of 553 properties (with contract value of €113 mn), compared to SPAs for disposals of 320 properties (with contract value of €56 mn) for 9M2020. Pro forma for Helix 3, the Group executed SPAs of 974 properties with contract value of €212 mn during 9M2021, representing an increase (by contact value) of c.280% yoy.

 

In addition, the Group had a strong pipeline of €82 mn by contract value as at 30 September 2021, of which €53 mn related to SPAs signed (compared to a pipeline of €54 mn as at 30 September 2020, of which €31 mn related to SPAs signed).

 

REMU on-boarded €29 mn of assets in 9M2021 (compared to additions of €74 mn in 9M2020), via the execution of debt for asset swaps and repossessed properties.

 

Details with respect to the prudential charge relating to the onsite inspection findings are provided in Section A.1.1 'Capital Base'.

 

Assets held by REMU

 

As at 30 September 2021, assets held by REMU had a carrying value of €1,264 mn (comprising properties of €1,154 mn classified as 'Stock of property' and €110 mn as 'Investment properties'), compared to €1,473 mn as at 31 December 2020 (comprising properties of €1,350 mn classified as 'Stock of property' and €123 mn as 'Investment properties').

 

In addition to assets held by REMU, properties classified as 'Investment properties' with carrying value of €8 mn as at 30 September 2021 (compared to €5 mn as at 31 December 2020), relate to legacy properties held by the Group before the set-up of REMU in January 2016.

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.6 Real Estate Management Unit (REMU) (continued)

Assets held by REMU (continued)

 

Assets held by REMU (Group)

€ mn

 

9M2021

9M2020

3Q2021

2Q2021

qoq +%

yoy +%

Opening balance

 

1,4731

1,5061

1,404

1,4491

-3%

-2%

On-boarded assets (including construction cost)

 

29

74

8

10

-23%

-61%

Sales

 

(107)

(48)

(26)

(57)2

-57%

124%

Net impairment loss

 

(30)

(38)

(21)

(3)

-

-20%

Transfer to non-current assets and disposal groups held for sale

 

(101)

(11)

(101)

52

-

-

Closing balance

 

1,264

1,4831

1,264

1,404

-10%

-15%

 

1 Following certain segmental reclassifications to better align with current management information, investment properties of €16 mn as at 30 June 2021 (31 December 2020: €16 mn) relating to land, were transferred under REMU. Comparative information was restated to account for this change. 2 Sales in 2Q2021 have been adjusted to include properties of €5 mn relating to Project Helix 2 that had been transferred to non-current assets and disposal groups held for sale in 1Q2021.

 

 

Analysis by type and country

Cyprus

Greece

Romania

Total

30 September 2021 (€ mn)

 

 

 

 

Residential properties

88

24

0

112

Offices and other commercial properties

217

25

3

245

Manufacturing and industrial properties

56

24

0

80

Hotels

25

-

-

25

Land (fields and plots)

534

5

1

540

Golf courses and golf-related property

262

-

-

262

Total

1,182

78

4

1,264

 

 

Cyprus

Greece

Romania

Total

31 December 2020 (restated)1 (€ mn)

 

 

 

 

Residential properties

158

24

0

182

Offices and other commercial properties

240

26

5

271

Manufacturing and industrial properties

74

29

0

103

Hotels

24

1

-

25

Land (fields and plots)

622

6

2

630

Golf courses and golf-related property

262

-

-

262

Total

1,380

86

7

1,473

 

1 Following certain segmental reclassifications to better align with current management information, investment properties of €16 mn as at 30 June 2021 (31 December 2020: €16 mn) relating to land, were transferred under REMU. Comparative information was restated to account for this change.

 

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.2. Income Statement Analysis

A.2.1 Total income

€ mn

9M2021

9M2020

3Q2021

2Q2021

qoq +%

yoy +%

Net interest income

223

250

71

76

-6%

-11%

Net fee and commission income

128

106

44

45

-2%

20%

Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates

14

14

6

6

1%

-3%

Insurance income net of claims and commissions

43

42

12

18

-36%

2%

Net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties

8

2

2

4

-42%

-

Other income

11

11

4

3

42%

-3%

Non-interest income

204

175

68

76

-10%

16%

Total income

427

425

139

152

-8%

0%

Net Interest Margin (annualised)1

1.49%

1.87%

1.34%

1.49%

-15 bps

-38 bps

Average interest earning assets
(€ mn)1

20,087

17,865

21,195

20,381

4%

12%

 

1. Including the NPE portfolios classified as "Non-current assets and disposal groups held for sale", where relevant.

p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point

 

 

Net interest income (NII) for 9M2021 amounted to €223 mn, compared to €250 mn in 9M2020, down by 11% yoy mainly due to the continuing pressure from the low interest rate environment, lower volume of loans including the impact from the completion of Helix 2, as well as lower interest collections on NPEs, partially offset by the increase in TLTRO III in 9M2021 and the reduction in the cost of deposits.

 

Net interest income (NII) for 3Q2021 amounted to €71 mn, compared to €76 mn for 2Q2021, mainly reflecting the completion of Helix 2 in June 2021. The reduction in NII in 3Q2021 has been offset by an amount of €2.7 mn relating to the unwinding of the net present value and interest income of the deferred consideration, which is expected to continue until 2023, reducing thereafter on the basis of repayments and assuming no early repayment in 2023.

 

Average interest earning assets (AIEA) for 9M2021 amounted to €20,087 mn, up by 12% yoy driven by the increase in liquid assets following the increase in the borrowing under TLTRO III by €2.0 bn in 9M2021. Quarterly average interest earning assets for 3Q2021 amounted to €21,195 mn, up by 4% qoq, mainly due to the increase in liquid assets following the increase in customer deposits by c.€330 mn.  

 

Net interest margin (NIM) for 9M2021 amounted to 1.49% (compared to 1.87% for 9M2020) negatively impacted by the decrease in NII and the increase in average interest earning assets. Net interest margin (NIM) for 3Q2021 amounted to 1.34% (compared to 1.49% in 2Q2021) negatively impacted mainly by the decrease in NII.

 

Non-interest income for 9M2021 amounted to €204 mn (compared to €175 mn for 9M2020), up by 16% yoy, comprising net fee and commission income of €128 mn, net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of €14 mn, net insurance income of €43 mn, net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties of €8 mn and other income of €11 mn. The yoy increase is driven by higher net fee and commission income, as well as higher REMU disposal gains and lower revaluation losses on investment properties.

 

Non-interest income for 3Q2021 amounted to €68 mn (compared to €76 mn for 2Q2021), down 10% qoq, comprising net fee and commission income of €44 mn, net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of €6 mn, net insurance income of €12 mn, net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties of €2 mn and other income of €4 mn. The qoq decrease is mainly due to lower net insurance income and lower gains on disposal of stock of properties. 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.2. Income Statement Analysis (continued)

A.2.1 Total income (continued)

Net fee and commission income for 9M2021 amounted to €128 mn, compared to €106 mn for 9M2020, up by 20% yoy, mainly resulting from the introduction of liquidity fees to a broader group of corporate clients and a new price list for charges and fees, both implemented as of 1 February 2021. Net fee and commission income for 9M2021 includes an amount of c.€7 mn relating to an NPE sales-related servicing fee, for a transitional period that ended at the end of 3Q2021. Net fee and commission income for 3Q2021 amounted to €44 mn, compared to €45 mn for 2Q2021 (down 2% qoq), mainly due to a fee of c.€2 mn relating to a specific client transaction in 2Q2021.

 

Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of €14 mn for 9M2021 (comprising net foreign exchange gains of €12 mn and net gains on financial instrument transactions of €2 mn), at similar levels as for 9M2020 (down 3% yoy).

 

Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of €6 mn for 3Q2021 (comprising net foreign exchange gains of €5 mn and net gains on financial instrument transactions of c.€1 mn), at similar levels as for 2Q2021 (up by 1% qoq).

 

Net insurance income of €43 mn for 9M2021, compared to €42 mn for 9M2020, up by 2% yoy mainly due to higher gross written premiums, partly offset by the impact from the changes in the discount rate in the life insurance business and by higher costs and claims in the general insurance business (as claims in 9M2020 had been positively impacted by lockdowns). Net insurance income of €12 mn in 3Q2021, compared to €18 mn in 2Q2021, down by 36% qoq, impacted mainly by seasonality, higher claims and changes in the discount rate.

 

Net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties for 9M2021 amounted to €8 mn (comprising a profit on disposal of stock of properties of €9.5 mn and net losses from revaluation and disposal of investment properties of €1.5 mn), compared to €2 mn in 9M2020 which had been impacted by the lockdown measures.

 

Net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties for 3Q2021 amounted to €2 mn (relating mainly to a profit on disposal of stock of properties of €2 mn), compared to €4 mn in 2Q2021 (comprising a profit on disposal of stock of properties of c.€4.5 mn and net losses from revaluation of investment properties of c.€0.5 mn). REMU profit remains volatile.

 

Total income for 9M2021 amounted to €427 mn, compared to €425 mn for 9M2020 (broadly flat yoy). Total income for 3Q2021 amounted to €139 mn, compared to €152 mn for 2Q2021 (down by 8% qoq).

 

 

 

 

 

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.2. Income Statement Analysis (continued)

A.2.2 Total expenses

€ mn

9M2021

9M2020

3Q2021

2Q2021

qoq +%

yoy +%

Staff costs

(152)

(145)

(51)

(51)

0%

4%

Other operating expenses

(108)

(104)

(38)

(38)

2%

3%

Total operating expenses

(260)

(249)

(89)

(89)

1%

4%

Special levy on deposits and other levies/contributions

(24)

(24)

(9)

(6)

52%

2%

Total expenses

(284)

(273)

(98)

(95)

4%

4%

Cost to income ratio1

66%

64%

71%

62%

+9 p.p.

+2 p.p.

Cost to income ratio excluding special levy on deposits and other levies/contributions1

61%

59%

64%

58%

+6 p.p.

+2 p.p.

 

1. Including the NPE portfolios classified as "Non-current assets and disposal groups held for sale", where relevant.

p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point

 

 

 

Total expenses for 9M2021 were €284 mn (compared to €273 mn for 9M2020, up by 4% yoy), 53% of which related to staff costs (€152 mn), 38% to other operating expenses (€108 mn) and 9% (€24 mn) to special levy on deposits and other levies/contributions. Total expenses for 3Q2021 were €98 mn compared to €95 mn for 2Q2021, up by 4% qoq. The yoy increase of 4% is driven by the 4% yoy increase in staff costs. The qoq increase of 4% is driven by the 52% qoq increase in special levy on deposits and other levies/contributions. Further details are provided below.

 

Total operating expenses for 9M2021 were €260 mn, compared to €249 mn for 9M2020 (up by 4% yoy). Total operating expenses for 3Q2021 were €89 mn, at broadly the same level as for 2Q2021 (up by 1% qoq).

 

Staff costs for 9M2021 were €152 mn, compared to €145 mn for 9M2020 (up by 4% yoy). Staff costs for 3Q2021 were €51 mn, flat qoq. The Group employed 3,558 as at 30 September 2021 (compared to 3,558 as at 30 June 2021 and 3,573 as at 31 December 2020), including 96 persons relating to Project Helix 2 who were transferred to the buyer upon full migration at the end of 3Q2021.

 

In July 2021, the Bank reached agreement with the Cyprus Union of Bank Employees for the renewal of the collective agreement for the years 2021 and 2022. The agreement relates to certain changes including the introduction of a new pay grading structure linked to the value of each position of employment, and of a performance-related pay component as part of the annual salary increase, both of which have been long-standing objectives of the Bank and are in line with market best-practice. This renewal is expected to increase staff costs for 2021 and 2022 by 3-4% per annum, in line with the impact of renewals in previous years. The Group's medium-term guidance, which includes maintaining annual 'total operating expenses' below €350 mn, remains unchanged.

 

Other operating expenses for 9M2021 were €108 mn, compared to €104 mn for 9M2020 (up by 3% yoy). Other operating expenses for 3Q2021 were €38 mn, at similar levels for 2Q2021 (up by 2% qoq).

 

Special levy on deposits and other levies/contributions for 9M2021 amounted to €24 mn, broadly flat yoy. Special levy on deposits and other levies/contributions for 3Q2021 amounted to €9 mn (compared to €6 mn for 2Q2021),  up by 52% qoq, owing to the €3 mn contribution of the Bank to the Deposit Guarantee Fund (DGF) which relates to 2H2021 and was recorded in 3Q2021, 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.

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.2. Income Statement Analysis (continued)

A.2.2 Total expenses (continued)

The cost to income ratio excluding special levy on deposits and other levies/contributions for 9M2021 was 61%, compared to 59% for 9M2020 (up by 2 p.p. yoy). The cost to income ratio excluding special levy on deposits and other levies/contributions for 3Q2021 was 64%, compared to 58% for 2Q2021, with the increase of 6 p.p. qoq driven by the decrease in total income.

 

Adjusting for the interest income on the Helix 2 Portfolios, the cost to income ratio excluding special levy on deposits and other levies/contributions for 9M2021 increases to 63%, whilst for 3Q2021 was 64%, compared to 61% for 2Q2021 (up by 3 p.p. qoq).

 

The cost to income ratio excluding special levy on deposits and other levies/contributions is expected to remain in the mid-60% for the FY2021 when adjusted for the interest income on the Helix 2 Portfolios and to decrease to mid-50% in the medium term.

 

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.2. Income Statement Analysis (continued)

A.2.3 Profit/(loss) before tax and non-recurring items

€ mn

9M2021

9M2020

3Q2021

2Q2021

qoq +%

yoy +%

Operating profit

143

152

41

57

-29%

-6%

Loan credit losses

(57)

(118)

(22)

(15)

42%

-52%

Impairments of other financial and non-financial assets

(13)

(36)

(2)

(6)

-62%

-63%

Provisions for litigation, claims, regulatory and other matters

(6)

(4)

(2)

(3)

-56%

34%

Total loan credit losses, impairments and provisions

(76)

(158)

(26)

(24)

3%

-52%

Profit/(loss) before tax and non-recurring items

67

(6)

15

33

-52%

-

Cost of risk1

0.66%

1.25%

0.78%

0.52%

+26 bps

-59 bps

 

1. Including the NPE portfolios classified as "Non-current assets and disposal groups held for sale", where relevant.

p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point

 

 

 

Operating profit for 9M2021 was €143 mn, compared to €152 mn for 9M2020 (down by 6% yoy). Operating profit for 3Q2021 was €41 mn, compared to €57 mn for 2Q2021 (down by 29% qoq), driven by a lower total income qoq.

 

Loan credit losses for 9M2021 totalled €57 mn, compared to €118 mn for 9M2020. Loan credit losses for 3Q2021 totalled €22 mn, compared to €15 mn for 2Q2021.

 

The annualised loan credit losses charge (cost of risk) for 9M2021 accounted for 0.66% of gross loans and includes a reversal of loan impairments related to COVID-19 of 5 bps (compared to an annualised loan credit losses charge of 1.25% for 9M2020, of which 45 bps reflect loan impairments related to COVID-19). Cost of risk for 3Q2021 amounted to 78 bps (€22 mn) and includes a reversal of loan impairments related to COVID-19 of 62 bps (€17 mn) as a result of stronger than expected economic performance and partly offsetting the impact of model recalibration to address the new default definition, and updated default/curing experience. This is compared to a cost of risk of 52 bps (€15 mn) for 2Q2021, of which 12 bps (€3.5 mn) reflect loan impairments related to COVID-19. Further details are provided in Section A.1.5 'Loan portfolio quality'.

 

Cost of risk for FY2021 is currently expected to be at similar levels as for 9M2021. Close monitoring of sectors vulnerable to COVID-19 continues. 

 

At 30 September 2021, the allowance for expected loan credit losses, including residual fair value adjustment on initial recognition and credit losses on off-balance sheet exposures totalled €849 mn (compared to €947 mn at 30 June 2021 and €1,902 mn at 31 December 2020) and accounted for 7.8% of gross loans including portfolios held for sale (compared to 8.7% and 15.5% of gross loans including portfolios held for sale at 30 June 2021 and at 31 December 2020 respectively). The decrease in the allowance for expected loan credit losses in 3Q2021 amounted to €98 mn, compared to a decrease of €922 mn in 2Q2021, following the completion of Project Helix 2 in June 2021.

 

Impairments of other financial and non-financial assets for 9M2021 amounted to €13 mn, compared to €36 mn for 9M2020 (down by 63% yoy), driven by lower revaluation losses on properties yoy. Impairments of other financial and non-financial assets for 3Q2021 amounted to €2 mn, compared to €6 mn for 2Q2021 (down by 62% qoq).

 

Provisions for litigation, claims, regulatory and other matters for 9M2021 totalled €6 mn, compared to €4 mn for 9M2020. Provisions for litigation, claims, regulatory and other matters for 3Q2021 totalled €2 mn (compared to €3 mn for 2Q2021, which related mainly to a potential fine to be imposed on the Bank relating to the findings of a regulatory investigation with regards to transfer of liquidity by the Bank to its subsidiaries in the period 2016-2017 allegedly without prior regulatory approval).

Profit before tax and non-recurring items for 9M2021 totalled €67 mn, compared to a loss of €6 mn for 9M2020. Profit before tax and non-recurring items for 3Q2021 totalled €15 mn, compared to €33 mn for 2Q2021 (down by 52% qoq).

 

 

 

 

A. Group Financial Results - Underlying Basis (continued)

A.2. Income Statement Analysis (continued)

A.2.4 Profit/(loss) after tax (attributable to the owners of the Company)

€ mn

9M2021

9M2020

3Q2021

2Q2021

qoq +%

yoy +%

Profit/(loss) before tax and non-recurring items

67

(6)

15

33

-52%

-

Tax

(3)

(7)

(2)

1

-

-59%

(Profit)/loss attributable to non-controlling interests

(0)

4

(0)

(0)

-

-

Profit/(loss) after tax and before non-recurring items (attributable to the owners of the Company)

64

(9)

13

34

-59%

-

Advisory and other restructuring costs - organic

(19)

(9)

(1)

(15)

-93%

102%

Profit/(loss) after tax - organic (attributable to the owners of the Company)

45

(18)

12

19

-31%

-

Provisions/net (loss)/profit relating to NPE sales1

(6)

(87)

10

(14)

-

-94%

Restructuring and other costs relating to NPE sales1

(19)

(17)

(3)

(12)

-71%

22%

Profit/(loss) after tax (attributable to the owners of the Company)

20

(122)

19

(7)

-

-

 

1. 'Provisions/net (loss)/profit relating to NPE sales' refer to the net (loss)/profit on transactions completed and the net loan credit losses on transactions under consideration, whilst  'Restructuring and other expenses relating to NPE sales' refer mainly to 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 9M2021 is €3 mn, compared to €7 mn for 9M2020. The tax charge for 3Q2021 is €2 mn, compared to a tax credit of €1 mn for 2Q2021.

 

Profit after tax and before non-recurring items (attributable to the owners of the Company) for 9M2021 was €64 mn, compared to a loss of €9 mn for 9M2020. Profit after tax and before non-recurring items (attributable to the owners of the Company) for 3Q2021 was €13 mn, compared to €34 mn for 2Q2021. Return on Tangible Equity (ROTE) before non-recurring items calculated using 'profit after tax and before non-recurring items (attributable to the owners of the Company)' amounts to 5.2% for 9M2021 and 3.3% for 3Q2021.

 

Advisory and other restructuring costs - organic for 9M2021 amounted to €19 mn, compared to €9 mn for 9M2020. Advisory and other restructuring costs - organic for 3Q2021 amounted to €1 mn, compared to €15 mn for 2Q2021. The 2Q2021 charge included an amount of €12 mn which related to the tender offer for the Existing Tier 2 Capital Notes, due January 2027, with aggregate nominal amount of €207 mn, thereby forfeiting the relevant obligation for future coupon payments).

 

Profit after tax arising from the organic operations (attributable to the owners of the Company) for 9M2021 amounted to €45 mn, compared to a loss of €18 mn for 9M2020.  Profit after tax arising from the organic operations (attributable to the owners of the Company) for 3Q2021 amounted to €12 mn, compared to €19 mn for 2Q2021.

 

Provisions/net loss relating to NPE sales for 9M2021 was €6 mn (compared to €87 mn for 9M2020). Net profit relating to NPE sales for 3Q2021 was €10 mn that related to Project Helix 3, compared to provisions/net loss relating to NPE sales of €14 mn for 2Q2021 that related to the completion mechanics for Project Helix 2, expected to unwind over time in 'net interest income' until the full payment of the deferred consideration.

 

Restructuring and other costs relating to NPE sales for 9M2021 was €19 mn (compared to €17 mn for 9M2020). Restructuring and other costs relating to NPE sales for 3Q2021 was €3 mn (compared to €12 mn for 2Q2021).

