TIDMBOCH
RNS Number : 2300K
Bank of Cyprus Holdings PLC
27 August 2019
Announcement
Group Financial Results for the six months ended 30 June
2019
Nicosia, 27 August 2019
Key Highlights for the six months ended 30 June 2019
Good Capital Position
* Total Capital ratio of 18.1% pro forma for the
disposal of investment in CNP (17.8% as reported)
* CET1 ratio of 15.2% pro forma for the disposal of
investment in CNP (14.9% as reported)
* Project Helix completed, adding 140 bps to capital in
2Q2019
Continuing Progress on Balance Sheet Repair
* Completion of sale of EUR2.7 bn NPEs (Project Helix)
* NPEs of EUR4.3 bn (EUR2.2 bn net); 71% reduction
since 2014; NPE ratio reduced to 33%, coverage
increased to 50%
* Seventeen consecutive quarters of organic NPE
reduction; EUR300 mn NPE reduction in 2Q2019; EUR457
mn in 1H2019
* REMU sales (organic) of EUR110 mn in 1H2019;
Completion of sale of Cyreit in 2Q2019
* Management continues to actively explore strategies
to further accelerate de-risking including further
portfolio sales
Strong Liquidity Position
* Deposits at EUR16.4 bn at quarter end, broadly flat
qoq
* Significant liquidity surplus of EUR3.8 bn,
reflecting EUR1.2 bn increase on Project Helix
completion
* Loan to deposit ratio of 67%
2Q2019 Performance Reflects Continued De-risking
* Total Income of EUR177 mn, Operating profit of EUR72
mn, Underlying profit after tax, excluding Helix &
CNP, of EUR21 mn
* Cost of risk of 1.23% reflecting continued de-risking
and IFRS 9 model volatility
* Agreement for the sale of investment in CNP; net loss
of EUR23 mn (+30 bps of capital on completion)
* Profit after tax of EUR2 mn for 2Q2019 and EUR97 mn
for 1H2019
Outgoing Group Chief Executive Statement
"Our results this quarter reflect continuing progress against
our core objective of balance sheet repair.
We completed the sale of c.EUR2.7 bn non-performing loans in
Project Helix in June, which added 140 bps of capital. Our on-going
organic non-performing exposure (NPE) reduction amounted to EUR300
mn for the quarter, bringing total organic reduction in the first
half of 2019 to EUR457 mn, in line with our organic target of
c.EUR800 mn for 2019. This was the seventeenth consecutive quarter
of organic reductions in NPEs.
Since the peak in 2014, we have now reduced the stock of NPEs by
71% to EUR4.3 bn. This stock of NPEs is now covered by 50% loan
credit losses. Overall, since 2014 we have managed a reduction in
NPEs of EUR10.7 bn, of which EUR8 bn has been through organic
actions.
In June 2019 we agreed the sale of our minority stake in CNP
Cyprus Insurance Holdings Ltd (CNP). At completion this is expected
to add c.30 bps of capital. The sale enables the Group to focus on
its core assets and is in line with the Group's strategy of
delivering value for shareholders.
The Bank's capital position remains good. As at 30 June 2019 the
CET1 ratio (IFRS 9 transitional) was 15.2% and the Total Capital
ratio was 18.1%, both pro forma for the disposal of our investment
in CNP, well in excess of our regulatory requirements.
During the quarter our deposits remained broadly flat at EUR16.4
bn and our cost of deposits reduced by 8 bps. Overall our cost of
deposits has reduced by 52 bps since January 2018. In the second
quarter of 2019 new lending rose 13% from the prior year to EUR548
mn, helping support the continued growth in the Cypriot economy.
Overall in the first half of 2019, we lent EUR1.1 bn to customers
in Cyprus. Our loan to deposit ratio at the quarter-end stood at
67%. The Bank continues to operate with a significant liquidity
surplus, which at the end of the second quarter amounted to EUR3.8
bn.
During the second quarter of the year, the Group generated total
income of EUR177 mn and a positive operating result of EUR72 mn.
The underlying result after tax is a profit of EUR21 mn, excluding
Helix and the CNP disposal. On a reported basis, after the EUR23 mn
net loss from the sale of our investment in CNP, the result was a
profit after tax for the second quarter of EUR2 mn. The reported
profit after tax for the first half of the year amounted to EUR97
mn.
I am extremely proud of the progress the Bank has made since
late 2013 when I joined the executive team. The Bank is returning
to strength, through a disciplined approach to balance sheet repair
and disposal of non-core business. It is now well placed to support
the strengthening Cypriot economy, which expanded by 3.3% during
the first half of the year. I firmly believe that our new CEO,
Panicos Nicolaou, whom I have worked closely with for a number of
years, will confidently lead the Bank in its next chapter. I know
the management will remain focused on continuing to make the Bank
stronger, safer and future- focused."
John Patrick Hourican
Group Chief Executive Designate Statement
"I am excited to be taking over on 1 September. John is leaving,
with the Bank being entirely transformed from its position at the
time he arrived and we are very grateful for the work he and my
fellow executive team have done. There remains more to do and our
initial focus will be to continue the good work that he and the
team have achieved. The strategy to de-risk the Bank and strengthen
the balance sheet remains as important today as it was in 2013.
Together with the continued de-risking of the Bank, my focus
will be on ensuring our business model is best placed for the
future and we will further rationalise and modernise the Bank and
identify ways to reduce the cost of running the Bank. As with all
other European banks, the changed interest rate environment
presents a challenge to our profitability levels. In response, we
will remain focused on actively managing our funding costs and
identifying ways to reduce our cost base, while looking for
opportunities to enhance our revenue dynamics.
I am fully committed to ensuring Bank of Cyprus continues to
play a vital role in supporting the local economy. I am under no
illusions about how much there remains to be done, but I am excited
at the opportunity and our potential."
Panicos Nicolaou
A. Group Financial Results - Statutory Basis
Interim Consolidated Income Statement for the six months ended
30 June 2019
Six months ended
30 June
2019 2018
(represented)
---------- ---------------
EUR000 EUR000
---------- ---------------
Turnover 487,145 521,469
========== ===============
Interest income 251,805 286,581
Income similar to interest income 26,683 26,296
Interest expense (50,415) (78,016)
---------- ---------------
Expense similar to interest expense (23,964) (22,777)
---------- ---------------
Net interest income 204,109 212,084
---------- ---------------
Fee and commission income 87,467 85,282
---------- ---------------
Fee and commission expense (12,955) (4,946)
---------- ---------------
Net foreign exchange gains 14,117 18,039
---------- ---------------
Net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates 12,155 37,378
---------- ---------------
Insurance income net of claims and commissions 30,036 25,094
---------- ---------------
Net (losses)/ gains from revaluation and disposal
of investment properties (1,349) 1,165
---------- ---------------
Net gains on disposal of stock of property 17,747 20,266
---------- ---------------
Other income 15,679 11,276
---------- ---------------
367,006 405,638
---------- ---------------
Staff costs (114,244) (104,670)
---------- ---------------
Special levy on deposits on credit institutions
in Cyprus and contribution to Single Resolution
Fund (12,477) (12,073)
---------- ---------------
Other operating expenses (112,967) (102,292)
---------- ---------------
127,318 186,603
---------- ---------------
Net gains on derecognition of financial assets
measured at amortised cost 5,429 19,381
---------- ---------------
Credit losses to cover credit risk on loans and
advances to customers (108,911) (252,953)
========== ===============
Credit losses of other financial instruments (7,367) (3,331)
========== ===============
Impairment of non-financial instruments (11,585) (10,117)
========== ===============
Profit/(loss) before share of profit from associates
and remeasurement 4,884 (60,417)
---------- ---------------
Remeasurement of investment in associate classified (25,943) -
as held for sale
---------- ---------------
Share of profit from associates 5,312 4,520
---------- ---------------
Loss before tax from continuing operations (15,747) (55,897)
---------- ---------------
Income tax 115,144 (3,890)
---------- ---------------
Profit/(loss) after tax from continuing operations 99,397 (59,787)
---------- ---------------
Profit after tax from discontinued operations - 4,010
---------- ---------------
Profit/ (loss) for the period 99,397 (55,777)
========== ===============
Attributable to:
---------- ---------------
Owners of the Company-continuing operations profit/(loss) 97,398 (58,058)
---------- ---------------
Owners of the Company-discontinuing operations
profit - 4,010
---------- ---------------
Total profit/ (loss) attributable to the owners
of the Company 97,398 (54,048)
---------- ---------------
Non-controlling interests-continuing operations
profit/(loss) 1,999 (1,729)
---------- ---------------
Profit/ (loss) for the period 99,397 (55,777)
========== ===============
Basic and diluted profit/ (losses) per share attributable
to the owners of the Company
(EUR cent) - continuing operations 21.8 (13.0)
---------- ---------------
Basic and diluted profit/ (losses) per share attributable
to the owners (EUR cent) 21.8 (12.1)
========== ===============
Interim Consolidated Balance Sheet as at 30 June 2019
30 June 31 December
2019 2018 (restated)
Assets EUR000 EUR000
----------- -----------------
Cash and balances with central banks 5,261,896 4,610,491
----------- -----------------
Loans and advances to banks 403,041 472,532
----------- -----------------
Derivative financial assets 13,651 24,754
----------- -----------------
Investments 1,588,582 777,104
----------- -----------------
Investments pledged as collateral 292,317 737,587
----------- -----------------
Loans and advances to customers 10,949,002 10,921,786
----------- -----------------
Life insurance business assets attributable to
policyholders 438,560 402,565
----------- -----------------
Prepayments, accrued income and other assets 323,253 256,002
----------- -----------------
Stock of property 1,430,441 1,426,857
----------- -----------------
Deferred tax assets 379,126 301,778
----------- -----------------
Investment properties 141,864 128,006
----------- -----------------
Property and equipment 292,133 260,723
----------- -----------------
Intangible assets 173,608 170,411
----------- -----------------
Investments in associates and joint venture 2,191 114,637
----------- -----------------
Non-current assets and disposal groups held for
sale 197,521 1,470,038
----------- -----------------
Total assets 21,887,186 22,075,271
=========== =================
Liabilities
----------- -----------------
Deposits by banks 532,023 431,942
----------- -----------------
Funding from central banks 830,000 830,000
----------- -----------------
Repurchase agreements 247,813 248,945
----------- -----------------
Derivative financial liabilities 56,702 38,983
----------- -----------------
Customer deposits 16,376,686 16,843,558
----------- -----------------
Insurance liabilities 626,512 591,057
----------- -----------------
Accruals, deferred income, other liabilities
and other provisions 331,408 285,483
----------- -----------------
Pending litigation, claims, regulatory and other
matters 102,375 116,951
----------- -----------------
Subordinated loan stock 261,417 270,930
----------- -----------------
Deferred tax liabilities 44,818 44,282
----------- -----------------
Non-current liabilities and disposal group held
for sale 6,760 5,812
----------- -----------------
Total liabilities 19,416,514 19,707,943
----------- -----------------
Equity
----------- -----------------
Share capital 44,620 44,620
----------- -----------------
Share premium 1,294,358 1,294,358
----------- -----------------
Revaluation and other reserves 213,532 190,411
----------- -----------------
Retained earnings 670,143 591,941
----------- -----------------
Equity attributable to the owners of the Company 2,222,653 2,121,330
----------- -----------------
Other equity instruments 220,000 220,000
----------- -----------------
Total equity excluding non-controlling interests 2,442,653 2,341,330
----------- -----------------
Non-controlling interests 28,019 25,998
----------- -----------------
Total equity 2,470,672 2,367,328
----------- -----------------
Total liabilities and equity 21,887,186 22,075,271
=========== =================
B. Group Financial Results - Underlying Basis
Interim Condensed Consolidated Income Statement
-------------------------------------------------------------------------------------------------------------------------------------------
qoq
EUR mn 1H2019(1) 1H2018(1,2,3) 2Q2019(1) 1Q2019(1) +% yoy +%
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Net interest income 170 166 85 85 1% 3%
Net fee and
commission income 75 80 38 37 5% -7%
Net foreign exchange
gains and net gains
on financial
instrument
transactions and
disposal/dissolution
of subsidiaries and
associates 26 42 16 10 58% -37%
Insurance income net
of claims and
commissions 30 25 18 12 42% 20%
Net gains from
revaluation and
disposal of
investment
properties and on
disposal of stock
of properties 16 21 12 4 210% -23%
Other income 16 11 8 8 -6% 39%
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Total income 333 345 177 156 14% -4%
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Staff costs (112) (102) (56) (56) 0% 9%
Other operating
expenses (84) (80) (43) (41) 3% 6%
Special levy and
contribution to
Single Resolution
Fund (12) (12) (6) (6) -3% 3%
Total expenses (208) (194) (105) (103) 1% 7%
--------------------------------- ----------------- ------------------ ----------- -----------
Operating profit 125 151 72 53 39% -17%
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Loan credit losses (87) (85) (40) (47) -14% 3%
Impairments of other
financial and
non-financial assets (10) (13) (9) (1) - -20%
Reversal of
provisions for
litigation,
regulatory and other
matters 3 6 3 (0) - -54%
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Total loan credit
losses, impairments
and provisions (94) (92) (46) (48) 2% 3%
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Profit before tax and
non-recurring items 31 59 26 5 - -49%
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Tax 0 (4) 2 (2) - -98%
(Profit)/loss
attributable to
non-controlling
interests (2) 2 (2) (0) - -
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Profit after tax and
before non-recurring
items 29 57 26 3 - -51%
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Advisory and other
restructuring costs
- excluding
discontinued
operations and NPE
sale (Helix) (12) (15) (5) (7) -29% -22%
===================== ================================= ================= ================== =========== =========== =========
Profit/(loss) after
tax - Organic 17 42 21 (4) - -61%
===================== ================================= ================= ================== =========== =========== =========
Profit from
discontinued
operations (UK) - 4 - - - -
Profit/(loss)
relating to NPE sale
(Helix) 0 (105) 4 (4) - -
Loss on remeasurement
of investment in
associate classified
as held for sale
(CNP) net of
share of profit from
associates (21) 5 (23) 2 - -
Reversal of
impairment of DTA
and impairment of
other tax
receivables 101 - - 101 - -
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Profit/(loss) after
tax - attributable
to the owners of the
Company 97 (54) 2 95 -97% -
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Key Performance qoq
Ratios(3) 1H2019(1) 1H2018(1,2,3) 2Q2019(1) 1Q2019(1) +% yoy +%
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Net Interest Margin
(annualised) 1.88% 1.86% 1.89% 1.88% +1 bps +2bps
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Cost to income ratio 63% 56% 59% 66% -7 p.p. +7 p.p.
