1Q2021 Group Financial Results

RNS Number : 7063Z

Bank of Cyprus Holdings PLC

25 May 2021

Announcement

Group Financial Results for the quarter ended 31 March 2021

Nicosia, 25 May 2021

Key Highlights for the quarter ended 31 March 2021

COVID-19 Developments

· Cypriot economy gradually recovering

· Continuing to support this recovery; new lending of €487 mn, up 30% qoq

· Cyprus ranks 4th in the EU in COVID-19 vaccine doses administered per 100 people¹

· 48% of adult population in Cyprus already vaccinated with first dose² and on track to reach target of 65% by end of June 2021

Positive Organic Performance

· Total income of € 136 mn, down 3% qoq, Operating profit of €45 mn broadly flat qoq

· Cost of risk of 66 bps, improved by 33 bps qoq

· Organic profit after tax of € 14 mn, up € 12 mn qoq

· Profit after tax of € 8 mn, vs loss after tax of € 49 mn in 4Q2020

Operating Efficiency

· Total operating expenses³ of € 82 mn, down 9% qoq, driven by seasonality

· Cost to income ratio³ at 60%, down 4 p.p. qoq

Good Capital, Strong Liquidity

· CET1 ratio of 14.6%^4,5 and Total Capital ratio of 18.3%^4,5

· Successful refinancing of Tier 2 in April 2021 at a significantly lower coupon rate; Total Capital ratio expected to increase to 19.2%^4,5,6

· Deposits at €16.3 bn, broadly flat qoq; Significant surplus liquidity of € 4.9 bn (LCR at 284%)

Balance Sheet Repair Continuing

· € 0.5 bn NPE sale (Helix 2 Portfolio B) signed in January 2021

· NPEs at €1.7 bn⁴ (€0.7 bn net⁴)

· Gross NPE ratio at 16%⁴ stable qoq⁴ (7% net⁴); organic NPE reduction impacted by lockdown

· Coverage maintained at 59%⁴

· 95% of performing loans⁷ under expired payment deferrals with an instalment due by 14 May 2021, presented no arrears

1. According to ECDC https://vaccinetracker.ecdc.europa.eu/public/extensions/COVID-19/vaccine-tracker.html#uptake-tab

2. Data as at 21 May 2021. 20% have completed their vaccination regime (Source: Ministry of Health)

3. Excluding special levy and contributions to SRF and DGF

4. Pro forma for Helix 2 (Portfolio A and B). Calculations on a pro forma basis assume legal completion of the transaction

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

6. On the basis of 31 March 2021 figures. The Total Capital ratio pro forma for Helix 2 is expected to increase to 19.5%, including 28 bps relating to the outstanding Existing Notes (remaining after the Tender Offer) of €43 mn. The Existing Notes are redeemable at the option of the Bank (subject to applicable regulatory consents) in January 2022.

7. As at 31 March 2021

Group Chief Executive Statement

"The first quarter of the year has again been a period characterised by on-going pandemic-related disruption. Despite the significant progress made both within Cyprus and globally with the vaccine roll-out programme, the day-to-day operating environment continues to be challenging, and the first quarter saw restrictions remaining in place within Cyprus. As such, our priority during the period has continued to be focused on providing support to our customers, colleagues and community. Although the pace of economic recovery in Cyprus temporarily slowed in the first quarter as result of the restrictions, we have continued to support the country's return to growth, extending €487 mn of new loans in the period, the strongest quarter in new lending since the pandemic struck a year ago.

This lending performance, allied to the recent relaxation of restrictions and the progress of the vaccination programmes both in Cyprus and abroad support our confidence in the economic recovery gathering pace. As at 21 May 2021, 48% of the adult population in Cyprus have been vaccinated with the first dose, on track with the target of reaching 65% by the end of June. Also, Cyprus ranks 4th in the EU in COVID-19 vaccine doses administered per 100 people. As a bank we remain ready to do all we can to ensure Cyprus recovers quickly and emerges strongly from the crisis.

During the first quarter of the year, we generated total income of €136 mn and a positive operating result of €45 mn. Cost of risk was reduced by 33 bps to 66 bps. We delivered an underlying profit of €14 mn and the overall result for the quarter was a profit after tax of €8 mn. At the same time, we reduced our total operating expenses (excluding levies and contributions) by €9 mn or 9% on the prior quarter to €82 mn, reflecting our on-going efforts to contain costs.

The Bank's capital position remains good and comfortably in excess of our regulatory requirements. As at 31 March 2021, our capital ratios (on a transitional basis) were 18.3% for the Total Capital ratio and 14.6% for CET1 ratio, both pro forma for NPE sales. Our liquidity position also remains strong and we continue to operate with almost €5 bn surplus liquidity and an LCR at 284%. Deposits on our balance sheet remained broadly flat in the quarter at €16.3 bn.

In April 2021, we successfully refinanced our Tier 2 capital, further optimising the capital structure of the Group. The issuance of €300 mn Tier 2 Capital Notes is expected to increase the Group's Total Capital ratio pro forma for NPE sales by c.100 bps to 19.2%. The transaction has also enhanced the diversification of our investor base, and the significant reduction in the coupon to 6.625% confirms market recognition of the significant progress made in evolving the Group's financial profile.

Balance sheet repair has continued in the first quarter of the year. As previously noted, in January 2021, despite the challenging environment, we reached agreement for the sale of a further €500 mn NPE portfolio, continuing to deliver on one of the Group's strategic priorities of improving asset quality through the reduction of NPEs. Overall, since the peak in 2014, we have now reduced the stock of NPEs by €13.3 bn or 89% to €1.7 bn and the NPE ratio by 47 percentage points, from 63% to 16%, pro forma for NPE sales. This remained stable qoq as organic NPE reduction was impacted by the lockdown. Whilst we expect this to recover in the coming quarters, we continue to actively explore strategies to accelerate de-risking including further portfolio sales, and remain on track with achieving a single digit NPE ratio by the end of 2022. At the same time, we continue to closely monitor the performance of loans which had been granted payment deferrals in the previous year, and we remain cautiously optimistic based on their performance to date.

As the leading bank in Cyprus, it is both our focus and purpose to help support the country's return to growth, and we remain confident about the future and committed to playing our part in that. Despite the challenges of the last year having persisted in the quarter, we, as a Bank, have continued to make progress, and remain absolutely committed to our strategic initiatives of completing de-risking, revenue enhancement and cost reduction through business transformation in order to deliver shareholder returns in the medium term."

Panicos Nicolaou

A. Group Financial Results - Underlying Basis
Unaudited Interim Condensed Consolidated Income Statement
€ mn	1Q2021	1Q2020	4Q2020	(1q vs 4q) +%	yoy +%
Net interest income	76	85	80	-5%	-10%
Net fee and commission income	39	38	38	1%	1%
Net foreign exchange gains and net losses on financial instrument transactions and disposal/dissolution of subsidiaries and associates	2	6	1	-	-55%
Insurance income net of claims and commissions	13	11	14	-9%	15%
Net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties	2	1	5	-46%	-
Other income	4	4	4	-5%	-19%
Total income	136	145	142	-3%	-6%
Staff costs	(50)	(49)	(50)	1%	2%
Other operating expenses	(32)	(35)	(41)	-21%	-6%
Special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF)	(9)	(9)	(6)	48%	-1%
Total expenses	(91)	(93)	(97)	-5%	-1%
Operating profit	45	52	45	1%	-15%
Loan credit losses	(20)	(64)	(31)	-35%	-68%
Impairments of other financial and non-financial assets	(5)	(4)	(6)	-15%	19%
Provisions for litigation, claims, regulatory and other matters	(1)	(2)	(3)	-71%	-60%
Total loan credit losses, impairments and provisions	(26)	(70)	(40)	-34%	-63%
Profit/(loss) before tax and non-recurring items	19	(18)	5	-	-
Tax	(2)	(2)	(1)	18%	9%
Loss/(profit) attributable to non-controlling interests	0	(0)	(1)	-	-
Profit/(loss) after tax and before non-recurring items (attributable to the owners of the Company)	17	(20)	3	-	-
Advisory and other restructuring costs - organic	(3)	(3)	(1)	-	-14%
Profit/(loss) after tax - organic (attributable to the owners of the Company)	14	(23)	2	-	-
Provisions/net loss relating to NPE sales, including restructuring expenses¹	(6)	(3)	(42)	-86%	99%
Restructuring costs - Voluntary Staff Exit Plan (VEP)	-	-	(6)	-	-
DTC levy	-	-	(3)	-	-
Profit/(loss) after tax (attributable to the owners of the Company)	8	(26)	(49)	-	-

B. Group Financial Results - Underlying Basis (continued)
Unaudited Consolidated Income Statement - Key Performance Ratios
Key Performance Ratios²	1Q2021	1Q2020	4Q2020	(1q vs 4q) +%	yoy +%
Net Interest Margin (annualised)	1.63%	1.95%	1.75%	-12 bps	-32 bps
Cost to income ratio	67%	64%	69%	-2 p.p.	+3 p.p.
Cost to income ratio excluding special levy and contributions to SRF and DGF	60%	58%	64%	-4 p.p.	+2 p.p.
Operating profit return on average assets (annualised)	0.8%	1.0%	0.8%	-	-0.2 p.p.
Basic earnings/(losses) per share attributable to the owners of the Company - organic (€ cent)	3.16	(5.14)	0.42	2.74	8.30
Basic earnings/(losses) per share attributable to the owners of the Company (€ cent)	1.83	(5.81)	(11.20)	13.03	7.64
1. 'Provisions/net (loss)/profit relating to NPE sales, including restructuring expenses' refer to the net loss on transactions completed during each year/period, net loan credit losses on transactions under consideration, as well as the restructuring costs relating to these trades. For further details please refer to Section A.2.4. 2. Including the NPE portfolios classified as "Non-current assets and disposal groups held for sale". p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point

Commentary on Underlying Basis

The financial information presented in this Section provides an overview of the Group financial results for the quarter ended 31 March 2021 on the 'underlying basis' which the management believes best fits the true measurement of the performance and position of the Group, as this presents separately the exceptional and one off items.

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

With respect to the 'Balance Sheet Analysis', please note the following in relation to the disclosure of pro forma figures and ratios with respect to Project Helix 2 (as explained in the paragraph below). All relevant figures are based on 31 March 2021 financial results, unless otherwise stated. Numbers on a pro forma basis are based on the 31 March 2021 underlying basis figures and are adjusted for Project Helix 2, and assume its completion, which remains subject to required customary regulatory and other approvals. Where numbers are provided on a pro forma basis this is stated.

Project Helix 2 refers to the agreement the Group reached in August 2020 with funds affiliated with Pacific Investment Management Company LLC ("PIMCO"), for the sale of a portfolio of loans with gross book value of €0.9 bn (Helix 2 Portfolio A), as well as to the agreement the Group reached with PIMCO in January 2021 for the sale of an additional portfolio of loans with gross book value of €0.5 bn (Helix 2 Portfolio B). Further details are provided in Section A.1.5 'Loan portfolio quality'.

A. Group Financial Results - Underlying Basis (continued)
Unaudited Consolidated Condensed Interim Balance Sheet
€ mn		31.3.2021		31.12.2020		+ %
Cash and balances with central banks		6,926		5,653		23%
Loans and advances to banks		421		403		4%
Debt securities, treasury bills and equity investments		2,113		1,913		10%
Net loans and advances to customers		9,960		9,886		1%
Stock of property		1,328		1,350		-2%
Investment properties		126		128		-2%
Other assets		1,544		1,550		-0%
Non-current assets and disposal groups held for sale		626		631		-1%
Total assets		23,044		21,514		7%
Deposits by banks		412		392		5%
Funding from central banks		2,692		995		-
Customer deposits		16,332		16,533		-1%
Subordinated loan stock		254		272		-7%
Other liabilities		1,266		1,247		1%
Total liabilities		20,956		19,439		8%

Shareholders' equity		1,844		1,831		1%
Other equity instruments		220		220		-
Total equity excluding non-controlling interests		2,064		2,051		1%
Non-controlling interests		24		24		1%
Total equity		2,088		2,075		1%
Total liabilities and equity		23,044		21,514		7%

Key Balance Sheet figures and ratios	31.3.2021 (proforma)¹		31.3.2021 (as reported)²		31.12.2020 (as reported)²		+²
Gross loans (€ mn)	10,942		12,281		12,261		0%
Allowance for expected loan credit losses (€ mn)	1,002		1,869		1,902		-2%
Customer deposits (€ mn)	16,332		16,332		16,533		-1%
Loans to deposits ratio (net)	61%		64%		63%		+1 p.p.
NPE ratio	16%		25%		25%		-
NPE coverage ratio	59%		62%		62%		-
Leverage ratio	8.3%		8.3%		8.8%		-0.5 p.p.
Capital ratios and risk weighted assets	31.3.2021 (proforma)¹		31.3.2021 (as reported)²		31.12.2020 (as reported)²		+²
Common Equity Tier 1 (CET1) ratio (transitional)³	14.6%		14.4%		14.8%		-40 bps
Total capital ratio	18.3%		18.0%		18.4%		-40 bps
Risk weighted assets (€ mn)	11,286		11,546		11,636		-1%
1. Pro forma for the sale of NPEs (Project Helix 2, Portfolios A and B) of €1.3 bn on the basis of 31 March 2021 figures; calculations on a pro forma basis assume completion of Project Helix 2 (Portfolios A and B), which remains subject to required customary regulatory and other approvals. 2. As reported: Including the NPE portfolios classified as "Non-current assets and disposal groups held for sale". 3.The CET1 fully loaded ratio as at 31 March 2021 amounts to 13.1% and 13.3% pro forma for Helix 2 (Portfolios A and B) (compared to 12.9% and 13.3% pro forma for Helix 2 (Portfolios A and B) as at 31 December 2020). p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 p.p.

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis

A.1.1 Capital Base

Total equity excluding non-controlling interests totalled €2,064 mn at 31 March 2021, compared to €2,051 mn at 31 December 2020. Shareholders' equity totalled €1,844 mn at 31 March 2021, compared to €1,831 mn at 31 December 2020.

The Common Equity Tier 1 capital (CET1) ratio on a transitional basis stood at 14.4% at 31 March 2021 and 14.6% pro forma for the Project Helix 2 (Portfolios A and B) sale agreements reached in 3Q2020 and 1Q2021 respectively (referred to as "pro forma for Helix 2"), compared to 14.8% at 31 December 2020 and 15.2% pro forma for Helix 2. During 1Q2021, the CET1 ratio was negatively affected mainly by the phasing-in of IFRS 9 transitional arrangements, and provisions and impairments, and was positively affected by the pre-provision income and the decrease in risk-weighted assets (RWAs). Throughout, the capital ratios as at 31 March 2021 include unaudited / unreviewed profits for 1Q2021, unless otherwise stated.

The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU Regulation 2017/2395) where the impact on the impairment amount from the initial application of IFRS 9 on the capital ratios is phased-in gradually. The amount added back to CET1 each year decreases based on a weighting factor until the impact of IFRS 9 is fully absorbed at the end of the five years. The impact on the capital position for year 2018 was 5% of the impact on the impairment amount from the initial application of IFRS 9, increased to 15% (cumulative) for year 2019, 30% (cumulative) for year 2020 and 50% (cumulative) for year 2021. This will increase to 75% (cumulative) for year 2022 and will be fully phased in (100%) by 1 January 2023. The phasing-in of the impairment amount from the initial application of IFRS 9 on 1 January 2021 had a negative impact of c.45 bps on the CET1 ratio.

In June 2020, Regulation (EU) 2020/873, regarding certain adjustments in response to the COVID-19 pandemic, came into force, extending the IFRS 9 transitional arrangements and introducing further relief measures to CET1, such as allowing to temporarily add back unrealised gains or losses on certain financial instruments measured at fair value through other comprehensive income. Further details are set out below under 'Implications on capital from the Outbreak of COVID-19'.

The CET1 ratio on a fully loaded basis amounted to 13.1% as at 31 March 2021 and 13.3% pro forma for Helix 2, compared to 12.9% as at 31 December 2020 and 13.3% pro forma for Helix 2 . On a transitional basis and on a fully phased-in basis, after the transition period is completed, the impact of IFRS 9 is expected to be manageable and within the Group's capital plans.

The Total Capital ratio stood at 18.0% as at 31 March 2021 and 18.3% pro forma for Helix 2, compared to 18.4% as at 31 December 2020 and 18.7% pro forma for Helix 2.

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

In the context of the European Central Bank's (ECB's) capital easing measures for COVID-19, in April 2020, the Bank received an amendment to the December 2019 SREP decisioneffective as of 12 March 2020, reducing the Group's minimum phased-in Common Equity Tier 1 (CET1) capital ratio to 9.7% (comprising a 4.5% Pillar I requirement, a 1.7% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 1.0%), following the frontloading of the new rules on the Pillar II Requirement composition, to allow banks to use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to meet Pillar II Requirements and not only by CET1, initially scheduled to come into effect in January 2021.

The SREP Total Capital Requirement remained unchanged at 14.5%, comprising an 8.0% Pillar I requirement (of which up to 1.5% can be in the form of AT1 capital and up to 2.0% in the form of T2 capital), a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 1.0%. The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer. Pillar II add-on capital requirements derive from the context of the SREP, which is a point in time assessment, and are therefore subject to change over time.

In November 2020, the Group received communication from the ECB according to which no SREP decision would be issued for the 2020 SREP cycle and that the 2019 SREP decision will remain in force, hence leaving the Group's capital requirements unchanged, as well as other requirements established by the 2019 SREP decision (as amended in April 2020). The communication followed a relevant announcement by the ECB earlier in 2020 that the ECB would be taking a pragmatic approach towards the SREP for the 2020 cycle.

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.1 Capital Base (continued)

In accordance with the provisions of the Macroprudential Oversight of Institutions Law of 2015, the Central Bank of Cyprus (CBC) is the responsible authority for the designation of banks that are Other Systemically Important Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for these systemically important banks. The Group has been designated as an O-SII and the O-SII buffer currently set by the CBC for the Group is 2%. This buffer is being phased-in gradually, having started from 1 January 2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%). In April 2020, the CBC decided to delay the phasing-in (0.5%) of the O-SII buffer on 1 January 2021 and 1 January 2022 by 12 months. Consequently, the O-SII buffer will be fully phased-in on 1 January 2023, instead of 1 January 2022 as originally set.

Further analysis on the recent developments on the regulatory capital ratios due to the COVID-19 outbreak is set out further below under 'Implications on capital from the Outbreak of COVID-19'.

The European Banking Authority (EBA) final guidelines on SREP and supervisory stress testing and the Single Supervisory Mechanism's (SSM) 2018 SREP methodology provide that own funds held for the purposes of Pillar II Guidance cannot be used to meet any other capital requirements (Pillar I, Pillar II requirements or the combined buffer requirement), and therefore cannot be used twice. Following the 2019 SREP decision, the new provisions became effective as of 1 January 2020.

Based on the SREP decisions of prior years, the Company (Bank of Cyprus Holdings PLC) and the Bank were under a regulatory prohibition for equity dividend distribution and therefore no dividends were declared or paid during 2019. Following the 2020 SREP communication, the Company and the Bank are still under equity dividend distribution prohibition as the 2019 SREP decision remains in force. This prohibition does not apply if the distribution is made via the issuance of new ordinary shares to the shareholders, which are eligible as CET1 capital. No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company or the Bank.

The ECB, as part of its supervisory role, has completed an onsite inspection and review on the value of the Group's foreclosed assets with reference date 30 June 2019. The findings relate to a prudential charge of up to 44 bps, the majority of which is expected to be taken at 30 June 2021, depending on the Bank's progress in disposing the properties impacted by the prudential charge.

Project Helix 2

In August 2020, the Group signed an agreement (the 'agreement') for the sale of a portfolio of loans with gross book value of €0.9 bn as at 30 June 2020, known as Project 'Helix 2 Portfolio A'. Loan credit losses in relation to the agreement of c.€68 mn, including transaction costs were recognised during 2Q2020.

In January 2021, the Group amended and restated the agreement to incorporate the sale of an additional portfolio of loans with gross book value of €0.5 bn as at 30 September 2020, known as Project 'Helix 2 Portfolio B'. As at the year‑end, in anticipation of the agreement for Project 'Helix 2 Portfolio B' loan credit losses of c.€27 mn were recognised in 4Q2020.

The completion of Helix 2 Portfolio B will be aligned with the completion of Helix 2 Portfolio A and is currently estimated to occur early in 2H2021. The completion remains subject to a number of conditions, including required customary regulatory and other approvals.

Project Helix 2 (Portfolios A and B) up to and including legal completion (including the impact in FY2020) is expected to have a negative capital impact of 48 bps on the Group's CET1 ratio, on the basis of 31 March 2021 figures. The legal completion of the transaction is expected to increase the CET1 ratio as at 31 March 2021 from 14.4% to 14.6% (pro forma). Upon the full payment of the deferred considerations and without taking into consideration any positive impact from the earnout, Project Helix 2 (Portfolios A and B) is expected to have an additional positive capital impact of 64 bps on the Group's CET1 ratio, on the basis of 31 March 2021 figures.

Further details regarding the consideration, including the deferred component and earnout, are provided in Section A.1.5 'Loan portfolio quality'.