 

Profit after tax attributable to the owners of the Company for 9M2021 was €20 mn (compared to a loss of €122 mn for 9M2020). Profit after tax attributable to the owners of the Company for 3Q2021 was €19 mn (compared to a loss of €7 mn for 2Q2021).

 

 

 

 

 

B. Operating Environment

The EU economy rebounded strongly, from the pandemic recession, in the first half of the year, and the European Commission in its Autumn forecasts expects growth of 5% in the year and 4.3% in 2022. According to the same European Commission forecasts, the Cyprus economy is expected to advance by 5.4% in 2021, 4.2% in 2022 and 3.5% in 2023, a favourable outlook. Consumer inflation is expected to decelerate and the unemployment rate to continue to drop. The budget deficits will continue to narrow in 2022-2023 and the debt to GDP ratio will return to its declining trajectory. A surge in new COVID-19 cases poses a downward risk to upbeat growth forecasts.

Real GDP seasonally adjusted, rebounded strongly in the second and third quarters of the year rising by 13.3% and 5.3% respectively from the previous year, and almost recovered fully the level of GDP in 2019 for the first three quarters. Growth was driven by consumption expenditures, particularly government consumption, and by fixed investment which included a significant contribution from ship registrations. Net of ship registrations domestic demand is the main driver to growth, with net exports contributing positively, reflecting the partial recovery in services exports.

On the supply side, growth in the first half of the year for which data is available, was driven by manufacturing, construction and trade, transport, and accommodation services. These were also the sectors that contracted the most by the COVID-19 pandemic the previous year.

In the tourism sector, developments remained subdued, but were better than expected, especially in the second and third quarters. A successful vaccination campaign in Cyprus and in the EU were positive factors for the tourism recovery. There was a steady monthly recovery of tourist arrivals, as the tourism season extended until October. Tourism arrivals in October 2021 increased by 289% from the previous year and reached 90% of corresponding levels in 2019.

In the labour market the unemployment rate increased to an average 8.5% seasonally adjusted in the first half of the year, from an average of 7.6% in 2020. This was driven by a bigger increase in the labour force when the increase in the volume of employment was slower. In the short- and the medium-term, employment is expected to increase at a faster rate on the back of strong economic expansion and the implementation of the Recovery and Resilience Plan, which is also expected to facilitate the reallocation of the labour force through retraining and up-skilling. The unemployment rate is expected to drop to 7.5% in 2021 and to 7.1% in 2022 according to the European Commission.

Consumer prices had declined by 0.6% on average in 2020 driven by a sharp decline in energy prices, the hit to demand from the pandemic, and the cut to the value-added tax rate for the tourism sector in July-December 2020. Consumer prices started to rise from April 2021 onwards, and accelerated in the second and third quarters. Consumer prices increased by an average of 2% in January-October 2021, rising by more than 4% in July-October 2021. The economic recovery and a rise in global energy prices support inflation this year. The marked acceleration in inflation in recent months is expected to slow as supply catches up with pent-up demand and base effects wane.

Public finances deteriorated in 2020 as a result of the pandemic, resulting in a budget deficit of 5.7% of GDP and a debt ratio of 115.1%. However, Cyprus's public finances have strengthened in 2021, with a marked improvement recorded in July-September 2021, owing to steep increases in revenues, particularly income tax receipts and social security contributions. On the expenditure side capital spending remained unchanged in January-September 2021, offsetting large increases in pandemic-related social protection payments. According to the European Commission's autumn forecasts, the budget deficit of the general government in relation to GDP, will narrow to 4.9% in 2021 and to 1.4% in 2022. 

General government debt in nominal terms remained nearly unchanged at the end of September 2021 from the previous December. The ratio of public debt to GDP is expected to decline to 104.1% in 2021 and to 97.6% in 2022 according to the European Commission.

On the external sector, the current-account deficit which widened to 10.1% of GDP in 2020, will shrink gradually from 2022 onwards as services earnings recover, and as EU recovery funds are credited in the secondary income account. However, the current-account deficit will remain elevated in the medium term, owing partly to long-term structural issues, and in part to strong imports growth linked to the EU investment plans, which will weigh on the trade balance.

The monetary policy of the ECB is expected to remain highly accommodative in the medium term. The ECB is running two simultaneous quantitative easing, the asset purchase programme, which is open-ended and runs at €20 bn per month, and the pandemic emergency purchase programme, with a maximum size of €1.85 trillion and a provisional end date of March 2022. At its September policy meeting the ECB announced a moderate reduction in the pace of asset purchases under its pandemic emergency purchase programme. Interest rates remain exceptionally low across the euro zone and Bank borrowing costs for households and non-financial corporations remain favourable.

 

 

B. Operating Environment (continued)

Since the 2013 financial crisis in Cyprus, banks have reduced their foreign exposure, prudential oversight has been strengthened and a new legal framework for private-debt restructuring has been implemented, helping to reduce non-performing exposures. However, weaknesses persist evidenced in low profitability, high cost to income, and concerns about a renewed rise in non-performing exposures, as a result of the coronavirus crisis. Total non-performing exposures stood at 17.4% of gross loans at the end of August, a modest decline from 17.7% at the end of the previous December. The coverage ratio stood at 50.8% in August 2021.

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.

 

In July 2021, Moody's Investors Service upgraded the Government of Cyprus' long-term issuer and senior unsecured ratings to Ba1 from Ba2 (since July 2018) and changed the outlook from positive to stable. The primary driver for the upgrade was the material improvement in the underlying credit strength of the domestic banking system, which also reduces the risks of a systemic banking crisis.

 

S&P Global Ratings maintains its investment grade rating of BBB- since September 2018 and upgraded its outlook to positive from stable in its September 2021 review. The positive outlook reflects the view that Cyprus' sovereign rating could be upgraded within the next 24 months if the country's economic and budgetary performance continue to strengthen, supported by the Government's implementation of structural reforms.

 

Fitch Ratings maintains a Long-Term Issuer Default rating of investment grade at BBB- since November 2018 and a stable outlook, last affirmed in September 2021. Its outlook was upgraded to positive in October 2019 and revised to stable in April 2020, reflecting the significant impact the global COVID-19 pandemic might have on the Cyprus economy and fiscal position.

 

In October 2021, DBRS Ratings confirmed Cyprus' Long-Term Foreign and Local Currency Issuer Ratings at BBB (low) and upgraded its outlook from stable to positive trend. This reflects the expectation that Cyprus's public debt ratio will most likely return to its pre-pandemic downward path starting from 2021, supported by a solid economic growth and fiscal repair.

 

 

 

 

 

 

C. Business Overview

Credit ratings

The Group's financial performance is highly correlated to the economic and operating conditions in Cyprus. In November 2021, Standard and Poor's affirmed their long-term issuer credit rating on the Bank of B+ and revised the outlook to positive from stable. In July 2021, Moody's Investors Service upgraded the Bank's long-term deposit rating to B1 from B3, maintaining the positive outlook, and in November 2021, Moody's published an issuer comment for the Bank, being the biggest lender in Cyprus, highlighting the reduction of its NPE ratio to single digits and the significant de-risking of the balance sheet, a credit positive. In January 2021, Fitch Ratings affirmed their long-term issuer default rating of B- (negative 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.

COVID-19 impact

The Group continues to closely monitor developments in, and the effects of COVID-19 on both the global and Cypriot economy. Strong recovery in economic activity marked the third quarter of the year, against the backdrop of increasing vaccination coverage across Cyprus and relaxation of restrictions. At the same time, the Group has continued its focus on providing support to its customers, colleagues and community. The Group will continue to monitor the situation for any changes that may arise from the uncertainty on the macroeconomic outlook, impacted by the additional progress in vaccinations and medication, degree of recurrence of the disease due to virus mutations, such as the Omicron variant, and the persistent positive effect of fiscal and monetary policy.

Statistics are encouraging, as 83% of the adult population in Cyprus have been vaccinated with the first dose and 80% have completed their vaccination regime (University of Cyprus, as of 22 November 2021).

Upon the outbreak of COVID-19 in March 2020, the Pandemic Incident Management Plan of the Group was invoked and a dedicated team (Pandemic Incident Management Team) has been monitoring the situation domestically and globally and providing guidance on health and safety measures, travel advice and business continuity for the Group. Local government guidelines are being followed in response to the virus.

 

In accordance with the Pandemic Plan, the Group adopted a set of measures, which are still in place according to the current pandemic status, to ensure minimum disruption to its operations. The Pandemic Incident Management Team and the Crisis Management Committee continue to closely monitor the dynamic COVID-19 pandemic developments and status. The Group replaced face-to-face meetings with telecommunications, adjusting the customary etiquette of personal contact, including those with customers. Staff of 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, whilst at the same time maintaining relevant control procedures to ensure authorisation in line with the Group's governance structure. 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.

The potential economic implications for the sectors in which the Group is active have been assessed and possible mitigating actions for supporting the economy have been identified, such as supporting viable affected businesses and households with new lending to cover liquidity, working capital, capital expenditure and investments related to the activity of the borrower.

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, have helped and should continue to 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 (loan moratorium) for the period to the end of the year 2020, for all eligible borrowers with no arrears for more than 30 days as at the end of February 2020. The payment holiday for all these loans expired on 31 December 2020.

Performing loans as at 30 September 2021 under expired payment deferrals amounted to €4.8 bn (compared to €4.9 bn as at 30 June 2021 and €5.3 bn as at 31 December 2020), of which €4.7 bn or 98% had an instalment due by 22 November 2021 with a strong performance; 96% present no arrears (of which €0.59 bn have been restructured) and only 4% (€186 mn) are in arrears (of which €178 mn are less than 30 days-past-due).

Further details are provided in Section A.1.5 'Loan portfolio quality'. Close monitoring of the credit quality of these loans continues and customers with early arrears are offered solutions. The Bank has a strong track record in dealing with restructurings. Targeted restructuring solutions are offered to alleviate pandemic-related short-term cash flow burden, following rigorous assessment of repayment ability.

Following the outbreak of COVID-19, the sectors most adversely affected are tourism being the sector with the highest impact and trade with medium impact. The Group has a well - diversified performing loan portfolio.

C. Business Overview (continued)

COVID-19 impact (continued)

As at 30 September 2021, the Group's non-legacy loan book exposure to tourism was limited to €1.15 bn (out of a total non-legacy loan book of €9.5 bn), of which c.€0.92 bn of performing loans as at 30 September 2021 were under expired payment deferrals. 99% of those had an instalment due by 22 November 2021 and of those 99% present no arrears (of which c.€300 mn have been restructured).

Tourism performance was better than initially anticipated. There was a steady monthly recovery of tourist arrivals, as the tourism season extended until October. Tourism arrivals in October 2021 increased by 289% from the previous year and reached 90% of corresponding levels in 2019. It is important to note, that the majority of 'accommodation' customers entered the crisis with significant liquidity, following strong performance in recent years and that 97% of the tourism portfolio is secured by property. Close monitoring of developments continues.

Respectively, as at 30 September 2021 the Group's non-legacy loan book exposure to trade was €0.93 bn, of which €0.28 bn of performing loans as at 30 September 2021 were under expired payment deferrals. 95% of those had an instalment due by 22 November 2021 and of those, 98% present no arrears (of which €13 mn have been restructured) and 2% present arrears.

Strategic priorities for the medium term

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 a 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 grow revenues in a more capital efficient way and to improve efficiency through its digital transformation programme in order to provide products and services while reducing operating costs. In addition, the Bank is looking to enhance its organisational resilience and ESG (Environmental, Social and Governance) agenda by building a forward-looking organisation with a clear strategy supported by effective corporate governance aligned with ESG agenda priorities.

Completing balance sheet de-risking

 

Tackling the Bank's loan portfolio quality is of utmost importance for the Group. 

 

Project Helix 3, signed in November 2021, represents a milestone in the delivery of one of the Group's core strategic priorities of improving asset quality through the reduction of NPEs. Pro forma for Helix 3, the Group's NPE ratio is in single digit. Helix 3 reduces the stock of NPEs by 39% and the NPE ratio by 5 p.p. to 8.6%, pro forma on the basis of 30 September 2021 figures. For further information please refer to Section A.1.5. Loan portfolio quality.

On a pro forma basis, in the first nine months of 2021 our NPE stock reduced by €2.2 bn to €0.9 bn, and the NPE ratio to 8.6%, including Helix 3, Helix 2 and organic reductions. Overall, since the peak in 2014 and pro forma for Helix 3, the stock of NPEs has been reduced by €14.1 bn or 94% to less than €1 bn and the NPE ratio by 54 percentage points, from 63% to less than 9%.

Projects Helix 3 and Helix 2 mark 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 further support the recovery of the Cypriot economy.

 

The Group has early achieved its 2022 target for single digit NPE ratio and remains on track to achieve an NPE ratio of c.5% in the medium term. At the same time, following the outbreak of COVID-19 and the expiration of the 2020 loan moratorium at the end of year 2020, the Group continues to closely monitor the performance of loans under expired payment deferrals and nearly eleven months after deferral expiry, the performance is better than initially expected.

Growing revenues in a more capital efficient way

 

The accelerated de-risking of the balance sheet increases pressure on revenues in the near term. There are multiple initiatives underway to increase net interest income and less capital-intensive non-interest income, with a focus on fees, insurance and non-banking business.

 

 

C. Business Overview (continued)

Strategic priorities for the medium term (continued)

Growing revenues in a more capital efficient way (continued) 

The Group continues to provide high quality new loans via prudent underwriting standards. Growth in new lending in Cyprus has been focused on selected industries more in line with the Bank's target risk profile, and following the outbreak of COVID-19, the focus remains to support the Cypriot economy in order to overcome the crisis. During the nine months ended 30 September 2021, new lending amounted to €1.3 bn, increased by 35% compared to the same period last year and recovering towards pre-pandemic levels (at c.80% of 9M2019 levels). Demand for new loans is picking up, driven mainly by corporate (up by 38% yoy for 9M2021 and up by c.60% yoy for 3Q2021), as economic activity continues to improve. At the same time, the demand for retail housing loans remains strong and above pre-COVID levels, supported by the Government interest rate subsidy scheme. The pipeline for new housing loans remains strong at €127 mn as at mid-November 2021, whilst new housing loans of c.€265 mn have been approved by the Bank since the beginning of the scheme until end-September 2021.

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) and the Cyprus Government.

In common with other European banks, the prolonged low interest rate environment also continues to present a challenge to the Group's profitability. Over the medium-term, the Group aims to grow its performing book by c.10%, as well as to grow shipping and international corporate lending with prudency.

At the same time, 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 73 bps to 3 bps since December 2017. 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, was implemented as of 1 February 2021. Separately, a new price list for charges and fees was also implemented as of 1 February 2021. Net fees and commission income in 9M2021 is above pre-pandemic levels.

In the medium-term, the Group aims to increase the average product holding through cross selling to the under-penetrated customer base, as well as to introduce the Digital Economy Platform to generate new revenue sources, through leveraging the Bank's market position, knowledge and digital infrastructure.

Management is 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, and have been providing a stable, recurring fee income, further diversifying the Group's income streams. The insurance income net of claims and commissions for 9M2021 contributed to 21% of non-interest income and amounted to €43 mn, up 2% yoy, mainly due to higher gross written premiums, partly offset by the impact from the changes in the discount rate in the life insurance business and by higher costs and claims in the general insurance business. Specifically, Eurolife increased its gross written premiums by 7% yoy and its total regular income also by 7% yoy, whilst GIC increased its gross written premiums by 8% yoy. Furthermore, there are initiatives underway to enhance revenues from the insurance business in the medium-term, in order to deliver sustainable profitability and shareholder returns.

In 9M2021, the Bank participated in TLTRO III by borrowing an additional amount of €2.0 bn, increasing its participation to €3.0 bn, despite its comfortable liquidity position, given the favourable borrowing terms, in combination with the relaxation of collateral requirements. The Bank has exceeded the benchmark net lending threshold in the period 1 March 2020 - 31 March 2021 and qualified for the beneficial rate of -1% for the period from June 2020 to June 2021. The NII benefit from its TLTRO III borrowing for the period from June 2020 to June 2021 stood at c.€7 mn and was recognised over the respective period in the income statement. The potential NII benefit for the period from June 2021 to June 2022 amounts to c.€15 mn, based on current ECB rates and provided the Bank meets the net lending thresholds, recognised over the respective period. The TLTRO III borrowing of €3.0 bn is expected to be repaid by mid-2022.

 

Improving operating efficiencies

 

The Digital Transformation Programme that started in 2017 has begun to deliver an improved customer experience, whilst the branch footprint rationalisation to date, has further improved the Bank's operating model. The branch network is now less than half the size it was in 2013.

 

Management remains focused on further improvement in efficiency, through further branch footprint rationalisation, further exit solutions to release full time employees, containment of restructuring costs following the completion of balance sheet de-risking, enhancement of procurement control, as well as reduction of total operating expenses by c.10% compared to FY2019 over the medium term despite inflation, facilitated by the Digital Transformation Programme.

 

 

 

C. Business Overview (continued)

Strategic priorities for the medium term (continued)

Improving operating efficiencies (continued)

 

The Group continues to work towards becoming a more customer centric organisation. A Transformation Office has been established at the beginning of the year further reinforcing the commitment to the Bank's modernisation agenda. The transformation programme will enable the implementation of the strategy with key shifts focusing on a leaner and more efficient operating model, profitability and optimisation of the client service and distribution models with an emphasis on the customer. Over the last three quarters a transformation plan has been prepared and will run over the next 3 years. The transformation will be gradually pivoting to implementation in the next quarter.

 

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, two key features, which are part of the Digital Transformation strategy and promote customer self-service functions, have been made available to subscribers via the mobile banking application. The first one is the possibility offered to new customers of the Bank to open their first account and card through the Digital Onboarding process from their mobile phone, without the need to visit a branch. In addition, the ability to temporarily freeze and unfreeze their cards is now available through the mobile app to our customers, which is a useful tool. This allows users who have misplaced or lost their card to take instant action to ensure that their card is not used during that time. Finally, other smaller features and enhancements to existing functionalities are continuously added to our digital channels, in order to meet our customer needs.

 

The adoption of digital products and services continued to grow and gained momentum in the third quarter of 2021 and in October 2021. As at the end of October 2021, 88.0% of the number of transactions involving deposits, cash withdrawals and internal/external transfers were performed through digital channels (up by c.21.6 p.p. from 66.4% in September 2017 when the digital transformation programme was initiated). In addition, 78.1% of individual customers were digitally engaged (up by 17.9 p.p. from 60.2% in September 2017), choosing digital channels over branches to perform their transactions. As at the end of October 2021, active mobile banking users and active QuickPay users have grown by 20% and 50% respectively in the last 12 months. The highest number of QuickPay users to date was recorded in October 2021 with 122 thousand active users. Likewise, the highest number of QuickPay payments was recorded in October 2021 with 338 thousand transactions.

 

Furthermore, as part of the Digital Transformation Programme, major changes are underway in relation to enabling a modern and more efficient workplace. New technologies and tools have been introduced that will drastically change the employee experience, improving collaboration and knowledge sharing across the organisation. Further enhancements will be implemented during the last quarter of 2021 and in 2022, and the full impact will be seen over the coming months.

 

Enhancing organisational resilience and ESG (Environmental, Social and Governance) agenda

 

As part of its responsibility to a wider group of stakeholders, the Group aims to enhance its organisational resilience and ESG (Environmental, Social and Governance) agenda and is working towards building a forward-looking organisation with a clear strategy supported by effective corporate governance aligned with ESG agenda priorities.

 

Earlier this year a dedicated executive committee, the Sustainability Committee, was set up, that will oversee the ESG agenda of the Group, review the evolution of the Group's ESG strategy, monitor the development and implementation of the Group's ESG objectives and the embedding of ESG priorities in the Group's business targets.

 

In order to further strengthen the Bank's corporate responsibility regarding the protection of the environment the Bank is proceeding with the launch of 'environmentally friendly' loan products to promote investment in energy saving and environmentally friendly products and services.

 

The Bank maintains a rating of A (on a scale of AAA-CCC) in the MSCI ESG Ratings assessment since June 2020.

 

 

 

 

D. 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:

·      Complete balance sheet de-risking

·      Grow revenues in a more capital efficient way; by enhancing revenue generation via growth in performing book

and less capital-intensive banking and financial services operations (Insurance and Digital Economy)

·      Improve operating efficiency; by achieving leaner operations through digitisation and automation

·      Enhance organisational resilience and ESG (Environmental, Social and Governance) agenda; by building a forward-looking organisation with a clear strategy supported by effective corporate governance aligned with ESG agenda priorities

 

 

KEY STRATEGIC PILLARS

ACTION TAKEN IN 9M2021 and to date

PLAN OF ACTION

Complete balance sheet de-risking

 

 

 

•       Completion of Project Helix 2 (sale of NPE portfolios with gross book value of €1.3 bn) in June 2021

•       Agreement for the sale of NPE portfolio with gross book value of €0.6 bn in Project Helix 3.