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Cost to income ratio
excluding special
levy and
contribution to
Single Resolution
Fund 59% 53% 56% 62% -6 p.p. +6 p.p.
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Operating profit
return on average
assets (annualised) 1.1% 1.4% 1.3% 1.0% +30 bps -30 bps
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Basic
earnings/(losses)
per share
attributable to the
owners of the
Company (EUR cent) -
Organic 3.72 9.43 4.78 (1.06) 5.84 -5.71
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
Basic
earnings/(losses per
share attributable
to the owners of the
Company (EUR cent) 21.84 (12.12) 0.61 21.23 -20.62 33.96
--------------------- --------------------------------- ----------------- ------------------ ----------- ----------- ---------
1. The interest income, non-interest income, staff costs, other operating expenses and loan
credit losses related to Project Helix are disclosed under 'Profit/(loss) relating to NPE
sale (Helix)' in the underlying basis. 2. Represented for the disposal of the UK subsidiary
3. Including the impact from IFRIC Presentation of unrecognised interest following the curing
of a credit-impaired financial asset (IFRS 9)). This resulted in a reclassification between
net interest income and loan credit losses, with no impact on the overall profitability. p.p.
= percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point
Interim Condensed Consolidated Balance Sheet
==================================================================================================================================
EUR mn 30.06.2019 31.12.2018 +%
(restated)
======================================================== ========= ===================== ================ ====================
Cash and balances with central
banks 5,262 4,610 14%
Loans and advances to banks 403 473 -15%
Debt securities, treasury bills
and equity investments 1,881 1,515 24%
Net loans and advances to customers 10,949 10,922 0%
Stock of property 1,430 1,427 0%
Investment properties 142 127 11%
Other assets 1,622 1,531 6%
Non-current assets and disposal
groups held for sale 198 1,470 -87%
======================================================== ========= ===================== ================ ====================
Total assets 21,887 22,075 -1%
======================================================== ========= ===================== ================ ====================
Deposits by banks 532 432 23%
Funding from central banks 830 830 -
Repurchase agreements 248 249 0%
Customer deposits 16,377 16,844 -3%
Subordinated loan stock 261 271 -4%
Other liabilities 1,169 1,082 8%
======================================================== ========= ===================== ================ ====================
Total liabilities 19,417 19,708 -1%
======================================================== ========= ===================== ================ ====================
Shareholders' equity 2,222 2,121 5%
======================================================== ========= ===================== ================ ====================
Other equity instruments 220 220 -
======================================================== ========= ===================== ================ ====================
Total equity excluding non-controlling
interests 2,442 2,341 4%
======================================================== ========= ===================== ================ ====================
Non-controlling interests 28 26 8%
======================================================== ========= ===================== ================ ====================
Total equity 2,470 2,367 4%
======================================================== ========= ===================== ================ ====================
Total liabilities and equity 21,887 22,075 -1%
======================================================== ========= ===================== ================ ====================
Key Balance Sheet figures and 31.12.2018 +
ratios 30.06.2019
======================================================== ================= ================== ==================== ===========
Gross loans (EUR mn) 13,072 13,148 -1%
======================================================== ================= ================== ==================== ===========
Allowance for expected loan
credit losses (EUR mn) 2,145 2,254 -5%
======================================================== ================= ================== ==================== ===========
Customer deposits (EUR mn) 16,377 16,844 -3%
======================================================== ================= ================== ==================== ===========
Loans to deposits ratio (net) 67% 65% +2 p.p.
======================================================== ================= ================== ==================== ===========
NPE ratio 33% 36% -3 p.p.
======================================================== ================= ================== ==================== ===========
NPE coverage ratio 50% 47% +3 p.p.
======================================================== ================= ================== ==================== ===========
Leverage ratio 10.5% 10.0% 0.5 p.p.
======================================================== ================= ================== ==================== ===========
Capital ratios and risk weighted 30.06.2019 30.06.2019 31.12.2018 +
assets Pro forma
for CNP
======================================================== ================= ================== ==================== ===========
Common Equity Tier 1 (CET1)
ratio (transitional for IFRS
9)(1) 15.2% 14.9% 11.9%(2) +300 bps
======================================================== ================= ================== ==================== ===========
Total capital ratio 18.1% 17.8% 14.9% +290 bps
======================================================== ================= ================== ==================== ===========
Risk weighted assets (EUR mn) 13,724 13,962 15,373 -9%
======================================================== ================= ================== ==================== ===========
1. The CET1 FL ratio as at 30 June 2019 (including the full impact
of IFRS 9) amounts to 13.3% and 13.5% pro forma for the sale of the
investment in CNP (compared to 11.9% and 13.3% pro forma for Helix
for 31 March 2019 and to 10.1% and 13.5% respectively for 31 December
2018). 2. The CET1 ratio transitional also for DTA as at 31 December
2018 stood at 12.1%. p.p. = percentage points, bps = basis points,
100 basis points (bps) = 1 percentage point
Comparative Information
Comparative information was restated following the change in the
classification of properties which are leased out under operating
leases as investment properties, as disclosed in Note 3.3.1 of the
Interim Condensed Consolidated Financial Statements for the six
months ended 30 June 2019.
Reclassifications to comparative information were also made to
conform to current period presentation as follows:
-- Unrecognised interest on previously credit impaired loans
which have cured during the period amounting to c.EUR15 mn was
reclassified from 'Net interest income' to 'Credit losses to cover
credit risk on loans and advances to customers' in line with an
IFRIC discussion, which took place in November 2018 (Presentation
of unrecognised interest following the curing of a credit impaired
financial asset (IFRS 9)).
-- The results of the discontinued operations in the UK (Bank of
Cyprus UK Ltd and its subsidiary, Bank of Cyprus Financial Services
Ltd) were represented as discontinued operations (profit after tax
for 1H2018: EUR4 mn) (Note 7 of the Interim Condensed Consolidated
Financial Statements for the six months ended 30 June 2019).
The changes in presentation did not have a material impact on
the profit / (loss) after tax of the Group for the period. However,
the net interest margin, the cost to income ratio and the cost of
risk ratio were recalculated to account for these
representations.
B.1 Reconciliation of Income Statement for the six months ended
30 June 2019 between statutory basis and underlying basis
EUR mn Underlying Helix Investment Tax Other Statutory
Basis portfolio in associate related Basis
classified items
as HFS
Net interest income 170 34 - - - 204
=========== =========== ============== ========= ====== ==========
Net fee and commission
income 75 6 - (6) - 75
=========== =========== ============== ========= ====== ==========
Net foreign exchange
gains and net gains
on financial instrument
transactions and
disposal/dissolution
of subsidiaries and
associates 26 - - - - 26
=========== =========== ============== ========= ====== ==========
Insurance income
net of claims and
commissions 30 - - - - 30
=========== =========== ============== ========= ====== ==========
Net gains from revaluation
and disposal of investment
properties and on
disposal of stock
of properties 16 - - - - 16
=========== =========== ============== ========= ====== ==========
Other income 16 - - - - 16
----------- ----------- -------------- --------- ------ ----------
Total income 333 40 - (6) - 367
=========== =========== ============== ========= ====== ==========
Total expenses (208) (23) - - (9) (240)
----------- ----------- -------------- --------- ------ ----------
Operating profit 125 17 - (6) (9) 127
=========== =========== ============== ========= ====== ==========
Loan credit losses (87) (17) - - - (104)
=========== =========== ============== ========= ====== ==========
Impairments of other
financial and
non-financial
instruments (10) - - (8) - (18)
=========== =========== ============== ========= ====== ==========
Reversal of provisions
for litigation, regulatory
and other matters 3 - - - (3) -
=========== =========== ============== ========= ====== ==========
Remeasurement of
investment in associate
classified as held
for sale - - (26) - - (26)
=========== =========== ============== ========= ====== ==========
Share of profit from
associate - - 5 - - 5
----------- ----------- -------------- --------- ------ ----------
Profit/(loss) before
tax and non-recurring
items 31 - (21) (14) (12) (16)
=========== =========== ============== ========= ====== ==========
Tax 0 - - 115 - 115
=========== =========== ============== ========= ====== ==========
(Profit) attributable
to non-controlling
interests (2) - - - - (2)
----------- ----------- -------------- --------- ------ ----------
Profit after tax
and before non-recurring
items 29 - (21) 101 (12) 97
=========== =========== ============== ========= ====== ==========
Advisory and other
restructuring costs
- excluding discontinued
operations and NPE
sale (Helix) (12) - - - 12 -
----------- ----------- -------------- --------- ------ ----------
Profit after tax
- Organic* 17 - (21) 101 - 97
=========== =========== ============== ========= ====== ==========
Profit/(loss) relating
to NPE sale (Helix) 0 (0) - - - -
=========== =========== ============== ========= ====== ==========
Loss on remeasurement
of investment in
associate classified
as held for sale
(CNP) net of share
of profit from associates (21) - 21 - - -
=========== =========== ============== ========= ====== ==========
Reversal of impairment
of DTA and impairment
of other tax receivables 101 - - (101) - -
=========== =========== ============== ========= ====== ==========
Profit after tax
(attributable to
the owners of the
Company) 97 - - - - 97
=========== =========== ============== ========= ====== ==========
* This is the profit after tax, before the loss on remeasurement
of investment in associate classified as held for sale (CNP) net of
share of profit from associates and the reversal of impairment of
deferred tax assets (DTA) and impairment of other tax
receivables.
