TIDMBOCH
RNS Number : 5845O
Bank of Cyprus Holdings PLC
21 August 2017
Announcement
Nicosia, 21 August 2017
Important Changes to the Group's Provisioning Assumptions
Bank of Cyprus Holdings Public Limited Company (together with
Bank of Cyprus Public Company Limited, the "Bank", and its
subsidiaries, the "Group") has decided to make certain
modifications to its provisioning assumptions and estimates. These
changes reinforce the prudential safety of the Group's balance
sheet and, ceteris paribus, position the Group to present more
normal results into 2018 and beyond.
These changes reflect the Group's reconsideration of its
strategy, to more actively explore other innovative strategic
solutions to further accelerate balance sheet de-risking and take
into consideration the on-going discussion with its supervisor, the
European Central Bank ("ECB"), in context of the 2017 Supervisory
Evaluation & Review Process ("SREP").
One of the key modifications to be made is the introduction of
further discounts in addition to those on the recoverable value of
collateral, as well as the prolongation of the assumed time taken
to recover this collateral. In modifying its provisioning
assumptions, the Group has given consideration to its strategy for
reducing delinquent loans, as well as other available evidence. The
changes being adopted reflect an increased level of conservatism
within an acceptable range and are expected to position cash
coverage levels near 50% of non-performing exposures (as per the
European Banking Authority's definition, "NPEs").
These changes are expected to result in increased provisions of
c.EUR500 mn in excess of previous guidance and in a reduction in
the level of Deferred Tax Assets (DTA) of c.EUR60 mn. The Group
intends to reflect these incremental adjustments in its First Half
2017 Financial Results to be announced on 29 August 2017.
Previously, the Group had guided that it anticipated a near-zero
result for the full year with its operating profits being utilised
to support further balance sheet de-risking. As a result of these
changes to provisioning assumptions and the consequential
additional provision charge, the Group expects to announce First
Half 2017 Financial Results with a loss of c.EUR550 mn. In line
with previous guidance, the Group expects its operating profits in
the second half of 2017 to be utilised to further de-risk its
balance sheet.
As a result of the increased balance sheet provisions, the
provision coverage level on NPEs as at 30 June 2017 is expected to
increase to c.48%(1) from c.42% as at 31 March 2017. The
Group's
Common Equity Tier 1 (CET1) ratio and Total Capital ratio as at
30 June 2017 (transitional basis) are expected to be reduced to
c.12.3%(1) and c.13.7%(1) , respectively, but they will continue to
be in excess
of the current regulatory minimum requirements of 9.5% and
13.0%, respectively.
For the past four quarters, the Group has utilised substantially
all its ongoing operating profits to the de-risking of its balance
sheet and this was expected to continue for some quarters to come.
The decision the Group is taking today represents a significant
acceleration of this strategy and concludes the Group's active and
ongoing dialogue with the ECB on this matter. This is expected to
allow the Group, all other things being equal, to return to a more
normal level of performance in 2018, reflecting a more conventional
credit charge each quarter going forward, whilst maintaining safe
levels of regulatory capital and buffers to achieve other business
and de-risking objectives.
Preliminary Assessment of the impact of IFRS 9
The Group continues to develop its processes to enable IFRS 9 to
be implemented on 1 January 2018. The Group expects to be in a
position to provide a robust estimate on the effect on its CET1
ratio later this year, when the implementation programme,
validation and testing is further advanced. The capital impact of
any opening IFRS 9 adjustment to the provision stock is expected to
be largely phased-in over a five year period in line with the
proposal of the Council of the European Union(2) .The
Group expects that the IFRS 9 adjustment will further improve
coverage levels to in excess of 50% and is expected to be sensibly
accommodated in the 2017 SREP decision. The effect of introducing
IFRS 9 on CET1 in 2018 is expected to be small on a phased-in
basis. The Group expects the phased-in fully-loaded impact of IFRS
9 to be manageable within its capital plans.
Regulatory Capital
The Group believes that it can accommodate both the changes in
its provisioning assumptions and the estimated phased-in impact of
IFRS 9 within its current CET1 capital. This is predicated on the
ECB's 2017 SREP decision taking account of these deliberate and
decisive adjustments and the implementation of the currently
proposed IFRS 9 transitional reliefs.
The Group does not expect to have to raise any further equity in
the form of Common Equity Tier 1 and expects its post-adjustment
equity position to be satisfactory to its supervisors. The Group
expects to re-build further strength in its CET1 capital base in
2018 through posting results which reflect a more conventional
credit- credit cost.
In January 2017, the Group raised EUR250 mn of Tier 2 capital.
The Group will continue, subject to market conditions, to examine
opportunities to raise additional Tier 2 and/or AT1 bonds in the
next 12 months. This will further strengthen the Group's capital
base well ahead of Minimum Required Eligible Liabilities ("MREL")
and create greater versatility into the future.
The Group expects to continue to be able to support the recovery
of the Cyprus economy through the provision of new lending.
For further information, please contact Investor Relations at
investors@bankofcyprus.com.
Bank of Cyprus Group Profile
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 126 branches, of which 121
operate in Cyprus, 1 in Romania and 4 in the United Kingdom. Bank
of Cyprus also has representative offices in Russia, Ukraine and
China. The Bank of Cyprus Group employs 4,302 staff worldwide. At
31 March 2017, the Group's Total Assets amounted to EUR22.5 bn and
Total Equity was EUR3.1 bn. The Bank of Cyprus Group comprises Bank
of Cyprus Holdings Public Limited Company, its subsidiary Bank of
Cyprus Public Company Limited and its subsidiaries.
(1) Pro forma numbers based on provisional 30 June 2017
figures
(2) Proposal for a Regulation of the European Parliament and of
the Council amending Regulation (EU) No 575/2013 as regards the
transitional period for mitigating the impact on own funds of the
introduction of IFRS 9 and the large exposures treatment of certain
public sector exposures denominated in non-domestic currencies of
Member States
http://data.consilium.europa.eu/doc/document/ST-9480-2017-INIT/en/pdf
This information is provided by RNS
The company news service from the London Stock Exchange
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