TIDMBOCH
RNS Number : 9434Y
Bank of Cyprus Holdings PLC
28 August 2018
Announcement
Group Financial Results for the six months ended 30 June
2018
Nicosia, 28 August 2018
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014.
Key Highlights for the six months ended 30 June 2018
Corporate actions post 30 June 2018 delivering value for shareholders
Ø Sale of EUR2.7 bn NPEs ( "Helix" or "NPE sale")
* Agreement for sale of EUR2.8 bn gross loans, of which
EUR2.7 bn gross NPEs (contractual balance of c.EUR5.7
bn)
* Consideration of c. EUR1.4 bn, 24 cents on
contractual and 48 cents on gross book value
* Gross NPE ratio reduced by c.10 p.p.
* Capital accretive (+c.60 bps to CET1 and Total
Capital Ratio)
* Including transaction costs, Helix loss of EUR135 mn
reported in 2Q2018, declining to c.EUR105 mn by y/e,
as time value of money unwinds
* Intention to participate in a portion of debt
tranches, with EUR450 mn, subject to regulatory
approvals
Ø Sale of BOC UK ("UK sale")
* Binding agreement for the sale of BOC UK announced in
July 2018
* Consideration of c.EUR117 mn; c.EUR3 mn profit on
completion, subject to regulatory approvals
* Capital accretive (+c.75 bps to CET1 and + c.70 bps
to Total Capital Ratio, based on 30 June 2018
results)
* In line with strategy of delivering value and
focusing on supporting growth of Cypriot economy
Ø AT1 Issuance
* Currently in the process of finalising the terms with,
and seeking binding commitments from investors in
respect of a privately placed AT1 transaction, of an
anticipated size of c. EUR200 mn, subject to market
conditions
Significant progress on Balance Sheet repair
* Thirteen consecutive quarters of organic NPE
reduction
* Gross NPEs reduced by EUR435 mn (5%) qoq to EUR7.9 bn
* NPE sale further reduces Gross NPEs by EUR2.7 bn to
EUR5.2 bn
* Gross NPE ratio reduced to 43% and 38% pro forma for
Helix (-c.10 p.p.) and UK sale (+5 p.p.)
* Gross NPEs reduced by 65% (net NPEs reduced by 72%
since peak) pro forma for Helix and UK sale
* NPE coverage 52% and 49% pro forma for Helix and UK
sale
Adequate capital position
* CET1 ratio at 11.9% and 14.0% pro forma for Helix and
UK sale; total improvement of c.140 bps from
corporate actions
* CET1 ratio fully loaded (IFRS 9 transitional) at
11.5% and 13.6% pro forma for Helix and UK sale
* Total Capital Ratio at 13.4% and 15.4% pro forma for
Helix and UK sale, excluding the impact of any AT1
issuance
Strong liquidity position
* Deposits increased by 2.4% qoq to EUR18.4 bn
* Significant liquidity surplus of EUR1.4 bn as at 1
July 2018 following 50% relaxation of LCR add-on
requirements
* Loan to deposit ratio at 77% and 68% pro forma for
Helix and UK sale
Performance in 1H2018
* Total income of EUR201 mn for 2Q2018 and operating
profit of EUR89 mn for 2Q2018
* Profit after tax-organic of EUR44 mn, EPS-organic of
10 cents in 2Q2018
* Loss after tax of EUR54 mn in 1H2018, post accounting
for Helix in 1H2018
Group Chief Executive Statement
"Our results this quarter reflect continuing delivery against
our core objective of balance sheet repair. Post quarter-end
corporate transactions accelerate this repair and deliver value to
our shareholders.
We are pleased to announce today the first sale of
non-performing loans (NPLs) by the Bank (Helix), which is also the
first meaningful corporate and SME NPL trade in Cyprus. This is a
very meaningful trade in the context of the Bank and indeed the
country.
This complements our successful programme of organic
non-performing exposure reduction. During the quarter, we
restructured EUR435 mn of NPEs, our thirteenth consecutive quarter
of meaningful reductions. This was in line with our guidance and
reduces NPEs to EUR7.9 bn.
Helix is expected to further reduce NPEs by EUR2.7 bn to EUR5.2
bn, representing an overall 65% or EUR10 bn reduction since their
peak in 2014 (55% of the country's GDP) and is expected to improve
our NPE ratio by c.10 p.p., whilst maintaining coverage at
c.50%.
Since 2014 we have focused on decreasing our stock of NPEs and
on improving the asset quality of the Bank. Today's transaction is
a significant step forward and an important landmark on our journey
of de-risking our balance sheet and enhancing our capital
position.
In July, as previously announced, we signed a binding agreement
for the sale of our UK subsidiary. This is in line with our
strategy of delivering value to shareholders and focusing on
supporting the growth of the Cypriot economy. The sale will result
in a profit of c.EUR3 mn on completion, and is expected to add c.75
bps to the CET1 ratio and c.70 bps to the Total Capital Ratio,
based on 30 June figures.
Our capital levels remain adequate at the quarter end and are
expected to be strengthened once both these post quarter-end
transactions are completed. As at 30 June 2018, the Bank's CET1
ratio (transitional) was 11.9% and the Total Capital Ratio was
13.4%, both in excess of regulatory requirements. Pro forma for
both Helix and the UK sale, the capital ratios are expected to
improve by a further c.200 bps to 14.0% and 15.4% respectively.
The pro forma Total Capital Ratio excludes the impact of any
issuance of Additional Tier 1 capital, which the Bank is currently
actively considering. We are in the process of finalising the terms
with, and seeking binding commitments from investors, in respect of
a privately placed AT1 transaction, subject to market
conditions.
During the second quarter, deposits remained broadly stable and
we remain in full compliance with our liquidity requirements.
Following the relaxation of the local liquidity requirements on 1
July 2018, the Bank had a significant liquidity surplus of EUR1.4
bn. New lending reached EUR1.3 bn in the first six months of the
year, exceeding new lending compared to the corresponding period in
2017. We are pleased to have maintained our leading market position
in the strong Cypriot economy, which expanded by 4.0% during the
first half of the year. The loan to deposit ratio stood at 77% at
the quarter end and at 68% pro forma for both transactions.
Our performance in the second quarter generated total income of
EUR201 mn and underlying profits of EUR44 mn, equivalent to
earnings per share of 10 cents, in line with previous guidance. In
addition to related costs of EUR6 mn, Helix reported a loss of
EUR135 mn, including transaction costs, in the second quarter. The
loss on Helix is expected to decline to c.EUR105 mn by the year
end, as the time value of money unwinds.
Our results this quarter reflect continuing delivery against our
core objective of balance sheet repair. The significant steps we
have taken since the half-end have accelerated this process.
However, we are under no illusions that there is more to be done.
We have a clear strategy for continuing to improve the asset
quality position of the Bank and further deal with the residual
c.EUR5 bn of non-performing loans. We remain as focused as ever on
continuing to seek solutions, both organic and inorganic, to make
the Bank a stronger, safer, Cyprus-focused institution.
John Patrick Hourican
A. Financial Results - Statutory Basis
Interim Consolidated Income Statement for the six months ended
30 June 2018
Six months ended
30 June
2018 2017
---------- ----------
EUR000 EUR000
---------- ----------
Turnover 550,688 606,230
========== ==========
Interest income 334,986 425,678
Income similar to interest income 26,296 -
Interest expense (89,106) (109,393)
---------- ----------
Expense similar to interest expense (22,777) -
---------- ----------
Net interest income 249,399 316,285
---------- ----------
Fee and commission income 88,345 93,416
---------- ----------
Fee and commission expense (4,932) (5,201)
---------- ----------
Net foreign exchange gains 18,202 20,570
---------- ----------
Net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates 37,378 2,439
---------- ----------
Insurance income net of claims and commissions 25,094 24,422
---------- ----------
Net gains/(losses) from revaluation and disposal
of investment properties 422 (1,925)
---------- ----------
Net gains on disposal of stock of property 21,009 12,235
---------- ----------
Other income 11,276 7,861
---------- ----------
446,193 470,102
---------- ----------
Staff costs (116,384) (111,475)
---------- ----------
Special levy on deposits on credit institutions
in Cyprus (12,073) (17,700)
---------- ----------
Other operating expenses (111,428) (133,990)
---------- ----------
206,308 206,937
---------- ----------
Net gains on derecognition of financial assets
measured at amortised cost 19,381 94,900
---------- ----------
Credit losses to cover credit risk on loans and
advances to customers (267,724) (750,920)
========== ==========
Credit losses of other financial instruments (3,331) (22,497)
========== ==========
Impairment of non-financial instruments (10,117) (13,484)
========== ==========
Loss before share of profit from associates and
joint ventures (55,483) (485,064)
---------- ----------
Share of profit from associates and joint ventures 4,520 3,949
---------- ----------
Loss before tax (50,963) (481,115)
---------- ----------
Income tax (4,814) (72,282)
---------- ----------
Loss for the period (55,777) (553,397)
========== ==========
Attributable to:
---------- ----------
Owners of the Company (54,048) (553,959)
---------- ----------
Non-controlling interests (1,729) 562
---------- ----------
Loss for the period (55,777) (553,397)
========== ==========
Basic and diluted losses per share (EUR cent)
attributable to the owners of the Company (12.1) (124.2)
========== ==========
Interim Consolidated Balance Sheet as at 30 June 2018
30 June 31 December
2018 2017
Assets EUR000 EUR000
----------- ------------
Cash and balances with central banks 4,162,858 3,393,934
----------- ------------
Loans and advances to banks 804,369 1,192,633
----------- ------------
Derivative financial assets 16,117 18,027
----------- ------------
Investments 827,381 830,483
----------- ------------
Investments pledged as collateral 276,082 290,129
----------- ------------
Loans and advances to customers 13,001,182 14,602,454
----------- ------------
Life insurance business assets attributable to
policyholders 416,204 429,890
----------- ------------
Prepayments, accrued income and other assets 239,121 226,105
----------- ------------
Stock of property 1,523,873 1,641,422
----------- ------------
Investment properties 20,188 19,646
----------- ------------
Property and equipment 276,062 279,814
----------- ------------
Intangible assets 168,502 165,952
----------- ------------
Investments in associates and joint ventures 117,777 118,113
----------- ------------
Deferred tax assets 380,778 383,498
----------- ------------
Non-current assets and disposal group classified
as held for sale 1,450,506 6,500
----------- ------------
Total assets 23,681,000 23,598,600
=========== ============
Liabilities
----------- ------------
Deposits by banks 512,371 495,308
----------- ------------
Funding from central banks 830,000 930,000
----------- ------------
Repurchase agreements 247,803 257,322
----------- ------------
Derivative financial liabilities 33,820 50,892
----------- ------------
Customer deposits 18,431,449 17,849,919
----------- ------------
Insurance liabilities 608,878 605,448
----------- ------------
Accruals, deferred income and other liabilities 436,929 444,602
----------- ------------
Subordinated loan stock 291,454 302,288
----------- ------------
Deferred tax liabilities 45,042 46,113
----------- ------------
Total liabilities 21,437,746 20,981,892
----------- ------------
Equity
----------- ------------
Share capital 44,620 44,620
----------- ------------
Share premium 2,794,358 2,794,358
----------- ------------
Revaluation and other reserves 219,191 273,708
----------- ------------
Accumulated losses (860,533) (527,128)
----------- ------------
Equity attributable to the owners of the Company 2,197,636 2,585,558
----------- ------------
Non-controlling interests 45,618 31,150
----------- ------------
Total equity 2,243,254 2,616,708
----------- ------------
Total liabilities and equity 23,681,000 23,598,600
=========== ============
The Group has not restated comparative information for 2017 for
financial instruments within the scope of IFRS 9. Additionally, the
recognition and measurement of credit losses under IFRS 9 differs
from that under IAS 39. Therefore, the comparative information for
2017, which is reported under IAS 39 is not comparable to the
information presented for 2018, which is reported under IFRS 9. New
or amended interim disclosures are presented for the current period
according to IFRS 9, where applicable, whereas comparative period
disclosures are consistent with those made in the prior periods.
