Half-year Report -1

RNS Number : 3551K

Bank of Cyprus Holdings PLC

01 September 2021

 

Ιnterim Financial Report 2021

BANK OF CYPRUS HOLDINGS GROUP

Ιnterim Financial Report

Six months ended 30 June 2021

Contents	Page
Board of Directors and Executives	1
Forward Looking Statements and Notes	2
Interim Management Report	3
Consolidated Condensed Interim Financial statements
Interim Consolidated Income Statement	33
Interim Consolidated Statement of Comprehensive Income	34
Interim Consolidated Balance Sheet	35
Interim Consolidated Statement of Changes in Equity	36
Interim Consolidated Statement of Cash Flows	38
Notes to the Consolidated Condensed Interim Financial Statements
1.  Corporate information	40
2.  Unaudited financial statements	40
3.  Summary of significant accounting policies	40
4.  Going concern	42
5.  Operating environment	44
6.  Significant and other judgements, estimates and assumptions	45
7.  Segmental analysis	52
8.  Net (losses)/gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates	59
9.  Staff costs and other operating expenses	60
10. Credit losses of financial instruments and impairment of non‑financial assets	61
11. Income tax	62
12. Earnings per share	64
13. Investments	64
14. Derivative financial instruments	65
15. Fair value measurement	66
16. Loans and advances to customers	71
17. Stock of property	71
18. Prepayments, accrued income and other assets	72
19. Non‑current assets and disposal groups held for sale	73
20. Funding from central banks	74
21. Customer deposits	75
22. Loan stock	76
23. Accruals, deferred income, other liabilities and other provisions	77
24. Share capital	77
25. Pending litigation, claims, regulatory and other matters	79
26. Contingent liabilities	84
27. Cash and cash equivalents	85
28. Analysis of assets and liabilities by expected maturity	86
29. Risk management ‑ Credit risk	87
30. Risk management ‑ Market risk	108
31. Risk management ‑ Liquidity risk and funding	110
32. Capital management	114
33. Related party transactions	115
34. Group companies	117
35. Acquisitions and disposals of subsidiaries	120
36. Investments in associates and joint venture	120
37. Events after the reporting period	121
Independent Review Report to the Bank of Cyprus Holdings Public Limited Company	122
Additional Risk and Capital Management Disclosures	124
Definitions and explanations of Alternative Performance Measures Disclosures	144

BANK OF CYPRUS HOLDINGS GROUP

Board of Directors and Executives

as at 31 August 2021

Board of Directors of Bank of Cyprus Holdings Public Limited Company	Efstratios‑Georgios Arapoglou CHAIRMAN Lyn Grobler VICE‑CHAIRPERSON Arne Berggren Dr. Michael Heger Panicos Nicolaou Ioannis Zographakis Maria Philippou Nicos Sofianos (appointed on 14 May 2020 ‑ approved by ECB on 26 February 2021) Paula Hadjisotiriou Constantine Iordanou (appointed on 28 September 2020, subject to ECB approval) Eliza Livadiotou (appointed on 28 September 2020, subject to ECB approval)
Executive Committee	Panicos Nicolaou CHIEF EXECUTIVE OFFICER Dr. Charis Pouangare DEPUTY CHIEF EXECUTIVE OFFICER Eliza Livadiotou EXECUTIVE DIRECTOR FINANCE Demetris Th. Demetriou CHIEF RISK OFFICER Michalis Athanasiou EXECUTIVE DIRECTOR GLOBAL CORPORATE BANKING & MARKETS Louis Pochanis EXECUTIVE DIRECTOR INSURANCE BUSINESS Demetris Chr. Demetriou ACTING EXECUTIVE DIRECTOR RESTRUCTURING AND RECOVERIES DIVISION (subject to ECB approval) Anna Sofroniou EXECUTIVE DIRECTOR REAL ESTATE MANAGEMENT UNIT Nicolas Scott Smith EXECUTIVE DIRECTOR CORPORATE FINANCE SOLUTIONS
Company Secretary	Katia Santis
Legal Advisers as to matters of Irish Law	Arthur Cox
Legal Advisers as to matters of English and US Law	Sidley Austin LLP
Legal Advisers as to matters of Cypriot Law	Chryssafinis & Polyviou LLC
Statutory Auditors	PricewaterhouseCoopers One Spencer Dock North Wall Quay Dublin 1 D01 X9R7 Ireland
Registered Office	10 Earlsfort Terrace Dublin 2 D02 T380 Ireland

BANK OF CYPRUS HOLDINGS GROUP Forward Looking Statements and Notes 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 Bank of Cyprus Holdings Group's (the Group) near term and longer term future capital requirements and ratios, intentions, beliefs or current expectations and projections about the Group's future results of operations, financial condition, expected impairment charges, the level of the Group's assets, liquidity, performance, prospects, anticipated growth, provisions, impairments, business strategies and opportunities. By their nature, forward‑looking statements involve risk and uncertainty because they relate to events, and depend upon circumstances, that will or may occur in the future. Factors that could cause actual business, strategy and/or results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward‑looking statements made by the Group include, but are not limited to: general economic and political conditions in Cyprus and other European Union (EU) Member States, interest rate and foreign exchange fluctuations, legislative, fiscal and regulatory developments and information technology, litigation and other operational risks, 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.

Non‑IFRS performance measures

Bank of Cyprus Holdings Public Limited Company's (the Company) management believes that the non‑IFRS performance measures included in this document provide valuable information to the readers of the Interim Financial Report as they enable the readers to identify a more consistent basis for comparing the Group's performance between financial periods and provide more detail concerning the elements of performance which management is most directly able to influence or are relevant for an assessment of the Group. They also reflect an important aspect of the way in which the operating targets are defined and performance is monitored by the Group's management. However, any non‑IFRS performance measures in this document are not a substitute for IFRS measures and readers should consider the IFRS measures as the key measures of the 30 June position. Refer to 'Definitions and explanations on Alternative Performance Measures Disclosures' on pages 144 to 155 of the Interim Financial Report for the six months ended 30 June 2021 for further information, reconciliations with Consolidated Condensed Interim Financial Statements and calculations of non‑IFRS performance measures included throughout this document and the most directly comparable IFRS measures.

The Interim Financial Report for the six months ended 30 June 2021 is available on the Group's website www.bankofcyprus.com (Investor Relations/Financial Results).

BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY

Interim Management Report

Group financial results on the underlying basis

Commentary on underlying basis

The financial information presented below provides an overview of the Group financial results for the six months ended 30 June 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 'Reconciliation of the Consolidated Condensed Interim Income Statement for the six months ended 30 June 2021 between statutory and underlying basis' below and in 'Definitions and explanations on Alternative Performance Measures Disclosures' of this Interim Financial Report for the six months ended 30 June 2021 to facilitate the comparability of the underlying basis to the statutory information.

The below definitions are used in the commentary that follows the presentation of the underlying basis financial information:

NPE sales: NPE sales refer to sales of NPE portfolios completed, as well as contemplated and potential future sale transactions, as the Group continues to work with its advisors towards the sale of portfolios of NPEs, to further accelerate the decrease in NPEs on the balance sheet through additional sales, irrespective of whether or not they meet the held for sale classification criteria at the reporting dates.

Project Helix 2: 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 billion (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 billion (Helix 2 Portfolio B). Project Helix 2 sale was completed in June 2021. In relation to the disclosure of pro‑forma figures and ratios as at 31 December 2020 with respect to Project Helix 2, where numbers are provided on a pro‑forma basis this is stated. Further details of the transaction are provided in 'Loan portfolio quality' under the 'Balance Sheet Analysis' section below.

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

The main financial highlights for the six months ended 30 June 2021 are set out below:

Consolidated Condensed Interim Income Statement on the underlying basis

	Six months ended 30 June
€ million	20211	20201
Net interest income	152	168
Net fee and commission income	84	71
Net foreign exchange gains and net gains on financial instruments transactions and disposal/dissolution of subsidiaries and associates	8	12
Insurance income net of insurance claims and commissions	31	29
Net gains from revaluation and disposal of investment properties and on disposal of stock of properties	6	-
Other income	7	8
Total income	288	288
Staff costs	(101)	(96)
Other operating expenses	(70)	(69)
Special levy on deposits and other levies/contributions	(15)	(15)
Total expenses	(186)	(180)
Operating profit	102	108
Loan credit losses	(35)	(87)
Impairments of other financial and non‑financial assets	(11)	(29)
Provisions for litigation, claims, regulatory and other matters	(4)	(4)
Total loan credit losses, impairments and provisions	(50)	(120)
Profit/(loss) before tax and non‑recurring items	52	(12)
Tax	(1)	(5)
(Profit)/loss attributable to non‑controlling interests	-	4
Profit/(loss) after tax and before non‑recurring items (attributable to the owners of the Company)	51	(13)
Advisory and other restructuring costs‑organic	(18)	(6)
Profit/(loss) after tax ‑ organic (attributable to the owners of the Company)	33	(19)
Provisions/net loss relating to NPE sales, including restructuring expenses2	(32)	(107)
Profit/(loss) after tax (attributable to the owners of the Company)	1	(126)

Key Performance Ratios3
Net interest margin (annualised)	1.56%	1.90%
Cost to income ratio	64%	62%
Cost to income ratio excluding special levy on deposits and other levies/contributions	59%	57%
Operating profit return on average assets (annualised)	0.9%	1.0%
Basic earnings/(losses) per share attributable to the owners of the Company (€ cent)	0.17	(28.16)
Basic earnings/(losses) after tax and before non‑recurring items per share attributable to the owners of the Company (€ cent)4	11.24	(2.93)
1The financial information is derived from and should be read in conjunction with the accompanied Consolidated Condensed Interim Financial Statements.
2'Provisions/net loss relating to NPE sales, including restructuring expenses' refer to the net loss on transactions completed, net loan credit losses on transactions under consideration, as well as the restructuring costs relating to these trades.
3Including the NPE portfolios classified as 'Non‑current assets and disposal groups held for sale'.

4As of 30 June 2021, management monitors 'Basic earnings/(losses) per share attributable to the owners of the Company' calculated using 'Profit/(loss) after tax and before non‑recurring items (attributable to the owners of the Company)', rather than 'Profit/(loss) after tax - organic (attributable to the owners of the Company)' which was previously the case, as management believes it is a more appropriate measure of monitoring recurring performance, as it excludes 'Advisory and other restructuring costs - organic' which do not relate to the underlying or recurring business of the Group as a banking and financial services institution, but mainly to the cost of the Tier 2 Capital Notes tender offer of €12.4 million, as well as certain costs relating to restructuring activities BOC PCL has associated with the organic reduction of NPEs, which have been decreasing as the level of NPEs is being reduced.

Consolidated Condensed Interim Balance Sheet on the underlying basis

€ million	30 June 20211	31 December 20201
Cash and balances with central banks	8,227	5,653
Loans and advances to banks	436	403
Debt securities, treasury bills and equity investments	2,198	1,913
Net loans and advances to customers	9,967	9,886
Stock of property	1,285	1,350
Investment properties	127	128
Other assets	1,960	1,550
Non‑current assets and disposal groups held for sale	11	631
Total assets	24,211	21,514
Deposits by banks	401	392
Funding from central banks	2,985	995
Customer deposits	16,801	16,533
Loan stock	645	272
Other liabilities	1,309	1,247
Total liabilities	22,141	19,439
Shareholders' equity	1,826	1,831
Other equity instruments	220	220
Total equity excluding non‑controlling interests	2,046	2,051
Non‑controlling interests	24	24
Total equity	2,070	2,075
Total liabilities and equity	24,211	21,514

Key Balance Sheet figures and ratios2	30 June 2021	31 December 2020
Gross loans (€ million)	10,893	12,261
Allowance for expected credit losses (€ million)	947	1,902
Customer deposits (€ million)	16,801	16,533
Loans to deposits ratio (net)	59%	63%
NPE ratio	14.6%	25.2%
NPE coverage ratio	60%	62%
Leverage ratio	7.8%	8.8%
Capital ratios and risk weighted assets2
Common Equity Tier 1 (CET1) ratio (transitional for IFRS 9)3	14.22%	14.80%
Total capital ratio	19.23%	18.35%
Risk weighted assets (€ million)	11,048	11,636
1The financial information is derived from and should be read in conjunction with the accompanied Consolidated Condensed Interim Financial Statements.
2Including the NPE portfolios classified as 'Non‑current assets and disposal groups held for sale', where relevant.
3The CET1 fully‑loaded ratio as at 30 June 2021 amounts to 12.91% compared to 12.94% as reported and 13.26% pro‑forma for Helix 2 (Portfolios A and B) as at 31 December 2020.

Reconciliation of the Consolidated Condensed Interim Income Statement for the six months ended 30 June 2021 between statutory and underlying basis

€ million	Underlying basis	NPE sales	Other	Statutory basis
Net interest income	152	-	-	152
Net fee and commission income	84	-	-	84
Net foreign exchange gains and net gains/(losses) on financial instrument transactions and disposal/dissolution of subsidiaries and associates	8	-	(16)	(8)
Insurance income net of claims and commissions	31	-	-	31
Net gains from revaluation and disposal of investment properties and on disposal of stock of properties	6	-	-	6
Other income	7	-	-	7
Total income	288	-	(16)	272
Total expenses	(186)	(16)	(10)	(212)
Operating profit	102	(16)	(26)	60
Loan credit losses	(35)	(16)	4	(47)
Impairments of other financial and non‑financial assets	(11)	-	-	(11)
Provisions for litigation, claims, regulatory and other matters	(4)	-	4	-
Profit before tax and non‑recurring items	52	(32)	(18)	2
Tax	(1)	-	-	(1)
Profit after tax and before non‑recurring items (attributable to the owners of the Company)	51	(32)	(18)	1
Advisory and other restructuring costs‑organic	(18)	-	18	-
Profit after tax ‑ organic* (attributable to the owners of the Company)	33	(32)	-	1
Provisions/net loss relating to NPE sales, including restructuring expenses	(32)	32	-	-
Profit after tax (attributable to the owners of the Company)	1	-	-	1
*This is the profit after tax (attributable to the owners of 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 €10 million and other expenses of €6 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 an amount of €14 million which represents the effect of discounting the deferred consideration receivable from Project Helix 2 on initial recognition, and are disclosed under non‑recurring items within 'Provisions/net loss relating to NPE sales, including restructuring expenses' under the underlying basis.

Other reclassifications

· Net losses on loans and advances to customers at FVPL of approximately €3.5 million included in 'Loan credit losses' under the underlying basis are included in 'Net (losses)/gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates' under the statutory basis. Their classification under the underlying basis is done in order to align their presentation with the loan credit losses on loans and advances to customers at amortised cost.

· Net loss on the early redemption of subordinated loan stock of approximately €12 million included in 'Net (losses)/gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates' under the statutory basis is included in 'Advisory and other restructuring costs‑organic' under the underlying basis, since it represents a one‑off item.

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

· Provisions for litigation, claims, regulatory and other matters amounting to €4 million included in 'Other operating expenses' under the statutory basis, are separately presented under the underlying basis, since they mainly relate to a provision set aside for a potential penalty on investigation by the ECB (Note 25.2 of the Consolidated Condensed Interim Financial Statements).

Balance Sheet Analysis

Capital Base

Total equity excluding non‑controlling interests totalled €2,046 million at 30 June 2021, compared to €2,051 million at 31 December 2020. Shareholders' equity totalled €1,826 million at 30 June 2021, compared to €1,831 million at 31 December 2020.

The Common Equity Tier 1 capital (CET1) ratio on a transitional basis stood at 14.22% at 30 June 2021, compared to 14.80% at 31 December 2020 and 15.16% pro forma for Project Helix 2 (Portfolios A and B) as at 31 December 2020.

During the six months ended 30 June 2021, the CET1 ratio was negatively affected mainly by the phasing‑in of IFRS 9 transitional adjustments on 1 January 2021, the prudential charge relating to the Group's foreclosed assets (see below), the cost relating to the tender process for the existing Tier 2 Capital Notes and provisions and impairments, and was positively affected by the pre‑provision income, the impact of the completion of Project Helix 2 and the decrease in risk‑weighted assets (RWAs).

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

The CET1 ratio on a fully loaded basis amounted to 12.91% as at 30 June 2021, compared to 12.94% as at 31 December 2020 (and 13.26% pro forma for Helix 2). On a transitional basis and on a fully phased‑in basis, after the transition period is completed, the impact of IFRS 9 is expected to be manageable and within the Group's capital plans.

The Total Capital ratio stood at 19.23% as at 30 June 2021, compared to 18.35% as at 31 December 2020 (and 18.74% 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, BOC PCL received an amendment to the December 2019 SREP decision effective 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 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 (as amended in April 2020) 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.

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. BOC PCL has been designated as an O‑SII and the O‑SII buffer currently set by the CBC 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.

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 (CCyb). In July 2020, the ECB committed to allow banks to operate below the P2G and the combined buffer requirement (CCB, CCyb and O‑SII buffer) until at least end of 2022, without automatically triggering supervisory actions.

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 and BOC PCL were under a regulatory prohibition for equity dividend distribution and therefore no dividends were declared or paid during 2020. Following the 2020 SREP communication, the Company and BOC PCL are still under equity dividend distribution prohibition as the 2019 SREP decision (as amended in April 2020) 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 BOC PCL.

The ECB, as part of its supervisory role, has completed an onsite inspection and review on the value of the Group's foreclosed assets with reference date 30 June 2019. The findings relate to a prudential charge which will decrease based on BOC PCL's progress in disposing the properties in scope. The amount has been directly deducted from own funds as at 30 June 2021 resulting in a decrease in the Group's CET1 ratio by approximately 44 bps as at 30 June 2021.

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

Project Helix 2

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

The consideration for the sale amounts to approximately €560 million, of which approximately €165 million were received in cash by completion. The remaining amount is payable in four instalments up to December 2025 without any conditions attached. The consideration reflects adjustments resulting from, inter alia, loan repayments received on the Portfolios since the reference date of 30 September 2019. The consideration can be increased through an earnout arrangement, depending on the performance of each of the Portfolios.

The capital impact of Project Helix 2 on the Group's CET1 ratio during the second quarter of 2021 is an increase of approximately 20 bps, of which approximately 10 bps arises on completion. Post completion, the transaction is expected to have an additional positive capital impact of approximately 64 bps on the Group's CET1 ratio on the basis of 30 June 2021 figures, upon the full payment of the deferred consideration and without taking into consideration any positive impact from the earnout, thus making the transaction overall capital accretive.

Further details are provided in section 'Loan portfolio quality' below.

Tier 2 Capital Notes

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

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

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

At the same time, BOC PCL invited the holders of its €250 million Fixed Rate Reset Tier 2 Capital Notes due in January 2027 (the 'Existing T2 Notes') to tender their Existing T2 Notes for purchase by BOC PCL at a price of 105.50%. As a result, a cost of €12 million was recorded in the income statement during the six months ended 30 June 2021, whilst at the same time forfeiting the relevant obligation for future coupon payments. This cost resulted in a negative impact of 11 bps on the Group's CET1 ratio as at 30 June 2021. Existing T2 Notes of €43 million in aggregate nominal amount remain outstanding as at 30 June 2021.

The issuance of the New T2 Notes has resulted in the increase of the Group's Total Capital ratio by approximately 123 bps as at 30 June 2021, including approximately 29 bps relating to the outstanding Existing T2 Notes as at 30 June 2021. The Existing T2 Notes are redeemable at the option of BOC PCL (subject to applicable regulatory consents) in January 2022.

Legislative amendments for the conversion of DTA to DTC

Legislative amendments allowing for the conversion of specific deferred tax assets (DTA) into deferred tax credits (DTC) became effective in March 2019. The law amendments cover the utilisation of income tax losses transferred from Laiki Bank to BOC PCL 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 BOC PCL. With this legislation, institutions are allowed to treat such DTAs as not 'relying on future profitability' according to CRD IV and as a result such DTAs are not deducted from CET1, hence improving a credit institution's capital position.

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

The Group, in anticipation of modifications in the Law, acknowledges that such increased annual fee may be required to be recorded on an annual basis until expiration of such losses in 2028. The determination and conditions of such amount will be prescribed in the Law to be amended and the amount determined by the Government on an annual basis. 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 million per year. The Group estimates that such increased fees could range up to €5.3 million 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 million was recorded in the fourth quarter of 2020 to bring the total amount provided for years 2018‑2020 to €16 million, being the maximum expected increased amount for these years.

Voluntary Staff Exit Plan

In December 2020, the Group completed a targeted voluntary staff exit plan (VEP) at a total cost of €6 million, recorded in the consolidated income statement in the fourth quarter of 2020, resulting in a negative impact of approximately 5 bps on the Group's CET1 ratio as at 31 December 2020. For further information please refer to section 'Total expenses' further below.

Regulations and Directives

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

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

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

Bank Recovery and Resolution Directive (BRRD)

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.

Minimum requirement for own funds and eligible liabilities (MREL)

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

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

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

The MREL ratio of BOC PCL as at 30 June 2021, calculated according to the SRB's eligibility criteria currently in effect and based on BOC PCL's internal estimate, stood at 18.53% of risk weighted assets (RWA) and at 10.17% of LRE.

The issuance of the SP Notes contributed to BOC PCL's MREL ratio as a percentage of RWA as at 30 June 2021 by approximately 272 bps. BOC PCL's MREL ratio as at 30 June 2021 includes 39 bps relating to the Existing T2 Notes of €43 million that remain outstanding as at 30 June 2021 and are redeemable at the option of BOC PCL (subject to applicable regulatory consents) in January 2022.

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

Funding and Liquidity

Funding

Funding from Central Banks

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

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

Based on internal estimations (subject to confirmation from the CBC), BOC PCL has exceeded the benchmark net lending threshold in the period 1 March 2020 to 31 March 2021 and is therefore expected to qualify for a beneficial rate for the period from June 2020 to June 2021. BOC PCL estimates the NII benefit from its TLTRO III borrowing for the period from June 2020 to June 2021 at approximately €7 million, 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 approximately €15 million, based on current ECB rates and provided that BOC PCL meets the net lending thresholds.

Deposits

Customer deposits totalled €16,801 million at 30 June 2021, compared to €16,533 million at 31 December 2020, increased by approximately 2% since the year end.

BOC PCL's deposit market share in Cyprus reached 34.6% as at 30 June 2021, compared to 35.0% at 31 December 2020. Customer deposits accounted for 69% of total assets and 76% of total liabilities at 30 June 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 59% as at 30 June 2021, compared to 63% as at 31 December 2020. The decrease was mainly due to the completion of Project Helix 2 and the increase in deposits during the six months ended 30 June 2021.

Loan Stock

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

In April 2021, the Company issued €300 million unsecured and subordinated Tier 2 Capital Notes (the 'New T2 Notes'). In addition, Existing T2 Notes of €43 million remain outstanding as at 30 June 2021. For further information please refer to section 'Capital Base' above.

In June 2021, BOC PCL executed its inaugural MREL transaction issuing €300 million of senior preferred notes (the 'SP Notes'). For further information please refer to section 'Minimum requirement for own funds and eligible liabilities' above.

Liquidity

At 30 June 2021 the Group Liquidity Coverage Ratio (LCR) stood at 303%, compared to 254% at 31 December 2020, above the minimum regulatory requirement of 100%. The liquidity surplus in LCR at 30 June 2021 amounted to €5.7 billion, compared to €4.2 billion at 31 December 2020. The increase in the six months ended 30 June 2021 is mainly due to the issuance of €300 million senior preferred notes, the completion of Project Helix 2, the increase in deposits and the increase in the TLTRO III borrowing.

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

Loans

Group gross loans totalled €10,893 million at 30 June 2021, compared to €12,261 million at 31 December 2020, reduced by 11% since the year‑end following the completion of Project Helix 2. Gross loans of the Group's Cyprus operations totalled €10,840 million at 30 June 2021 accounting for almost all of the Group gross loans.