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:
Helix portfolio
-- Net interest income of EUR34 mn and fee and commission income
of EUR6 mn, relating to the NPE sale (Helix) is disclosed under
non-recurring items within 'Profit/(loss) relating to NPE sale
(Helix)' under the underlying basis.
-- Total expenses include staff costs of EUR3 mn, operating
expenses of EUR12 mn and restructuring costs of EUR8 mn relating to
the NPE sale (Helix) and are presented within 'Profit/(loss)
relating to NPE sale (Helix)' under the underlying basis.
Investment in associate classified as HFS
-- Loss on remeasurement of investment in associate classified
as held for sale (CNP) net of share of profit from associates of
EUR21 mn comprises the share of profit from associate of EUR5 mn,
which is reported in the 'Share of profit from associates' under
the statutory basis and the loss on remeasurement of EUR26 mn,
which is classified as 'Remeasurement of investment in associate
classified as held for sale' under the statutory basis.
Tax related items
-- Reversal of impairment of the deferred tax asset and
impairment of other tax receivables amounting to EUR101 mn included
within 'Tax' under the statutory basis is classified as a
non-recurring item and disclosed within 'Reversal of impairment of
DTA and impairment of other tax receivables' under the underlying
basis. Fee and commission expense relating to the revised income
tax legislation of EUR6 mn, which has been disclosed within
'Reversal of impairment of deferred tax asset and impairment of
other tax receivables' under the underlying basis, is disclosed
within the 'Net fee and commission income' under the statutory
basis.
-- Impairment of other financial assets of EUR8 mn, which are
included in "Credit losses of other financial instruments" under
the statutory basis, relate to the impairment of Greek tax
receivables and are classified as a non-recurring item and
disclosed within 'Reversal of impairment of DTA and impairment of
other tax receivables' under the underlying basis.
Other reclassifications
-- Advisory and other restructuring costs of c.EUR12 mn included
in "Other operating expenses" under the statutory basis, are
separately presented under the underlying basis.
-- Reversal of provisions for litigation, regulatory and other
matters amounting to EUR3 mn included in "Other operating expenses"
under the statutory basis, are separately presented under the
underlying basis.
B.2. Balance Sheet Analysis
B.2.1 Capital Base
Total equity (excluding non-controlling interests) totalled
EUR2,442 mn at 30 June 2019, compared to EUR2,443 mn at 31 March
2019 and EUR2,341 mn at 31 December 2018. Shareholders' equity
totalled EUR2,222 mn at 30 June 2019, compared to EUR2,223 mn at 31
March 2019 and EUR2,121 mn at 31 December 2018.
The Common Equity Tier 1 capital (CET1) ratio on an IFRS 9
transitional basis stood at 14.9% at 30 June 2019 (and 15.2% pro
forma for the sale of investment in CNP Cyprus Insurance Holdings
Ltd ("CNP") ("pro forma for CNP"), compared to 13.4% at 31 March
2019 (and 14.9% pro forma for Helix), and to 11.9% at 31 December
2018 (adjusted to take into account the deferred tax assets (DTAs)
which were fully phased in as of 1 January 2019). During 2Q2019 the
Project Helix was completed, positively impacting CET1 ratio by
c.140 bps. During 1Q2019 the CET1 ratio was positively affected by
the tax legislation amendments relating to the conversion of
deferred tax assets into deferred tax credits (DTC). The CET1 ratio
as at 30 June 2019 includes reviewed profits for the six months
ended 30 June 2019.
The Group has elected to apply the EU transitional arrangements
for regulatory capital purposes (EU Regulation 2017/2395) where the
impact on the impairment amount from the initial application of
IFRS 9 on the capital ratios is phased-in gradually. The amount
added each year decreases based on a weighting factor until the
impact of IFRS 9 is fully absorbed back to CET1 at the end of the
five years. The impact on the capital ratios for the year 2018 was
5% of the impact on the impairment amounts from the initial
application of IFRS 9, increasing to 15% (cumulative) for the year
2019.
The CET1 ratio on a fully-loaded basis amounts to 13.3% at 30
June 2019 and 13.5% pro forma for the sale of investment in CNP,
compared to 11.9% at 31 March 2019 (and 13.3% pro forma for Helix),
and to 10.1% at 31 December 2018 (and 13.5% pro forma for DTC and
Helix). On a transitional basis and on a fully phased-in basis,
after the five year period of transition is complete, the impact of
IFRS 9 is expected to be manageable and within the Group's capital
plans.
As at 30 June 2019, the Total Capital ratio stood at 17.8% (and
18.1% pro forma for CNP), compared to 16.2% at 31 March 2019 (and
17.9% pro forma for Helix), and to 14.9% at 31 December 2018.
The Group's capital ratios are above the minimum CET1 regulatory
capital ratio of 10.5% (comprising a 4.5% Pillar I requirement, a
3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5%
and the Other Systemically Important Institution Buffer of 0.5%)
and the overall Total Capital requirement of 14.0%, comprising an
8.0% Pillar I requirement (of which up to 1.5% can be in the form
of Additional Tier 1 capital and up to 2.0% in the form of Tier 2
capital), a 3.0% Pillar II requirement (in the form of CET1), the
Capital Conservation Buffer of 2.5% and the Other Systemically
Important Institution Buffer of 0.5%. The ECB has also provided
non-public guidance for an additional Pillar II CET1 buffer.
Pillar II add-on capital requirements derive from the context of
the Supervisory Review and Evaluation Process (SREP) process, 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 also the responsible authority for the designation of
banks that are Other Systemically Important Institutions (O-SIIs)
and for the setting of the O-SII buffer requirement for these
systemically important banks. The Group has been designated as an
O-SII and the O-SII buffer currently set by the CBC for the Group
is 2%. This buffer is being phased-in gradually, having started
from 1 January 2019 at 0.5% and increasing by 0.5% every year
thereafter, until being fully implemented (2.0%) on 1 January
2022.
Based on the SREP decisions of prior years, the Company and the
Bank were under a regulatory prohibition for equity dividend
distribution and therefore no dividends were declared or paid
during years 2018 and 2017. Following the 2018 SREP decision, the
Company and the Bank are still under equity dividend distribution
prohibition. This prohibition does not apply if the distribution is
made via the issuance of new ordinary shares to the shareholders
which are eligible as CET1 capital. No prohibition applies to the
payment of coupons on any AT1 capital instruments issued by the
Company or the Bank.
The EBA final guidelines on SREP and supervisory stress testing
in July 2018 and the Single Supervisory Mechanism's (SSM) 2018 SREP
methodology provide that CET1 held for the purposes of Pillar II
add-on capital requirements cannot be used to meet any other
capital requirements (Pillar 1, P2R or the combined buffer
requirements), and therefore cannot be used twice. Such
restrictions are, however, only expected to apply with effect from
the 2019 SREP cycle.
Project Helix
In June 2019, the Company completed the sale of a portfolio of
loans with a gross book value of EUR2.8 bn (of which EUR2.7 bn
related to non-performing loans) (the "Portfolio") secured by real
estate collateral to certain funds affiliated with Apollo Global
Management LLC, the agreement for which was announced on 28 August
2018 (Project Helix). Cash consideration of c.EUR1.2 bn was
received on completion, reflecting adjustments resulting from,
inter alia, loan repayments received on the Portfolio since the
reference date of 31 March 2018.
Overall, the transaction is capital accretive, with a net
positive impact on the Group capital ratios of c.60 bps. The impact
from the completion of Project Helix on the CET1 ratio and Total
Capital ratio at 30 June 2019 is an increase of c.140 bps.
The participation of the Bank of Cyprus Public Company Limited
(the "Bank") in the senior debt in relation to financing the
Transaction has been syndicated down from the initial level of
EUR450 mn to c.EUR45 mn, representing c.4% of the total acquisition
funding.
Agreement for the sale of investment in CNP Cyprus Insurance
Holdings Ltd
In June 2019, the Group signed an agreement to sell its entire
shareholding of 49.9% in its associate CNP Cyprus Insurance
Holdings Limited ("CNP") that had been acquired as part of the
acquisition of certain operations of Laiki Bank in 2013 for a cash
consideration of EUR97.5 mn. The sale is expected to be completed
in the second half of 2019, subject to regulatory approvals. On
completion, the sale is expected to have a positive impact of c.30
bps on both the Group's CET1 ratio and Total Capital ratio (based
on the financial results as at 30 June 2019) resulting mainly from
the release of risk weighted assets.
Additional Tier 1
In December 2018, the Company proceeded with the issuance of
EUR220 mn of Additional Tier 1 Capital Securities (AT1). AT1
constitutes an unsecured and subordinated obligation of the
Company. The coupon is at 12.50% and is payable semi-annually. The
first coupon payment to AT1 holders was made in June 2019 and was
recognised in retained earnings.
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific
deferred tax assets (DTA) into deferred tax credits (DTC) were
adopted by the Cyprus Parliament on 1 March 2019 and published on
the Official Gazette of the Republic on 15 March 2019. The law
amendments cover the income tax losses transferred from Laiki Bank
to the Bank in March 2013. The introduction of CRD IV in January
2014 and its subsequent phasing-in led to a more capital intensive
treatment of this DTA for the Bank. The law amendments have
resulted in improved regulatory capital treatment, under Capital
Requirements Regulation (EU) No. 575/2013 ("CRR"), of the DTA
amounting to c.EUR285 mn or a CET1 uplift of c.190 bps.
Pro forma capital ratios
With the completion of the sale of the investment in CNP,
expected in 2H2019, the CET1 ratio (IFRS 9 transitional basis) of
14.9% as at 30 June 2019 improves to 15.2% pro forma for CNP. The
Total Capital ratio of 17.8% as at 30 June 2019 improves to 18.1%
pro forma for CNP.
Share premium reduction of the Bank
The Bank will proceed (subject to approvals mainly by the Court
of Cyprus and the ECB) with a capital reduction process which will
result in the reclassification of c.EUR551 mn of the Bank's share
premium account balance as distributable reserves which shall be
available for distribution to the shareholders of the Bank,
resulting in total net distributable reserves of c.EUR1 bn on a pro
forma basis (31 December 2018). The reduction of capital will not
have any impact on regulatory capital or the total equity position
of the Bank or the Group.
The distributable reserves provide the basis for the calculation
of distributable items under the CRR, which provides that coupons
on AT1 capital instruments may only be funded from distributable
items.
B.2.2 Funding and Liquidity
Funding
Funding from Central Banks
At 30 June 2019, the Bank's funding from central banks amounted
to EUR830 mn, which relates to ECB funding, (at the same level as
at 31 March 2019 and 31 December 2018), comprising solely of
funding through the Targeted Longer-Term Refinancing Operations
(TLTRO II).
Deposits
Customer deposits totalled EUR16,377 at 30 June 2019, compared
to EUR16,298 mn at 31 March 2019 and EUR16,844 mn at 31 December
2018, broadly flat qoq and down by 3% yoy.
The Bank's deposit market share in Cyprus reached 34.7% as at 30
June 2019, compared to 35.2% at 31 March 2019. Customer deposits
accounted for 75% of total assets at 30 June 2019.
Upon completion of Project Helix the Loan to Deposit ratio (L/D)
was reduced by 7 p.p. to 67%, compared to 74% at 31 March 2019 when
ignoring the classification of the Helix portfolio as a disposal
group held for sale (and to 72% at 31 December 2018 on the same
basis) and compared to a peak of 151% at 31 March 2014.