Adjustments arising from the adoption of IFRS 9 have been
recognised directly in equity as at 1 January 2018, as disclosed in
Note 7 of the Interim Condensed Consolidated Financial Statements
for the six months ended 30 June 2018.
Reclassifications to comparative information were made to
conform to current year presentation. Specifically, investments
previously classified in 'Life insurance business assets
attributable to policyholders' totalling EUR91,190 thousand were
reclassified to 'Investments' and an amount of EUR2,402 thousand
was reclassified from 'Prepayments, accrued income and other
assets' to 'Life insurance assets attributable to policyholders'.
Additionally, negative interest income on loans and advances to
banks and central banks amounting to EUR2,421 thousand was
reclassified from 'Interest income' to 'Interest expense'. The
changes in presentation did not have an impact on the financial
performance of the Group for the period.
B. Financial Results - Underlying Basis
Interim Condensed Consolidated Income Statement
qoq
EUR mn 1H2018 1H2017 2Q2018 1Q2018 +% yoy +%
---------------------------- ----------- ------------ ------------ ------------
Net interest income 249 316 125 124 1% -21%
Net fee and commission
income 84 88 43 41 5% -5%
Net foreign exchange
gains and net gains
on financial
instrument
transactions and
disposal/
dissolution of
subsidiaries and
associates 42 23 13 29 -54% 81%
Insurance income net
of claims and
commissions 25 25 13 12 2% 3%
Net gains from
revaluation and
disposal of
investment properties
and on disposal of
stock
of properties 21 10 2 19 -86% 108%
Other income 11 8 5 6 -23% 43%
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Total income 432 470 201 231 -13% -8%
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Staff costs (116) (111) (58) (58) 0% 4%
Other operating
expenses (90) (85) (49) (41) 20% 5%
Special levy and
contribution to
Single Resolution
Fund (12) (18) (5) (7) -35% -32%
Total expenses (218) (214) (112) (106) 5% 2%
---------------------------- ----------- ------------ ------------ ------------
Operating profit 214 256 89 125 -28% -16%
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Provision charge (99) (656) (41) (58) -29% -85%
Impairments of other
financial and
non-financial assets (13) (36) (6) (7) -6% -63%
(Reversal)/provisions
for litigation and
regulatory matters 5 (35) 7 (2) - -
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Total provisions and
impairments (107) (727) (40) (67) -39% -85%
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Share of profit from
associates and joint
ventures 4 4 3 1 103% 14%
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Profit/(loss) before
tax and restructuring
costs 111 (467) 52 59 -12% -
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Tax (5) (72) (1) (4) -84% -93%
Loss/ (profit)
attributable to
non-controlling
interests 2 (1) 0 2 -89% -
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Profit/(loss) after
tax and before
restructuring costs
and before the NPE
sale (Helix) 108 (540) 51 57 -9% -
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Advisory and other
restructuring costs -
excluding the NPE
sale (Helix) (15) (14) (7) (8) 1% 7%
====================== ============================ =========== ============ ============ ============ ========
Profit/(loss) after
tax - Organic 93 (554) 44 49 -11% -
====================== ============================ =========== ============ ============ ============ ========
Restructuring costs
relating to NPE sale
(Helix) (12) - (6) (6) 1% -
Loss relating to NPE
sale (Helix) (135) - (135) - - -
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
(Loss)/profit after
tax (54) (554) (97) 43 - -90%
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
qoq Yoy
Key Performance Ratios 1H2018 1H2017 2Q2018 1Q2018 + +
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Net Interest Margin -86
(annualised)(1) 2.51% 3.37% 2.51% 2.51% - bps
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
+5
Cost to income ratio 51% 46% 56% 46% +10 p.p. p.p.
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Cost to income ratio
excluding special
levy and contribution
to Single Resolution +6
Fund 48% 42% 53% 43% +10 p.p. p.p.
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Operating profit
return on average
assets -50
(annualised)(1) 1.8% 2.3% 1.5% 2.1% -60 bps bps
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Basic
earnings/(losses) per
share attributable to
the owners of the
Company-Organic (EUR
cent) 20.96 (124.19) 9.89 11.07 -1.18 145.15
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
Basic (losses)/
earnings per share
attributable to the
owners of the Company
(EUR cent) (12.12) (124.19) (21.79) 9.67 -31.46 112.07
---------------------- ---------------------------- ----------- ------------ ------------ ------------ --------
(1 . including the Helix portfolio which has been classified as non-current assets and disposal
groups held for sale)
B. Financial Results - Underlying Basis
Interim Condensed Consolidated Balance Sheet
-------------------------------------------------------------------------------------------------------------------
EUR mn 30.06.2018 31.12.2017 +%
----------------------------------------------------------------- ------------ ------------ ------------ ------
Cash and balances with central banks 4,163 3,394 23%
Loans and advances to banks 804 1,193 -33%
Debt securities, treasury bills and equity
investments 1,103 1,121 -2%
Net loans and advances to customers 13,001 14,602 -11%
Stock of property 1,524 1,641 -7%
Non-current assets and disposal group
as held for sale 1,451 7 -
Other assets 1,635 1,641 0%
Total assets 23,681 23,599 0%
------------ ------------ ------------
Deposits by banks 512 495 3%
Funding from central banks 830 930 -11%
Repurchase agreements 248 257 -4%
Customer deposits 18,431 17,850 3%
Subordinated loan stock 292 302 -4%
Other liabilities 1,125 1,148 -2%
----------------------------------------------------------------- ------------ ------------ ------------ ------
Total liabilities 21,438 20,982 2%
----------------------------------------------------------------- ------------ ------------ ------------ ------
Shareholders' equity 2,198 2,586 -15%
----------------------------------------------------------------- ------------ ------------ ------------ ------
Non-controlling interests 45 31 46%
----------------------------------------------------------------- ------------ ------------ ------------ ------
Total equity 2,243 2,617 -14%
----------------------------------------------------------------- ------------ ------------ ------------ ------
Total liabilities and equity 23,681 23,599 0%
----------------------------------------------------------------- ------------ ------------ ------------ ------
30.06.2018 30.06.2018
Key Balance Sheet figures and ratios pro forma(2) before(1) 31.12.2017 +(1)
----------------------------------------------------------------- ------------ ------------ ------------ ------
Gross loans (EUR mn) 13,710 18,312 18,755 -2%
Accumulated provisions (EUR mn) 2,522 4,100 4,204 -2%
Customer deposits (EUR mn) 16,486 18,431 17,850 3%
-5
Loans to deposits ratio (net) 68% 77% 82% p.p.
-4
NPE ratio 38% 43% 47% p.p.
+4
NPE provisioning coverage ratio 49% 52% 48% p.p.
Quarterly average interest earning assets
(EUR mn) 20,025 19,826 1 %
-1.6
Leverage ratio 8.8% 10.4% p.p.