New lending granted in Cyprus reached €894 million during the six months ended 30 June 2021, up by 30% compared to 30 June 2020. New lending in the first half of 2021 comprised €395 million of corporate loans, €331 million of retail loans (of which €226 million were housing loans), €105 million of SME loans and €63 million of shipping and international loans. New corporate loans have increased  faster in the second quarter of 2021 compared to the respective quarter of 2020, as the economic activity continues to improve. At the same time, demand for retail housing loans remains strong, supported by Government schemes.

At 30 June 2021, the Group net loans and advances to customers totalled €9,967 million, compared to €9,886 million at 31 December 2020. At 30 June 2021, there were no loans and advances to customers classified as held for sale, whereas, at 31 December 2020 net loans and advances to customers of €493 million were classified as held for sale in line with IFRS 5 and related to Project Helix 2 (€485 million, comprising €310 million relating to Portfolio A and €175 million relating to Portfolio B) and Helix Tail (€8 million).

BOC PCL is the single largest credit provider in Cyprus with a market share of 39.1% at 30 June 2021, compared to 41.9% at 31 December 2020. The decrease as at 30 June 2021 is mainly due to the completion of Project Helix 2.

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 the six months ended 30 June 2021 totalled €35 million (excluding 'Provisions/net loss relating to NPE sales, including restructuring expenses'), compared to €87 million in the six months ended 30 June 2020. Further details regarding loan credit losses are provided in section 'Profit/(loss) before tax and non‑recurring items' below.

Loan moratorium

As part of the measures to support borrowers affected by COVID‑19 and the wider Cypriot economy, the Cyprus Parliament voted for the suspension of loan repayments for interest and principal (loan moratorium) for the period to the end of the year 2020, for all eligible borrowers with no arrears for more than 30 days as at the end of February 2020. The payment holiday for all these loans expired on 31 December 2020.

Performing loans as at 30 June 2021 under expired payment deferrals amounted to €4.9 billion, compared to €5.3 billion as at 31 December 2020, of which €4.8 billion or 96% had an instalment due by 12 August 2021 with a strong performance; 96% present no arrears (of which €0.5 billion have been restructured) and only 4% are in arrears (of which 95% are less than 30 days‑past‑due).

Performing loans to private individuals as at 30 June 2021 under expired payment deferrals amounted to €1.8 billion, of which 98% had an instalment due by 12 August 2021. Of those, 92% present no arrears (of which approximately €28 million have been restructured) and only 8% are in arrears (of which 96% are less than 30 days‑past‑due).

Similarly, performing loans to businesses as at 30 June 2021 under expired payment deferrals amounted to €3.15 billion, of which 95% had an instalment due by 12 August 2021. Of those, 99% present no arrears (of which €0.47 billion have been restructured, mostly in the tourism sector) and only 1% are in arrears.

In the six months ended 30 June 2021, net reclassifications of €131 million of loans under expired payment deferrals were made from Stage 1 to Stage 2, following reclassifications of €675 million of loans under expired payment deferrals from Stage 1 to Stage 2 as a result of management overlays and restructurings, and reclassifications of €544 million of loans under expired payment deferrals from Stage 2 to Stage 1, mainly due to the good performance after the expiry of the payment deferrals. In addition, reclassifications of €30 million of loans under expired payment deferrals were made mainly from Stage 2 to Stage 3 during the six months ended 30 June 2021. References made to 'loans under expired payment deferrals' in this paragraph include current accounts and overdrafts.

BOC PCL 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, BOC PCL has enhanced its monitoring process to include transactional analysis to establish funds availability to meet upcoming instalments and daily monitoring of arrears and excesses, as well as NPEs inflows and outflows.

BOC PCL 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.

Loan impairments related to COVID‑19 amounting to €12.5 million were included in loan credit losses of €35 million for the six months ended 30 June 2021. Overall, in the year ended 31 December 2020, the impact of IFRS 9 forward looking information (FLI) driven by the update of the macroeconomic assumptions resulted in a €54 million charge (43 bps) included in the loan credit losses of €149 million (cost of risk of 1.18%).

Finally, the provision coverage of Stage 3 loans under payment deferrals that expired on 31 December 2020 of approximately 22% as at 30 June 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 (€ billion)	30 June 2021	31 December 2020
Stage 1	3.58	3.96
Stage 2	1.62	1.58
Stage 3	0.25	0.33
Total (includes overdrafts and current accounts)	5.45	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 were offered to the end of June 2021, however, the total months under loan moratorium, including the loan moratorium offered in 2020, could not exceed a total of nine months. The application period expired on 31 January 2021 and loans of approximately €20 million were approved for the second moratorium. Close monitoring of the credit quality of loans in moratoria continues.
Following the outbreak of COVID‑19, the sectors most adversely affected are tourism, 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 'Business Overview'.

Non‑performing exposure reduction

Non‑performing exposures (NPEs) as defined by the European Banking Authority (EBA) were reduced by €1,497 million during the six months ended 30 June 2021 to €1,589 million compared to €3,086 million at 31 December 2020. The reduction comprises of €1,305 million NPEs as at the completion of Project Helix 2 (as explained further below), net organic NPE reductions of €171 million and further net NPE reductions of €21 million relating to Project Helix 2 loans during the period until completion. The organic NPE reduction in the six months ended 30 June 2021 was impacted by the COVID‑19 lockdown.

The NPEs account for 14.6% of gross loans as at 30 June 2021, compared to 25.2% as at 31 December 2020, driven by the completion of Project Helix 2.

The NPE coverage ratio stands at 60% at 30 June 2021, compared to 62% at 31 December 2020, following the completion of Project Helix 2. When taking into account tangible collateral at fair value, NPEs are fully covered.

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. The impact of these changes on the Group on 1 January 2021 is immaterial.

	30 June 2021		31 December 2020
	€ million	% gross loans	€ million	% gross loans
NPEs as per EBA definition	1,589	14.6%	3,086	25.2%
Of which, in pipeline to exit: ‑ NPEs with forbearance measures, no arrears*	212	1.9%	303	2.5%
*The analysis is performed on a customer basis.
Project Helix 2
In June 2021, the Group completed Project Helix 2 (Portfolios A and B), which refers to the sale of portfolios of loans with a total gross book value of €1,331 million as at the completion date (of which €1,305 million relate to non‑performing exposures) ('Portfolios A and B'), secured over real estate collateral, and stock of properties with carrying value amounting to €73 million to funds affiliated with Pacific Investment Management Company LLC ('PIMCO'), the agreements for which were announced on 3 August 2020 and on 18 January 2021. BOC PCL retains the servicing of these Portfolios for a transitional period, currently expected to end in early fourth quarter 2021 against a servicing fee.
The consideration for the sale amounts to approximately €560 million, of which approximately €165 million were received in cash by completion. The remaining amount is payable in four instalments up to December 2025 without any conditions attached. The consideration reflects adjustments resulting from, inter alia, loan repayments received on the Portfolios since the reference date of 30 September 2019. The consideration can be increased through an earnout arrangement, depending on the performance of each of the Portfolios.
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 approximately 9 percentage points. Overall, since the peak in 2014, the stock of NPEs has been reduced by €13.4 billion or 89% and the NPE ratio by 48.3 percentage points, from 62.9% to 14.6%.
Additional strategies to accelerate de‑risking
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, to further accelerate the decrease in NPEs on the balance sheet through additional sales of NPEs.

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 €76 million in the six months ended 30 June 2021 (30 June 2020: €24 million), resulting in a profit on disposal of €7 million for the six months ended 30 June 2021 (six months ended 30 June 2020: profit on disposal of €3 million), following the relaxation of restrictive measures. Asset disposals are across all property classes, with 54% of sales by value in the six months ended 30 June 2021 relating to land.

During the six months ended 30 June 2021, the Group executed sale‑purchase agreements (SPAs) for disposals with contract value of €85 million (387 properties), compared to €27 million (170 properties) for the six months ended 30 June 2020. In addition, the Group had a strong pipeline of €85 million by contract value as at 30 June 2021, of which €48 million related to SPAs signed, compared to a pipeline of €68 million as at 30 June 2020, of which €53 million related to SPAs signed.

REMU on‑boarded €21 million of assets in the six months ended 30 June 2021, compared to additions of €30 million in the six months ended 30 June 2020, 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 'Capital Base' above.

Assets held by REMU

As at 30 June 2021, assets held by REMU had a carrying value of €1,404 million (comprising properties of €1,285 million classified as 'Stock of property' and €119 million as 'Investment properties'), compared to €1,473 million as at 31 December 2020 (comprising properties of €1,350 million classified as 'Stock of property' and €123 million as 'Investment properties').

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

Income Statement Analysis

Total income

Net interest income (NII) for the six months ended 30 June 2021 amounted to €152 million compared to €168 million for the six months ended 30 June 2020, down by 9%, mainly due to continuing pressure from the low interest rate environment, lower volume of loans, as well as lower interest collections on NPEs partially offset by the reduction in cost of deposits and the increase in TLTRO III in March 2021.

The net interest income (NII) includes an amount of approximately €15 million for the six months ended 30 June 2021 which relates to the net interest income of the loans included in Helix 2 (Portfolios A and B) which has been derecognised as of 30 June 2021, following completion in June 2021. The reduction in NII as a result of the completion of Project Helix 2 will be partially offset by an amount of €5 million in the second half of 2021 and approximately €8.5 million per annum in 2022‑2023 relating to the unwinding of the net present value and interest income of the deferred consideration, reducing thereafter on the basis of repayments and assuming no early repayment in 2023.

Average interest earning assets for the six months ended 30 June 2021 amounted to €19,652 million, up by 11% compared to 30 June 2020, driven by the increase in liquid assets following the increase in the borrowing under TLTRO III by €2.0 billion in the six months ended 30 June 2021.

Net interest margin (NIM) for the six months ended 30 June 2021 amounted to 1.56%, compared to 1.90% for the six months period ended 30 June 2020, negatively impacted by the decrease in NII and the increase in average interest earning assets. Adjusting for the TLTRO III of €3.0 billion (i.e. removing the TLTRO III from the average interest earning assets and the respective benefit recognised over the period from the net interest income), the NIM amounts to 1.71% for the six months ended 30 June 2021.

Non‑interest income for the six months ended 30 June 2021 amounted to €136 million compared to €120 million for the six months ended 30 June 2020, up by 12%, comprising net fee and commission income of €84 million, net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of €8 million, net insurance income of €31 million, net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties of €6 million and other income of €7 million. The increase compared to 30 June 2020 is driven by higher net fee and commission income, as well as higher REMU disposal gains and lower revaluation losses on investment properties.

Net fee and commission income for the six months ended 30 June 2021 amounted to €84 million, compared to €71 million for the six months ended 30 June 2020. The increase in net fee and commission income during the six months ended 30 June 2021 was 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, as well as higher volume of transactions following the lockdown. Net fee and commission income for the six months ended 30 June 2021 also includes approximately €5 million relating to an NPE sales‑related servicing fee, for a transitional period currently expected to end in early fourth quarter 2021 and a fee of approximately €2 million relating to a specific client transaction.

Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of €8 million for the six months ended 30 June 2021 (comprising net foreign exchange gains of €7 million and net gains on financial instrument transactions of €1 million), compared to €12 million for the six months ended 30 June 2020. The decrease is mainly driven by the lower net foreign exchange gains in the first half of 2021, impacted by the lockdown.

Net insurance income of €31 million for the six months ended 30 June 2021, compared to €29 million for the six months ended 30 June 2020, driven by lower claims and improved commissions in the life insurance business.

Net gains from revaluation and disposal of investment properties and on disposal of stock of properties for the six months ended 30 June 2021 amounted to €6 million (comprising a profit on disposal of stock of properties of €7 million and net losses from revaluation of investment properties of €1 million), compared to nil in the six months ended 30 June 2020 (comprising of a profit on disposal of stock of properties of approximately €3 million and net losses from revaluation of investment properties of €2 million), which had been impacted by the lockdown measures.

Total income for the six months ended 30 June 2021 amounted to €288 million and remained broadly flat compared to 30 June 2020.

Total expenses

Total expenses for the six months ended 30 June 2021 were €186 million, compared to €180 million for the six months ended 30 June 2020. 54% of total expenses related to staff costs (€101 million), 38% to other operating expenses (€70 million) and 8% (€15 million) to special levy on deposits and other levies/contributions. The increase of 3% compared to 30 June 2020 is driven by the increase in staff costs. More information on these is provided further below.

Total operating expenses for the six months ended 30 June 2021 were €171 million, compared to €165 million for the six months ended 30 June 2020.

Staff costs for the six months ended 30 June 2021 were €101 million, increased by 5% compared to €96 million for the six months ended 30 June 2020. Staff costs for the six months ended 30 June 2020 reflected cost savings from the measures relating to the COVID‑19 lockdown (special annual leaves to vulnerable groups and suspension of the contribution to the national health system). The Group employed 3,558 as at 30 June 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 million, recorded in the consolidated income statement in the fourth quarter of 2020 (as a non‑recurring item in the underlying basis). The gross annual savings are estimated at approximately €2 million or approximately 1% of staff costs.

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

Other operating expenses for the six months ended 30 June 2021 were €70 million, compared to €69 million for the six months ended 30 June 2020.

Special levy on deposits and other levies/contributions for the six months ended 30 June 2021 amounted to €15 million, which remained broadly flat compared to 30 June 2020.

The cost to income ratio excluding special levy on deposits and other levies/contributions for the six months ended 30 June 2021 was 59%, compared to 57% for the six months ended 30 June 2020, up by 2 percentage points. Adjusting for the interest income on the Helix 2 Portfolios, the cost to income ratio excluding special levy on deposits and other levies/contributions for the six months ended 30 June 2021 increases to 62%, compared to 60% for the six months ended 30 June 2020. The cost to income ratio excluding special levy on deposits and other levies/contributions 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.

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

Operating profit for the six months ended 30 June 2021 was €102 million, compared to €108 million for the six months ended 30 June 2020, down by 6%.

Loan credit losses for the six months ended 30 June 2021 totalled €35 million, compared to €87 million for the six months ended 30 June 2020.

The annualised loan credit losses charge (cost of risk) for the six months ended 30 June 2021 accounted for 0.61% of gross loans, of which 21 bps reflect loan impairments related to COVID‑19 (compared to an annualised loan credit losses charge of 1.39% for the six months ended 30 June 2020, of which 59 bps reflect loan impairments related to COVID‑19). Cost of risk for the second quarter of 2021 amounted to 52 bps (€15 million), of which 12 bps (€3.5 million) reflect loan impairments related to COVID‑19, compared to a cost of risk of 66 bps (€20 million) for the first quarter of 2021, of which 29 bps (€9 million) reflect loan impairments related to COVID‑19. Further details on the loan moratorium are provided in section 'Loan portfolio quality' above.

At 30 June 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 €947 million, compared to €1,902 million at 31 December 2020, and accounted for 8.7% of gross loans (compared to 15.5% at 31 December 2020 including portfolios held for sale). The decrease in the allowance for expected loan credit losses in the six months ended 30 June 2021 resulted from the completion of Project Helix 2.

Impairments of other financial and non‑financial assets for the six months ended 30 June 2021 amounted to €11 million, compared to €29 million for the six months ended 30 June 2020. The decrease was driven by lower revaluation losses on properties.

Provisions for litigation, claims, regulatory and other matters for the six months ended 30 June 2021 totalled €4 million, at the same level as for the six months ended 30 June 2020. The charge for provisions for litigation, claims, regulatory and other matters for in the six months ended 30 June 2021 includes an amount of €3 million that relates mainly to a potential fine to be imposed on BOC PCL relating to the findings of a regulatory investigation with regards to transfer of liquidity by BOC PCL to its subsidiaries in the period 2016‑2017, allegedly without prior regulatory approval.

Profit before tax and non‑recurring items for the six months ended 30 June 2021 totalled €52 million, compared to a loss of €12 million for the six months ended 30 June 2020.

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

The tax charge for the six months ended 30 June 2021 is €1 million, compared to €5 million for the six months ended 30 June 2020.

Profit after tax and before non‑recurring items (attributable to the owners of the Company) for the six months ended 30 June 2021 was €51 million, compared to a loss of €13 million for the six months ended 30 June 2020. Return on Tangible Equity (ROTE) before non‑recurring items calculated using 'profit after tax and before non‑recurring items (attributable to the owners of the Company)' amounts to 6.1% for the six months ended 30 June 2021.

Advisory and other restructuring costs ‑ organic for the six months ended 30 June 2021 amounted to €18 million, compared to €6 million for the six months ended 30 June 2020. Advisory and other restructuring costs ‑ organic for the six months ended 30 June 2021 include an amount of €12 million that relates to the cost of the tender offer for existing Tier 2 Capital Notes (due January 2027) with aggregate nominal amount of €207 million, thereby forfeiting the relevant obligation for future coupon payments.

Profit after tax arising from the organic operations (attributable to the owners of the Company) for the six months ended 30 June 2021 amounted to €33 million, compared to a loss of €19 million for the six months ended 30 June 2020.

Provisions/net loss relating to NPE sales, including restructuring expenses for the six months ended 30 June 2021 was €32 million, compared to €107 million for the six months ended 30 June 2020. Provisions/net loss relating to NPE sales, including restructuring expenses for the six months ended 30 June 2021 include an amount of €14 million relating to the completion mechanics for Project Helix 2, expected to unwind over time in 'net interest income' until the full payment of the deferred consideration. Restructuring costs relating to NPE sales of €10 million and other expenses of €6 million for the six months ended 30 June 2021 were also included, compared to €4 million and €12 million respectively for the six months ended 30 June 2020.

Profit after tax attributable to the owners of the Company for the six months ended 30 June 2021 was €1 million, compared to a loss of €126 million for the six months ended 30 June 2020.

Operating environment

Following a contraction by 5.1% in 2020 and a modest drop by 2.1% in the first quarter of 2021, year‑on‑year, real GDP seasonally adjusted in Cyprus increased steeply by 12.9% in the second quarter. This partly reflects base effects given that second quarter GDP in 2020 had dropped by 12.5%. Growth was driven by the sectors that were most severely impacted by the pandemic the year before, namely tourism, construction, manufacturing, transport and trade.  The recovery under way appears solid, and the outlook for the medium term is positive. Driven by the gradual recovery of the tourism sector and other business services, and supported by the EU's resilience and recovery funds, real GDP is expected to grow by approximately 5.5% in 2021 according to the Ministry of Finance (significantly higher than initially anticipated; approximately 3.6% in April 2021) and 4.3% in 2021 and by 3.8% in 2022 according to the European Commission's latest summer European forecasts.

In the EU as well, the GDP contraction in the first quarter of the year was marginal, and milder than initially anticipated. Second quarter growth rates are not yet available for all countries, but preliminary results reported thus far, point to a very strong rebound, reflecting the impact of the lifting of restrictions during the quarter. Consumer confidence and service sector activity picked up sharply, catching up with already resurgent manufacturing activity. The European Commission, in their summer European forecasts, expects annual GDP growth of 4.8% in 2021 and 4.5% in 2022.

At another development, the ECB kept its policy stance unchanged at its meeting on 22 July 2021 and reaffirmed its commitment to continue purchases under the pandemic emergency purchase programme at a 'significantly higher pace'. The most important change was the adjustment of the forward guidance on interest rates as a consequence of its strategic review which was announced in early July. The main decision was to adopt a symmetric 2% inflation target compared with previously defined price stability of inflation below but close to 2%. Hence, inflation that temporarily surpasses 2% will not automatically trigger a policy tightening.

Recovery in international tourism in Cyprus has started to accelerate from July 2021. Tourist arrivals in July 2021 increased significantly compared to July 2020 (+358% year‑on‑year) and reached 54% of the levels in July 2019. Tourist arrivals in August and September 2021 are expected to show similar trends. The reduction in international tourist arrivals in 2021 compared to the pre‑pandemic levels of 2019 is expected to be partially offset by domestic tourism.

Other short‑term indicators point in the direction of strong recovery in the year on average. Indices of construction activity increased strongly and building permits were up in January‑May by 35.4% and 38.2% respectively for volume and dwellings. The index of industrial production was up 9.6% in January‑May driven by a 12.2% increase in manufacturing. On the demand side, the volume of retail sales excluding vehicles were up by 8.2% also in January‑May and total vehicle registrations increased by 18.6% in the second quarter. In housing, total sales almost doubled in the second quarter after more than halving in the same period the year before.

Consumer inflation rose to 3.1% in the second quarter after dropping by 1.4% in the first and rose by 4.0% in July, bringing the seven‑month year‑on‑year average to 1.1%. The acceleration of inflation in the second quarter was driven by clothing items, housing, and transportation costs. The latter two reflect higher energy and shipping costs.

Public finances deteriorated sharply in 2020 as a result of the government's response to the coronavirus pandemic. Cyprus recorded a deficit of 5.7% of GDP in 2020 compared with a surplus of 1.5% of GDP in 2019. The budget deficit can be expected to moderate in 2021, but to remain sizeable nonetheless, and to diminish subsequently as the economy strengthens and the government scales back its spending. Public debt rose to 119.1% of GDP in 2020 and can be expected to decline gradually in the medium term.

In the banking sector, total non‑performing exposures at the end of May 2021 were €5.16 billion compared with €5.14 billion at the end of December 2020. Non‑performing exposures were 18.0% of gross loans at the end of May 2021 compared with 17.7% of gross loans at end December 2020 and 28.0% at the end of 2019. The non‑performing exposures ratio in the non‑financial companies' segment was 14.8% at the end of May 2021 and that for households was at 23.7%. The coverage ratio was 51.2% at the end of May 2021.

Following the financial crisis of 2012‑2014, economic recovery was relatively solid and real GDP increased at an annual pace of 4.6% on average in 2015‑2019. The coronavirus pandemic reversed some of these gains and real GDP contracted by 5.1% in 2020. The contraction was less steep than the Eurozone average of 6.4% despite Cyprus' considerable exposure to the pandemic shock and its impact on travel and tourism. Tourist arrivals and receipts declined by about 85% in 2020.

The impact was mitigated by strong government support for households and businesses. The European Commission forecasts a strong recovery in 2021‑2022 driven mainly by domestic demand. Most restrictions were lifted in May 2021 and a partial rebound in tourist activity will help restore the economy to growth especially in the second half of the year. The main risk concerns the epidemiological outlook, however the Government's vaccination plan is well underway.

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 the Recovery and Resilience Fund through which Cyprus is set to receive €1.2 billion or 5.5% of its GDP in 2021‑2026. Effectiveness 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 depend on absorption capacity and whether the funds are directed towards productive investment and activities. Separately, in August 2021, the European Commission approved the loan government guarantee scheme of approximately €1.0 billion to facilitate liquidity (guarantee of 70%); the amended legislation is pending approval by Parliament.

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.

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

S&P Global Ratings maintains 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.

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.

Business Overview

Credit ratings

The Group's financial performance is highly correlated to the economic and operating conditions in Cyprus. In July 2021, Moody's Investors Service upgraded BOC PCL's long‑term deposit rating to B1 from B3, maintaining the positive outlook. 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 BOC PCL. In July 2020, Standard and Poor's affirmed their long‑term issuer credit rating on BOC PCL 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. Strong recovery in economic activity marked the second quarter of the year, against the backdrop of increasing vaccination coverage across Cyprus and relaxation of restrictions. At the same time, the Group has continued its focus on providing support to its customers, colleagues and community.

Statistics are encouraging, as 78% of the adult population in Cyprus have been vaccinated with the first dose and 74% have completed their vaccination regime, (Ministry of Health, as of 28 August 2021).