Subordinated Loan Stock
At 30 June 2019 the Bank's subordinated loan stock (including
accrued interest) amounted to EUR261 mn (compared to EUR254 mn at
31 March 2019 and EUR271 mn as at 31 December 2018) and relates to
unsecured subordinated Tier 2 Capital Notes of nominal value EUR250
mn, issued by the Bank in January 2017.
Liquidity
At 30 June 2019 the Group Liquidity Coverage Ratio (LCR) stood
at 253% (compared to 216% at 31 March 2019 and 231% at 31 December
2018) and was in compliance with the minimum regulatory requirement
of 100%. The liquidity surplus at 30 June 2019 increased to EUR3.8
bn, from EUR2.7 bn at 31 March 2019, reflecting a EUR1.2 bn
increase of liquidity on Helix completion.
The Net Stable Funding Ratio (NSFR) has not yet been introduced.
It will become a regulatory indicator when CRR2 is enforced,
currently expected in 2021, with the limit set at 100%. At 30 June
2019, the Group's NSFR, on the basis of Basel standards, stood at
128% (compared to 117% at 31 March 2019 and 119% at 31 December
2018).
B.2.3 Loans
Group gross loans totalled EUR13,072 mn at 30 June 2019 compared
to EUR15,882 mn at 31 March 2019 and EUR15,900 mn at 31 December
2018. Gross loans in Cyprus totalled EUR12,945 mn at 30 June 2019.
The reduction in gross loans by 17% is attributed mainly to the
completion of Project Helix (sale of EUR2.8 bn of gross loans of
which EUR2.7 bn related to non-performing loans) and to a lesser
extent to the completion of Project Velocity (sale of EUR30 mn
gross loans as at the date of disposal, relating wholly to
non-performing loans) in 2Q2019.
New loans granted in Cyprus reached EUR1,111 mn for 1H2019,
exceeding new lending in 1H2018.
At 30 June 2019, the Group net loans and advances to customers
totalled EUR10,949 mn (compared to EUR10,955 mn at 31 March 2019
pro forma for Helix (and Velocity) and EUR10,922 mn at 31 December
2018 on the same basis).
The Bank is the single largest credit provider in Cyprus with a
market share of 41.3% at 30 June 2019 compared to 46.7% at 31 March
2019, with the reduction reflecting the derecognition of the Helix
portfolio on completion.
B.2.4 Loan portfolio quality
Tackling the Group's loan portfolio quality remains the top
priority for management. The Group continues to make steady
progress across all asset quality metrics and the loan
restructuring activity continues. The Group has been successful in
engineering restructuring solutions across the spectrum of its loan
portfolio.
Non-performing exposures (NPEs) as defined by the European
Banking Authority (EBA) were reduced by EUR2,961 mn or 41% during
2Q2019, driven mainly by the completion of Project Helix, to
EUR4,312 mn at 30 June 2019, accounting for 33% of gross loans
compared to 46% at 31 March 2019 and 47% at 31 December 2018
(including the Helix and Velocity portfolios).
The organic reduction of NPEs in 2Q2019 on the residual
portfolio was EUR300 mn, in line with an organic target of
c.EUR800 mn for 2019.
The NPE coverage ratio improved to 50% at 30 June 2019 compared
to 48% at 31 March 2019 pro forma for Helix and 47% at 31 December
2018 on the same basis. Ignoring the classification of the Helix
(and Velocity) portfolios as disposal groups held for sale, the NPE
coverage ratio as at 31 March 2019 stood at 53% and at 31 December
2018 stood at 52%.
When taking into account tangible collateral at fair value, NPEs
are fully covered.
30.06.2019 31.03.2019 31.03.2019(1)
pro forma
for Helix
% gross % gross % gross
EUR loans EUR loans EUR mn loans
mn mn
============================== ========= ========== ======== ========== ========= ==========
NPEs as per EBA definition 4,312 33.0% 4,611 35.1% 7,273 45.8%
Of which, in pipeline
to exit: 657 5.0% 871 6.6% 1,084 6.8%
-NPEs with forbearance
measures, no arrears(2)
=============================== ======== ========== ======== ========== ========= ==========
1. Ignoring the classification of the Helix portfolio of EUR1,103
mn (NBV) and of the Velocity portfolio of EUR5 mn (NBV) as
disposal groups held for sale as at 31 March 2019. 2. The analysis
is performed on a customer basis.
Overall, the Group has recorded organic NPE reductions for
seventeen consecutive quarters and expects the organic reduction of
NPEs to continue during the coming quarters.
Project Helix
In June 2019, the Group announced the completion of Project
Helix, that refers to the sale of a portfolio of loans with a gross
book value of EUR2.8 bn (of which EUR2.7 bn related to
non-performing loans) (the "Portfolio") secured by real estate
collateral to certain funds affiliated with Apollo Global
Management LLC, the agreement for which was announced on 28 August
2018.
Following the completion of Project Helix, the Group's gross
NPEs are c.70% lower than its peak in 2014. Project Helix reduced
the NPE ratio by c.11 p.p. to 33% as at 30 June 2019.
Cash consideration of c.EUR1.2 bn was received on completion,
reflecting adjustments resulting from, inter alia, loan repayments
received on the Portfolio since the reference date of 31 March
2018.
The participation of the Bank in the senior debt in relation to
financing the Transaction has been syndicated down from the initial
level of EUR450 mn to c.EUR45 mn, representing c.4% of the total
acquisition funding.
The Group remains focused on continuing to improve its asset
quality position and to seek solutions, both organic and inorganic,
to make the Bank a stronger and safer institution, capable of
supporting the local economy.
ESTIA
In July 2018, the Government announced a scheme aimed at
addressing NPEs backed by primary residence, known as ESTIA (the
'Scheme'). This Scheme is expected to positively impact c.EUR0.84
bn of retail core NPEs, subject to eligibility criteria and
participation rate. The ESTIA eligible portfolio refers to the
potentially eligible portfolio following on-going detailed
assessment based on the Bank's available data on Open Market Value
(OMV) and NPE status. Eligibility criteria relate primarily to the
OMV of the residence, total income and net wealth of the household.
These will act as a clear definition of socially protected
borrowers, acting as an enabler against strategic defaulters. In
accordance with the Scheme, the eligible loans are to be
restructured to the lower of the contractual balance and the OMV.
The Government will subsidise one third of the instalment, of the
restructured loan. In July 2019 the Memorandum of Understanding was
signed by the banks and the Government for participation in the
Scheme, which is underway for official launch in September 2019.
According to the timeline provided by the Government, the
application submissions will occur from September to mid-November
2019, with evaluation by the banks running concurrently until the
end of November 2019. During 4Q2019, the participating banks will
offer restructuring solutions to the applicants and simultaneously
the applications will be reviewed and approved by the Government,
with the process expected to finish by March 2020. The 1(st)
payment of the state subsidy installment is expected to occur
between December 2019 and April 2020 (please refer to slide 8 of
the Results Presentation for the six months ended 30 June
2019).
Project Velocity
In June 2019, the Bank completed the sale of a non-performing
loan portfolio of primarily retail unsecured exposures, with a
contractual balance of EUR245 mn and a gross book value of EUR34 mn
as at 30 September 2018 (known as "Project Velocity" or the "Sale")
to APS Delta s.r.o. This portfolio comprised 9,700 heavily
delinquent borrowers, including 8,800 private individuals and 900
small-to-medium-sized enterprises. The gross book value of this
portfolio as at the date of disposal was EUR30 mn. The Sale was
broadly neutral to both the profit and loss account and to
capital.
The Group continues to assess the potential to accelerate the
decrease in NPEs on its balance sheet through an additional sale of
NPEs. To that extent the Group has, during the second half of 2019,
embarked on a preparation phase to review the feasibility of NPE
reduction structures with the aim of identifying the option that
best meets the Group's strategic objectives. The preparation phase
involves defining the relevant NPE portfolio, evaluation of real
estate collaterals, data remediation and enhancement of data tapes,
borrower information memorandums, legal due diligence and
transaction structuring options. For the purposes of completing the
workstreams outlined above and in order to conclude on the best
possible structure, the Group has engaged international advisors,
and is proceeding to engage in high level discussions via the
signing of confidentiality agreements with various third parties,
including financial investors and investment banks, that may be
interested in pursuing a possible collaboration with the Group. A
range of potential outcomes of this preparation phase is possible,
including an outright sale (including the Bank retaining a portion
of the related financing). Any potential transaction is expected to
involve a portfolio of NPEs in excess of EUR2 bn by gross book
value. The Group is not committed to any outcome arising from this
preparation phase, which is currently expected to be finalised in
the first half of 2020.
B.2.5. Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) on-boarded EUR126 mn of
assets in 1H2019 (down by 42% yoy), via the execution of debt for
asset swaps and repossessed properties. The focus for REMU is
increasingly shifting from on-boarding of assets resulting from
debt for asset swaps towards the disposal of these assets. The
Group completed organic disposals of EUR92 mn in 1H2019 (compared
to EUR126 mn in 1H2018), resulting in a profit on disposal of EUR17
mn for 1H2019. During the six months ended 30 June 2019, the Group
executed sale-purchase agreements (SPAs) with contract value of
EUR110 mn (258 properties), excluding the sale of the Cyreit. In
addition, the Group signed SPAs for disposals of assets with
contract value of EUR89 mn.
Completion of sale of Cyreit
In November 2018, the Bank signed an agreement for the disposal
of its entire holding in the investment shares of the Cyreit
Variable Capital Investment Company PLC (Cyreit). During 2Q2019,
the Group completed the sale of the Cyreit (21 properties),
recognising a loss on disposal of c.EUR1 mn. The total proceeds
from the disposal of Cyreit were EUR160 mn.
Completion of Project Helix
With the completion of Project Helix, properties with carrying
value of EUR109 mn, which were included in the portfolio for the
NPE sale (Helix), were derecognised as of 30 June 2019. As at 31
March 2019, properties with carrying value of EUR98 mn were
included in the portfolio for the NPE sale (Helix), compared to
EUR74 mn as at 31 December 2018.
Change in classification of properties which are leased out
under operating leases
The Group has decided to classify the leased properties acquired
in exchange of debt and leased out under operating leases as
'Investment Properties' instead of 'Inventories'. This change has
been applied retrospectively, resulting in the restatement of
comparatives.
As a result of the above change in classification, properties
with carrying value of EUR118 mn were reclassified from the stock
of properties (measured at the lower of cost and net realisable
value under IAS 2) to investment properties (measured at fair value
under IAS 40) as at 30 June 2019 (compared to EUR103 mn as at 31
December 2018). These properties continue to be managed by
REMU.
This change in classification had no material impact on the
Group's comparative retained earnings and a cumulative impact of
EUR1 mn gain has been recognised under 'Net gains from revaluation
and disposal of investment properties and on disposal of stock of
properties' in 2Q2019.
Assets held by REMU
As at 30 June 2019, assets held by REMU had a carrying value of
EUR1,548 mn (comprising properties of EUR1,430 mn classified as
'Inventories' and EUR118 mn as 'Investment Properties'), compared
to EUR1,530 mn as at 31 December 2018 (comprising properties of
EUR1,427 mn classified as 'Inventories' and EUR103 mn as
'Investment Properties').
In addition to assets held by REMU, properties classified as
'Investment properties' with carrying value of EUR24 mn as at 30
June 2019 and as at 31 December 2018 relate to legacy properties
held by the Bank before the set-up of REMU in January 2016.