•       On a pro forma basis, in the first nine months of 2021 our NPE stock reduced by €2.2 bn to €0.9 bn, and the NPE ratio to 8.6%, including Helix 3, Helix 2 and organic reductions.

•       Single digit NPE ratio achieved at 30 September 2021 pro forma for Helix 3

•       For further information, please refer to Section A.1.5 'Loan portfolio quality' and Section C 'Business Overview'

 

•       The Group has early achieved its 2022 target for single digit NPE ratio and remains on track to achieve an NPE ratio of c.5% in the medium term.

 

Grow revenues in a more capital efficient way; by enhancing revenue generation via growth in performing book, and less capital-intensive banking and financial services operations (Insurance and Digital Economy)

 

 

 

 

 

•       Liquidity fees to corporate clients, that was delayed due to the COVID-19 pandemic, was implemented as of 1 February 2021

 

•       New price list for charges and fees was implemented as of 1 February 2021

 

•       For further information, please refer to Section C 'Business Overview'

 

 

•        Mitigating actions against NII challenges put in place, e.g. growing performing book and pricing away/price correctly deposits

 

•        Enhance fee and commission income, e.g. on-going review of price list for charges and fees, increase average product holding through cross selling, new sources of revenue through introduction of Digital Economy Platform

 

•        Profitable insurance business with further opportunities to grow, e.g. focus on high margin products, leverage on Bank's strong franchise and customer base for more targeted cross selling enabled by DT

 

D. Strategy and Outlook (continued)

KEY STRATEGIC PILLARS

ACTION TAKEN IN 9M2021 and to date

PLAN OF ACTION

Improve operating efficiency; by achieving leaner operations through digitisation and automation

 

 

•       Renewal of collective agreement for 2021-2022 is expected to increase staff costs for 2021 and 2022 by 3-4% per annum, in line with the impact of renewals in previous years. The Group's medium-term guidance, which includes maintaining annual 'total operating expenses' below €350 mn, remains unchanged.

 

•       Further developments in the Digital Transformation Programme

 

•       For further information, please refer to Section C 'Business Overview'

 

•        Offer exit solutions to release full time employees

•        Achieve further branch footprint rationalisation 

•        Contain restructuring costs following completion of balance sheet de-risking

•        Enhance procurement control

•        Reduce total operating expenses by c.10% over the medium term despite inflation

 

 

Enhance organisational resilience and ESG (Environmental, Social and Governance) agenda; by building a forward-looking organisation with a clear strategy supported by effective corporate governance aligned with ESG agenda priorities

 

•       The Bank reached agreement with the Cyprus Union of Bank Employees for the renewal of the collective agreement in respect of 2021 and 2022. The agreement relates to certain changes including the introduction of a new pay grading structure linked to the value of each position of employment, and of a performance-related pay component as part of the annual salary increase, both of which have been long-standing objectives of the Bank and are in line with market best-practice.

•       For further information, please refer to Section C 'Business Overview'

•        Please refer to slide 29 in the 9M2021 Group Financial Results Investors Presentation

•        Enhanced structure and corporate governance

•        Focus on our people

•        Priority on ESG agenda, e.g. introduction of 'environmentally friendly' loan products

 

 

 

 

D. Strategy and Outlook (continued)

The Group's near-term priorities include completing the balance sheet de-risking, whilst managing the post-pandemic NPE inflow; positioning the Bank on the path for sustainable profitability; ensuring the cost base remains appropriate, whilst further investing in the digital transformation programme in the near term in order to modernise the Bank's franchise (in fact, the cost to income ratio is expected to rise in the near term as revenues remain under pressure and operating expenses increase due to higher digitisation investment costs, and to reduce to mid-50s% in the medium term); addressing the challenges from low rates and surplus liquidity.

 

The medium-term priorities include delivering sustainable profitability and shareholder returns, enhancing revenues by capitalising on the Group's market leading position; enhancing operating efficiency; and optimising capital management.

 

The Group's medium-term strategic targets are set out below 

 

Key Metrics

Strategic Targets for

 

2022

 

Medium-Term

Profitability

Return on Tangible Equity (ROTE)1

 

~7%

Total operating expenses2

 

<€350 mn

Asset Quality

NPE ratio

 

<10%

early achieved at 30 September 2021 pro forma for Helix 3

~5%

Cost of risk

 

70-80 bps

Capital

Supported by CET1 ratio of

At least 13%

 

1.     Return on Tangible Equity (ROTE) is calculated as Profit after Tax (annualised) divided by Shareholders' equity minus intangibles assets.

 

2.     Total operating expenses comprise staff costs and other operating expenses. Total operating expenses do not include the special levy on deposits or other levies/contributions and do not include any advisory or other restructuring costs.

 

 

Maintaining a strong capital base has been a key priority for management over the past few years and this remains equally important for the Group going forward. The Group's business plan is based on maintaining a CET1 ratio of at least 13% over the entire period of the plan. The Group's capital is to be supported by organic capital generation, by focus on less capital-intensive businesses and the further reduction of high intensity risk weighted assets. At the same time, factors that could potentially have a negative impact on the Group's capital ratios in addition to IFRS 9 phasing-in, include any potential regulatory impacts, as well as one-off cost optimisation charges. Until the completion of the de-risking and the restructuring of the business, there may be volatility in the capital ratios due to the timing of potential future impacts from regulatory changes and one-off restructuring costs.

The Group has a clear strategy in place, leveraging on its strong customer base, its renewed customer trust, its market leadership position, and further developing digital knowledge and infrastructure, in order to complete the turnaround of its business and set the Bank on a path for profitability and delivering value for shareholders.

 

 

 

E.           Financial Results - Statutory Basis

Unaudited Interim Consolidated Income Statement

 

Nine months ended

30 September

2021

2020

€000

€000

Turnover

566,667

565,188

Interest income

269,395

295,959

Income similar to interest income

22,761

35,679

Interest expense

(47,828)

(47,311)

Expense similar to interest expense

(20,776)

(34,452)

Net interest income

223,552

249,875

Fee and commission income

134,287

111,910

Fee and commission expense

(6,235)

(5,330)

Net foreign exchange gains

11,572

14,636

Net (losses)/gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates

(18,933)

4,252

Insurance income net of claims and commissions

42,598

41,581

Net losses from revaluation and disposal of investment properties

(2,329)

(3,851)

Net gains on disposal of stock of property

9,481

6,341

Other income

10,836

11,162

 

404,829

430,576

Staff costs

(151,709)

(145,561)

Special levy on deposits and other levies/contributions

(24,603)

(24,039)

Other operating expenses

(139,757)

(134,309)

 

88,760

126,667

Net (losses)/gains on derecognition of financial assets measured at amortised cost

(2,718)

1,760

Credit losses to cover credit risk on loans and advances to customers

(30,419)

(211,322)

Credit losses of other financial instruments

(3,325)

(229)

Impairment net of reversals of non-financial assets

(29,543)

(35,677)

Profit/(loss) before share of profit/(loss) from associates

22,755

(118,801)

Share of profit/(loss) from associates

137

(97)

Profit/(loss) before tax

22,892

(118,898)

Income tax

(2,589)

(6,329)

Profit/(loss) after tax for the period

20,303

(125,227)

Attributable to:

 

 

Owners of the Company

19,566

(121,568)

Non-controlling interests

737

(3,659)

Profit/(loss) for the period

20,303

(125,227)

Basic and diluted profit/(loss) per share attributable to the owners of the Company (€ cent)

4.4

(27.3)

 

 

 

 

E.           Financial Results - Statutory Basis (continued)

Unaudited Interim Consolidated Statement of Comprehensive Income

 

Nine months ended

30 September

2021

2020

€000

€000

Profit/(loss) for the period

20,303

(125,227)

Other comprehensive income (OCI)

 

 

OCI that may be reclassified in the consolidated income statement in subsequent periods

 

 

Fair value reserve (debt instruments)

 

 

Net gains/(losses) on investments in debt instruments measured at fair value through OCI (FVOCI)

3,406

(12,447)

Transfer to the consolidated income statement on disposal

-

(3,653)

 

3,406

(16,100)

Foreign currency translation reserve

 

 

(Loss)/profit on translation of net investment in foreign branches and subsidiaries

(8,045)

25,360

Profit/(loss) on hedging of net investments in foreign branches and subsidiaries

7,235

(23,983)

Transfer to the consolidated income statement on dissolution of foreign subsidiary

(63)

122

 

(873)

1,499

Total OCI that may be reclassified in the consolidated income statement in subsequent periods

2,533

(14,601)

OCI not to be reclassified in the consolidated income statement in subsequent periods

 

 

Fair value reserve (equity instruments)

 

 

Net gains/(losses) on investments in equity instruments designated at FVOCI

739

(197)

 

739

(197)

Property revaluation reserve

 

 

Deferred tax

(40)

(459)

 

(40)

(459)

Actuarial gains/(losses) on the defined benefit plans

 

 

Remeasurement gains/(losses) on defined benefit plans

5,855

(3,773)

Total OCI not to be reclassified in the consolidated income statement in subsequent periods

6,554

(4,429)

Other comprehensive income/(loss) for the period net of taxation

9,087

(19,030)

Total comprehensive income/(loss) for the period

29,390

(144,257)

 

 

 

Attributable to:

 

 

Owners of the Company

28,669

(140,457)

Non-controlling interests

721

(3,800)

Total comprehensive income/(loss) for the period

29,390

(144,257)

 

 

E.           Financial Results - Statutory Basis (continued)

Unaudited Interim Consolidated Balance Sheet

 

30 September 2021

31 December 2020

Assets

€000

€000

Cash and balances with central banks

8,750,254

5,653,315

Loans and advances to banks

284,135

402,784

Derivative financial assets

15,296

24,627

Investments

874,147

1,876,009

Investments pledged as collateral

1,268,500

37,105

Loans and advances to customers

9,787,136

9,886,047

Life insurance business assets attributable to policyholders

525,630

474,187

Prepayments, accrued income and other assets

668,416

249,877

Stock of property

1,154,299

1,349,609

Deferred tax assets

303,390

341,360

Investment properties

117,771

128,088

Property and equipment

257,550

272,474

Intangible assets

183,280

185,256

Investments in associates and joint venture

-

2,462

Non-current assets and disposal groups held for sale

361,172

630,931

Total assets

24,550,976

21,514,131

Liabilities

 

 

Deposits by banks

402,511

391,949

Funding from central banks

2,977,558

994,694

Derivative financial liabilities

38,207

45,978

Customer deposits

17,128,185

16,533,212

Insurance liabilities

717,108

671,603

Accruals, deferred income, other liabilities and other provisions

344,243

359,892

Pending litigation, claims, regulatory and other matters

157,130

123,615

Subordinated loan stock

648,661

272,152

Deferred tax liabilities

46,679

45,982

Total liabilities

22,460,282

19,439,077

Equity

 

 

Share capital

44,620

44,620

Share premium

594,358

594,358

Revaluation and other reserves

217,301

209,153

Retained earnings

989,284

982,513

Equity attributable to the owners of the Company

1,845,563

1,830,644

Other equity instruments

220,000

220,000

Total equity excluding non‑controlling interests

2,065,563

2,050,644

Non‑controlling interests

25,131

24,410

Total equity

2,090,694

2,075,054

Total liabilities and equity

24,550,976

21,514,131

 

 

 

 

 

E.           Financial Results - Statutory Basis (continued)

Unaudited Interim Consolidated Statement of Changes in Equity

 

Attributable to the shareholders of the Company

Other equity instruments

Non- controlling interests

Total

 equity

Share

capital

Share

premium

Treasury shares

Retained earnings

Property revaluation reserve

Financial instruments fair value reserve

Life insurance

 in-force

business

reserve

Foreign currency translation reserve

Total

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

1 January 2021

44,620

594,358

(21,463)

982,513

79,515

22,894

110,401

17,806

1,830,644

220,000

24,410

2,075,054

Profit for the period

-

-

-

19,566

-

-

-

-

19,566

-

737

20,303

Other comprehensive income/ (loss) after tax for the period

-

-

-

5,855

(30)

4,145

-

(867)

9,103

-

(16)

9,087

Total comprehensive income/(loss) after tax for the period

-

-

-

25,421

(30)

4,145

-

(867)

28,669

-

721

29,390

Increase in value of in-force life insurance business

-

-

-

(5,600)

-

-

5,600

-

-

-

-

-

Tax on increase in value of in-force life insurance business

-

-

-

700

-

-

(700)

-

-

-

-

-

Payment of coupon to AT1 holders

-

-

-

(13,750)

-

-

-

-

(13,750)

-

-

(13,750)

30 September 2021

44,620

594,358

(21,463)

989,284

79,485

27,039

115,301

16,939

1,845,563

220,000

25,131

2,090,694

 

 

 

E.           Financial Results - Statutory Basis (continued)

Unaudited Interim Consolidated Statement of Changes in Equity (continued)

 

Attributable to the shareholders of the Company

Other equity instruments

Non- controlling interests

Total

 equity

Share

capital

Share

premium

Treasury shares

Retained earnings

Property revaluation reserve

Financial instruments fair value reserve

Life insurance in-force business reserve

Foreign currency translation reserve

Total

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

1 January 2020

44,620

1,294,358

(21,463)

490,286

79,286

33,900

102,051

16,927

2,039,965

220,000

28,662

2,288,627

Loss for the period

-

-

-

(121,568)

-

-

-

-

(121,568)

-

(3,659)

(125,227)

Other comprehensive (loss)/income after tax for the period

-

-

-

(3,773)

(326)

(16,291)

-

1,501

(18,889)

-

(141)

(19,030)

Total comprehensive (loss)/ income after tax for the period

-

-

-

(125,341)

(326)

(16,291)

-

1,501

(140,457)

-

(3,800)

(144,257)

Increase in value of in-force life insurance business

-

-

-

(5,771)

-

-

5,771

-

-

-

-

-

Tax on increase in value of in-force life insurance business

-

-

-

721

-

-

(721)

-

-

-

-

-

Change in the holding of Undertakings for Collective Investments in Transferable Securities (UCITS) Fund

-

-

-

(33)

-

-

-

-

(33)

-

-

(33)

Payment of coupon to AT1 holders

-

-

-

(13,750)

-

-

-

-

(13,750)

-

-

(13,750)

Dividends paid to non-controlling interests

-

-

-

-

-

-

-

-

-

-

(140)

(140)

30 September 2020

44,620

1,294,358

(21,463)

346,112

78,960

17,609

107,101

18,428

1,885,725

220,000

24,722

2,130,447

 

 

 

F.           Notes

F.1         Reconciliation of income statement between statutory and underlying basis

€ million

Underlying basis

NPE

Sales

Other

Statutory
basis

Net interest income

223

-

-

223

Net fee and commission income

128

-

-

128

Net foreign exchange gains and net losses on financial instrument transactions and disposal/dissolution of subsidiaries and associates

14

-

(21)

(7)

Insurance income net of claims and commissions

43

-

-

43

Net gains from revaluation and disposal of investment properties and on disposal of stock of properties

8

(1)

-

7

Other income

11

-

-

11

Total income

427

(1)

(21)

405

Total expenses

(284)

(19)

(12)

(315)

Operating profit

143

(20)

(33)

90

Loan credit losses

(57)

15

8

(34)

Impairments of other financial and non-financial assets

(13)

(20)

-

(33)

Provisions for litigation, claims, regulatory and other matters

(6)

-

6

-

Profit before tax and non-recurring items

67

(25)

(19)

23

Tax

(3)

-

-

(3)

Profit after tax and before non-recurring items (attributable to the owners of the Company)

64

(25)

(19)

20

Advisory and other restructuring costs-organic

(19)

-

19

-

Profit after tax - organic* (attributable to the owners of the Company)

45

(25)

-

20

Net loss on NPE sales

(6)

6

-

-

Restructuring and other expenses

(19)

19

-

-

Profit after tax (attributable to the owners of the Company)

20

-

-

20

 

*This is the profit after tax (attributable to the owners of the Company), before the loss on NPE sales and the restructuring and other expenses.

                                                                                                                                                                                                         

The reclassification differences between the statutory basis and the underlying basis mainly relate to the impact from 'non-recurring items' and are explained as follows:

 

NPE sales

·              Total expenses include restructuring costs of €13 million and other expenses of €6 million relating to the agreements for the sale of portfolios of NPEs and are presented within 'Restructuring and other expenses' under the underlying basis.

·              Loan credit losses under the statutory basis include the loan credit losses relating to Project Helix 2 of approximately €1.5 million, reversal of loan credit losses relating to Project Helix 3 of €30 million and an amount of €14 million which represents the effect of discounting the deferred consideration receivable from Project Helix 2 on initial recognition, and are disclosed under non-recurring items within 'Net loss on NPE sales' under the underlying basis.

·              'Net gains from revaluation and disposal of investment properties and on disposal of stock of properties' include a revaluation loss of €1 million relating to investment properties of Project Helix 3 and are presented within 'Net loss on NPE sales' under the underlying basis.

·              'Impairments of financial and other non-financial assets' under the statutory basis include an impairment loss of €19 million relating to stock of properties of Project Helix 3 and are presented within 'Net loss on NPE sales' under the underlying basis.

 

Other reclassifications

·              Net losses on loans and advances to customers at FVPL of approximately €8.5 million included in 'Loan credit losses' under the underlying basis are included in 'Net losses on financial instrument transactions and disposal/dissolution of subsidiaries and associates' under the statutory basis. Their classification under the underlying basis is done in order to align their presentation with the loan credit losses on loans and advances to customers at amortised cost.

·              Net loss on the early redemption of subordinated loan stock of approximately €12.5 million included in 'Net losses on financial instrument transactions and disposal/dissolution of subsidiaries and associates' under the statutory basis is included in 'Advisory and other restructuring costs‑organic' under the underlying basis, since it represents a one‑off item.

F.           Notes (continued)

F.1         Reconciliation of income statement between statutory and underlying basis (continued)

·              Advisory and other restructuring costs of approximately €6 million included in 'Other operating expenses' under the statutory basis are separately presented under the underlying basis since they comprise mainly fees to external advisors in relation to customers loan restructuring activities.

·              Provisions for litigation, claims, regulatory and other matters amounting to €6 million included in 'Other operating expenses' under the statutory basis, are separately presented under the underlying basis, since they mainly relate to a provision set aside for a potential penalty on investigation by the ECB (approximately €3 million) and to cases that arose outside the normal activities of the Group.

 

F.2         Customer deposits

The analysis of customer deposits is presented below:

 

30 September

 2021

31 December 2020

By type of deposit

€000

€000

Demand

8,857,412

8,149,688

Savings

2,273,472

1,970,975

Time or notice

5,997,301

6,412,549

 

17,128,185

16,533,212

By geographical area

 

 

Cyprus

17,128,185

16,533,212

 

Deposits by geographical area are based on the originator country of the deposit.

 

 

30 September

2021

31 December 2020

By currency

€000

€000

Euro

15,401,809

14,929,662

US Dollar

1,324,081

1,199,069

British Pound

309,009

288,102

Russian Rouble

18,573

28,618

Swiss Franc

9,339

9,901

Other currencies

65,374

77,860

 

17,128,185

16,533,212

By customer sector

 

 

Corporate

1,249,216

1,037,430

Global corporate

557,049

607,467

SMEs

814,481

832,576

Retail

10,847,594

10,525,819

Restructuring

 

 

- Corporate

24,097

27,889

- SMEs

12,762

16,688

- Retail other

10,515

10,561

Recoveries

 

 

- Corporate

1,485

3,251

International banking services

3,281,321

3,180,061

Wealth management

329,665

291,470

 

17,128,185

16,533,212

 

 

 

F.           Notes (continued)

F.3         Loans and advances to customers

 

30 September

2021

31 December 2020

 

€000

€000

Gross loans and advances to customers at amortised cost

9,844,143

10,400,603

Allowance for ECL for impairment of loans and advances to customers

(346,057)

(804,417)

 

9,498,086

9,596,186

Loans and advances to customers measured at FVPL

289,050

289,861

 

9,787,136

9,886,047

 

F.4         Credit risk concentration of loans and advances to customers

The credit risk concentration, which is based on industry (economic activity) and by business line, as well as the geographical concentration, is presented in the tables below. The geographical concentration, for credit risk concentration purposes, is based on the Group's Country Risk Policy which is followed for monitoring the Group's exposures, in accordance with which exposures are analysed by country of risk based on the country of residency for individuals and the country of registration for companies.