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

In accordance with the Pandemic Plan, the Group adopted a set of measures, which are still in place according to the current pandemic status, to ensure minimum disruption to its operations. The Pandemic Incident Management Team and the Crisis Management Committee continue to closely monitor the dynamic COVID‑19 pandemic developments and status. The 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 has been split into separate locations. In addition, to ensure continuity of business, a number of employees have been working from home and the remote access capability has been upgraded significantly, whilst at the same time maintaining relevant control procedures to ensure authorisation in line with the Group's governance structure. Additionally, the Group follows strict rules of hygiene, increased intensity of cleaning and disinfection of spaces, and other measures to protect the health and safety of staff and customers.

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

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

As part of the measures to support borrowers affected by COVID‑19 and the wider Cypriot economy, the Cyprus Parliament voted for the suspension of loan repayments for interest and principal (loan moratorium) for the period to the end of the year 2020, for all eligible borrowers with no arrears for more than 30 days as at the end of February 2020. The payment holiday for all these loans expired on 31 December 2020.

Performing loans as at 30 June 2021 under expired payment deferrals amounted to €4.9 billion (compared to €5.3 billion as at 31 December 2020), of which €4.8 billion or 96% had an instalment due by 12 August 2021 with a strong performance, 96% present no arrears (of which €0.5 billion have been restructured) and 4% are in arrears.

Further details are provided in section 'Loan portfolio quality' above. Close monitoring of the credit quality of these loans continues and customers with early arrears are offered solutions. BOC PCL 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 30 June 2021, the Group's non‑legacy loan book exposure to tourism was limited to €1.14 billion (out of a total non‑legacy loan book of €9.4 billion), of which approximately €0.93 billion of performing loans as at 30 June 2021 were under expired payment deferrals. 94% of those had an instalment due by 12 August 2021 and of those, approximately 100% present no arrears (of which approximately €281 million have been restructured).

Tourism is demonstrating signs of recovery. Tourist arrivals in July 2021 have increased by 358% year‑on‑year and amount to 54% of July 2019 levels, whilst 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 96% of the tourism portfolio is secured by property. Close monitoring of developments continues.

Respectively, as at 30 June 2021 the Group's non‑legacy loan book exposure to trade was €0.91 billion, of which €0.32 billion of performing loans as at 30 June 2021 were under expired payment deferrals. 94% of those had an instalment due by 12 August 2021 and of those, 97% present no arrears (of which €10 million have been restructured) and 3% present arrears. It is important to note that approximately 29% of the exposure to trade relates to lower‑risk essential retail services, not materially impacted by the pandemic.

Strategic priorities for the medium term

BOC PCL'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, BOC PCL 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 BOC PCL's loan portfolio quality is of utmost importance for the Group.

In June 2021, the Company completed Project Helix 2 (Portfolios A and B), which refers to the sale of portfolios of loans with a total gross book value of €1,331 million as at the completion date (of which €1,305 million relate to non‑performing exposures) ('Portfolios A and B'), secured over real estate collateral, to funds affiliated with Pacific Investment Management Company LLC ('PIMCO'), the agreements for which were announced on 3 August 2020 and on 18 January 2021.

Project Helix 2 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 approximately 9 percentage points. Overall, since the peak in 2014, the stock of NPEs has been reduced by €13.4 billion or 89% and the NPE ratio by 48.3 percentage points, from 62.9% to 14.6%.

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 further 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, to further 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 continues to closely monitor the performance of loans under expired payment deferrals and nearly eight months after deferral expiry, the performance is better than initially expected.

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 were 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 million and less than 10 employees), and agricultural fields with open market value up to €250 thousand. Parliament voted a further suspension with smaller scope until the end of October 2021 for primary residences with open market value up to €350 thousand, premises of very small businesses (with annual turnover up to €750 thousand and less than 10 employees), and agricultural fields with open market value up to €100 thousand. This legislation has not as yet been enacted and it has been forwarded to the Supreme Court to decide on whether or not the suspension is in line with the constitution.

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 BOC PCL'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 six months ended 30 June 2021, new lending amounted to €894 million, increased by 30% compared to the same period last year, as demand for new loans is picking up, driven mainly by corporate (up by 30% year‑on‑year for the six months ended 30 June 2021), 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 million as at mid‑August 2021, whilst new housing loans of approximately €220 million have been approved by BOC PCL since the beginning of the scheme until end‑July 2021.

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

In common with other European banks, the prolonged low interest rate environment also continues to present a challenge to the Group's profitability. Over the medium‑term, the Group aims to grow its performing book by approximately 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, BOC PCL continues to focus on the shape and cost of deposit franchise, taking advantage of the increased customer confidence towards BOC PCL. The cost of deposits has been reduced by 73 bps to 3 bps since December 2017. Moreover, liquidity fees for specific customer groups were introduced in March 2020. The introduction of liquidity fees to a broader group of corporate clients, which 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 approximately €13 million per annum. Transactional fee volumes have started to recover gradually to pre‑COVID 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 BOC PCL'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 non‑life 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 the six months ended 30 June 2021 amounted to €31 million (up 7% year‑on‑year), contributing to 23% 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.

In the medium‑term, EuroLife Ltd aims to improve total regular income mainly by extending its customer base and using a new distribution philosophy, as well as enhancing digital capabilities. To date, Eurolife has adjusted characteristics of specific products to improve its profitability and launched a new loan product that can be combined with credit facilities of other local banks. At the same time, the agency force has increased by 13% year‑on‑year and the average productivity per agent has also increased. New incentives for cross selling have been given and new products have been launched, leveraging on the close collaboration with BOC PCL, whilst e‑alteration has been implemented.

In the medium‑term, GIC aims to increase its gross written premiums mainly by leveraging on BOC PCL'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. To date, GIC has increased high‑margin products such as Fire by 10% year‑on‑year and Liability by 22%, as well as the profitable part of the motor segment, by 7%. In addition, automated paperless digital processes have been launched and relationship managers for commercial clients have been introduced. Finally, incentivisation of the agency force has been put in place and new portals for bancassurance and agents has been introduced in the second quarter of 2021.

In the six months ended 30 June 2021, BOC PCL participated in TLTRO III by borrowing an additional amount of €2.0 billion, increasing its participation to €3.0 billion, despite its comfortable liquidity position, given the favourable borrowing terms, in combination with the relaxation of collateral requirements. BOC PCL estimates the NII benefit from its TLTRO III borrowing for the period from June 2020 to June 2021 at approximately €7 million. The potential NII benefit for the period from June 2021 to June 2022 amounts to approximately €15 million, based on current ECB rates and provided BOC PCL meets the net lending thresholds.

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 BOC PCL'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 approximately 10% compared to the financial year 2019 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 BOC PCL's modernisation agenda. The transformation programme will enable the implementation of the strategy with key shifts focusing on a leaner and more efficient operating model, profitability and optimisation of the client service and distribution models with an emphasis on the customer.

Digital Transformation

As part of its vision to be the leading financial hub in Cyprus, BOC PCL 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 BOC PCL's mobile banking app. The second phase of the digital KYC review was rolled out, which included the functionality of the automatic and live ID verification process. This allows the users to update their personal information, including the Identity Card and passport information, held by BOC PCL, through their mobile app. 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, the users have now the ability to purchase home and motor insurance products from GIC, through a seamless and easy flow in BOC PCL's mobile application. This offers more options and additional services to BOC PCL's customers through the digital channels. Finally, customers have now the ability to receive directions and navigation to the branches and ATM network quickly and easily through the mobile application.

The adoption of digital products and services continued to grow and gained momentum in the second quarter of 2021 and in July 2021. As at the end of July 2021, 86.6% of the number of transactions involving deposits, cash withdrawals and internal/external transfers were performed through digital channels (up by approximately 22.0 percentage points from 64.6% in September 2017 when the digital transformation programme was initiated). In addition, 77.0% of individual customers were digitally engaged (up by approximately 17.4 percentage points from 59.6% in September 2017), choosing digital channels over branches to perform their transactions. As at the end of July 2021, active mobile banking users and active QuickPay users have grown by 18% and 53% respectively in the last 12 months. The highest number of QuickPay users to date was recorded in July 2021 with 112 thousand active users. Likewise, the highest number of QuickPay payments was recorded in July 2021 with 321 thousand transactions.

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

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

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

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

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

BOC PCL maintains a rating of A (on a scale of AAA‑CCC) in the MSCI ESG Ratings assessment since June 2020.

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 THE FIRST HALF OF 2021 AND TO DATE	PLAN OF ACTION
Complete balance sheet de‑risking	· Completion of Project Helix 2 (sale NPE portfolio with gross book value of €1.3 billion) in June 2021 reducing NPE ratio by approximately 9 percentage points · For further information, please refer to section 'Loan portfolio quality' and section  'Business Overview'	· Continue to work with advisors towards the sale of portfolios of NPEs in the future, to further 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 '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 BOC PCL's strong franchise and customer base for more targeted cross selling enabled by DT
Improve operating efficiency; by achieving leaner operations through digitisation and automation	· Renewal of collective agreement for 2021‑2022 is expected to increase staff costs for 2021 and 2022 by 3‑4% per annum, in line with the impact of renewals in previous years. However, when taking into consideration the impact from the various efficiency initiatives, the Group's medium‑term guidance, which includes maintaining annual 'total operating expenses' below €350 million, remains unchanged. · Further developments in the Digital Transformation Programme · For further information, please refer to section  '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 approximately 10% over the medium term despite inflation

KEY STRATEGIC PILLARS	ACTION TAKEN IN THE FIRST HALF OF 2021 AND TO DATE	PLAN OF ACTION
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	· BOC PCL reached agreement with the Cyprus Union of Bank Employees for the renewal of the collective agreement in respect of 2021 and 2022.The agreement relates to certain changes including the introduction of a new pay grading structure linked to the value of each position of employment, and of a performance‑related pay component as part of the annual salary increase, both of which have been long‑standing objectives of BOC PCL and are in line with market best‑practice. · For further information, please refer to section 'Business Overview'	· 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, 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 BOC PCL 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 BOC PCL's franchise (in fact, the cost to income ratio is expected to rise in the near term as revenues remain under pressure and operating expenses increase due to higher digitisation investment costs, and to reduce to mid‑50s% in the medium term); addressing the challenges from low rates and surplus liquidity.
The medium‑term priorities include delivering sustainable profitability and shareholder returns, enhancing revenues by capitalising on the Group's market leading position; enhancing operating efficiency; and optimising capital management.
The Group's medium‑term strategic targets are set out below:

		Strategic Targets for
Key Metrics		2022	Medium‑Term
Profitability	Return on Tangible Equity (ROTE)1		~7%
	Total operating expenses2		<€350 million
Asset Quality	NPE ratio	<10%	~5%
	Cost of risk		70‑80 bps
Capital	Supported by CET1 ratio of	at least 13%
1.  Return on Tangible Equity (ROTE) is calculated as Profit after Tax (annualised) divided by Shareholders' equity minus intangible assets.
2.  Total operating expenses comprise staff costs and other operating expenses. Total operating expenses do not include the special levy on deposits or other levies/contributions and do not include any advisory or other restructuring costs.

Maintaining a strong capital base has been a key priority for management over the past few years and this remains equally important for the Group going forward. The Group's business plan is based on maintaining a CET1 ratio of at least 13% over the entire period of the plan. The Group's capital is to be supported by organic capital generation 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 payment of the 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 BOC PCL on a path for profitability and delivering value for shareholders.

Going concern

The Directors have made an assessment of the Group's ability to continue as a going concern for a period of 12 months from the date of approval of these Consolidated Financial Statements.

The Directors have concluded that there are no material uncertainties which would cast significant doubt over the ability of the Group, the Company and BOC PCL to continue to operate as a going concern for a period of 12 months from the date of approval of these Consolidated Financial Statements.

In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital resources. Specifically, the Group's Financial Plan approved by the Board in November 2020 (the 'Plan') incorporates the impact of the COVID‑19. The Group has sensitised its projection to cater for downside scenarios and has used conservative economic inputs to develop its medium‑term strategy. The Group is working towards materialising its Financial Plan. Reforecast exercises are carried out to consider the impact of latest developments.

Capital

The following items have been considered in relation to the Group's capital adequacy throughout the period of the going concern assessment:

· The Common Equity Tier 1 (CET1) ratio and the Total Capital ratio on a transitional basis at 30 June 2021 are higher than the SREP requirements (Note 5.1).

· The Group's capital position which allows further risk reduction and recalibration of the cost base. The Group remains focused to implement the actions contemplated in the Financial Plan.

· The capital relief measures announced by the ECB, the EBA, the CBC, the Cyprus Government and the Eurogroup in order to allow banks to absorb the impact of the COVID‑19 outbreak and support the real economy.

· The successful completion of Project Helix 2 which has positively contributed to the Group's capital base.

· The successful refinancing of Tier 2 capital, further optimising the capital structure of the Group.

Funding and liquidity

The following items have been considered in relation to the Group's liquidity position throughout the period of the going concern assessment:

· The Group is in compliance with the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) and are significantly above the minimum requirements.

· The Group is monitoring its liquidity position and is considering ways to further reduce deposits' cost.

· The various measures of regulators which aim to mitigate the impact of COVID‑19.

· The Group's successful issuance of €300 million of senior preferred notes.

Economic environment

· As the Cypriot operations account for 99% of gross loans and 100% of customer deposits, the Group's financial performance is highly correlated to the economic and operating conditions in Cyprus. The sovereign risk ratings of the Cyprus Government improved considerably in recent years, reflecting expectations of a sustained decline in public debt as a ratio to GDP, expected further declines in non‑performing exposures and a more stable price environment following a protracted period of deflation and low inflation. The risk profile of the country deteriorated in 2020 as a result of the coronavirus pandemic and measures to mitigate its impact on the economy, but the rating outlook remains stable to positive reflecting expectations of a return to growth and stabilising underlying dynamics in public finances. Following the severe recession in 2020 there will be recovery in 2021, which will be partial, and it will take until 2022 for real GDP to return to its pre‑crisis levels.

· In July 2021, Moody's Investors Service ('Moody's') has upgraded the Government of Cyprus' long‑term issuer and senior unsecured ratings to Ba1 from Ba2. The outlook has been changed to stable from positive. The key drivers of Cyprus' rating upgrade were the reduction in Cyprus' exposure to event risks because of a decrease in banking sector risks, and the resilience of the economy to the pandemic shock and robust medium‑term GDP growth prospects being supported by sizeable European funds. Moody's expect the economy to recover robustly with an average GDP growth of 4.0% in 2021‑2022 reaching the pre‑pandemic level of economic activity again in 2022. In March 2021, S&P affirmed its rating (BBB‑) and its outlook to stable.

· With respect to BOC PCL's ratings, Moody's upgraded in July 2021 BOC PCL's long‑term deposit rating to 'B1' from 'B3', with the outlook on BOC PCL's long‑term deposit rating maintained positive. In January 2021, Fitch Ratings affirmed their long term issuer credit rating of BOC PCL of 'B ' and outlook of BOC PCL to negative. Negative outlook reflecting that risks remain skewed to the downside in the medium term, if recession proves deeper or the recovery weaker than Fitch's forecasts.  In July 2020, S&P affirmed their long‑term issuer credit rating on BOC PCL of 'B+' and the short‑term issuer credit rating of 'B', with a stable outlook, expressing the view that the enhanced capital reserves and the good liquidity position of BOC PCL will allow it to withstand the current shock and absorb the effects of the increasing pressure on revenues and credit losses.

· The global and domestic macroeconomic conditions as a result of the COVID‑19 crisis are the primary risk factors for the Cyprus economy and the banking sector. Adverse developments regarding growth, fiscal policy, unemployment, tourism and real estate prices, could have a negative impact on the Group's capital adequacy and its liquidity. Management closely monitors the developments and the impact they may have on the Group's operations and financial performance.

Principal risks and uncertainties ‑ Risk management and mitigation

Like other financial organisations, the Group is exposed to risks, the most significant of which are credit risk, liquidity risk, market risk (arising from adverse movements in exchange rates, interest rates and security prices) and insurance risk. The Group monitors, manages and mitigates these risks through various control mechanisms. Information relating to Group principal risks and risk management is set out in Notes 29 to 31 of the Consolidated Condensed Interim Financial Statements, in the 'Additional Risk and Capital Management Disclosures' which form part of the Interim Financial Report for the six months ended 30 June 2021 and in the Interim Pillar III disclosures 2021.

The Group is also exposed to litigation risk, arising from claims, investigations, regulatory and other matters. Further information is disclosed in Note 25 to these Consolidated Condensed Interim Financial Statements and in 'Additional Risk and Capital Management Disclosures' which form part of the Interim Financial Report for the six months ended 30 June 2021.

Additionally, the Group is exposed to the risk on changes in the fair value of property which is held either for own use or as stock of property or as investment property. Stock of property is predominately acquired in exchange of debt and is intended to be disposed of in line with the Group's strategy. Further information is disclosed in Note 17 to these Consolidated Condensed Interim Financial Statements.

The Group activities are mainly in Cyprus therefore the Group's performance is impacted by changes in the Cyprus operating environment as described in the 'Operating environment' section of this Interim Management Report.

In addition, details of the significant judgements, estimates and assumptions which may have a material impact on the Group's financial performance and position are set out in Note 6 to these Consolidated Condensed Interim Financial Statements.

Details of the financial instruments and hedging activities of the Group are set out in Note 14 to these Consolidated Condensed Interim Financial Statements.

COVID‑19 and its longer term impacts on the economy and the Group's financial performance remain uncertain. Specifically, COVID‑19 could have an adverse impact across risks including the credit portfolio, operational risk, people, capital, funding and liquidity. The Group is closely monitoring the effects of COVID‑19 and impact on its operations, businesses and financial performance, including liquidity and capital usage. The effects of COVID‑19 are described in the 'Business Overview' section of this Interim Management Report.

The risk factors discussed above and in the reports identified above should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties. There may be risks and uncertainties of which the Group is not aware or which the Group does not consider significant, but which may become significant. As a result of the challenging conditions in global markets due to COVID‑19, the growing threat from cyber‑attack and unknown risks, the precise nature of all risks and uncertainties that the Group faces cannot be predicted as many of these risks are outside of the Group's control.

Events after the reporting date

Renewal of collective agreement

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

There were no other material events after the balance sheet date.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Interim Financial Report in accordance with International Accounting Standard (IAS) 34 on 'Interim Financial Reporting' as adopted by the European Union, the Transparency (Directive 2004/109/EC) Regulations 2007, as amended, Part 2 (Transparency Requirements) of the Central Bank (Investment Market Conduct) Rules 2019 and the Disclosure Guidance and Transparency Rules of the UK's Financial Conduct Authority.

Each of the Directors, whose names and functions are listed on page 1, confirms that to the best of each person's knowledge and belief:

· the Consolidated Condensed Interim Financial Statements, prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU, give a true and fair view of the assets, liabilities and financial position of the Group at 30 June 2021, and its profit for the period then ended; and

· the Interim Financial Report includes a fair review of:

a.  important events that have occurred during the first six months of the year, and their impact on the Consolidated Condensed Interim Financial Statements;

b.  a description of the principal risks and uncertainties for the next six months of the financial year;

c.  details of any related party transactions that have materially affected the Group's financial position or performance in the six months ended 30 June 2021; and

d.  any changes in the related parties' transactions described in the last annual report that could have a material effect on the financial position or performance of the Group in the first six months of the current financial year.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included in the Company's website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Efstratios‑Georgios Arapoglou

Chairman

Panicos Nicolaou

Chief Executive Officer

31 August 2021

Consolidated Condensed Interim Financial Statements

for the six months ended 30 June 2021

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Income Statement

		Six months ended 30 June
		2021	2020
	Notes	€000	€000
Turnover	7	391,367	376,652
Interest income		179,272	198,749
Income similar to interest income		17,626	24,398
Interest expense		(28,670)	(31,998)
Expense similar to interest expense		(16,015)	(23,349)
Net interest income		152,213	167,800
Fee and commission income		87,610	74,909
Fee and commission expense		(3,753)	(3,664)
Net foreign exchange gains		6,550	10,543
Net (losses)/gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates	8	(14,076)	4,848
Insurance income net of claims and commissions		31,068	28,915
Net losses from revaluation and disposal of investment properties		(1,381)	(2,329)
Net gains on disposal of stock of property		7,372	2,676
Other income		6,597	8,043
		272,200	291,741
Staff costs	9	(100,866)	(96,208)
Special levy on deposits and other levies/contributions	9	(15,255)	(15,323)
Other operating expenses	9	(95,588)	(94,564)
		60,491	85,646
Net gains on derecognition of financial assets measured at amortised cost		1,053	2,617
Credit losses to cover credit risk on loans and advances to customers	10	(48,349)	(183,711)
Credit losses of other financial instruments	10	(3,814)	(626)
Impairment net of reversals of non‑financial assets	10	(7,398)	(28,584)
Profit/(loss) before share of profit/(loss) from associates		1,983	(124,658)
Share of profit/(loss) from associates	36	137	(206)
Profit/(loss) before tax		2,120	(124,864)
Income tax	11	(968)	(4,259)
Profit/(loss) after tax for the period		1,152	(129,123)
Attributable to:
Owners of the Company		739	(125,618)
Non‑controlling interests		413	(3,505)
Profit/(loss) for the period		1,152	(129,123)
Basic and diluted profit/(loss) per share attributable to the owners of the Company (€ cent)	12	0.2	(28.2)

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Statement of Comprehensive Income

		Six months ended 30 June
		2021	2020
	Notes	€000	€000
Profit/(loss) for the period		1,152	(129,123)
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)		2,258	(18,438)
Transfer to the consolidated income statement on disposal		-	(3,653)
		2,258	(22,091)
Foreign currency translation reserve
(Loss)/profit on translation of net investments in foreign branches and subsidiaries		(5,003)	10,723
Profit/(loss) on hedging of net investments in foreign branches and subsidiaries	14	3,867	(9,496)
Transfer to the consolidated income statement on dissolution/disposal of foreign branches and subsidiaries		(63)	110
		(1,199)	1,337
Total OCI that may be reclassified in the consolidated income statement in subsequent periods		1,059	(20,754)
OCI not to be reclassified in the consolidated income statement in subsequent periods
Fair value reserve (equity instruments)
Net gains/(losses) on investments in equity instruments designated at FVOCI		576	(217)
		576	(217)
Property revaluation reserve
Deferred tax	11	(40)	(541)
		(40)	(541)
Actuarial gains/(losses) on the defined benefit plans
Remeasurement gains/(losses) on defined benefit plans		6,431	(4,022)
Total OCI not to be reclassified in the consolidated income statement in subsequent periods		6,967	(4,780)
Other comprehensive income/(loss) for the period net of taxation		8,026	(25,534)
Total comprehensive income/(loss) for the period		9,178	(154,657)
Attributable to:
Owners of the Company		8,780	(151,003)
Non‑controlling interests		398	(3,654)
Total comprehensive income/(loss) for the period		9,178	(154,657)