Assets held by REMU (Group) qoq
EUR mn 1H2019 1H2018 2Q2019 1Q2019 +% yoy +%
------ ------ ------ ------ ----
Opening balance 1,530 1,641 1,542 1,530 1% -7%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
On-boarded assets (including construction cost) 126 220 81 45 78% -43%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Sales (92) (126) (62) (30) 101% -27%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Transfer to investment properties (Cyreit) - (166) - - - -100%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Impairment loss (10) (9) (8) (2) 3% -
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Transfer to non-current assets and disposal groups held for sale (6) (39) (5) (1) - -84%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Foreign exchange and other movements - 3 - - - -
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Closing balance 1,548 1,524 1,548 1,542 0% 2%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Analysis by type and country Cyprus Greece Romania Total
30 June 2019 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 167 27 0 194
Offices and other commercial
properties 233 40 10 283
Manufacturing and industrial
properties 79 37 0 116
Hotels 26 0 - 26
Land (fields and plots) 917 7 3 927
Properties under construction 2 - - 2
------------------------------- ------- ------- -------- ------
Total 1,424 111 13 1,548
------------------------------- ------- ------- -------- ------
Cyprus Greece Romania Total
31 December 2018 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 164 25 0 189
Offices and other commercial
properties 228 44 7 279
Manufacturing and industrial
properties 80 38 0 118
Hotels 35 0 - 35
Land (fields and plots) 896 8 4 908
Properties under construction 1 - - 1
------------------------------- ------- ------- -------- ------
Total 1,404 115 11 1,530
------------------------------- ------- ------- -------- ------
B.2.6 Non-core overseas exposures
The remaining non-core overseas net exposures (including both
on-balance sheet and off-balance sheet exposures) at 30 June 2019
are as follows:
EUR mn 30 June 2019 31 December 2018
-------------
Greece 152 164
Romania 34 35
Serbia 8 7
Russia 19 23
UK 1 11
--------- ------------- -----------------
Total 214 240
--------- ------------- -----------------
The Group continues its efforts for further deleveraging and
disposal of non-essential assets and operations.
In accordance with the Group's strategy to exit from overseas
non-core operations, the operations of the branch in Romania were
terminated in January 2019, following the completion of
deregistration formalities with respective authorities.
During 2Q2019 the Group signed a binding agreement for the
disposal of the overseas exposure in Serbia, comprising loans and
properties, amounting to EUR8 mn. As at 30 June 2019, this exposure
was classified as held for sale.
In addition to the above, at 30 June 2019 there were overseas
exposures of EUR311 mn in Greece, relating to both loans and
properties, (compared to exposures of EUR157 mn at 31 March 2019
and EUR144 mn at 31 December 2018), not identified as non-core
exposures, since they are considered by management as exposures
arising in the normal course of business. The qoq increase is
mainly driven by new lending to Greek entities investing in Cyprus,
granted by the Bank in the normal course of business.
B.3. Income Statement Analysis
B.3.1 Total income
EUR mn 1H2019(1) 1H2018(1,2,3) 2Q2019(1) 1Q2019(1) qoq +% yoy +%
--------- ------------- --------- --------- ------
Net interest income 170 166 85 85 1% 3%
---------------------------------------- --------- ------------- --------- --------- ------ --------
Net fee and commission income 75 80 38 37 5% -7%
Net foreign exchange gains and
net gains on financial instrument
transactions and disposal/dissolution
of subsidiaries 26 42 16 10 58% -37%
Insurance income net of claims
and commissions 30 25 18 12 42% 20%
Net gains from revaluation and
disposal of investment properties
and on disposal of stock of properties 16 21 12 4 210% -23%
Other income 16 11 8 8 -6% 39%
---------------------------------------- --------- ------------- --------- --------- ------ --------
Non-interest income 163 179 92 71 29% -9%
---------------------------------------- --------- ------------- --------- --------- ------ --------
Total income 333 345 177 156 14% -4%
---------------------------------------- --------- ------------- --------- --------- ------ --------
Net Interest Margin (annualised) 1.88% 1.86% 1.89% 1.88% +1 bps +2 bps
---------------------------------------- --------- ------------- --------- --------- ------ --------
Average interest earning assets(1)
(EUR mn) 18,271 18,005 18,149 18,243 -1% 1%
---------------------------------------- --------- ------------- --------- --------- ------ --------
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed
under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying
basis. 2. Represented for the disposal of the UK subsidiary. 3. Including
the impact from IFRIC Presentation of unrecognised interest following
the curing of a credit-impaired financial asset (IFRS 9)). This resulted
in a reclassification between net interest income and loan credit losses,
with no impact on the overall profitability. p.p. = percentage points,
bps = basis points, 100 basis points (bps) = 1 percentage point
Net interest income (NII) and net interest margin (NIM) for
1H2019 amounted to EUR170 mn and 1.88% respectively. NII for 2Q2019
amounted to EUR85 mn and remained at the same levels as 1Q2019 and
was up by 3% compared to EUR166 mn a year earlier. The NIM for
2Q2019 stood at 1.89% broadly flat qoq and yoy, negatively affected
by the continued pressure on lending rates and positively affected
by the reduction of cost of deposits.
Average interest earning assets for 1H2019 amounted to EUR18,271
mn, up by 1% yoy. Quarterly average interest earning assets for
2Q2019 amounted to EUR18,149 mn compared to EUR18,243 mn for
1Q2019, down by 1%, primarily driven by the completion of NPE
sales.
Non-interest income for 1H2019 amounted to EUR163 mn, comprising
net fee and commission income of EUR75 mn, net foreign exchange
gains and net gains on financial instrument transactions and
disposal/dissolution of subsidiaries of EUR26 mn, net insurance
income of EUR30 mn, net gains from revaluation and disposal of
investment properties and on disposal of stock of properties of
EUR16 mn and other income of EUR16 mn.
Net fee and commission income for 2Q2019 amounted to EUR38 mn,
at similar levels compared to 1Q2019, following the classification
of net commission income generated by project Helix to Profit/
(loss) relating to NPE sale.
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries of EUR26 mn
for 1H2019, comprising mainly net foreign exchange gains of EUR14
mn and net gains on revaluation of financial instruments of EUR12
mn, decreased by 37% yoy, mainly due to one-off gain on disposal of
bonds during 1Q2018 amounting to EUR19 mn. Net foreign exchange
gains and net gains on financial instrument transactions and
disposal/dissolution of subsidiaries totalled EUR16 mn for 2Q2019,
compared to EUR10 mn for 1Q2019, up by 58% qoq. The increase qoq is
driven mainly by one-off revaluation gains on financial
instruments.
Net insurance income amounted to EUR30 mn for 1H2019, compared
to EUR25 mn for 1H2018, up by 20% yoy, reflecting increased income
and positive investment returns. Net insurance income amounted to
EUR16 mn for 2Q2019, compared to EUR10 mn for 1Q2019, up by 58%
qoq, driven mainly by a one-off amount of c.EUR2.5 mn arising from
the reduction of the discount rate, following an improvement in the
yield of assets, other revaluation gains and lower insurance claims
during the quarter.
Net gains from revaluation and disposal of investment properties
and on disposal of stock of properties for 1H2019 amounted to EUR16
mn, comprising net profit from the disposal of stock properties of
EUR17 mn (REMU gains) and a valuation loss of EUR1 mn, compared to
net gains of EUR21 mn for 1H2018 (mainly net profit from the
disposal of stock of properties (REMU gains)). Net gains from
revaluation and disposal of investment properties and on disposal
of stock of properties for 2Q2019 increased to EUR12 mn from EUR4
mn in the previous quarter, reflecting the disposal of high value
REMU properties in this quarter. REMU profit remains volatile.
Total income for 1H2019 amounted to EUR333 mn, compared to
EUR345 mn for 1H2018 (down by 4% yoy). Total income for 2Q2019
amounted to EUR177 mn, compared to EUR156 mn in 1Q2019, up by 14%
qoq.
B.3.2 Total expenses
EUR mn 1H2019(1) 1H2018(1,2,3) 2Q2019(1) 1Q2019(1) qoq +% yoy +%
----------- --------------- --------- ----------- -------
Staff costs (112) (102) (56) (56) 0% 9%
Other operating expenses (84) (80) (43) (41) 3% 6%
------------------------------- ----------- --------------- ------------- ------- ------- --------
Total operating expenses (196) (182) (99) (97) 2% 8%
------------------------------- ----------- --------------- ------------- ------- ------- --------
Special levy and contribution
to Single Resolution Fund
(SRF) (12) (12) (6) (6) -3% 3%
Total expenses (208) (194) (105) (103) 1% 7%
----------- --------------- ------------- ------- -------
Cost to income ratio 63% 56% 59% 66% -7 p.p. +7 p.p.
------------------------------- ----------- --------------- ------------- ------- ------- --------
Cost to income ratio excluding
special levy and contribution
to SRF 59% 53% 56% 62% -6 p.p. +6 p.p.
------------------------------- ----------- --------------- ------------- ------- ------- --------
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed
under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying basis.
2. Represented for the disposal of the UK subsidiary 3. Including the
impact from IFRIC Presentation of unrecognised interest following the
curing of a credit-impaired financial asset (IFRS 9)). This resulted in
a reclassification between net interest income and loan credit losses,
with no impact on the overall profitability. p.p. = percentage points,
bps = basis points, 100 basis points (bps) = 1 percentage point
Total expenses for 1H2019 were EUR208 mn (compared to EUR194 mn
for 1H2018), 54% of which related to staff costs
(EUR112 mn), 40% to other operating expenses (EUR84 mn) and 6%
(EUR12 mn) to special levy and contribution to Single Resolution
Fund (SRF).
Total operating expenses for 1H2019 were EUR196 mn, increased by
8% yoy, compared to EUR182 mn for 1H2018. Total operating expenses
for 2Q2019 were EUR99 mn, increased by 2% qoq, compared to EUR97 mn
in 1Q2019.
Staff costs of EUR112 mn for 1H2019 increased by 9% yoy
(compared to EUR102 mn in 1H2018) mainly driven by the increase in
employer's social insurance contributions from the beginning of the
year and the additional contributions to the new general healthcare
system which commenced in March 2019. Staff costs for 2Q2019
amounted to EUR56 mn, at the same level as the previous
quarter.
The Group employed 4,155 persons as at 30 June 2019 (compared to
4,156 persons as at 31 March 2019 and 4,146 persons as at 31
December 2018), including 108 persons relating to the Helix
transaction, whilst full migration and transfer to the buyer is
expected to conclude by the end of the year. The staff costs
related to these persons are included under 'Profit/(loss) relating
to NPE sale (Helix)' in the underlying basis.
Other operating expenses for 1H2019 were EUR84 mn, increased by
6% yoy, mainly due to higher property related costs and higher
depreciation / amortization, resulting from increased capital
expenditure, following the Digital Transformation Programme. Other
operating expenses for 2Q2019 were EUR43 mn, increased by 3%
qoq.
The cost to income ratio excluding special levy and contribution
to Single Resolution Fund for 2Q2019 was 56%, (compared to 62% for
1Q2019), principally reflecting the increase in non-interest
income. Cost management, including containment of staff costs,
remains a key focus for this this year and going forward.
B.3.3 Profit before tax and non-recurring items
EUR mn 1H2019(1) 1H2018(1,2,3) 2Q2019(1) 1Q2019(1) qoq +% yoy +%
----------- --------------- --------- --------- ------
Operating profit 125 151 72 53 39% -17%
-------------------------------------- ----------- --------------- --------- --------- ------ ------
Loan credit losses (87) (85) (40) (47) -14% 3%
Impairments of other financial
and non-financial assets (10) (13) (9) (1) - -20%
Reversal of provisions for
litigation, regulatory and
other matters 3 6 3 (0) - -54%
-------------------------------------- ----------- --------------- --------- --------- ------ ------
Total loan credit losses, impairments
and provisions (94) (92) (46) (48) 2% 3%
-------------------------------------- ----------- --------------- --------- --------- ------ ------
Profit before tax and non-recurring
items 31 59 26 5 - -49%
-------------------------------------- ----------- --------------- --------- --------- ------ ------
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed
under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying
basis. 2. Represented for the disposal of the UK subsidiary. 3. Including
the impact from IFRIC Presentation of unrecognised interest following
the curing of a credit-impaired financial asset (IFRS 9)). This resulted
in a reclassification between net interest income and loan credit losses,
with no impact on the overall profitability.