Legislative amendments for the conversion of DTA to DTC

Legislative amendments allowing for the conversion of specific deferred tax assets (DTA) into deferred tax credits (DTC) became effective in March 2019. The law amendments cover the utilisation of income tax losses transferred from Laiki Bank to the Bank in March 2013. The introduction of CRD IV in January 2014 and its subsequent phasing-in led to a more capital-intensive treatment of this DTA for the Bank. The law amendments resulted in an improved regulatory capital treatment, under CRR , of the DTA amounting to c.€285 mn or a CET1 uplift of c.190 bps in March 2019.

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.1 Capital Base (continued)

Legislative amendments for the conversion of DTA to DTC (continued)

The Group understands that, in response to concerns raised by the European Commission with regard to the provision of state aid arising out of the treatment of such tax losses, the Cyprus Government is considering the adoption of modifications to the Law, including requirements for an additional annual fee over and above the 1.5% annual guarantee fee already acknowledged, to maintain the conversion of such DTAs into tax credits.

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

Voluntary Staff Exit Plans

In December 2020, the Group completed a targeted voluntary staff exit plan (VEP) at a total cost of €6 mn, recorded in the consolidated income statement in 4Q2020, resulting in a negative impact of c.5 bps on the Group's CET1 ratio as at 31 December 2020 . For further information please refer to Section A.2.2 'Total expenses'.

Tier 2 Capital Notes

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

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

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

At the same time, the Bank invited the holders of its €250 mn Fixed Rate Reset Tier 2 Capital Notes due January 2027 (the 'Existing Notes') to tender their Existing Notes for purchase by the Bank at a price of 105.50%. The Bank received valid tenders of €207 mn in aggregate nominal amount, all of which were accepted by the Bank, and after which €43 mn in aggregate nominal amount of the Existing Notes remain outstanding.

The issuance of the New Notes is expected to increase the Group's Total Capital ratio pro forma for Helix 2 by 123 bps to 19.5%, on the basis of 31 March 2021 figures, including 28 bps relating to the outstanding Existing Notes. The Existing Notes are redeemable at the option of the Bank (subject to applicable regulatory consents) in January 2022.

The issuance is expected to be MREL eligible, contributing towards the Bank's MREL requirements.

A.1. Balance Sheet Analysis (continued)

A.1 Capital Base (continued)

Implications on capital from the Outbreak of COVID-19

The Group continues to closely monitor developments in, and the effects of COVID-19 on both the global and Cypriot economy. In early 2020, the ECB announced a package of positive measures that should help to support the capital position of banks, in order to secure favourable conditions of financing for the economy with the aim to mitigate the effects of the crisis. Specifically, the measures increased the Group's capital base available to absorb potential losses due to the crisis. In addition, the early adoption of CRD V for the composition of the Pillar II Requirement provides flexibility regarding the Group's compliance with the minimum capital requirement of Pillar II.

In the context of the ECB's capital easing measures for COVID-19, in April 2020, the Bank received an amendment to the December 2019 SREP decision effective as of 12 March 2020, r educing the Group's minimum phased-in CET1 capital ratio to 9.7%. In addition, in March 2020, the ECB announced that banks are temporarily allowed to operate below the level of Pillar II Guidance (P2G), the capital conservation buffer (CCB) and the countercyclical buffer. In July 2020, the ECB committed to allow banks to operate below the P2G and the combined buffer requirement until at least end of 2022, without automatically triggering supervisory actions. In addition, in April 2020, the CBC decided to delay the phasing-in of the O-SII buffer. Further details are given above. The CBC has set the level of the countercyclical buffer for Cyprus at 0% for the year 2020 and the six months to 30 June 2021.

In June 2020, Regulation (EU) 2020/873, in response to the COVID-19 pandemic, came into force, bringing forward some of the capital-relieving measures that were due to come into force at a later stage and introducing modifications as part of the wider efforts of competent authorities to provide the support necessary to the institutions. The main amendments with an impact on the Group's capital ratios related to the acceleration of the implementation of the new SME discount factor under CRR II introduced in June 2020, instead of June 2021, extending the IFRS 9 transitional arrangements and introducing further relief measures to CET1, advancing the application of the prudential treatment of software assets as amended by CRR II, and introducing a temporary treatment of unrealized gains and losses to exposures to central governments, regional governments or local authorities, measured at fair value through other comprehensive income. Overall, the Group's CET1 ratio benefited by c.80 bps in 2020 as a result of the above amendments.

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.2. Regulations and Directives

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

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

A.1.2.2 Bank Recovery and Resolution Directive (BRRD)

Minimum Requirement for Own Funds and Eligible Liabilities (MREL)

The Bank Recovery and Resolution Directive (BRRD) requires that from January 2016 EU member states shall apply the BRRD's provisions requiring EU credit institutions and certain investment firms to maintain a minimum requirement for own funds and eligible liabilities (MREL), subject to the provisions of the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part of the reform package for strengthening the resilience and resolvability of European banks, the BRRD Ι came into effect and was required to be transposed into national law. BRRD II was transposed and implemented in Cyprus law in early May 2021. In addition, certain provisions on MREL have been introduced in CRR Ι which also came into force on 27 June 2019 as part of the reform package and took immediate effect.

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

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

The MREL ratio of the Bank as at 31 March 2021, calculated according to SRB's eligibility criteria currently in effect and based on the Bank's internal estimate, stood at 15.03% of risk weighted assets and at c.9% of LRE. Pro forma for Project Helix 2, the MREL ratio of the Bank as at 31 March 2021, calculated on the same basis, stood at 15.27% of risk weighted assets. The MREL ratio expressed as a percentage of risk weighted assets does not include capital used to meet the CBR amount, currently at 3.5% and expected to increase to 4% on 1 January 2022. The MREL ratios as at 31 March 2021 include unaudited / unreviewed profits for 1Q2021.

The MREL requirement is in line with the Bank's expectations and funding plans, and in this context, and following the highly successful Tier 2 capital refinancing, the Bank will focus on evaluating opportunities for an MREL issuance in terms of debt capital markets activity.

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.3 Funding and Liquidity

Funding

Funding from Central Banks

At 31 March 2021, the Bank's funding from central banks amounted to €2,692 mn, which relates to ECB funding, comprising solely of funding through the Targeted Longer-Term Refinancing Operations (TLTRO) III, compared to €995 mn as at 31 December 2020.

In March 2021, the Bank borrowed an amount of €1.7 bn under the seventh TLTRO III operation, increasing the funding from central banks to €2.7 bn, as the Bank had already borrowed an amount of €1 bn under the fourth TLTRO III operation in June 2020, despite its comfortable liquidity position, given the favourable borrowing rate, in combination with the relaxation of collateral terms.

Based on internal estimations (subject to confirmation from the CBC), the Bank has exceeded the benchmark net lending threshold in the period 1 March 2020 -31 March 2021 and is therefore expected to qualify for a beneficial rate for the period from June 2020 to June 2021. Based on current ECB rates, the Bank estimates the NII benefit from its TLTRO III borrowing for the period from June 2020 to June 2021 at c.€7 mn, recognised over the respective period in the income statement.

The potential NII benefit from the TLTRO III borrowing for the period from June 2021 to June 2022 amounts to c.€13.5 mn, based on current ECB rates and provided the Bank meets the lending thresholds.

Deposits

Customer deposits totalled €16,332 mn at 31 March 2021 (compared to €16,533 mn at 31 December 2020), reduced by 1% in the first quarter.

The Bank's deposit market share in Cyprus reached 34.5% as at 31 March 2021, compared to 35.0% at 31 December 2020. Customer deposits accounted for 71% of total assets and 78% of total liabilities at 31 March 2021 (compared to 77% of total assets and 85% of total liabilities at 31 December 2020).

The net Loans to Deposits (L/D) ratio stood at 64% as at 31 March 2021 (compared to 63% as at 31 December 2020). The L/D ratio had reached a peak of 151% as at 31 March 2014.

Subordinated Loan Stock

At 31 March 2021 the Bank's subordinated loan stock (including accrued interest) amounted to €254 mn (compared to €272 mn at 31 December 2020) and relates to unsecured subordinated Tier 2 Capital Notes (the 'Existing Notes') of nominal value €250 mn, issued by the Bank in January 2017.

In April 2021, the Company issued €300 mn unsecured and subordinated Tier 2 Capital Notes (the 'New Notes'). The New Notes were priced at par with a fixed coupon of 6.625% per annum, payable annually in arrears and resettable on 23 October 2026. The maturity date for the New Notes is 23 October 2031. The Company will have the option to redeem the New Notes early on any day during the six-month period from 23 April 2026 to 23 October 2026, subject to applicable regulatory consents.

At the same time, the Bank invited the holders of the Existing Notes due January 2027 to tender them for purchase by the Bank at a price of 105.50%. The Bank received valid tenders of €207 mn in aggregate nominal amount, all of which were accepted by the Bank, and, as a result, a cost of c.€11 mn will be recorded in the income statement in 2Q2021, forfeiting the relevant obligation for future coupon payments. Existing Notes of €43 mn in aggregate nominal amount remain outstanding.

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.3 Funding and Liquidity (continued)

Liquidity

At 31 March 2021 the Group Liquidity Coverage Ratio (LCR) stood at 284% (compared to 254% at 31 December 2020), above the minimum regulatory requirement of 100%.

The liquidity surplus in LCR at 31 March 2021 amounted to €4.9 bn (compared to €4.2 bn at 31 December 2020). The increase in 1Q2021 is driven mainly by the borrowing of €1.7 bn through the ECB's TLTRO III in March 2021.

The Net Stable Funding Ratio (NSFR) has not yet been introduced. It will be enforced as a regulatory ratio under CRR II in June 2021, with the limit set at 100%. At 31 March 2021, the Group's NSFR, on the basis of Basel Ι standards, stood at 140% (compared to 139% at 31 December 2020).

Regulatory measures to mitigate the impact of COVID-19 crisis on banks' liquidity position

Resulting from the outbreak of COVID-19, the ECB has adopted a broad set of policy measures to mitigate the economic impact of the crisis and to ensure that its directly supervised banks can continue to fulfil their role in funding the real economy. The main measures which have a direct or indirect impact on the liquidity position of banks are summarised below:

· The ECB allows banks to operate below the defined level of 100% of the LCR until at least the end of 2021 .

· Collateral easing measures: The package included a set of collateral easing measures, which resulted in increasing the banks' borrowing capacity at the ECB operations and improving the liquidity buffers due to the lower haircuts applied to the ECB eligible collateral the bank holds, that consist of bonds and Additional Credit Claims (ACC). The collateral easing packages are designed mainly as temporary measures that will remain in place until June 2022 and will be reassessed before then. Furthermore, the ECB enlarged the scope of the ACC framework, increasing the universe of eligible loans. In addition, the ECB announced changes in collateral rules, temporarily accepting collateral with a rating below investment grade, not lower than a certain rating level.

· Favourable terms of LTRO operations: the package contained measures to provide liquidity support to the euro area financial system. Such measures include a series of LTROs which ran from March to June 2020 so that participants could shift their outstanding LTRO amounts to TLTRO III, as well as significant amendments in the terms and characteristics of TLTRO III, including a very low interest rate applicable to the TLTRO III funding, provided the lending performance target during the specified periods is achieved. Furthermore, a new series of longer-term refinancing operations, called Pandemic Emergency Longer-Term Refinancing Operations (PELTROs), with low rates, was introduced.

In December 2020, the ECB announced certain amendments in the terms of the third series of targeted longer-term refinancing operations (TLTRO III), including the extension of the period over which more favourable terms will apply by twelve months, to June 2022 and also announced that three additional TLTRO III operations will be conducted between June and December 2021. Please refer to 'Funding from Central Banks' in Section A.1.3. 'Funding and Liquidity' for further details.

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.4 Loans

Group gross loans totalled €12,281 mn at 31 March 2021 , compared to €12,261 mn at 31 December 2020. Gross loans of the Group's Cyprus operations totalled €12,219 mn at 31 March 2021 accounting for 99% of Group gross loans. Pro forma for Helix 2, gross loans are reduced by €1,339 mn to €10,942 mn as at 31 March 2021.

New loans granted in Cyprus reached €487 mn for 1Q2021, compared to €374 mn for 4Q2020 (up by 30% qoq), and to €451 mn for 1Q2020 (up by 8% yoy). New lending in 1Q2021 comprised €233 mn of corporate loans, €159 mn of retail loans (of which €102 mn were housing loans), €63 mn of SME loans and €32 mn of shipping and international loans. 1Q2021 was the strongest quarter in new lending since the beginning of the COVID-19 crisis in March 2020. The qoq increase reflects demand for new loans in 1Q2021 picking up, driven mainly by corporate (up by 34% qoq), as economic activity continues to improve. At the same time, demand for retail housing loans remain above pre-COVID levels, supported by Government schemes.

At 31 March 2021, the Group net loans and advances to customers totalled €9,960 mn (compared to €9,886 mn at 31 December 2020). In addition, at 31 March 2021 net loans and advances to customers of €472 mn were classified as held for sale in line with IFRS 5 and relate to Project Helix 2 (comprising €299 mn relating to Portfolio A and €173 mn relating to Portfolio B), compared to €493 mn as at 31 December 2020 relating to Project Helix 2 (€485 mn, comprising €310 mn relating to Portfolio A and €175 mn relating to Portfolio B) and Helix Tail (€8 mn).

The Bank is the single largest credit provider in Cyprus with a market share of 42.4% at 31 March 2021, compared to 41.9% at 31 December 2020.

A.1.5 Loan portfolio quality

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

The loan credit losses for 1Q2021 totalled €20 mn (excluding 'provisions/net loss relating to NPE sales, including restructuring expenses'), compared to €31 mn for 4Q2020 and to €64 mn for 1Q2020. Further details regarding loan credit losses are provided in Section A.2.3 'Profit/(loss) before tax and non-recurring items' below.

Loan moratorium

P erforming loans as at 31 March 2021 under expired payment deferrals amounted to €5.1 bn (compared to €5.3 bn as at 31 December 2020), of which €4.2 bn or 82% had an instalment due by 14 May 2021 with a strong performance; 95% present no arrears (of which €0.26 bn have been restructured) and 5% are in arrears.

Performing loans to private individuals as at 31 March 2021 under expired payment deferrals amounted to €1.86 bn, of which 96% had an instalment due by 14 May 2021. Of those, 91% present no arrears (of which €20 mn have been restructured) and 9% are in arrears.

Similarly, performing loans to businesses as at 31 March 2021 under expired payment deferrals amounted to €3.22 bn, of which 74% had an instalment due by 14 May 2021. Of those, 98% present no arrears (of which €0.24 bn have been restructured, mostly in the tourism sector) and 2% are in arrears.

In 1Q2021, net reclassifications of €53 mn of loans under expired payment deferrals were made from Stage 2 to Stage 1, following reclassifications of €304 mn of loans under expired payment deferrals from Stage 1 to Stage 2 as a result of management overlays and restructurings, and reclassifications of €357 mn of loans under expired payment deferrals from Stage 2 to Stage 1, mainly due to the good performance of loans to private individuals after the expiry of the payment deferrals. In addition, reclassifications of €14 mn of loans under expired payment deferrals were made mainly from Stage 2 to Stage 3 in 1Q2021.

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.5 Loan portfolio quality (continued)

Loan moratorium (continued)

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

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

Regarding the economic effects of COVID-19, the impact of IFRS 9 Forward Looking Information (FLI), driven by the update of the macroeconomic assumptions, resulted in an €9 mn charge (29 bps) included in 1Q2021 loan credit losses of €20 mn (cost of risk of 66 bps), compared to a charge of €11 mn (37 bps) included in 4Q2020 loan credit losses of €31 mn (cost of risk of 99 bps). Overall, in FY2020, the impact of IFRS 9 FLI driven by the update of the macroeconomic assumptions resulted in a €54 mn charge (43 bps) included in the FY2020 loan credit losses of €149 mn (cost of risk of 1.18%).

Finally, the provision coverage of Stage 3 loans under payment deferrals that expired on 31 December 2020 of c.25% as at 31 March 2021 is considered to be adequate, as it is higher than the coverage of re-performing NPEs (NPEs in the pipeline to exit, subject to meeting all exit criteria) of 19%.

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

IFRS 9 staging for expired loan payment deferrals (€ bn)
€ bn	31.3.2021	31.12.2020
Stage 1	3.91	3.96
Stage 2	1.47	1.58
Stage 3	0.33	0.33
Total	5.71	5.87

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

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

For further information please refer to the presentation for the Group Financial Results for the quarter ended 31 March 2021 (slides 7 to 10).

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.5 Loan portfolio quality (continued)

Non-performing exposure reduction

Non-performing exposures (NPEs) as defined by the European Banking Authority (EBA) were reduced by €74 mn (2%) during 1Q2021 (comprising net organic NPE reductions of €59 mn and further net NPE reductions of €15 mn relating to the NPE sales lockbox), compared to a reduction of €152 mn or 5% in 4Q2020 (comprising organic net NPE reductions of €85 mn and further NPE reductions of €67 mn relating to the NPE sales lockbox) to €3,012 mn at 31 March 2021 (compared to €3,086 mn at 31 December 2020) . The organic NPE reduction in 1Q2021 were impacted by the COVID-19 lockdown. Pro forma for Helix 2, NPEs are reduced by a further €1.311 mn to €1,701 mn on the basis of 31 March 2021 figures.

The NPEs account for 25% of gross loans as at 31 March 2021, at the same level as at 31 December 2020, on the same basis, i.e. including the NPE portfolios classified as 'Non-current assets and disposal groups held for sale'. Pro forma for Helix 2 the NPE ratio is reduced to 16% on the basis of 31 March 2021 figures.

The NPE coverage ratio stands at 62% at 31 March 2021, at the same level as at 31 December 2020, on the same basis, i.e. including the NPE portfolios classified as 'Non-current assets and disposal groups held for sale'. When taking into account tangible collateral at fair value, NPEs are fully covered. Pro forma for Helix 2 the NPE coverage ratio is maintained at 59% on the basis of 31 March 2021 figures.

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

	31.3.2021 pro forma		31.3.2021		31.12.2020
	€ mn	% gross loans	€ mn	% gross loans	€ mn	% gross loans
NPEs as per EBA definition	1,701	15.5%	3,012	24.5%	3,086	25.2%

Of which, in pipeline to exit:
-NPEs with forbearance measures, no arrears¹	240	2.2%	300	2.4%	303	2.5%

1. The analysis is performed on a customer basis.

Project Helix 2

In August 2020, the Group signed an agreement for the sale of a portfolio of loans with gross book value of c.€898 mn (of which €886 mn related to non-performing exposures) as at 30 June 2020, known as Project Helix 2 Portfolio A. This portfolio had a contractual balance of €1.46 bn as at the reference date of 30 September 2019 and comprises loans to mainly retail and small-to-medium-sized enterprises, secured by real estate collateral. This portfolio is classified as a disposal group held for sale since 30 June 2020 and it includes other assets (comprising properties and cash already received since the reference date) amounting to c.€34 mn as at 30 June 2020.

The gross consideration amounts to 46% of the gross book value as at 30 June 2020 and 29% of the contractual balance, payable in cash, of which 35% is payable at completion, and the remaining 65% is deferred without any conditions attached. The deferred component is payable in three broadly equal instalments over 48 months from completion. The consideration can be increased through an earnout arrangement, depending on the performance of Portfolio A.

In January 2021, the Group reached agreement with the buyer of Project Helix 2 Portfolio A for the sale of an additional portfolio of loans with gross book value of €545 mn (of which €529 mn related to non-performing exposures) as at 30 September 2020, known as Project Helix 2 Portfolio B. The gross book value of €545 mn includes other assets (comprising properties and cash already received since the reference date) amounting to €26 mn as at 30 September 2020. This portfolio had a contractual balance of €783 mn as at the reference date of 30 September 2019 and comprises loans to mainly retail and small-to-medium-sized enterprises, secured by real estate collateral. This portfolio is classified as a disposal group held for sale since 31 December 2020.

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.5 Loan portfolio quality (continued)

Project Helix 2 (continued)

The gross consideration amounts to 44% of the gross book value as at 30 September 2020 and 31% of the contractual balance as at the reference date (30 September 2019), payable in cash, of which 50% is payable at completion and the remaining 50% is deferred up to December 2025 without any conditions attached. The consideration can be increased through an earnout arrangement, depending on the performance of Portfolio B.

The completion of Helix 2 Portfolio B will be aligned with the completion of Helix 2 Portfolio A and is currently estimated to occur early in 2H2021. The completion of Project Helix 2 remains subject to a number of conditions, including required customary regulatory and other approvals.

Following a transitional period where servicing will be retained by the Bank, it is intended that the servicing of both portfolios will be carried out by a third party servicer selected and appointed by the purchaser.

Project Helix 2 (Portfolios A and B) accelerates the Group's strategy of de-risking its balance sheet, by reducing its stock of NPEs by 44% to €1,701 mn pro forma on the basis of the 31 March 2021 figures, and its NPE ratio by 9 p.p., to 16% pro forma on the basis of the 31 March 2021 figures.

Project Velocity 2

In May 2020, the Group completed the sale of a non-performing loan portfolio of primarily retail unsecured exposures, with a contractual balance of €398 mn and gross book value of €144 mn as at the reference date of 31 August 2019 (known as Project Velocity 2) to B2Kapital Cyprus Ltd. This portfolio comprised c.10.000 borrowers, including c.8.400 private individuals and c.1.600 small-to-medium-sized enterprises. The gross book value of this portfolio as at the date of disposal was €133 mn. The sale was broadly neutral to both the profit or loss and to capital.