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Balance Sheet

				30 June 2021		31 December 2020
Assets			Notes	€000		€000
Cash and balances with central banks			27	8,227,491		5,653,315
Loans and advances to banks			27	436,091		402,784
Derivative financial assets			14	8,343		24,627
Investments			13	882,743		1,876,009
Investments pledged as collateral			13	1,315,329		37,105
Loans and advances to customers			16	9,966,542		9,886,047
Life insurance business assets attributable to policyholders				518,094		474,187
Prepayments, accrued income and other assets			18	685,162		249,877
Stock of property			17	1,284,820		1,349,609
Deferred tax assets			11	303,390		341,360
Investment properties				127,149		128,088
Property and equipment				260,813		272,474
Intangible assets				184,650		185,256
Investments in associates and joint venture			36	-		2,462
Non‑current assets and disposal groups held for sale			19	10,696		630,931
Total assets				24,211,313		21,514,131
Liabilities
Deposits by banks				400,681		391,949
Funding from central banks			20	2,985,225		994,694
Derivative financial liabilities			14	42,153		45,978
Customer deposits			21	16,801,251		16,533,212
Insurance liabilities				708,373		671,603
Accruals, deferred income, other liabilities and other provisions			23	355,819		359,892
Pending litigation, claims, regulatory and other matters			25	155,765		123,615
Loan stock			22	645,099		272,152
Deferred tax liabilities			11	46,465		45,982
Total liabilities				22,140,831		19,439,077
Equity
Share capital			24	44,620		44,620
Share premium			24	594,358		594,358
Revaluation and other reserves				214,163		209,153
Retained earnings				972,533		982,513
Equity attributable to the owners of the Company				1,825,674		1,830,644
Other equity instruments			24	220,000		220,000
Total equity excluding non‑controlling interests				2,045,674		2,050,644
Non‑controlling interests				24,808		24,410
Total equity				2,070,482		2,075,054
Total liabilities and equity				24,211,313		21,514,131
Mr. E.G. Arapoglou	Chairman	Mr. P. Nicolaou			Chief Executive Officer
Mr. N. Sofianos	Director	Mrs. E. Livadiotou			Executive Director Finance

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Statement of Changes in Equity

	Attributable to the owners of the Company
	Share capital (Note 24)	Share premium (Note 24)	Treasury shares (Note 24)	Retained earnings	Property revaluation reserve	Financial instruments fair value reserve	Life insurance in‑force business reserve	Foreign currency translation reserve	Total	Other equity instruments (Note 24)	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	-	-	-	739	-	-	-	-	739	-	413	1,152
Other comprehensive income/(loss) after tax for the period	-	-	-	6,431	(30)	2,834	-	(1,194)	8,041	-	(15)	8,026
Total comprehensive income/(loss) after tax for the period	-	-	-	7,170	(30)	2,834	-	(1,194)	8,780	-	398	9,178
Increase in value of in‑force life insurance business	-	-	-	(3,886)	-	-	3,886	-	-	-	-	-
Tax on increase in value of in‑force life insurance business	-	-	-	486	-	-	(486)	-	-	-	-	-
Payment of coupon to AT1 holders (Note 24)	-	-	-	(13,750)	-	-	-	-	(13,750)	-	-	(13,750)
30 June 2021	44,620	594,358	(21,463)	972,533	79,485	25,728	113,801	16,612	1,825,674	220,000	24,808	2,070,482

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Statement of Changes in Equity

	Attributable to the owners of the Company
	Share capital (Note 24)	Share premium (Note 24)	Treasury shares (Note 24)	Retained earnings	Property revaluation reserve	Financial instruments fair value reserve	Life insurance in‑force business reserve	Foreign currency translation reserve	Total	Other equity instruments  (Note 24)	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 for the period	-	-	-	(125,618)	-	-	-	-	(125,618)	-	(3,505)	(129,123)
Other comprehensive (loss)/income after tax for the period	-	-	-	(4,022)	(406)	(22,300)	-	1,343	(25,385)	-	(149)	(25,534)
Total comprehensive (loss)/income after tax for the period	-	-	-	(129,640)	(406)	(22,300)	-	1,343	(151,003)	-	(3,654)	(154,657)
Increase in value of in‑force life insurance business	-	-	-	(1,771)	-	-	1,771	-	-	-	-	-
Tax on increase in value of in‑force life insurance business	-	-	-	221	-	-	(221)	-	-	-	-	-
Change in the holding of Undertakings for Collective Investments in Transferable Securities (UCITS) Fund	-	-	-	(19)	-	-	-	-	(19)	-	-	(19)
Payment of coupon to AT1 holders (Note 24)	-	-	-	(13,750)	-	-	-	-	(13,750)	-	-	(13,750)
30 June 2020	44,620	1,294,358	(21,463)	345,327	78,880	11,600	103,601	18,270	1,875,193	220,000	25,008	2,120,201

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Statement of Cash Flows

		Six months ended 30 June
		2021	2020
Net cash flow from operating activities	Note	€000	€000
Profit/(loss) before tax		2,120	(124,864)
Adjustments for:
Share of (profit)/loss from associates		(137)	206
Credit losses to cover credit risk on loans and advances to customers and net gains on derecognition of financial assets measured at amortised cost		47,296	181,094
Depreciation of property and equipment and amortisation of intangible assets		17,591	18,802
Change in value of in‑force life insurance business		(3,886)	(1,771)
Credit losses of other financial instruments	10	3,814	626
Amortisation of discounts/premiums and interest on debt securities		(10,273)	(14,869)
Dividend income		(462)	(172)
Loss/(profit) from revaluation of debt securities designated as fair value hedges		7,886	(5,408)
Net gains on disposal on investments in debt securities		-	(2,865)
Net gains on disposal of investment properties		(243)	(234)
Interest on subordinated loan stock		11,699	11,602
Negative interest on loans and advances to banks and central banks		13,141	8,035
Impairment of stock of property and other non‑financial assets	10	7,398	28,584
Negative interest on funding from central banks		(9,469)	-
Loss on disposal/dissolution of subsidiaries and associates	8	880	184
Loss on early redemption of subordinated loan stock	8	12,433	-
Net gains on disposal of stock of property		(7,372)	(2,676)
Loss on sale and write offs of property and equipment and intangible assets		62	60
Interest expense on lease liability		44	255
Net losses from revaluation of investment properties and investment properties held for sale		1,624	2,563
		94,146	99,152
Net (increase)/decrease in loans and advances to customers and other accounts		(126,271)	78,916
Net increase/(decrease) in customer deposits and other accounts		363,275	(564,310)
		331,150	(386,242)
Tax paid		(813)	(267)
Net cash from/(used) in operating activities		330,337	(386,509)
Cash flows from investing activities
Purchases of debt and equity securities		(603,791)	(433,314)
Proceeds on disposal/redemption of investments:
‑ debt securities		304,328	354,498
‑ equity securities and mutual funds		662	-
Interest received from debt securities		11,660	15,945
Dividend income from equity securities		462	172
Proceeds on disposal of Project Helix 2	19	144,300	-
Proceeds on disposal of Velocity 2 portfolio		-	13,409
Proceeds on disposal of subsidiaries and associates		9,084	-
Purchases of property and equipment		(942)	(2,624)
Purchases of intangible assets		(4,840)	(4,608)
Proceeds on disposals of property and equipment and intangible assets		1,138	19
Proceeds on disposals of investment properties		2,577	2,091
Net cash used in investing activities		(135,362)	(54,412)
Cash flow from financing activities
Payment of AT1 coupon	24	(13,750)	(13,750)
Net proceeds of funding from central banks	20	2,000,000	1,000,000
Repayments of subordinated loan stock		(223,627)	-
Proceeds from the issue of loan stocks (net of costs)		596,056	-
Interest on subordinated loan stock		(23,125)	(23,188)
Interest on funding from central banks		(13,141)	(8,035)
Principle elements of lease payments		(3,901)	(4,715)
Net cash from financing activities		2,318,512	950,312
Net increase in cash and cash equivalents		2,513,487	509,391
Cash and cash equivalents
1 January		5,890,135	5,130,863
Foreign exchange adjustments		(10,100)	(1,010)
Net increase in cash and cash equivalents		2,513,487	509,391
30 June	27	8,393,522	5,639,244

Non cash transactions

Repossession of collaterals

During the six months ended 30 June 2021, the Group acquired properties by taking possession of collaterals held as security for loans and advances to customers of €24,692 thousand (six months ended 30 June 2020: €30,799 thousand).

Disposal of Project Helix 2

During the six months ended 30 June 2021 and upon the completion of the disposal of Project Helix 2, the Group recognised an amount of €381,567 thousand in other financial assets, which represents the fair value of the deferred consideration receivable for the transaction (the 'DPP'). Please refer to Note 18 for further details.

BANK OF CYPRUS HOLDINGS GROUP

Notes to the Consolidated Condensed Interim Financial Statements

1.  Corporate information

Bank of Cyprus Holdings Public Limited Company (the 'Company') was incorporated in Ireland on 11 July 2016, as a public limited company under company number 585903 in accordance with the provisions of the Companies Act 2014 of Ireland (Companies Act 2014). Its registered office is 10 Earlsfort Terrace, Dublin 2, D02 T380, Ireland.

The Company is the holding company of the Bank of Cyprus Public Company Limited ('BOC PCL'). The Bank of Cyprus Holdings Group (the 'Group') comprises the Company, its subsidiary BOC PCL and the subsidiaries of BOC PCL.

The Company is tax resident in Cyprus. The principal activities of BOC PCL and its subsidiary companies (the BOC Group) involve the provision of banking services, financial services, insurance services and the management and disposal of property predominately acquired in exchange of debt.

BOC PCL is a significant credit institution for the purposes of the SSM Regulation and has been designated by the CBC as an 'Other Systemically Important Institution' (O‑SII). The Group is subject to joint supervision by the ECB and the CBC for the purposes of its prudential requirements.

The shares of the Company are listed and trading on the London Stock Exchange (LSE) and the Cyprus Stock Exchange (CSE).

The Consolidated Condensed Interim Financial Statements are available at the registered office of Bank of Cyprus Holdings Public Limited Company and on the Group's website www.bankofcyprus.com (Investor Relations).

Consolidated Condensed Interim Financial Statements

The Consolidated Condensed Interim Financial Statements of the Company for the six months ended 30 June 2021 (the Consolidated Financial Statements) were authorised for issue by a resolution of the Board of Directors on 31 August 2021.

The Consolidated Financial Statements have been prepared in both the English and the Greek language. In case of a difference or inconsistency between the two, the English version prevails.

2.  Unaudited financial statements

The Consolidated Financial Statements have not been audited by the Group's external auditors.

The Group's external auditors have conducted a review in accordance with the International Standard on Review Engagements 2410 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'.

3.   Summary of significant accounting policies

3.1  Basis of preparation

The Consolidated Financial Statements have been prepared on a historical cost basis, except for properties held for own use and investment properties, investments at fair value through other comprehensive income (FVOCI), financial assets (including loans and advances to customers and investments) at fair value through profit or loss (FVPL) and derivative financial assets and derivative financial liabilities that have been measured at fair value, non‑current assets held for sale measured at fair value less costs to sell and stock of property measured at net realisable value where this is lower than cost. The carrying values of recognised assets and liabilities that are hedged items in fair value hedges, and otherwise carried at cost, are adjusted to record changes in fair value attributable to the risks that are being hedged.

Presentation of the Consolidated Financial Statements

The Consolidated Financial Statements are presented in Euro (€) and all amounts are rounded to the nearest thousand, except where otherwise indicated. A comma is used to separate thousands and a dot is used to separate decimals.

The Group presents its balance sheet broadly in order of liquidity. An analysis regarding expected recovery or settlement of assets and liabilities within twelve months after the balance sheet date and more than twelve months after the balance sheet date is presented in Note 28.

Comparative information

Comparative information was restated in relation to the presentation of 'Credit risk concentration of loans and advances to customers' as detailed in Note 29. In addition, comparative information was restated in relation to the presentation of segmental analysis as detailed in Note 7. The above restatements did not have an impact on the results for the period or the equity of the Group.

3.2  Statement of compliance

The Consolidated Financial Statements have been prepared in accordance with the International Accounting Standard (IAS) applicable to interim financial reporting as adopted by the European Union (EU) (IAS 34), the Transparency (Directive 2004/109/EC) Regulations 2007, as amended, Part 2 (Transparency Requirements) of the Central Bank (Investment Market Conduct) Rules 2019 and the Disclosure Guidance and Transparency Rules of the UK's Financial Conduct Authority.

The Consolidated Financial Statements do not comprise statutory financial statements for the purposes of the Companies Act 2014 of Ireland. The Company's statutory financial statements for the purposes of Chapter 4 of Part 6 of the Companies Act 2014 of Ireland for the year ended 31 December 2020, upon which the auditors have expressed an unqualified opinion, were published on 29 March 2021 and are expected to be delivered to the Registrar of Companies of Ireland within 56 days from 30 September 2021.

The Consolidated Financial Statements do not include all the information and disclosures required for the annual financial statements and should be read in conjunction with the Annual Consolidated Financial Statements of Bank of Cyprus Holdings Group for the year ended 31 December 2020, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, which are available at the Group's website (www.bankofcyprus.com).

3.3  Changes in accounting policies, presentation and disclosures

The accounting policies adopted are consistent with those followed for the preparation of the annual consolidated financial statements for the year ended 31 December 2020, except for the adoption of new and amended standards and interpretations as explained in Note 3.3.1.

3.3.1  New and amended standards and interpretations

The Group applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2021. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The Group has adopted the new standards, amendments and interpretations to the extent that they were relevant for the Group. The relevant and significant new standards for the Group are explained below.

IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Amendments relating to Interest Rate Benchmark Reform (Phase 2 amendments)

IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 were amended in August 2020, which are effective for periods beginning on or after 1 January 2021 with earlier adoption permitted. The Interest Rate Benchmark Reform-Phase 2 amendments deal with issues affecting financial reporting during the implementation of the benchmark rate reform. The objective of the amendments is to provide certain reliefs to companies when changes are made to the contractual cash flows or hedging relationships resulting from interest rate benchmark reform. The amendments also provide additional temporary exceptions from applying specific hedge accounting requirements of IAS 39 and IFRS 9 to hedge accounting relationships, which will generally allow hedging accounting relationships directly affected by the BMR reform to continue.

Changes in the basis for determining contractual cash flows

Change in the basis of determining the contractual cash flows of a financial instrument that are required by the reform is accounted for by updating the effective interest rate, without the recognition of an immediate gain or loss. This practical expedient is only applied where the change to the contractual cash flows is necessary as a direct consequence of the reform and the new basis for determining the contractual cash flows is economically equivalent to the previous basis.

For additional changes made to the basis for determining the contractual cash flows of a financial instrument to those required by the reform, the practical expedient is applied first, after which the normal IFRS 9 requirements for modifications of financial instruments is applied.

Hedge accounting

The IAS 39 requirements in respect of hedge accounting have been amended in two phases. The Phase 1 amendments, which were adopted by the Group in 2019, provide relief to the hedge accounting requirements prior to changing a hedge relationship due to the interest rate benchmark reform. The Phase 2 amendments provide relief when changes are made to hedge relationships as a result of the interest rate benchmark reform. The Group may apply the following reliefs where changes are made to hedge relationships as a result of the BMR reform:

· Under a temporary exception, changes to the hedge designation and hedge documentation due to the interest rate benchmark reform would not constitute the discontinuation of the hedge relationship nor the designation of a new hedging relationship.

· In respect of the retrospective hedge effectiveness assessment, the Group may elect on a hedge‑by‑hedge basis to reset the cumulative fair value changes to zero when the exception to the retrospective assessment ends (Phase 1 relief). Any hedge ineffectiveness will continue to be measured and recognised in full in profit or loss.

· Amounts accumulated in the cash flow hedge reserve would be deemed to be based on the alternative benchmark rate (on which the hedge future cash flows are determined) when there is a change in basis for determining the contractual cash flows.

· For hedges of groups of items (such as those forming part of a macro cash flow hedging strategy), the amendments provide relief for items within a designated group of items that are amended for changes directly required by the reform.

· In respect of whether a risk component of a hedged item is separately identifiable, the amendments provide temporary relief to entities to meet this requirement when an alternative risk free rate (RFR) financial instrument is designated as a risk component. These amendments allow entities upon designation of the hedge to assume that the separately identifiable requirement is met if the entity reasonably expects the RFR risk will become separately identifiable within the next 24 months. This relief applies to each RFR on a rate‑by‑rate basis and starts when the entity first designates the RFR as a non‑contractually specified risk component.

These amendments did not have a significant impact on the Group during the six months ended 30 June 2021. Please refer to Note 30 for further information.

4.   Going concern

The Directors have made an assessment of the Group's ability to continue as a going concern for a period of 12 months from the date of approval of these Consolidated Financial Statements.

The Directors have concluded that there are no material uncertainties which would cast significant doubt over the ability of the Group, the Company and BOC PCL to continue to operate as a going concern for a period of 12 months from the date of approval of these Consolidated Financial Statements.

In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital resources. Specifically, the Group's Financial Plan approved by the Board in November 2020 (the 'Plan') incorporates the impact of the COVID‑19. The Group has sensitised its projection to cater for downside scenarios and has used conservative economic inputs to develop its medium‑term strategy. The Group is working towards materialising its Financial Plan. Reforecast exercises are carried out to consider the impact of latest developments.

Capital

The following items have been considered in relation to the Group's capital adequacy throughout the period of the going concern assessment:

· The Common Equity Tier 1 (CET1) ratio and the Total Capital ratio on a transitional basis at 30 June 2021 are higher than the SREP requirements (Note 5.1).

· The Group's capital position which allows further risk reduction and recalibration of the cost base. The Group remains focused to implement the actions contemplated in the Financial Plan.

· The capital relief measures announced by the ECB, the EBA, the CBC, the Cyprus Government and the Eurogroup in order to allow banks to absorb the impact of the COVID‑19 outbreak and support the real economy.

· The successful completion of Project Helix 2 which has positively contributed to the Group's capital base.

· The successful refinancing of Tier 2 capital, further optimising the capital structure of the Group.

Funding and liquidity

The following items have been considered in relation to the Group's liquidity position throughout the period of the going concern assessment:

· The Group is in compliance with the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) and are significantly above the minimum requirements.

· The Group is monitoring its liquidity position and is considering ways to further reduce deposits' cost.

· The various measures of regulators which aim to mitigate the impact of COVID‑19.

· The Group's successful issuance of €300 million of senior preferred notes.

Economic environment

· As the Cypriot operations account for 99% of gross loans and 100% of customer deposits, the Group's financial performance is highly correlated to the economic and operating conditions in Cyprus. The sovereign risk ratings of the Cyprus Government improved considerably in recent years, reflecting expectations of a sustained decline in public debt as a ratio to GDP, expected further declines in non‑performing exposures and a more stable price environment following a protracted period of deflation and low inflation. The risk profile of the country deteriorated in 2020 as a result of the coronavirus pandemic and measures to mitigate its impact on the economy, but the rating outlook remains stable to positive reflecting expectations of a return to growth and stabilising underlying dynamics in public finances. Following the severe recession in 2020 there will be recovery in 2021, which will be partial, and it will take until 2022 for real GDP to return to its pre‑crisis levels.

· In July 2021, Moody's Investors Service ('Moody's') has upgraded the Government of Cyprus' long‑term issuer and senior unsecured ratings to Ba1 from Ba2. The outlook has been changed to stable from positive. The key drivers of Cyprus' rating upgrade were the reduction in Cyprus' exposure to event risks because of a decrease in banking sector risks, and the resilience of the economy to the pandemic shock and robust medium‑term GDP growth prospects being supported by sizeable European funds. Moody's expect the economy to recover robustly with an average GDP growth of 4.0% in 2021‑2022 reaching the pre‑pandemic level of economic activity again in 2022. In March 2021, S&P affirmed its rating (BBB‑) and its outlook to stable.

· With respect to BOC PCL's ratings, Moody's upgraded in July 2021 BOC PCL's long‑term deposit rating to 'B1' from 'B3', with the outlook on BOC PCL's long‑term deposit rating maintained positive. In January 2021, Fitch Ratings affirmed their long term issuer credit rating of BOC PCL of 'B ' and outlook of BOC PCL to negative. Negative outlook reflecting that risks remain skewed to the downside in the medium term, if recession proves deeper or the recovery weaker than Fitch's forecasts. In July 2020, S&P affirmed their long‑term issuer credit rating on BOC PCL of 'B+' and the short‑term issuer credit rating of 'B', with a stable outlook, expressing the view that the enhanced capital reserves and the good liquidity position of BOC PCL will allow it to withstand the current shock and absorb the effects of the increasing pressure on revenues and credit losses.

· The global and domestic macroeconomic conditions as a result of the COVID‑19 crisis are the primary risk factors for the Cyprus economy and the banking sector. Adverse developments regarding growth, fiscal policy, unemployment, tourism and real estate prices, could have a negative impact on the Group's capital adequacy and its liquidity. Management closely monitors the developments and the impact they may have on the Group's operations and financial performance.

5.   Operating environment

5.1   Regulatory capital ratios

In November 2020, the Group received communication from the ECB according to which no SREP decision (as amended in April 2020) 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 in April 2020).

The minimum phased in CET1 requirement of the Group is set at 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%.

The Group's Total Capital requirement is set at 14.5%, comprising of 8.0% Pillar I requirement (of which up to 1.50% could be in the form of Additional Tier 1 (AT1) capital and up to 2.0% in the form of Tier 2 (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.

Pillar II add on capital requirements are a point in time assessment and therefore are subject to change over time.

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 (CCB, CCyb and O‑SII buffer) 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 new provisions became effective as of 1 January 2020.

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. The CBC has also set the level of CCyB for Cyprus at 0% for the period 1 July 2021 to 30 September 2021.

In accordance with the provisions of this law, the CBC is also the responsible authority for the designation of banks that are 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 above minimum ratios apply for both BOC PCL and the Group.

5.2   Asset quality

The Group addresses the asset quality challenge through the operation of the Restructuring and Recoveries Division which is actively seeking to find innovative solutions to manage distressed exposures. The Group has been successful in engineering restructuring solutions across the spectrum of its loan portfolio.

The Group completed its three‑year NPE Strategy plan which was submitted to the ECB on 31 March 2021. The NPE Strategy is in line with the NPEs evolution as per the Group's Financial Plan.

5.3   Liquidity

Group customer deposits totalled €16,801 million at 30 June 2021, compared to €16,533 million at 31 December 2020.  At 30 June 2021 and 31 December 2020 all deposits were in Cyprus. As at 30 June 2021 Group customer deposits accounted for 69% of total assets (31 December 2020: 77%) and 76% of total liabilities (31 December 2020: 85%).

As at 30 June 2021 and 31 December 2020, the Group was in compliance with all regulatory liquidity requirements. As at 30 June 2021 and 31 December 2020 the Group's LCR and NSFR were in compliance with the minimum regulatory requirements of 100%.

5.4   Pending litigation, claims, regulatory and other matters

Management has considered the potential impact of pending litigation and claims, investigations, regulatory and other matters against the Group, which include the bail‑in of depositors and the absorption of losses by the holders of equity and debt instruments of BOC PCL. The Group has obtained legal advice in respect of these claims.

Despite the fact that the Group has not dealt with claims of such nature in the past, on the basis of information available at present and on the basis of the law as it currently stands, in relation to such matters but also for other litigation, claims, regulatory and other matters, management does not expect these to have a material adverse impact on the financial position and capital adequacy of the Group. For additional information on pending litigation, claims, regulatory and other matters as well as the judgement exercised in concluding on the impact of these matters refer to Notes 6.4 and 25.

6.   Significant and other judgements, estimates and assumptions

The preparation of the Consolidated Financial Statements requires the Company's Board of Directors and management to make judgements, estimates and assumptions that can have a material impact on the amounts recognised in the Consolidated Financial Statements and the accompanying disclosures, as well as the disclosures of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affecting future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are described below. The Group based its assumptions and estimates on parameters available when the Consolidated Financial Statements were prepared. Existing circumstances and assumptions about future developments may, however, change due to market changes or circumstances beyond the control of the Group.  Such changes are reflected in the assumptions when they occur.

The most significant judgements, estimates and assumptions relate to the classification of financial instruments and the calculation of expected credit losses (ECL), the estimation of the net realisable value of stock of property and the provisions which are presented in Notes 6.1 to 6.4 below. Other judgements, estimates and assumptions are disclosed in Notes 5.5 to 5.13 of the annual consolidated financial statements for the year ended 31 December 2020.

6.1  Classification of financial assets

The Group exercises judgement upon determining the classification of its financial assets, which relate to business models and future cash flows.