Operating profit for 1H2019 was EUR125 mn, compared to EUR151 mn
for 1H2018, down by 17% yoy, mainly due to the lower volume on
loans and pressure on lending rates.
The loan credit losses for 1H2019 totalled EUR87 mn (compared to
EUR85 mn for 1H2018 up by 3% yoy), reflecting further balance sheet
de-risking. The loan credit losses for 2Q2019 amounted to EUR40 mn,
compared to EUR47 mn for 1Q2019, down by 14% qoq.
The annualised loan credit losses charge (cost of risk) for
1H2019, following the completion of NPE sales which led to the
reduction of gross loans by EUR2.8 bn, accounted for 1.34% of gross
loans, compared to an annualised loan credit losses charge of 1.22%
for 1H2018, on the same basis, reflecting further de-risking and
IFRS 9 model volatility.
At 30 June 2019, the allowance for expected loan credit losses,
including fair value adjustment on initial recognition and credit
losses on off-balance sheet exposures totalled EUR2,145 mn
(compared to EUR2,227 mn at 31 March 2019 pro forma for Helix and
EUR2,254 mn at 31 December 2018 on the same basis) and accounted
for 16.4% of gross loans (at similar levels with 31 March 2019 and
31 December 2018 on the same basis).
Impairments of other financial and non-financial assets for
2Q2019 were EUR9 mn, compared to EUR1 mn for 1Q2019, mainly driven
by the de-risking of the legacy REMU properties.
Reversal of provisions for litigation, regulatory and other
matters for 2Q2019 totalled EUR3 mn, relating to the reversal of
provisions of previously provided cases with a favourable
outcome.
B.3.4 Profit/(loss) after tax
EUR mn 1H2019(1) 1H2018(1,2,3) 2Q2019(1) 1Q2019(1) qoq +% yoy +%
----------- --------------- --------- --------- ------
Profit before tax and non-recurring
items 31 59 26 5 - -49%
---------------------------------------------- ----------- --------------- --------- --------- ------ ------
Tax 0 (4) 2 (2) - -98%
(Profit)/loss attributable to non-controlling
interests (2) 2 (2) (0) - -
---------------------------------------------- ----------- --------------- --------- --------- ------ ------
Profit after tax and before non-recurring
items 29 57 26 3 - -51%
---------------------------------------------- ----------- --------------- --------- --------- ------ ------
Advisory and other restructuring
costs - excluding discontinued
operations and NPE sale (Helix) (12) (15) (5) (7) -29% -22%
Profit after tax - Organic 17 42 21 (4) - -61%
----------- --------------- --------- --------- ------
Profit/(loss) from discontinued
operations (UK) - 4 - - - -
Profit/ (loss) relating to NPE
sale (Helix) 0 (105) 4 (4) - -
Loss on remeasurement of investment
in associate classified as held
for sale (CNP) net of share of
profit from associates (21) 5 (23) 2 -
Reversal of impairment of DTA and
impairment of other tax receivables 101 - - 101 - -
---------------------------------------------- ----------- --------------- --------- --------- ------ ------
Profit/(loss) after tax - attributable
to the owners of the Company 97 (54) 2 95 -97% -
---------------------------------------------- ----------- --------------- --------- --------- ------ ------
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed
under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying
basis. 2. Represented for the disposal of the UK subsidiary. 3. Including
the impact from IFRIC Presentation of unrecognised interest following
the curing of a credit-impaired financial asset (IFRS 9)). This resulted
in a reclassification between net interest income and loan credit losses,
with no impact on the overall profitability.
The tax credit for 1H2019 is minimal, positively affected by
overprovisions relating to prior years, compared to a tax charge of
EUR4 mn a year earlier. The tax credit for 2Q2019 amounted to EUR2
mn compared to a tax charge of EUR2 mn in 1Q2019.
Profit after tax and before non-recurring items for 1H2019 was
EUR29 mn, compared to a profit of EUR57 mn for 1H2018, down by 51%
yoy. Profit after tax and before non-recurring items for 2Q2019 was
EUR26 mn, compared to EUR3 mn in 1Q2019.
Advisory and other restructuring costs - excluding discontinued
operations and NPE sale (Helix) for 1H2019 amounted to EUR12 mn,
compared to EUR15 mn for 1H2018, down by 22% yoy.
Profit after tax arising from the organic operations of the
Group for 1H2019 amounted to EUR17 mn, compared to EUR42 mn for
1H2018, down by 61% yoy. Profit after tax arising from the organic
operations of the Group for 2Q2019 amounted to EUR21 mn, compared
to a loss of EUR4 mn.
The net result of the sale of the Helix portfolio, comprising
the interest income, non-interest income, staff costs, other
operating expenses and loan credit losses related to Project Helix,
for 2Q2019 was a profit of EUR4 mn, compared to a loss of EUR4 mn
for the previous quarter, bringing the net result from the Project
for 1H2019 to Nil, compared to a net loss for 1H2018 of EUR105
mn.
Loss on remeasurement of investment in associate classified as
held for sale (CNP) net of share of profit from associates totalled
EUR21 mn for 1H2019, comprising a loss on remeasurement of
investment in associate classified as held for sale of EUR26 mn and
a share of profit from associates of EUR5 mn (compared to a share
of profit from associates of EUR5 mn in 1H2018). During 2Q2019 the
Group announced a binding agreement to sell its entire shareholding
of 49.9% in its associate CNP Cyprus Insurance Holdings Limited
(CNP) that had been acquired as part of the acquisition of certain
operations of Laiki Bank in 2013, for a cash consideration of
EUR97.5 mn.
Reversal of impairment of DTA and impairment of other tax
receivables totalled EUR101 mn for 1H2019, comprising the positive
impact of EUR109 mn following amendments to the Income Tax
legislation in Cyprus adopted in March 2019, and an impairment of
EUR8 mn relating to Greek tax receivables adversely impacted from
legislative changes. The carrying value of the remaining receivable
at the quarter end was c.EUR5 mn.
Profit after tax attributable to the owners of the Company for
1H2019 was EUR97 mn, compared to a loss of EUR54 mn for 1H2018.
Profit after tax attributable to the owners of the Company for
2Q2019 was EUR2 mn, compared to a profit of EUR95 mn in 1Q2019.
C. Operating Environment
Economic expansion continued into 2019 with real Gross Domestic
Product (GDP) increasing by 3.4% in the first quarter and by 3.2%
in the second quarter seasonally adjusted, after rising by 3.9% in
2018 and by 4.5% and 4.8% respectively in 2017 and 2016 (Cyprus
Statistical Service). The deceleration was driven by slowing
activity in the traditional sectors including tourism and
construction. From the demand side the slowdown was driven by a
deteriorating external balance. Excluding ships registrations, net
exports have been contributing negatively to real GDP growth in
2018 and in the first quarter of 2019. Exports and imports of goods
and services excluding ships, declined in the first quarter.
Regarding exports, both the goods and services components declined,
the latter reflecting a poorer tourism performance at the start of
the year. Government consumption surged in the quarter. Other than
transport equipment which fluctuates with ship registrations, fixed
investment was driven by construction related activities.
Total employment increased by 6% in the first quarter (Cyprus
Statistical Service) driven by full-time hirings, and the
unemployment rate dropped to 7.3% when seasonally adjusted
(Eurostat). Consumer inflation remained tamed in the first seven
months of the year rising by 0.8% compared with 1.4% for 2018, due
in part to low energy prices in world markets, but also limited
pricing power in most categories of goods and services with the
exception of housing. Tourist arrivals dropped marginally by 0.9%
in the first half of the year with the drop of Russian tourists
more pronounced at 4.4%, whilst arrivals from the UK were up
marginally by 0.4%. In the construction sector, building permits
remained strong in the first quarter, particularly for dwellings,
with some deceleration in terms of volume. Building permits
increased sharply in April in terms of volume, driven by the hotel
sector. On the demand side, the volume of retail sales decelerated
sharply in the first quarter of the year, rising by 1.9%, compared
to a 5.4% overall yearly increase in 2018.
Looking into the medium term, the economy is expected to
continue to grow but at a slowing pace, according to forecasts by
the IMF and the European Commission. Employment conditions are
expected to continue to improve and the unemployment rate is
expected to drop further. Price inflation is expected to rise in
later years as capacity utilisation will be tightening. The economy
will continue to wrestle with legacy problems to some degree, but
the real challenge will be the transformation of the economy
towards higher value added activities that will support higher
productivity growth and improved competitiveness.
The primary challenges therefore will be, to further de-risk the
economy by reducing public debt and the remaining stock of
non-performing loans; to safeguard fiscal space so as to be able to
respond to unforeseen circumstances; and to pursue additional
structural reforms especially in the judiciary and public
administration domains that will improve the investment environment
and in the process induce productivity boosting investments.
Fiscal performance has been strengthening driven by rising
public revenues and constrained expenditures. The general
government budget surplus rose to 3.5% of GDP in 2018 and remained
sizable in the first half of 2019. Public debt remains high and
rose further in 2018 to EUR21.3 bn or 102.5% of GDP, as a result of
the fiscal burden associated with the resolution of the Cyprus
Cooperative Bank (Eurostat). However, a combination of budget
surplus, rising expected inflation and low debt service costs, will
be supporting an accelerated decline in the public debt to GDP
ratio in the medium term.
In the banking sector, funding conditions remained favourable
and the stock of NPEs continued to decline. Specifically, the stock
of NPEs declined from EUR20.9 bn at the end of December 2017 to
EUR10.4 bn at the end of December 2018 after Bank of Cyprus' loans
sale and the resolution of the Cyprus Cooperative Bank. The stock
of NPEs was EUR10.3 bn at the end of March 2019 and the ratio to
gross loans was 30.9%, marginally higher than 30.5% at the end of
December 2018, reflecting a further drop in loans outstanding.
Going forward, downside risks derive from the external
environment and the structure of the domestic economy which is
characterised by a large foreign balance relative to the GDP. The
slowing of global trade, uncertainties over Brexit and fragilities
in the EU are having an impact. Brexit presents downside risks to
the Cyprus economy given close trade and investment links. Economic
growth is expected to remain positive, but to soften. Growth in
2019 and 2020 according to the European Commission is expected to
be at 2.9% and 2.6%, respectively. Employment is expected to
continue to rise, but at a slower pace than in recent years, and
the unemployment rate is expected to continue to drop. Investment
is expected to be strengthening, but high imports are expected to
limit the contribution to growth from the external sector. Exports
growth is expected to decelerate relative to 2014 - 2018 against a
less favourable international environment.
The sovereign risk ratings of the Cyprus Government improved
considerably in the recent period reflecting expectations of a
sustained decline in public debt as a ratio to GDP, expected
further declines in non-performing exposures and a more stable
price environment following a protracted period of deflation and
low inflation. In November 2018 Fitch Ratings upgraded its
Long-Term Issuer Default ratings for Cyprus to investment grade
(BBB-), affirming in April 2019. In September 2018, S&P Global
Ratings also upgraded Cyprus to investment grade (BBB-). In July
2018 Moody's Investors Service upgraded Cyprus' sovereign rating to
Ba2 from Ba3, affirmed in April 2019. All maintain stable
outlook.
D. Business Overview
As the Cypriot operations account for 99% of gross loans and
100% of customer deposits (after the disposal of the UK operations
in 2018), the Group's financial performance is highly correlated to
the economic and operating conditions in Cyprus and is expected to
consequently benefit from the country's recovery. Most recently, at
the end of July 2019, Standard and Poor's affirmed their long-term
issuer credit rating on the Bank of 'B+' (stable outlook). In March
2019, Fitch Ratings affirmed their long-term issuer default rating
of B- (positive outlook). In January 2019, Moody's Investors
Service upgraded the Bank's long-term deposit rating to B3 from
Caa1, with a positive outlook. The positive outlook reflects
expectations of further improvements in the Bank's financial
fundamentals, mainly asset quality over the next 12-18 months, in
the context of an improved operating environment in Cyprus. The key
drivers for the rating actions were the improvement in the Bank's
financial fundamentals, mainly in asset quality, and its funding
position.