Additional strategies to accelerate de-risking

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

A.1.6 Real Estate Management Unit (REMU)

The Real Estate Management Unit (REMU) is focused on the disposal of on-boarded properties resulting from debt for asset swaps. The Group completed disposals of €24 mn in 1Q2021 (compared to €32 mn in 4Q2020 and €14 mn in 1Q2020), resulting in a profit on disposal of €3 mn for 1Q2021 (compared to a profit on disposal of €3 mn for 4Q2020). Asset disposals are across all property classes, with 36% of sales by value relating to land.

During the quarter ended 31 March 2021, the Group executed sale-purchase agreements (SPAs) for disposals with contract value of €28 mn (164 properties), compared to €35 mn (172 properties) for 4Q2020. In addition, the Group had signed SPAs for disposals of assets with contract value of €49 mn as at 31 March 2021, compared to €53 mn as at 31 December 2020 .

REMU on-boarded €11 mn of assets in 1Q2021 (broadly flat yoy and down by 84% qoq), via the execution of debt for asset swaps and repossessed properties.

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

Project Helix 2

Stock of property with a carrying value of €64 mn as at 31 March 2021 (compared to €59 mn as at 31 December 2020) is included in the Helix 2 portfolio, comprising stock of property with carrying value of €35 mn relating to Helix 2 Portfolio A and €28 mn of stock of property and €1 mn of investment property relating to Helix 2 Portfolio B, and is classified as non-current assets and disposal groups held for sale.

Assets held by REMU

As at 31 March 2021, assets held by REMU had a carrying value of €1,433 mn (comprising properties of €1,328 mn classified as 'Stock of property' and €105 mn as 'Investment properties'), compared to €1,457 mn as at 31 December 2020 (comprising properties of €1,350 mn classified as 'Stock of property' and €107 mn as 'Investment properties').

In addition to assets held by REMU, properties classified as 'Investment properties' with carrying value of €21 mn as at 31 March 2021 (at the same levels as at 31 December 2020), relate to legacy properties held by the Bank before the set-up of REMU in January 2016.

Assets held by REMU (Group) € mn	1Q2021	1Q2020	4Q2020	(1q vs 4q) +%	yoy +%
Opening balance	1,457	1,490	1,467	-1%	-2%
On-boarded assets (including construction cost)	11	12	72	-84%	-
Sales	(24)	(14)	(32)	-25%	75%
Net impairment loss	(6)	(4)	(2)	-	51%
Transfer to non-current assets and disposal groups held for sale	(5)	-	(48)	-90%	-
Closing balance	1,433	1,484	1,457	-2%	-3%

A. Group Financial Results - Underlying Basis (continued)

A.1. Balance Sheet Analysis (continued)

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

Analysis by type and country	Cyprus	Greece	Romania	Total
31 March 2021 (€ mn)
Residential properties	152	23	0	175
Offices and other commercial properties	237	26	5	268
Manufacturing and industrial properties	70	27	0	97
Hotels	24	1	-	25
Land (fields and plots)	598	6	2	606
Golf courses and golf-related property	262	-	-	262
Total	1,343	83	7	1,433

	Cyprus	Greece	Romania	Total
31 December 2020 (€ mn)
Residential properties	158	24	0	182
Offices and other commercial properties	240	26	5	271
Manufacturing and industrial properties	74	29	0	103
Hotels	24	1	-	25
Land (fields and plots)	606	6	2	614
Golf courses and golf-related property	262	-	-	262
Total	1,364	86	7	1,457

A. Group Financial Results - Underlying Basis (continued)

A.2. Income Statement Analysis

A.2.1 Total income

€ mn	1Q2021	1Q2020	4Q2020	(1q vs 4q) +%	yoy +%
Net interest income	76	85	80	-5%	-10%
Net fee and commission income	39	38	38	1%	1%
Net foreign exchange gains and net losses on financial instrument transactions and disposal/dissolution of subsidiaries and associates	2	6	1	-	-55%
Insurance income net of claims and commissions	13	11	14	-9%	15%
Net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties	2	1	5	-46%	-
Other income	4	4	4	-5%	-19%
Non interest income	60	60	62	-2%	-0%
Total income	136	145	142	-3%	-6%
Net Interest Margin (annualised)¹	1.63%	1.95%	1.75%	-12 bps	-32 bps
Average interest earning assets (€ mn)¹	18,978	17,539	18,215	4%	8%
1. Including the NPE portfolios classified as "Non-current assets and disposal groups held for sale". p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point

Net interest income (NII) for 1Q2021 amounted to €76 mn, down by 5% qoq mainly due to higher interest collections in 4Q2020 of c. € 2.5 mn not previously recognised and continuing pressure from the low interest rate environment. Net interest income (NII) for 1Q2021 was down by 10% yoy due to higher interest collections in 1Q2020 of €4 mn not previously recognised, continuing pressure from the low interest rate environment and the impact of the NPE sale (Project Helix 2). Net interest margin (NIM) for 1Q2021 amounted to 1.63% (compared to 1.75% in 4Q2020) negatively impacted mainly by the increase in liquid assets following the increase in the borrowing under TLTRO III by €1.7 bn in March 2021.

Quarterly average interest earning assets for 1Q2021 amounted to €18,978 mn, up by 4% qoq and 8% yoy, following the increase in liquid assets resulting from the participation in TLTRO III in June 2020 and March 2021, partly offset by the reduction in net loans.

Non-interest income for 1Q2021 amounted to €60 mn (compared to €62 mn for 4Q2020, down by 2% qoq and at the same levels yoy), comprising net fee and commission income of €39 mn, net foreign exchange gains and net losses on financial instrument transactions and disposal/dissolution of subsidiaries and associates of €2 mn, net insurance income of €13 mn, net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties of €2 mn and other income of €4 mn. The qoq decrease is mainly due to higher net revaluation gains relating to specific properties in Greece in 4Q2020.

Net fee and commission income for 1Q2021 amounted to €39 mn, compared to €38 mn for 4Q2020 (and 1Q2020), mainly due to the extension of liquidity fees to a broader pool of customers and the introduction of a revised price list in February 2021, partially offset by lower transactional fees impacted by the lockdown in 1Q2021.

Net foreign exchange gains and net losses on financial instrument transactions and disposal/dissolution of subsidiaries and associates of €2 mn for 1Q2021 (comprising net foreign exchange gains of c.€3.5 mn and net revaluation losses on financial instrument transactions of €1 mn) compared to €1 mn for 4Q2020 and decreased by 55% yoy. The increase qoq is mainly driven by the higher net foreign exchange gains in 1Q2021 compared to 4Q2020. The decrease yoy is mainly driven by the lower net foreign exchange gains in 1Q2021, impacted by the lockdown.

Net insurance income of €13 mn for 1Q2021 (compared to €14 mn for 4Q2020), down by 9% qoq , mainly driven by seasonally lower premiums, partially offset by lower claims.

Net gains from revaluation and disposal of investment properties and on disposal of stock of properties for 1Q2021 amounted to €2 mn (comprising a profit on disposal of stock of properties of €3 mn and net losses from revaluation of investment properties of €1 mn) , compared to €5 mn in 4Q2020. The decrease qoq is mainly due to higher net revaluation gains relating to specific properties in Greece in 4Q2020 . REMU profit remains volatile.

Total income for 1Q2021 amounted to €136 mn, compared to €142 mn for 4Q2020 (down by 3% qoq ) and to €145 mn for 1Q2020 (down by 6% yoy ).

A. Group Financial Results - Underlying Basis (continued)

A.2. Income Statement Analysis (continued)

A.2.2 Total expenses

€ mn	1Q2021	1Q2020	4Q2020	(1q vs 4q) +%	yoy +%
Staff costs	(50)	(49)	(50)	1%	2%
Other operating expenses	(32)	(35)	(41)	-21%	-6%
Total operating expenses	(82)	(84)	(91)	-9%	-1%
Special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF)	(9)	(9)	(6)	48%	-1%
Total expenses	(91)	(93)	(97)	-5%	-1%
Cost to income ratio¹	67%	64%	69%	-2 p.p.	+3 p.p.
Cost to income ratio excluding special levy and contributions to SRF and DGF¹	60%	58%	64%	-4 p.p.	+2 p.p.
1. Including the NPE portfolios classified as "Non-current assets and disposal groups held for sale". p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point

Total expenses for 1Q2021 were €91 mn (compared to €97 mn for 4Q2020 and €93 mn for 1Q2020, down by 5% qoq and down by 1% yoy), 55% of which related to staff costs (€50 mn), 35% to other operating expenses (€32 mn) and 10% (€9 mn) to special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF). The yoy decrease is driven by lower other operating expenses, reflecting the on-going efforts for cost containment. The qoq decrease is driven by lower other operating expenses, due to seasonality. More information on these is provided further below.

Total operating expenses for 1Q2021 were €82 mn, compared to €91 mn for 4Q2020 (down by 9% qoq) and to €84 mn for 1Q2020 (down by 1% yoy).

Staff costs of €50 mn for 1Q2021 broadly flat qoq and yoy. The Group employed 3,557 persons as at 31 March 2021 (compared to 3,573 as at 31 December 2020).

In December 2020, the Group completed a targeted voluntary staff exit plan (VEP) with a total cost of €6 mn, recorded in the consolidated income statement in 4Q2020 (as a non-recurring item in the underlying basis). The gross annual savings are estimated at c.€2 mn or c.1% of staff costs. The renewal of the collective agreement for 2021 remains under discussion.

Other operating expenses for 1Q2021 were €32 mn, compared to €41 mn for 4Q2020 (down by 21% qoq), mainly due to seasonally lower marketing, consultancy and professional fees, and compared to €35 mn for 1Q2020 (down by 6% yoy) .

Special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF) for 1Q2021 were €9 mn, compared to €6 mn in 4Q2020 (up by 48% qoq) and €9 mn in 1Q2020 (broadly flat yoy). The increase of €3 mn qoq is driven by the contribution of the Bank to the Deposit Guarantee Fund (DGF) which relates to 1H2021 and is recorded in 1Q2021, in line with IFRSs.

As from 1 January 2020 and until 3 July 2024 the Bank is subject to contribution to the Deposit Guarantee Fund (DGF) on a semi-annual basis. The contributions are calculated based on the Risk Based Methodology (RBM) as approved by the management committee of the Deposit Guarantee and Resolution of Credit and Other Institutions Schemes (DGS) and is publicly available on the CBC's website. In line with the RBM, the contributions are broadly calculated on the covered deposits of all authorised institutions and the target level is to reach at 0.8% of these deposits by 3 July 2024.

The cost to income ratio excluding special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF) for 1Q2021 was 60%, compared to 64% for 4Q2020 and 58% for 1Q2020. The improvement of 4 p.p. qoq is driven by the reduction in total operating expenses. Pro forma for Helix 2, the cost to income ratio excluding special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF) for 1Q2021 was 64%. The cost to income ratio excluding special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF) is expected to rise in the near term as revenues remain under pressure and operating expenses increase due to higher IT/digitisation investment costs, whilst it is expected to decrease to mid-50% in the medium term.

A. Group Financial Results - Underlying Basis (continued)

A.2. Income Statement Analysis (continued)

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

€ mn	1Q2021	1Q2020	4Q2020	(1q vs 4q) +%	yoy +%
Operating profit	45	52	45	1%	-15%
Loan credit losses	(20)	(64)	(31)	-35%	-68%
Impairments of other financial and non-financial assets	(5)	(4)	(6)	-15%	19%
Provisions for litigation, claims, regulatory and other matters	(1)	(2)	(3)	-71%	-60%
Total loan credit losses, impairments and provisions	(26)	(70)	(40)	-34%	-63%
Profit/(loss) before tax and non-recurring items	19	(18)	5	-	-
Cost of risk¹	0.66%	2.00%	0.99%	-33 bps	-134 bps
1. Including the NPE portfolios classified as "Non-current assets and disposal groups held for sale". p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point

Operating profit for 1Q2021 was €45 mn, broadly flat qoq and compared to €52 mn for 1Q2020, down by 15% yoy.

The loan credit losses for 1Q2021 totalled €20 mn, compared to €31 mn in 4Q2020 and €64 mn in 1Q2020. Regarding the economic effects of COVID-19, the impact of IFRS 9 Forward Looking Information (FLI), driven by the update of the macroeconomic assumptions, resulted in an €9 mn charge (29 bps) included in 1Q2021 loan credit losses, compared to a charge of €11 mn (37 bps) included in 4Q2020 loan credit losses. Further details on the loan moratorium are provided in Section A.1.5 'Loan portfolio quality'.

The annualised loan credit losses charge (cost of risk) for 1Q2021 accounted for 0.66% of gross loans, of which 29 bps reflect the update of the macroeconomic assumptions in 1Q2021 (compared to a loan credit losses charge of 0.99% for 4Q2020, of which 37 bps reflect the update of the macroeconomic assumptions in 4Q2020).

At 31 March 2021, the allowance for expected loan credit losses, including residual fair value adjustment on initial recognition and credit losses on off-balance sheet exposures totalled €1,869 mn (compared to €1,902 mn at 31 December 2020) and accounted for 15.2% of gross loans including portfolios held for sale (compared to 15.5% at 31 December 2020). The decrease in the allowance for expected loan credit losses in 1Q2021 amounted to €33 mn (compared to a decrease of €31 mn in 4Q2020).

Impairments of other financial and non-financial assets for 1Q2021 amounted to €5 mn, compared to €6 mn for 4Q2020 (down by 15% qoq) and €4 mn for 1Q2020 (up by 19% yoy).

Provisions for litigation, claims, regulatory and other matters for 1Q2021 totalled €1 mn, compared to €3 mn for 4Q2020 and €2 mn for 1Q2020.

A. Group Financial Results - Underlying Basis (continued)

A.2. Income Statement Analysis (continued)

A.2. 4 Profit/(loss) after tax (attributable to the owners of the Company)

€ mn	1Q2021	1Q2020	4Q2020	(1q vs 4q) +%	yoy +%
Profit/(loss) before tax and non-recurring items	19	(18)	5	-	-
Tax	(2)	(2)	(1)	18%	9%
Loss/(profit) attributable to non-controlling interests	0	(0)	(1)	-	-
Profit/(loss) after tax and before non-recurring items (attributable to the owners of the Company)	17	(20)	3	-	-
Advisory and other restructuring costs - organic	(3)	(3)	(1)	-	-14%
Profit/(loss) after tax - organic (attributable to the owners of the Company)	14	(23)	2	-	-
Provisions/net loss relating to NPE sales, including restructuring expenses¹	(6)	(3)	(42)	-86%	99%
Restructuring costs - Voluntary Staff Exit Plan (VEP)	-	-	(6)	-	-
(DTC levy)/reversal of impairment of DTA and impairment of other tax receivables	-	-	(3)	-	-
Profit/(loss) after tax (attributable to the owners of the Company)	8	(26)	(49)	-	-
1. 'Provisions/net (loss)/profit relating to NPE sales, including restructuring expenses' refer to the net loss on transactions completed during each year/period, net loan credit losses on transactions under consideration, as well as the restructuring costs relating to these trades. For further details please see below. p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point

The tax charge for 1Q2021 is €2 mn, compared to €1 mn for 4Q2020 and €2 mn for 1Q2020.

Profit after tax and before non-recurring items (attributable to the owners of the Company) for 1Q2021 was €17 mn, compared to €3 mn for 4Q2020 and to a loss of €20 mn for 1Q2020.

Advisory and other restructuring costs - organic for 1Q2021 amounted to €3 mn, compared to €1 mn for 4Q2020 and to €3 mn for 1Q2020.

Profit after tax arising from the organic operations (attributable to the owners of the Company) for 1Q2021 amounted to €14 mn, compared to €2 mn for 4Q2020 and to a loss of €23 mn for 1Q2020.

Provisions/net loss relating to NPE sales, including restructuring expenses for 1Q2021 was €6 mn (compared to €42 mn for 4Q2020 and €3 mn for 1Q2020), of which restructuring costs relating to NPE sales amounted to €4 mn for 1Q2021 (compared to c.€1.5 for 4Q2020 and €3 mn for 1Q2020).

Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) amounted to €6 mn for 4Q2020. For further details please refer to Section A.2.2 'Total expenses'.

The DTC levy was €3 mn for 4Q2020 and relates to a levy in the form of a guarantee fee relating to the revised Income Tax legislation. For further information please refer to 'Legislative amendments for the conversion of DTA to DTC' within Section A.1.1. 'Capital base'.

Profit after tax attributable to the owners of the Company for 1Q2021 was €8 mn (compared to a loss of €49 mn for 4Q2020 and a loss of €26 mn for 1Q2020), representing a Return on Tangible Equity (ROTE) of 2.0%.

B. Operating Environment

Real GDP contracted by 1.6% in the first quarter of 2021, year-on-year, seasonally adjusted, following a drop of 5.1% overall in 2020 as a whole. The contraction in the first quarter, according to the Cyprus Statistical Service, was driven mainly by contractions in tourist activity, manufacturing, retail trade and other tourist related services that were more affected by the continuation of lockdown measures.

The outlook for the year remains uncertain as it is still largely unknown how the recovery in the tourist sector will unfold. There is positive news in terms of improvements in the epidemiological condition in Cyprus and its main markets, particularly the United Kingdom. The vaccination programme in Cyprus has picked up. As at 21 May 2021, 48% of the adult population in Cyprus have been vaccinated with the first dose, on track with the target of reaching 65% by the end of June (Ministry of Health). Also, according to the European Centre for Disease Prevention and Control (ECDC) Cyprus ranks 4th in the EU in COVID-19 vaccine doses administered per 100 people.

The European Commission (EC), in its spring forecast (May 2021), predicts EU real GDP to expand by 4.2% in 2021, up from its previous forecast of a 3.7% growth in the year. For Cyprus, the EC predicts a growth of 3.1% in 2021 and 3.8% in 2022 compared with 3.0% and 3.2% respectively in the winter forecasts. The revised forecasts of the EC are in line with the revised forecasts of the IMF from a month earlier. According to the IMF, Cyprus' GDP will increase by 3.0% in 2021 and 3.9% in 2022. The Cypriot Ministry of Finance predicts growth of 3.6% and 3.8% respectively as published in the Stability Programme Update 2021-2024.

Early indicators into 2021 are in line with expectations: a declining economy in the first quarter with a brisk upsurge in the second quarter and beyond, depending on the recovery of the tourist sector. Tourist arrivals dropped by 92.8% in the first quarter of the year and receipts dropped by 91.3% in the first two months. The first quarter, however, is seasonally low with less than 10% of yearly arrivals in a normal year and thus not deterministic for the yearly outcome. Elsewhere in production activity, indicators of construction and industrial activity dropped in the first two months.

On the demand side, the volume of retail sales excluding vehicles dropped 4.9% in the first two months. Total vehicle registrations continued to decline down by 2.8% in the first quarter, but surged in April 2021. In housing, sales surged by 27.6% in the first quarter in the residents' segment. Sales to non-residents declined by 30.6% in the first quarter and surged in April 2021 also. A similar pattern was observed in economic sentiment, a sharp decline by 25% in the first quarter of the year, followed by a 20% rise in April alone, from a year earlier.

Consumer prices continued to decline in the first quarter of the year down by 1.4% on average. Consumer prices spiked by 1.6% in April alone driven by higher energy prices that were reflected in higher prices in housing and transport goods and services.

The contraction by 5.1% in Cyprus' GDP in 2020 was less than initially anticipated and compares favourable both against the Euro Area average of a 6.6% drop in the year; and against all southern economies, all contracting between 8% and 11%. This relative outperformance had two main sources: the substantial fiscal expansion undertaken to mitigate the impact of the coronavirus pandemic, and the structure of the supply side of the economy. On the latter, Cyprus features a larger share of its gross value-added consisting of growth sectors not affected by the pandemic, and a much smaller share of the manufacturing sector, which was more steeply affected, in comparison with its southern peers.

In 2020, the Government injected significant fiscal support in the economy. According to the Stability Programme Update for 2021-2024, released in late April 2021 by the Ministry of Finance, support measures with a fiscal impact amounted to €766 mn or 3.6% of GDP.

These measures included support for the health sector; income support for households; wage subsidies for businesses to retain workers; support for the tourism sector specifically; and grants to small firms and the self-employed. There were also measures aiding liquidity in the market including a two-month deferral of value-added tax (VAT) payments for small businesses; a temporary VAT cut for the tourism and hospitality sector; a three-month suspension of a planned increase in the contribution to the national healthcare system; and a debt moratorium for interest and principal repayments on loans for individuals and firms that has been extended into 2021 (payment deferrals are offered to the end of June 2021, however, the total months under loan moratorium, including the loan moratorium offered in 2020, cannot exceed a total of nine months). The authorities also approved additional state financing and loan guarantees. In 2021, a range of support measures continue to apply. Their fiscal impact according to the Stability Programme Update will be 3.4% of GDP or €750 mn.

The budget turned into a deficit of €1.2 bn or 5.7% of GDP in 2020, from a surplus of €0.3 bn or 1.5% of GDP in 2019. Total expenditures increased by 9.8%, whilst revenues declined by 7.1%. The budget position was aided by a decline in debt interest payments despite an increase in debt levels, as a result of the ECB's ultra-accommodative monetary policy. The budget deficit is expected to narrow in 2021 as the economy recovers, but will remain sizeable as the government continues its support measures for the pandemic.