----------------------------------------------------------------- ------------ ------------ ------------ ------
Capital ratios and risk weighted assets 30.06.2018 30.06.2018 31.12.2017 +
pro forma(2)
----------------------------------------------------------------- ------------ ------------ ------------ ------
-80
Common Equity Tier 1 (CET1) ratio (transitional) 14.0% 11.9% 12.7% bps
CET1 FL (allowing for IFRS 9 transitional -70
arrangements)(3) 13.6% 11.5% 12.2% bps
-80
Total capital ratio 15.4% 13.4% 14.2% bps
Risk weighted assets (EUR mn) 14,890 17,368 17,260 1%
----------------------------------------------------------------- ------------ ------------ ------------ ------
* p.p. = percentage points, bps = basis points, 100 basis points (bps)
= 1 percentage point
1. Ignoring the classification of the Helix portfolio of EUR1,239 mn
(NBV) as non-current assets held for sale. 2. Pro forma for both Helix
and UK sale.
(3. The CET1 FL ratio for 30 June 2018, including the full impact of
IFRS 9 and DTA amounts to 10.0% and 11.9% pro forma for Helix and UK
sale.)
B.1 Reconciliation of Income Statement for the six months ended
30 June 2018 between statutory and underlying bases
EUR mn Underlying Reclassification Statutory
Basis Basis
Net interest income 249 - 249
=========== ================= ==========
Net fee and commission income 84 - 84
=========== ================= ==========
Net foreign exchange gains
and net gains on financial
instrument transactions and
disposal/dissolution of subsidiaries
and associates 42 14 56
=========== ================= ==========
Insurance income net of claims
and commissions 25 - 25
=========== ================= ==========
Net gains from revaluation
and disposal of investment
properties and on disposal
of stock of properties 21 - 21
=========== ================= ==========
Other income 11 - 11
----------- ----------------- ----------
Total income 432 14 446
=========== ================= ==========
Total expenses (218) (22) (240)
----------- ----------------- ----------
Operating profit 214 (8) 206
=========== ================= ==========
Provisions charge (99) (149) (248)
=========== ================= ==========
Impairments of other financial
and non-financial instruments (13) - (13)
=========== ================= ==========
Reversal of provisions for
litigation and regulatory
matters 5 (5) -
=========== ================= ==========
Share of profit from associates
and joint ventures 4 - 4
----------- ----------------- ----------
Profit before tax and restructuring
costs 111 (162) (51)
=========== ================= ==========
Tax (5) - (5)
=========== ================= ==========
Loss attributable to non-controlling
interests 2 - 2
----------- ----------------- ----------
Profit after tax and before
restructuring costs and before
the NPE sale (Helix) 108 (162) (54)
=========== ================= ==========
Advisory and other restructuring
costs - excluding the NPE
sale (Helix) (15) 15 -
----------- ----------------- ----------
Profit after tax - Organic 93 (147) (54)
=========== ================= ==========
Restructuring costs relating
to NPE sale (Helix) (12) 12 -
=========== ================= ==========
Loss relating to NPE sale
(Helix) (135) 135 -
=========== ================= ==========
Loss after tax (attributable
to the owners of the Company) (54) - (54)
=========== ================= ==========
The reclassification differences between the statutory and
underlying bases relate to:
-- Provisions charge under the underlying basis includes an
amount of EUR14 million relating to net gains on loans and advances
to customers of FVPL disclosed within 'Net gains on financial
instrument transactions and disposal/dissolution of subsidiaries
and associates' in the Interim Condensed Consolidated Financial
Statements for the six months ended 30 June 2018.
-- Additionally, Provisions charge under the underlying basis
includes net gains on derecognition of financial assets measured at
amortised cost and credit losses to cover credit risk on loans and
advances to customers separately disclosed in the Interim
Consolidated Income Statement in the Interim Condensed Consolidated
Financial Statements for the six months ended 30 June 2018.
-- Loss relating to NPE sale (Helix) is separately disclosed
under the underlying basis as part of 'Credit losses to cover
credit risk on loans and advances to customers' in the Interim
Consolidated Income Statement for the six months ended 30 June
2018.
-- Reversal of provisions for litigation and regulatory matters
of EUR5 million, advisory and other restructurings costs (excluding
Helix) of EUR15 million (corresponding period EUR25 million) and
Restructuring costs relating to NPE sale (Helix) of EUR12 million
are part of 'Other operating expenses' in the Interim Condensed
Consolidated Financial Statements for the six months ended 30 June
2018.
B.2. Balance Sheet Analysis
B.2.1 Capital Base
Shareholders' equity totalled EUR2,198 mn at 30 June 2018,
compared to EUR2,298 mn at 31 March 2018 and EUR2,586 mn at 31
December 2017. The Common Equity Tier 1 capital (CET1) ratio
(transitional basis) stood at 11.9% at 30 June 2018, compared to
12.0% at 31 March 2018 and 12.7% at 31 December 2017. Adjusting for
Deferred Tax Assets, the CET1 ratio on a fully-loaded basis (IFRS 9
transitional) totalled 11.5% at 30 June 2018, compared to 11.7% at
31 March 2018 and 12.2% at 31 December 2017.
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 will be phased-in gradually. The
amount that will be added each year will decrease based on a
weighting factor until the impact of IFRS 9 is fully absorbed at
the end of the five years. For the year 2018 the impact on the
capital ratios will be 5% of the impact on the impairment amounts
from the initial application of IFRS9. The CET1 ratio on a
fully-loaded basis (including the full impact of IFRS 9 and DTA)
amounts to 10.0% at 30 June 2018. 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 2018, the Total Capital Ratio stood at 13.4%,
compared to 13.5% as at 31 March 2018 and 14.2% at 31 December
2017.
The Group's capital ratios are above the minimum CET1 regulatory
capital ratio of 9.375%, comprising a 4.50% Pillar I requirement, a
3.00% Pillar II requirement and a phased-in CCB of 1.875% and the
overall Total Capital Ratio requirement of 12.875%, comprising a
Pillar I requirement of 8.00% (of which up to 1.5% can be in the
form of Additional Tier 1 capital and up to 2.0% in the form of
Tier 2 capital), a Pillar II requirement of 3.00% (in the form of
CET1), as well as a phased-in CCB of 1.875%. The European Central
Bank (ECB) has also provided non-public guidance for an additional
Pillar II CET1 buffer. As per the EBA final guidelines on
Supervisory Review and Evaluation Process (SREP) and supervisory
stress testing in July 2018 and the Single Supervisory Mechanism's
(SSM) 2018 SREP methodology, CET1 held for purposes of P2G cannot
be used to meet any other capital requirements. Such Pillar II
add-ons derive from the Group's individual capital guidance, which
is a point in time assessment made in the context of the SREP
process and, accordingly, they may vary over time.
As per the EBA final guidelines on Supervisory Review and
Evaluation Process (SREP) and supervisory stress testing and the
Single Supervisory Mechanism's (SSM) 2018 SREP methodology issued
in July 2018, CET1 held for purposes of P2G cannot be used to meet
any other capital requirements (Pillar 1, P2R or the combined
buffer requirements), and therefore cannot be used twice. In
accordance with the EBA, the guidelines will be applicable from 1
January 2019 but the final decision on their adoption remains on
the discretion of the relevant competent authorities.
In accordance with the provisions of the Macroprudential
Oversight of Institutions Law of 2015, the CBC is also the
responsible authority for the designation of banks that are Other
Systemically Important Institutions (O-SIIs) and for the setting of
the O-SII buffer requirement for these systemically important
banks. The Group has been designated as an O-SII and the CBC set
the O-SII buffer for the Group at 2%. This buffer will be phased-in
gradually, starting from 1 January 2019 at 0.5% and increasing by
0.5% every year thereafter, until being fully implemented (2.0%) on
1 January 2022.
Sale of Bank of Cyprus UK Limited (BOC UK)
In July 2018, the Company signed an agreement to sell its wholly
owned subsidiary bank in the UK, Bank of Cyprus UK Limited (BOC
UK). The impact from the sale on the CET1 ratio at 30 June 2018 is
an increase of c.10 bps relating to recycling of a related foreign
currency gain of EUR17 mn into CET1, previously recorded in the
foreign currency translation reserve, which was not recognised in
regulatory capital. The sale is expected to be completed by the end
of 2018, subject to regulatory approvals. On completion, the CET1
ratio is expected to be further positively affected by c.75 bps
(based on 30 June 2018 results) resulting mainly from the release
of risk weighted assets.
Project Helix
In August 2018, the Company has reached an agreement for the
sale of a portfolio (the "Portfolio") of loans with a gross book
value of EUR2.8 bn (of which EUR2.7 bn relate to non-performing
loans) secured by real estate collateral ("NPLs") (known as
"Project Helix", or the "Transaction"). The gross book value of
EUR2.8 bn includes properties of EUR39 mn that will also be
transferred to the buyer. The Portfolio will be transferred to a
licensed Cypriot Credit Acquiring Company (the "CyCAC") by the
Bank.
At completion, the Bank will receive gross cash consideration of
c. EUR1.4 bn. The Bank intends to participate in the senior debt in
relation to such financing in an amount of EUR450 mn, subject to
regulatory approval.
The completion of the Transaction remains subject to a number of
conditions precedent, including mainly regulatory and other
approvals, including the ECB agreeing to a Significant Risk
Transfer ("SRT") benefit from the Transaction.
The impact from this Transaction on the CET1 ratio at 30 June
2018 is a decrease of c.80 bps relating to the accounting loss of
the Transaction of c.EUR135 mn, including transaction costs
(declining to c.EUR105 mn by the year end, as the time value of
money of c. EUR30 mn unwinds). On completion, the deconsolidation
of the Helix portfolio is expected to have a positive impact on the
CET1 ratio of 140 bps, resulting from the release of risk weighted
assets.