30 September 2021

Cyprus

Greece

United Kingdom

Romania

Russia

Other countries

Gross loans at amortised cost

By economic activity

€000

€000

€000

€000

€000

€000

€000

Trade

970,997

530

143

660

3,514

145

975,989

Manufacturing

310,651

231

9

443

1,213

31,693

344,240

Hotels and catering

874,691

34,820

36,343

389

-

40,111

986,354

Construction

576,500

8,939

109

2,262

647

57

588,514

Real estate

877,074

125,589

1,984

20,859

-

42,756

1,068,262

Private individuals

4,362,118

9,534

128,584

1,280

38,674

74,006

4,614,196

Professional and other services

586,397

982

5,576

2,439

16,221

28,988

640,603

Other sectors

440,273

9

48

72

8

185,575

625,985

Total

8,998,701

180,634

172,796

28,404

60,277

403,331

9,844,143

 

30 September 2021

 

 

 

 

 

 

 

By business line

 

 

 

 

 

 

 

Corporate

1,981,293

9,709

97

227

15,592

2,373

2,009,291

Global corporate

1,412,201

160,905

42,961

22,531

-

312,135

1,950,733

SMEs

1,043,455

757

2,068

2,246

4,821

2,257

1,055,604

Retail

 

 

 

 

 

 

 

- housing

3,004,785

3,480

52,274

726

5,062

26,080

3,092,407

- consumer, credit cards and other

895,801

1,343

1,217

197

250

1,898

900,706

Restructuring

 

 

 

 

 

 

 

- corporate

66,004

-

524

-

-

4,239

70,767

- SMEs

76,489

20

351

-

246

377

77,483

- retail housing

76,599

189

2,040

-

411

779

80,018

- retail other

38,034

13

212

-

4

260

38,523

Recoveries

 

 

 

 

 

 

 

- corporate

42,399

-

8

1,861

225

247

44,740

- SMEs

35,961

10

2,699

307

3,563

2,585

45,125

- retail housing

122,245

341

46,300

165

9,082

18,832

196,965

- retail other

91,677

34

4,868

4

1,537

1,300

99,420

International banking services

73,650

2,511

16,626

140

19,484

23,685

136,096

Wealth management

38,108

1,322

551

-

-

6,284

46,265

 

8,998,701

180,634

172,796

28,404

60,277

403,331

9,844,143

 

 

F.           Notes (continued)

F.4         Credit risk concentration of loans and advances to customers (continued)

31 December 2020

Cyprus

Greece

United Kingdom

Romania

Russia

Other countries

Gross loans at amortised cost

By economic activity

€000

€000

€000

€000

€000

€000

€000

Trade

1,014,445

717

252

3,767

7,291

112

1,026,584

Manufacturing

350,403

389

177

704

1,399

31,717

384,789

Hotels and catering

875,572

35,989

34,736

504

-

40,185

986,986

Construction

613,895

8,689

123

2,786

741

234

626,468

Real estate

867,601

127,342

1,899

33,484

-

41,223

1,071,549

Private individuals

4,670,357

8,024

163,613

1,202

48,361

84,830

4,976,387

Professional and other services

652,928

407

5,711

3,968

23,074

39,933

726,021

Other sectors

432,569

13

219

838

5

168,175

601,819

 

9,477,770

181,570

206,730

47,253

80,871

406,409

10,400,603

 

31 December 2020 (restated*)

 

 

 

 

 

 

 

By business line

 

 

 

 

 

 

 

Corporate

1,922,810

8,949

94

605

18,913

2,760

1,954,131

Global corporate

1,344,983

163,153

41,334

35,546

9,308

302,734

1,897,058

SMEs

1,081,773

708

2,881

2,393

4,361

2,337

1,094,453

Retail

 

 

 

 

 

 

 

- housing

2,862,802

3,052

57,627

623

6,051

25,622

2,955,777

- consumer, credit cards and other

884,151

1,286

1,507

196

256

2,061

889,457

Restructuring

 

 

 

 

 

 

 

- corporate

165,161

-

532

-

-

5,324

171,017

- SMEs

98,931

-

883

-

97

240

100,151

- retail housing

143,540

182

3,600

130

377

1,591

149,420

- retail other

79,617

202

118

1

8

18

79,964

Recoveries

 

 

 

 

 

 

 

- corporate

30,963

-

9

4,948

1

256

36,177

- SMEs

57,559

9

3,154

2,643

8,079

3,770

75,214

- retail housing

374,056

326

70,621

160

11,947

27,952

485,062

- retail other

337,500

34

6,108

4

304

1,890

345,840

International banking services

68,923

2,905

18,262

4

21,169

24,075

135,338

Wealth management

25,001

764

-

-

-

5,779

31,544

 

9,477,770

181,570

206,730

47,253

80,871

406,409

10,400,603

 

*Following a reorganisation of the RRD portfolio and mainly of the terminated exposures, certain loans were reclassified within the 'Restructuring' and 'Recoveries' business lines. As a result comparative information has been restated to present information on a consistent basis. The table below presents the gross loans and advances to customers for 'Restructuring' and 'Recoveries' business lines as previously presented in the 2020 Annual Financial Report.

 

 

 

 

F.    Notes (continued)

F.4         Credit risk concentration of loans and advances to customers (continued)

31 December 2020

Cyprus

Greece

United Kingdom

Romania

Russia

Other countries

Gross loans at amortised cost

By business line

€000

€000

€000

€000

€000

€000

€000

Restructuring

 

 

 

 

 

 

 

- corporate

175,386

-

524

-

-

5,324

181,234

- SMEs

86,644

189

1,633

-

263

133

88,862

- retail housing

130,661

182

2,849

130

219

1,703

135,744

- retail other

94,560

13

127

-

-

12

94,712

Recoveries

 

 

 

 

 

 

 

- corporate

20,388

-

-

7,592

-

23

28,003

- SMEs

87,276

9

275

-

1,465

1,728

90,753

- retail housing

364,775

326

73,460

160

18,511

30,042

487,274

- retail other

327,637

34

6,157

4

355

2,076

336,263

 

1,287,327

753

85,025

7,886

20,813

41,041

1,442,845

 

The loans and advances to customers include lending exposures in Cyprus with collaterals in Greece with a carrying value of €91,276 thousand (31 December 2020: €85,424 thousand).

 

Loans and advances to customers classified as held for sale

Industry (economic activity), business line and geographical concentrations of the Group's gross loans and advances to customers at amortised cost classified as held for sale are presented in the tables below:

30 September 2021

Cyprus

Greece

United Kingdom

Russia

Other countries

Gross loans at amortised cost

By economic activity

€000

€000

€000

€000

€000

€000

Trade

57,486

-

-

-

-

57,486

Manufacturing

24,328

-

1

-

-

24,329

Hotels and catering

15,402

-

1

-

-

15,403

Construction

28,132

-

-

-

-

28,132

Real estate

6,731

-

-

-

-

6,731

Private individuals

372,411

-

1,070

791

3,547

377,819

Professional and other services

27,839

-

1

-

-

27,840

Other sectors

11,774

-

1

-

-

11,775

 

544,103

-

1,074

791

3,547

549,515

 

 

 

F.    Notes (continued)

F.4         Credit risk concentration of loans and advances to customers (continued)

Loans and advances to customers classified as held for sale (continued)

30 September 2021

Cyprus

Greece

United Kingdom

Russia

Other countries

Gross loans at amortised cost

By business line

€000

€000

€000

€000

€000

€000

Corporate

68

-

-

-

-

68

SMEs

168

-

-

-

-

168

Retail

 

 

 

 

 

 

- housing

1,321

-

-

-

34

1,355

- consumer, credit cards and other

530

-

-

-

-

530

Restructuring

 

 

 

 

 

 

- corporate

1,142

-

-

-

-

1,142

- SMEs

5,227

-

-

-

-

5,227

- retail housing

23,696

-

504

-

-

24,200

- retail other

12,630

-

-

-

-

12,630

Recoveries

 

 

 

 

 

 

- corporate

7,168

-

-

-

-

7,168

- SMEs

21,813

-

1

753

377

22,944

- retail housing

241,474

-

563

38

2,964

245,039

- retail other

228,866

-

6

-

172

229,044

Total

544,103

-

1,074

791

3,547

549,515

 

31 December 2020

 

 

 

 

 

 

By economic activity

 

 

 

 

 

 

Trade

137,088

-

-

-

-

137,088

Manufacturing

49,724

84

305

-

560

50,673

Hotels and catering

30,266

-

496

-

29

30,791

Construction

151,907

-

8

26

76

152,017

Real estate

68,685

-

-

-

314

68,999

Private individuals

712,742

1,423

16,225

10,004

14,969

755,363

Professional and other services

85,933

199

62

1,093

192

87,479

Other sectors

58,845

-

-

-

-

58,845

 

1,295,190

1,706

17,096

11,123

16,140

1,341,255

 

 

 

F.    Notes (continued)

F.4         Credit risk concentration of loans and advances to customers (continued)

Loans and advances to customers classified as held for sale (continued)

31 December 2020 (restated*)

Cyprus

Greece

United Kingdom

Russia

Other countries

Gross loans at amortised cost

By business line

€000

€000

€000

€000

€000

€000

SMEs

3

-

-

-

-

3

Retail

 

 

 

 

 

 

- housing

40

-

-

-

-

40

- consumer, credit cards and other

23

-

-

-

-

23

Restructuring

 

 

 

 

 

 

- corporate

64,957

-

-

-

-

64,957

- SMEs

84,811

-

257

-

254

85,322

- retail housing

66,250

-

1,689

163

350

68,452

- retail other

29,052

1

327

-

-

29,380

Recoveries

 

 

 

 

 

 

- corporate

85,548

-

-

462

103

86,113

- SMEs

371,625

149

2,407

919

1,844

376,944

- retail housing

312,890

1,305

10,547

7,649

10,227

342,618

- retail other

279,991

251

1,869

1,930

3,362

287,403

 

1,295,190

1,706

17,096

11,123

16,140

1,341,255

 

*Following a reorganisation of the RRD portfolio and mainly of the terminated exposures, certain loans were reclassified within the 'Restructuring' and 'Recoveries' business lines. As a result comparative information has been restated to present information on a consistent basis. The table below presents the gross loans and advances to customers classified as held for sale for 'Restructuring' and 'Recoveries' business lines as previously presented in the 2020 Annual Financial Report.

 

31 December 2020

Cyprus

Greece

United Kingdom

Russia

Other countries

Gross loans at amortised cost

By business line

€000

€000

€000

€000

€000

€000

Restructuring

 

 

 

 

 

 

- corporate

65,947

-

-

-

-

65,947

- SMEs

117,541

1

1,734

163

368

119,807

- retail housing

21,584

-

402

-

76

22,062

- retail other

39,998

-

137

-

160

40,295

Recoveries

 

 

 

 

 

 

- corporate

132,494

-

1,164

3,552

2,918

140,128

- SMEs

365,829

149

2,993

842

1,842

371,655

- retail housing

298,136

1,305

9,019

5,705

7,492

321,657

- retail other

253,595

251

1,647

861

3,284

259,638

 

1,295,124

1,706

17,096

11,123

16,140

1,341,189

 

 

 

F.    Notes (continued)

F.5         Analysis of loans and advances to customers by stage

The following tables present the Group's gross loans and advances at amortised cost before residual fair value adjustment on initial recognition and at amortised cost, by stage.

30 September 2021

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

Gross loans at amortised  cost before residual fair value adjustment on initial recognition

7,321,037

1,783,110

672,877

183,599

9,960,623

Residual fair value adjustment on initial recognition

(75,117)

(23,241)

(6,333)

(11,789)

(116,480)

Gross loans at amortised cost

7,245,920

1,759,869

666,544

171,810

9,844,143

 

31 December 2020

 

 

 

 

 

 

 

 

 

 

Gross loans at amortised cost before residual fair value adjustment on initial recognition

6,681,481

2,148,946

1,380,926

335,852

10,547,205

Residual fair value adjustment on initial recognition

(72,591)

(25,815)

(9,376)

(38,820)

(146,602)

Gross loans at amortised cost

6,608,890

2,123,131

1,371,550

297,032

10,400,603

 

Loans and advances to customers classified as held for sale

30 September 2021

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

Gross loans at amortised  cost before residual fair value adjustment on initial recognition

-

1,461

472,038

95,803

569,302

Residual fair value adjustment on initial recognition

-

(38)

(2,393)

(17,356)

(19,787)

Gross loans at amortised cost

-

1,423

469,645

78,447

549,515

 

31 December 2020

 

 

 

 

 

 

 

 

 

 

Gross loans at amortised  cost before residual fair value adjustment on initial recognition

6,177

21,801

1,138,587

221,365

1,387,930

Residual fair value adjustment on initial recognition

(41)

397

(7,650)

(39,381)

(46,675)

Gross loans at amortised cost

6,136

22,198

1,130,937

181,984

1,341,255

 

 

 

F.           Notes (continued)

F.5         Analysis of loans and advances to customers by stage (continued)

The following tables present the Group's gross loans and advances to customers at amortised cost by stage and by business line concentration:

30 September 2021

Stage 1

Stage 2

Stage 3

POCI

Total

By business line

€000

€000

€000

€000

€000

Corporate

1,512,475

453,779

22,321

20,716

2,009,291

Global corporate

1,337,165

514,663

65,509

33,396

1,950,733

SMEs

793,682

236,428

14,740

10,754

1,055,604

Retail

 

 

 

 

 

- housing

2,718,855

308,053

53,733

11,766

3,092,407

- consumer, credit cards and other

728,897

128,661

26,034

17,114

900,706

Restructuring

 

 

 

 

 

- corporate

6,326

36,978

19,891

7,572

70,767

- SMEs

14,579

16,244

40,930

5,730

77,483

- retail housing

1,942

12,110

62,642

3,324

80,018

- retail other

1,524

4,639

31,122

1,238

38,523

Recoveries

 

 

 

 

 

- corporate

-

-

37,482

7,258

44,740

- SMEs

-

-

39,274

5,851

45,125

- retail housing

-

-

165,876

31,089

196,965

- retail other

127

-

83,991

15,302

99,420

International banking services

90,302

42,741

2,807

246

136,096

Wealth management

40,046

5,573

192

454

46,265

 

7,245,920

1,759,869

666,544

171,810

9,844,143

 

31 December 2020 (restated*)

 

 

 

 

 

By business line

 

 

 

 

 

Corporate

1,519,663

362,199

37,635

34,634

1,954,131

Global corporate

1,393,025

367,147

102,881

34,005

1,897,058

SMEs

740,305

325,412

17,731

11,005

1,094,453

Retail

 

 

 

 

 

- housing

2,223,620

651,980

68,644

11,533

2,955,777

- consumer, credit cards and other

588,339

251,022

33,095

17,001

889,457

Restructuring

 

 

 

 

 

- corporate

29,108

64,706

60,719

16,484

171,017

- SMEs

13,263

25,167

54,003

7,718

100,151

- retail housing

2,475

13,599

127,558

5,788

149,420

- retail other

943

4,047

71,910

3,064

79,964

Recoveries

 

 

 

 

 

- corporate

-

-

29,431

6,746

36,177

- SMEs

-

-

65,287

9,927

75,214

- retail housing

-

-

404,337

80,725

485,062

- retail other

221

13

288,374

57,232

345,840

International banking services

76,160

49,222

9,767

189

135,338

Wealth management

21,768

8,617

178

981

31,544

 

6,608,890

2,123,131

1,371,550

297,032

10,400,603

 

*Following a reorganisation of the RRD portfolio and mainly of the terminated exposures, certain loans were reclassified within the 'Restructuring' and 'Recoveries' business lines, as explained in F.4 'Credit risk concentration of loans and advances to customers'.

 

 

F.         Notes (continued)

F.5         Analysis of loans and advances to customers by stage (continued)

Loans and advances to customers classified as held for sale

The following tables present the Group's gross loans and advances to customers at amortised cost classified as held for sale by stage and by business line concentration.

30 September 2021

Stage 1

Stage 2

Stage 3

POCI

Total

By business line

€000

€000

€000

€000

€000

Corporate

-

-

68

-

68

SMEs

-

168

-

-

168

Retail

 

 

 

 

 

- housing

-

-

1,355

-

1,355

- consumer, credit cards and other

-

-

530

-

530

Restructuring

 

 

 

 

 

- corporate

-

-

1,142

-

1,142

- SMEs

-

639

3,840

748

5,227

- retail housing

-

616

22,208

1,376

24,200

- retail other

-

-

12,025

605

12,630

Recoveries

 

 

 

 

 

- corporate

-

-

6,588

580

7,168

- SMEs

-

-

21,264

1,680

22,944

- retail housing

-

-

207,801

37,238

245,039

- retail other

-

-

192,824

36,220

229,044

 

-

1,423

469,645

78,447

549,515

 

31 December 2020 (restated*)

 

 

 

 

 

By business line

 

 

 

 

 

SMEs

-

-

-

3

3

Retail

 

 

 

 

 

- housing

-

40

-

-

40

- consumer, credit cards and other

-

2

21

-

23

Restructuring

 

 

 

 

 

- corporate

-

975

62,946

1,036

64,957

- SMEs

3,442

9,882

67,664

4,334

85,322

- retail housing

2,414

9,882

53,327

2,829

68,452

- retail other

280

1,417

26,665

1,018

29,380

Recoveries

 

 

 

 

 

- corporate

-

-

73,449

12,664

86,113

- SMEs

-

-

325,082

51,862

376,944

- retail housing

-

-

296,934

45,684

342,618

- retail other

-

-

224,849

62,554

287,403

 

6,136

22,198

1,130,937

181,984

1,341,255

 

* Following a reorganisation of the RRD portfolio and mainly of the terminated exposures, certain loans were reclassified within the 'Restructuring' and 'Recoveries' business lines, as explained in F.4 'Credit risk concentration of loans and advances to customers'.

 

 

F.           Notes (continued)

F.6         Credit losses to cover credit risk on loans and advances to customers

 

Nine months ended

30 September

2021

2020

 

€000

€000

Impairment loss net of reversals on loans and advances to customers

24,437

212,773

Recoveries of loans and advances to customers previously written off

(8,644)

(17,734)

Changes in expected cash flows

12,018

17,925

Financial guarantees and commitments

2,608

(1,642)

 

30,419

211,322

 

The movement in ECL of loans and advances to customers, including the loans and advances to customers held for sale, and the analysis of the balance by stage is as follows:

 

Nine months ended

30 September

2021

2020

 

€000

€000

1 January

1,652,635

1,803,550

Foreign exchange and other adjustments

1,753

(4,366)

Write offs

(224,122)

(289,374)

Interest (provided) not recognised in the income statement

42,295

59,570

Disposal of Helix 2/Velocity 2 portfolios

(851,093)

(112,098)

Charge for the period

24,437

212,773

30 September

645,905

1,670,055

Stage 1

16,167

23,813

Stage 2

33,920

34,590

Stage 3

523,279

1,403,378

POCI

72,539

208,274

30 September

645,905

1,670,055

 

The allowance for ECL, included above, for loans and advances to customers held for sale as at 30 September 2021 amounted to €299,848 thousand (30 September 2020: €538,637 thousand).

The charge on loans and advances to customers, including the loans and advances to customers held for sale, by stage for the period is presented in the table below:

 

Nine months ended

30 September

2021

2020

 

€000

€000

Stage 1

(16,145)

3,969

Stage 2

969

(5,373)

Stage 3

39,613

214,177

 

24,437

212,773

 

During the nine months ended 30 September 2021 the total non‑contractual write‑offs recorded by the Group amounted to €204,095 thousand (nine months ended 30 September 2020: €212,782 thousand). The contractual amount outstanding on financial assets (including loans and advances to customers classified as held for sale) that were written off during the nine months ended 30 September  2021 and that are still subject to enforcement activity is €736,121 thousand (31 December 2020: €1,062,224 thousand).

 

 

 

F.         Notes (continued)

F.6         Credit losses to cover credit risk on loans and advances to customers (continued)

Assumptions have been made about the future changes in property values, as well as the timing for the realisation of collateral, taxes and expenses on the repossession and subsequent sale of the collateral as well as any other applicable haircuts. Indexation has been used as the basis to estimate updated market values of properties supplemented by management judgement where necessary given the difficulty in differentiating between short term impacts and long term structural changes and the shortage of market evidence for comparison purposes. Assumptions were made on the basis of a macroeconomic scenario for future changes in property prices, and these are capped to zero, for all scenarios, in case of any future projected increase, whereas any future projected decrease is taken into consideration.

 

At 30 September 2021 the weighted average haircut (including liquidity haircut and selling expenses) used in the collectively assessed provision calculation for loans and advances to customers excluding those classified as held for sale is approximately 32% under the baseline scenario (31 December 2020: approximately 32%).