B. Operating Environment (continued)

The debt to GDP ratio reached 118.2% at the end of 2020 from 94% the year before, exhibiting an increase of about 24 percentage points of GDP. According to the latest projections from the Ministry of Finance, the debt to GDP ratio is expected to follow a downward trend and fall to 92.9% by the end of 2024, on the assumption that debt servicing costs will remain low.

The ECB's monetary policy is expected to remain highly accommodative at least until the end of 2023. Policy rates are at their effective lower bounds and monetary policy relies on quantitative easing.

Real economic activity in the medium term is expected to be supported by the recovery in tourism and to be aided by higher investment activity linked with Next Generation EU grants. The main risk concerns the epidemiological outlook. Cyprus is set to receive €1.2 bn or 5% of its GDP in 2021-2026. The effectiveness of the funds will depend on the implementation of structural reforms, mainly to improve the efficiency of the judiciary and of the public and local administration. Effectiveness will also be determined by the effectiveness of the productive investments and activities that will be taking place.

In the banking sector, total non-performing exposures at the end of December 2020 were €5.1 bn or 17.7% of gross loans compared with 28% at the end of 2019. The non-performing exposures ratio in the non-financial companies' segment was 14.6% at the end of December 2020 and that for households stood at 24.8%. The coverage ratio was 49.8% at the end of December.

Sovereign ratings

The sovereign risk ratings of the Cyprus Government improved considerably in recent years reflecting improvements in economic resilience and consistent fiscal outperformance. Cyprus demonstrated policy commitment to correcting fiscal imbalances through reform and restructuring of its banking system.

S&P Global Ratings maintains an investment grade rating of BBB- with a stable outlook since September 2018. The rating and the outlook were affirmed in March and September 2020, and in March 2021. In March 2021, S&P Global Ratings affirmed its rating and outlook, balancing the risks from the pandemic's protracted adverse impact on growth, fiscal, and banking sector performance against benefits of the EU's Recovery and Resilience Facility (RRF) transfers, as well as further improvement in the government's debt profile.

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

Moody's Investors Service maintains a long-term credit rating of Ba2 since July 2018 and a positive outlook since September 2019. In January 2021, Moody's issued a revised credit opinion on the Cyprus Sovereign, maintaining the positive rating outlook. This was driven by the substantial reduction of non-performing exposures and a favourable outlook on public debt reduction expected to resume after the COVID-19 crisis. The large increase in debt related to the COVID-19 pandemic is expected to be transitory in part because of Cyprus' large fiscal surplus going into the pandemic.

In May 2021, DBRS Ratings confirmed Cyprus' Long-Term Foreign and Local Currency Issuer Ratings at BBB (low) with a stable trend reflecting a balanced view on the risks despite the deterioration in public finances caused by the COVID-19 pandemic. According to the ratings firm, Cyprus' ratings are supported by a prudent public debt management framework, a good track record in fiscal deficit reduction, Eurozone membership fostering sustainable macroeconomic policies, and openness to investment encouraging a favourable business environment.

C. Business Overview

Credit ratings

The Group's financial performance is highly correlated to the economic and operating conditions in Cyprus. In January 2021, Fitch Ratings affirmed their long-term issuer default rating of B- (negative outlook). In April 2020, Fitch Ratings revised their outlook to negative, reflecting the significant impact the outbreak of COVID-19 might have on the Cypriot economy and consequently on the Bank. In November 2020, Moody's Investors Service affirmed the Bank's long-term deposit rating of B3 (positive outlook). In July 2020, Standard and Poor's affirmed their long-term issuer credit rating on the Bank of 'B+' (stable outlook).

COVID-19 impact

The Group continues to closely monitor developments in, and the effects of COVID-19 on both the global and Cypriot economy. The first quarter of the year continued to be characterised by on-going pandemic-related disruption. Despite the significant progress made both within Cyprus and globally with the vaccine roll-out programme, the day-to-day operating environment continues to be challenging, and the first quarter saw restrictions remaining in place. As such, the Group's priority during the period has continued to be focused on providing support to customers, colleagues and community.

The Group continued to support the country's economy return to growth, that temporarily slowed in the first quarter as result of the restrictive measures. The Group's lending performance in the first quarter, allied to the recent relaxation of restrictions and the progress of the vaccination programmes both in Cyprus and abroad support the confidence in the economic recovery gathering pace.

Statistics are encouraging as Cyprus ranks 4^th in the EU in COVID-19 vaccine doses administered per 100 people (ECDC). As at 21 May 2021, 48% of the adult population in Cyprus have been vaccinated with the first dose, on track with the target of reaching 65% by the end of June 2021 (Ministry of Health).

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

In accordance with the Pandemic Plan, the Group adopted a set of measures to ensure minimum disruption to its operations. The Pandemic Incident Management Team and the Crisis Management Committee continue to closely monitor the dynamic COVID-19 pandemic developments and status. The measures comprise rules for quarantine for vulnerable employees due to health conditions and for those returning from epicentres of the infection. The Group replaced face-to-face meetings with telecommunications, adjusting the customary etiquette of personal contact, including those with customers. Staff of critical functions have been split into separate locations. In addition, to ensure continuity of business, a number of employees have been working from home and the remote access capability has been upgraded significantly, whilst at the same time maintaining relevant control procedures to ensure authorisation in line with the Group's governance structure. Additionally, the Group follows strict rules of hygiene, increased intensity of cleaning and disinfection of spaces, and other measures to protect the health and safety of staff and customers.

Following the recent relaxation of restrictive measures by the Government, in combination with the positive development and present recession of the pandemic in the community, along with the national vaccination programme which is in progress, the Group initiated a Back To Normal (BTN) plan for a smooth transition to normal operations status ensuring at all times the business continuity resilience of the Bank. The BTN plan is deployed in different phases and closely monitored by the Pandemic Incident Management Team, aiming to gradually reduce the number of employees working from home and subsequently proceed with the remaining Pandemic Business Continuity arrangements, depending on the pandemic status in the organisation and community.

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

The package of policy measures announced by the ECB and the European Commission, as well as the unprecedented fiscal and other measures of the Cyprus Government, have helped and should continue to help reduce the negative impact and support the recovery of the Cypriot economy.

As part of the measures to support borrowers affected by COVID-19 and the wider Cypriot economy, the Cyprus Parliament voted for the suspension of loan repayments for interest and principal (loan moratorium) for the period to the end of the year 2020, for all eligible borrowers with no arrears for more than 30 days as at the end of February 2020. The payment holiday for all these loans expired on 31 December 2020. P erforming loans as at 31 March 2021 under expired payment deferrals amounted to €5.1 bn (compared to €5.3 bn as at 31 December 2020), of which €4.2 bn or 82% had an instalment due by 14 May 2021 with a strong performance; 95% present no arrears (of which €0.26 bn have been restructured) and 5% are in arrears.

C. Business Overview (continued)

COVID-19 impact (continued)

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

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

As at 31 March 2021, the Group's non-legacy loan book exposure to tourism was limited to €1.15 bn (out of a total non-legacy loan book of €9.3 bn), of which c.€1.0 bn of performing loans as at 31 March 2021 were under expired payment deferrals. 60% of those had an instalment due by 14 May 2021 and of those, 99% present no arrears (of which c.€190 mn have been restructured) and 1% present arrears.

A recovery in tourism activity is expected from 2H2021 and the reduction in international tourist arrivals in 2021 compared to 2019 is expected to be partly offset by domestic tourism. It is important to note, that the majority of 'accommodation' customers entered the crisis with significant liquidity, following strong performance in recent years and that 98% of the tourism portfolio is secured by property. Close monitoring of developments continues.

Respectively, as at 31 March 2021 the Group's non-legacy loan book exposure to trade was €0.9 bn, of which €0.33 bn of performing loans as at 31 March 2021 were under expired payment deferrals. 90% of those had an instalment due by 14 May 2021 and of those, 96% present no arrears (of which €6 mn have been restructured) and 4% present arrears. It is important to note that c.30% of the exposure to trade relates to lower-risk essential retail services, not materially impacted by COVID-19.

Strategic priorities for the medium term

The Bank's medium-term strategic priorities remain clear, with a sustained focus on strengthening its balance sheet, and improving asset quality and efficiency, whilst maintaining a good capital position, in order to continue to play a vital role in supporting the recovery of the Cypriot economy. The Group continues to explore opportunities to grow revenues in a more capital efficient way and to improve efficiency through its digital transformation programme in order to provide products and services while reducing operating costs. In addition, the Bank is looking to enhance its organisational resilience and ESG (Environmental, Social and Governance) agenda by building a forward-looking organisation with a clear strategy supported by effective corporate governance aligned with ESG agenda priorities.

Completing balance sheet de-risking

Tackling the Bank's loan portfolio quality is of utmost importance for the Group. Despite the challenging market conditions resulting from the outbreak of COVID-19, the Group signed an agreement for the sale of a portfolio of loans with gross book value of c.€898 mn (of which €886 mn related to non-performing exposures) as at 30 June 2020, known as Project Helix 2 Portfolio A and also, in January 2021, the Group amended and restated the agreement to incorporate the sale of an additional portfolio of loans with gross book value of c.€545 mn (of which €529 mn related to non-performing exposures) as at 30 September 2020, known as Project Helix 2 Portfolio B.

Project Helix 2 represents a further milestone in the delivery of one of the Group's strategic priorities of improving asset quality through the reduction of NPEs. Project Helix 2 (Portfolios A and B) reduces the NPE ratio by 9 p.p. to 16% pro forma and on the basis of 31 March 2021 figures. Overall, since the peak in 2014, the stock of NPEs has been reduced by €13.3 bn or 89% and the NPE ratio by 47 percentage points, from 63% to 16%, on the same basis.

Project Helix 2 marks further progress against delivering on the Group's strategic objectives of becoming a stronger, safer and more efficient institution. The Group is now better positioned to manage the challenges resulting from the impact of the ongoing COVID-19 crisis, and to support the recovery of the Cypriot economy.

The Group remains committed to further de-risking its balance sheet and will continue to seek solutions to achieve this. The Group continues to work with its advisors towards the sale of portfolios of NPEs in the future, assessing the potential to accelerate the decrease in NPEs on the balance sheet through additional sales of NPEs. At the same time, following the outbreak of COVID-19 and the expiration of the 2020 loan moratorium at the end of year 2020, the Group remains focused on arresting any potential asset quality deterioration and early managing arrears.

C. Business Overview (continued)

Strategic priorities for the medium term (continued)

Completing balance sheet de-risking (continued)

Following the outbreak of COVID-19, all foreclosures were suspended between March - August 2020, and then between January - March 2021 but only for specific categories including primary residences with open market value up to €350 thousand. In early May 2021, further legislation was enacted by the Cyprus Parliament by which foreclosures are suspended until the end of July 2021, for primary residences with open market value up to €500 thousand, premises of very small businesses (with annual turnover up to €2 mn and less than 10 employees), and agricultural fields with open market value up to €250k.

Growing revenues in a more capital efficient way

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

The Group continues to provide high quality new loans via prudent underwriting standards. Growth in new lending in Cyprus has been focused on selected industries more in line with the Bank's target risk profile, and following the outbreak of COVID-19, the focus remains to support the Cypriot economy in order to overcome the crisis. During the quarter ended 31 March 2021, new lending amounted to €487 mn, increased by 30% qoq, as demand for new loans is picking up, driven m ainly by corporate (up by 34% qoq), as economic activity continues to improve. At the same time, the demand for retail housing loans remains above pre-COVID levels, supported by the Government interest rate subsidy scheme. The pipeline for new housing loans remains strong at over €100 mn as at mid-May 2021, whilst new housing loans of €117 mn have been approved by the Bank since the beginning of the scheme.

Aiming at supporting investments by SMEs and mid-caps to boost the Cypriot economy, and create new jobs for young people, the Bank continues to provide joint financed schemes. To this end, the Bank continues its partnership with the European Investment Bank (EIB), the European Investment Fund (EIF) and the Cyprus Government.

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

At the same time, in order to further optimise its funding structure, the Bank continues to focus on the shape and cost of deposit franchise, taking advantage of the increased customer confidence towards the Bank. The cost of deposits has been reduced by 72 bps to 4 bps over the last 39 months. Moreover, liquidity fees for specific customer groups were introduced in March 2020. The introduction of liquidity fees to a broader group of corporate clients, that was delayed due to the COVID-19 pandemic, was implemented as of 1 February 2021. Separately, a new price list for charges and fees was also implemented as of 1 February 2021, with the positive impact from both initiatives to be estimated at c.€13 mn per annum. Transactional fee volumes are expected to recover to pre-COVID-19 levels, as the Cypriot economy recovers.

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

Management is placing emphasis on diversifying income streams by optimising fee income from international transaction services, wealth management and insurance. The Group's insurance companies, EuroLife Ltd and General Insurance of Cyprus Ltd (GIC) operating in the sectors of life and general insurance respectively, are leading players in the insurance business in Cyprus, and have been providing a stable, recurring fee income, further diversifying the Group's income streams. The insurance income net of claims and commissions for 1Q2021 amounted to €13 mn (up 15% yoy), contributing to 22% of non-interest income. Furthermore, there are initiatives underway to enhance revenues from the insurance business in the medium-term, in order to deliver sustainable profitability and shareholder returns. Specifically, EuroLife Ltd is aiming to improve total regular income mainly by extending its customer base and using a new distribution philosophy; whereas GIC is aiming to increase its gross written premiums mainly by leveraging on the Bank's customer base through revamping its bancassurance channel, and by focusing on high margin products. Efficiencies through enhancing digital capabilities are also expected in the medium-term.

In March 2021, the Bank participated in TLTRO III by borrowing an additional amount of €1.7 bn, increasing its participation to €2.7 bn, despite its comfortable liquidity position, given the favourable borrowing rate, in combination with the relaxation of collateral terms. Based on current ECB rates, the Bank estimates the NII benefit from its TLTRO III borrowing for the period from June 2020 to June 2021 at c.€7 mn. The potential NII benefit for the period from June 2021 to June 2022 amounts to c.€13.5 mn, based on current ECB rates and provided the Bank meets the lending thresholds.

C. Business Overview (continued)

Strategic priorities for the medium term (continued)

Growing revenues in a more capital efficient way (continued)

In April 2021, the Company issued €300 mn unsecured and subordinated Tier 2 Capital Notes (the 'New Notes'), with a coupon of 6.625%, to refinance its outstanding €250 mn Tier 2 Capital Notes, with a coupon of 9.25%, issued in 2017 (the 'Existing Notes'). At the same time, the Bank invited the holders of the 'Existing Notes' to tender them for purchase by the Bank at a price of 105.50%. The Bank accepted tenders of €207 mn in aggregate nominal amount, after which €43 mn in aggregate nominal amount of the Existing Notes remain outstanding.

The refinancing represents a major milestone for the Group, and has helped to diversify the Group's investor base, re-rate the Group's pricing in the international credit markets and demonstrate the Group's proactive capital management. Also, t he highly successful Tier 2 capital refinancing will allow the Group to focus on evaluating opportunities for an MREL issuance in terms of debt capital markets activity.

Improving operating efficiencies

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

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

The Group continues to work towards becoming a more customer centric organisation. A Transformation Office has been established at the beginning of the year further reinforcing the commitment to the Bank's modernisation agenda. The transformation programme will enable the implementation of the strategy with key shifts focusing on a leaner and more efficient operating model, capital profitability and optimisation of the client service and distribution models with an emphasis on the customer.

Digital Transformation

As part of its vision to be the leading financial hub in Cyprus, the Bank continues its Digital Transformation Programme, which focuses on three strategic pillars: developing digital services and products that enhance the customer experience, streamlining internal processes, and introducing new ways of working to improve the workplace environment.

In the last few months, a number of new features promoting self-service functionalities have been made available to subscribers through the Bank's mobile banking app. Users now have the option of viewing the data held about them by the Bank and updating it in case of changes (KYC review). In many cases, updates are performed in real time without a staff member having to review them, thus contributing in operational savings as well. Additionally, card holders can now view their card PINs instantly and securely using biometric authentication. This has proved a popular feature with the customer base, but its benefits are not limited to the improved user experience. It has also contributed in cost savings with card PINs no longer being printed and mailed by default. Instead, cards are mailed to the customer's home and the customer can instantly retrieve their first PIN through the app without going to the branch. Finally, verification of online card transactions has been made more secure with the replacement of the SMS One Time Password sent to date with secure push notifications. These notifications are sent through a secure channel and use biometric or password authentication to verify the identity of the customer quickly and easily.

The adoption of digital products and services continued to grow and gained momentum in the first quarter of 2021. As at the end of March 2021, 85.1% of the number of transactions involving deposits, cash withdrawals and internal/external transfers were performed through digital channels (up by c.21 p.p. from 64.6% in September 2017 when the digital transformation programme was initiated). In addition, 75.4% of individual customers were digitally engaged (up by c.16 p.p. from 59.6% in September 2017), choosing digital channels over branches to perform their transactions. As at 31 March 2021, active mobile banking users and active QuickPay users have grown by 20% and 73% respectively yoy. The highest number of QuickPay users to date was recorded in April 2021 with 99 thousand active users. Likewise, the highest number of QuickPay payments was recorded in April 2021 with 257 thousand transactions.

C. Business Overview (continued)

Strategic priorities for the medium term (continued)

Improving operating efficiencies (continued)

Digital Transformation (continued)

Furthermore, as part of the Digital Transformation Programme, major changes are underway in relation to enabling a modern and more efficient workplace. New technologies and tools have been introduced that will drastically change the employee experience, improving collaboration and knowledge sharing across the organisation. For instance, the rollout of Microsoft Surface portable devices has been initiated to the employees whose role demands high mobility, allowing them to work seamlessly wherever they are. Further enhancements will be implemented in 2021 and the full impact will be seen over the coming months.

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

The Bank aims to enhance its organisational resilience and ESG (Environmental, Social and Governance) agenda by building a forward-looking organisation with a clear strategy supported by effective corporate governance aligned with ESG agenda priorities.

As part of its responsibility to a wider group of stakeholders, the Group is working to build a forward-looking organisation with a clear strategy supported by effective corporate governance aligned with ESG priorities. Earlier this year a dedicated executive committee, the Sustainability Committee, was set up, that will oversee the ESG agenda of the Group, review the evolution of the Group's ESG strategy, monitor the development and implementation of the Group's ESG objectives and the embedding of ESG priorities in the Group's business targets.

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

In 2020, the Bank received a rating of A (on a scale of AAA-CCC) in the MSCI ESG Ratings assessment.

D. Strategy and Outlook

The strategic objectives for the Group are to become a stronger, safer and a more efficient institution capable of supporting the recovery of the Cypriot economy and delivering appropriate shareholder returns in the medium term.

The key pillars of the Group's strategy are to:

· Complete balance sheet de-risking

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

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

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

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

KEY STRATEGIC PILLARS

ACTION TAKEN IN 1Q2021 and to date

PLAN OF ACTION

Complete balance sheet de-risking

• Agreement for the sale of an additional NPE portfolio with gross book value of €0.5 bn as at 30 Sept 2020 reached in January 2021 (Project Helix 2 Portfolio B).

Combined with Project Helix 2 Portfolio A, the NPE ratio is reduced by 9 p.p. to 16% pro forma and on the basis of 31 March 2021 figures

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

• Gross NPE reduction in 2021, through both organic and inorganic actions, expected to more than offset NPE inflows

• Continue to work with advisors towards the sale of portfolios of NPEs in the future, assessing the potential to accelerate NPE reduction through additional NPE sales

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

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

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

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

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

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

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

D. Strategy and Outlook (continued)

KEY STRATEGIC PILLARS

ACTION TAKEN IN 1Q2021 and to date

PLAN OF ACTION

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

• Reduced total operating expenses in 1Q2021 by 9% qoq

• Further developments in the Digital Transformation Programme

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

• Offer exit solutions to release full time employees

• Achieve further branch footprint rationalisation

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

• Enhance procurement control

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

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

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

• Please refer to slide 32 in the 1Q2021 Group Financial Results Investors Presentation

• Enhanced structure and corporate governance

• Focus on our people

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

Although there remains uncertainty in the broader economic environment as a result of the pandemic, the Management remains confident in delivering on the strategic objectives for the Group.

The Group's near-term priorities include completing the balance sheet de-risking, whilst managing the post-pandemic NPE inflow; positioning the Bank on the path for sustainable profitability; ensuring the cost base remains appropriate, whilst further investing in the digital transformation programme in the near term in order to modernise the Bank's franchise (in fact, the cost to income ratio is expected to rise in the near term as revenues remain under pressure and operating expenses increase due to higher digitisation investment costs, and to reduce to mid-50s% in the medium term); addressing the challenges from low rates and surplus liquidity; and focusing on evaluating opportunities for an MREL issuance in terms of debt capital markets activity, following the highly successful Tier 2 capital refinancing.

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

D. Strategy and Outlook (continued)

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

Key Metrics		Strategic Targets for
Key Metrics		2022	Medium-Term
Profitability	Return on Tangible Equity (ROTE)¹		~ 7%
Profitability	Total operating expenses²		<€350 mn
Asset Quality	NPE ratio	<10%	~ 5%
Asset Quality	Cost of risk		70-80 bps
Capital	Supported by CET1 ratio of	At least 13%

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

2. Total operating expenses comprise staff costs and other operating expenses. Total operating expenses do not include the special levy or contributions to the Single Resolution Fund (SRF) or Deposit Guarantee Fund (DGF) and do not include any advisory or other restructuring costs.