All relevant figures and pro forma calculations are based on 30
June 2018 financial results, unless otherwise stated. Calculations
on a pro forma basis assume completion of the Transaction and
Significant Risk Transfer benefit from Helix, which as at the date
of this announcement has not been approved by the ECB. Calculations
assume no changes in the capital or provisioning levels required as
result of the upcoming SREP process or otherwise. Any such changes
may be materially adverse.
Additional Tier 1
The Bank is currently in the process of finalising the terms
with, and seeking binding commitments from investors in respect of
a privately placed AT1 transaction, of an anticipated size of
c.EUR200 mn, subject to market conditions. There can be no
assurance that an AT1 transaction will take place or, if it does,
the terms on which it will be implemented. A further announcement
will be made in due course.
In preparation for a potential issuance of AT1 capital
instruments, and as described in its announcement dated 27 July
2018, the Company will proceed (subject to approval by the
shareholders and the Irish courts) with a capital reduction process
which will result in the reclassification of up to EUR1.5 bn of the
Company's share premium as distributable reserves. This will have
the effect of eliminating the Company's accumulated losses of
EUR0.5 bn as at 31 December 2017. The reduction of capital has been
proposed as a special resolution for approval by shareholders at
the Company's Annual General Meeting on 28 August 2018. The
reduction of capital will not have any impact on regulatory capital
or the total equity position of the Company, the Bank or the
Group.
The distributable reserves created will provide the basis for
the calculation of distributable items under the Capital
Requirements Regulation (EU) No. 575/2013 ('CRR'), which provides
that coupons on AT1 capital instruments may only be funded from
distributable items. Distributable items for the purposes of the
CRR are determined, in part, by reference to distributable
reserves. The Company is currently subject to a prohibition on
dividend distributions. However, such prohibition will not apply to
the payment of coupons on any AT1 capital instruments issued by the
Company.
B.2.2 Funding and Liquidity
Funding
Funding from Central Banks
At 30 June 2018, the Bank's funding from central banks totalled
EUR830 mn, which relates wholly to ECB funding (compared to ECB
funding of EUR940 mn as at 31 March 2018 and EUR930 mn as at 31
December 2017), comprising solely of funding through Targeted
Longer-Term Refinancing Operations (TLTRO II).
The Bank fully repaid ELA in January 2017.
Deposits
Group customer deposits increased by 2% qoq to EUR18,431 mn at
30 June 2018, compared to EUR17,996 mn at 31 March 2018 and
EUR17,850 mn at 31 December 2017, reflecting the increase in
customer deposits in Cyprus by EUR380 mn (2%) in 2Q2018. Cyprus
deposits stood at EUR16,486 mn at 30 June 2018, accounting for 89%
of Group customer deposits. The Bank's deposit market share in
Cyprus reached 35.1% at 30 June 2018 (compared to 34.1% at 31 March
2018, on the same basis). Customer deposits accounted for 78% of
total assets at 30 June 2018. The Loan to Deposit ratio (L/D) stood
at 77% at 30 June 2018, down from 80% at 31 March 2018 and 82% at
31 December 2017, compared to a high of 151% at 31 March 2014. The
6% increase in local deposits in 1H2018, offsets the 4% reduction
in deposits of International Business Units (IBUs) in the same
period. Pro forma for Helix and the UK sale the L/D ratio is
reduced by a further 9 p.p. to 68%.
Subordinated Loan Stock
In December 2017, the Bank's subsidiary in the UK issued a GBP30
mn unsecured and subordinated Tier 2 Capital Loan.
In January 2017, the Bank accessed the debt capital markets and
issued a EUR250 mn unsecured and subordinated Tier 2 Capital
Note.
Liquidity
At 30 June 2018, the Group Liquidity Coverage Ratio (LCR) stood
at 199% (compared to 229% at 31 March 2018 and 190% at 31 December
2017) and was in compliance with the minimum regulatory requirement
of 100% (increased from a minimum requirement of 80% on 31 December
2017).
The Net Stable Funding Ratio (NSFR) was not introduced on 1
January 2018, as opposed to what was expected. The minimum
requirement of NSFR will be 100%. At 30 June 2018, the Group's
NSFR, on the basis of Basel standards, stood at 115% (compared to
111% as at 31 March 2018 and as at 31 December 2017).
In accordance with the Capital Requirements Regulation (CRR),
the local regulatory liquidity requirements set by the Central Bank
of Cyprus (CBC) were abolished on 1 January 2018. The CBC
introduced a macro-prudential measure in the form of a liquidity
add-on imposed on top of the LCR requirement of the Bank, which
became effective on 1 January 2018. The objective of the measure is
to ensure that there will be a gradual release of the excess
liquidity in the Cyprus banking system arising from the lower
liquidity requirements under the LCR compared to the ones under the
local regulatory liquidity requirements previously in place. The
add-on applies stricter outflow and inflow rates on some of the
parameters used in the calculation of the LCR, as well as
additional liquidity requirements in the form of outflow rates on
items that are not subject to outflow rates under the LCR. The
measure was implemented in two stages, the first stage being
applicable from 1 January 2018 until 30 June 2018 and the second
stage from 1 July 2018 until 31 December 2018, with a reduction of
50% of the add-on rates from 1 July 2018. As a result of the
relaxation of the add-on rates, the surplus liquidity of the Bank
with respect to the LCR including the add-on, increased by c.EUR800
mn, to EUR1.4 bn on 1 July 2018. As at 30 June 2018, the Bank was
in compliance with the LCR including the add-on, which stood at
114%.
B.2.3 Loans
Group gross loans totalled EUR18,312 mn at 30 June 2018,
compared to EUR18,586 mn at 31 March 2018 and EUR18,755 mn at 31
December 2017. Gross loans in Cyprus totalled EUR16,223 mn at 30
June 2018 and accounted for 89% of Group gross loans. The Bank is
the single largest credit provider in Cyprus with a market share of
38.6% at 30 June 2018, compared to 37.4% at 31 March 2018. Gross
loans in the UK amounted to EUR1,818 mn at 30 June 2018 and
accounted for 10% of Group total gross loans.
New loan originations for the Group reached EUR1,309 mn for
1H2018 (of which EUR1,049 mn were granted in Cyprus), exceeding new
lending in 1H2017.
At 30 June 2018, the Group net loans and advances to customers
totalled EUR13,001 mn (compared to EUR14,373 mn as at 31 March 2018
and EUR14,602 mn at 31 December 2017). In addition, at 30 June
2018, net loans and advances to customers of EUR1,239 mn were
classified as non-current assets held for sale in line with IFRS 5
and relate to Helix. There were no loans and advances to customers
classified as held for sale in line with IFRS 5 at 31 March 2018 or
31 December 2017.
The net loans and advances to customers pro forma for both Helix
and the UK sale amount to EUR11,188 mn.
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.
NPEs as defined by the EBA were reduced by EUR435 mn or 5%
during 2Q2018 to EUR7,914 mn at 30 June 2018, accounting for 43% of
gross loans, compared to 45% at 31 March 2018 and 47% at 31
December 2017, on the same basis (ignoring the classification of
the Helix portfolio as non-current assets held for sale). The
organic reduction of NPEs in 2Q2018 was broadly in line with the
guidance. This included an amount of EUR107 mn, which relates to a
reclassification between gross loans and accumulated provisions on
loans and advances to customers classified as held for sale.
The provisioning coverage ratio of NPEs stood at 52% at 30 June
2018 (compared to 51% at 31 March 2018 and 48% at 31 December
2017), on the same basis (ignoring the classification of the Helix
portfolio as non-current assets held for sale). When taking into
account tangible collateral at fair value, NPEs are fully
covered.
31.03.2018
30.06.2018(1)
% of gross % of gross
EUR mn loans EUR mn loans
====================================== ====== ========== ====== ==========
NPEs as per EBA definition 7,914 43.2% 8,349 44.9%
Of which, in pipeline to exit:
- NPEs with forbearance measures,
no arrears(2) 1,407 7.7% 1,495 8.0%
1. Ignoring the classification of the Helix portfolio of EUR1,239
mn (NBV) as non-current assets held for sale.
2. Until 31 March 2018, analysis was performed on an account
basis. As at 30 June 2018, the analysis is performed on a
customer basis.
Overall, the Group has recorded significant organic NPE reductions
for thirteen consecutive quarters and expects the organic
reduction of residual NPEs (post Helix) to continue during
the coming quarters at a revised pace of c.EUR200 mn per quarter,
as portfolio size and business line mix is expected to change
radically.
Project Helix
In addition to the organic reduction of NPEs, the Group has
accelerated balance sheet de-risking through reaching an agreement
in August 2018 for the sale of a portfolio of loans with a gross
book value of EUR2.8 bn (of which EUR2.7 bn relate to
non-performing loans), secured by real estate collateral ("NPLs")
(known as "Project Helix", or the "Transaction").
The Portfolio has a contractual balance of EUR5.7 bn (as at 31
March 2018) and the Net Book Value of the assets being sold as at
30 June 2018 amounted to EUR1.5 bn, before the impact of the
Transaction on the 2Q2018 income statement. The Portfolio comprises
14,024 loans to corporate and SME borrowers, secured over 9,065
properties.
The Transaction is the first NPL disposal by the Bank and
represents a significant milestone in the delivery of the Bank's
strategy of improving asset quality through the reduction of
NPEs.
Following the completion of Project Helix, the Bank's gross NPEs
will be 65% lower than its peak in 2014.
Helix reduces the NPE ratio by c.10 p.p., while the UK sale
increases it by 5 p.p., resulting in a pro forma NPE ratio of 38%.
The pro forma NPE provision coverage is estimated at 49%, lowered
by 2 p.p. by Helix.