Tackling the Bank's loan portfolio quality is of utmost
importance for the Group. The Group has been successful in
engineering restructuring solutions across the spectrum of its loan
portfolio, and expects the organic reduction of residual NPEs to
continue, with a target of c. EUR800 mn for 2019, as portfolio size
and business line mix has changed radically upon completion of the
Project Helix. In parallel, the Group continues to actively explore
strategies to further accelerate de-risking, including further
portfolio sales.
The July 2018 foreclosure law amendments have expedited the
process and limited options to frustrate execution. Recently, the
Cyprus Parliament voted through certain changes to the 2018 law
which, in the most part, seek to (a) provide additional checks and
balances where banks are seeking to foreclose small loans
(<EUR350 thousand) secured by a principal private residence, and
(b) extend the foreclosure timetable by extending various notice
periods. These amendments have not yet passed into law, as the
President of the Republic has referred these to the Supreme Court,
based on legal advice from the Attorney General that elements
thereof are unconstitutional. Discussions are on-going, including,
inter alia, with the Ministry of Finance, the CBC and the Financial
Ombudsman, aiming to introduce amendments to the foreclosure and
loan restructuring framework that are acceptable to all
stakeholders.
The strategic focus of the Group is to reshape its business
model to grow in the core Cypriot market through prudent new
lending. As at 30 June 2019, the Bank's capital position remains
good and is strengthened pro forma for the disposal of investment
in CNP. The Group expects to continue to be able to support the
recovery of the Cyprus economy through the provision of new
lending. Growth in new lending in Cyprus is focused on selected
industries that are more in line with the Bank's target risk
profile, such as tourism, trade, real estate, professional
services, information/communication technologies, energy, education
and green projects.
Aiming at supporting investments by SMEs and mid-caps to boost
the Cypriot economy, and create new jobs for young people, the Bank
continues to provide joint financed schemes. To this end, the Bank
continues its partnership with the European Investment Bank (EIB),
the European Investment Fund (EIF), the European Bank for
Reconstruction and Development (EBRD) and the Cyprus
Government.
Management is also placing emphasis on diversifying income
streams by optimising fee income from international transaction
services, wealth management and insurance. The Group's insurance
companies, EuroLife Ltd and General Insurance of Cyprus Ltd
operating in the sectors of life and general insurance
respectively, are leading players in the insurance business in
Cyprus, with such businesses providing a recurring income, further
diversifying the Group's income streams. The insurance income net
of insurance claims for 1H2019 amounted to EUR30 mn, up by 20% yoy,
contributing to 18% of non-interest income.
In order to further optimise its funding structure, the Bank
continues to focus on the shape and cost of deposit franchise,
taking advantage of the increased customer confidence towards the
Bank, as well as improving macroeconomic conditions. The cost of
deposits has been reduced by 52 bps to 24 bps over the last 18
months.
In common with other European banks, the changed interest rate
environment presents a challenge to the Group's profitability. A
key focus for management this year and going forward is the active
management of funding costs and on-going running expenses,
including the containment of staff costs. The Digital
Transformation Programme that started in 2017 is beginning to
deliver an improved customer experience (see section below) and the
branch network is half the size it was in 2013.
Digital Transformation
As part of its vision to be the leading financial hub in Cyprus,
the Bank continues its Digital Transformation Programme in
collaboration with IBM, the Bank's Strategic Digital Transformation
Partner, 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 the last few months,
various new features were introduced on the new mobile app, such as
the ability to apply for e-products, transfer amounts over EUR150
through QuickPay, log-in through biometrics, and view own accounts
with UK banks. Also, financial management tools have been
introduced that allow our clients to use the 1Bank service to
better manage their finances. In addition, Apple Pay was launched
that allows Bank of Cyprus Visa cardholders to make secure and fast
payments through iOS mobile devices. This has had very positive
feedback from customers and rapid adoption. Payments via Android
devices are made through the BoC Wallet app. Moreover, the
introduction of the 1Bank B2B (business to business) APIs
(Application Programming Interfaces) is gaining traction.
Digital Transformation (continued)
These are interfaces that enable businesses to enjoy access to
1Bank functionality directly through their own systems without the
need to access the 1Bank website. In addition, the IBU Gateway was
introduced that provides 24/7 access to Professional Associates and
IBU/Wealth customers to apply for products or services and get a
ready-to-sign application form.
The Bank has led the way in Cyprus in establishing an open
banking ecosystem, by being the first bank in Cyprus to launch its
PSD2 APIs (Payment Service Directive2, Application Programming
Interfaces) and also by integrating with nine UK banks allowing
customers to view their account balances and transactions from the
integrated banks together with their Bank of Cyprus accounts
through 1Bank. Building on the success of the integration of the UK
banks we are now working on integrating Cypriot banks. Furthermore,
several other initiatives are in progress, including enhancing
digital channels to improve customer experience, providing online
services using digital signatures, automating internal end to end
processes using a BPM (Business Process Management) platform and
introducing collaboration and knowledge sharing tools across the
organisation.
The adoption of digital products and services continues to grow
and gain momentum, compared to two years ago, when the digital
transformation program began. Today, 75% of transactions involving
deposits, cash withdrawals and internal / external transfers, are
performed through digital channels (with the corresponding rate two
years before reaching 65%). Regarding the use of mobile banking,
the number of active users increased by 54% from June-2017, while
the average monthly number of log-ins per customer also increased
by 44% during the same period. The Bank also monitors the Digital
Adoption Rate, which is a composite indicator that demonstrates the
digital engagement of customers with the Bank and the overall
digital economy. This indicator is currently 66% and moving
steadily upwards (compared to 59% two years ago).
E. Strategy and Outlook
The Group remains on track for implementing its strategic
objectives aiming to become a stronger, safer and a more focused
institution capable of supporting the recovery of the Cypriot
economy and delivering appropriate shareholder returns in the
medium term.
The key pillars of the Group's strategy are to:
-- Materially reduce the level of delinquent loans
-- Further optimise the funding structure
-- Maintain an appropriate capital position by internally generating capital
-- Focus on the core Cyprus market
-- Achieve a lean operating model
-- Deliver value to shareholders and other stakeholders
KEY PILLARS PLAN OF ACTION
1. Materially reduce the level of delinquent
loans * Sustain momentum in restructuring and continue
reduction of NPEs
* Focus on terminated portfolios (in Recovery Unit) -
"accelerated consensual foreclosures"
* Real estate management via REMU
* Continue to explore alternative measures for
accelerating NPE reduction, such as NPE sales,
securitisations etc.
--------------------------------------------------------------
2. Further optimise the funding structure * Focus on shape and cost of deposit franchise
--------------------------------------------------------------
3. Maintain an appropriate capital position * Internally generating capital
--------------------------------------------------------------
4. Focus on core Cyprus market
* Targeted lending in Cyprus into growing sectors to
fund recovery
* New loan origination, while maintaining lending
yields
* Revenue diversification via fee income from
international banking, wealth, and insurance
--------------------------------------------------------------
5. Achieve a lean operating model
* Implementation of digital transformation program
underway, aimed at enhancing productivity through
alternative distribution channels and reducing
operating costs over time, including containment of
staff costs
* Post the execution of further NPE reduction, the Bank
is focusing on the need to manage costs
--------------------------------------------------------------
6. Deliver value
* Deliver appropriate medium term risk-adjusted returns
--------------------------------------------------------------
F. Definitions & Explanations
Accelerated Following the Regulation (EU) 2016/445 of the ECB
phase-in period of 14 March 2016 on the exercise of options and discretions,
the DTA was phasing-in by 60% for 2017, 80% for 2018
and 100% for 2019 (fully phased-in).
Allowance for Comprise (i) allowance for expected credit losses
expected loan (ECL) on loans and advances to customers, (ii) the
credit losses fair value adjustment on initial recognition of loans
(previously and advances to customers, (iii) allowance for expected
'Accumulated credit losses for off-balance sheet exposures (contingent
provisions') liabilities and commitments) disclosed on the balance
sheet within other liabilities, and (iv) accumulated
fair value adjustments on loans and advances to customers
classified at FVPL.
Advisory and Comprise mainly: fees of external advisors in relation
other restructuring to: (i) disposal of operations and non-core assets,
costs and (ii) customer loan restructuring activities
AT1 AT1 (Additional Tier 1) is defined in accordance with
Articles 51 and 52 of the Capital Requirements Regulation
(EU) No 575/2013.
CET1 capital CET1 capital ratio (transitional basis) is defined
ratio (transitional in accordance with the Capital Requirements Regulation
basis) (EU) No 575/2013.
CET1 fully loaded The CET1 fully loaded (FL) ratio is defined in accordance
(FL) with the Capital Requirements Regulation (EU) No 575/2013.
Contribution Relates to the contribution made to the Single Resolution
to SRF Fund.
Cost to Income Cost-to-income ratio comprises total expenses (as
ratio defined) divided by total income (as defined).
Data from the The latest data from the Statistical Service of the
Statistical Republic of Cyprus, Cyprus Statistical Service, was
Service published on 14 August 2019.
ECB European Central Bank
Gross loans Gross loans are reported before the fair value adjustment
on initial recognition relating to loans acquired
from Laiki Bank (calculated as the difference between
the outstanding contractual amount and the fair value
of loans acquired) amounting to EUR290 mn at 30 June
2019 (compared to EUR445 mn at 31 March 2019, EUR462
mn at 31 December 2018, EUR480 mn at 30 September
2018, EUR514 mn at 30 June 2018 and to EUR566 mn at
31 March 2018).
Additionally, gross loans (i) include loans and advances
to customers measured at fair value through profit
and loss of EUR454 mn at 30 June 2019 (compared to
EUR454 mn as at 31 March 2019 and EUR456 mn as at
31 December 2018), and (ii) are reported after the
reclassification between gross loans and expected
credit losses on loans and advances to customers classified
as a disposal group held for sale of Nil as at 30
June 2019 (compared to EUR104 mn at 31 March 2019
and to EUR99 mn at 31 December 2018).
Group The Group consists f Bank of Cyprus Holdings Public
Limited Company, "BOC Holdings" or the "Company",
its subsidiary Bank of Cyprus Public Company Limited,
the "Bank" and the Bank's subsidiaries.
Leverage ratio The leverage ratio is the ratio of tangible total
equity (including Other equity instruments) to total
assets as presented on the balance sheet.
Loan credit Loan credit losses comprises: (i) credit losses to
losses (PL) cover credit risk on loans and advances to customers,
(previously (ii) net gains on derecognition of financial assets
'Provision charge') measured at amortised cost and (iii) net gains on
loans and advances to customers at FVPL.
Loan credit Loan credit losses charge (cost of risk) (year to
losses charge date) is calculated as the 'loan credit losses' (as
(previously defined) divided by average gross loans (the average
'Provisioning balance calculated as the average of the opening balance
charge') (cost and the closing balance).
of risk)
Market Shares Both deposit and loan market shares are based on data
from the Central Bank of Cyprus.
The Bank is the single largest credit provider in
Cyprus with a market share of 41.3% at 30 June 2019,
compared to 46.7% at 31 March 2019, 45.4% at 31 December
2018 and as at 30 September 2018, 38.6% at 30 June
2018 and 37.4% at 31 March 2018.
The market share on loans was affected as at 30 June
2019 following the derecognition of the Helix portfolio
upon the completion of Project Helix announced on
28 June 2019.
The market share on loans was affected during the
quarter ended 31 March 2019 following a decrease in
total loans in the banking sector of EUR1 bn, mainly
attributed to reclassification, revaluation, exchange
rate and other adjustments (CBC).