Maintaining a strong capital base has been a key priority for management over the past few years and this remains equally important for the Group going forward. The business plan is based on maintaining a CET1 ratio of at least 13% over the entire period of the plan. The Group's capital is to be supported by organic capital generation and by focus on less capital-intensive businesses, the further reduction of high intensity risk weighted assets and the Helix 2 risk weighted asset benefit upon full repayment of deferred consideration. At the same time, factors that could potentially have a negative impact on the Group's capital ratios in addition to IFRS 9 phasing-in, include any potential regulatory impacts, as well as one-off cost optimisation charges. Until the completion of the de-risking and the restructuring of the business, there may be volatility in the capital ratios due to the timing of potential future impacts from regulatory changes and one-off restructuring costs.

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

E . Financial Results - Statutory Basis

Unaudited Interim Consolidated Income Statement

	Three months ended 31 March
	2021	2020
	€000	€000
Turnover	189,420	207,575
Interest income	88,602	101,673
Income similar to interest income	10,629	12,487
Interest expense	(13,229)	(17,217)
Expense similar to interest expense	(9,646)	(12,017)
Net interest income	76,356	84,926
Fee and commission income	40,412	40,107
Fee and commission expense	(1,865)	(2,063)
Net foreign exchange gains	3,63 0	8,662
Net losses on financial instrument transactions and disposal/dissolution of subsidiaries and associates	(647)	(3,812)
Insurance income net of claims and commissions	13,159	11,404
Net losses from revaluation and disposal of investment properties	(857)	(284)
Net gains on disposal of stock of property	3,111	1,103
Other income	3,606	4,465
	136,90 5	144,508
Staff costs	(50,049)	(49,051)
Special levy on deposits and other levies/ contributions	(9,104)	(9,195)
Other operating expenses	(39,740)	(42,593)
	38,01 2	43,669
Net gains on derecognition of financial assets measured at amortised cost	1,465	954
Credit losses to cover credit risk on loans and advances to customers	(24,128)	(63,802)
Credit losses of other financial instruments	(280)	(662)
Impairment net of reversals of non-financial assets	(5,015)	(3,803)
Profit/(loss) before share of profit/(loss) from associates	10,05 4	(23,644)
Share of profit/( loss ) from associates	137	(438)
Profit/(loss) before tax	10,19 1	(24,082)
Income tax	(1,878)	(1,726)
Profit/(loss) after tax for the period	8,313	(25,808)
Attributable to:
Owners of the Company	8,153	(25,912)
Non-controlling interests	160	104
Profit/(loss) for the period	8,313	(25,808)
Basic and diluted profit/(loss) per share attributable to the owners of the Company (€ cent)	1.8	(5.8)

E . Financial Results - Statutory Basis (continued)

Unaudited Interim Consolidated Statement of Comprehensive Income

	Three months ended 31 March
	2021	2020
	€000	€000
Profit/(loss) for the period	8,313	(25,808)
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in subsequent periods
Fair value reserve (debt instruments)
Net gains/(losses) on investments in debt instruments measured at fair value through OCI (FVOCI)	858	(25,643)
Transfer to the consolidated income statement on disposal	-	(1,971)
	858	(27,614)
Foreign currency translation reserve
(Loss)/profit on translation of net investment in foreign branches and subsidiaries	(3,204)	19,766
Profit/(loss) on hedging of net investments in foreign branches and subsidiaries	2,160	(19,087)
Transfer to the consolidated income statement on dissolution of foreign subsidiary	(26)	105
	(1,070)	784
Total OCI that may be reclassified in the consolidated income statement in subsequent periods	(212)	(26,830)
OCI not to be reclassified in the consolidated income statement in subsequent periods
Fair value reserve (equity instruments)
Net gains on investments in equity instruments designated at FVOCI	27	94

Property revaluation reserve
Deferred tax	(40)	(901)

Actuarial gains/(losses) on the defined benefit plans
Remeasurement gains/(losses) on defined benefit plans	4,945	(126)
Total OCI not to be reclassified in the consolidated income statement in subsequent periods	4,932	(933)
Other comprehensive income/(loss) for the period net of taxation	4,720	(27,763)
Total comprehensive income/(loss) for the period	13,03 3	(53,571)

Attributable to:
Owners of the Company	12,8 8 8	(53,429)
Non-controlling interests	145	(142)
Total comprehensive income/(loss) for the period	13,0 3 3	(53,571)

E . Financial Results - Statutory Basis (continued)

Unaudited Interim Consolidated Balance Sheet

	31 March 2021	31 December 2020
Assets	€000	€000
Cash and balances with central banks	6,926,347	5,653,315
Loans and advances to banks	420,593	402,784
Derivative financial assets	12,001	24,627
Investments	1,057,749	1,876,009
Investments pledged as collateral	1,055,694	37,105
Loans and advances to customers	9,959,849	9,886,047
Life insurance business assets attributable to policyholders	500,028	474,187
Prepayments, accrued income and other assets	275,572	249,877
Stock of property	1,328,028	1,349,609
Deferred tax assets	303,390	341,360
Investment properties	126,006	128,088
Property and equipment	268,554	272,474
Intangible assets	184,236	185,256
Investments in associates and joint venture	-	2,462
Non-current assets and disposal groups held for sale	625,545	630,931
Total assets	23,043,592	21,514,131
Liabilities
Deposits by banks	411,742	391,949
Funding from central banks	2,691,817	994,694
Derivative financial liabilities	36,408	45,978
Customer deposits	16,331,722	16,533,212
Insurance liabilities	692,223	671,603
Accruals, deferred income, other liabilities and other provisions	372,921	359,892
Pending litigation, claims, regulatory and other matters	118,015	123,615
Subordinated loan stock	254,450	272,152
Deferred tax liabilities	46,207	45,982
Total liabilities	20,955,505	19,439,077
Equity
Share capital	44,620	44,620
Share premium	594,358	594,358
Revaluation and other reserves	210,593	209,153
Retained earnings	993,961	982,513
Equity attributable to the owners of the Company	1,843,532	1,830,644
Other equity instruments	220,000	220,000
Total equity excluding non‑controlling interests	2,063,532	2,050,644
Non‑controlling interests	24,55 5	24,410
Total equity	2,088,08 7	2,075,054
Total liabilities and equity	23,043,59 2	21,514,131

E . Financial Results - Statutory Basis (continued)

Unaudited Interim Consolidated Statement of Changes in Equity

	Attributable to the shareholders of the Company									Other equity instruments	Non- controlling interests	Total equity
	Share capital	Share premium	Treasury shares	Retained earnings	Property revaluation reserve	Financial instruments fair value reserve	Life insurance in-force business reserve	Foreign currency translation reserve	Total	Other equity instruments	Non- controlling interests	Total equity
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
1 January 2021	44,620	594,358	(21,463)	982,513	79,515	22,894	110,401	17,806	1,830,644	220,000	24,410	2,075,054
Profit for the period	-	-	-	8,153	-	-	-	-	8,153	-	160	8,313
Other comprehensive income/ (loss) after tax for the period	-	-	-	4,945	(30)	890	-	(1,070)	4,7 3 5	-	(15)	4,7 2 0
Total comprehensive income/(loss) after tax for the period	-	-	-	13,098	(30)	890	-	(1,070)	12,8 8 8	-	145	13,0 3 3
Increase in value of in-force life insurance business	-	-	-	(1,828)	-	-	1,828	-	-	-	-	-
Tax on increase in value of in-force life insurance business	-	-	-	228	-	-	(228)	-	-	-	-	-
Transfer of OCI reserve upon disposal of investments in equity instruments designated as at FVOCI	-	-	-	(50)	-	50	-	-	-	-	-	-
31 March 2021	44,620	594,358	(21,463)	993,961	79,485	23,8 3 4	112,001	16,736	1,843,532	220,000	24,555	2,088,08 7

E . Financial Results - Statutory Basis (continued)

Unaudited Interim Consolidated Statement of Changes in Equity (continued)

	Attributable to the shareholders of the Company									Other equity instruments	Non- controlling interests	Total equity
	Share capital	Share premium	Treasury shares	Retained earnings	Property revaluation reserve	Financial instruments fair value reserve	Life insurance in-force business reserve	Foreign currency translation reserve	Total	Other equity instruments	Non- controlling interests	Total equity
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
1 January 2020	44,620	1,294,358	(21,463)	490,286	79,286	33,900	102,051	16,927	2,039,965	220,000	28,662	2,288,627
(Loss)/profit for the period	-	-	-	(25,912)	-	-	-	-	(25,912)	-	104	(25,808)
Other comprehensive (loss)/income after tax for the period	-	-	-	(126)	(676)	(27,499)	-	784	(27,517)	-	(246)	(27,763)
Total comprehensive (loss)/ income after tax for the period	-	-	-	(26,038)	(676)	(27,499)	-	784	(53,429)	-	(142)	(53,571)
Decrease in value of in-force life insurance business	-	-	-	2,457	-	-	(2,457)	-	-	-	-	-
Tax on decrease in value of in-force life insurance business	-	-	-	(307)	-	-	307	-	-	-	-	-
Change in the holding of Undertakings for Collective Investments in Transferable Securities (UCITS) Fund	-	-	-	5	-	-	-	-	5	-	-	5
31 March 2020	44,620	1,294,358	(21,463)	466,403	78,610	6,401	99,901	17,711	1,986,541	220,000	28,520	2,235,061

F. Notes

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

€ million	Underlying basis	NPE Sales	Other	Statutory basis
Net interest income	76	-	-	76
Net fee and commission income	39	-	-	39
Net foreign exchange gains and net losses on financial instrument transactions and disposal/dissolution of subsidiaries and associates	2	-	1	3
Insurance income net of claims and commissions	13	-	-	13
Net gains from revaluation and disposal of investment properties and on disposal of stock of properties	2	-	-	2
Other income	4	-	-	4
Total income	136	-	1	13 7
Total expenses	(91)	( 4 )	( 4 )	(9 9 )
Operating profit	45	( 4 )	( 3 )	38
Loan credit losses	(20)	(2)	(1)	(2 3 )
Impairments of other financial and non-financial assets	( 5 )	-	-	( 5 )
Provisions for litigation, claims, regulatory and other matters	(1)	-	1	-
Profit before tax and non-recurring items	19	(6)	(3)	10
Tax	(2)	-	-	(2)
Profit after tax and before non-recurring items (attributable to the owners of the Company)	17	(6)	(3)	8
Advisory and other restructuring costs-organic	(3)	-	3	-
Profit after tax - organic* (attributable to the owners of the Company)	14	(6)	-	8
Provisions/net loss relating to NPE sales, including restructuring expenses	(6)	6	-	-
Profit after tax (attributable to the owners of the Company)	8	-	-	8

*This is the profit after tax (attributable to the owners of the Company), before the provisions/net loss relating to NPE sales, including restructuring expenses.

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

NPE sales

· Total expenses include restructuring costs of €4 million relating to the agreements for the sale of portfolios of NPEs and are presented within 'Provisions/net loss relating to NPE sales, including restructuring expenses' under the underlying basis.

· Loan credit losses under the statutory basis include the loan credit losses relating to Project Helix 2 of €2 million and are disclosed under non-recurring items within 'Provisions/net loss relating to NPE sales, including restructuring expenses' under the underlying basis.

Other reclassifications

· Advisory and other restructuring costs of approximately €3 million included in 'Other operating expenses' under the statutory basis are separately presented under the underlying basis since they represent one off items.

· Provisions for litigation, claims, regulatory and other matters amounting to €1 million included in 'Other operating expenses' under the statutory basis, are separately presented under the underlying basis, since they mainly relate to cases that arose outside the normal activities of the Group.

· Net gains on loans and advances to customers at FVPL of approximately €0.5 million included in 'Loan credit losses' under the underlying basis are included in 'Net losses on financial instrument transactions and disposal/dissolution of subsidiaries and associates' under the statutory basis. Their classification under the underlying basis is done in order to align their presentation with the loan credit losses on loans and advances to customers at amortised cost.

F. Notes (continued)

F.2 Customer deposits

The analysis of customer deposits is presented below:

	31 March 2021	31 December 2020
By type of deposit	€000	€000
Demand	8,077,543	8,149,688
Savings	2,080,244	1,970,975
Time or notice	6,173,935	6,412,549
	16,331,722	16,533,212
By geographical area
Cyprus	16,331,722	16,533,212

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

	31 March 2021	31 December 2020
By currency	€000	€000
Euro	14,665,471	14,929,662
US Dollar	1,238,590	1,199,069
British Pound	318,209	288,102
Russian Rouble	27,998	28,618
Swiss Franc	8,898	9,901
Other currencies	72,556	77,860
	16,331,722	16,533,212
By customer sector
Corporate	1,031,642	1,037,430
Global corporate	492,696	607,467
SMEs	828,848	832,576
Retail	10,514,459	10,525,819
Restructuring
- Corporate	23,210	27,889
- SMEs	17,739	16,688
- Retail other	8,330	10,561
Recoveries
- Corporate	2,780	3,251
International banking services	3,144,681	3,180,061
Wealth management	267,337	291,470
	16,331,722	16,533,212

F.3 Loans and advances to customers

	31 March 2021	31 December 2020
	€000	€000
Gross loans and advances to customers at amortised cost	10,467,098	10,400,603
Allowance for ECL for impairment of loans and advances to customers	(800,693)	(804,417)
	9,666,405	9,596,186
Loans and advances to customers measured at FVPL	293,444	289,861
	9,959,849	9,886,047

F. Notes (continued)

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

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

31 March 2021	Cyprus	Greece	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By economic activity	€000	€000	€000	€000	€000	€000	€000
Trade	1,015,075	674	142	3,832	3,340	114	1,023,177
Manufacturing	345,169	335	181	715	1,123	32,391	379,914
Hotels and catering	894,251	35,979	36,737	515	-	40,099	1,007,581
Construction	634,728	8,755	116	2,555	614	230	646,998
Real estate	867,838	126,549	2,004	33,818	-	43,225	1,073,434
Private individuals	4,699,890	7,999	153,462	1,190	43,544	82,841	4,988,926
Professional and other services	653,381	445	5,594	4,050	23,599	39,262	726,331
Other sectors	445,736	12	217	849	8	173,915	620,737
	9,556,068	180,748	198,453	47,524	72,228	412,077	10,467,098

31 March 2021
By business line
Corporate	1,969,555	8,992	93	479	14,754	2,633	1,996,506
Global corporate	1,366,462	162,361	43,339	35,923	9,364	310,806	1,928,255
SMEs	1,080,228	697	2,574	2,283	4,526	2,534	1,092,842
Retail
- housing	2,891,329	3,240	56,624	615	5,475	24,959	2,982,242
- consumer, credit cards and other	878,217	1,260	1,354	191	223	1,888	883,133
Restructuring
- corporate	143,531	-	532	-	-	5,107	149,170
- SMEs	98,849	-	497	-	76	237	99,659
- retail housing	119,250	116	3,484	129	363	1,052	124,394
- retail other	72,509	200	750	-	57	253	73,769
Recoveries
- corporate	38,227	-	10	5,047	1	288	43,573
- SMEs	61,105	10	2,859	2,685	6,466	3,728	76,853
- retail housing	386,478	335	61,664	161	10,664	26,012	485,314
- retail other	347,553	35	6,087	4	333	1,893	355,905
International banking services	68,724	2,741	18,030	5	19,926	24,827	134,253
Wealth management	34,051	761	556	2	-	5,860	41,230
	9,556,068	180,748	198,453	47,524	72,228	412,077	10,467,098

F. Notes (continued)

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

31 December 20 20	Cyprus	Greece	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By economic activity	€000	€000	€000	€000	€000	€000	€000
Trade	1,014,445	717	252	3,767	7,291	112	1,026,584
Manufacturing	350,403	389	177	704	1,399	31,717	384,789
Hotels and catering	875,572	35,989	34,736	504	-	40,185	986,986
Construction	613,895	8,689	123	2,786	741	234	626,468
Real estate	867,601	127,342	1,899	33,484	-	41,223	1,071,549
Private individuals	4,670,357	8,024	163,613	1,202	48,361	84,830	4,976,387
Professional and other services	652,928	407	5,711	3,968	23,074	39,933	726,021
Other sectors	432,569	13	219	838	5	168,175	601,819
	9,477,770	181,570	206,730	47,253	80,871	406,409	10,400,603

31 December 2020 ( restated*)
By business line
Corporate	1,922,810	8,949	94	605	18,913	2,760	1,954,131
Global corporate	1,344,983	163,153	41,334	35,546	9,308	302,734	1,897,058
SMEs	1,081,773	708	2,881	2,393	4,361	2,337	1,094,453
Retail
- housing	2,862,802	3,052	57,627	623	6,051	25,622	2,955,777
- consumer, credit cards and other	884,151	1,286	1,507	196	256	2,061	889,457
Restructuring
- corporate	165,161	-	532	-	-	5,324	171,017
- SMEs	98,931	-	883	-	97	240	100,151
- retail housing	143,540	182	3,600	130	377	1,591	149,420
- retail other	79,6 17	202	118	1	8	18	79,96 4
Recoveries
- corporate	30,963	-	9	4,948	1	256	36,177
- SMEs	57,559	9	3,154	2,643	8,079	3,770	75,214
- retail housing	374,056	326	70,621	160	11,947	27,952	485,062
- retail other	337, 500	34	6,108	4	304	1,890	345,8 40
International banking services	68,923	2,905	18,262	4	21,169	24,075	135,338
Wealth management	25,001	764	-	-	-	5,779	31,544
	9,477,770	181,570	206,730	47,253	80,871	406,409	10,400,603

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

F. Notes (continued)

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

31 December 2020	Cyprus	Greece	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By business line	€000	€000	€000	€000	€000	€000	€000
Restructuring
- corporate	175,386	-	524	-	-	5,324	181,234
- SMEs	86,644	189	1,633	-	263	133	88,862
- retail housing	130,661	182	2,849	130	219	1,703	135,744
- retail other	94,560	13	127	-	-	12	94,712
Recoveries
- corporate	20,388	-	-	7,592	-	23	28,003
- SMEs	87,276	9	275	-	1,465	1,728	90,753
- retail housing	364,775	326	73,460	160	18,511	30,042	487,274
- retail other	327,637	34	6,157	4	355	2,076	336,263
	1,287,327	753	85,025	7,886	20,813	41,041	1,442,845

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

Loans and advances to customers classified as held for sale

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

31 March 2021	Cyprus	Greece	United Kingdom	Russia	Other countries	Gross loans at amortised cost
By economic activity	€000	€000	€000	€000	€000	€000
Trade	134,46 4	-	-	-	-	134,464
Manufacturing	45,765	85	323	-	568	46,741
Hotels and catering	30,226	-	513	-	29	30,768
Construction	147,355	-	6	26	78	147,465
Real estate	65,793	-	-	-	317	66,110
Private individuals	682,435	1,446	16,487	10,083	15,136	725,587
Professional and other services	83,693	204	70	1,159	213	85,339
Other sectors	57,921	-	-	-	-	57,921
	1,247,652	1,735	17,399	11,268	16,341	1,294,395

31 March 2021
By business line
Retail
- housing	184	-	-	-	-	184
Restructuring
- corporate	61,237	-	-	-	-	61,237
- SMEs	76,837	-	165	-	234	77,236
- retail housing	61,409	-	1,900	164	347	63,820
- retail other	28,528	-	324	-	-	28,852
Recoveries
- corporate	67,640	-	-	468	78	68,186
- SMEs	362,107	150	2,478	919	1,937	367,591
- retail housing	310,340	1,322	10,592	7,659	10,307	340,220
- retail other	279,370	263	1,940	2,058	3,438	287,069
	1,247,652	1,735	17,399	11,268	16,341	1,294,395

F. Notes (continued)

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

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

31 December 2020	Cyprus	Greece	United Kingdom	Russia	Other countries	Gross loans at amortised cost
By economic activity	€000	€000	€000	€000	€000	€000
Trade	137,088	-	-	-	-	137,088
Manufacturing	49,724	84	305	-	560	50,673
Hotels and catering	30,266	-	496	-	29	30,791
Construction	151,907	-	8	26	76	152,017
Real estate	68,685	-	-	-	314	68,999
Private individuals	712,742	1,423	16,225	10,004	14,969	755,363
Professional and other services	85,933	199	62	1,093	192	87,479
Other sectors	58,845	-	-	-	-	58,845
	1,295,190	1,706	17,096	11,123	16,140	1,341,255

31 December 2020 (restated*)
By business line
SMEs	3	-	-	-	-	3
Retail
- housing	40	-	-	-	-	40
- consumer, credit cards and other	23	-	-	-	-	23
Restructuring
- corporate	64,957	-	-	-	-	64,957
- SMEs	84,811	-	257	-	254	85,322
- retail housing	66,250	-	1,689	163	350	68,452
- retail other	29,052	1	327	-	-	29,380
Recoveries
- corporate	85,548	-	-	462	103	86,113
- SMEs	371,625	149	2,407	919	1,844	376,944
- retail housing	312,890	1,305	10,547	7,649	10,227	342,618
- retail other	279,991	251	1,869	1,930	3,362	287,403
	1,295,190	1,706	17,096	11,123	16,140	1,341,255