The completion of the Transaction remains subject to a number of
conditions precedent, including mainly regulatory and other
approvals, including the ECB agreeing to a Significant Risk
Transfer ("SRT") benefit from the Transaction.
All relevant figures and pro forma calculations are based on 30
June 2018 financial results, unless otherwise stated. Calculations
on a pro forma basis assume completion of the Transaction and
Significant Risk Transfer benefit from Helix, which as at the date
of this announcement has not been approved by the ECB. Calculations
assume no changes in the capital or provisioning levels required as
result of the upcoming SREP process or otherwise. Any such changes
may be materially adverse
ESTIA
In July 2018, the Government announced a scheme aimed at
addressing NPEs backed by primary residence, known as ESTIA. This
Scheme is expected to address up to EUR0.9 bn of retail core NPEs,
subject to eligibility criteria and participation rate. This Estia
eligible portfolio refers to the potentially eligible portfolio
based on the Bank's available data. Eligibility criteria relate
primarily to the Open Market Value (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 contractual
and OMV, and the Government to subsidise one third of the
instalment. The terms of the Scheme are subject to
finalisation.
The Group continues to actively explore alternative avenues to
further accelerate this reduction via structured solutions to
accelerate de-risking.
B.2.5. Real Estate Management Unit
The Real Estate Management Unit (REMU) on-boarded EUR220 mn of
assets (including construction cost) in 1H2018 (down by 4% yoy) via
the execution of debt for asset swaps. The focus for REMU is
increasingly shifting from on-boarding of assets resulting from
debt for asset swaps towards the disposal of these assets. The
Group completed disposals of
EUR126 mn in 1H2018 (down by 11% yoy due to two specific sales
of high value assets in 1H2017), resulting in a profit on disposal
of EUR21 mn for 1H2018. Post 30 June 2018 and up to 3 August 2018,
the Group completed additional disposals of EUR13 mn. During the
six months ended 30 June 2018 and up to 3 August 2018, the Group
executed sale-purchase agreements (SPAs) with contract value of
EUR171 mn (362 properties). In addition, the Group signed SPAs for
disposals of assets with contract value of EUR36 mn.
Following the incorporation of Cyreit Variable Capital
Investment Company PLC, properties of carrying value EUR166 million
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). These properties
continue to be managed by REMU.
As at 30 June 2018, assets held by REMU had a carrying value of
EUR1.5 billion, in addition to assets reclassified to investment
properties of EUR166 million, which were subsequently classified as
non-current assets and disposal groups held for sale. Stock of
properties of EUR39 million was transferred to non-current assets
held for sale as it was included in the portfolio for the NPE
sale.
Assets held by REMU (Group) qoq
EUR mn 1H2018 1H2017 2Q2018 1Q2018 +% yoy +%
------ ------ ------ ------ ----
Opening balance 1,641 1,427 1,552 1,641 -5% 15%
====== ====== ====== ======
On-boarded assets (including construction cost) 220 229 86 134 -35% -4%
====== ====== ====== ======
Sales (126) (140) (71) (55) 29% -11%
====== ====== ====== ======
Transfer to investment properties (166) - - (166) - -
====== ====== ====== ======
Transfer to non-current assets held for sale (39) - (39) - - -
====== ====== ====== ======
Closing balance 1,524 1,502 1,524 1,552 -2% 1%
------ ------ ------ ------ ----
Analysis by type and country Cyprus Greece Romania Total
30 June 2018 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 159 27 0 186
Offices and other commercial
properties 225 38 12 275
Manufacturing and industrial
properties 96 34 1 131
Hotels 37 0 - 37
Land (fields and plots) 818 6 4 828
Properties under construction 67 - - 67
------------------------------- ------- ------- -------- ------
Total 1,402 105 17 1,524
------------------------------- ------- ------- -------- ------
Cyprus Greece Romania Total
31 December 2017 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 146 29 0 175
Offices and other commercial
properties 288 39 9 336
Manufacturing and industrial
properties 113 34 0 147
Hotels 78 0 - 78
Land (fields and plots) 837 6 5 848
Properties under construction 57 - - 57
------------------------------- ------- ------- -------- ------
Total 1,519 108 14 1,641
------------------------------- ------- ------- -------- ------
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 2018
are as follows:
EUR mn 30 June 2018 31 December 2017
-------------
Greece 179 193
Romania 72 79
Serbia 7 9
Russia 28 31
--------- ------------- -----------------
The Group continues its efforts for further deleveraging and
disposal of non-essential assets and operations in Greece, Romania
and Russia.
In accordance with the Group's strategy to exit from overseas
non-core operations, the operations of the branch in Romania are
expected to be terminated, subject to the completion of
deregistration formalities with respective authorities. Most of the
remaining assets and liabilities of the branch in Romania with
third parties have been transferred to other entities of the
Group.
In addition to the above, at 30 June 2018 there were overseas
exposures of EUR154 mn in Greece (compared to exposures of EUR184
mn at 31 March 2018 and EUR168 mn in Greece as at 31 December
2017), not identified as non-core exposures, since they are
considered by management as exposures arising in the normal course
of business.
B.3. Income Statement Analysis
B.3.1 Total income
qoq
EUR mn 1H2018 1H2017 2Q2018 1Q2018 +% yoy +%
------ ------ ------ ------ ----
Net interest income 249 316 125 124 1% -21%
----------------------------------------------------------------------- ------ ------ ------ ------ ---- -------
Net fee and commission income 84 88 43 41 5% -5%
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution
of subsidiaries and associates 42 23 13 29 -54% 81%
Insurance income net of claims and commissions 25 25 13 12 2% 3%
Net gains from revaluation and disposal of investment properties and on
disposal of stock
of properties 21 10 2 19 -86% 108%
Other income 11 8 5 6 -23% 43%
----------------------------------------------------------------------- ------ ------ ------ ------ ---- -------
Non-interest income 183 154 76 107 -29% 19%
----------------------------------------------------------------------- ------ ------ ------ ------ ---- -------
Total income 432 470 201 231 -13% -8%
----------------------------------------------------------------------- ------ ------ ------ ------ ---- -------
Net Interest Margin (annualised)(1) 2.51% 3.37% 2.51% 2.51% - -86 bps
----------------------------------------------------------------------- ------ ------ ------ ------ ---- -------
Average interest earning assets (EUR mn)(1) 20,064 18,952 20,025 20,020 0% 6%
----------------------------------------------------------------------- ------ ------ ------ ------ ---- -------
(1.Ignoring the classification of the Helix portfolio as non-current assets held for sale)
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point
Net interest income (NII) and net interest margin (NIM) for
1H2018 amounted to EUR249 mn and 2.51% respectively, when ignoring
the classification of the Helix portfolio as non-current assets
held for sale. NII was down by 21% compared to EUR316 mn a year
earlier. The yoy decline in NIM reflects the lower volume on loans,
pressure on lending rates and the cost of liquidity compliance. The
NII and NIM for 2Q2018 amounted to EUR125 mn and 2.51% on the same
basis, at similar levels to the previous quarter.
Average interest earning assets for 1H2018 amounted to EUR20,064
mn, ignoring the classification of the Helix portfolio as
non-current assets held for sale, up by 6% yoy. Quarterly average
interest earning assets for 2Q2018 amounted to EUR20,025 mn on the
same basis, at the same level as the previous quarter.
Non-interest income for 1H2018 amounted to EUR183 mn, up 19%
yoy, mainly comprising net fee and commission income of EUR84 mn,
net foreign exchange income and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and
associates of EUR42 mn, net insurance income of EUR25 mn and net
gains from revaluation and disposal of investment properties and on
disposal of stock of properties of EUR21 mn.
Net fee and commission income for 2Q2018 amounted to EUR43 mn,
compared to EUR41 mn for 1Q2018 (up by 5% qoq), largely explained
by seasonality. Net fee and commission income for 1H2018 amounted
to EUR84 mn, compared to EUR88 mn a year earlier, down by 5% yoy,
mainly due to the implementation of IFRS 9 under which certain
commission income types are not recognised on Stage 3 loans.
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and
associates of EUR42 mn for 1H2018, increased by 81% yoy, mainly due
to the gains on disposal of bonds during the 1Q2018 of EUR19
mn.
Net gains from revaluation and disposal of investment properties
and on disposal of stock of properties for 2Q2018 amounted to EUR2
mn, of which net profit from the disposal of stock of properties of
EUR10 mn (REMU gains) and a valuation loss of EUR7 mn, compared to
EUR19 mn for 1Q2018, which included the net profit from the
disposal of stock of properties of EUR11 mn (REMU gains) and a
valuation gain of EUR8 mn.
Total income for 1H2018 amounted to EUR432 mn, compared to
EUR470 mn for 1H2017, down by 8% yoy. Total income for 2Q2018
amounted to EUR201 mn, compared to EUR231 mn for 1Q2018, down by
13% qoq.
B.3.2 Total expenses
qoq
EUR mn 1H2018 1H2017 2Q2018 1Q2018 +% yoy +%
------ ------ ------ ------ --------
Staff costs (116) (111) (58) (58) 0% 4%
Other operating expenses (90) (85) (49) (41) 20% 5%
------------------------------------------------------------------- ------ ------ ------ ------ -------- -------
Total operating expenses (206) (196) (107) (99) 8% 5%
------------------------------------------------------------------- ------ ------ ------ ------ -------- -------
Special levy and contribution to Single Resolution Fund (SRF) (12) (18) (5) (7) -35% -32%
Total expenses (218) (214) (112) (106) 5% 2%
------ ------ ------ ------ --------
Cost to income ratio 51% 46% 56% 46% +10 p.p. +5 p.p.