Judgement is also required to determine the appropriate level at which the assessment of business models needs to be performed. In general, the assessment for the classification of financial assets into the business models is performed at the level of each business line. Further, the Group exercises judgement in determining the effect of sales of financial instruments on its business model assessment.

The Group also applies judgement upon considering whether contractual features including interest rate could significantly affect future cash flows. Furthermore, judgement is required when assessing whether compensation paid or received on early termination of lending arrangements results in cash flows that are not SPPI.

6.2  Calculation of expected credit losses

The calculation of ECL requires management to apply significant judgement and make estimates and assumptions, involving significant uncertainty at the time these are made.  Changes to these estimates and assumptions can result in significant changes to the timing and amount of ECL to be recognised. The Group's calculations are outputs of models, of underlying assumptions on the choice of variable inputs and their interdependencies.

Elements of ECL models that are considered accounting judgements and estimates include:

Assessment of significant increase in credit risk (SICR)

IFRS 9 does not include a definition of significant increase in credit risk. The Group assesses whether significant increase in credit risk has occurred since initial recognition using predominantly quantitative and in certain cases qualitative information. The determination of the relevant thresholds to determine whether a significant increase in credit risk has occurred, is based on statistical metrics and could be subject to management judgement. The relevant thresholds are set, monitored and updated on a yearly basis by the Risk Management Division and endorsed by the Group Provisions Committee.

Determining the probability of default (PD) at initial recognition requires management estimates in particular cases. Specifically in the case of exposures existing prior to the adoption of IFRS 9, a retrospective calculation of the PD is made in order to quantify the risk of each exposure at the time of the initial recognition. In certain cases estimates about the date of initial recognition might be required.

For the retail portfolio, the Group uses a PD at origination incorporating behavioural information (score cards) whereas, for the corporate portfolio, the Group uses the internal credit rating information. In determining the relevant PDs, management estimates are required with respect to the life‑time of revolving facilities. For revolving facilities a behavioural maturity model is utilised assigning an expected maturity based on product and customer behaviour.

Scenarios and macroeconomic factors

The Group determines the ECL, which is a probability weighted amount, by evaluating a range of possible outcomes.  Management uses forward looking scenarios and assesses the suitability of weights used.  These are based on management's assumptions taking into account macroeconomic, market and other factors. Changes in these assumptions and in other external factors could significantly impact ECL. Macroeconomic inputs and weights per scenario are monitored by the Economic Research department and are based on internal model analysis after considering external market data supplemented by expert judgement.

The outlook for the global economy has deteriorated markedly in 2020 as a result of the COVID‑19 pandemic and the lockdown measures to contain it that led to significant disruptions in economic activity. Worst outcomes were avoided by aggressive and excessively expansive monetary and fiscal policies. Economic activity continued to contract in the first quarter of 2021 with GDP falling by 2.1% year‑on‑year but recovered sharply in the second quarter of 2021 rising by 12.9%. The outlook is positive for the remainder of the year 2021, but uncertainties remain. The Group updated its forward looking scenarios, factoring in updated macroeconomic assumptions and other monetary and fiscal developments at the national and the EU level, for mitigating the consequences of the pandemic. While the outlook for the remaining of the year 2021 and the medium term is now positive, uncertainties remain, with the risk profile of the country having deteriorated. This has been the result of a combination of political, policy, cyclical and structural factors, and by the uncertainties in the external environment which remain high. The strength and shape of the economic recovery will depend on the upside and downside risks. The most serious downside risk is how prolonged the pandemic will be and potential complications regarding vaccination programmes.

The Group uses three different economic scenarios in the calculation of default probabilities and provisions.

The tables below indicate the most significant macroeconomic variables as well as the scenarios used by the Group as at 30 June 2021 and 31 December 2020 respectively. The Group has used the 30‑50‑20 probability structure for the adverse, base and favourable scenarios respectively compared to the 25‑50‑25 structure derived using the method described in Note 2.19.5 of the annual consolidated financial statements for the year ended 31 December 2020. This reflects the management's view of specific characteristics of the Cyprus economy that render it more vulnerable to external and internal shocks. Despite the more positive outlook for 2021, given the added uncertainties and downside risks in the global economy as well as the local economy, related to the COVID‑19 pandemic, management decided to maintain an elevated weight on the adverse scenario.

The economy continues to face financial and macroeconomic risks, including a high public debt ratio and a relatively high level of NPEs that together maintain elevated vulnerabilities and limit the policy reaction space thus sustaining conditions, which can lead to a deeper recession in response to shocks than under normal times.

In the banking sector, there has been a steady and significant progress since the crisis of 2013‑2014. Private indebtedness and non‑performing exposures have declined sharply. The loan moratorium that expired at the end of December 2020 resulted in a high level of payment deferrals during the moratorium period in 2020. The second moratorium that was launched in January 2021 to last for the six months ended 30 June 2021, had stricter eligibility criteria and resulted in a considerably lower take up. However, the end of the moratoria on interest and principal payments may lead to pressures that may give rise to an increase in non‑performing exposures especially if the travel related sectors (most hit by the coronavirus pandemic) take longer to recover. Also, there is a significant economic structure risk given a very large external sector and high concentration to geographical areas. These factors, render the economy more susceptible to external shocks and weaken its resilience, and may, in management's view, not be fully captured in the weights as calculated using the method described in Note 2.19.5 of the annual consolidated financial statements for the year ended 31 December 2020. Hence management has decided to increase the weight of the adverse scenario to 30%, and correspondingly reduce the weight of the favourable scenario to 20%.

30 June 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	‑2.4	8.0	‑0.3	‑3.3
	Baseline	50.0	3.5	7.8	1.0	1.9
	Favourable	20.0	4.6	7.3	1.5	2.2
2022	Adverse	30.0	2.0	8.7	0.4	‑3.2
	Baseline	50.0	3.4	7.3	1.8	3.6
	Favourable	20.0	3.9	6.1	2.4	4.9
2023	Adverse	30.0	3.7	8.4	1.8	‑0.8
	Baseline	50.0	3.3	6.7	1.8	3.3
	Favourable	20.0	3.6	5.7	1.9	3.8
2024	Adverse	30.0	3.2	7.8	1.8	3.8
	Baseline	50.0	2.8	6.2	1.8	3.1
	Favourable	20.0	3.1	5.6	1.8	4.2
2025	Adverse	30.0	2.9	7.0	1.8	3.6
	Baseline	50.0	2.6	5.7	1.8	2.9
	Favourable	20.0	2.8	5.2	1.8	3.3

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
The adverse scenarios may outpace the base and favourable scenario after the initial shock has been adjusted to and the economy starts to expand from a lower base. Thus, in the adverse scenario GDP will follow a growth trajectory that will ultimately equal and surpass the baseline before converging. Property prices are determined by multiple factors with GDP growth featuring prominently. However, the relationship between GDP growth and property prices entails a lag. Thus, property prices will initially adjust less steeply than GDP, and will start to accelerate after the recovery in GDP has been entrenched. After this point, property prices will accelerate and will match and surpass the pace in the baseline scenario, before finally converging.
The baseline scenario was updated for 30 June 2021 reporting, considering available information and relevant developments until then. Economic activity declined during 2020 and remained weak in the first quarter of 2021 due to the continued implementation of lockdown measures.  Economic activity rebounded strongly in the second quarter with real GDP rising by 12.9% year‑on‑year, seasonally adjusted. Real GDP contracted by 2.1% year‑on‑year and is expected to increase by 3.5% in 2021 as a whole. Inflation will remain relatively subdued rising to about 1% driven mainly by higher energy and commodity prices and temporary shortages as pandemic‑induced disruptions continue to constrain supply. Consumer prices are expected to accelerate in subsequent years but to remain below 2.0% annually. The unemployment rate may edge a little higher as government support is withdrawn and businesses cut costs but will remain low and return to a declining path from 2022 onwards.  Property prices, having dropped only marginally in 2020 will rise modestly in 2021 as domestic demand for housing picks up, and accelerate higher in subsequent years, essentially capped by nominal GDP growth.
The adverse scenario is consistent with assumptions for the COVID‑19 related disruptions under the baseline scenario but to a higher degree of severity. The Cypriot economy relies on services, particularly on tourism and travel. This makes the economy more exposed than other countries to travel restrictions and quarantine measures that have been adopted in Cyprus and across the globe. The hit to the Cyprus economy from falling external demand for travel and tourism services and the knock on effects to related sectors will be significantly more severe than under the baseline scenario. The accommodation and food services sector continues to be the most highly impacted and also manufacturing and construction that are more highly correlated with travel. Real GDP is expected to continue to contract in 2021, under the adverse scenario, by 2.4% following a steep contraction the year before. In the labour market the unemployment rate will rise more steeply to 7.9% as the government withdraws fiscal support and banks limit their lending to riskier sectors. The unemployment rate will continue to rise in 2022 as companies will be delaying new hires until recovery firms. Property prices will be affected more steeply and drop by about 3.3% on average in 2021‑2022 as both foreign and domestic demand drop.

Since 1 January 2018, the Group has reassessed the key economic variables used in the ECL models consistent with the implementation of IFRS 9. The Group uses actual values for the input variables. These values are sourced from the Cyprus Statistical Service, the Eurostat, the Central Bank of Cyprus for the residential property price index, and the European Central Bank for interest rates. Interest rates are also sourced from Bloomberg. In the case of property prices the Group additionally uses data from the Royal Institute of Chartered Surveyors. For the forward reference period, the Group uses the forecast values for the same variables, as prepared by the Bank's Economic Research Department. The results of the internal forecast exercises are consistent with publicly available forecasts from official sources including the European Commission, the International Monetary Fund, the European Central Bank and the Ministry of Finance of the Republic of Cyprus.

Qualitative adjustments or overlays are occasionally made when inputs calculated do not capture all the characteristics of the market. These are reviewed and adjusted, if considered necessary, by the Risk Management Division and endorsed by the Group Provisions Committee. Qualitative adjustments or overlays were applied to the positive future property value growth to restrict the level of future property price growth for loans and advances to customers which are secured by property collaterals.

The RICS indices, which are considered for the purposes of determining the real estate collateral value on realisation date have 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 and are capped accordingly in case of any future projected increase, whereas any future projected decrease is taken into account.

For Stage 3 customers, the calculation of individually assessed provisions is the weighted average of three scenarios: base, adverse and favourable. 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 either 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, whereas 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.

For collectively assessed customers the calculation is also the weighted average of three scenarios: base, adverse and favourable.

Assessment of loss given default (LGD)

A factor for the estimation of loss given default (LGD) is the timing and net recoverable amount from repossession or realisation of collaterals which mainly comprise real estate assets.

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.

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

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

For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the haircuts used are based on the specific facts and circumstances of each case. For specific cases judgement may also be exercised over staging during the individual assessment including cases where no specific model has been developed.

The above assumptions are also influenced by the ongoing regulatory dialogue the Group 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 provisions.

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

Expected lifetime of revolving facilities

A behavioural maturity model for revolving facilities has been developed during 2020 based on BOC PCL's available historical data, where an expected maturity for each revolving facility based on the customer's profile is assigned.

Modelling adjustments

Forward looking models have been developed for ECL parameters PD, EAD, LGD for all portfolios and segments sharing similar characteristics. Model validation is performed by the independent validation unit within the Risk Management Division on an annual basis and involves several statistical tests that assess the stability and performance of the models. In certain cases, judgement is exercised in the form of management overlay by applying adjustments on the modelled parameters. Governance of these models lies with the Risk Management Division, where a strong governance process is in place around the determination of the impairment measurement methodology including inputs, assumptions and overlays. Any management overlays are prepared by the Risk Management Division, endorsed by the Provisions Committee and approved by the joint Risk and Audit Committee.

ECL allowances also include off‑balance sheet credit exposures represented by guarantees given and by irrevocable commitments to disburse funds. Off‑balance sheet credit exposures of the individually assessed assets require assumptions on the probability, timing and amount of cash outflows. For the collectively assessed off‑balance sheet credit exposures, the allowance for provisions is calculated using the Credit Conversion Factor (CCF) model.

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.

SICR adjustment

Following an assessment performed for SICR for customers that had taken up the moratorium in 2020, a management overlay was applied, in order to capture any bias introduced in the customer's credit ratings by defining collective rules that can assess Stage 1 and Stage 2 misclassified customers, due to skewed outlook of the idiosyncratic risk. The exercise carried out compared the observed with the expected score/rating (adjusted for the days past due and arrears elements that did not apply during the moratorium period so as to assess if any customers exhibit severe deterioration/improvement). Additionally, stricter customers' credit ratings thresholds have been applied for customers in the hotels and catering industry sector. A staging overlay was then applied on these customers in order to classify them accordingly to Stage 2. The isolated impact of this overlay resulted in a transfer of loans of €165 million from Stage 1 to Stage 2 during the six months ended 30 June 2021. These overlays had an impact on the ECL of €1,516 thousand for the six months ended 30 June 2021.

Given the data available since the expiry of the moratorium, any exposures not in the hotels and catering industry sector, that were assessed as having experienced a SICR in 2020, and were classified to Stage 2 following overlays performed, were allowed to return to Stage 1, if no SICR was identified by the models, provided they met certain additional criteria such as retaining a good rating / had no arrears / have paid at least four capital instalments since the expiry of the moratorium. This overlay led to a transfer back to Stage 1 of €278 million exposures, resulting in the reversal of ECL of €1,043 thousand for the six months ended 30 June 2021.

Additionally, exposures that did not participate in the 2020 moratorium but were identified as having experienced a SICR during 2020 and therefore transferred to Stage 2, were allowed to migrate back to Stage 1 during the six months ended 30 June 2021 if they did not exhibit a SICR as at 30 June 2021. The impact on the ECL was €3,719 thousand reversal of ECL.

Probability of default and behavioural ratings adjustment

A PD overlay, maintained from 2020, 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 isolated impact of this overlay had an ECL impact of €11 million in 2020, and had the overlay not been applied in 2021, a corresponding release on ECL would arise.

The second PD overlay relates 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 isolated impact of this overlay resulted in an ECL increase of €3,460 thousand during the six months ended 30 June 2021.

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

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.

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 significant Stage 1 exposures within highly impacted sectors to assess potential increase in credit risk and significant exposures which transitioned from Stage 1 to Stage 2 to assess potential indications for unlikeliness to pay. These expanded selection criteria were also applied in the six months ended 30 June 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.

Further details on impairment allowances and related credit information are set out in Note 29.

6.3  Stock of property ‑ estimation of net realisable value

Stock of property is measured at the lower of cost and net realisable value. The net realisable value is determined through valuation techniques, requiring significant judgement, which take into account all available reference points, such as expert valuation reports, current market conditions, the holding period of the asset, applying an appropriate illiquidity discount where considered necessary, and any other relevant parameters. Selling expenses are deducted from the realisable value. Depending on the value of the underlying asset and available market information, the determination of costs to sell may require professional judgement which involves a high degree of uncertainty due to the relatively low level of market activity.

More details on the stock of property are presented in Note 17.

6.4  Provisions for pending litigation, claims, regulatory and other matters

The accounting policy for provisions is described in Note 2.36 of the annual consolidated financial statements for the year ended 31 December 2020. Judgement is required in determining whether a present obligation exists and in estimating the probability, timing and amount of any outflows.  Provisions for pending litigation, claims, regulatory and other matters usually require a higher degree of judgement than other types of provisions.  It is expected that the Group will continue to have a material exposure to litigation and regulatory proceedings and investigations relating to legacy issues in the medium term.  The matters for which the Group determines that the probability of a future loss is more than remote will change from time to time, as will the matters as to which a reliable estimate can be made and the possible loss for such matters can be estimated. Actual results may prove to be significantly higher or lower than the estimated possible loss in those matters, where an estimate was made. In addition, loss may be incurred in matters with respect to which the Group believed the probability of loss was remote.

For a detailed description of the nature of uncertainties and assumptions and the effect on the amount and timing of pending litigation, claims, regulatory and other matters refer to Note 25.

7.   Segmental analysis

The Group's activities are mainly concentrated in Cyprus. Cyprus operations are organised into operating segments based on the line of business. As from 2021, the results of the overseas activities of the Group, namely Greece, Romania and Russia, which were previously grouped together and presented into segment 'Overseas', are now presented within segment 'Other', given the size of these operations which are in a run‑down mode in the last years. Further, the results of certain small subsidiaries of the Group have been re‑allocated from segment 'Other' to different segments based on their key activities as to better align with current management information. The impact of this alignment was not material to the presentation of the individual segments results. Comparative information in analysis by business line, analysis of total revenue and analysis of assets and liabilities were restated to account for these changes.

The operating segments are analysed below:

· The Corporate, Small and medium‑sized enterprises and Retail business lines are managing loans and advances to customers. Categorisation of loans per customer group is detailed below.

· Global corporate is managing loans and advances to customers within the large corporate section, the Shipping centre, the International Corporate Lending, the International Syndicate and Project Finance.

· Restructuring and recoveries is the specialised unit which was set up to tackle the Group's loan portfolio quality and manages exposures to borrowers in distress situation through innovative solutions.

· International banking services specialises in the offering of banking services to the international corporate and non‑resident individuals, particularly international business companies whose ownership and business activities lie outside Cyprus.

· Wealth management oversees the provision of private banking and wealth management, Market execution and Custody along with Asset Management and Investment Banking. The business line Wealth also includes subsidiary companies of the Group, whose activities relate to investment banking and brokerage, investment holding and management, administration and safekeeping of UCITS units.

· The Real Estate Management Unit manages properties acquired through debt‑for‑property swaps and properties acquired through the acquisition of certain operations of Laiki Bank in 2013, and executes exit strategies in order to monetise these assets. The business line REMU also includes other subsidiary property companies of the Group.

· Treasury is responsible for liquidity management and for overseeing operations to ensure compliance with internal and regulatory liquidity policies and provide direction as to the actions to be taken regarding liquidity availability.

· The Insurance business line is involved in both life and non‑life insurance business.

· The business line 'Other' includes central functions of BOC PCL such as finance, risk management, compliance, legal, corporate affairs and human resources. These functions provide services to the operating segments. 'Other' includes also other subsidiary companies in Cyprus (excluding the insurance subsidiaries, property companies under REMU and subsidiary companies under Wealth) as well as the overseas activities of the Group.

BOC PCL broadly categorises its loans per customer group, using the following customer sectors:

· Retail - all physical person customers, regardless of the facility amount, and legal entities with facilities from BOC PCL of up to €260 thousand, excluding business property loans.

· SME - any company or group of companies (including personal and housing loans to the directors or shareholders of a company) with facilities from BOC PCL in the range of €260 thousand to €6 million and a maximum annual credit turnover of €10 million.

· Corporate - any company or group of companies (including personal and housing loans to the directors or shareholders of a company) with available credit lines with BOC PCL in excess of an aggregate principal amount of €6 million or having a minimum annual credit turnover of €10 million. These companies are either local‑larger corporations or international companies or companies in the shipping sector (lending also includes direct lending or through syndications).

Management monitors the operating results of each business segment separately for the purposes of performance assessment and resource allocation.  Segment performance is evaluated based on profit after tax and non‑controlling interests.  Inter‑segment transactions and balances are eliminated on consolidation and are made on an arm's length basis.

Operating segment disclosures are provided as presented to the Group Executive Committee.

Income and expenses associated with each business line are included for determining its performance. Transfer pricing methodologies are applied between the business lines to present their results on an arm's length basis. Income and expenses incurred directly by the business lines are allocated to the business lines as incurred. Indirect income and expenses are re‑allocated from the central functions to the business lines. For the purposes of the Cyprus analysis by business line, notional tax at the 12.5% Cyprus tax rate is charged/credited to profit or loss before tax of each business line.

The loans and advances to customers, the customer deposits and the related income and expense are generally included in the segment where the business is managed, instead of the segment where the transaction is recorded.

Analysis by business line

	Corporate	Global corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total
Six months ended 30 June 2021	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Net interest income/(expense)	27,082	27,739	15,061	38,734	30,070	4,127	220	(12,417)	(9)	8,179	13,427	152,213
Net fee and commission income/(expense)	6,926	5,385	4,445	20,764	7,690	26,846	2,773	(86)	(3,759)	953	11,920	83,857
Net foreign exchange gains/(losses)	238	101	233	812	30	2,699	1,341	-	-	1,160	(64)	6,550
Net (losses)/gains on financial instrument transactions and on disposal/dissolution of subsidiaries and associates	-	(116)	-	-	(3,035)	-	(322)	6	(303)	(10,270)	(36)	(14,076)
Insurance income net of claims and commissions	-	-	-	-	-	-	-	-	31,068	-	-	31,068
Net losses from revaluation and disposal of investment properties	-	-	-	-	-	-	-	(709)	-	-	(672)	(1,381)
Net gains on disposal of stock of property	-	-	-	-	-	-	-	7,180	-	-	192	7,372
Other income	1	2	6	177	32	1	100	3,284	30	-	2,964	6,597
	34,247	33,111	19,745	60,487	34,787	33,673	4,112	(2,742)	27,027	22	27,731	272,200
Staff costs	(2,604)	(1,473)	(2,992)	(30,147)	(8,015)	(6,222)	(1,993)	(1,838)	(5,396)	(739)	(39,447)	(100,866)
Special levy on deposits and other levies/contributions	(916)	(461)	(763)	(9,846)	(49)	(2,937)	(283)	-	-	-	-	(15,255)
Other operating (expenses)/income (excluding advisory and other restructuring costs)	(8,686)	(8,380)	(7,963)	(33,637)	(12,960)	(4,518)	(1,652)	(8,706)	(4,204)	(4,232)	14,791	(80,147)
Other operating expenses ‑ advisory and other restructuring costs	-	-	-	-	(14,559)	-	-	(607)	-	-	(275)	(15,441)
	22,041	22,797	8,027	(13,143)	(796)	19,996	184	(13,893)	17,427	(4,949)	2,800	60,491
Net gains/(losses) on derecognition of financial assets measured at amortised cost	34	1,187	658	219	(971)	(75)	1	-	-	-	-	1,053
Credit (losses)/gains to cover credit risk on loans and advances to customers	(1,666)	(4,089)	913	11,906	(55,320)	1,548	(70)	-	-	-	(1,571)	(48,349)
Credit gains/(losses) of other financial instruments	-	-	-	-	-	-	5	(91)	(184)	(57)	(3,487)	(3,814)
Impairment net of reversals of non‑financial assets	-	-	-	-	-	-	-	(6,742)	-	-	(656)	(7,398)
Share of loss from associates	-	-	-	-	-	-	-	-	-	-	137	137
Profit/(loss) before tax	20,409	19,895	9,598	(1,018)	(57,087)	21,469	120	(20,726)	17,243	(5,006)	(2,777)	2,120
Income tax	(2,551)	(2,487)	(1,200)	127	7,136	(2,684)	(113)	895	(2,106)	626	1,389	(968)
Profit/(loss) after tax	17,858	17,408	8,398	(891)	(49,951)	18,785	7	(19,831)	15,137	(4,380)	(1,388)	1,152
Non‑controlling interests‑profit	-	-	-	-	-	-	-	-	-	-	(413)	(413)
Profit/(loss) after tax attributable to the owners of the Company	17,858	17,408	8,398	(891)	(49,951)	18,785	7	(19,831)	15,137	(4,380)	(1,801)	739

	Corporate	Global corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total
Six months ended 30 June 2020 (restated)	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Net interest income/(expense)	30,976	36,401	17,666	62,691	15,240	10,569	1,310	(19,363)	(29)	257	12,082	167,800
Net fee and commission income/(expense)	5,605	4,784	3,935	19,327	3,989	23,828	2,434	(123)	(3,100)	963	9,603	71,245
Net foreign exchange gains	282	124	257	836	55	2,896	1,499	-	-	3,869	725	10,543
Net gains/(losses) on financial instrument transactions and on disposal/dissolution of subsidiaries and associates	-	3,740	-	-	(733)	-	419	(5)	(244)	1,943	(272)	4,848
Insurance income net of claims and commissions	-	-	-	-	-	-	-	-	28,562	-	353	28,915
Net gains/(losses) from revaluation and disposal of investment properties	-	-	-	-	-	-	-	111	-	-	(2,440)	(2,329)
Net gains on disposal of stock of property	-	-	-	-	-	-	-	2,639	-	-	37	2,676
Other income	1	1	7	52	112	1	318	6,812	(256)	1	994	8,043
	36,864	45,050	21,865	82,906	18,663	37,294	5,980	(9,929)	24,933	7,033	21,082	291,741
Staff costs	(2,564)	(1,298)	(2,817)	(29,574)	(8,059)	(5,899)	(2,116)	(2,033)	(4,751)	(772)	(36,325)	(96,208)
Special levy on deposits and other levies/contributions	(1,000)	(659)	(707)	(9,427)	(78)	(3,155)	(297)	-	-	-	-	(15,323)
Other operating (expenses)/income (excluding advisory and other restructuring costs)	(5,113)	(3,631)	(6,444)	(38,899)	(12,874)	(5,405)	(1,396)	(4,735)	(4,055)	(6,152)	4,027	(84,677)
Other operating expenses ‑ advisory and other restructuring costs	(4)	-	-	-	(8,763)	-	-	(506)	-	-	(614)	(9,887)
	28,183	39,462	11,897	5,006	(11,111)	22,835	2,171	(17,203)	16,127	109	(11,830)	85,646
Net (losses)/gains on derecognition of financial assets measured at amortised cost	(367)	1,850	402	(582)	363	(9)	4	-	-	-	956	2,617
Credit (losses)/gains to cover credit risk on loans and advances to customers	(5,623)	(21,057)	(899)	2,210	(156,581)	9,910	(219)	-	-	-	(11,452)	(183,711)
Credit (losses)/gains of other financial instruments	-	-	-	-	-	-	(163)	31	(206)	188	(476)	(626)
Impairment net of reversals of non‑financial assets	-	-	-	-	-	-	-	(26,118)	-	-	(2,466)	(28,584)
Share of loss from associates	-	-	-	-	-	-	-	-	-	-	(206)	(206)
Profit/(loss) before tax	22,193	20,255	11,400	6,634	(167,329)	32,736	1,793	(43,290)	15,921	297	(25,474)	(124,864)
Income tax	(2,774)	(2,532)	(1,425)	(829)	20,916	(4,092)	(224)	5,411	(1,736)	(37)	(16,937)	(4,259)
Profit/(loss) after tax	19,419	17,723	9,975	5,805	(146,413)	28,644	1,569	(37,879)	14,185	260	(42,411)	(129,123)
Non‑controlling interests‑loss	-	-	-	-	-	-	-	-	-	-	3,505	3,505
Profit/(loss) after tax attributable to the owners of the Company	19,419	17,723	9,975	5,805	(146,413)	28,644	1,569	(37,879)	14,185	260	(38,906)	(125,618)

Analysis of total revenue

Total revenue includes net interest income, net fee and commission income, net foreign exchange gains, net gains/(losses) on financial instrument transactions, insurance income net of claims and commissions, net gains/(losses) from revaluation and disposal of investment properties, net gains/(losses) on disposal of stock of property and other income. There was no revenue deriving from transactions with a single external customer that amounted to 10% or more of Group revenue.