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

F. Notes (continued)

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

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

31 December 2020	Cyprus	Greece	United Kingdom	Russia	Other countries	Gross loans at amortised cost
By business line	€000	€000	€000	€000	€000	€000
Restructuring
- corporate	65,947	-	-	-	-	65,947
- SMEs	117,541	1	1,734	163	368	119,807
- retail housing	21,584	-	402	-	76	22,062
- retail other	39,998	-	137	-	160	40,295
Recoveries
- corporate	132,494	-	1,164	3,552	2,918	140,128
- SMEs	365,829	149	2,993	842	1,842	371,655
- retail housing	298,136	1,305	9,019	5,705	7,492	321,657
- retail other	253,595	251	1,647	861	3,284	259,638
	1,295,124	1,706	17,096	11,123	16,140	1,341,189

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

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

31 March 2021	Stage 1	Stage 2	Stage 3	POCI	Total
31 March 2021	€000	€000	€000	€000	€000
Gross loans at amortised cost before residual fair value adjustment on initial recognition	7,009,774	1,921,503	1,359,528	321,960	10,612,765
Residual fair value adjustment on initial recognition	(76,091)	(21,211)	(10,326)	(38,039)	(145,667)
Gross loans at amortised cost	6,933,683	1,900,292	1,349,202	283,921	10,467,098

31 December 2020	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2020	€000	€000	€000	€000	€000
Gross loans at amortised cost before residual fair value adjustment on initial recognition	6,681,481	2,148,946	1,380,926	335,852	10,547,205
Residual fair value adjustment on initial recognition	(72,591)	(25,815)	(9,376)	(38,820)	(146,602)
Gross loans at amortised cost	6,608,890	2,123,131	1,371,550	297,032	10,400,603

Loans and advances to customers classified as held for sale

31 March 2021	Stage 1	Stage 2	Stage 3	POCI	Total
31 March 2021	€000	€000	€000	€000	€000
Gross loans at amortised cost before residual fair value adjustment on initial recognition	9,963	16,763	1,101,453	210,444	1,338,623
Residual fair value adjustment on initial recognition	(235)	310	(6,933)	(37,370)	(44,228)
Gross loans at amortised cost	9,728	17,073	1,094,520	173,074	1,294,395

31 December 2020	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2020	€000	€000	€000	€000	€000
Gross loans at amortised cost before residual fair value adjustment on initial recognition	6,177	21,801	1,138,587	221,365	1,387,930
Residual fair value adjustment on initial recognition	(41)	397	(7,650)	(39,381)	(46,675)
Gross loans at amortised cost	6,136	22,198	1,130,937	181,984	1,341,255

F. Notes (continued)

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

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

31 March 2021	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	1,550,26 6	390,558	29,70 8	25,974	1,996,506
Global corporate	1,367,143	422,365	104,548	34,199	1,928,255
SMEs	779,627	284,192	17,857	11,166	1,092,842
Retail
- housing	2,452,566	453,978	64,178	11,520	2,982,242
- consumer, credit cards and other	618,835	217,800	30,506	15,992	883,133
Restructuring
- corporate	23,656	50,689	61,572	13,253	149,170
- SMEs	15,533	19,912	56,157	8,057	99,659
- retail housing	5,183	11,904	102,443	4,864	124,394
- retail other	1,510	4,006	65,495	2,758	73,769
Recoveries
- corporate	-	-	36,540	7,033	43,573
- SMEs	-	-	66,718	10,135	76,853
- retail housing	-	-	404,967	80,347	485,314
- retail other	122	1	298,322	57,460	355,905
International banking services	82,707	41,340	10,008	198	134,253
Wealth management	36,535	3,547	183	965	41,230
	6,933,68 3	1,900,292	1,349,20 2	283,921	10,467,098

31 December 2020 (restated*)	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	1,519,663	362,199	37,635	34,634	1,954,131
Global corporate	1,393,025	367,147	102,881	34,005	1,897,058
SMEs	740,305	325,412	17,731	11,005	1,094,453
Retail
- housing	2,223,620	651,980	68,644	11,533	2,955,777
- consumer, credit cards and other	588,339	251,022	33,095	17,001	889,457
Restructuring
- corporate	29,108	64,706	60,719	16,484	171,017
- SMEs	13,263	25,167	54,003	7,718	100,151
- retail housing	2,475	13,599	127,558	5,788	149,420
- retail other	943	4,047	71,910	3,064	79,964
Recoveries
- corporate	-	-	29,431	6,746	36,177
- SMEs	-	-	65,287	9,927	75,214
- retail housing	-	-	404,337	80,725	485,062
- retail other	221	13	288,374	57,232	345,840
International banking services	76,160	49,222	9,767	189	135,338
Wealth management	21,768	8,617	178	981	31,544
	6,608,890	2,123,131	1,371,550	297,032	10,400,603

F. Notes (continued)

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

Loans and advances to customers classified as held for sale

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

31 March 2021	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Retail
- housing	-	-	184	-	184
Restructuring
- corporate	-	912	59,625	700	61,237
- SMEs	5,144	7,713	60,501	3,878	77,236
- retail housing	3,789	7,433	49,780	2,818	63,820
- retail other	795	1,015	26,117	925	28,852
Recoveries
- corporate	-	-	58,994	9,192	68,186
- SMEs	-	-	317,203	50,388	367,591
- retail housing	-	-	295,687	44,533	340,220
- retail other	-	-	226,42 9	60,64 0	287,06 9
	9,728	17,073	1,094,5 20	173,07 4	1,294,39 5

31 December 2020 (restated*)	Stage 1	Stage 2	Stage 3	POCI	Total
By b usiness line	€000	€000	€000	€000	€000
SMEs	-	-	-	3	3
Retail
- housing	-	40	-	-	40
- consumer, credit cards and other	-	2	21	-	23
Restructuring
- corporate	-	975	62,946	1,036	64,957
- SMEs	3,442	9,882	67,664	4,334	85,322
- retail housing	2,414	9,882	53,327	2,829	68,452
- retail other	280	1,417	26,665	1,018	29,380
Recoveries
- corporate	-	-	73,449	12,664	86,113
- SMEs	-	-	325,082	51,862	376,944
- retail housing	-	-	296,934	45,684	342,618
- retail other	-	-	224,849	62,554	287,403
	6,136	22,198	1,130,937	181,984	1,341,255

F. Notes (continued)

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

	Three months ended 31 March
	2021	2020
	€000	€000
Impairment loss net of reversals on loans and advances to customers	23,327	65,569
Recoveries of loans and advances to customers previously written off	(2,370)	(7,536)
Changes in expected cash flows	2,787	6,691
Financial guarantees and commitments	384	(922)
	24,128	63,802

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

	Three months ended 31 March
	2021	2020
	€000	€000
1 January	1,652,635	1,803,550
Foreign exchange and other adjustments	58	(1,453)
Write offs	(73,554)	(51,477)
Interest (provided) not recognised in the income statement	20,994	20,257
Charge for the period	23,327	65,569
31 March	1,623,460	1,836,446
Stage 1	25,954	25,422
Stage 2	38,097	44,392
Stage 3	1,357,549	1,556,089
POCI	201,860	210,543
31 March	1,623,460	1,836,446

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

	Three months ended 31 March
	2021	2020
	€000	€000
Stage 1	(2,777)	11,812
Stage 2	(5,247)	10,220
Stage 3	31,351	43,537
	23,327	65,569

During the three months ended 31 March 2021 the total non‑contractual write‑offs recorded by the Group amounted to €51,219 thousand ( three months ended 31 March 2020: €52,124 thousand). The contractual amount outstanding on financial assets that were written off during the three months ended 31 March 2021 and that are still subject to enforcement activity is €216,909 thousand (31 December 2020: €1,062,224 thousand).

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

F. Notes (continued)

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

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

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

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

For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with 50%, 30% and 20% probability respectively. The tables below indicate the most significant macroeconomic variables as well as the scenarios used by the Group as at 31 March 2021 and 31 December 2020.

31 March 2021

Year	Scenario	Weight %	Real GDP (% change)	Unemployment rate (% of labour force)	Consumer Price Index (average % change)	RICS House Price Index (average % change)
2021	Adverse	30.0	-0.8	9.3	-0.2	-2.2
	Baseline	50.0	3.9	9.0	1.0	3.0
	Favourable	20.0	5.4	8.3	1.7	3.4
2022	Adverse	30.0	2.1	8.6	0.9	-2.5
	Baseline	50.0	3.4	8.1	1.5	3.2
	Favourable	20.0	4.1	6.8	1.9	4.4
2023	Adverse	30.0	3.5	8.0	1.8	-0.2
	Baseline	50.0	3.1	7.2	1.7	3.5
	Favourable	20.0	3.3	6.1	1.7	4.0
2024	Adverse	30.0	3.0	7.7	1.6	3.8
	Baseline	50.0	2.9	6.7	1.6	3.6
	Favourable	20.0	2.8	6.0	1.6	4.7
2025	Adverse	30.0	2.7	7.7	1.9	4.2
	Baseline	50.0	2.7	6.5	1.9	3.5
	Favourable	20.0	2.8	6.0	1.9	3.9

31 December 2020

Year	Scenario	Weight %	Real GDP (% change)	Unemployment rate (% of labour force)	Consumer Price Index (average % change)	RICS House Price Index (average % change)
2021	Adverse	30.0	‑0.6	9.6	‑2.2	‑4.0
	Baseline	50.0	4.0	7.4	‑0.8	‑2.3
	Favourable	20.0	4.8	6.4	‑0.1	‑0.8
2022	Adverse	30.0	4.3	8.7	‑1.1	‑2.3
	Baseline	50.0	3.9	6.2	0.8	0.3
	Favourable	20.0	4.4	5.8	1.4	2.4
2023	Adverse	30.0	4.0	7.4	0.3	2.5
	Baseline	50.0	3.4	5.7	1.4	4.1
	Favourable	20.0	3.5	5.6	1.4	5.2
2024	Adverse	30.0	3.5	6.7	0.8	5.3
	Baseline	50.0	3.0	5.7	1.6	5.3
	Favourable	20.0	3.0	5.6	1.6	5.9
2025	Adverse	30.0	2.7	6.6	1.5	5.8
	Baseline	50.0	2.7	5.7	1.9	5.5
	Favourable	20.0	2.7	5.5	2.0	6.1

F. Notes (continued)

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

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

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

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

Overlays in the context of COVID‑19

Following the COVID‑19 pandemic, the Group considered the complexities of governmental support programmes and regulatory guidance on treatment of customer payment breaks by the ECL models. In this context, management has considered the data and measurement limitations arising from the extraordinary impact of COVID‑19 and addressed them through management overlays in relation to the significant credit risk deterioration, behavioural ratings and PD. As a result of the overlays described below for the three months ended 31 March 2021 (some of which were also applied in the year end 31 December 2020 financial results), the total net impact on the ECL (no reversal of ECL) was approximately €13.7 million.

SICR adjustment

The initial granting of customer relief does not automatically trigger a migration to Stage 2 or Stage 3 for the customers that have applied for the moratorium. Following an assessment performed for SICR for these customers as at 31 March 2021, a management overlay was applied, in order to capture any bias introduced in the customer's credit ratings by defining collective rules that can assess Stage 1 and Stage 2 misclassified customers, due to unrepresentative outlook of the idiosyncratic risk. Additionally stricter customer's credit ratings thresholds have been applied for customers in the hotel and catering industry sector. A staging overlay was then applied on these customers in order to classify them accordingly to Stage 2.

Exposures under the expired moratorium with no SICR were allowed to be transferred to Stage 1 only if they were classified in Stage 1 by the models and met certain additional criteria developed as a result of the moratorium exposures.

Additionally, customers that were identified as having experienced a SICR and migrated from Stage 1 to Stage 2 during 2020 and not addressed by the exercises described above were not allowed to migrate back to Stage 1 during the three months ended 31 March 2021.

Finally, given the three month data available since the moratorium end, any customers that repaid two or more capital instalments were not subject to the above overlays and their initial stage classification was retained.

Probability of default and behavioural rating adjustment

A PD overlay was applied in order to avoid extreme values in the model predictions whilst ensuring that the moratorium will not cause a timeline misalignment between the model projected and observed 2021 defaults.

The second PD overlay related to the rating of Corporate customers and specifically customers that fall under high-risk sectors, namely tourism, trade and manufacturing. The overlay applied practically maps all of these customers into high-risk credit rating grades.

The purpose of these overlays is to minimise potential cliff effects which might stem from the combination of uncertain volatile parameters such as possible lockdown, government support and behaviour of moratorium customers.

F. Notes (continued)

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

Portfolio segmentation

The individual assessment is performed not only for individually significant assets but also for other exposures meeting specific criteria determined by management. The selection criteria for the individually assessed exposures are based on management judgement and are reviewed on a quarterly basis by the Risk Management Division and are adjusted or enhanced, if deemed necessary. During 2020, in response to the COVID‑19 pandemic, the selection criteria were expanded to include the assessment of significant Stage 1 exposures within highly impacted sectors with respect to potential increase in credit risk and the assessment of significant exposures which transitioned from Stage 1 to Stage 2 with respect to potential indications for unlikeliness to pay. These expanded selection criteria were also applied in the three months ended 31 March 2021.

In addition to individually assessed assets the Group also assesses assets collectively. The collectively assessed portfolio includes all loans which are not individually assessed. The Group categorises the exposures into sufficiently granular portfolio segments with shared risk characteristics. The granularity for the IFRS 9 segments is aligned with the Internal Rating Based (IRB) segmentation.

F.7 Rescheduled loans and advances to customers

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

	31 March 2021	31 December 2020
	€000	€000
Stage 1	167,303	199,193
Stage 2	292,159	242,493
Stage 3	670,368	686,944
POCI	88,582	98,400
	1,218,412	1,227,030

F.8 Additional Credit risk disclosures

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

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

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

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

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

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

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

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

F. Notes (continued)

F.8 Additional Credit risk disclosures (continued)

For retail debtors, when a specific part of the exposures of a customer that fulfils the NPE criteria set out above is greater than 20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total customer exposure is classified as non‑performing; otherwise only the specific part of the exposure is classified as non‑performing.

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

Material arrears/excesses are defined as follows:

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

- Exposures other than retail: Total arrears/excesses are greater than €500 and the amount in arrears/excess in relation to the customer's total exposure is at least 1%.

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

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

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

a) The restructuring date

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

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

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

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

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

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

i. At least three months have passed since the moment that the conditions for which the exposure was classified as non-performing, cease to be met and no trigger of default continues to apply

ii. During the three month period, the behaviour of the obligor should be taken into account

iii. During the three month period, the financial situation of the obligor should be taken into account

iv. No Unlikely‑to‑Pay criteria exist for the debtor

The definitions of credit‑impaired and default are aligned so that stage 3 represents all loans which are considered defaulted or otherwise credit‑impaired.

When an account exits Stage 3, it is transferred to Stage 2 for a probationary period of 6 months. At the end of this period, the significant increase in credit risk (SICR) trigger is activated and the loan is either transferred to Stage 1 or remains in Stage 2. The reversal of previous unrecognised interest on loans and advances to customers that no longer meet Stage 3 criteria is presented in 'Credit losses to cover credit risk on loans and advances to customers'.

F. Notes (continued)

F.8 Additional Credit risk disclosures (continued)

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

31 March 2021	Gross loans and advances to customers				Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions
	Group gross customer loans and advances^1,2	Of which NPEs	Of which exposures with forbearance measures		Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions	Of which NPEs	Of which exposures with forbearance measures
	Group gross customer loans and advances^1,2	Of which NPEs	Total exposures with forbearance measures	Of which NPEs		Of which NPEs	Total exposures with forbearance measures	Of which on NPEs
	€000	€000	€000	€000	€000	€000	€000	€000
Loans and advances to customers
General governments	49,555	1	-	-	1,900	-	-	-
Other financial corporations	121,113	9,677	16,657	3,995	6,401	4,984	1,875	1,299
Non-financial corporations	5,416,927	569,743	630,763	295,272	278,087	251,149	103,267	99,985
Of which: Small and Medium sized Enterprises ³ (SMEs)	3,801,459	388,260	360,665	191,587	237,848	218,379	91,458	88,323
Of which: Commercial real estate ³	4,060,661	295,489	498,189	180,804	149,560	135,873	64,350	61,926
Non-financial corporations by sector
Construction	634,490	77,064			46,374
Wholesale and retail trade	993,930	131,739			82,324
Accommodation and food service activities	1,144,264	20,685			13,777
Real estate activities	1,135,553	142,958			31,001
Manufacturing	371,099	44,202			29,846
Other sectors	1,137,591	153,095			74,765
Households	5,173,975	1,035,666	799,733	531,077	515,333	494,568	225,296	217,281
Of which: Residential mortgage loans ³	4,067,825	854,442	672,956	453,869	383,841	373,393	180,582	174,539
Of which: Credit for consumption ³	618,881	134,238	90,636	67,076	85,010	78,827	33,317	32,432
	10,761,570	1,615,087	1,447,153	830,344	801,721	750,701	330,438	318,565
Loans and advances to customers classified as held for sale	1,294,39 5	1,266,705	736,410	714,281	822,76 7	807,260	440,164	427,307
Total on-balance sheet	12,055,96 5	2,881,792	2,183,563	1,544,625	1,624,48 8	1,557,961	770,602	745,872

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

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

³ The analysis shown in lines 'non-financial corporations' and 'households' is non-additive across categories as certain customers could be in both categories.

F. Notes (continued)

F.8 Additional Credit risk disclosures (continued)

31 December 2020	Gross loans and advances to customers				Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions
	Group gross customer loans and advances ^4,5	Of which NPEs	Of which exposures with forbearance measures		Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions	Of which NPEs	Of which exposures with forbearance measures
	Group gross customer loans and advances ^4,5	Of which NPEs	Total exposures with forbearance measures	Of which NPEs		Of which NPEs	Total exposures with forbearance measures	Of which on NPEs
	€000	€000	€000	€000	€000	€000	€000	€000
Loans and advances to customers
General governments	50,771	1	-	-	1,949	-	-	-
Other financial corporations	115,668	10,494	17,303	4,568	7,232	5,545	2,604	1,907
Non-financial corporations	5,364,716	574,205	499,948	304,406	272,331	245,647	106,238	101,989
Of which: Small and Medium sized Enterprises ⁶	3,797,095	387,568	327,344	193,938	230,595	210,511	91,092	87,496
Of which: Commercial real estate ⁶	4,042,172	346,607	367,083	193,959	154,807	139,915	77,104	74,009
Non-financial corporations by sector
Construction	614,135	75,550			42,791
Wholesale and retail trade	997,904	134,135			80,885
Accommodation and food service activities	1,123,380	19,836			12,766
Real estate activities	1,129,066	140,532			30,355
Manufacturing	376,551	45,142			28,185
Other sectors	1,123,680	159,010			77,349
Households	5,160,342	1,055,706	821,614	544,408	523,938	495,784	231,313	221,722
Of which: Residential mortgage loans ⁶	4,059,939	882,336	690,514	465,939	396,275	382,063	185,648	178,570
Of which: Credit for consumption ⁶	622,102	133,351	89,725	68,763	82,951	74,473	33,363	32,285
	10,691,497	1,640,406	1,338,865	853,382	805,450	746,976	340,155	325,618
Loans and advances to customers classified as held for sale	1,341,255	1,312,166	754,795	731,624	848,218	832,419	447,731	434,657
Total on-balance sheet	12,032,752	2,952,572	2,093,660	1,585,006	1,653,668	1,579,395	787,886	760,275

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

⁵ The residual fair value adjustment on initial recognition (which relates mainly to loans acquired from Laiki Bank and is calculated as the difference between the outstanding contractual amount and the fair value of loans acquired and bears a negative balance) is considered as part of the gross loans, therefore decreases the gross balance of loans and advances to customers.

⁶ The analysis shown in lines 'non-financial corporations' and 'households' is non-additive across categories as certain customers could be in both categories.

F. Notes (continued)

F.9 Pending litigation, claims, regulatory and other matters

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

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

There are three applications pending before the court which relate to unfair contract terms which have allegedly been included in BOC PCL's consumer contracts. Two of the said applications have been filed by the Consumer Protection Service and one of them by the Cyprus Consumers Association. They are seeking for the issuance of court orders prohibiting the use of a number of contractual terms included in BOC PCL's consumer contracts and the amendment of any such contracts (present and future) so as to remove such unfair terms. The new Law on Consumer Protection brings under one umbrella the existing legislation on unfair contract terms and practices with some enhanced powers vested in the Consumer Protection Service i.e. power to impose increased fines which are immediately payable. The new Law has a retrospective effect in that it also applies to all contracts/practices entered into and/or terminated prior to the Law coming into effect as opposed to contracts/practices which are only entered into/adopted as from the date of publication of the Law. The applications mentioned above are at an early stage and the outcome is still uncertain.

F.10 Liquidity regulation

The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR) under CRD IV/CRR (as supplemented by Delegated Regulations (EU) 2015/61) with the limit set at 100%. The Group also monitors its position against the Net Stable Funding Ratio (NSFR) as proposed under Basel III and expected to be enforced as a regulatory indicator under Capital Requirements Regulation II (CRR II) in June 2021 with the limit set at 100%.

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

As at 31 March 2021 the Group was in compliance with all regulatory liquidity requirements. As at 31 March 2021, the LCR stood at 284% for the Group (compared to 254% at 31 December 2020) and was in compliance with the minimum regulatory requirement of 100%. As at 31 March 2021 the Group's NSFR, on the basis of the Basel Ι standards, was 140% (compared to 139% at 31 December 2020).