------------------------------------------------------------------- ------ ------ ------ ------ -------- -------
Cost to income ratio excluding special levy and contribution to
Single Resolution Fund 48% 42% 53% 43% +10 p.p. +6 p.p.
------------------------------------------------------------------- ------ ------ ------ ------ -------- -------
Total expenses for 1H2018 were EUR218 mn (compared to EUR214 mn
for 1H2017), 53% of which related to staff costs (EUR116 mn), 41%
to other operating expenses (EUR90 mn) and 6% (EUR12 mn) to special
levy and contribution to Single Resolution Fund (SRF). Total
expenses for 2Q2018 were EUR112 mn, compared to EUR106 mn in 1Q2018
(up by 5%).
Total operating expenses for 1H2018 were EUR206 mn, increased 5%
yoy, compared to EUR196 mn for 1H2017. Total operating expenses for
2Q2018 were EUR107 mn, increased 8% qoq, compared to EUR99 mn in
1Q2018.
Staff costs of EUR116 mn for 1H2018 were increased by 4% yoy,
mainly due to the effect of the renewal of the annual collective
agreement with the employees' union. Staff costs for 2Q2018 were
EUR58 mn, at the same level as the previous quarter. The renewal of
the collective agreement for 2018 is under discussion.
Other operating expenses for 1H2018 were EUR90 mn, increased by
5% from 1H2017. Other operating expenses for 2Q2018 were EUR49 mn,
increased by 20% from 1Q2018, mainly due to increased advisory
costs relating to compliance and stress tests, and to
project-related expenses by the UK subsidiary.
The cost to income ratio for 2Q2018 was 56%, compared to 46% for
1Q2018, principally reflecting the 13% qoq decrease in total
income.
B.3.3 Profit/(loss) before tax and restructuring costs
qoq
EUR mn 1H2018 1H2017 2Q2018 1Q2018 +% yoy +%
------ ------ ------ ------ ----
Operating profit 214 256 89 125 -28% -16%
------------------------------------------------------------ ------ ------ ------ ------ ---- ------
Provision charge (99) (656) (41) (58) -29% -85%
Impairments of other financial and non-financial assets (13) (36) (6) (7) -6% -63%
(Reversal)/provisions for litigation and regulatory matters 5 (35) 7 (2) - -
------------------------------------------------------------ ------ ------ ------ ------ ---- ------
Total provisions and impairments (107) (727) (40) (67) -39% -85%
------------------------------------------------------------ ------ ------ ------ ------ ---- ------
Share of profit from associates and joint ventures 4 4 3 1 103% 14%
------------------------------------------------------------ ------ ------ ------ ------ ---- ------
Profit/(loss) before tax and restructuring costs 111 (467) 52 59 -12% -
------------------------------------------------------------ ------ ------ ------ ------ ---- ------
Operating profit for 1H2018 was EUR214 mn, compared to EUR256 mn
for 1H2017, down by 16% yoy. Operating profit for 2Q2018 was EUR89
mn, compared to EUR125 mn for 1Q2018, down by 28% qoq, mainly due
to the gains on disposal of bonds during 1Q2018 of EUR19 mn and
property valuation gains in 1Q2018 compared to losses in
2Q2018.
The provision charge for 1H2018 totalled EUR99 mn, compared to
EUR656 mn for 1H2017 (down by 85% yoy), as the previous year was
affected by the additional provisions of c.EUR500 mn taken in
2Q2017. The provision charge for 2Q2018 totalled EUR41 mn, compared
to EUR58 mn for 1Q2018 (down by 29% qoq).
The annualised provisioning charge for 1H2018 accounted for 1.1%
of gross loans (with an annualised charge of 1.1% for 2Q2018),
compared to a provisioning charge of 0.9% for 1Q2018 and to 4.2%
for 1H2017. An amount of c.EUR500 mn reflecting the one-off effect
of the change in the provisioning assumptions was included in the
cost of risk for 1H2017 but was not annualised.
At 30 June 2018, accumulated provisions, including fair value
adjustment on initial recognition and provisions for off-balance
sheet exposures and ignoring the classification of the Helix
portfolio as non-current assets as held for sale, totalled EUR4,100
mn (compared to EUR4,245 mn at 31 March 2018 and to EUR4,204 mn at
31 December 2017) and accounted for 22.4% of gross loans on the
same basis (compared to 22.8% at 31 March 2018 and to 22.4% at 31
December 2017). The decrease in accumulated provisions in 2Q2018
amounted to EUR145 mn, whilst the increase in accumulated
provisions in the previous quarter amounted to EUR41 mn.
Impairments of other financial and non-financial assets for
1H2018 totalled EUR13 mn, compared to EUR36 mn for 1H2017 (down by
63% yoy). Impairments of other financial and non-financial assets
for 2Q2018 totalled EUR6 mn, at similar levels to the previous
quarter.
Reversal for litigation and regulatory matters for 2Q2018
amounted to EUR7 mn (compared to provisions of EUR2 mn for 1Q2018)
relating to the reversal of provisions of previously provided cases
with a favourable outcome. Reversal of provisions for litigation
and regulatory matters for 1H2018 amounted to EUR5 mn, compared to
provisions of EUR35 mn for 1H2017. The charge for the six months
ended 30 June 2017 relates mainly to a fine imposed by the Cyprus
Commission for the Protection of Competition, the increase in
provision for litigation for securities issued by BOC PCL between
2007 and 2011 and redress provision for the UK operations.
B.3.4 (Loss)/profit after tax
qoq
EUR mn 1H2018 1H2017 2Q2018 1Q2018 +% yoy +%
------ ------ ------ ------ ----
Profit/(loss) before tax and restructuring costs 111 (467) 52 59 -12% -
------------------------------------------------------------------------ ------ ------ ------ ------ ---- ------
Tax (5) (72) (1) (4) -84% -93%
Loss/ (profit) attributable to non-controlling interests 2 (1) 0 2 -89% -
------------------------------------------------------------------------ ------ ------ ------ ------ ---- ------
Profit/(loss) after tax and before restructuring costs and before the
NPE sale (Helix) 108 (540) 51 57 -9% -
------------------------------------------------------------------------ ------ ------ ------ ------ ---- ------
Advisory and other restructuring costs - excluding the NPE sale (Helix) (15) (14) (7) (8) 1% 7%
======================================================================== ====== ====== ====== ====== ==== ======
Profit/(loss) after tax - Organic 93 (554) 44 49 -11% -
======================================================================== ====== ====== ====== ====== ==== ======
Restructuring costs relating to NPE sale (Helix) (12) - (6) (6) 1% -
Loss relating to NPE sale (Helix) (135) - (135) - - -
------------------------------------------------------------------------ ------ ------ ------ ------ ---- ------
(Loss)/profit after tax (54) (554) (97) 43 - -90%
------------------------------------------------------------------------ ------ ------ ------ ------ ---- ------
The tax charge for 1H2018 totalled EUR5 mn compared to EUR72 mn
a year earlier, which included increased charge due to the
reduction of the level of DTA (EUR62 mn). The tax charge for 2Q2018
was EUR1 mn compared to EUR4 mn for 1Q2018.
Profit after tax and before restructuring costs and before the
NPE sale (Helix) for 1H2018 was EUR108 mn, compared to loss after
tax and before restructuring costs and before Helix for 1H2017 of
EUR540 mn, reflecting the additional provisions of c.EUR500 mn
taken in 2Q2017. Profit after tax and before restructuring costs
and before Helix for 2Q2018 was EUR51 mn, compared to EUR57 mn for
1Q2018.
Advisory and other restructuring costs excluding the NPE sale
(Helix) for 1H2018 amounted to EUR15 mn, compared to EUR14 mn a
year earlier. Advisory and other restructuring costs excluding the
NPE sale (Helix) for 2Q2018 amounted to EUR7 mn, compared to EUR8
mn for 1Q2018.
Profit after tax arising from the organic operations of the
Group (before the NPE sale (Helix)) for 1H2018 amounted to EUR93
mn, compared to a loss of EUR554 mn a year earlier, reflecting the
additional provisions of c.EUR500 mn taken in 2Q2017. Profit after
tax arising from the organic operations of the Group (before the
NPE sale (Helix)) for 2Q2018 amounted to EUR44 mn (compared to
EUR49 mn for 1Q2018), equivalent to an organic generation of EPS of
10 cents.
Restructuring costs relating to NPE sale (Helix) for 2Q2018 were
EUR6 mn (at the same levels as the previous quarter), comprising
mainly advisory costs and legal fees.
Loss relating to NPE sale (Helix) including transactions costs
for 2Q2018 amounts to EUR135 mn. The loss arising from Helix is
expected to decline to c.EUR105 mn by the year end, as the time
value of money unwinds over the next two quarters.
Loss after tax attributable to the owners of the Company for
1H2018 was EUR54 mn, compared to a loss of EUR554 mn for 1H2017.
Loss after tax attributable to the owners of the Company for 2Q2018
was EUR97 mn, compared to a profit of EUR43 mn for 1Q2018.
C. Operating Environment
The recovery of Cyprus since 2014 is gaining momentum and the
medium-term outlook remains favourable, driven by improving
macroeconomic conditions, falling unemployment and broadening
investments. At the same time, the Cypriot economy continues to
face challenges primarily in relation to high public indebtedness
and a high level of NPEs.
Real GDP increased by 3.9% in 2017 and by 4.0% in the first half
of 2018 year-on-year and seasonally adjusted (Cyprus Statistical
Service, CSS). The main drivers of the growth were tourism,
business services and increasing construction activity. On the
expenditure side, growth is driven by domestic demand, namely
private consumption and fixed investment. Net exports continued to
make a negative contribution to growth since imports increased
faster than exports.