	Corporate	Global corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total
Six months ended 30 June 2021	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Revenue from third parties	38,477	37,687	21,235	64,659	36,943	31,570	4,555	9,576	30,060	(18,244)	15,682	272,200
Inter‑segment (expense)/revenue	(4,230)	(4,576)	(1,490)	(4,172)	(2,156)	2,103	(443)	(12,318)	(3,033)	18,266	12,049	-
Total revenue	34,247	33,111	19,745	60,487	34,787	33,673	4,112	(2,742)	27,027	22	27,731	272,200

Six months ended 30 June 2020 (restated)
Revenue from third parties	39,089	49,664	21,860	64,440	44,982	27,846	5,055	(3,191)	24,667	(5,178)	22,507	291,741
Inter‑segment (expense)/revenue	(2,225)	(4,614)	5	18,466	(26,319)	9,448	925	(6,738)	266	12,211	(1,425)	-
Total revenue	36,864	45,050	21,865	82,906	18,663	37,294	5,980	(9,929)	24,933	7,033	21,082	291,741

Analysis of assets and liabilities

	Corporate	Global corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total
30 June 2021	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Assets
Assets	1,971,495	2,065,398	1,072,297	3,901,160	761,570	135,511	75,949	1,365,777	997,657	10,622,161	1,725,513	24,694,488
Inter‑segment assets	-	-	-	-	-	-	(12,312)	(18,832)	(21,126)	-	(27,363)	(79,633)
	1,971,495	2,065,398	1,072,297	3,901,160	761,570	135,511	63,637	1,346,945	976,531	10,622,161	1,698,150	24,614,855
Assets between Cyprus and overseas operations												(403,542)
Total assets												24,211,313

	Corporate	Global corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total
31 December 2020 (restated)	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Assets
Assets	1,918,726	2,043,938	1,079,633	3,798,897	1,354,964	132,900	62,716	1,552,685	935,705	7,736,802	1,364,567	21,981,533
Inter‑segment assets	-	-	-	-	-	-	(13,154)	(16,751)	(18,334)	-	(17,751)	(65,990)
	1,918,726	2,043,938	1,079,633	3,798,897	1,354,964	132,900	49,562	1,535,934	917,371	7,736,802	1,346,816	21,915,543
Assets between Cyprus and overseas operations												(401,412)
Total assets												21,514,131

	Corporate	Global corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total
30 June 2021	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Liabilities
Liabilities	1,082,854	500,974	829,943	10,719,893	50,257	3,255,717	379,261	10,767	793,334	4,150,022	852,109	22,625,131
Inter‑segment liabilities	-	-	-	-	-	-	-	-	-	(79,633)	-	(79,633)
	1,082,854	500,974	829,943	10,719,893	50,257	3,255,717	379,261	10,767	793,334	4,070,389	852,109	22,545,498
Liabilities between Cyprus and overseas operations												(404,667)
Total liabilities												22,140,831

31 December 2020 (restated)
Liabilities
Liabilities	1,037,430	607,467	832,576	10,525,819	58,389	3,180,061	309,518	6,394	747,410	1,721,601	880,939	19,907,604
Inter‑segment liabilities	-	-	-	-	-	-	-	-	-	(65,990)	-	(65,990)
	1,037,430	607,467	832,576	10,525,819	58,389	3,180,061	309,518	6,394	747,410	1,655,611	880,939	19,841,614
Liabilities between Cyprus and overseas operations												(402,537)
Total liabilities												19,439,077
Segmental analysis of customer deposits and loans and advances to customers is presented in Notes 21 and 29.2 and 29.4 respectively.

Analysis of turnover

	Six months ended 30 June
	2021	2020
	€000	€000
Interest income and income similar to interest income	196,898	223,147
Fees and commission income	87,610	74,909
Net foreign exchange gains	6,550	10,543
Gross insurance premiums	95,089	88,254
Losses of investment properties and stock of properties	(1,377)	(28,244)
Other income	6,597	8,043
	391,367	376,652

The analysis of 'Losses of investment properties and stock of properties' is provided in the table below:

	Six months ended 30 June
	2021	2020
	€000	€000
Net losses from revaluation and disposal of investment properties	(1,381)	(2,329)
Net gains on disposal of stock of property	7,372	2,676
Impairment of stock of property (Note 10)	(7,368)	(28,591)
	(1,377)	(28,244)

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

	Six months ended 30 June
	2021	2020
	€000	€000
Trading portfolio:
‑ derivative financial instruments	23	(811)
Other investments at FVPL:
‑ debt securities	2,540	241
‑ mutual funds	(575)	(500)
‑ equity securities	(171)	292
Net gains on disposal of FVOCI debt securities	-	2,865
Net loss on early redemption of subordinated loan stock	(12,433)	-
Net (losses)/gains on loans and advances to customers at FVPL	(3,151)	3,007
Revaluation of financial instruments designated as fair value hedges:
‑ hedging instruments	9,786	(9,315)
‑ hedged items	(9,215)	9,030
Net gains on financial liabilities at FVPL	-	223
Loss on disposal/dissolution of subsidiaries and associates	(880)	(184)
	(14,076)	4,848
In April 2021, BOC PCL invited the holders of its €250 million unsecured and subordinated Tier 2 Capital Note (issued in January 2017) to tender it for purchase by BOC PCL at a price of 105.5% plus accrued interest. BOC PCL received valid tenders for €207 million in aggregate nominal amount, all of which were accepted. As a result, BOC PCL incurred a loss of €12,433 thousand, while at the same time forfeiting the relevant obligation for future coupon payments. Further information is provided in Note 22.
The loss on disposal/dissolution of subsidiaries for the six months ended 30 June 2021 relates mainly to loss on the disposal of the subsidiary Global Balanced Fund of Funds Salamis Variable Capital Investment Company PLC (Note 34).The loss on disposal/dissolution of subsidiaries for the six months ended 30 June 2020 relates to loss on the dissolution of the subsidiary Bank of Cyprus (Channel Islands) Ltd.

9.   Staff costs and other operating expenses

Staff costs

	Six months ended 30 June
	2021	2020
	€000	€000
Salaries	81,397	78,593
Employer's contributions to state social insurance	12,905	11,915
Retirement benefit plan costs	6,564	5,700
	100,866	96,208
The number of persons employed by the Group as at 30 June 2021 was 3,558 and includes 98 persons relating to the Helix 2 transaction, where the full migration and transfer to the buyer is expected to be concluded by 30 September 2021 (31 December 2020: 3,573 and 30 June 2020: 3,579).
In December 2020, the Group proceeded with a targeted voluntary exit plan for its employees in Cyprus, with a cost amounting to €5,825 thousand. In total 27 employees accepted the targeted voluntary exit plan and left the Group in early 2021.
Other operating expenses

	Six months ended 30 June
	2021	2020
	€000	€000
Repairs and maintenance of property and equipment	15,669	15,621
Other property‑related costs	5,708	6,199
Consultancy and other professional services fees	7,132	4,872
Insurance	3,725	3,679
Advertising and marketing	2,751	2,634
Depreciation of property and equipment	8,266	9,955
Amortisation of intangible assets	9,325	8,847
Communication expenses	3,449	3,323
Provisions for pending litigations, claims, regulatory and other matters (Note 25.4)	10,660	16,044
Printing and stationery	814	908
Cash transfer expenses	1,139	1,255
Other operating expenses	11,509	11,340
	80,147	84,677
Advisory and other restructuring costs	15,441	9,887
	95,588	94,564
Advisory and other restructuring costs comprise mainly fees to external advisors in relation to: (i) customer loan restructuring activities which are not part of the effective interest rate and (ii) the disposal of operations and non‑core assets.
During the six months ended 30 June 2021, the Group recognised €67 thousand relating to rent expense for short term leases, included within 'Other property related costs (30 June 2020: €146 thousand) and €3,920 thousand relating to the depreciation of right‑of‑use assets, included within 'Depreciation of property and equipment' (30 June 2020: €4,868 thousand).

The special levy on credit institutions in Cyprus (the Special Levy) is imposed on the level of deposits as at the end of the previous quarter, at the rate of 0.0375% per quarter. Following an amendment of the Imposition of Special Credit Institution Tax Law in 2017, the Single Resolution Fund contribution, which is charged annually by the Single Resolution Board, reduces the payment of the Special Levy up to the level of the total annual Special Levy charge. The Special levy on deposits of credit institutions in Cyprus and contribution to Single Resolution Fund amounted to €12,370 thousand (30 June 2020: €12,416 thousand) and is presented on the face of the consolidated income statement, together with the contribution to the Deposit Guarantee Fund of €2,885 thousand (30 June 2020: €2,907 thousand).

As from 1 January 2020 and until 3 July 2024 BOC PCL is subject to a 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 covered deposits by 3 July 2024.

10.  Credit losses of financial instruments and impairment of non‑financial assets

	Six months ended 30 June
	2021	2020
	€000	€000
Credit losses to cover credit risk on loans and advances to customers
Impairment loss net of reversals on loans and advances to customers (Note 29.5)	41,717	184,455
Recoveries of loans and advances to customers previously written off	(5,036)	(12,011)
Changes in expected cash flows	10,393	15,375
Financial guarantees and commitments	1,275	(4,108)
	48,349	183,711

Credit losses of other financial instruments
Amortised cost debt securities	51	277
FVOCI debt securities	15	(19)
Loans and advances to banks	9	74
Other financial assets (Note 18)	3,739	294
	3,814	626

Impairment of non‑financial assets
Stock of property (Note 17)	7,368	28,591
Other non‑financial assets	30	(7)
	7,398	28,584

11.  Income tax

	Six months ended 30 June
	2021	2020
	€000	€000
Current tax:
‑ Cyprus	1,973	1,734
‑ Overseas	-	49
Cyprus special defence contribution	59	23
Deferred tax charge	504	671
Prior years' tax adjustments	(1,890)	795
Other tax charges	322	987
	968	4,259
The net deferred tax assets comprise of:

	30 June 2021	31 December 2020
	€000	€000
Deferred tax assets	303,390	341,360
Deferred tax liabilities	(46,465)	(45,982)
Net deferred tax assets	256,925	295,378
The deferred tax assets relate to Cyprus operations.
The movement of the net deferred tax assets is set out below:

	30 June 2021	31 December 2020
	€000	€000
1 January	295,378	333,111
Deferred tax recognised in the consolidated income statement	(504)	(1,611)
Deferred tax recognised in the consolidated statement of comprehensive income	(40)	1,787
Transfer to current tax receivables following conversion into tax credit	(37,909)	(37,909)
30 June/31 December	256,925	295,378
The Group offsets income tax assets and liabilities only if it has a legally enforceable right to set‑off current income tax assets and current income tax liabilities.
BOC PCL has DTA that meets the requirements of the Income Tax Law Amendment 28(I) of 2019 (the 'Law'), which allow for the conversion of specific tax losses into tax credits and subsequently any such unutilised tax credits into a receivable from the Government, relating to income tax losses transferred to BOC PCL as a result of the acquisition of certain operations of Laiki Bank, on 29 March 2013, under 'The Resolution of Credit and Other Institutions Law'. The DTA recognised upon the acquisition of certain operations of Laiki in 2013 amounted to €417 million for which BOC PCL paid a consideration as part of the respective acquisition. Under the Law, BOC PCL could convert up to an amount of €3.3 billion tax losses to tax credits (which led to the creation of DTA amounting to €417 million), with the conversion being based on the tax rate applicable at the time of conversion. The period of utilisation of the tax losses which may be converted into tax credits is fifteen years by end of 2028.
During the six months ended 30 June 2021, an amount of €37,909 thousand has been reclassified from the DTA to current tax receivables (2020: €37,909 thousand), being the annual conversion into tax credit.
As a result of the above Law, the Group has deferred tax assets amounting to €303,273 thousand as at 30 June 2021 (31 December 2020: €341,182 thousand) that meet the requirements under this Law, the recovery of which is guaranteed.

The DTA subject to the Law is accounted for on the same basis, as described in Note 2.13 of the annual consolidated financial statements for the year ended 31 December 2020.

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 €10,000 thousand per year. The Group estimates that such increased fees could range up to €5,300 thousand 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. To this respect, an amount of €3,445 thousand had been recorded during the year ended 31 December 2020, to bring the total amount provided for years 2018‑2020 to €15,900 thousand, being the maximum expected increased amount for these years.

Accumulated income tax losses

The accumulated income tax losses are presented in the table below:

30 June 2021	Total income tax losses	Income tax losses for which a deferred tax asset was recognised	Income tax losses for which no deferred tax asset was recognised
	€000	€000	€000
Expiring within 5 years	291,984	-	291,984
Utilisation in annual instalments up to 2028	2,426,182	2,426,182	-
	2,718,166	2,426,182	291,984
31 December 2020
Expiring within 5 years	648,401	-	648,401
Utilisation in annual instalments up to 2028	2,729,454	2,729,454	-
	3,377,855	2,729,454	648,401

In relation to the tax losses that were transferred to BOC PCL in 2013, the income tax authorities in Cyprus issued their tax assessments in March and April 2019. On the basis of these assessments the quantum of Laiki Bank tax losses were approximately €5 billion and lower than the initial amount of €7.4 billion estimated in 2013.

The tax losses in excess of the €3.3 billion transferred from Laiki Bank to BOC PCL in March 2013 cannot be utilised by BOC PCL, in line with the March 2019 Law amendments, except in cases where there are transfers arising due to reorganisations made prior to 1 October 2019.

12.   Earnings per share

	Six months ended 30 June
Basic and diluted profit/(loss) per share attributable to the owners of the Company	2021	2020
Profit/(loss) for the period attributable to the owners of the Company (€ thousand)	739	(125,618)
Weighted average number of shares in issue during the period, excluding treasury shares (thousand)	446,058	446,058
Basic and diluted profit/(loss) per share (€ cent)	0.2	(28.2)

13.   Investments

	30 June 2021	31 December 2020
Investments	€000	€000
Investments mandatorily measured at FVPL	192,659	207,943
Investments at FVOCI	286,396	658,232
Investments at amortised cost	403,688	1,009,834
	882,743	1,876,009
During the six months ended 30 June 2021, the Group has proceeded to invest in debt securities, as part of its investing strategy, which related to the acquisition of mainly Cyprus Government bonds.

The amounts pledged as collateral are shown below:

	30 June 2021	31 December 2020
Investments pledged as collateral	€000	€000
Investments at FVOCI	493,201	14,069
Investments at amortised cost	822,128	23,036
	1,315,329	37,105
Investments pledged as collateral as at 30 June 2021 related to debt securities collaterised mainly for the additional amounts borrowed from the ECB Targeted Longer‑Term Refinancing Operations (TLTRO III) in March 2021 and June 2021 of a total nominal amount of €2 billion, as further described in Note 20. Encumbered assets are disclosed in Note 31.
The maximum exposure to credit risk for debt securities is disclosed in Note 29.1.
Investments in equity securities and mutual funds as at 30 June 2021, included above, amount to €18,063 thousand and €181,933 thousand respectively (31 December 2020: €18,112 thousand and €186,158 thousand respectively).
There were no reclassifications of investments during the six months ended 30 June 2021 and the year 2020.
The debt securities which are measured at FVPL are mandatorily classified, because they failed to meet the SPPI criteria.
During the six months ended 30 June 2021 and the year 2020 no material equity investments measured at FVOCI have been disposed of. There were no transfers from OCI to retained earnings during the period.
The fair value of the financial assets that have been reclassified out of FVPL to FVOCI on transition to IFRS 9, amounts to €12,092 thousand at 30 June 2021 (31 December 2020: €12,134 thousand). The fair value loss that would have been recognised in the consolidated income statement during the six months ended 30 June 2021 if these financial assets had not been reclassified as part of the transition to IFRS 9, amounts to €41 thousand (six months ended 30 June 2020: gain of €50 thousand). The effective interest rate of these instruments is 1.6%‑5.0% (2020: 1.6%‑5.0%) per annum and the respective interest income during the six months ended 30 June 2021 amounts to €150 thousand (six months ended 30 June 2020: €139 thousand).

14.   Derivative financial instruments

The contract amount and fair value of the derivative financial instruments is set out below:

	30 June 2021			31 December 2020
		Fair value			Fair value
	Contract amount	Assets	Liabilities	Contract amount	Assets	Liabilities
	€000	€000	€000	€000	€000	€000
Trading derivatives
Forward exchange rate contracts	17,194	239	131	37,912	834	346
Currency swaps	1,051,967	4,670	1,370	970,645	4,458	2,832
Interest rate swaps	21,226	103	89	92,305	271	597
Currency options	-	-	-	2,628	72	302
Interest rate caps/floors	500,000	5	-	527,883	83	25
	1,590,387	5,017	1,590	1,631,373	5,718	4,102
Derivatives qualifying for hedge accounting
Fair value hedges ‑ interest rate swaps	762,017	1,936	40,525	877,783	18,907	39,720
Net investments ‑ forward exchange rate contracts and currency swaps	91,802	1,390	38	84,588	2	2,156
	853,819	3,326	40,563	962,371	18,909	41,876
Total	2,444,206	8,343	42,153	2,593,744	24,627	45,978

Hedge accounting

The Group elected, as a policy choice permitted by IFRS 9, to continue to apply hedge accounting in accordance with IAS 39. The Group implements the amended IFRS 7 hedge disclosure requirements.

The Group applies fair value hedge accounting using derivatives when the required criteria for hedge accounting are met. The Group also uses derivatives for economic hedging (hedging the changes in interest rates, exchange rates or other risks) which do not meet the criteria for hedge accounting. As a result, these derivatives are accounted for as trading derivatives and the gains or losses arising from revaluation are recognised in the consolidated income statement.

Changes in the fair value of derivatives designated as fair value hedges and the fair value of the item in relation to the risk being hedged are recognised in the consolidated income statement.

Fair value hedges

The Group uses interest rate swaps to hedge the interest rate risk arising as a result of the possible adverse movement in the fair value of fixed rate debt securities measured at FVOCI, subordinated loan stock and deposits.

Hedges of net investments

The Group's consolidated balance sheet is affected by foreign exchange differences between the Euro and all non‑Euro functional currencies of overseas subsidiaries and other foreign operations. The Group hedges its structural currency risk when it considers that the cost of such hedging is within an acceptable range (in relation to the underlying risk). This hedging is effected by financing with borrowings in the same currency as the functional currency of the overseas subsidiaries and forward exchange rate contracts.

As at 30 June 2021, deposits, and forward and swap exchange rate contracts amounting to €10,504 thousand and €91,802 thousand respectively (31 December 2020: €9,988 thousand and €84,588 thousand respectively) have been designated as hedging instruments and have given rise to a gain of €3,867 thousand (30 June 2020: loss of €9,496 thousand) which was recognised in the 'Foreign currency translation reserve' in the consolidated statement of comprehensive income, against the profit or loss from the retranslation of the net assets of the overseas subsidiaries and other foreign operations.

Interest rate benchmark reform

As at 30 June 2021 and 31 December 2020 the interest rate benchmarks to which BOC PCL's hedge relationships are exposed to, are Euro Interbank Offered Rate (Euribor) and US Dollar London Interbank Offered Rate (Libor) for the cash flows of the hedging instruments. The Group has applied judgement in relation to market expectations regarding hedging instruments. The key judgement is that the cash flows for contracts currently indexing Interbank Offered Rate (IBOR) are expected to have broadly equivalent cash flows upon the transition of the contracts to IBOR replacement rates.

The table below indicates the nominal amount of derivatives in hedging relationships that will be subject to the IBOR reform, analysed by interest rate basis. The derivative hedging instruments provide a close approximation to the extent of the risk exposure BOC PCL manages through hedging relationships.

	30 June 2021	31 December 2020
Interest Rate Swaps	€000	€000
Euribor (3 months)	578,174	699,831
Libor USD (3 months)	183,843	177,952
Total	762,017	877,783
As at 30 June 2021, the Group's assessment regarding the on‑going transition to the new risk‑free rates (RFRs) indicates that the impact on the hedging relationships and in value terms is not significant. Further details in relation to interest rate benchmark reform are disclosed in Note 30.

15.   Fair value measurement

The following table presents the carrying value and fair value of the Group's financial assets and liabilities.