F.11 Liquidity reserves

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

Composition of the liquidity reserves	31 March 2021			31 December 2020
	Internal Liquidity reserves	Liquidity reserves as per LCR Delegated Reg (EU) 2015/61 LCR eligible		Internal Liquidity reserves	Liquidity reserves as per LCR Delegated Reg (EU) 2015/61 LCR eligible
	Internal Liquidity reserves	Level 1	Level 2A	Internal Liquidity reserves	Level 1	Level 2A
	€000	€000	€000	€000	€000	€000
Cash and balances with central banks	6,851,214	6,851,214	-	5,568,431	5,568,431	-
Placements with banks	207,047	-	-	248,839	-	-
Liquid investments	627,876	522,018	146,705	1,409,850	1,240,773	133,073
Available ECB Buffer	61,195	-	-	762,001	-	-
Total	7,747,332	7,373,232	146,705	7,989,121	6,809,204	133,073

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

F. Notes (continued)

F.11 Liquidity reserves (continued)

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

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

Finally, current available ECB buffer is not part of the Liquidity reserves as per LCR, since the ECB collateral pool includes assets that are not LCR eligible but only eligible as collateral for Eurosystem credit operations.

The Liquidity Reserves are managed by Treasury.

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

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

Additionally, the package contains measures that provide liquidity support to the euro area financial system, such as significant favourable amendments in the terms and characteristics of TLTRO III. Furthermore, a new series of additional longer-term refinancing operations, called Pandemic Emergency Longer-Term Refinancing Operations (PELTROs), has been introduced.

F.12 Capital management

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

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

On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V) came into force. As an amending regulation, the existing provisions of CRR apply, unless they are amended by CRR II. Member states are required to transpose the CRD V into national law. Certain provisions took immediate effect (primarily relating to Minimum Requirement for Own Funds and Eligible Liabilities (MREL)), but most changes will start to apply as of mid-2021. Certain aspects of CRR II are dependent on final technical standards to be issued by the EBA and adopted by the European Commission. The key changes introduced consist of, among others, changes to qualifying criteria for Common Equity Tier 1 (CET1), Additional Tier 1 ( AT1) and Tier 2 (T2) instruments, introduction of requirements for MREL and a binding Leverage Ratio requirement and a Net Stable Funding Ratio (NSFR).

In addition, Regulation (EU) 2016/445 of the ECB on the exercise of options and discretions available in Union law (ECB/2016/4) provides certain transitional arrangements which supersede the national discretions unless they are stricter than the EU Regulation 2016/445.

F. Notes (continued)

F.12 Capital management (continued)

Moreover, in June 2020 Regulation (EU) 2020/873 came into force which provides for certain amendments in response to the COVID-19 pandemic, bringing forward some of the capital relieving measures that were due to come into force at a later stage and introducing modifications as part of the wider efforts of competent authorities to provide the support necessary to the institutions. The main amendments with an impact on the Group's capital ratio relate to the acceleration of the implementation of the new SME discount factor under CRR II introduced in June 2020 instead of June 2021 (lower RWAs), extending the IFRS 9 transitional arrangements and introducing further relief measures to CET1 allowing to fully add back to CET1 any increase in ECL recognised in 2020 and 2021 for non-credit impaired financial assets and phasing in this starting from 2022 and advancing the application of the prudential treatment of software assets as amended by CRR II (which came into force in December 2020).

In addition, the amendments, introduced a temporary treatment of unrealized gains and losses on exposures to central governments, to regional governments or to local authorities measured at fair value through other comprehensive income, which the Group elected to apply and implemented in the third quarter of 2020. Overall the Group's CET1 ratio benefited by approximately 80 bps in 2020 as a result of the above amendments.

The CET1 ratio of the Group as at 31 March 2021 stands at 14.4% and the total capital ratio at 18.0% on a transitional basis. The ratios as at 31 March 2021 include unaudited/un-reviewed profits for the three months ended 31 March 2021.

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

The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital requirements (Pillar II add-ons).

The Group's minimum phased in CET1 capital ratio and Total Capital Ratio remained unchanged for 2021 compared to 2020.

Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2019, which became effective as of 1 January 2020, the Group's phased-in CET1 capital ratio was set at 11.0%, comprising of 4.5% Pillar I requirement, 3.0% Pillar II requirement (P2R), the Capital Conservation Buffer (CCB) of 2.5% (fully phased-in as of 1 January 2019) and the O-SII buffer of 1.0%.

The Group's Total Capital requirement was set at 14.5%, comprising of 8.0% Pillar I requirement (of which up to 1.50% could be in the form of AT1 capital and up to 2.0% in the form of T2 capital), 3.0% P2R, the CCB of 2.5% and the O-SII buffer of 1.0%. The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer.

In April 2020, and following ECB and EBA announcements on 12 March 2020 in response to the COVID-19 outbreak, BOC PCL received an amending SREP decision from the ECB amending the composition of the Pillar II additional own funds requirement, allowing to use AT1 capital and T2 capital to meet P2R and not meet P2R only by CET1, compared to the 2019 final SREP decision received in December 2019 which required P2R to be met in full by CET1. This decision is effective from 12 March 2020. This brought forward a measure that was scheduled to come into force in January 2021 with CRD V. As a result, the minimum CET1 requirement of the Group decreased to 9.7%, comprising a 4.5% Pillar I requirement, a 1.7% P2R, the CCB of 2.5% (fully phased in as of 1 January 2019) and the O-SII buffer of 1.0%. There was no change on the Total Capital requirement.

Moreover, on 12 March 2020, the ECB and the EBA also announced that banks are temporarily allowed to operate below the level of capital defined by P2G, the CCB and the CCyb. In July 2020, the ECB committed to allow banks to operate below P2G and the combined buffer requirement until at least the end of 2022, without automatically triggering supervisory actions.

In addition, the EBA final guidelines on SREP and supervisory stress testing and the Single Supervisory Mechanism's (SSM) 2018 SREP methodology provide that own funds held for the purposes of Pillar II Guidance (P2G) cannot be used to meet any other capital requirements (Pillar I, Pillar II requirements or the combined buffer requirement), and therefore cannot be used twice. In line with the final 2019 SREP decision, these provisions became effective as of 1 January 2020.

In November 2020, the Group received communication from the ECB according to which no SREP decision would be issued for the 2020 SREP cycle and the 2019 SREP decision will remain in force, hence leaving the Group's capital requirements unchanged as well as other requirements established by the 2019 SREP decision (as amended).

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

F. Notes (continued)

F.12 Capital management (continued)

The capital position of the Group and BOC PCL as at 31 March 2021 exceeds both their Pillar I and their Pillar II add-on capital requirements. However, the Pillar II add-on capital requirements are a point-in-time assessment and therefore are subject to change over time.

The CBC, in accordance with the Macroprudential Oversight of Institutions Law of 2015, sets, on a quarterly basis, the Countercyclical Capital Buffer (CCyB) level in accordance with the methodology described in this law. The CBC has set the level of the CCyB for Cyprus at 0% for the year 2020 and the six months up to June 2021.

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

This buffer is being phased in gradually, having started from 1 January 2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%). In April 2020, the CBC decided to delay the phasing in (0.5%) of the O-SII buffer on 1 January 2021 and 1 January 2022 by 12 months. Consequently, the O-SII buffer will be fully phased in on 1 January 2023, instead of 1 January 2022 as originally set.

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

F.12.1 Capital position

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

Regulatory capital	Group		BOC PCL
	31 March 2021⁷	31 December 2020⁸	31 March 2021 ⁷	31 December 2020⁸
	€000	€000	€000	€000
Transitional Common Equity Tier 1 (CET1 )⁹	1,668,355	1,722,751	1,643,425	1,688,296
Transitional Additional Tier 1 capital (AT1)	220,000	220,000	220,000	220,000
Tier 2 capital (T2)	195,631	192,248	250,000	250,000
Transitional total regulatory capital	2,083,986	2,134,999	2,113,425	2,158,296
Risk weighted assets - credit risk¹⁰	10,414,706	10,504,937	10,445,483	10,516,023
Risk weighted assets - market risk	-	-	-	-
Risk weighted assets - operational risk	1,131,438	1,131,438	1,078,575	1,078,575
Total risk weighted assets	11,546,144	11,636,375	11,524,058	11,594,598

	%	%	%	%
Transitional Common Equity Tier 1 ratio	14.45	14.80	14.26	14.56
Transitional total capital ratio	18.05	18.35	18.34	18.61

⁷ Includes unaudited/un-reviewed profits for the three months ended 31 March 2021.

⁸ Includes unaudited/un-reviewed profits for the three months ended 31 March 2021.

⁹ CET1 includes regulatory deductions, comprising, amongst others, intangible assets amounting to €27,018 thousand for the Group and €24,147 thousand for BOC PCL as at 31 March 2021 (31 December 2020: €27,171 thousand for the Group and €24,269 thousand for BOC PCL). As a result of newly introduced amendments, at 31 March 2021 an amount of €19,849 thousand is considered prudently valued for CRR purposes and it is not deducted from CET1 (31 December 2020:€21,985 thousand).

¹⁰ Includes Credit Valuation Adjustments (CVA).

F. Notes (continued)

F.12 Capital management (continued)

F.12.1 Capital position (continued)

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

Fully loaded	Group		BOC PCL
	31 March 2021^11,12	31 December 2020¹¹	31 March 2021^11,12	31 December 2020¹¹
	%	%	%	%
Common Equity Tier 1 ratio	13.08	12.94	12.89	12.69
Total capital ratio	16.87	16.74	17.03	16.83

During the period ended 31 March 2021 CET1 was negatively affected mainly by the phasing-in of IFRS 9 transitional adjustments on 1 January 2021 and ECL charges, and was positively affected by pre-provision income and the decrease in risk-weighted assets . As a result, the CET1 ratio has decreased by 35 bps during the three months ended 31 March 2021.

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

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

Following the June 2020 amendments to the CRR, the Group applied the amendments in relation to the IFRS 9 transitional arrangements for Stage 1 and Stage 2 loans (i.e. the 'dynamic component') which provide for the extension of the transitional period for the 'dynamic component'. A 100% add back of IFRS 9 provisions is allowed for the years 2020 and 2021 reducing to 75% in 2022, to 50% in 2023 and to 25% in 2024. The calculation at each reporting period is to be made against Stage 1 and Stage 2 provisions as at 1 January 2020, instead of 1 January 2018. The calculation of the 'static component' has not been amended.

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

¹¹ IFRS 9 and application of the temporary treatment of certain FVOCI instruments in accordance with Article 468 of CRR fully loaded.

¹² Includes unaudited/un-reviewed profits for the three months ended 31 March 2021.

F. Notes (continued)

F.12 Capital management (continued)

F.12.1 Capital position (continued)

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

		31 March 2021*	31 December 2020	30 September 2020	30 June 2020	31 March 2020
		€000	€000	€000	€000	€000
1	Common Equity Tier 1 (CET1) capital	1,665,226	1,722,751	1,734,560	1,707,010	1,806,926
2	CET1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	1,488,834	1,476,910	1,502,062	1,479,450	1,590,786
2a	CET1 capital as if the temporary treatment of unrealised gains and losses measured at fair value through OCI (other comprehensive income) in accordance with Article 468 of the CRR had not been applied**	1,660,897	1,719,976	1,726,264	1,707,010	1,806,926
3	Tier 1 capital	1,885,226	1,942,751	1,954,560	1,927,010	2,026,926
4	Tier 1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	1,708,834	1,696,910	1,722,062	1,699,450	1,810,786
4a	Tier 1 capital as if the temporary treatment of unrealised gains and losses measured at fair value through OCI in accordance with Article 468 of the CRR had not been applied**	1,880,897	1,939,976	1,946,264	1,927,010	2,026,926
5	Total capital	2,081,119	2,134,999	2,149,940	2,126,084	2,227,575
6	Total capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	1,919,565	1,909,157	1,937,107	1,917,532	2,028,428
6a	Total capital as if the temporary treatment of unrealised gains and losses measured at fair value through OCI in accordance with Article 468 of the CRR had not been applied**	2,076,790	2,132,224	2,141,644	2,126,084	2,227,575
	Risk-weighted assets
7	Total risk-weighted assets	11,546,144	11,636,375	11,887,795	11,960,184	12,598,792
8	Total risk-weighted assets as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	11,369,752	11,390,534	11,655,297	11,732,624	12,368,530

* Amounts and ratios exclude interim profits.

** The temporary treatment was first applied by the Group in the third quarter of 2020 and does not impact prior periods presented.

F. Notes (continued)

F.12 Capital management (continued)

F.12.1 Capital position (continued)

		31 March 2021*	31 December 2020	30 September 2020	30 June 2020	31 March 2020
	Capital ratios
9	Capital Ratios CET1 (as a percentage of risk exposure amount)	14.42%	14.80%	14.59%	14.27%	14.34%
10	CET1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	13.09%	12.97%	12.89%	12.61%	12.86%
10a	CET1 (as a percentage of risk exposure amount) as if the temporary treatment of unrealised gains and losses measured at fair value through OCI in accordance with Article 468 of the CRR had not been applied**	14.39%	14.78%	14.52%	14.27%	14.34%
11	Tier 1 (as a percentage of risk exposure amount)	16.33%	16.70%	16.44%	16.11%	16.09%
12	Tier 1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	15.03%	14.90%	14.77%	14.48%	14.64%
12a	Tier 1 (as a percentage of risk exposure amount) as if the temporary treatment of unrealised gains and losses measured at fair value through OCI in accordance with Article 468 of the CRR had not been applied**	16.29%	16.67%	16.37%	16.11%	16.09%
13	Total capital (as a percentage of risk exposure amount)	18.02%	18.35%	18.09%	17.78%	17.68%
14	Total capital (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	16.88%	16.76%	16.62%	16.34%	16.40%
14a	Total capital (as a percentage of risk exposure amount) as if the temporary treatment of unrealised gains and losses measured at fair value through OCI in accordance with Article 468 of the CRR had not been applied**	17.99%	18.32%	18.02%	17.78%	17.68%
	Leverage ratio
15	Leverage ratio total exposure measure (€000)	22,853,266	21,406,146	21,377,843	21,219,766	20,316,602
16	Leverage ratio	8.25%	9.08%	9.14%	9.08%	9.98%
17	Leverage ratio as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	7.54%	8.02%	8.11%	8.06%	8.97%
17a	Leverage ratio as if the temporary treatment of unrealised gains and losses measured at fair value through OCI in accordance with Article 468 of the CRR had not been applied**	8.23%	9.06%	9.07%	9.08%	9.98%

* Amounts and ratios exclude interim profits.

** The temporary treatment was first applied by the Group in the third quarter of 2020 and does not impact prior periods presented.

F. Notes (continued)

F.12 Capital management (continued)

F.12.1 Capital position (continued)

The decrease in RWAs is mainly driven by the decrease in the Credit risk RWA, which is analysed in in sections F.12.2 and F.12.3 below.

The increase in the leverage ratio total exposure measure from 31 December 2020 to 31 March 2021 follows the movements in the Group's balance sheet assets.

The decrease in the leverage ratio from 31 December 2020 to 31 March 2021 is driven by the decrease in the Capital measure (Tier 1) and increase in total exposure measure.

F.12.2 Overview of RWA

		RWAs		Minimum capital requirements
		31 March 2021	31 December 2020	31 March 2021
		€000	€000	€000
1	Credit risk(excluding counterparty credit risk (CCR))	10 , 316 , 428	10,382,775	825 , 314
2	Of which: the Standardised Approach	10 , 316 , 428	10,382,775	825 , 314
6	CCR	7 , 014	5,786	561
7	Of which: markto market	4 , 038	3,299	323
12	Of which: Credit Valuation Adjustment (CVA)	2 , 976	2,487	238
14	Securitisation exposures in the banking book (after the cap)	34 , 256	37,128	2 , 740
18	Of which: Standardised Approach	34 , 256	37,128	2 , 740
23	Operational risk	1 , 131 , 438	1,131,438	90 , 515
25	Of which: Standardised Approach	1 , 131 , 438	1,131,438	90 , 515
27	Amounts belowthe thresholds for deduction (subject to 250% risk weight)	57 , 008	79,248	4 , 561
29	Total	11 , 546 , 144	11,636,375	923 , 691

The decrease in RWAs is mainly driven by the decrease in the Credit risk RWA observed in the first line of the table above, which is analysed in section F.12.3 below.

There were no large exposures for institutions that exceeded the relevant limits.

F. Notes (continued)

F.12 Capital management (continued)

F.12.3 Standardised approach - Credit risk exposure and Credit Risk Mitigation (CRM) effects

The table below illustrates the analysis of RWA and RWA density of all exposure classes that comprise the RWA reported in lines 1 and 27 of the table in section F.12.2 above.

Exposure classes	31 March 2021		31 December 2020
	RWAs and RWA density		RWAs and RWA density
	RWAs	RWA density	RWAs	RWA density
	€000	%	€000	%
Centralgovernmentsor centralbanks	323 , 978	3 . 9	348,916	5.0
Re gionalgovernmentorlocalauthorities	396	0 . 5	444	0.8
P u blicsectorentities	-	-	3	-
Institutions	174,460	24 . 9	152,387	23.3
Corporates	3,040,169	89.9	3,010,070	89.9
Retail	913,673	71.1	921,101	71.2
Securedbymortgagesonimmovableproperty	1,301,817	36.5	1,277,838	36.4
Exposuresindefault	1,168,147	103.6	1,216,347	103.6
H igher-riskcategories	1,187,569	150.0	1,182,923	150.0
Coveredbonds	15,145	10.0	14,970	10.0
Collectiveinvestmentundertakings (CIUs)	2,346	66.3	2,457	65.5
Equity	78,233	177.7	100,046	190.6
Otheritems	2,167,503	100.2	2,234,521	100.5
Total	10,373,436	47.3	10,462,023	51.1

The main drivers behind the overall decrease in the RWAs relate to (a) the improvement in the RWA density in customer advances from increased provision coverage on higher risk weight (RW) categories and lower risk new lending; and (b) the conversion of Deferred Tax Credit risk weighted at 100% to tax receivable at 0% RW included within 'Other items' exposure class. The overall decrease in the RWA density was mainly driven by the material increase in the Group's total assets from an increase in Balances with central banks.

F. Notes (continued)

F.13 Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Assessment Process (ILAAP), Pillar II and Supervisory Review and Evaluation Process (SREP)

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

The Group undertakes quarterly reviews of its ICAAP results, considering the latest actual and forecasted information. During the quarterly review, the Group's risk profile and risk management policies and processes are reviewed and any changes since the annual ICAAP exercise are taken into consideration. The Group has prepared a review of its ICAAP with reference date 31 March 2020, 30 June 2020 and 30 September 2020, which indicated that the Group has sufficient capital and available mitigants to support its risk profile and its business and to enable it to meet its regulatory requirements, both in a base case and in stress conditions.

The Group also undertakes a quarterly review for the ILAAP through quarterly stress tests submitted to the ALCO and the Risk Committee of the Board of Directors. Any material changes since the year-end are assessed in terms of liquidity. The quarterly review identifies whether the Group has an adequate liquidity buffer to cover the stress outflows. The Group's ILAAP analysis demonstrates that the volume and capacity of liquidity resources available to the Group are adequate.

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

The Group participates in the ECB SREP stress test of 2021. The EU-wide stress test is primarily focused on the assessment of the impact of risk drivers on the solvency of banks. Banks are required to stress a common set of risks (credit risk, market risk, operational risk - including conduct risk). The EU - Stress Test is a biannual exercise. While the exercise is coordinated by the EBA, it is carried out in cooperation with the ECB, the European Systemic Risk Board (ESRB), the European Commission and the National Competent Authorities (NCAs) from all relevant national jurisdictions.

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

The results of the exercise should be published by the end of July 2021. The outcome may provide valuable input to make informed decisions on possible exit strategies from the flexibility measures granted to banks due to the Covid-19 crisis, or on the need for additional measures, should the economic conditions deteriorate further.

The process is at the stage where banks have completed the second submission of projections on 11 May 2021, while the third and final submission is expected to take place on 18 June 2021.