Tourist arrivals increased by 14.6% in 2017 and continued to
increase in 2018, up by 9.6% year-on-year in the first seven months
(CSS). The unemployment rate dropped to 11% on average in 2017 and
further to 9.4% in the first quarter and to 8.4% in the second
quarter of 2018, seasonally adjusted, the latter based on monthly
estimates (Eurostat). Average consumer inflation was marginally
positive at 0.5% in 2017 after four consecutive years of deflation
and continued to rise in 2018, up by 0.6% in the first seven months
of the year (CSS), driven by housing and transport costs.
GDP growth is expected to average about 4% per annum in
2018-2019 according to the IMF (Country Report, June 2018). The
outlook over the medium-term reflects positive underlying dynamics
in relation to both public and private debt and improved conditions
for the reduction of the high level of non-performing exposures
aided by recent legislation improving the foreclosure and
insolvency framework and facilitating the sale of non-performing
exposures.
In public finance, the budget surplus increased steeply to 1.8%
of GDP in 2017 (CSS) and is expected to remain substantial in
2018-2019 also averaging around 2.1% of GDP, according to the IMF
and the European Commission (IMF country report June 2018; European
Commission post programme surveillance report, Spring 2018).
The debt-to-GDP ratio dropped to 97.5% in 2017 and is expected
to increase to about 106% in 2018 due to the Cyprus Government's
(the Government) capital injection into the Cyprus Cooperative Bank
(CyCB) (European Commission, post programme surveillance report,
Spring 2018). However, it is expected that this will be a one-off
increase that will not affect the underlying debt dynamics in any
significant way. While total interest costs will increase as a
result of the new bonds issued for the CyCB, it is expected that
debt will remain affordable. In 2017, the primary surplus reached
5% of GDP where interest payments were 3.2% of GDP (CSS) or 8% of
revenues, compared with 10.4% of revenues in 2013. Strong GDP
growth and substantial budget surpluses will allow the debt-to-GDP
ratio to drop again to near 100% in 2019 (European Commission).
In April 2018, in order to facilitate the sale of the Cyprus
Cooperative Bank (CyCB), the Government issued Bonds by Private
Placement for a total nominal amount of EUR2.35 bn maturing between
15 to 20 years (Public Debt Management Office, Newsletter, May
2018). The proceeds of the bond issuance and additional funds were
deposited at the State account held at CyCB, for a total of EUR2.5
bn. Subsequently the Government proceeded with an additional
domestic issuance so that the total government bonds issued for the
sale of CyCB reached EUR3.19 bn (total net effect on government
debt, per Moody's Investors Service, Credit Opinion, 27 July 2018).
The bonds issued in April were exchanged with new bonds maturing
between 2018 and 2022, while the cash placement reached EUR351 mn.
Against the State's total deposit of EUR3.54 bn with CyCB, CyCB
pledged assets comprising NPEs, as well as other non-core assets
with a total nominal value of c.EUR8.34 bn (Public Debt Management
Office, Newsletter, July 2018).
In parallel, the Cyprus Parliament passed amendments to the
legislation that strengthens the foreclosure, tax and insolvency
laws and facilitates the sale of NPEs (Sale of Loans Law), as well
as introduced the Securitisation Law, all of which came into effect
in July 2018. Also in July, the Government proposed ESTIA, a Scheme
that aims to address NPEs backed by primary residence. The
eligibility criteria of the Scheme aim to protect socially
vulnerable borrowers and it is expected to act as a deterrent and
enabler against debts of strategic defaulters.
In the context of a strengthening economy and improving
macroeconomic conditions, the Cypriot sovereign has benefited from
a series of upgrades. Most recently in July 2018, Moody's Investors
Service upgraded Cyprus' sovereign rating to Ba2 from Ba3 and
changed the outlook to stable from positive. The upgrade and stable
outlook reflect the ongoing recovery and favourable developments in
the banking system where the resolution of the CyCB through the
sale of its healthy assets and liabilities, materially reduced
systemic risks emanating from the banking sector. In April 2018,
Fitch Ratings upgraded its Long-Term Issuer Default ratings to
'BB+' from 'BB' which is one notch below investment grade,
maintaining its 'positive' outlook. In March 2018, S&P Global
Ratings affirmed its long-term sovereign rating at BB+, also one
notch below investment grade, and maintained its 'positive'
outlook.
D. Business Overview
As the Cypriot operations account for 89% of gross loans and 89%
of customer deposits, the Group's financial performance is highly
correlated to the economic and operating conditions in Cyprus and
will consequently benefit from the country's recovery. Most
recently in July 2018, Standard and Poor's affirmed the Bank 'B/B'
long and short-term issuer credit ratings with a positive outlook.
In March 2018, Fitch Ratings Limited affirmed their long-term
issuer default rating of B- with stable outlook. The Bank currently
has a long-term deposit rating from Moody's Investors Service of
Caa1 with a positive outlook. The key drivers for the ratings 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 reduction of residual NPEs (post the NPE
sale (Helix)) to continue at a revised pace of c.EUR200 mn per
quarter, as portfolio size and business line mix is expected to
change radically post execution of Helix. In parallel, the Group
continues to actively explore alternative avenues to further
accelerate this reduction via structured solutions.
Project Helix
In August 2018, the Company reached an agreement for the sale of
a Portfolio of loans with a gross book value of EUR2.8 bn (of which
EUR2.7 bn relate to non-performing loans) secured by real estate
collateral. The Portfolio will be transferred to a licensed Cypriot
Credit Acquiring Company (the "CyCAC") by the Bank. The shares of
the CyCAC will then be acquired by certain funds affiliated with
Apollo Global Management LLC (NYSE:APO) (together with its
consolidated subsidiaries "Apollo"), the purchaser of the
Portfolio. Funds managed by Apollo will provide equity capital in
relation to the financing of the purchase of the Portfolio. The
purchaser was selected following a competitive sale process.
Following a transitional period where servicing will be retained by
the Bank, it is intended that the servicing of the Portfolio will
be carried out by a long-term servicer. Arrangements in relation to
the migration of servicing from the Bank to the long-term servicer,
including the timing of the migration, remain under discussion
between the parties.
The transaction is the first NPL disposal by the Bank and
represents a significant milestone in the delivery of the Bank's
strategy of improving asset quality through the reduction of NPEs.
Following the completion of Project Helix, the Bank's gross NPEs
will be 65% lower than its peak in 2014.
The completion of the transaction remains subject to a number of
conditions precedent, including mainly regulatory and other
approvals, including the ECB agreeing to a Significant Risk
Transfer ("SRT") benefit from the transaction. All relevant figures
and pro forma calculations are based on 30 June 2018 financial
results, unless otherwise stated. Calculations assume no changes in
the capital or provisioning levels required as result of the
upcoming SREP process or otherwise. Any such changes may be
materially adverse
ESTIA
In July 2018, the Government announced ESTIA, a scheme aimed at
addressing NPEs backed by primary residence. This Scheme is
expected to address up to EUR0.9 bn of retail core NPEs, subject to
eligibility criteria and participation rate. This Estia-eligible
portfolio refers to the potentially eligible portfolio based on the
Bank's available data. 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 contractual and OMV, and the
Government to subsidise one third of the instalment. The terms of
the Scheme are subject to finalisation.
Sale of Bank of Cyprus UK Limited (BOC UK)
In July 2018, the Company signed an agreement to sell its wholly
owned subsidiary bank in the UK. The sale is expected to be
completed by the end of 2018, subject to regulatory approvals. The
sale consideration of GBP103 mn (c.EUR117 mn) is subject to
customary purchase price adjustments for the period up to
completion. The consideration is payable in cash, of which half is
deferred over 24 months from completion, without any performance
conditions attached. The accounting profit from the sale is
estimated at c.EUR3 mn. The impact from the sale on the CET1 ratio
at 30 June 2018 is an increase of c.10 bps relating to recycling of
a related foreign currency gain of EUR17 mn into CET1, previously
recorded in the foreign currency translation reserve which was not
recognised in regulatory capital. On completion, the CET1 ratio is
expected to be further positively affected by c.70 bps (based on 30
June 2018 results) resulting mainly from the release of risk
weighted assets. The decision to sell the UK bank is in line with
the Group's strategy of delivering value for shareholders and
focusing principally on supporting the growing Cypriot economy.
Further to this transaction, the Group and BOC UK will sign a
cooperation agreement, which will see both organisations
cooperating in a number of key areas going forward, including
continuity of servicing for existing customers. Following
completion, BOC UK is expected to be rebranded to "Cynergy Bank", a
name chosen to reflect the bank's Cypriot heritage, combined with a
modern and energetic focus.
The strategic focus of the Group is to reshape its business
model to grow in the core Cypriot market through prudent new
lending. The Bank's capital position is adequate and 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, 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 1H2018 amounted to EUR25 mn, up by 3% yoy,
contributing to 14% 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 Bank is committed to a modernisation agenda designed to
transform its business model in order to ensure it can compete
efficiently and better service the needs of its customers. To
facilitate momentum in delivering changes through an accelerated
multi-year Digital Transformation Programme, the Bank continues to
be working with IBM, its Strategic Digital Transformation Partner.
In collaboration with IBM, the Bank aims to use market leading
digital innovation to improve efficiency and agility across the
Group in order to provide a significantly superior experience to
its customers.