 

The timing of recovery from real estate collaterals used in the collectively assessed provision calculation for loans and advances to customers, excluding those classified as held for sale, has been estimated to be on average seven years under the baseline scenario (31 December 2020: average seven years).

 

For the calculation of individually assessed allowances for ECL, the timing of recovery of collaterals as well as the haircuts used are based on the specific facts and circumstances of each case.

 

For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with 50%, 30% and 20% probability respectively.

 

For Stage 3 customers, the base scenario focuses on the following variables, which are based on the specific facts and circumstances of each customer: the operational cash flows, the timing of recovery of collaterals and the haircuts from the realisation of collateral. The base scenario is used to derive additional more favourable or more adverse scenarios. Under the adverse scenario operational cash flows are decreased by 50%, applied haircuts on real estate collateral are increased by 50% and the timing of recovery of collaterals is increased by 1 year with reference to the baseline scenario. Under the favourable scenario, applied haircuts are decreased by 5%, with no change in the operational cash flows and in the recovery period with reference to the baseline scenario. Assumptions used in estimating expected future cash flows (including cash flows that may result from the realisation of collateral) reflect current and expected future economic conditions and are generally consistent with those used in the Stage 3 collectively assessed exposures. In the case of loans and advances to customers held for sale the Group has taken into consideration the timing of the expected sale and the estimated sale proceeds in determining the ECL. Amounts previously written off which are expected to be recovered through sale are included in 'Recoveries of loans and advances to customers previously written off'.

 

The above assumptions are also influenced by the ongoing regulatory dialogue BOC PCL maintains with its lead regulator, the ECB, and other regulatory guidance and interpretations issued by various regulatory and industry bodies such as the ECB and the EBA, which provide guidance and expectations as to relevant definitions and the treatment/classification of certain parameters/assumptions used in the estimation of allowance for ECL.

 

Any changes in these assumptions or differences between assumptions made and actual results could result in significant changes in the estimated amount of expected credit losses of loans and advances to customers.

 

Overlays in the context of COVID‑19

Following the COVID-19 pandemic, the Group considered the complexities of governmental support programmes and regulatory guidance on the treatment of customer payment breaks by the ECL models. In this context, management has considered the data and measurement limitations arising from the extraordinary impact of COVID-19 and addressed them through management overlays in relation to the significant credit risk deterioration, behavioural ratings and PD. The majority of COVID-19 related management overlays applied in 2020 and up during the first six months of 2021 were removed in the third quarter of 2021 following the availability of recent financial information (such as financial statements) and continuing signs of recovery in the third quarter of 2021 (such as the repaying percentage (96%) of moratorium customers nine months after the end of moratorium).

 

The Group has exercised critical judgement on a best effort basis, to consider all reasonable and supportable information available at the time of the assessment of the ECL allowance as at 30 September 2021.   The Group will continue to evaluate the ECL allowance and the related economic outlook each quarter, so that any changes arising from the uncertainty on the macroeconomic outlook impacted by the additional progress in vaccinations and medication, degree of recurrence of the disease due to virus mutations, such as the Omicron variant, and the persistent positive effect of fiscal and monetary policy, are timely captured.

 

 

 

F.         Notes (continued)

F.6         Credit losses to cover credit risk on loans and advances to customers (continued)

SICR adjustment

Following an assessment performed for SICR for customers that had taken up the moratorium in 2020, a management overlay was applied, in order to capture any bias introduced in the customer's credit ratings by defining collective rules that can assess Stage 1 and Stage 2 misclassified customers, due to skewed outlook of the idiosyncratic risk. The exercise carried out compared the observed with the expected score/rating (adjusted for the days past due and arrears elements that did not apply during the moratorium period so as to assess if any customers exhibit severe deterioration/improvement). Additionally, stricter customers' credit ratings thresholds have been applied for customers in the hotel and catering industry sector. A staging overlay was then applied on these customers in order to classify them accordingly to Stage 2. At 30 September 2021, this overlay continued to apply only for the customers in the hotel and catering industry. The isolated impact of this overlay resulted in a transfer of loans of €65 million from Stage 1 to Stage 2 during the nine months ended 30 September 2021. This overlay had an impact on the ECL of €308 thousand for the nine months ended 30 September 2021.

 

Given the data available since the expiry of the moratorium, any exposures that were assessed as having experienced a SICR in 2020, and were classified to Stage 2 following overlays performed, were allowed to return to Stage 1, if no SICR was identified by the models. This overlay has been removed and led to a transfer back to Stage 1 of €451 million exposures, resulting in the reversal of ECL of approximately €3 million during the nine months ended 30 September 2021.

 

Additionally, exposures that did not participate in the 2020 moratorium but were identified as having experienced a SICR during 2020 and therefore transferred to Stage 2 were allowed to migrate back to Stage 1 if they did not exhibit a SICR as at 30 June 2021. This overlay has been removed and led to a transfer back to Stage 1 of €301 million exposures, resulting in an ECL release of €3.5 million during the nine months ended 30 September 2021.

 

Probability of default and behavioural rating adjustment

A PD overlay, maintained from 2020 in order to avoid extreme values in the model predictions whilst ensuring that the moratorium will not cause a timeline misalignment between the model-projected and observed 2021 defaults was removed during the third quarter of 2021. This overlay had an isolated ECL impact of €11 million in 2020 and a corresponding ECL release upon its removal during the nine months ended 30 September 2021.

 

The PD overlay applied in 2020 relating to behavioural ratings, where a prudent logic was applied in order to prevent any moratorium-biased rating to reflect an improved asset quality, was removed in 2021. This overlay did not allow any moratorium facilities to have improved ratings when compared to their corresponding February 2020 rating and resulted in an ECL increase of €5 million during 2020. The overlay was removed during the first quarter of 2021 and resulted in an ECL release of €5 million for the nine months ended 30 September 2021.

 

Other ECL changes during 2021

Cure model recalibration

The cure model is one of the main components of the loss given default (LGD) of the IFRS9 model which allows estimation of the lifetime probability of a defaulted account to return to non-default status. During the third quarter of 2021, cure model recalibration was performed mainly to address the low-default/cure environment observed in the recent period prior to moratorium and investigate the considered model development period such that is retains the through-the-cycle nature of the model. The calibration was performed on the most recent changes in definition of default introduced in January 2021 and had an ECL impact of approximately €28 million for the nine months ended 30 September 2021.

 

SICR trigger

During the second quarter of 2021, another qualitative factor that triggers SICR has been introduced, that is the granting of forbearance measures to performing borrowers. Stage 1 exposures that are classified as 'performing forborne' are automatically transferred to Stage 2. The impact of this new criterion was €202 million of loans and advances to customers to be transferred from Stage 1 to Stage 2 and the respective impact on the ECL was an increase of €1,486 thousand when this criterion was first introduced.

     .

F.7       Rescheduled loans and advances to customers

The below table presents the Group's rescheduled loans and advances to customers by stage, excluding those classified as held for sale.

 

30 September 2021

31 December 2020

€000

€000

Stage 1

108

199,193

Stage 2

704,586

242,493

Stage 3

392,722

686,944

POCI

46,357

98,400

 

1,143,773

1,227,030

F.         Notes (continued)

F.8         Pending litigation, claims, regulatory and other matters

The Group, in the ordinary course of business, is subject to enquiries and examinations, requests for information, audits, investigations, legal and other proceedings by regulators, governmental and other public bodies, actual and threatened, relating to the suitability and adequacy of advice given to clients or the absence of advice, lending and pricing practices, selling and disclosure requirements, record keeping, filings and a variety of other matters. In addition, as a result of the deterioration of the Cypriot economy and banking sector in 2012 and the subsequent restructuring of BOC PCL in 2013 as a result of the bail-in Decrees, BOC PCL is subject to a large number of proceedings and a number of investigations that either precede, or result from the events that occurred during the period of the bail-in Decrees. Most proceedings of significance relate to matters arising during the period prior to the issue of the bail-in Decrees.

 

Further, the Group, as part of its disposal process of certain of its operations, has provided various representations, warranties and indemnities to the buyers. These relate to, among other things, the ownership of the loans, the validity of the loan securities, data quality, tax exposures and other matters agreed with the buyers. As a result, the Group may be obliged to compensate the buyers in the event of a valid claim by the buyers with respect to these representations, warranties and indemnities.

 

Provisions have been recognised for those cases where the Group is able to estimate probable losses. Any provision recognised does not constitute an admission of wrongdoing or legal liability. While the outcome of these matters is inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of legal proceedings and regulatory and other matters.

 

 

 

 

 

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures

G.1        Additional Credit risk disclosures

 

Definitions

Non-Performing Exposures (NPEs1) 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, diminished financial obligation and obligor bankruptcy.

(iii)  Material exposures as set by the Central Bank of Cyprus (CBC), which are more than 90 days past due.

(iv)  Performing forborne exposures under probation for which additional forbearance measures are extended.

(v)   Performing forborne exposures previously classified as NPEs that present more than 30 days past due within the probation period.

 

From 1 January 2021 two regulatory guidelines came into force that affect NPE classification and Days-Past-Due calculation. More specifically, these are the RTS on the Materiality Threshold of Credit Obligations Past-Due (EBA/RTS/2016/06), and the Guideline on the Application of the Definition of Default under article 178 (EBA/GL/2016/07).

 

The Days-Past-Due (DPD) counter begins counting DPD as soon as the arrears or excesses of an exposure reach the materiality threshold (rather than as of the first day of presenting any amount of arrears or excesses). Similarly, the counter will be set to zero when the arrears or excesses drop below the materiality threshold. Payments towards the exposure that do not reduce the arrears/excesses below the materiality threshold, will not impact the counter.

 

For retail debtors, 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.

 

For non‑retail debtors, when an exposure fulfils the NPE criteria set out above, then the total customer exposure is classified as non‑performing.

 

Material arrears/excesses are defined as follows:

- Retail exposures: Total arrears/excess amount greater than €100

- Exposures other than retail: Total arrears/excess amount greater than €500

and the amount in arrears/excess in relation to the customer's total exposure is at least 1%.

 

Non-performing forborne exposures cease to be considered as NPEs and in such case are transferred out of Stage 3, only when all of the following conditions are met:

(i)            The extension of forbearance measures does not lead to the recognition of impairment or default.

(ii)           A period of one year has passed since the latest of the following events:

a)    The restructuring date

b)    The date the exposure was classified as non-performing

c)     The end of the grace period included in the restructuring arrangements

(iii)          Following the forbearance measures and according to the post-forbearance conditions, there is no past due amount or concerns regarding the full repayment of the exposure.

(iv)          No unlikely-to-pay criteria exist for the debtor.

The debtor has made post-forbearance payments of a non-insignificant amount of capital (different capital thresholds exist according to the facility type).

 

Exposures are classified as forborne when concessions are made to debtors who are facing or about to face financial difficulties and cannot meet their contractual obligations.

 

 

 

 

 

 

 

 

1 As per the European Banking Authorities (EBA) standards and European Central Bank's (ECB) Guidance to Banks on Non Performing Loans (which was published in March 2017).
 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.1        Additional Credit risk disclosures (continued)

Non‑performing non‑forborne exposures cease to be considered as NPEs only when all of the following conditions are met:

i.                 At least three months have passed since the date that the conditions for which the exposure was classified as non-performing cease to be met, and within these three months there are no  default triggers, and

ii.                During the three month period, the behaviour of the obligor should be taken into account, i.e. there are no arrears/excesses and instalments are being repaid normally, and

iii.               During the three month period, the financial situation of the obligor should be taken into account, i.e. the financial situation of the obligor has improved, and

iv.                  During the three month period an Unlikely‑to‑Pay criteria assessment is carried out and it is assessed that the obligor can fulfill their obligations without resorting to the liquidation of collateral and there are no other Unlikely-to-Pay criteria.

 

The definitions of credit‑impaired and default are aligned.


 

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.1      Additional Credit risk disclosures (continued)

The tables below present the analysis of loans and advances to customers in accordance with the EBA standards.

30 September 2021

Gross loans and advances to customers

Accumulated impairment, accumulated negative changes in  fair value due to credit risk and provisions

Group gross customer

 loans and advances2,3

Of which NPEs

Of which exposures with forbearance measures

Accumulated impairment, accumulated negative changes in  fair value due to credit risk and provisions

Of which NPEs

Of which exposures with forbearance measures

Total exposures with forbearance measures

Of which NPEs

Total exposures with forbearance measures

Of which on NPEs

€000

€000

€000

€000

€000

€000

€000

€000

Loans and advances to customers

 

 

 

 

 

 

 

 

General governments

52,152

-

-

-

93

-

-

-

Other financial corporations

127,289

7,971

10,041

3,499

5,133

3,279

1,606

1,387

Non-financial corporations

5,200,726

312,380

872,684

232,800

145,940

114,631

76,136

69,384

Of which: Small and Medium sized Enterprises4(SMEs)

4,060,741

158,795

598,795

89,243

104,560

74,244

41,977

36,019

Of which: Commercial real estate4

3,966,267

192,745

760,769

150,220

91,562

77,379

64,086

59,612

Non-financial corporations by sector

 

 

 

 

 

 

 

 

Construction

581,187

35,327

 

 

27,599

 

 

 

Wholesale and retail trade

957,348

47,321

 

 

33,137

 

 

 

Accommodation and food service activities

1,131,022

6,859

 

 

4,781

 

 

 

Real estate activities

1,126,365

107,377

 

 

6,906

 

 

 

Manufacturing

339,779

20,467

 

 

13,195

 

 

 

Other sectors

1,065,025

95,029

 

 

60,322

 

 

 

Households

4,759,883

501,561

486,863

272,512

201,748

182,137

89,002

81,444

Of which: Residential mortgage loans4

3,700,738

399,955

409,870

227,586

127,762

119,506

62,847

58,003

Of which: Credit for consumption4

576,010

67,036

62,246

35,098

43,092

36,178

17,694

16,016

 

10,140,050

821,912

1,369,588

508,811

352,914

300,047

166,744

152,215

Loans and advances to customers classified  as held for sale

549,515

548,071

240,438

239,124

299,848

299,530

115,538

115,250

Total on-balance sheet

10,689,565

1,369,983

1,610,026

747,935

652,762

599,577

282,282

267,465

 

 

 

 

 2 Excluding loans and advances to central banks and credit institutions.

 3The residual fair value adjustment on initial recognition (which relates mainly to loans acquired from Laiki Bank and is calculated as the difference between the outstanding contractual amount and the fair value of loans acquired and bears a negative balance) is considered as part of the gross loans, therefore decreases the gross balance of loans and advances to customers.

 4 The analysis shown in lines 'non-financial corporations' and 'households' is non-additive across categories as certain customers could be in both categories.

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.1      Additional Credit risk disclosures (continued)

 

31 December 2020

Gross loans and advances to customers

Accumulated impairment, accumulated negative changes in  fair value due to credit risk and provisions

Group gross customer

 loans and advances5,6

Of which NPEs

Of which exposures with forbearance measures

Accumulated impairment, accumulated negative changes in  fair value due to credit risk and provisions

Of which NPEs

Of which exposures with forbearance measures

Total exposures with forbearance measures

Of which NPEs

Total exposures with forbearance measures

Of which on NPEs

 

€000

€000

€000

€000

€000

€000

€000

€000

Loans and advances to customers

 

 

 

 

 

 

 

 

General governments

50,771

1

-

-

1,949

-

-

-

Other financial corporations

115,668

10,494

17,303

4,568

7,232

5,545

2,604

1,907

Non-financial corporations

5,364,716

574,205

499,948

304,406

272,331

245,647

106,238

101,989

Of which: Small and Medium sized Enterprises7

3,797,095

387,568

327,344

193,938

230,595

210,511

91,092

87,496

Of which: Commercial real estate7

4,042,172

346,607

367,083

193,959

154,807

139,915

77,104

74,009

Non-financial corporations by sector

 

 

 

 

 

 

 

 

Construction

614,135

75,550

 

 

42,791

 

 

 

Wholesale and retail trade

997,904

134,135

 

 

80,885

 

 

 

Accommodation and food service activities

1,123,380

19,836

 

 

12,766

 

 

 

Real estate activities

1,129,066

140,532

 

 

30,355

 

 

 

Manufacturing

376,551

45,142

 

 

28,185

 

 

 

Other sectors

1,123,680

159,010

 

 

77,349

 

 

 

Households

5,160,342

1,055,706

821,614

544,408

523,938

495,784

231,313

221,722

Of which: Residential mortgage loans7

4,059,939

882,336

690,514

465,939

396,275

382,063

185,648

178,570

Of which: Credit for consumption7

622,102

133,351

89,725

68,763

82,951

74,473

33,363

32,285

 

10,691,497

1,640,406

1,338,865

853,382

805,450

746,976

340,155

325,618

Loans and advances to customers classified as held for sale

1,341,255

1,312,166

754,795

731,624

848,218

832,419

447,731

434,657

Total on-balance sheet

12,032,752

2,952,572

2,093,660

1,585,006

1,653,668

1,579,395

787,886

760,275

 

 

 

 5 Excluding loans and advances to central banks and credit institutions.

 6 The residual fair value adjustment on initial recognition (which relates mainly to loans acquired from Laiki Bank and is calculated as the difference between the outstanding contractual amount and the fair value of loans acquired and bears a negative balance) is considered as part of the gross loans, therefore decreases the gross balance of loans and advances to customers.

 7 The analysis shown in lines 'non-financial corporations' and 'households' is non-additive across categories as certain customers could be in both categories.

 

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.2        Capital management  

The primary objective of the Group's capital management is to ensure compliance with the relevant regulatory capital requirements and to maintain strong credit ratings and healthy capital adequacy ratios in order to support its business and maximise shareholders' value.

 

The capital adequacy framework, as in force, was incorporated through the Capital Requirements Regulation (CRR) and Capital Requirements Directive IV (CRD IV) and came into effect on 1 January 2014 with certain specified provisions implemented gradually. The CRR and CRD IV transposed the new capital, liquidity and leverage standards of Basel III into the European Union's legal framework. CRR establishes the prudential requirements for capital, liquidity and leverage for credit institutions and investment firms. It is directly applicable in all EU member states. CRD IV governs access to deposit-taking activities and internal governance arrangements including remuneration, board composition and transparency. Unlike the CRR, member states were required to transpose the CRD IV into national law and national regulators were allowed to impose additional capital buffer requirements.

 

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. Certain provisions took immediate effect (primarily relating to Minimum Requirement for Own Funds and Eligible Liabilities (MREL)), but most changes became effective as of June 2021. The key changes introduced consist of, among others, changes to qualifying criteria for Common Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) instruments, introduction of requirements for MREL and a binding Leverage Ratio requirement and a Net Stable Funding Ratio (NSFR).

 

The amendments that came into effect on 28 June 2021 are in addition to those introduced in June 2020 through Regulation (EU) 2020/873, which among other brought forward certain CRR II changes in light of the COVID‑19 pandemic. The main adjustments of Regulation (EU) 2020/873 that had an impact on the Group's capital ratio relate to the acceleration of the implementation of the new SME discount factor (lower RWAs), extending the IFRS 9 transitional arrangements and introducing further relief measures to CET1 allowing to fully add back to CET1 any increase in ECL recognised in 2020 and 2021 for non-credit impaired financial assets and phasing in this starting from 2022 and advancing the application of prudential treatment of software assets as amended by CRR II (which came into force in December 2020). In addition, Regulation (EU) 2020/873 introduced a temporary treatment of unrealized gains and losses on exposures to central governments, to regional governments or to local authorities measured at fair value through other comprehensive income which the Group elected to apply and implemented from the third quarter of 2020. 

 

In October 2021, the European Commission adopted legislative proposals for further amendments to CRR, CRD IV and the BRRD (the "2021 Banking Package").  Amongst other things, the 2021 Banking Package would implement certain elements of Basel III that have not yet been transposed into EU law.  The 2021 Banking Package includes:

 

·      a proposal for a Regulation (sometimes known as "CRR III") to make amendments to CRR with regard to (amongst other things) requirements on credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor;

·      a proposal for a Directive (sometimes known as "CRD VI") to make amendments to CRD IV with regard to (amongst other things) requirements on supervisory powers, sanctions, third-country branches and ESG risks; and

·      a proposal for a Regulation to make amendments to CRR and the BRRD with regard to (amongst other things) requirements on the prudential treatment of G-SII groups with a multiple point of entry resolution strategy and a methodology for the indirect subscription of instruments eligible for meeting the MREL requirements.

 

The 2021 Banking Package is subject to amendment in the course of the EU's legislative process; and its scope and terms may change prior to its implementation. In addition, in the case of the proposed amendments to CRD IV and the BRRD, their terms and effect will depend, in part, on how they are transposed in each member state.  As a general matter, it is likely to be several years until the 2021 Banking Package begins to be implemented; and certain measures are expected to be subject to transitional arrangements or to be phased in over time. 