	30 June 2021		31 December 2020
	Carrying value	Fair value	Carrying value	Fair value
Financial assets	€000	€000	€000	€000
Cash and balances with central banks	8,227,491	8,227,491	5,653,315	5,653,315
Loans and advances to banks	436,091	435,439	402,784	402,979
Investments mandatorily measured at FVPL	192,659	192,659	207,943	207,943
Investments at FVOCI	779,597	779,597	672,301	672,301
Investments at amortised cost	1,225,816	1,240,354	1,032,870	1,050,271
Derivative financial assets	8,343	8,343	24,627	24,627
Loans and advances to customers	9,966,542	9,801,823	9,886,047	9,687,663
Life insurance business assets attributable to policyholders	507,054	507,054	462,977	462,977
Financial assets classified as held for sale	-	-	561,462	561,462
Other financial assets	496,966	496,966	102,211	102,211
	21,840,559	21,689,726	19,006,537	18,825,749
Financial liabilities
Funding from central banks and deposits by banks	3,385,906	3,325,367	1,386,643	1,325,538
Derivative financial liabilities	42,153	42,153	45,978	45,978
Customer deposits	16,801,251	16,806,272	16,533,212	16,535,842
Loan stock	645,099	668,901	272,152	274,414
Other financial liabilities and lease liabilities	276,532	276,532	282,517	282,517
	21,150,941	21,119,225	18,520,502	18,464,289
The fair value of financial assets and liabilities in the above table is as at the reporting date and does not represent any expectations about their future value.
The Group uses the following hierarchy for determining and disclosing fair value:

Level 1: investments valued using quoted prices in active markets.

Level 2: investments valued using models for which all inputs that have a significant effect on fair value are market observable.

Level 3: investments valued using models for which inputs that have a significant effect on fair value are not based on market observable data.

For assets and liabilities that are recognised in the Consolidated Financial Statements at fair value, the Group determines whether transfers have occurred between levels in the hierarchy by re‑assessing categorisation at the end of each reporting period.

The following is a description of the determination of fair value for financial instruments which are recorded at fair value on a recurring and on a non‑recurring basis and for financial instruments which are not measured at fair value but for which fair value is disclosed, using valuation techniques. These incorporate the Group's estimate of assumptions that a market participant would make when valuing the instruments.

Derivative financial instruments

Derivative financial instruments valued using a valuation technique with market observable inputs are mainly interest rate swaps, currency swaps, currency rate options, forward foreign exchange rate contracts and interest rate collars.  The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations.  The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves.

Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA)

The CVA and DVA are incorporated into derivative valuations to reflect the impact on fair value of counterparty risk and BOC PCL's own credit quality respectively.

The Group calculates the CVA by applying the PD of the counterparty, conditional on the non‑default of the Group, to the Group's expected positive exposure to the counterparty and multiplying the result by the loss expected in the event of default. Conversely, the Group calculates the DVA by applying its own PD, conditional on the non‑default of the counterparty, to the expected positive exposure of the counterparty to the Group and multiplying the result by the loss expected in the event of default. Both calculations are performed over the life of the potential exposure.

The expected exposure of derivatives is calculated as per the CRR and takes into account the netting agreements where they exist. A standard LGD assumption in line with industry norms is adopted. Alternative LGD assumptions may be adopted when both the nature of the exposure and the available data support this.

The Group does not hold any significant derivative instruments which are valued using a valuation technique with significant non‑market observable inputs.

Investments at FVPL, investments at FVOCI and investments at amortised cost

Investments which are valued using a valuation technique or pricing models, primarily consist of unquoted equity securities and debt securities. These assets are valued using valuation models which sometimes only incorporate market observable data and at other times use both observable and non‑observable data. The rest of the investments are valued using quoted prices in active markets.

Loans and advances to customers

The fair value of loans and advances to customers is based on the present value of expected future cash flows. Future cash flows have been based on the future expected loss rate per loan portfolio, taking into account expectations for the credit quality of the borrowers. The discount rate includes components that capture the risk‑free rate per currency, funding cost, servicing cost and the cost of capital, considering the risk weight of each loan. The discount rate used in the determination of the fair value of the loans and advances to customers measured at FVPL during the six months ended 30 June 2021 ranges from 2.21% to 8.50% (31 December 2020:1.95%‑8.50%).

Customer deposits

The fair value of customer deposits is determined by calculating the present value of future cash flows.  The discount rate takes into account current market rates and the credit profile of BOC PCL. The fair value of deposits repayable on demand and deposits protected by the Deposit Protection Guarantee Scheme are approximated by their carrying values.

Loans and advances to banks

Loans and advances to banks with maturity over one year are discounted using an appropriate risk free rate plus the appropriate credit spread. For short‑term lending, the fair value is approximated by the carrying value.

Deposits by banks and funding from central banks

Deposits by banks and funding from central banks with maturity over one year are discounted using an appropriate risk‑free rate plus the appropriate credit spread. For short‑term lending, the fair value is approximated by the carrying value.

Loan stock

Loan stock issuances are traded in an active market with quoted prices.

Model inputs for valuation

Observable inputs to the models for the valuation of unquoted equity and debt securities include, where applicable, current and expected market interest rates, market expected default rates, market implied country and counterparty credit risk and market liquidity discounts.

The following table presents the fair value measurement hierarchy of the Group's financial assets and liabilities recorded at fair value or for which fair value is disclosed, by level of the fair value hierarchy:

	Level 1	Level 2	Level 3	Total
30 June 2021	€000	€000	€000	€000
Financial assets
Loans and advances to customers measured at FVPL	-	-	292,119	292,119
Trading derivatives
Forward exchange rate contracts	-	239	-	239
Currency swaps	-	4,670	-	4,670
Interest rate swaps	-	103	-	103
Interest rate caps/floors	-	5	-	5
	-	5,017	-	5,017
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps	-	1,936	-	1,936
Net investments‑forward exchange rate contracts and currency swaps	-	1,390	-	1,390
	-	3,326	-	3,326
Investments mandatorily measured at FVPL	140,854	43,692	8,113	192,659
Investments at FVOCI	765,264	969	13,364	779,597
	906,118	53,004	313,596	1,272,718
Other financial assets not measured at fair value
Loans and advances to banks	-	435,439	-	435,439
Investments at amortised cost	1,068,894	91,799	79,661	1,240,354
Loans and advances to customers	-	-	9,509,704	9,509,704
	1,068,894	527,238	9,589,365	11,185,497
For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discount factor by 10% would result in a decrease of €4,808 thousand in their fair value and a decrease in the discount factor by 10% would result in an increase of €936 thousand in their fair value.
For one investment included in debt securities mandatorily measured at FVPL as a result of the SPPI assessment and categorised as Level 3 with a carrying amount of €7,531 thousand as at 30 June 2021, a change in the conversion factor by 10% would result in a change in the value of the debt securities by €753 thousand.

	Level 1	Level 2	Level 3	Total
30 June 2021	€000	€000	€000	€000
Financial liabilities
Trading derivatives
Forward exchange rate contracts	-	131	-	131
Currency swaps	-	1,370	-	1,370
Interest rate swaps	-	89	-	89
	-	1,590	-	1,590
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps	-	40,525	-	40,525
Net investments‑forward exchange rate contracts and currency swaps	-	38	-	38
	-	40,563	-	40,563
	-	42,153	-	42,153
Other financial liabilities not measured at fair value
Funding from central banks	-	2,977,883	-	2,977,883
Deposits by banks	-	347,484	-	347,484
Customer deposits	-	-	16,806,272	16,806,272
Loan stock	668,901	-	-	668,901
	668,901	3,325,367	16,806,272	20,800,540

	Level 1	Level 2	Level 3	Total
31 December 2020	€000	€000	€000	€000
Financial assets
Loans and advances to customers measured at FVPL	-	-	289,861	289,861
Trading derivatives
Forward exchange rate contracts	-	834	-	834
Currency swaps	-	4,458	-	4,458
Interest rate swaps	-	271	-	271
Currency options	-	72	-	72
Interest rate caps/floors	-	83	-	83
	-	5,718	-	5,718
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps	-	18,907	-	18,907
Net investments‑forward exchange rate contracts and currency swaps	-	2	-	2
	-	18,909	-	18,909
Investments mandatorily measured at FVPL	134,918	53,347	19,678	207,943
Investments at FVOCI	655,813	2,984	13,504	672,301
	790,731	80,958	323,043	1,194,732
Other financial assets not measured at fair value
Loans and advances to banks	-	402,979	-	402,979
Investments at amortised cost	695,666	321,612	32,993	1,050,271
Loans and advances to customers	-	-	9,397,802	9,397,802
	695,666	724,591	9,430,795	10,851,052
For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discount factor by 10% would result in a decrease of €5,027 thousand in their fair value and a decrease in the discount factor by 10% would result in an increase of €1,681 thousand in their fair value.

For one investment included in debt securities mandatorily measured at FVPL as a result of the SPPI assessment and categorised as Level 3 with a carrying amount of €18,618 thousand as at 31 December 2020, a change in the conversion factor by 10% would result in a change in the value of the debt securities by €1,862 thousand.

	Level 1	Level 2	Level 3	Total
31 December 2020	€000	€000	€000	€000
Financial liabilities
Trading derivatives
Forward exchange rate contracts	-	346	-	346
Currency swaps	-	2,832	-	2,832
Interest rate swaps	-	597	-	597
Currency options	-	302	-	302
Interest rate caps/floors	-	25	-	25
	-	4,102	-	4,102
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps	-	39,720	-	39,720
Net investments‑forward exchange rate contracts and currency swaps	-	2,156	-	2,156
	-	41,876	-	41,876
	-	45,978	-	45,978
Other financial liabilities not measured at fair value
Funding from central banks	-	992,494	-	992,494
Deposits by banks	-	333,044	-	333,044
Customer deposits	-	-	16,535,842	16,535,842
Loan stock	274,414	-	-	274,414
	274,414	1,325,538	16,535,842	18,135,794
The cash and balances with central banks are financial instruments whose carrying value is a reasonable approximation of fair value, because they are mostly short‑term in nature or are repriced to current market rates frequently. The carrying value of other financial assets and other financial liabilities and assets classified as held for sale is a close approximation of their fair value and they are categorised as Level 3.
During the six months ended 30 June 2021 and the year ended 31 December 2020 there were no significant transfers between Level 1 and Level 2.
Movements in Level 3 assets measured at fair value
Transfers from Level 3 to Level 2 occur when the market for some securities becomes more liquid, which eliminates the need for the previously required significant unobservable valuation inputs. Following a transfer to Level 2 the instruments are valued using valuation models incorporating observable market inputs. Transfers into Level 3 reflect changes in market conditions as a result of which instruments become less liquid. Therefore, the Group requires significant unobservable inputs to calculate their fair value.

The movement in Level 3 financial assets which are measured at fair value is presented below:

	30 June 2021			31 December 2020
	Loans and advances to customers	Financial instruments	Total	Loans and advances to customers	Financial instruments	Total
	€000	€000	€000	€000	€000	€000
1 January	289,861	33,182	323,043	369,293	38,507	407,800
Additions	-	361	361	-	-	-
Disposals	-	(14,538)	(14,538)	-	-	-
Fair value gains/(losses)	-	2,427	2,427	-	(4,109)	(4,109)
Net (losses)/gains on loans and advances to customers measured at FVPL (Note 8)	(3,151)	-	(3,151)	3,606	-	3,606
Derecognition/repayment of loans	(788)	-	(788)	(96,254)	-	(96,254)
Interest on loans	6,197	-	6,197	13,216	-	13,216
Foreign exchange adjustments	-	45	45	-	(1,216)	(1,216)
30 June/31 December	292,119	21,477	313,596	289,861	33,182	323,043

16.   Loans and advances to customers

	30 June 2021	31 December 2020
	€000	€000
Gross loans and advances to customers at amortised cost	10,416,216	10,400,603
Allowance for ECL for impairment of loans and advances to customers (Note 29.5)	(741,793)	(804,417)
	9,674,423	9,596,186
Loans and advances to customers measured at FVPL	292,119	289,861
	9,966,542	9,886,047
Loans and advances to customers pledged as collateral are disclosed in Note 31.
Gross loans comprise of gross loans and advances to customers measured at amortised cost (reported after the residual fair value adjustment on initial recognition as detailed in Note 29.4).
Additional analysis and information regarding credit risk and analysis of the allowance for ECL of loans and advances to customers are set out in Note 29.

17.   Stock of property

The carrying amount of stock of property is determined as the lower of cost and net realisable value. Impairment is recognised if the net realisable value is below the cost of the stock of property. During the six months ended 30 June 2021 an impairment loss of €7,368 thousand (30 June 2020: €28,591 thousand) was recognised in 'Impairment of non‑financial assets' in the interim consolidated income statement. At 30 June 2021, stock of €524,732 thousand (31 December 2020: €523,927 thousand) is carried at net realisable value. Additionally, at 30 June 2021 stock of property with a carrying amount of €124,676 thousand (31 December 2020: €104,149 thousand) is carried at approximately its fair value less costs to sell.

The stock of property includes residential properties, offices and other commercial properties, manufacturing and industrial properties, hotels, land (fields and plots) and properties under construction. There is no stock of property pledged as collateral for central bank funding facilities under Eurosystem monetary policy operations.

The carrying amount of the stock of property is analysed in the tables below:

	30 June 2021	31 December 2020
	€000	€000
Net book value at 1 January	1,349,609	1,377,453
Additions	21,838	121,168
Disposals	(73,675)	(75,478)
Transfers to investment properties	-	(74)
Transfers from own use properties	-	21,805
Transfers to disposal group (Note 19)	(5,506)	(57,525)
Impairment (Note 10)	(7,368)	(37,593)
Foreign exchange adjustments	(78)	(147)
Net book value at 30 June/31 December	1,284,820	1,349,609

Analysis by type and country	Cyprus	Greece	Romania	Total
30 June 2021	€000	€000	€000	€000
Residential properties	130,824	20,063	89	150,976
Offices and other commercial properties	187,701	21,168	3,985	212,854
Manufacturing and industrial properties	44,387	16,058	48	60,493
Hotels	24,600	465	-	25,065
Land (fields and plots)	828,577	5,342	1,513	835,432
Total	1,216,089	63,096	5,635	1,284,820

31 December 2020
Residential properties	144,915	20,214	109	165,238
Offices and other commercial properties	189,172	21,302	5,135	215,609
Manufacturing and industrial properties	47,647	19,839	49	67,535
Hotels	24,684	465	-	25,149
Land (fields and plots)	868,615	5,694	1,769	876,078
Total	1,275,033	67,514	7,062	1,349,609

18.   Prepayments, accrued income and other assets

	30 June 2021	31 December 2020
	€000	€000
Financial assets
Debtors	44,557	39,011
Receivable relating to tax	4,819	4,706
Deferred purchase payment consideration	378,141	-
Other assets	69,449	58,494
	496,966	102,211
Non‑financial assets
Reinsurers' share of insurance contract liabilities	55,673	53,479
Current tax receivable	88,300	48,198
Prepaid expenses	799	509
Other assets	43,424	45,480
	188,196	147,666
	685,162	249,877

On the completion date of the sale of Project Helix 2 (the 'Transaction') as described in Note 19, the Group has recognised an amount of €381,567 thousand in other financial assets, which represents the fair value of the deferred consideration receivable from the Transaction (the 'DPP'). This amount is payable in four instalments up to December 2025 and each instalment carries interest up to each payment date. There are no other conditions attached. An amount of €13,983 thousand which represents the effect of discounting the DPP at the date of derecognition of the loan portfolio was recorded as part of the transaction within 'Credit losses to cover credit risk on loans and advances to customers'. The DPP is classified as Stage 1 as at 30 June 2021.

During the six months ended 30 June 2021, credit losses of €3,739 thousand were recognised in relation to prepayments, accrued income and other assets, of which €3,426 thousand relate to 12 months ECL of the DPP. During the six months ended 30 June 2020, credit losses amounted to €294 thousand, which included ECL of €769 thousand and net reversal of impairments amounting to €475 thousand (Note 10).

19.   Non‑current assets and disposal groups held for sale

The following non‑current assets and disposal groups were classified as held for sale as at 30 June 2021 and 31 December 2020:

	30 June 2021	31 December 2020
	€000	€000
Disposal group 1	-	387,990
Disposal group 2	-	224,476
Disposal group 3	-	7,769
Freehold property	10,408	10,408
Other exposures held by Serbian subsidiary	288	288
	10,696	630,931

	31 December 2020
	Disposal Group 1	Disposal Group 2	Disposal Group 3
	€000	€000	€000
Gross loans and advances to customers	820,429	488,777	32,049
Allowance for ECL for impairment of loans and advances to customers (Note 29.5)	(510,310)	(313,628)	(24,280)
	310,119	175,149	7,769
Stock of property (Note 17)	32,490	25,035	-
Investment property	-	1,248	-
Cash	45,381	23,044	-
	387,990	224,476	7,769
Project Helix 2 ‑ Disposal groups 1 and 2
Disposal group 1 comprised a portfolio of loans and advances to customers (the 'Portfolio 2A') and other assets (comprising stock of property and cash already received since the reference date of Portfolio 2A being 30 September 2019) known as Project Helix 2A ('Helix 2A'), classified as held for sale since 30 June 2020.
Disposal group 2 comprised a portfolio of loans and advances to customers (the 'Portfolio 2B') and other assets (comprising stock of property, investment property and cash already received since the reference date of Portfolio 2B being 30 September 2019) known as Project Helix 2B ('Helix 2B'), classified as held for sale since 31 December 2020.

In August 2020 and January 2021, the Group reached agreement for the sale of the Portfolio 2A and Portfolio 2B respectively with Pacific Investment Management Company LLC ('PIMCO'). The Group disposed of Project Helix 2 through the transfer of the portfolios 2A and 2B to a licensed Cypriot Credit Acquiring Company (the CyCAC) by BOC PCL. The shares of the CyCAC were subsequently acquired by certain funds affiliated with PIMCO, the purchaser of Helix 2. The Transaction was completed on 28 June 2021 and as at the date of completion of the sale, the total gross book value of the loans and advances to customers amounted to €1,287 million (net book value €436 million) and the carrying value of the stock of properties amounted to €73 million.

The consideration for the transaction amounts to approximately €560 million, of which €165 million have been received in cash by the completion (including deposit received). The remaining amount is payable in four instalments up to December 2025 without any conditions attached (Note 18). The consideration reflects adjustments resulting from, inter alia, loan repayments received on the Portfolios since the reference date of 30 September 2019. The consideration can be increased through an earnout arrangement, depending on the performance of each of the Portfolios. The net consideration for the transaction after transaction costs and other adjustments upon completion, corresponds to the net book value of the loans and advances to customers and the carrying value of the stock of properties as at the date of completion of the sale.

Disposal group 3

Disposal group 3 comprises loans and advances to customers of Project Helix tail which relates to a portfolio of credit facilities related to Project Helix (a portfolio of loans and advances to customers for which the sale was completed in June 2019) with a carrying value of €7,769 thousand as at 31 December 2020. The disposal group was first classified as held for sale as at 31 December 2019. As at 30 June 2021 the Group has reclassified Project Helix tail from 'Non‑current assets and disposal groups held for sale' to 'Loans and advances to customers', since the criteria of IFRS 5 are not met.

Further analysis of the loans and advances to customers, included in these disposal groups, is disclosed in Note 29.3.

Freehold property

Freehold property classified as held for sale as at 30 June 2021 and 31 December 2020 are properties which management is committed to sell and proceeded with an active programme to complete this plan. The disposal is expected to be completed within 12 months from the classification date which was 31 December 2020. Freehold property classified as held for sale is measured at fair value less cost to sell.

Other exposures held by Serbian subsidiary

The portfolio held by Serbian subsidiary related to loans with collaterals in Serbia and properties in Serbia. It was disposed of in August 2019 except for two properties with a carrying value of €288 thousand as at 30 June 2021 and 31 December 2020. These properties are still classified as non‑current assets held for sale.

20.   Funding from central banks

Funding from central banks comprises funding from the ECB under Eurosystem monetary policy operations as set out in the table below:

	30 June 2021	31 December 2020
	€000	€000
Targeted Longer‑Term Refinancing Operations (TLTRO IΙI)	2,985,225	994,694
As at 31 December 2020, ECB funding amounted to €1 billion and was borrowed from the fourth TLTRO III. Additional amounts were borrowed from the ECB TLTRO III operations in March 2021 and June 2021 of €1.7 billion and €0.3 billion respectively.
The interest rate that will be applicable to the TLTRO III funding will depend on the eligible net lending during the specified periods laid out in the terms of the ECB operation.

In recognition of the challenging credit environment during the pandemic period, the Governing Council of the ECB has announced that the interest rate on all outstanding TLTRO III operations for the periods from 24 June 2020 to 23 June 2021 and 24 June 2021 to 23 June 2022 will be 50 basis points below the average rate applicable in the Eurosystem's main refinancing operations over the same period. The interest rate on the main refinancing operations is currently at 0%. For the counterparties whose eligible net lending reaches the lending performance thresholds, the interest rate applied over the periods from 24 June 2020 to 23 June 2021 and 24 June 2021 to 23 June 2022 on all TLTRO III operations outstanding will be 50 basis points below the average interest rate on the deposit facility prevailing over the same period, and in any case not higher than minus 1%. The deposit facility rate is currently minus 0.5%. In calculating the applicable interest BOC PCL follows a discrete approach by applying the estimated interest rate applicable for each period.

The maturity of TLTRO III is three years from the settlement of each operation but there is an option available to repay the amounts borrowed under TLTRO III one year from the settlement of each operation starting in September 2021.

Details on encumbered assets related to the above funding facilities are disclosed in Note 31.

21.   Customer deposits

	30 June 2021	31 December 2020
	€000	€000
By type of deposit
Demand	8,525,496	8,149,688
Savings	2,188,574	1,970,975
Time or notice	6,087,181	6,412,549
	16,801,251	16,533,212
By geographical area
Cyprus	16,801,251	16,533,212
Deposits by geographical area are based on the originator country of the deposit.

	30 June 2021	31 December 2020
	€000	€000
By currency
Euro	15,115,726	14,929,662
US Dollar	1,280,015	1,199,069
British Pound	302,579	288,102
Russian Rouble	23,121	28,618
Swiss Franc	9,444	9,901
Other currencies	70,366	77,860
	16,801,251	16,533,212

	30 June 2021	31 December 2020
By customer sector	€000	€000
Corporate	1,082,854	1,037,430
Global corporate	500,974	607,467
SMEs	829,943	832,576
Retail	10,719,893	10,525,819
Restructuring
- Corporate	22,820	27,889
- SMEs	12,192	16,688
- Retail other	13,798	10,561
Recoveries
- Corporate	1,447	3,251
International banking services	3,255,717	3,180,061
Wealth management	361,613	291,470
	16,801,251	16,533,212

22.   Loan stock

			30 June 2021		31 December 2020
			€000	€000	€000	€000
	Contractual interest rate	Issuer	Nominal value	Carrying value	Nominal value	Carrying value
Subordinated Tier 2 Capital Note ‑ January 2017	9.25% up to 19 January 2022	BOC PCL	43,343	45,068	250,000	272,152
Subordinated Tier 2 Capital Note ‑ April 2021	6.625% up to 23 October 2026	BOCH	300,000	301,382	-	-
Senior Preferred Notes ‑ June 2021	2.50% up to 24 June 2026	BOC PCL	300,000	298,649	-	-
			643,343	645,099	250,000	272,152
BOCH and BOC PCL maintain a Euro Medium Term Note (Ε) Programme with an aggregate nominal amount up to €4,000 million.
Subordinated Tier 2 Capital Note ‑ January 2017
In January 2017, BOC PCL issued a €250 million unsecured and subordinated Tier 2 Capital Note under the EMTN Programme. The note was priced at par with a coupon of 9.25% per annum payable annually up to 19 January 2022 and then a rate at the then prevailing 5‑year swap rate plus a margin of 9.176% per annum up to 19 January 2027, payable annually. The note matures on 19 January 2027. BOC PCL has the option to redeem the note early on 19 January 2022, subject to applicable regulatory consents. The note is listed on the Luxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF) market. In April 2021, BOC PCL invited the holders of this note to tender it for purchase by BOC PCL at a price of 105.5% plus accrued interest. BOC PCL received valid tenders of €207 million in aggregate nominal amount, all of which were accepted.  As a result, the outstanding nominal amount as at 30 June 2021 is €43 million. BOC PCL incurred a cost of €12,433 thousand, as described in Note 8.
Subordinated Tier 2 Capital Note ‑ April 2021
In April 2021, BOCH issued a €300 million unsecured and subordinated Tier 2 Capital Note under the EMTN Programme. The note was priced at par with a coupon of 6.625% per annum payable annually in arrears and resettable on 23 October 2026 at the then prevailing 5‑year swap rate plus a margin of 6.902% per annum up to 23 October 2031, payable annually. The note matures on 23 October 2031. BOCH has the option to redeem the note early on any day during the six‑month period from 23 April 2026 to 23 October 2026, subject to applicable regulatory consents. The note is listed on the Luxembourg Stock Exchange's Euro MTF market.