E. Strategy and Outlook
The Group is making meaningful progress on its strategic
objectives of creating a stronger, safer and a more Cypriot-
focused institution to support the recovery of the Cypriot economy,
while 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 Cypriot 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 NPE reduction
* 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
* Increase loan pool for the Additional Credit Claim
framework of ECB
* Further diversify funding sources
----------------------------------------------------------------------
3. Maintain an adequate capital position
* Internally generate capital
* Currently in the process of finalising the terms with,
and seeking binding commitments from investors in
respect of a privately placed AT1 transaction, of an
anticipated size of c.EUR200 mn, subject to market
conditions
----------------------------------------------------------------------
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 business, 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
----------------------------------------------------------------------
6. Deliver value
* Deliver appropriate medium-term risk-adjusted returns
----------------------------------------------------------------------
The operating performance of the Group has remained resilient.
Helix and the disposal of BOC UK will meaningfully change the shape
of the Group going forward. The timing of completion is largely
dependent on regulatory approvals and therefore remains uncertain.
These actions collectively are expected to result in a stronger,
safer, more focused Bank.
The organic reduction of residual NPEs (post Helix) is expected
to continue during the coming quarters at a revised pace of
c.EUR200 mn per quarter, as portfolio size and business line mix is
expected to change radically. The cost of risk is expected to be
below 1%. Furthermore, with the completion of these transactions,
the Group's capital ratios are expected to be strengthened.
Updated 2019 and Medium Term Guidance will be communicated with
full year 2018 results. Refer to the investors' presentation for
the pro-forma for Helix and UK sale full year 2018 guidance.
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
available in Union law (ECB/2016/4), the DTA phase-in
period was reduced from 10 to 5 years, with effect
as from the reporting of 31 December 2016. The applicable
rate of the DTA phase-in is 60% for 2017, 80% for
2018 and 100% for 2019 (fully phased-in).
Accumulated Comprise (i) provisions for impairment of customer
provisions loans and advances, (ii) the fair value adjustment
on initial recognition of loans acquired from Laiki
Bank and on loans classified at FVPL, and (iii) provisions
for off-balance sheet exposures disclosed on the balance
sheet within other liabilities.
Advisory and Comprise mainly: fees of external advisors in relation
other restructuring to: (i) disposal of operations and non-core assets,
costs (ii) customer loan restructuring activities which
are not part of the effective interest rate and (iii)
the listing on the London Stock Exchange
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 Basel II requirements.
basis)
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 was published on 17 August 2018.
Statistical
Service of the
Republic of
Cyprus
Deferred Tax The DTA adjustments relate to Deferred Tax Assets
Asset adjustments totalling EUR381 mn and recognised on tax losses totalling
EUR3.05 bn and can be set off against future profits
of the Bank until 2028 at a tax rate of 12.5%. There
are tax losses of c.EUR7.1 bn for which no deferred
tax asset has been recognised. The recognition of
deferred tax assets is supported by the Bank's business
forecasts and takes into account the recoverability
of the deferred tax assets within their expiry period.
ECB European Central Bank
ELA Emergency Liquidity Assistance
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 EUR514 mn at 30 June
2018 (compared to EUR566 mn at 31 March 2018 and to
EUR668 mn at 31 December 2017).
Additionally, gross loans are reported before loans
and advances to customers measured at fair value through
profit and loss of EUR404 mn and after the reclassification
between gross loans and expected credit losses on
loans and advances to customers classified as held
for sale of EUR107 mn.
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 to total assets for the relevant period.
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 38.6% at 30 June 2018,
compared to 37.4% at 31 March 2018. The market share
on loans was affected as at 30 June 2018 following
a decrease in total loans in the banking sector of
EUR2,1bn, as reported by CBC, (due to loan reclassifications,
revaluations, exchange rate or other adjustments).
Net fee and Net fee and commission income over total income is
commission income the net fee and commission income divided by the total
over total income income (as defined).
Net Interest Net interest margin is calculated as the net interest
Margin income (annualised) divided by the average interest
earning assets. 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)
and derivatives.
Net loans and Loans and advances net of accumulated provisions (as
advances defined).
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. EBA is working
on finalising the NSFR and enforcing it as a regulatory
ratio.
Non-interest Non-interest income comprises Net fee and commission
income income, Net foreign exchange gains and net gains on
other financial instruments and disposal/dissolution
of subsidiaries and associates, Insurance income net
of claims and commissions, Net gains 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 and ECB's Guidance to Banks on Non-Performing
Loans published in March 2017, 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 i.e. in cases
where there is a specific provision, or (iii) there
are material exposures which are more than 90 days
past due, or (iv) there are performing forborne exposures
under probation for which additional forbearance measures
are extended, or (v) there are performing forborne
exposures under probation that present more than 30
days past due within the probation period. The NPEs
are reported before the deduction of accumulated provisions
(as defined).
NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as
defined) divided by gross loans (as defined).
Operating profit Comprises profit before total provisions and impairments
(as defined), share of profit from associates and
joint ventures, tax, loss/(profit) attributable to
non-controlling interests, advisory and other restructuring
costs-excluding the NPE sale (Helix), restructuring
costs and loss relating to NPE sale(Helix) (where
applicable).
Operating profit Operating profit return on average assets is calculated
return on average as the annualised operating profit (as defined) divided
assets by the average of total assets for the relevant period.
Phased-in Capital In accordance with the legislation in Cyprus which
Conservation has been set for all credit institutions, the applicable
Buffer (CCB) rate of the CCB is 1.25% for 2017, 1.875% for 2018
and 2.5% for 2019 (fully phased-in).
Profit/(loss) Excludes advisory and other restructuring costs. It
after tax and also excludes any restructuring costs or loss relating
before restructuring to the NPE sale (Helix).
costs and before
the NPE trade
(Helix)
Provision charge The provision charge comprises provisions for impairments
of customer loans and provisions for off-balance sheet
exposures, net of gain/(loss) on derecognition of
loans and advances to customers and changes in expected
cash flows.
Provisioning Provisioning charge (cost of risk) (year to date)
charge (cost is calculated as the provision charge (as defined)
of risk) divided by average gross loans (the average balance
calculated as the average of the opening balance and
the closing balance). An amount of c.EUR500 mn reflecting
the one-off effect of the change in the provisioning
assumptions was included in the cost of risk for 1H2017,
but was not annualised.
Provisioning Provisioning coverage ratio for NPEs is calculated
coverage ratio as accumulated provisions (as defined) over NPEs (as
for NPEs defined).
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) and derivatives.
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 the NPE sale
(Helix)" or any restructuring costs or loss relating
to NPE sale (Helix).
"Advisory and other restructuring costs-excluding
the NPE sale (Helix)" amount to EUR7 mn for 2Q2018,
EUR8 mn for 1Q2018 and EUR29 mn for the year ended
31 December 2017. Restructuring costs relating to
NPE sale (Helix) amount to EUR6 mn for 2Q2018, EUR6
mn for 1Q2018 and EURNil for the year ended 31 December
2017. Loss relating to NPE sale (Helix) amounts to
EUR135 mn for 2Q2018, EURNil 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 provisions Total provisions and impairments comprise provision
and impairments charge (as defined), plus (reversal)/provisions for
litigation and regulatory matters plus 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 provisions 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" and
together with the Bank's subsidiaries, the "Group", for the six
months ended 30 June 2018.
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 Group
financial results for the six months ended 30 June 2018. 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 2017, upon
which the auditors have given an unqualified report, were published
on 27 March 2018 and are expected to be delivered to the Registrar
of Companies of Ireland within 28 days of 30 September 2018. The
Board of Directors approved the Group statutory financial
statements for the six months ended 30 June 2018 on 27 August
2018.
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 page 8) to allow a comparison of the Group's
underlying performance, as set out on pages 6-7.
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 2018 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'.
The Mid-Year Financial Report for the six months ended 30 June
2018 is available at the Bank of Cyprus Holdings Public Limited
Company Office (51, Stassinos Street, Ayia Paraskevi, P.O. Box
24884, 1398, Nicosia, Cyprus) and on the Group's website
www.bankofcyprus.com (Investor Relations/Financial Results).
This announcement and the presentation for the Group Financial
Results for the six months ended 30 June 2018 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
2018 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.
Comparative information
The Group has not restated comparative information for 2017 for
financial instruments within the scope of IFRS 9. Additionally, the
recognition and measurement of expected credit losses under IFRS 9
differs from under IAS 39. Therefore, the comparative information
for 2017 which is reported under IAS 39 and is not comparable to
the information presented for 2018 which is reported under IFRS 9.
New or amended disclosures are presented for the current period
according to IFRS 9, where applicable, whereas comparative period
disclosures are consistent with those made in other periods.
Adjustments arising from the adoption of IFRS 9 have been
recognised directly in accumulated losses as at 1 January 2018, as
disclosed in Note 7 of the Interim Condensed Consolidated Financial
Statements for the six months ended 30 June 2018.
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. These
forward-looking statements include, but are not limited to,
statements relating to the Group's intentions, beliefs or current
expectations and projections about the Group's future results of
operations, financial condition, liquidity, performance, prospects,
anticipated growth, provisions, impairments, strategies and
opportunities. By their nature, forward-looking statements involve
risk and uncertainty because they relate to events, and depend upon
circumstances, that will or may occur in the future. Factors that
could cause actual business, strategy and/or results to differ
materially from the plans, objectives, expectations, estimates and
intentions expressed in such forward-looking statements made by the
Group include, but are not limited to: general economic and
political conditions in Cyprus and other 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 122 branches, of which 120
operate in Cyprus, 1 in Romania and 1 in the United Kingdom. Bank
of Cyprus also has representative offices in Russia, Ukraine and
China. The Bank of Cyprus Group employs 4,402 staff worldwide. At
30 June 2018, the Group's Total Assets amounted to EUR23.7 bn and
Total Equity was EUR2.2 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
IR FKFDPQBKKNFB
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