 

The CET1 ratio of the Group as at 30 September 2021 stands at 14.66% and the total capital ratio at 19.66% on a transitional basis. The ratios as at 30 September 2021 include unaudited/un-reviewed profits for the nine months ended 30 September 2021.

 

 

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.2        Capital management (continued)

 

CET1 Regulatory Capital Requirements

2021

2020*

Pillar I - CET1 Requirement

4.50%

4.50%

Pillar II - CET1 Requirement

1.69%

1.69%

Capital Conservation Buffer (CCB)**

2.50%

2.50%

Other Systematically Important Institutions (O-SII) Buffer

1.00%

1.00%

Minimum CET1 Regulatory Requirements

9.69%

9.69%

 

* As amended in April 2020 by ECB SREP amending decision following COVID-19 outbreak

** Fully phased in as of 1 January 2019

 

Minimum Total Capital Regulatory Requirements

2021

2020

Pillar I - Total Capital Requirement

8.00%

8.00%

Pillar II - Total Capital Requirement

3.00%

3.00%

Capital Conservation Buffer (CCB)*

2.50%

2.50%

Other Systematically Important Institutions (O-SII) Buffer

1.00%

1.00%

Minimum Total Capital Regulatory Requirements

14.50%

14.50%

 

* Fully phased in as of 1 January 2019

 

The minimum Pillar I total capital requirement is 8.0% and may be met, in addition to the 4.5% CET1 requirement, with up to 1.5% by AT1 capital and with up to 2.0% by T2 capital.

 

The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer.

 

As part of the relaxation measures following the COVID-19 outbreak, on 12 March 2020, the ECB and the EBA also announced that banks are temporarily allowed to operate below the level of capital defined by Pillar II Guidance (P2G), the CCB and the Countercyclical Capital Buffer (CCyB). In July 2020, the ECB committed to allow banks to operate below P2G and the Combined Buffer Requirement until at least the end of 2022, without automatically triggering supervisory actions.

 

The above minimum ratios apply for both BOC PCL and the Group.

 

The capital position of the Group and BOC PCL as at 30 September 2021 exceeds both their Pillar I and their Pillar II add-on capital requirements. However, the Pillar II add-on capital requirements are a point-in-time assessment and therefore are subject to change over time. Further information is provided in Section A.1.1. Capital Base.

 

The CBC, in accordance with the Macroprudential Oversight of Institutions Law of 2015, sets, on a quarterly basis, the CCyB level in accordance with the methodology described in this law. The CBC has set the level of the CCyB for risk weighted exposures in Cyprus at 0% for the years 2020 and 2021.

 

In accordance with the provisions of this law, the CBC is also the responsible authority for the designation of banks that are Other Systemically Important Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for these systemically important banks. BOC PCL has been designated as an O-SII and the CBC set the O-SII buffer at 2.0%, revised to 1.5% in November 2021 with effect from 1 January 2022.

 

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. In April 2020, the CBC decided to delay the phasing in 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, by 0.25% each year.

 

 

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.2      Capital management (continued)

The insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance including the minimum solvency ratio as at 30 September 2021 and 31 December 2020. The regulated UCITS management company of the Group, BOC Asset Management Ltd, complies with the regulatory capital requirements of the CySEC laws and regulations as at 30 September 2021 and 31 December 2020. The regulated investment firm (CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd (CISCO), complies with the minimum capital adequacy ratio requirements as at 30 September 2021 and 31 December 2020.

 

The capital position of the Group and BOC PCL as at the reporting date (after applying the transitional arrangements) is presented below:

 

Regulatory capital 

Group

BOC PCL

30 September

20218

31 December

20209

30 September

20218

31 December

20209

€000

€000

€000

€000

Transitional Common Equity Tier 1 (CET1)10

1,611,742

1,722,751

1,584,948

1,688,296

Transitional Additional Tier 1 capital (AT1)

220,000

220,000

220,000

220,000

Tier 2 capital (T2)

328,794

192,248

339,205

250,000

Transitional total regulatory capital

2,160,536

2,134,999

2,144,153

2,158,296

Risk weighted assets - credit risk11

9,859,753

10,504,937

9,875,376

10,516,023

Risk weighted assets - market risk

-

-

-

-

Risk weighted assets - operational risk

1,131,438

1,131,438

1,078,575

1,078,575

Total risk weighted assets

10,991,191

11,636,375

10,953,951

11,594,598

 

 

 

 

 

 

%

          %

%

          %

Transitional Common Equity Tier 1 ratio

14.66

14.80

14.47

14.56

Transitional total capital ratio

19.66

18.35

19.57

18.61

 

The capital ratios of the Group and BOC PCL as at the reporting date on a fully loaded basis are presented below:

 

Fully loaded

Group

BOC PCL

30 September

20218,12

31 December

20209,12

30 September

20218,12

31 December

20209,12

%

%

%

%

Common Equity Tier 1 ratio

13.30

12.94

13.09

12.69

Total capital ratio

18.38

16.74

18.28

16.83

 

During the nine months ended 30 September 2021 CET1 was negatively affected mainly by the phasing-in of IFRS 9 transitional adjustments on 1 January 2021, provisions and impairments, the prudential charge relating to the Group's foreclosed assets of approximately 44 bps (further explained below), costs relating to the tender process for the Old Tier 2 Capital Notes, and was positively affected by pre-provision income, the impact of Helix 2 and Helix 3 transactions,  the movement in other prudential items and the decrease in risk-weighted assets. As a result, the CET1 ratio has decreased by 14 bps during the nine months ended 30 September 2021.

 

 

 

 

 

 

8 Includes unaudited/un-reviewed profits for the nine months ended 30 September 2021.

9 As per Annual Report 2020 and Pillar III Disclosures 2020.

10 CET1 includes regulatory deductions, comprising, amongst others, intangible assets amounting to €26,803 thousand for the Group and €23,369 thousand for BOC PCL as at 30 September 2021 (31 December 2020: €27,171 thousand for the Group and €24,269 thousand for BOC PCL). As at 30 September 2021 an amount of €16,048 thousand is considered prudently valued for CRR purposes and it is not deducted from CET1 (31 December 2020:€21,985 thousand).

11 Includes Credit Valuation Adjustments (CVA).

12 IFRS 9 and application of the temporary treatment of certain FVOCI instruments in accordance with Article 468 of CRR fully loaded.
 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.2      Capital management (continued)

The Group has elected in prior years to apply the static-dynamic approach in relation to the transitional arrangements for the initial application of IFRS 9, where the impact on the impairment amount from the initial application of IFRS 9 on the capital ratios is phased in gradually, pursuant to EU Regulation 2017/2395 and it therefore applies paragraph 4 of Article 473(a) of the CRR. The 'static-dynamic' approach allows for recalculation of the transitional adjustment periodically on Stage 1 and Stage 2 loans, so as to reflect the increase of the ECL provisions within the transition period. The Stage 3 ECL remains static over the transition period as per the impact upon initial recognition.

 

The amount added each year for the 'static component' 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 year 2018 was 5% of the impact on the impairment amounts from the initial application of IFRS 9, increasing to 15% (cumulative) for year 2019, to 30% (cumulative) for year 2020 and 50% (cumulative) for year 2021. This will increase to 75% (cumulative) for year 2022 and will be fully phased in (100%) by 1 January 2023.

 

Following the June 2020 amendments to the CRR, the Group applied the amendments in relation to the IFRS 9 transitional arrangements for Stage 1 and Stage 2 loans (i.e. the 'dynamic component') which provide for the extension of the transitional period for the '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.

 

In relation to the temporary treatment of unrealized gains and losses for certain exposures measured at fair value through other comprehensive income, Regulation EU 2020/873 allows institutions to remove from their CET1 the amount of unrealized gains and losses accumulated since 31 December 2019, excluding those of financial assets that are credit-impaired. The relevant amount is removed at a scaling factor of 100% from January to December 2020, reduced to 70% from January to December 2021 and to 40% from January to December 2022. The Group applies the temporary treatment from the third quarter of 2020.

 

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 relate to a prudential charge which will decrease based on BOC PCL's progress in disposing the properties in scope. The amount is being directly deducted from own funds since 30 June 2021, resulting in a decrease in the Group's CET1 ratio as at 30 September 2021 by approximately 44 bps.

 

In April 2021, the Company issued €300 million unsecured and subordinated Tier 2 Capital Notes (the 'New T2 Notes') and immediately after, the Company and BOC PCL entered into an agreement pursuant to which the Company on-lent to BOC PCL the entire €300 million proceeds of the issue of the New T2 Notes on terms substantially identical to the terms and conditions of the New T2 Notes.

 

At the same time, BOC PCL invited the holders of its €250 million Fixed Rate Reset Tier 2 Capital Notes due January 2027 (the 'Old T2 Notes') to tender their Old T2 Notes for purchase by BOC PCL.

 

As at 30 September 2021, the Tier Capital 2 Notes contribute approximately 299 bps to the Group's Total Capital ratio, of which approximately 26 bps relate to the remaining Old T2 Notes. The Old T2 Notes are redeemable at the option of BOC PCL in January 2022.

 

Minimum requirement for own funds and eligible liabilities

In April 2021, BOC PCL received notification from the Single Resolution Board (SRB) of the final decision for the binding minimum requirement for own funds and eligible liabilities (MREL) for BOC PCL, determined as the preferred resolution point of entry.

 

As per the decision, the MREL requirement is set at 23.32% of risk weighted assets and 5.91% of Leverage Ratio Exposure (LRE) and must be met by 31 December 2025. Furthermore, BOC PCL must comply by 1 January 2022 with an interim requirement of 14.94% of risk weighted assets and 5.91% of LRE. The own funds used by BOC PCL to meet the Combined Buffer Requirement (CBR) will not be eligible to meet its MREL requirements expressed in terms of risk-weighted assets. BOC PCL must comply with the MREL requirement at the consolidated level, comprising BOC PCL and its subsidiaries.

 

The MREL ratio of BOC PCL as at 30 September 2021, calculated according to the SRB's eligibility criteria currently in effect and based on BOC PCL's internal estimate, stood at 18.97% of risk weighted assets (RWA) and at 10.17% of LRE. The MREL ratio expressed as a percentage of risk weighted assets does not include capital used to meet the CBR amount, currently at 3.5% and expected to increase to 3.75% on 1 January 2022. The MREL ratios as at 30 September 2021 include unaudited/unreviewed profits for the nine months ended 30 September 2021.

 

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.3        Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Assessment Process (ILAAP), Pillar II and Supervisory Review and Evaluation Process (SREP)

The Group prepares the ICAAP and ILAAP reports annually. Both reports for 2020 have been completed and submitted to the ECB at the end of April 2021 following approval by the Board of Directors.

 

The Group also undertakes quarterly reviews of its ICAAP results, which are submitted to the ALCO and the Risk Committee of the Board of Directors, considering the latest actual and forecasted information. During the quarterly review, the Group's risk profile and risk management policies are reviewed and any material changes/developments since the annual ICAAP exercise are assessed in terms of capital adequacy. Both the annual ICAAP for 2020 and the quarterly ICAAP reviews indicated that the Group has sufficient capital and available mitigants to support its risk profile and its business and to enable it to meet its regulatory requirements, both in a base case and in stress conditions.

 

The Group also undertakes a quarterly review for the ILAAP through quarterly stress tests submitted to the ALCO and the Risk Committee of the Board of Directors. Any material changes since the year-end are assessed in terms of liquidity. The quarterly review identifies whether the Group has an adequate liquidity buffer to cover the stress outflows. The Group's ILAAP analysis demonstrates that the volume and capacity of liquidity resources available to the Group are adequate. Both the annual ILAAP for 2020 and the quarterly ILAAP reviews indicated that BOC PCL's liquidity position is at a very comfortable level. BOC PCL maintains liquidity resources which are adequate to ensure its ability to meet obligations as they fall due under ordinary and stressed conditions.

 

The ECB, as part of its supervisory role, has been conducting the SREP and other inspections (onsite/ off-site/ targeted reviews/ deep-dives) on the Group. SREP is a holistic assessment of, amongst other things, the Group's business model, internal governance and institution-wide control arrangements, risks to capital and adequacy of capital to cover these risks and risks to liquidity and adequacy of liquidity resources to cover these risks. The objective of the SREP is for the ECB to form an up-to-date supervisory view of the Group's risks and viability and to form the basis for supervisory measures and dialogue with the Group. Additional capital and other requirements could be imposed on the Group as a result of these supervisory processes, including a revision of the level of Pillar II add-ons as the Pillar II add-ons capital requirements are a point-in-time assessment and therefore subject to change over time.

 

The Group participated in the ECB SREP Stress Test of 2021. The exercise was initiated on 29 January 2021 with the announcement of the macro assumptions of the stress tests. The baseline scenario for EU countries was based on the projections from the national central banks on December 2020. The adverse scenario assumed the materialisation of the main financial stability risks that have been identified by the European Systemic Risk Board (ESRB) and which the EU banking sector is exposed to and reflects recent risk assessments by the EBA.

 

The ECB published on 30 July 2021 the results of the stress test. As per the relevant ECB press release 'the results of the 2021 stress test, which show that the euro area banking system is resilient to adverse economic developments. Banks were in better shape at the start of the exercise than they were three years ago, but capital depletion at the system level was higher'. As in previous years, the stress test is not a pass/fail exercise. By its standard procedures, the ECB considers the quantitative performance in the adverse scenario as an input when reconsidering the level of the Pillar II Guidance in its 2021 SREP assessment and the qualitative performance as one aspect when holistically reviewing the Pillar II Requirement. 

 

The stress test was based on a static balance sheet approach, thus using the Group's financial and capital position as at 31 December 2020 as a starting point. Given the static balance sheet methodology, the 2021 ECB SREP Stress Test does not incorporate the impact of any capital accretive results post 31 December 2020.

 

G.4        Liquidity regulation

The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR) under CRD IV/CRR (as supplemented by Delegated Regulations (EU) 2015/61). The Group also has to comply with its Net Stable Funding Ratio (NSFR) calculated as per the Capital Requirements Regulation II (CRR II), enforced in June 2021, with the limit set at 100%.

 

The LCR is designed to promote the short-term resilience of a Group's liquidity risk profile by ensuring that it has sufficient high quality liquid resources to survive an acute stress scenario lasting for 30 days. The NSFR has been developed to promote a sustainable maturity structure of assets and liabilities.

 

As at 30 September 2021 the Group was in compliance with all regulatory liquidity requirements. As at 30 September 2021, the LCR stood at 294% for the Group (compared to 254% at 31 December 2020) and was in compliance with the minimum regulatory requirement of 100%. As at 30 September 2021 the Group's NSFR was 148% (compared to 139% at 31 December 2020 on the basis of the Basel III standards).

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.5        Liquidity reserves

The below table sets out the Group's liquidity reserves:

Composition of the liquidity reserves

30 September 2021

31 December 2020

Internal

Liquidity reserves

Liquidity reserves as per LCR Delegated Reg (EU)

2015/61 LCR eligible

Internal

Liquidity reserves

Liquidity reserves as per LCR Delegated Reg (EU)

2015/61 LCR eligible

Level 1

Level 2A

Level 1

Level 2A

€000

€000

€000

€000

€000

€000

Cash and balances with central banks

8,588,056

8,588,056

-

5,568,431

5,568,431

-

Placements with banks

85,768

-

 

248,839

-

-

Liquid investments

418,344

298,875

185,303

1,409,850

1,240,773

133,073

Available ECB Buffer

72,612

-

-

762,001

-

-

Total

9,164,780

8,886,931

185,303

7,989,121

6,809,204

133,073

 

Internal Liquidity Reserves present the total liquid assets as defined in BOC PCL's Liquidity Policy. Liquidity reserves as per LCR Delegated Regulation (EU) 2015/61 present the liquid assets as per the definition of the aforementioned regulation i.e. High Quality Liquid Assets (HQLA).

 

Under Liquidity reserves as per LCR, balances in Nostro accounts and placements with banks are not included, as they are not considered HQLA (they are part of the LCR Inflows). 

 

Liquid investments under the Liquidity reserves as per LCR are shown at market values reduced by standard weights as prescribed by the LCR regulation. Liquid investments under Internal Liquidity Reserves include all LCR and/or ECB eligible investments and are shown at market values net of haircuts based on ECB haircuts and methodology.

 

The reduction in liquid investments and available ECB buffer in the nine months ended 30 September 2021 is due to the utilization of ECB buffer and the encumbrance of bonds as collateral for the additional TLTRO funding obtained during 2021 (of a total nominal value of €2 billion), the proceeds of which have been placed as balances with central banks.

 

Current available ECB buffer is not part of the Liquidity reserves as per LCR.

 

The Liquidity Reserves are managed by Treasury.

 

Following the outbreak of COVID-19, the ECB has adopted a broad set of policy measures to mitigate the economic impact of the crisis and to ensure that its directly supervised banks can continue to fulfil their role in funding the real economy. A high-level description of the main measures which have a direct or indirect impact on the liquidity position of banks is set out below. 

 

The ECB announced in March 2020 that it will allow banks to operate temporarily below the defined level of 100% of the LCR. This is expected to apply until at least the end-2021. The set of collateral easing measures adopted, resulted in increasing BOC PCL's borrowing capacity from the ECB operations and improving the liquidity buffers due to the lower haircuts applied to the ECB eligible collateral BOC PCL holds, that comprises of bonds and Additional Credit Claims (ACC). The collateral easing packages are designed as temporary measures (with the exception of part of the haircut reduction on ACCs which is permanent) that will remain in place until June 2022 and will be reassessed before then. Furthermore, the ECB enlarged the scope of the ACC framework, increasing the universe of eligible loans. In relation to existing collateral, the ECB announced changes in collateral rules, temporarily accepting collaterals with a rating below investment grade, setting however a minimum acceptable rating level.

 

Additionally, the package contains measures that provide liquidity support to the euro area financial system, such 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), has been introduced.

 

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.6        Quarterly Pillar III disclosures

The quarterly Pillar III disclosures are prepared in accordance with the Capital Requirement Regulation (CRR) and the Capital Requirements Directive IV (CRD IV). The European Banking Authority (EBA) guidelines on Pillar III disclosure requirements have been fully adopted.