The market share on loans was affected as at 30 September
2018 following a decrease in total loans in the banking
sector, mainly attributed to EUR6 bn non-performing
loans of Cyprus Cooperative Bank (CyCB) which remained
to SEDIPES as a result of the agreement between CyCB
and Hellenic Bank.
The market share on loans was affected as at 30 June
2018 following a decrease in total loans in the banking
sector of EUR2.1 bn, due to loan reclassifications,
revaluations, exchange rate or other adjustments (CBC).
Net fee and Fee and commission income less fee and commission
commission income expense divided by total income (as defined).
over total income
Net Interest Net interest margin is calculated as the net interest
Margin income (annualised) divided by the quarterly average
interest earning assets. Average interest earning
assets exclude interest earning assets of any discontinued
operations at each quarter end, if applicable. Interest
earning assets include: cash and balances with central
banks, plus loans and advances to banks, plus net
customer loans and advances, plus investments (excluding
equities and mutual funds).
Net loans and Loans and advances net of allowance for expected loan
advances credit losses (as defined, but excluding credit losses
on off-balance sheet exposures).
Net loan to Net loan to deposits ratio is calculated as the net
deposit ratio loans and advances to customers divided by customer
deposits, including net loans and deposits held for
sale, where applicable.
Net Stable Funding The NSFR is calculated as the amount of "available
Ratio (NSFR) stable funding" (ASF) relative to the amount of "required
stable funding" (RSF), on the basis of Basel III standards.
Its calculation is a SREP requirement. The European
Banking Authority (EBA) is working on finalising the
NSFR and enforcing it as a regulatory ratio under
CRR2, currently expected in 2021.
New lending New lending includes the average YTD change (if positive)
for overdraft facilities
Non-interest Non-interest income comprises Net fee and commission
income income, Net foreign exchange gains and net gains on
other financial instruments and loss on disposal/dissolution
of subsidiaries and associates (excluding net gains
on loans and advances to customers at FVPL), Insurance
income net of claims and commissions, Net gains/(losses)
from revaluation and disposal of investment properties
and on disposal of stock of properties, and Other
income.
Non-performing According to the EBA reporting standards on forbearance
exposures (NPEs) and non-performing exposures (NPEs), published in
2014, ECB's Guidance to Banks on Non-Performing Loans
published in March 2017 and EBA Guidelines on management
of non-performing and forborne exposures published
in October 2018 and applicable from June 2019, a loan
is considered an NPE if: (i) the debtor is assessed
as unlikely to pay its credit obligations in full
without the realisation of the collateral, regardless
of the existence of any past due amount or of the
number of days past due, or (ii) the exposures are
impaired, or (iii) there are material exposures which
are more than 90 days past due, or (iv) there are
performing forborne exposures under probation for
which additional forbearance measures are extended,
or (v) there are performing forborne exposures under
probation that present more than 30 days past due
within the probation period. The NPEs are reported
before the deduction of allowance for expected loan
credit losses (as defined).
Non-recurring Non-recurring items as presented in the 'Interim Condensed
items Consolidated Income Statement - Underlying basis'
relate to: (i) advisory and other restructuring costs,
(ii) discontinued operations (UK sale), (iii) profit/(loss)
relating to NPE sale (Helix), (iv) loss on remeasurement
of investment in associate classified as held for
sale (CNP) net of share of profit from associates,
and (v) reversal of impairment of DTA and impairment
of other tax receivables.
NPE coverage The NPE coverage ratio is calculated as allowance
ratio (previously for expected loan credit losses (as defined) over
'NPE Provisioning NPEs (as defined).
coverage ratio')
NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as
defined) divided by gross loans (as defined).
Operating profit Comprises profit before Total loan credit losses,
impairments and provisions (as defined), tax, (profit)/loss
attributable to non-controlling interests and non-recurring
items (as defined).
Operating profit Operating profit return on average assets is calculated
return on average as the annualised operating profit (as defined) divided
assets by the quarterly average of total assets for the relevant
period. Average total assets exclude total assets
of discontinued operations at each quarter end, if
applicable.
Phased-in Capital In accordance with the legislation in Cyprus which
Conservation has been set for all credit institutions, the applicable
Buffer (CCB) rate of the CCB is 1.25% for 2017, 1.875% for 2018
and 2.5% for 2019 (fully phased-in).
Pro forma for Includes the impact from the completion of the sale
CNP of the investment in CNP, expected in 2H2019, subject
to regulatory approvals.
Pro forma for In addition to the impact from Project Helix, this
Helix pro forma also included the impact from the agreement
for the sale of a portfolio of retail unsecured NPEs,
with gross book value EUR33 mn as at 31 March 2019,
known as Project Velocity.
Profit/(loss) Excludes non-recurring items (as defined)
after tax and
before non-recurring
items
Profit/(loss) Profit/(loss) after tax and before 'non-recurring
after tax - items' as defined, except for the "Advisory and other
Organic restructuring costs - excluding discontinued operations
and NPE sale (Helix)".
Quarterly average Average of interest earning assets as at the beginning
interest earning and end of the relevant quarter. Interest earning
assets assets include: cash and balances with central banks,
plus loans and advances to banks, plus net customer
loans and advances, plus investments (excluding equities
and mutual funds).
Qoq Quarter on quarter change
Special levy Relates to the special levy on deposits of credit
institutions in Cyprus.
Total Capital Total capital ratio is defined in accordance with
ratio the Capital Requirements Regulation (EU) No 575/2013.
Total expenses Total expenses comprise staff costs, other operating
expenses and the special levy and contribution to
the Single Resolution Fund. It does not include 'advisory
and other restructuring costs-excluding discontinued
operations and NPE sale (Helix)' or any restructuring
costs relating to NPE sale (Helix).
'Advisory and other restructuring costs-excluding
discontinued operations and NPE sale (Helix)' amount
to EUR5 mn for 2Q2019, EUR7 mn for 1Q2019, EUR42 mn
for FY2018 (EUR16 mn for 4Q2018, EUR11 mn for 3Q2018,
EUR7 mn for 2Q2018 and EUR8 mn for 1Q2018) and EUR29
mn for the year ended 31 December 2017.
Restructuring costs relating to NPE sale (Helix) amount
to EUR7 mn for 2Q2019, EUR1 mn for 1Q2019, EUR18 mn
for FY2018 (EUR1 mn for 4Q2018, EUR5 mn for 3Q2018,
EUR6 mn for 2Q2018 and EUR6 mn for 1Q2018) and EURNil
for the year ended 31 December 2017.
Total income Total income comprises net interest income and non-interest
income (as defined).
Total loan credit Total loan credit losses, impairments and provisions
losses, impairments comprise loan credit losses (as defined), plus (provisions)/reversal
and provisions of provisions for litigation, regulatory and other
matters plus (impairments)/reversal of impairments
of other financial and non-financial assets.
Underlying basis Statutory basis adjusted for certain items as detailed
in the Basis of Presentation.
Write offs Loans together with the associated loan credit losses
are written off when there is no realistic prospect
of future recovery. Partial write-offs, including
non-contractual write-offs, may occur when it is considered
that there is no realistic prospect for the recovery
of the contractual cash flows. In addition, write-offs
may reflect restructuring activity with customers
and are part of the terms of the agreement and subject
to satisfactory performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings
Public Limited Company, "BOC Holdings" or "the Company", its
subsidiary Bank of Cyprus Public Company Limited, the "Bank" or
"BOC PCL", and together with the Bank's subsidiaries, the "Group",
for the six months ended 30 June 2019.
At 31 December 2016, the Bank was listed on the CSE and the
Athens Exchange. On 18 January 2017, BOC Holdings, incorporated in
Ireland, was introduced in the Group structure as the new holding
company of the Bank. On 19 January 2017, the total issued share
capital of BOC Holdings was admitted to listing and trading on the
LSE and the CSE.
Financial information presented in this announcement is being
published for the purposes of providing an overview of the Group
financial results for the six months ended 30 June 2019. The
financial information in this announcement does not constitute
statutory financial statements of BOC Holdings within the meaning
of section 340 of the Companies Act 2014. The Group statutory
financial statements for the year ended 31 December 2018, upon
which the auditors have given an unqualified report, were published
on 28 March 2019 and are expected to be delivered to the Registrar
of Companies of Ireland within 28 days of 30 September 2019. The
Board of Directors approved the Group statutory financial
statements for the six months ended 30 June 2019 on 26 August
2019.
Statutory basis: Statutory information is set out on pages 4-5.
However, a number of factors have had a significant effect on the
comparability of the Group's financial position and results.
Accordingly, the results are also presented on an underlying
basis.
Underlying basis: The statutory results are adjusted for certain
items (as described on pages 9-10) to allow a comparison of the
Group's underlying performance, as set out on pages 6-8.
The financial information included in this announcement is
neither reviewed nor audited by the Group's external auditors.
The Interim Condensed Consolidated Financial Statements for the
six months ended 30 June 2019 have not been audited by the Group's
external auditors. The Group's external auditors have conducted a
review of the Interim Condensed Consolidated Financial Statements
in accordance with the International Standard on Review Engagements
2410 'Review of Interim Financial Information performed by the
Independent Auditor of the Entity (UK & Ireland)'.
The Interim Financial Report for the six months ended 30 June
2019 is available on the Group's website www.bankofcyprus.com
(Investor Relations/Financial Results).
This announcement and the presentation for the Group Financial
Results for the six months ended 30 June 2019 have been posted on
the Group's website www.bankofcyprus.com (Investor
Relations/Financial Results).
Definitions: The Group uses a number of definitions in the
discussion of its business performance and financial position which
are set out in section F.
The Group Financial Results for the six months ended 30 June
2019 are presented in Euro (EUR) and all amounts are rounded as
indicated. A comma is used to separate thousands and a dot is used
to separate decimals.
Forward Looking Statements
This document contains certain forward-looking statements which
can usually be identified by terms used such as "expect", "should
be", "will be" and similar expressions or variations thereof or
their negative variations, but their absence does not mean that a
statement is not forward-looking. Examples of forward-looking
statements include, but are not limited to, statements relating to
the Group's near term and longer term future capital requirements
and ratios, intentions, beliefs or current expectations and
projections about the Group's future results of operations,
financial condition, expected impairment charges, the level of the
Group's assets, liquidity, performance, prospects, anticipated
growth, provisions, impairments, business strategies and
opportunities. By their nature, forward-looking statements involve
risk and uncertainty because they relate to events, and depend upon
circumstances, that will or may occur in the future. Factors that
could cause actual business, strategy and/or results to differ
materially from the plans, objectives, expectations, estimates and
intentions expressed in such forward-looking statements made by the
Group include, but are not limited to: general economic and
political conditions in Cyprus and other European Union (EU) Member
States, interest rate and foreign exchange fluctuations,
legislative, fiscal and regulatory developments and information
technology, litigation and other operational risks. Should any one
or more of these or other factors materialise, or should any
underlying assumptions prove to be incorrect, the actual results or
events could differ materially from those currently being
anticipated as reflected in such forward looking statements. The
forward-looking statements made in this document are only
applicable as from the date of publication of this document. Except
as required by any applicable law or regulation, the Group
expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward looking statement
contained in this document to reflect any change in the Group's
expectations or any change in events, conditions or circumstances
on which any statement is based.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial
services group in Cyprus, providing a wide range of financial
products and services which include retail and commercial banking,
finance, factoring, investment banking, brokerage, fund management,
private banking, life and general insurance. The Bank of Cyprus
Group operates through a total of 108 branches in Cyprus. Bank of
Cyprus also has representative offices in Russia, Ukraine and
China. The Bank of Cyprus Group employs 4,155 staff worldwide. At
30 June 2019, the Group's Total Assets amounted to EUR21.9 bn and
Total Equity was EUR2.5 bn. The Bank of Cyprus Group comprises Bank
of Cyprus Holdings Public Limited Company, its subsidiary Bank of
Cyprus Public Company Limited and its subsidiaries.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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