G. Definitions & Explanations

Reconciliations of Alternative Performance Measures

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

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

	31 March 2021	31 December 2020
	€000	€000
Gross loans and advances to customers as per the underlying basis (as defined below)	12,280,760	12,261,40 4
Reconciling items:
Residual fair value adjustment on initial recognition (Note 1 below)	(145,667)	(146,60 2 )
Loans and advances to customers classified as held for sale (Section F.4)	(1,294,395)	(1,341,255)
Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (Note 1 below)	(44,228)	(46,675)
Loans and advances to customers measured at fair value through profit or loss (Section F.3)	(293,444)	(289,861)
Aggregate fair value adjustment on loans and advances to customers measured at fair value through profit or loss	(35,928)	(36,408)
Gross loans and advances to customers at amortised cost as per Section F.3	10,467,098	10,400,603

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

	31 March 2021	31 December 2020
	€000	€000
Loans and advances to customers classified as held for sale as per the underlying basis	1,338,623	1,387,930
Reconciling items:
Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (Note 1 below)	(44,228)	(46,675)
Loans and advances to customers classified as held for sale as per Section F.4	1,294,395	1,341,255

G. Definitions & Explanations (continued)

Reconciliations of Alternative Performance Measures (continued)

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

	31 March 2021	31 December 2020
	€000	€000
Allowance for expected credit losses on loans and advances to customers (ECL) as per the underlying basis (as defined below)	1,869,180	1,901,97 8
Reconciling items:
Residual fair value adjustment on initial recognition (Note 1 below)	(145,667)	(146,60 2 )
Aggregate fair value adjustment on loans and advances to customers measured at fair value through profit or loss	(35,928)	(36,408)
Allowance for expected credit losses on loans and advances to customers classified as held for sale (Section F.6)	(822,767)	(848,218)
Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (Note 1 below)	(44,228)	(46,675)
Provisions for financial guarantees and commitments	(19,897)	(19,658)
Allowance for ECL for impairment of loans and advances to customers as per Section F.3	800,693	804,417

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

	31 March 2021	31 December 2020
	€000	€000
Allowance for expected credit losses on loans and advances to customers (ECL) classified as held for sale as per the underlying basis	866,995	894,893
Reconciling items:
Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (Note 1 below)	(44,228)	(46,675)
Allowance for ECL for impairment of loans and advances to customers classified as held for sale as per Section F.6	822,767	848,218

G. Definitions & Explanations (continued)

Reconciliations of Alternative Performance Measures (continued)

3. Reconciliation of NPEs

	31 March 2021	31 December 2020
	€000	€000
NPEs (as defined below and as per Section F.8)	3,011,900	3,085,646
Reconciling items:
Loans and advances to customers (NPEs) classified as held for sale (Note 2 below)	(1,266,705)	(1,312,16 5 )
Residual fair value adjustment on initial recognition on loans and advances to customers (NPEs) classified as held for sale (Note 3 below)	(44,281)	(47,01 1 )
Loans and advances to customers measured at fair value through profit or loss (NPEs)	(119,766)	(118,479)
POCI (NPEs) (Note 4 below)	(221,620)	(227,065)
Residual fair value adjustment on initial recognition on loans and advances to customers (NPEs) classified as Stage 3	(10,326)	(9,37 6 )
Stage 3 gross loans and advances to customers at amortised cost as per Section F.5	1,349,202	1,371,550
NPE ratio
NPE ratio
NPEs (as per table above) (€000)	3,011,900	3,085,646
Gross loans and advances to customers (as per table above) (€000)	12,280,760	12,261,40 4
Ratio of NPE/Gross loans (%)	24.5%	25.2%

Note 1: Residual fair value adjustment

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

Note 2 : Gross loans at amortised cost after residual fair value adjustment on initial recognition classified as held for sale include an amount of €1,094,520 thousand Stage 3 loans (31 December 2020: €1,130,937 thousand Stage 3 loans) and an amount of €172,185 thousand POCI - Stage 3 loans (out of a total of €173,074 thousand POCI loans) (31 December 2020: €181,228 thousand POCI - Stage 3 loans (out of a total of €181,984 thousand POCI loans)) as disclosed in Section F.5.

Note 3 : Residual fair value adjustment on initial recognition of loans and advances to customers classified as held for sale includes an amount of €6,933 thousand for Stage 3 loans (31 December 2020: €7,650 thousand for Stage 3 loans) and an amount of €37,348 thousand for POCI - Stage 3 loans (out of a total of €37,370 thousand POCI loans) (31 December 2020: €39,361 thousand for POCI - Stage 3 loans (out of a total of €39,381 thousand POCI loans)) as disclosed in Section F.5.

Note 4 : Gross loans and advances to customers at amortised cost before residual fair value adjustment on initial recognition include an amount of €221,620 thousand POCI - Stage 3 loans (out of a total of €321,960 thousand POCI loans) (31 December 2020: €227,065 thousand POCI - Stage 3 loans (out of a total of €335,852 thousand POCI loans)) as disclosed in Section F.5.

G. Definitions & Explanations (continued)

Ratios Information

1. Net Interest Margin

	Three months ended 31 March
	2021	2020
	€000	€000
1.1. Net interest income (annualised)	309,666	341,57 1

1.2. Interest earning assets	31 March 2021	31 December 2020
1.2. Interest earning assets	€000	€000
Cash and balances with central banks	6,926,347	5, 653,315
Loans and advances to banks	420,593	402,784
Loans and advances to customers	9,959,849	9,886,047
Loans and advances to customers held for sale	471,628	493,037
Cash held for sale	79,373	68,425
Investments
Debt securities	1,923,324	1,708,844
Less: Investments which are not interest bearing	(18,883)	(18,618)
Total interest earning assets	19,762,231	18,1 93 , 834

1.3. Quarterly average interest earning assets (€000)
- as at 31 March 2021	18,978,032
- as at 31 March 2020	17,538 , 952

2. Operating profit return on average assets

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

31 March 2021

31 December

2020

€000

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

23,043,592

21,514,131

	31 March 2021	31 March 2020
	€000	€000
Annualised operating profit	181,875	211,098
Quarterly average total assets	22,278,861	20,776,807

G. Definitions & Explanations (continued)

Advisory and other restructuring costs	Comprise mainly: fees of external advisors in relation to: (i) disposal of operations and non-core assets, and (ii) customer loan restructuring activities.

Allowance for expected loan credit losses (previously 'Accumulated provisions')	Comprises (i) allowance for expected credit losses (ECL) on loans and advances to customers (including allowance for expected credit losses on loans and advances to customers held for sale), (ii) the residual fair value adjustment on initial recognition of loans and advances to customers, (iii) allowance for expected credit losses for off-balance sheet exposures (financial guarantees and commitments) disclosed on the balance sheet within other liabilities, and (iv) the aggregate fair value adjustment on loans and advances to customers classified and measured at FVPL.

AT1	AT1 (Additional Tier 1) is defined in accordance with Articles 51 and 52 of the Capital Requirements Regulation (EU) No 575/2013, as amended by CRR II applicable as at the reporting date.

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

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

Contribution to DGF	Relates to the contribution made to the Deposit Guarantee Fund.

Contribution to SRF	Relates to the contribution made to the Single Resolution Fund.

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

Data from the Statistical Service	The latest data from the Statistical Service of the Republic of Cyprus, Cyprus Statistical Service, was published on 18 May 2021.
Digital transactions ratio	This is the ratio of the number of digital transactions performed by individuals and legal entity customers to the total number of transactions. Transactions include deposits, withdrawals, internal and external transfers. Digital channels include mobile, browser and ATMs.

Digitally engaged customers ratio	This is the ratio of digitally engaged individual customers to the total number of individual customers. Digitally engaged customers are the individuals who use the digital channels of the Bank (mobile banking app, browser and ATMs) to perform banking transactions, as well as digital enablers such as a bank-issued card to perform online card purchases, based on an internally developed scorecard.
ECB	European Central Bank

Gross loans	Gross loans comprise: (i) gross loans and advances to customers measured at amortised cost before the residual fair value adjustment on initial recognition (including loans and advances to customers classified as non-current assets held for sale) and (ii) loans and advances to customers classified and measured at FVPL adjusted for the aggregate fair value adjustment Gross loans are reported before the residual fair value adjustment on initial recognition relating mainly to loans acquired from Laiki Bank (calculated as the difference between the outstanding contractual amount and the fair value of loans acquired) amounting to €226 mn at 31 March 2021 (compared to €230 mn at 31 December 2020). Additionally, gross loans include loans and advances to customers classified and measured at fair value through profit or loss adjusted for the aggregate fair value adjustment of €329 mn at 31 March 2021 (compared to of €326 mn at 31 December 2020).

Group	The Group consists ο f Bank of Cyprus Holdings Public Limited Company, "BOC Holdings" or the "Company", its subsidiary Bank of Cyprus Public Company Limited, the "Bank" and the Bank's subsidiaries.

Legacy exposures	Legacy exposures are exposures relating to (i) Restructuring and Recoveries Division (RRD), (ii) Real Estate Management Unit (REMU), and (iii) non-core overseas exposures.

G. Definitions & Explanations (continued)
Leverage ratio	The leverage ratio is the ratio of tangible total equity (including Other equity instruments) to total assets as presented on the balance sheet.

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

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

Market Shares	Both deposit and loan market shares are based on data from the CBC. The Bank is the single largest credit provider in Cyprus with a market share of 42.4% at 31 March 2021, compared to 41.9% at 31 December 2020.

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

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

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

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

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

Net Stable Funding Ratio (NSFR)	The NSFR is calculated as the amount of "available stable funding" (ASF) relative to the amount of "required stable funding" (RSF), on the basis of Basel III standards. Its calculation is a SREP requirement. The EBA NSFR will be enforced as a regulatory ratio under CRR II in June 2021.

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

G. Definitions & Explanations (continued)

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

Non-performing exposures (NPEs)	A ccording to the EBA standards and ECB's Guidance to Banks on Non-Performing loans, NPEs are defined as those exposures that satisfy one of the following conditions: (i) The borrower is assessed as unlikely to pay its credit obligations in full without the realisation of the collateral, regardless of the existence of any past due amount or of the number of days past due. (ii) Defaulted or impaired exposures as per the approach provided in the CRR, which would also trigger a default under specific credit adjustment, diminished financial obligation and obligor bankruptcy. (iii) Material exposures as set by the CBC, which are more than 90 days past due. (iv) Performing forborne exposures under probation for which additional forbearance measures are extended. (v) Performing forborne exposures under probation that present more than 30 days past due within the probation period. Exposures include all on and off balance sheet exposures, except those held for trading, and are categorised as such for their entire amount without taking into account the existence of collateral. The following materiality criteria are applied: · For retail debtors, when a specific part of the exposures of a customer that fulfils the NPE criteria set out above is greater than 20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total customer exposure is classified as non-performing; otherwise only the specific part of the exposure is classified as non-performing. · For non-retail debtors, when an exposure fulfills the NPE criteria set out above, then the total customer exposure is classified as non-performing. · Material arrears/excesses are defined as follows: - Retail exposures: Total arrears/excesses amount greater than €100 - Exposures other than retail: Total arrears/excesses are greater than €500 and the amount in arrears/excess in relation to the customer's total exposure is at least 1%. · If unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 90 days past due, even where regulatory rules permit default to be defined based on 180 days past due. · The definitions of credit impaired and default are aligned so that stage 3 represents all loans which are considered defaulted or otherwise credit impaired. · When a financial asset has been identified as credit impaired, ECLs are measured as the difference between the asset's gross carrying amount and the present value of estimated future cash flows discounted at the instrument's original effective interest rate. Non-performing forborne exposures cease to be considered as NPEs and in such case are transferred out of Stage 3, only when all of the following conditions are met: (i) The extension of forbearance measures does not lead to the recognition of impairment or default. (ii) One year has passed since the forbearance measures were extended. (iii) Following the forbearance measures and according to the post-forbearance conditions, there is no past due amount or concerns regarding the full repayment of the exposure. (iv) No unlikely-to-pay criteria exist for the debtor. (v) The debtor has made post-forbearance payments of a non-insignificant amount of capital (different capital thresholds exist according to the facility type).
G. Definitions & Explanations (continued)

Non-performing exposures (NPEs) (continued/)	Non-performing non-forborne exposures cease to be considered as NPEs and in such case are transferred out of Stage 3, only when all conditions for which the exposures were classified originally as NPEs, cease to apply. When an account exits Stage 3, it is transferred to Stage 2 for a probationary period of 6 months. At the end of this period, the significant increase in credit risk (SICR) trigger is activated and the loan is either transferred to Stage 1 or remains in Stage 2. The reversal of previous unrecognised interest on loans and advances to customers that no longer meet Stage 3 criteria is presented in 'Credit losses to cover credit risk on loans and advances to customers'. New default definition effective from 1 January 2021 From 1 January 2021 two regulatory guidelines came into force that affect NPE classification and Days-Past-Due calculation. More specifically, these are the RTS on the Materiality Threshold of Credit Obligations Past Due (EBA/RTS/2016/06), and the Guideline on the Application of the Definition of Default under article 178 (EBA/RTS/2016/07). As a result of the above, the following changes came into effect as from 1 January 2021: 1. New Days-past-Due (DPD) counter: The new counter will begin counting DPD as soon as the arrears or excesses of an exposure reach the materiality threshold (rather than the first day of presenting any amount of arrears in excesses). Similarly, the counter will be set to zero when the arrears or excesses drop below the materiality threshold. Payments towards the exposure that do not reduce the arrears/excesses below the materiality threshold, will not impact the counter. 2. Additionally to the above criteria for the exit of non-performing exposures the following condition should also be met: A period of one year has passed since the latest of the following events: a. The restructuring date b. The date the exposure was classified as non-performing c. The payment of interest and capital for at least 12 months 3. Non-performing non-forborne exposures cease to be considered as NPEs only when all of the following conditions are met: (i) At least three months have passed since the moment that the conditions for which the exposure was classified as non-performing, cease to be met and no trigger of default continues to apply (ii) During the three-month period, the behaviour of the obligor should be taken into account (iii) During the three-month period, the financial situation of the obligor should be taken into account (iv) No Unlikely‑to‑Pay criteria exist for the debtor 4. As per the new definition of default, the 20% materiality threshold and the 90 days past due counter, will no longer apply for non-retail exposures i.e. any non-performing exposure of the customer, for any reason, will result in a non-performing classification at customer level.

Non-recurring items	Non-recurring items as presented in the 'Unaudited Consolidated Income Statement - Underlying basis' relate to the following items, as applicable: (i) advisory and other restructuring costs - organic, (ii) restructuring costs - Voluntary Staff Exit Plan (VEP), (iii) Provisions/net loss relating to NPE sales, including restructuring expenses, (iv) DTC levy.

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

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

G. Definitions & Explanations (continued)
NPE sales	NPE sales refer to sales of NPE portfolios completed in each period and contemplated sale transactions, as well as potential further NPE sales, at each reporting date, irrespective of whether or not they met the held for sale classification criteria at the reporting dates. They include both Project Helix and Project Helix 2, as well as other portfolios.

Operating profit	The operating profit comprises profit before Total loan credit losses, impairments and provisions (as defined), tax, (profit)/loss attributable to non-controlling interests and non-recurring items (as defined).

Operating profit return on average assets	Operating profit return on average assets is calculated as the annualised operating profit (as defined) divided by the quarterly average of total assets for the relevant period. Average total assets exclude total assets of discontinued operations at each quarter end, if applicable.

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

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

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

Project Helix	Project Helix refers to the sale of a portfolio of loans with a gross book value of €2.8 bn completed in June 2019. For further information please refer to section A.1.5 Loan portfolio quality.

Project Helix 2	Project Helix 2 refers to the portfolio of loans with a gross book value of €898 mn as at 30 June 2020 for which an agreement for sale was reached in August 2020 (Portfolio A) and to the portfolio of loans with a gross book value of €545 mn as at 30 September 2020 for which an agreement for sale was reached in January 2021 (Portfolio B). For further information please refer to section A.1.5 Loan portfolio quality.

Quarterly average interest earning assets	This relates to the average of 'interest earning assets' as at the beginning and end of the relevant quarter. Average interest earning assets exclude interest earning assets of any discontinued operations at each quarter end, if applicable. Interest earning assets include: cash and balances with central banks (including cash and balances with central banks classified as non-current assets held for sale), plus loans and advances to banks, plus net loans and advances to customers (including loans and advances to customers classified as non-current assets held for sale), plus investments (excluding equities and mutual funds).

Qoq	Quarter on quarter change

Special levy	Relates to the special levy on deposits of credit institutions in Cyprus.
Total Capital ratio	Total capital ratio is defined in accordance with the Capital Requirements Regulation (EU) No 575/2013 , as amended by CRR II applicable as at the reporting date.

Total expenses	Total expenses comprise staff costs, other operating expenses and the special levy and contributions to the Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF). It does not include (i) 'advisory and other restructuring costs-organic', or (ii) any restructuring costs relating to NPE sales, or (iii) any restructuring costs relating to the Voluntary Staff Exit Plan, or (iv) the DTC levy. (i) 'Advisory and other restructuring costs-organic' amounted to €3 mn for 1Q2021 (compared to €1 mn for 4Q2020), (ii) Restructuring costs relating to NPE sales amounted to €4 mn for 1Q2021 (compared to c.€1.5 mn for 4Q2020), (iii) Restructuring costs relating to the Voluntary Staff Exit Plan amounted to €6 mn for 4Q2020 and FY2020, (iv) The DTC levy amounted to €3 mn for 4Q2020 and FY2020.

G. Definitions & Explanations (continued)

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

Total loan credit losses, impairments and provisions	Total loan credit losses, impairments and provisions comprises loan credit losses (as defined), plus impairments of other financial and non-financial assets, plus provisions for litigation, claims, regulatory and other matters.

Underlying basis	This refers to the statutory basis after being adjusted for certain items as explained in the Basis of Presentation.

Write offs	Loans together with the associated loan credit losses are written off when there is no realistic prospect of future recovery. Partial write-offs, including non-contractual write-offs, may occur when it is considered that there is no realistic prospect for the recovery of the contractual cash flows. In addition, write-offs may reflect restructuring activity with customers and are part of the terms of the agreement and subject to satisfactory performance.
Yoy	Year on year change

Basis of Presentation

This announcement covers the results of Bank of Cyprus Holdings Public Limited Company, "BOC Holdings" or "the Company", its subsidiary Bank of Cyprus Public Company Limited, the "Bank" or "BOC PCL", and together with the Bank's subsidiaries, the "Group", for the quarter ended 31 March 2021.

At 31 December 2016, the Bank was listed on the Cyprus Stock Exchange (CSE) and the Athens Exchange. On 18 January 2017, BOC Holdings, incorporated in Ireland, was introduced in the Group structure as the new holding company of the Bank. On 19 January 2017, the total issued share capital of BOC Holdings was admitted to listing and trading on the LSE and the CSE.

Financial information presented in this announcement is being published for the purposes of providing an overview of the Group financial results for the quarter ended 31 March 2021.

The financial information in this announcement does not constitute statutory financial statements of BOC Holdings within the meaning of section 340 of the Companies Act 2014. The Group statutory financial statements for the year ended 31 December 2020, upon which the auditors have given an unqualified report, were published on 30 March 2021 and are expected to be delivered to the Registrar of Companies of Ireland within 28 days of 30 September 2021. The Board of Directors approved the Group statutory financial statements for the quarter ended 31 March 2021 on 24 May 2021.

Statutory basis: Audited s tatutory information is set out on pages 34-38. However, a number of factors have had a significant effect on the comparability of the Group's financial position and performance. Accordingly, the results are also presented on an underlying basis.

Underlying basis: The financial information presented under the underlying basis provides an overview of the Group financial results for the quarter ended 31 March 2021, which the management believes best fits the true measurement of the financial performance and position of the Group. For further information, please refer to 'Commentary on Underlying Basis' on page 5. The statutory results are adjusted for certain items (as described on page 39) to allow a comparison of the Group's underlying financial position and performance, as set out on pages 4-6.

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

This announcement and the presentation for the Group Financial Results for the quarter ended 31 March 2021 have been posted on the Group's website www.bankofcyprus.com (Investor Relations/Financial Results).

Definitions: The Group uses definitions in the discussion of its business performance and financial position which are set out in section G.

The Group Financial Results for the quarter ended 31 March 2021 are presented in Euro (€) and all amounts are rounded as indicated. A comma is used to separate thousands and a dot is used to separate decimals.

Forward Looking Statements

This document contains certain forward-looking statements which can usually be identified by terms used such as "expect", "should be", "will be" and similar expressions or variations thereof or their negative variations, but their absence does not mean that a statement is not forward-looking. Examples of forward-looking statements include, but are not limited to, statements relating to the Group's near term, medium term and longer term future capital requirements and ratios, intentions, beliefs or current expectations and projections about the Group's future results of operations, financial condition, expected impairment charges, the level of the Group's assets, liquidity, performance, prospects, anticipated growth, provisions, impairments, business strategies and opportunities. By their nature, forward-looking statements involve risk and uncertainty because they relate to events, and depend upon circumstances, that will or may occur in the future. Factors that could cause actual business, strategy and/or results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements made by the Group include, but are not limited to: general economic and political conditions in Cyprus and other European Union (EU) Member States, interest rate and foreign exchange fluctuations, legislative, fiscal and regulatory developments, information technology, litigation and other operational risks, adverse market conditions, the impact of outbreaks, epidemics or pandemics, such as the COVID-19 pandemic and ongoing challenges and uncertainties posed by the COVID-19 pandemic for businesses and governments around the world. Should any one or more of these or other factors materialise, or should any underlying assumptions prove to be incorrect, the actual results or events could differ materially from those currently being anticipated as reflected in such forward looking statements. The forward-looking statements made in this document are only applicable as at the date of publication of this document. Except as required by any applicable law or regulation, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statement contained in this document to reflect any change in the Group's expectations or any change in events, conditions or circumstances on which any statement is based.

Contacts

For further information please contact:

Investor Relations

+ 357 22 122239

investors@bankofcyprus.com

The Bank of Cyprus Group is the leading banking and financial services group in Cyprus, providing a wide range of financial products and services which include retail and commercial banking, finance, factoring, investment banking, brokerage, fund management, private banking, life and general insurance. The Bank of Cyprus Group operates through a total of 91 branches in Cyprus, of which 11 operate as cash offices. Bank of Cyprus also has representative offices in Russia, Ukraine and China. The Bank of Cyprus Group employs 3,557 staff worldwide. At 31 March 2021, the Group's Total Assets amounted to €23.0 bn and Total Equity was €2.1 bn. The Bank of Cyprus Group comprises Bank of Cyprus Holdings Public Limited Company, its subsidiary Bank of Cyprus Public Company Limited and its subsidiaries.

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