 

G.6.1     EU KM1 - Key metrics

 

 

30/09/2021*

30/06/2021

31/03/2021*

31/12/2020

30/09/2020

 

 

€ million

€ million

€ million

€ million

€ million

 

Available own funds (amounts)

1

Common Equity Tier 1 (CET1) capital

1,601

1,571

1,665

1,723

1,735

2

Tier 1 capital

1,821

1,791

1,885

1,943

1,955

3

Total capital

2,150

2,124

2,081

2,135

2,150

 

Risk-weighted exposure amounts

4

Total risk exposure amount

10,991

11,048

11,546

11,636

11,888

 

Capital ratios (as a percentage of risk-weighted exposure amount)

5

Common Equity Tier 1 ratio (%)

14.57%

14.22%

14.42%

14.80%

14.59%

6

Tier 1 ratio (%)

16.57%

16.22%

16.33%

16.70%

16.44%

7

Total capital ratio (%)

19.56%

19.23%

18.02%

18.35%

18.09%

 

Additional own funds requirements to address risks other than the risk of excessive leverage (as a percentage of risk-weighted exposure amount)

EU 7a

Additional own funds requirements to address risks other than the risk of excessive leverage (%)

3.00%

3.00%

3.00%

3.00%

3.00%

EU 7b

     of which: to be made up of CET1 capital (percentage points)

1.69%

1.69%

1.69%

1.69%

1.69%

EU 7c

     of which: to be made up of Tier 1 capital (percentage points)

2.25%

2.25%

2.25%

2.25%

2.25%

EU 7d

Total SREP own funds requirements (%)

11.00%

11.00%

11.00%

11.00%

11.00%

 

Combined buffer and overall capital requirement (as a percentage of risk-weighted exposure amount)

8

Capital conservation buffer (%)

2.50%

2.50%

2.50%

2.50%

2.50%

EU 8a

Conservation buffer due to macro-prudential or systemic risk identified at the level of a Member State (%)

0.00%

0.00%

0.00%

0.00%

9

Institution specific countercyclical capital buffer (%)

0.00%

0.00%

0.00%

0.00%

0.00%

EU 9a

Systemic risk buffer (%)

0.00%

0.00%

0.00%

0.00%

0.00%

10

Global Systemically Important Institution buffer (%)

0.00%

0.00%

0.00%

0.00%

0.00%

EU 10a

Other Systemically Important Institution buffer (%)

1.00%

1.00%

1.00%

1.00%

1.00%

11

Combined buffer requirement (%)

3.50%

3.50%

3.50%

3.50%

3.50%

EU 11a

Overall capital requirements (%)

14.50%

14.50%

14.50%

14.50%

14.50%

12

CET1 available after meeting the total SREP own funds requirements (€ million)

915

880

811

855

842

 

Leverage ratio

13

Total exposure measure

24,273

23,922

22,853

21,406

21,378

14

Leverage ratio (%)

7.50%

7.49%

8.25%

9.08%

9.14%

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.6        Quarterly Pillar III disclosures (continued)

G.6.1     EU KM1 - Key metrics (continued)

 

 

30/09/2021*

30/06/2021

31/03/2021*

31/12/2020

30/09/2020

 

 

€ million

€ million

€ million

€ million

€ million

 

Additional own funds requirements to address the risk of excessive leverage (as a percentage of total exposure measure)

EU 14a

Additional own funds requirements to address the risk of excessive leverage (%)

0.00%

0.00%

0.00%

0.00%

0.00%

EU 14b

     of which: to be made up of CET1 capital (percentage points)

0.00%

0.00%

0.00%

0.00%

0.00%

EU 14c

Total SREP leverage ratio requirements (%)

3.00%

3.00%

0.00%

0.00%

0.00%

 

Leverage ratio buffer and overall leverage ratio requirement (as a percentage of total exposure measure)

EU 14d

Leverage ratio buffer requirement (%)

0.00%

0.00%

0.00%

0.00%

0.00%

EU 14e

Overall leverage ratio requirement (%)

3.00%

3.00%

0.00%

0.00%

0.00%

 

Liquidity Coverage Ratio

15

Total high-quality liquid assets (HQLA) (Weighted value -average)

7,622

7,059

6,495

6,146

5,945

EU 16a

Cash outflows - Total weighted value

3,158

3,078

3,031

3,028

3,035

EU 16b

Cash inflows - Total weighted value

430

474

502

517

468

16

Total net cash outflows (adjusted value)

2,728

2,604

2,529

2,512

2,567

17

Liquidity coverage ratio (%)

279%

271%

257%

245%

232%

 

Net Stable Funding Ratio ** 

18

Total available stable funding

18,170

19,429

 

 

 

19

Total required stable funding

12,311

12,945

 

 

 

20

NSFR ratio (%)

148%

150%

 

 

 

 

* Amount and ratios exclude interim profits                                                                    

**   Net Stable Funding Ratio as at 30 September and 30 June 2021 is calculated as per CRR II enforced in 30 June 2021. Thus, no comparatives of previous periods exist.                                                                

 

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.6        Quarterly Pillar III disclosures (continued)

G.6.2     Own Funds

G.6.2.1  IFRS9 Template

Comparison of institution's own funds and capital and leverage ratios with and without the application of transitional arrangements for IFRS 9 or analogous ECLs, and with and without the application of the temporary treatment in accordance with Article 468 of the CRR

 

30/09/2021*

30/06/2021

31/03/2021*

31/12/2020

30/09/2020

€ million

€ million

€ million

€ million

€ million

1

Common Equity Tier 1 (CET1) capital

1,601

1,571

1,665

1,723

1,735

2

CET1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

1,436

1,412

1,489

1,477

1,502

2a

CET1 capital as if the temporary treatment of unrealised gains and losses measured at fair value through OCI (other comprehensive income) in accordance with Article 468 of the CRR had not been applied

1,595

1,566

1,661

1,720

1,726

3

Tier 1 capital

1,821

1,791

1,885

1,943

1,955

4

Tier 1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

1,656

1,632

1,709

1,697

1,722

4a

Tier 1 capital as if the temporary treatment of unrealised gains and losses measured at fair value through OCI in accordance with Article 468 of the CRR had not been applied

1,815

1,786

1,881

1,940

1,946

5

Total Capital

2,150

2,124

2,081

2,135

2,150

6

Total Capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

1,987

1,966

1,920

1,909

1,937

6a

Total capital as if the temporary treatment of unrealised gains and losses measured at fair value through OCI in accordance with Article 468 of the CRR had not been applied

2,144

2,118

2,077

2,132

2,142

Risk-weighted assets

 

 

 

 

 

7

Total risk-weighted assets

10,991

11,048

11,546

11,636

11,888

8

Total risk-weighted assets as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

10,826

10,888

11,370

11,391

11,655

 

 

 

 

 

 

 

 

 

*  Amounts and ratios exclude interim profits.

 

 

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.6        Quarterly Pillar III disclosures (continued)

G.6.2     Own Funds (continued)

G.6.2.1  IFRS9 Template (continued)

 

 

30/09/2021*

30/06/2021

31/03/2021*

31/12/2020

30/09/2020

Capital ratios

 

 

 

 

 

9

CET1 (as a percentage of risk exposure amount)

14.57%

14.22%

14.42%

14.80%

14.59%

10

CET1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

13.26%

12.96%

13.09%

12.97%

12.89%

10a

CET1 (as a percentage of risk exposure amount) as if the temporary treatment of unrealised gains and losses measured at fair value through OCI in accordance with Article 468 of the CRR had not been applied

14.51%

14.17%

14.39%

14.78%

14.52%

11

Tier 1 (as a percentage of risk exposure amount)

16.57%

16.22%

16.33%

16.70%

16.44%

12

Tier 1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

15.29%

14.99%

15.03%

14.90%

14.77%

12a

Tier 1 (as a percentage of risk exposure amount) as if the temporary treatment of unrealised gains and losses measured at fair value through OCI in accordance with Article 468 of the CRR had not been applied

16.51%

16.17%

16.29%

16.67%

16.37%

13

Total Capital (as a percentage of risk exposure amount)

19.56%

19.23%

18.02%

18.35%

18.09%

14

Total Capital (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

18.35%

18.06%

16.88%

16.76%

16.62%

14a

Total capital (as a percentage of risk exposure amount) as if the temporary treatment of unrealised gains and losses measured at fair value through OCI in accordance with Article 468 of the CRR had not been applied

19.50%

19.18%

17.99%

18.32%

18.02%

Leverage ratio

 

 

 

 

 

15

Leverage ratio total exposure measure

24,273

23,922

22,853

21,406

21,378

16

Leverage ratio

7.50%

7.49%

8.25%

9.08%

9.14%

17

Leverage ratio as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

6.87%

6.87%

7.54%

8.02%

8.11%

17a

Leverage ratio as if the temporary treatment of unrealised gains and losses measured at fair value through OCI in accordance with Article 468 of the CRR had not been applied

7.48%

7.47%

8.23%

9.06%

9.07%

 

*  Amounts and ratios exclude interim profits.
 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.6        Quarterly Pillar III disclosures (continued)

G.6.2     Own Funds (continued)

G.6.2.2  EU OV1 - Overview of total risk exposure amounts

 

 

Total risk exposure amounts (TREA)

Total own funds requirements

 

 

30 September 2021

31 December 2020

30 September

2021

 

 

€ million

€ million

€ million

1

Credit risk (excluding CCR)

                    9,811

                10,462

                        785

2

Of which the standardised approach

                  9,811

               10,462

                       785

3

Of which the foundation IRB (FIRB) approach

                            -

                         -

                             -

4

Of which:  slotting approach

                                  -

                                      -

                                    -

EU 4a

Of which: equities under the simple risk-weighted approach

                                  -

                                      -

                                    -

5

Of which the advanced IRB (AIRB) approach

                                 -

                                      -

                                    -

6

Counterparty credit risk - CCR

                                17

                                      6

                                    1

7

Of which the standardised approach

                                 8

 -

                                   1

8

Of which internal model method (IMM)

                                  -

                                      -

                                    -

EU 8a

Of which exposures to a CCP

                                  -

                                      -

                                    -

EU 8b

Of which credit valuation adjustment - CVA

                                 9

                                      2

                                   1

9

Of which other CCR

                                  -

                                      4

                                    -

15

Settlement risk

                                  -

                                       -

                                    -

16

Securitisation exposures in the non-trading book (after the cap)

                                32

                                     37

                                    3

17

Of which SEC-IRBA approach

                                  -

                                      -

                                    -

18

Of which SEC-ERBA (including IAA)

                                  -

                                      -

                                    -

19

Of which SEC-SA approach

                                32

                                    37

                                   3

EU 19a

Of which 1250%/ deduction

                                  -

                                      -

                                    -

20

Position, foreign exchange and commodities risks (Market risk)

                                  -

                                       -

                                    -

21

Of which the standardised approach

                                  -

                                      -

                                    -

22

Of which IMA

                                  -

                                      -

                                    -

EU 22a

Large exposures

                                  -

                                       -

                                    -

23

Operational risk

                    1,131

               1,131

                          90

EU 23a

Of which basic indicator approach

                                  -

                                      -

                                    -

EU 23b

Of which standardised approach

                     1,131

                 1,131

                         90

EU 23c

Of which advanced measurement approach

                               -

                                      -

                                    -

24

Amounts below the thresholds for deduction (subject to 250% risk weight) (For information)

                                57

                                     79

                                    5

29

Total

                   10,991

11,636

                       879

 

 

 

 

 

The decrease in TREA is at its majority derives from credit risk driven by the Helix 2 transaction and increased exposure values with central banks.

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.6        Quarterly Pillar III disclosures (continued)

G.6.3     Liquidity

EU LIQ1 - Quantitative information of LCR

 

 

a

b

c

d

e

f

g

h

 

 

Total unweighted value (average)

Total weighted value (average)

EU 1a

Quarter ending on:

30 September 2021

30 June

2021

31 March 2021

31 December 2020

30 September 2021

30 June

2021

31 March 2021

31 December 2020

 

 

€ million

€ million

€ million

€ million

€ million

€ million

€ million

€ million

EU 1b

Number of data points used in the calculation of averages

12

12

12

12

12

12

12

12

HIGH-QUALITY LIQUID ASSETS

 

 

 

 

 

 

 

 

 

1

Total high-quality liquid assets (HQLA)

 

 

 

 

7,622

7,059

6,495

6,146

CASH - OUTFLOWS

 

 

 

 

 

 

 

 

 

2

 Retail deposits and deposits from small business customers, of which:

7,411

7,141

6,824

6,648

483

463

446

430

3

 Stable deposits

5,857

5,672

5,430

5,292

294

284

275

265

4

 Less stable deposits

1,554

1,468

1,394

1,356

189

179

171

165

5

 Unsecured wholesale funding

4,098

4,016

4,017

4,059

2,206

2,157

2,141

2,171

6

 Operational deposits (all counterparties) and deposits in networks of cooperative banks

                                -

                                -

                                -

                                -

                                -

                                -

                                -

                                -

7

 Non-operational deposits (all counterparties)

4,097

4,016

4,017

4,059

2,205

2,157

2,141

2,171

8

 Unsecured debt

                                1

                                -

                                -

                                -

                                1

                                -

                                -

                                -

9

 Secured wholesale funding

 

 

 

 

                                -

                                -

                                -

                                -

10

 Additional requirements

313

303

280

267

119

115

110

106

11

 Outflows related to derivative exposures and other collateral requirements

100

96

93

90

100

96

92

89

12

 Outflows related to loss of funding on debt products

0

0

0

0

0

0

0

0

13

 Credit and liquidity facilities

213

207

188

178

20

19

18

17

14

 Other contractual funding obligations

135

127

113

106

133

125

117

106

15

 Other contingent funding obligations

2,442

2,448

2,430

2,434

217

217

216

215

16

 TOTAL CASH OUTFLOWS

 

 

 

 

3,158

3,078

3,031

3,028

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.6        Quarterly Pillar III disclosures (continued)

G.6.3     Liquidity (continued)

EU LIQ1 - Quantitative information of LCR (continued)

 

 

a

b

c

d

e

f

g

h

 

 

Total unweighted value (average)

Total weighted value (average)

 

 

30 September 2021

30 June

2021

31 March 2021

31 December 2020

30 September 2021

30 June

2021

31 March 2021

31 December 2020

 

 

€ million

€ million

€ million

€ million

€ million

€ million

€ million

€ million

CASH - INFLOWS

 

 

 

 

 

 

 

 

 

17

 Secured lending (e.g. reverse repos)

                                -

                                -

                                -

                                -

                                -

                                -

                                -

                                -

18

 Inflows from fully performing exposures

328

367

375

391

255

298

320

326

19

 Other cash inflows

869

872

912

934

176

177

182

191

EU-19a

(Difference between total weighted inflows and total weighted outflows arising from transactions in third countries where there are transfer restrictions or which are denominated in non-convertible currencies)

 

 

 

 

                                -

                                -

                                -

                                -

EU-19b

 (Excess inflows from a related specialised credit institution)

 

 

 

 

                                -

                                -

                                -

                                -

20

 TOTAL CASH INFLOWS

1,197

1,239

1,287

1,325

430

474

502

517

EU-20a

 Fully exempt inflows

                                -

                                -

                                -

                                -

                                -

                                -

                                -

                                -

EU-20b

 Inflows Subject to 90% Cap

                                -

                                -

                                -

                                -

                                -

                                -

                                -

                                -

EU-20c

 Inflows Subject to 75% Cap

1,197

1,239

1,287

1,325

430

474

502

517

TOTAL ADJUSTED VALUE

 

                                -

                                -

                                -

                                -

                                -

                                -

                                -

                                -

EU-21

 LIQUIDITY BUFFER

 

 

 

 

7,622

7,059

6,495

6,146

22

 TOTAL NET CASH OUTFLOWS

 

 

 

 

2,728

2,604

2,529

2,512

23

LIQUIDITY COVERAGE RATIO

 

 

 

 

279%

271%

257%

245%

 

G.          Additional Risk & Capital Management disclosures - including quarterly Pillar III disclosures (continued)

G.6        Quarterly Pillar III disclosures (continued)

G.6.3     Liquidity (continued)          

EU LIQB - Qualitative information on LCR, which complements template EU LIQ1

Row number

Qualitative information

(a)

Explanations on the main drivers of LCR results and the evolution of the contribution of inputs to the LCR's calculation over time

The main drivers of the LCR results have been the amount of HQLA (numerator) and the deposits amounts (part of the denominator). The rest of the items of the denominator are of smaller magnitude and have remained relatively stable over time.

(b)

Explanations on the changes in the LCR over time

LCR has been steadily increasing in the recent years.  This has been the result of increasing HQLA mainly due to the increase in Customer Deposits as well as other sources of funding (ECB funding and own issues). Net outflows have remained relatively steady due to the fact that the customer deposit increase is mainly due to retail deposits (which carry a low outflow rate) and the additional funding obtained is of a long term nature and thus excluded from the LCR outflows.

(c)

Explanations on the actual concentration of funding sources

Customer Deposits have always been the main funding source of BOC PCL. Other funding sources include Central bank funding, issued notes, and Interbank loans.  The different funding options are governed by limits and guidelines as per the RAS of BOC PCL, the Liquidity Policy, the Public Funding Policy and the Collateral Management Policy. BOC PCL has a medium-term strategic objective to further diversify its funding sources via issuances of debt from the wholesale market. The main driver for the issuances is the requirement to comply with MREL.

(d)

High-level description of the composition of the institution`s liquidity buffer.

The Liquidity Buffer is comprised of mainly Available Central Bank reserves. The rest of the buffer is made up of Level 1 securities and, to a lesser extent, Level 2A securities.

(e)

Derivative exposures and potential collateral calls

As per Article 30 (1), (2) and (3) of Commission Delegated Regulation (EU) 2015/61, potential outflows due to derivative and financing transactions are calculated based on:

a) Credit deterioration of BOC PCL's credit quality.
During the actual acute stress period experienced in 2013, additional independent amounts had to be placed by BOC PCL (reflecting the increased credit risk of BOC PCL as perceived by counterparties). The potential outflow takes into account the percentage increase of independent amounts experienced in 2013 as well as the current outstanding derivatives in terms of notional, the type of derivative and the currency pair in the case of FX swaps/ FX forwards.

b) Adverse market movements affecting the mark to market.
The potential negative impact on the mark to market of derivatives and the underlying collateral of repos is calculated in the case of adverse market movements. The methodology followed is based on the Historical Look Back Approach for market valuation changes as per Commission Delegated Regulation (EU) 2017/208.

(f)

Currency mismatch in the LCR

With regards to the currency mismatch, it is noted that for US Dollars, the ratio presents a gap when comparing the buffer with its net outflows. BOC PCL maintains large amounts of customer deposits in USD (included in LCR outflows). Part of the proceeds received are invested in either USD MM placements (which form part of the LCR inflows and not the liquidity buffer) or are converted to Euro through the use of short term FX Swaps which are very liquid instruments.  Part of the proceeds are also invested in USD liquid assets in the form of bonds which are mostly categorised as Level 1 HQLA in LCR and, to a lesser extent, Level 2A HQLA. Thus, although a gap exists, BOC PCL is in a position to cover any USD requirements either through the cash invested in USD MM placements or by terminating or not renewing the EUR/USD FX Swaps.

(g)

Other items in the LCR calculation that are not captured in the LCR disclosure template but that the institution considers relevant for its liquidity profile

n/a

 

 

H.           Definitions & Explanations

Reconciliations of Alternative Performance Measures

Reconciliations between the calculations of non-IFRS performance measures and the most directly comparable IFRS measures which allow for the comparability of the underlying basis to statutory information are disclosed below:

1.           (a) Reconciliation of Gross loans and advances to customers

 

30 September

2021

31 December 2020

€000

€000

Gross loans and advances to customers as per the underlying basis (as defined below)

10,863,932

12,261,404

Reconciling items:

 

 

Residual fair value adjustment on initial recognition (Note 1 below)

(116,480)

(146,602)

Loans and advances to customers classified as held for sale (Section F.4)

(549,515)

(1,341,255)

Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (Note 1 below)

(19,787)

(46,675)

Loans and advances to customers measured at fair value through profit or loss (Section F.3)

(289,050)

(289,861)

Aggregate fair value adjustment on loans and advances to customers measured at fair value through profit or loss

(44,957)

(36,408)

Gross loans and advances to customers at amortised cost as per Section F.3

9,844,143

10,400,603

 

1.         (b) Reconciliation of Loans and advances to customers classified as held for sale

 

30 September

2021

31 December 2020

€000

€000

Loans and advances to customers classified as held for sale as per the underlying basis

569,302

1,387,930

Reconciling items:

 

 

Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (Note 1 below)

(19,787)

(46,675)

Loans and advances to customers classified as held for sale as per Section F.4

549,515

1,341,255

 

 

 

H.           Definitions & Explanations (continued)

Reconciliations of Alternative Performance Measures (continued)

2.           (a) Reconciliation of Allowance for expected credit losses on loans and advances to customers (ECL)

 

30 September

2021

31 December 2020

€000

€000

Allowance for expected credit losses on loans and advances to customers (ECL) as per the underlying basis (as defined below)

849,363

1,901,978

Reconciling items:

 

 

Residual fair value adjustment on initial recognition (Note 1 below)

(116,480)

(146,602)

Aggregate fair value adjustment on loans and advances to customers measured at fair value through profit or loss

(44,957)

(36,408)

Allowance for expected credit losses on loans and advances to customers classified as held for sale (Section F.6)

(299,848)

(848,218)

Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (Note 1 below)

(19,787)

(46,675)

Provisions for financial guarantees and commitments

(22,234)

Allowance for ECL for impairment of loans and advances to customers as per Section F.3

346,057

804,417

 

2.         (b) Reconciliation of Allowance for expected credit losses on loans and advances to customers classified as held for sale (ECL)

 

30 September

2021

31 December 2020

€000

€000

Allowance for expected credit losses on loans and advances to customers (ECL) classified as held for sale as per the underlying basis

319,635

894,893

Reconciling items:

 

 

Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (Note 1 below)

(19,787)

(46,675)

Allowance for ECL for impairment of loans and advances to customers classified as held for sale as per Section F.6

299,848

848,218

 

 

 

 

 

 

 

 

 

 

 

 

H.           Definitions & Explanations (continued)

Reconciliations of Alternative Performance Measures (continued)

3.           Reconciliation of NPEs

 

30 September

2021

31 December 2020

€000

€000

NPEs (as defined below and as per Section G.1)

1,448,515

3,085,646

Reconciling items:

 

 

Loans and advances to customers (NPEs) classified as held for sale (Note 2 below)

(548,071)

(1,312,165)

Residual fair value adjustment on initial recognition on loans and advances to customers (NPEs) classified as held for sale (Note 3 below)

(19,749)

(47,011)

Loans and advances to customers measured at fair value through profit or loss (NPEs)

(121,992)

(118,479)

POCI (NPEs) (Note 4 below)

(85,826)

(227,065)

Residual fair value adjustment on initial recognition on loans and advances to customers (NPEs) classified as Stage 3 (Section F.5)

(6,333)

(9,376)

Stage 3 gross loans and advances to customers at amortised cost as per Section F.5

666,544

1,371,550

NPE ratio

 

 

 

 

NPEs (as per table above) (€000)

1,448,515

3,085,646

Gross loans and advances to customers (as per table above) (€000)

10,863,932

12,261,404

Ratio of NPE/Gross loans (%)

13.3%

25.2%

 

Note 1: Residual fair value adjustment

The residual fair value adjustment mainly relates to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013. In accordance with the provisions of IFRS 3, this adjustment decreased the gross balance of loans and advances to customers. The residual fair value adjustment is included within the gross balance of loans and advances to customers as at each balance sheet date. However, for credit risk monitoring, the residual fair value adjustment as at each balance sheet date is presented separately from the gross balance of loans and advances to customers.

 

Note 2: Gross loans at amortised cost after residual fair value adjustment on initial recognition classified as held for sale include an amount of €469,645 thousand Stage 3 loans (31 December 2020:  €1,130,937 thousand Stage 3 loans) and an amount of €78,426 thousand POCI - Stage 3 loans (out of a total of €78,447 thousand POCI loans) (31 December 2020: €181,228 thousand  POCI - Stage 3 loans (out of a total of €181,984 thousand POCI loans)), as disclosed in Section F.5.

 

Note 3: The residual fair value adjustment on initial recognition of loans and advances to customers classified as held for sale includes an amount of €2,393 thousand for Stage 3 loans (31 December 2020: €7,650 thousand for Stage 3 loans) and an amount of €17,356 thousand POCI - Stage 3 loans (out of a total of €17,356 thousand POCI loans) (31 December 2020: €39,361 thousand for POCI - Stage 3 loans (out of a total of €39,381 thousand POCI loans)), as disclosed in Section F.5.

 

Note 4: Gross loans and advances to customers at amortised cost before residual fair value adjustment on initial recognition include an amount of €85,826 thousand POCI - Stage 3 loans (out of a total of €183,599 thousand POCI loans) (31 December 2020: €227,065 thousand POCI - Stage 3 loans (out of a total of €335,852 thousand POCI loans)) as disclosed in Section F.5.

 

 

 

 

 

 

 

 

 

 

 

H.           Definitions & Explanations (continued)

Reconciliations of Alternative Performance Measures (continued)

4.           Reconciliation of Gross Loans - Pro forma

 

30 September

2021

31 December 2020

€000

€000

Gross Loans (as per table 1 (a) above)

10,863,932

12,261,404

Reconciling items:

 

 

Gross loans and advances to customers classified as held for sale

(30 September 2021: Project Helix 3, 31 December 2020: Project Helix 2, Portfolios A and B)

(549,515)

(1,309,206)

Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (30 September 2021: Project Helix 3, 31 December 2020: Project Helix 2, Portfolios A and B)

(19,787)

(44,947)

Gross loans and advances to customers - pro forma

10,294,630

10,907,251

 

5.           Reconciliation of NPEs - Pro forma

 

30 September

2021

31 December 2020

€000

€000

NPEs (as per table 3 above)

1,448,515

3,085,646

Reconciling items:

 

 

Gross loans and advances to customers (NPEs) classified as held for sale (30 September 2021: Project Helix 3, 31 December 2020: Project Helix 2, Portfolios A and B) (Note 1 below)

(548,071)

(1,280,391)

Residual fair value adjustment on initial recognition on loans and advances to customers (NPEs) classified as held for sale (30 September 2021: Project Helix 3, 31 December 2020: Project Helix 2, Portfolios A and B)

(19,749)

(45,269)

NPEs - pro forma

880,695

1,759,986

 

NPE ratio - Pro forma

30 September

2021

31 December 2020

€000

€000

NPEs -  Pro forma (as per table above) (€000)

880,695

1,759,986

Gross loans and advances to customers  - Pro forma (as per table above) (€000)

10,294,630

10,907,251

Ratio of NPE/Gross loans - Pro forma (%)

8.6%

16.1%

 

Note 1: Gross loans at amortised cost after residual fair value adjustment on initial recognition classified as held for sale include an amount of €469,645 thousand Stage 3 loans (31 December 2020: €1,106,816 thousand Stage 3 loans) and an amount of €78,426 thousand POCI - Stage 3 loans for project Helix 3 (out of a total €469,645 thousand Stage 3 loans classified as held for sale and €78,447 thousand POCI - Stage 3 loans classified as held for sale as disclosed in Section F.5 and Note 2 of Table 3 in these 'Definitions and explanations' respectively) (31 December 2020: €173,575 thousand POCI - Stage 3 loans for project Helix 2, Portfolios A and B (out of a total €1,130,937 thousand Stage 3 loans classified as held for sale and €181,228 thousand POCI - stage 3 loans classified as held for sale)).

 

 

H.           Definitions & Explanations (continued)

Ratios Information

1.           Net Interest Margin

 

Nine months ended

30 September

2021

2020

1.1.        Reconciliation of Net interest income

€000

€000

Net interest income as per the underlying basis/Unaudited Interim Consolidated Income Statement

223,552

249,875

Net interest income used in the calculation of NIM (annualised)

298,888

333,775

 

1.2.        Interest earning assets

30 September 2021

30 June

2021

31 March

2021

31 December 2020

€000

€000

€000

€000

Cash and balances with central banks

8,750,254

8,227,491

6,926,347

5,653,315

Loans and advances to banks

284,135

436,091

420,593

402,784

Loans and advances to customers

9,787,136

9,966,542

9,959,849

9,886,047

Loans and advances to customers held for sale

249,667

-

471,628

493,037

Cash held for sale

-

-

79,373

68,425

Prepayments, accrued income and other assets - Deferred consideration receivable ('DPP')

381,056

378,141

-

-

Investments

 

 

 

 

Debt securities

1,946,811

1,998,076

1,923,324

1,708,844

Less: Investments which are not interest bearing

(7,355)

(7,531)

(18,883)

(18,618)

Total interest earning assets

21,391,704

20,998,810

19,762,231

18,193,834

 

 

 

 

 

1.3.         Quarterly average interest earning assets (€000)

 

 

 

 

-     as at 30 September 2021

20,086,645

 

 

 

-     as at 30 September 2020

17,864,837

 

 

 

 

        

1.4.         Net interest margin

Nine months ended

30 September

2021

2020

€000

€000

Net interest income (annualised) (as per table 1.1. above) (€000)

298,888

333,775

Quarterly average interest earning assets (as per table 1.3. above) (€000)

20,086,645

17,864,837

NIM (%)

1.49%

1.87%

 

2.           Operating profit return on average assets

The various components used in the determination of the operating profit return on average assets are provided below:

 

30 September 2021

30 June

2021

31 March

2021

31 December

2020

€000

€000

€000

€000

Total assets used in the computation of the operating profit return on average assets per the Unaudited Interim Consolidated Balance Sheet

24,550,976

24,211,313

23,043,592

21,514,131

 

 

 

 

H.           Definitions & Explanations (continued)

Ratios Information (continued)

2.         Operating profit return on average assets (continued)

 

30 September 2021

30 September

2020

 

 

Annualised operating profit (€000)

191,304

203,048

Quarterly average total assets (€000)

23,330,003

21,109,991

Operating profit return on average assets (annualised) (%)

0.8%

1.0%

 

 

 

 

 

H. Definitions & Explanations (continued)

Advisory and other restructuring costs

Comprise mainly (a) fees of external advisors in relation to: (i) disposal of operations and non-core assets, and (ii) customer loan restructuring activities, and (b) the cost of the tender offer for the Existing Tier 2 Capital Notes.

 

 

Allowance for expected loan credit losses (previously 'Accumulated provisions')

Comprises (i) allowance for expected credit losses (ECL) on loans and advances to customers (including allowance for expected credit losses on loans and advances to customers held for sale), (ii) the residual fair value adjustment on initial recognition of loans 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 the Capital Requirements Regulation (EU) No 575/2013, as amended by CRR II applicable as at the reporting date.

 

 

Basic earnings/(losses) after tax and before non-recurring items per share (attributable to the owners of the Company)

Basic earnings/(losses) after tax and before non-recurring items per share (attributable to the owners of the Company) is the Profit/(loss) after tax and before non-recurring items (as defined below) (attributable to the owners of the Company) divided by the weighted average number of shares in issue during the period, excluding treasury shares.

 

 

CET1 capital ratio (transitional basis)

CET1 capital ratio (transitional basis) is defined in accordance with the Capital Requirements Regulation (EU) No 575/2013, as amended by CRR II applicable as at the reporting date.

 

 

CET1 fully loaded (FL) ratio

The CET1 fully loaded (FL) ratio is defined in accordance with the Capital Requirements Regulation (EU) No 575/2013, as amended by CRR II applicable as at the reporting date.

 

 

Cost to Income ratio

 

Cost-to-income ratio comprises total expenses (as defined) divided by total income (as defined).

 

 

Data from the Statistical Service

The latest data from the Statistical Service of the Republic of Cyprus, Cyprus Statistical Service, was published on 19 November 2021.

 

Digital transactions ratio

This is the ratio of the number of digital transactions 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. Digital transactions have been adjusted to include Payroll & Group Transfers performed through 1Bank at transaction level. Historical values have been adjusted accordingly for this change.

 

 

Digitally engaged customers ratio

This is the ratio of digitally engaged individual 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. Digital engagement has been adjusted to include Standing Orders & Group Transfers performed through 1Bank at transaction level. Historical values have been adjusted accordingly for this change.

 

ECB

European Central Bank

 

 

Gross loans

Gross loans comprise: (i) gross loans and advances to customers measured at amortised cost before the residual fair value adjustment on initial recognition (including loans and advances to customers classified as non-current assets held for sale) and (ii) loans and advances to customers classified and measured at FVPL adjusted for the aggregate fair value adjustment

 

Gross loans are reported before the residual fair value adjustment on initial recognition relating mainly to loans acquired from Laiki Bank (calculated as the difference between the outstanding contractual amount and the fair value of loans acquired) amounting to €181 mn at 30 September 2021 (compared to €185 mn at 30 June 2021 and €230 mn at 31 December 2020).

 

Additionally, gross loans include loans and advances to customers classified and measured at fair value through profit or loss adjusted for the aggregate fair value adjustment of €334 mn at 30 September 2021 (compared to €332 mn at 30 June 2021 and €326 mn at 31 December 2020).

H. Definitions & Explanations (continued)

 

Group

 

The Group consists οf 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.

 

 

Loan credit losses (PL) (previously 'Provision charge')

Loan credit losses comprise: (i) credit losses to cover credit risk on loans and advances to customers, (ii) net gains on derecognition of financial assets measured at amortised cost and (iii) net gains on loans and advances to customers at FVPL, for the reporting period/year.

 

 

Loan credit losses charge (previously 'Provisioning charge') (cost of risk)

Loan credit losses charge (cost of risk) (year to date) is calculated as the annualised 'loan credit losses' (as defined) divided by average gross loans. The average gross loans are calculated as the average of the opening balance and the closing balance, for the reporting period/year.

 

 

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 39.1% at 30 September 2021, compared to 39.1% at 30 June 2021, 42.4% at 31 March 2021 and 41.9% at 31 December 2020. The decrease in 2Q2021 is mainly due to the completion of Project Helix 2.

 

 

MSCI ESG Rating

The use by the Bank of any MSCI ESG Research LLC or its affiliates ('MSCI') data, and the use of MSCI Logos, trademarks, service marks or index names herein, do not constitute a sponsorship, endorsement, recommendation or promotion of the Bank by MSCI. MSCI Services and data are the property of MSCI or its information providers and are provided "as-is" and without warranty. MSCI Names and logos are trademarks or service marks of MSCI.

 

 

Net fee and commission income over total income

Fee and commission income less fee and commission expense divided by total income (as defined).

 

 

Net Interest Margin

 

Net interest margin is calculated as the net interest income (annualised) divided by the 'quarterly average interest earning assets' (as defined).

 

 

Net loans and advances to customers

Net loans and advances to customers comprise gross loans (as defined) net of allowance for expected loan credit losses (as defined, but excluding allowance for expected credit losses on off-balance sheet exposures disclosed on the balance sheet within other liabilities).

 

 

Net loans to deposits ratio

Net loans to deposits ratio is calculated as gross loans (as defined) net of allowance for expected loan credit losses (as defined) divided by customer deposits.

 

 

Net Stable Funding Ratio (NSFR)

The NSFR is calculated as the amount of "available stable funding" (ASF) relative to the amount of "required stable funding" (RSF). The regulatory limit has been set at 100% as per the CRR II enforced in June 2021. The NSFR weights under CRR II do not have material deviations from those under Basel III guidelines which the Group followed prior to CRR II enforcement.

 

 

New lending

New lending includes the disbursed amounts of the new and existing non-revolving facilities (excluding forborne or re-negotiated accounts) as well as the average year to date change (if positive) of the current accounts and overdraft facilities between the balance at the beginning of the period and the end of the period. Recoveries are excluded from this calculation since their overdraft movement relates mostly to accrued interest and not to new lending.

 

 

 

H. Definitions & Explanations (continued)

Non-interest income

Non-interest income comprises Net fee and commission income, Net foreign exchange gains/(losses) and net gains/(losses) on financial instrument transactions and disposal/dissolution of subsidiaries and associates (excluding net gains on loans and advances to customers at FVPL), Insurance income net of claims and commissions, Net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties, and Other income.

 

 

Non-performing exposures (NPEs)

As per the European Banking Authorities (EBA) standards and European Central Bank's (ECB) Guidance to Banks on Non-Performing Loans (which was published in March 2017), non-performing exposures (NPEs) are defined as those exposures that satisfy one of the following conditions: 

(i)   The borrower is assessed as unlikely to pay its credit obligations in full without the realisation of the collateral, regardless of the existence of any past due amount or of the number of days past due.

(ii)  Defaulted or impaired exposures as per the approach provided in the Capital Requirement Regulation (CRR), which would also trigger a default under specific credit adjustment, diminished financial obligation and obligor bankruptcy.

(iii) Material exposures as set by the Central Bank of Cyprus (CBC), which are more than 90 days past due.

(iv) Performing forborne exposures under probation for which additional forbearance measures are extended.

(v)  Performing forborne exposures previously classified as NPEs that present more than 30 days past due within the probation period.

 

From 1 January 2021 two regulatory guidelines came into force that affect NPE classification and Days-Past-Due calculation. More specifically, these are the RTS on the Materiality Threshold of Credit Obligations Past-Due (EBA/RTS/2016/06), and the Guideline on the Application of the Definition of Default under article 178 (EBA/RTS/2016/07).

 

The Days-Past-Due (DPD) counter begins counting DPD as soon as the arrears or excesses of an exposure reach the materiality threshold (rather than as of the first day of presenting any amount of arrears or excesses). Similarly, the counter will be set to zero when the arrears or excesses drop below the materiality threshold. Payments towards the exposure that do not reduce the arrears/excesses below the materiality threshold, will not impact the counter.

 

For retail debtors, 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.

 

For non‑retail debtors, when an exposure fulfils the NPE criteria set out above, then the total customer exposure is classified as non‑performing.

 

Material arrears/excesses are defined as follows:

- Retail exposures: Total arrears/excess amount greater than €100

- Exposures other than retail: Total arrears/excess amount greater than €500

and the amount in arrears/excess in relation to the customer's total exposure is at least 1%.

 

Non-recurring items

Non-recurring items as presented in the 'Unaudited Interim Condensed Consolidated Income Statement - Underlying basis' relate to the following items, as applicable: (i) Advisory and other restructuring costs - organic, (ii) Provisions/net (loss)/profit relating to NPE sales, and (iii) Restructuring and other expenses relating to NPE sales.

 

NPE coverage ratio (previously 'NPE Provisioning coverage ratio')

The NPE coverage ratio is calculated as the allowance for expected loan credit losses (as defined) over NPEs (as defined).

 

 

NPE ratio

NPEs ratio is calculated as the NPEs as per EBA (as defined) divided by gross loans (as defined).

 

 

H. Definitions & Explanations (continued)

 

NPE sales

NPE sales refer to sales of NPE portfolios completed, as well as contemplated and potential future sale transactions, irrespective of whether or not they met the held for sale classification criteria at the reporting dates.

 

 

Operating profit

The 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 return on average assets

Operating profit return on average assets is calculated as the annualised operating profit (as defined) divided 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 Conservation Buffer (CCB)

In accordance with the legislation in Cyprus which has been set for all credit institutions, the applicable rate of the CCB is 1.25% for 2017, 1.875% for 2018 and 2.5% for 2019 (fully phased-in).  

 

 

Profit/(loss) after tax and before non-recurring items (attributable to the owners of the Company)

This refers to the profit or loss after tax (attributable to the owners of the Company), excluding any 'non-recurring items' (as defined).

 

 

Profit/(loss) after tax - organic (attributable to the owners of the Company)

This refers to the profit or loss after tax (attributable to the owners of the Company), excluding any 'non-recurring items' (as defined, except for the 'advisory and other restructuring costs - organic').

 

 

Project Helix

Project Helix refers to the sale of a portfolio of loans with a gross book value of €2.8 bn completed in June 2019.

 

Project Helix 2

Project Helix 2 refers to the sale of portfolios of loans with a total gross book value of €1.3 bn completed in June 2021. For further information please refer to section A.1.5 Loan portfolio quality.

 

 

Quarterly average interest earning assets

This relates to the average of 'interest earning assets' as at the beginning and end of the relevant 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 (including cash and balances with central banks classified as non-current assets held for sale), 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 'deferred consideration receivable' included within 'other assets', plus investments (excluding equities and mutual funds).

 

 

Qoq

Quarter on quarter change

 

 

Special levy on deposits and other levies/contributions

Relates to the special levy on deposits of credit institutions in Cyprus, contributions to the Single Resolution Fund (SRF), contributions to the Deposit Guarantee Fund (DGF), as well as the DTC levy.

 

 

Total Capital ratio

Total capital ratio is defined in accordance with the Capital Requirements Regulation (EU) No 575/2013, as amended by CRR II applicable as at the reporting date.

 

 

 

 

 

 

 

 

H. Definitions & Explanations (continued)

 

 

Total expenses

Total expenses comprise staff costs, other operating expenses and the special levy on deposits and other levies/contributions. It does not include (i) 'advisory and other restructuring costs-organic', or (ii) any restructuring costs relating to NPE sales. (i) 'Advisory and other restructuring costs-organic' amounted to €1 mn for 3Q2021 (compared to €15 mn for 2Q2021, €3 mn for 1Q2021 and €1 mn for 4Q2020), (ii) Restructuring costs relating to NPE sales amounted to €3 mn for 3Q2021 (compared to €6 mn for 2Q2021, €4 mn for 1Q2021 and c.€1.5 mn for 4Q2020).

 

 

Total income           

Total income comprises net interest income and non-interest income (as defined).

 

 

Total loan credit losses, impairments and provisions

Total loan credit losses, impairments and provisions comprises loan credit losses (as defined), plus impairments of other financial and non-financial assets, plus 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 nine months ended 30 September 2021.

 

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 nine months ended 30 September 2021. 

 

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 2020, upon which the auditors have given an unqualified report, were published on 30 March 2021 and have been annexed to the annual return and delivered to the Registrar of Companies of Ireland. The Board of Directors approved the Group statutory financial statements for the nine months ended 30 September 2021 on 29 November 2021. 

 

Statutory basis: Statutory information is set out on pages 33-37. However, a number of factors have had a significant effect on the comparability of the Group's financial position and performance. Accordingly, the results are also presented on an underlying basis.

 

Underlying basis: The financial information presented under the underlying basis provides an overview of the Group financial results for the nine months ended 30 September 2021, which the management believes best fits the true measurement of the financial performance and position of the Group. For further information, please refer to 'Commentary on Underlying Basis' on page 5. The statutory results are adjusted for certain items (as described on pages 38-39) to allow a comparison of the Group's underlying financial position and performance, as set out on pages 4-6.

 

The financial information included in this announcement is neither reviewed nor audited by the Group's external auditors.

 

This announcement and the presentation for the Group Financial Results for the nine months ended 30 September 2021 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 H, together with explanations.

 

The Group Financial Results for the nine months ended 30 September 2021 are presented in Euro (€) 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, medium 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, information technology, litigation and other operational risks, adverse market conditions, the impact of outbreaks, epidemics or pandemics, such as the COVID-19 pandemic and ongoing challenges and uncertainties posed by the COVID-19 pandemic for businesses and governments around the world. 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 at 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 90 branches in Cyprus, of which 10 operate as cash offices. Bank of Cyprus also has representative offices in Russia, Ukraine and China. The Bank of Cyprus Group employs 3,558 staff worldwide. At 30 September 2021, the Group's Total Assets amounted to €24.5 bn and Total Equity was €2.1 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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