Senior Preferred Notes ‑ June 2021

In June 2021, BOC PCL issued a €300 million senior preferred note under the EMTN Programme. The note was priced at par with a fixed coupon of 2.50% per annum, payable annually in arrears and resettable on 24 June 2026. The note matures on 24 June 2027. BOC PCL has the option to redeem the note early on 24 June 2026, subject to applicable regulatory consents. The note is listed on the Luxembourg Stock Exchange's Euro MTF market. The note complies with the criteria for the minimum requirement for own funds and eligible liabilities (MREL) and contributes towards the BOC PCL's MREL requirements.

The fair value of the loan stock as at 30 June 2021 is disclosed in Note 15.

23.  Accruals, deferred income, other liabilities and other provisions

	30 June 2021	31 December 2020
	€000	€000
Income tax payable and related provisions	10,619	8,982
Special defence contribution payable	152	971
Retirement benefit plans liabilities	1,957	9,568
Provisions for financial guarantees and commitments	20,901	19,658
Liabilities for investment‑linked contracts under administration	26,340	18,747
Accrued expenses and other provisions	54,274	63,942
Deferred income	15,870	13,411
Items in the course of settlement	76,892	66,217
Lease liabilities	39,000	45,955
Advances received for disposal group held for sale (Note 19)	-	21,100
Other liabilities	109,814	91,341
	355,819	359,892
Other liabilities include an amount of €21,176 thousand (31 December 2020: €21,176 thousand) relating to the annual guarantee fee for the conversion of DTA into tax credits (Note 11).

24.   Share capital

	30 June 2021		31 December 2020
	Number of shares (thousand)	€000	Number of shares (thousand)	€000
Authorised
Ordinary shares of €0.10 each	10,000,000	1,000,000	10,000,000	1,000,000
Issued
1 January and 30 June/31 December	446,200	44,620	446,200	44,620

Authorised and issued share capital

All issued ordinary shares carry the same rights.

There were no changes to the authorised or issued share capital during the six months ended 30 June 2021 and the year ended 31 December 2020.

Share premium reserve

2021

There were no changes to the share premium reserve during the six months ended 30 June 2021.

2020

The Company, following relevant resolution of its shareholders at the May 2020 Annual General Meeting and subsequent approval by the ECB in September 2020 and by the Irish High Court (pursuant to section 85(1) of the Companies Act of 2014 of Ireland), implemented a capital reduction process in November 2020, which resulted in the reclassification of €700 million of the Company's share premium balance as distributable reserves (retained earnings).

Treasury shares of the Company

The consideration paid, including any directly attributable incremental costs (net of income taxes), for shares of the Company held by entities controlled by the Group is deducted from equity attributable to the owners of the Company as treasury shares, until these shares are cancelled or reissued. No gain or loss is recognised in the consolidated income statement on the purchase, sale, issue or cancellation of such shares.

The life insurance subsidiary of the Group, as at 30 June 2021, held a total of 142 thousand ordinary shares of the Company of a nominal value of €0.10 each (31 December 2020: 142 thousand ordinary shares of a nominal value of €0.10 each), as part of its financial assets which are invested for the benefit of insurance policyholders. The cost of acquisition of these shares was €21,463 thousand (31 December 2020: €21,463 thousand).

Share‑based payments ‑ share options

Following the incorporation of the Company and its introduction as the new holding company of the Group in January 2017, the Long‑Term Incentive Plan was replaced by the Share Option Plan which operates at the level of the Company. The Share Option Plan is identical to the Long‑Term Incentive Plan except that the number of shares in the Company to be issued pursuant to an exercise of options under the Share Option Plan should not exceed 8,922,945 ordinary shares of a nominal value of €0.10 each and the exercise price was set at €5.00 per share. The term of the options was also extended to between 4‑10 years after the grant date.

No share options were granted since the date of replacement of the Long‑Term Incentive Plan by the Share Option Plan at the level of the Company and the Share Option Plan remains frozen.  Any shares related to the Share Option Plan carry rights with regards to control of the Company that are only exercisable directly by the employee.

Other equity instruments

	30 June 2021	31 December 2020
	€000	€000
Reset Perpetual Additional Tier 1 Capital Securities	220,000	220,000
In December 2018 the Company issued €220 million Subordinated Fixed Rate Reset Perpetual Additional Tier 1 Capital Securities (AT1). AT1 constitutes an unsecured and subordinated obligation of the Company. The coupon is at 12.50% and is payable semi‑annually. During the six months ended 30 June 2021, the first coupon payment to AT1 holders was made of an amount of €13,750 thousand and has been recognised in retained earnings (30 June 2020: €13,750 thousand). The Company may elect to cancel any interest payment for an unlimited period, on a non‑cumulative basis, whereas it mandatorily cancels interest payment under certain conditions. AT1 is perpetual and has no fixed date for redemption but can be redeemed (in whole but not in part) at the Company's option on the fifth anniversary of the issue date and each subsequent fifth anniversary subject to the prior approval of the regulator. The AT1 notes are listed on the Luxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF) market.

25.  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.

Apart from what is described below, the Group considers that none of these matters are material, either individually or in aggregate. The Group has not disclosed an estimate of the potential financial effect on its contingent liabilities arising from these matters where it is not practicable to do so, because it is too early or the outcome is too uncertain or, in cases where it is practicable, where disclosure could prejudice conduct of the matters. Provisions have been recognised for those cases where the Group is able to estimate probable losses (Note 6.4). Where an individual provision is material, the fact that a provision has been made is stated. 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 as at 30 June 2021 and hence it is not believed that such matters, when concluded, will have a material impact upon the financial position of the Group.

25.1  Pending litigation and claims

Investigations and litigation relating to securities issued by BOC PCL

A number of institutional and retail customers have filed various separate actions against BOC PCL alleging that BOC PCL is guilty of misselling in relation to securities issued by BOC PCL between 2007 and 2011. Remedies sought include the return of the money investors paid for these securities. Claims are currently pending before the courts in Cyprus and in Greece, as well as the decisions and fines imposed upon BOC PCL in related matters by Cyprus Securities and Exchange Commission (CySEC) and/or Hellenic Capital Market Commission (HCMC).

The bonds and capital securities in respect of which claims have been brought are the following: 2007 Capital Securities, 2008 Convertible Bonds, 2009 Convertible Capital Securities (CCS) and 2011 Convertible Enhanced Capital Securities (CECS).

BOC PCL is defending these claims, particularly with respect to institutional investors and retail purchasers who received investment advice from independent investment advisors. In the case of retail investors, if it can be documented that the relevant BOC PCL's officers 'persuaded' them to proceed with the purchase and/or purported to offer 'investment advice', BOC PCL may face significant difficulties. To date, a number of cases have been tried in Greece.  BOC PCL has appealed against any such cases which were not ruled in its favour. The resolution of the claims brought in the courts of Greece is expected to take a number of years.

So far the first two capital securities cases to reach the Areios Pagos (Supreme Court of Greece) have been adjudged in favour of BOC PCL, ruling in effect that BOC PCL can rely on the defence of frustration (i.e. intervening event out of the control of BOC PCL, in this case BOC PCL's resolution and recapitalisation through the bail in of deposits) to show that the risks associated with the sale of the capital securities because of the consequences of the bail in were unforeseeable. The cases will be retried by the Court of Appeal as per the direction of the Supreme Court. It is BOC PCL's position that BOC PCL will, most probably, win the cases.

In Cyprus six judgments have been issued so far with regards to BOC PCL capital securities. Five of the said judgments have been issued in favour of BOC PCL (dismissing the plaintiffs' claims) and one of them against BOC PCL. BOC PCL has filed an appeal with regards to the case where the judgment was issued against it. In four of the five cases that BOC PCL won, the plaintiffs have filed an appeal.

Provision has been made based on management's best estimate of probable outflows for capital securities related litigation.

Bail‑in related litigation

Depositors

A number of the BOC PCL's depositors, who allege that they were adversely affected by the bail‑in, filed claims against BOC PCL and other parties (such as the CBC and the Ministry of Finance of Cyprus) including against BOC PCL as the alleged successor of Laiki Bank on the grounds that, inter alia, the 'Resolution Law of 2013' and the Bail‑in Decrees were in conflict with the Constitution of the Republic of Cyprus and the European Convention on Human Rights. They are seeking damages for their alleged losses resulting from the bail‑in of their deposits. BOC PCL is defending these actions.

The Bank has won a case with regards to bail‑in related litigation for the first time in June 2020. The specifics of the case concerned alleged failure to follow instructions prior to the bail‑in. The plaintiffs have filed an appeal with respect to this judgment.

Shareholders

Numerous claims were filed by shareholders in 2013 against the Government and the CBC before the Supreme Court in relation to the dilution of their shareholding as a result of the recapitalisation pursuant to the Resolution Law and the Bail‑in Decrees issued thereunder. These proceedings sought the cancellation and setting aside of the Bail‑in Decrees as unconstitutional and/or unlawful and/or irregular. BOC PCL appeared in these proceedings as an interested party to support the position that the cases should be adjudicated upon in the context of private law. The Supreme Court ruled in these cases in October 2014 that the proceedings fall within private and public law and thus fall within the jurisdiction of the District Courts.

As at the present date, both the Resolution Law and the Bail‑in Decrees have not been annulled by a court of law and thus remain legally valid and in effect. A number of actions for damages have been filed and are still being filed with the District Courts of Cyprus alleging either the unconstitutionality of the Resolution Law and the Bail‑in Decrees, or a misapplication of same by BOC PCL (as regards the way and methodology whereby such Decrees have been implemented), or that BOC PCL failed to follow instructions promptly prior to the bail‑in coming into force. BOC PCL intends to contest all of these claims.

Legal position of the Group

All of the above claims are being vigorously disputed by the Group, in close consultation with the appropriate state and governmental authorities. The position of the Group is that the Resolution Law and the Decrees take precedence over all other laws. As matters now stand, both the Resolution Law and the Decrees issued thereunder are constitutional and lawful, in that they were properly enacted and have not so far been annulled by any court.

Provident fund case

In December 2015, the Bank of Cyprus Employees Provident Fund (the Provident Fund) filed an action against BOC PCL claiming €70 million allegedly owed as part of BOC PCL's contribution by virtue of an agreement with the Union dated 31 December 2011. Based on facts currently known, it is not practicable at this time for BOC PCL to predict the resolution of this matter, including the timing or any possible impact on BOC PCL.

Employment litigation

Former senior officers of BOC PCL have instituted one claim for unfair dismissal and one claim for Provident Fund entitlements against BOC PCL and the Trustees of the Provident Fund. The action with respect to the Provident Fund entitlements has been dismissed by the court in November 2020 and the plaintiff has now appealed. The Group does not consider that either of these cases will have a material impact on its financial position.

Additionally, a number of former employees have filed claims against BOC PCL contesting entitlements received relating to the various voluntary exit plans. As at the reporting date no judgement has been issued in any of the said claims. The Group does not expect that these actions will have a material impact on its financial position.

Swiss Francs loans litigation in Cyprus and the UK

Α number of actions have been instituted against BOC PCL by borrowers who obtained loans in foreign currencies (mainly Swiss Francs). The central allegation in these cases is that BOC PCL misled these borrowers and/or misrepresented matters, in violation of applicable law. BOC PCL is contesting the said proceedings. The Group does not expect that these actions will have a material impact on its financial position.

UK property lending claims

BOC PCL is the defendant in certain proceedings alleging that BOC PCL is legally responsible for allegedly, inter alia, advancing and misselling loans for the purchase by UK nationals of property in Cyprus. The proceedings in the UK are currently stayed in order for the parties to have time to negotiate possible settlements. The Group does not expect that these negotiations will lead to outflows for the Group.

Banking business cases

There is a number of banking business cases where the amounts claimed are significant. These cases primarily concern allegations as to BOC PCL's standard policies and procedures allegedly resulting to damages and other losses for the claimants. Further several other banking business cases claims, where amounts involved are not as significant, have been assessed by management and appropriate provisions have been taken. Management has assessed either the probability of loss as remote and/or does not expect any future outflows with respect to these cases to have a material impact on the financial position of the Group. Such matters arise as a result of the Group's activities and management appropriately assesses the facts and the risks of each case accordingly.

In addition, BOC PCL has received claims in relation to alleged breaches of various provisions for warranties and indemnities relating to the disposal process of certain operations of the Group. Management considers this matter to be at an early stage and cannot determine the outcome, however it is assessing the relevant risks and taking appropriate actions and where necessary has set up appropriate provisions.

General criminal investigations and proceedings

The Attorney General and the Cypriot Police (the Police) are conducting various investigations and inquiries following and relating to the financial crisis which culminated in March 2013. BOC PCL is cooperating fully with the Attorney General and the Police and is providing all information requested of it. Based on the currently available information, the Group is of the view that any further investigations or claims resulting from these investigations will not have a material impact on its financial position.

Others

An investigation is in process related to potentially overstated and/or fictitious claims settled by the non‑life insurance subsidiary of the Group. The information usually required by IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' is not disclosed on the grounds that it is expected to seriously prejudice the outcome of the investigation and/or the possible taking of legal action. Based on the information available at present, management considers that it is unlikely for this matter to have a material adverse impact on the financial position and capital adequacy of the non‑life insurance subsidiary and thereby the Group, also taking into account that it is virtually certain that compensations will be received from a relevant insurance coverage, upon the settlement of any obligation that may arise.

25.2  Regulatory matters

The Hellenic Capital Market Commission (HCMC) Investigation

The HCMC is currently in the process of investigating matters concerning the Group's investment in Greek Government Bonds from 2009 to 2011, including, inter alia, related non‑disclosure of material information in BOC PCL's CCS and CECS and rights issue prospectus (tracking the investigation carried out by CySEC in 2013), Greek government bonds' reclassification, ELA disclosures and allegations by some investors regarding BOC PCL's non‑compliance with Markets in Financial Instruments Directive (MiFID) in respect of investors' direct investments in Greek Government Bonds.

A specific estimate of the outcome of the investigations or of the amount of possible fines cannot be given at this stage, though it is not expected that any resulting liability or damages will have a material impact on the financial position of the Group.

Labour Inspection Body of Greece

As for other potential matters involving the exposure of BOC PCL to losses, twelve fines have been imposed by the Labour Inspection Body of Greece in prior years relating to the years prior to 2013, which amount in total to €84 thousand.

The Cyprus Securities and Exchange Commission (CySEC) Investigations

As at 30 June 2021 and 31 December 2020 there were no pending CySEC investigations against BOC PCL.

Central Bank of Cyprus (CBC)

The CBC has carried out certain investigations to assess compliance of BOC PCL under the anti‑money laundering (AML) legislation which was in place during years 2008‑2015 and 2016‑2018.

Following the investigations and the on‑site audit findings, the CBC concluded on 27 January 2021 that in the case of AML legislation 2008‑2015 BOC PCL was in breach of certain articles of the said legislation and for the investigation relating to the years 2016‑2018 BOC PCL prima facie, failed to act in accordance with certain provisions of the AML/counter terrorism financing (CTF) Law and the CBC AML/CTF Directive.

With respect to the above investigations a fine may be imposed upon BOC PCL. According to the CBC AML Directive, the maximum fine that may be imposed amounts to €5 million or 10% of the annual turnover of BOC PCL for each investigation. The fine is expected to be in the region of €30 thousand for each investigation, as per the current assessment of the Group. BOC PCL will file representations towards mitigation of the fine. If a fine is imposed upon BOC PCL, BOC PCL can file a recourse before the Administrative Court.

European Central Bank (ECB) Investigation

In July 2021, BOC PCL was notified in writing by the ECB that, based on an investigation carried out by ECB's investigating unit, BOC PCL is allegedly in breach of an ECB decision of September 2016. The alleged breach relates to the requirement imposed on BOC PCL to seek the prior approval of the ECB for any transfer of capital or liquidity to any subsidiary company. It is the right of BOC PCL to make written submissions about the factual results from the findings and objections raised against it and is currently working towards this. The submissions and supporting evidence will be duly taken into consideration by the ECB's investigating unit prior to the submission of its final proposal to the Supervisory Board of the ECB with respect to whether the alleged breach has been committed and as to the level of the penalty, if any. Currently, the ECB's investigating unit considers that the investigation to date substantiates the imposition of a penalty and an estimated amount has been provided for by BOC PCL for the six months ended 30 June 2021.

Commission for the Protection of Competition Investigation

In April 2014, following an investigation which began in 2010, the Cypriot Commission for the Protection of Competition (CPC) issued a statement of objections, alleging violations of Cypriot and EU competition law relating to the activities and/or omissions in respect of card payment transactions by, among others, BOC PCL and JCC Payment Systems Ltd (JCC), a card processing business currently 75% owned by BOC PCL. BOC PCL is expecting the final conclusion of this matter and has provided for it accordingly.

There was also an allegation concerning BOC PCL's arrangements with American Express, namely that such exclusive arrangements violated Cypriot and EU competition law. On both matters, the CPC has concluded that BOC PCL (in common with other banks and JCC) has breached the relevant provisions of the applicable law for the protection of competition. In May 2017, the CPC imposed a fine of €18 million upon BOC PCL and BOC PCL filed a recourse against the decision and the fine. The payment of the fine has been stayed pending the final outcome of the recourse. In June 2018 the Administrative Court accepted BOC PCL's position and cancelled the decision as well as the fine imposed upon BOC PCL. During 2018, the Attorney General has filed an appeal before the Supreme court with respect to such decision. Until a judgment is issued by the Supreme Court, the decision of the CPC remains annulled and there is no subsisting fine upon BOC PCL. The said appeal is still pending as at the period end.

In 2019 the CPC initiated an ex officio investigation with respect to unfair contract terms and into the contractual arrangements/facilities offered by BOC PCL for the period from 2012 to 2016. To date no charges have been put forward nor have any formal proceedings been instituted against BOC PCL in this case. This investigation is currently at a very early stage to predict its outcome and no formal process has been initiated.

Consumer Protection Service

In July 2017, the Consumer Protection Service (CPS) has imposed a fine of €170 thousand upon BOC PCL after concluding an ex officio investigation regarding some terms in both BOC PCL's and Marfin Popular Bank's loan documentation, that were found to constitute unfair commercial practices. Decisions of the CPS (according to rulings of the Administrative Court) are not binding but merely an expression of opinion. Against this decision, BOC PCL has filed an application before the Administrative Court which has not yet issued its judgement. The case is set for Directions in October 2021.

In March 2020 BOC PCL has been served with an application by the director of CPS through the Attorney General seeking for an order of the court, with immediate effect, the result of which will be for the BOC PCL to cease the use of a number of terms in the contracts of BOC PCL which are deemed to be unfair under the said order. The said terms relate to contracts that had been signed during 2006‑2007. Furthermore, the said application seeks for an order ordering BOC PCL to undertake measures to remedy the situation. The case is set for Directions in September 2021. BOC PCL will take all necessary steps for the protection of its interests.

In April 2021 the Director of the Consumer Protection Service filed an application for the issuance of a court order against BOC PCL, 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 said application is set for directions in September 2021.

Cyprus Consumers' Association

In March 2021, BOC PCL was served with an application filed by the Cyprus Consumers' Association for the issuance of a court order 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 terms deemed as unfair. The said contractual terms were determined as unfair pursuant to the decisions issued by the Consumer Protection Service of the Ministry of Energy, Commerce, Industry and Tourism against BOC PCL in 2016 and 2017. The said application is set for hearing in September 2021. BOC PCL will take all necessary steps for the protection of its interests.

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 on Consumer Protection has a retrospective effect in that it also applies to all contracts/practices entered into and/or terminated prior to this law coming into effect as opposed to contracts/practices which are only entered into/adopted as from the date of publication of the new Law on Consumer Protection.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, is unknown.

UK regulatory matters

The provision outstanding as at 30 June 2021 is €575 thousand (31 December 2020: €548 thousand). As part of the agreement for the sale of Bank of Cyprus UK Ltd, a liability with regards to UK regulatory matters remains an obligation for settlement by the Group.  The level of the provision represents the best estimate of all probable outflows arising from customer redress based on information available to management.

25.3  Οther matters

Other matters include among others, provisions for various other open examination requests by governmental and other public bodies, legal matters and provisions for warranties and indemnities related to the disposal process of certain operations of the Group.

The provisions for pending litigation, claims, regulatory and other matters do not include insurance claims arising in the ordinary course of business of the Group's insurance subsidiaries as these are included in 'Insurance liabilities'.

25.4  Provisions for pending litigation, claims, regulatory and other matters

	Pending litigation and claims (Note 25.1)	Regulatory matters (Note 25.2)	Other matters (Note 25.3)	Total
2021	€000	€000	€000	€000
1 January	67,439	12,305	43,871	123,615
Net increase in provisions including unwinding of discount (Note 9)	1,505	2,890	34,270	38,665
Utilisation of provisions	(6,539)	-	-	(6,539)
Foreign exchange adjustments	-	24	-	24
30 June	62,405	15,219	78,141	155,765

2020
1 January	70,075	13,691	24,328	108,094
Net increase in provisions including unwinding of discount (Note 9)	3,767	277	12,000	16,044
Utilisation of provisions	(9,375)	(653)	(1,014)	(11,042)
Foreign exchange adjustments	-	(124)	-	(124)
30 June	64,467	13,191	35,314	112,972
Provisions for pending litigation, claims, regulatory and other matters recorded in the interim consolidated income statement (Note 9) during the six months ended 30 June 2021 amounting to €10,660 thousand (30 June 2020: €16,044 thousand), also include an amount of €841 thousand representing an amount recovered from plaintiffs (30 June 2020: nil).
Some information required by the IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' is not disclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation or the outcome of the negotiation in relation to provisions for warranties and indemnities related to the disposal process of certain operations of the Group.
The net decrease of provisions for pending litigation and claims for the six months ended 30 June 2021 was primarily driven by the utilisation of provisions as a result of the progressed status of the pending investigations and litigations relating to securities issued by BOC PCL in Greece. With regards to other matters, additional provisions were taken for matters in relation to the disposal process of certain of the Group's operations on the basis of the Group's assessment and as elements of those processes are ongoing.
An increase by 5% in the probability of loss rate for pending litigation and claims (31 December 2020: 5%) with all other variables held constant, would lead to an increase in the actual provision by €5,788 thousand at 30 June 2021 (31 December 2020: increase by €6,956 thousand).

26.  Contingent liabilities

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

A provision has been recognised, based on management's best estimate of probable outflows, where it was assessed that such an outflow is probable.

27.   Cash and cash equivalents

Cash and cash equivalents comprise:

	30 June 2021	31 December 2020
	€000	€000
Cash and non‑obligatory balances with central banks	8,068,182	5,495,284
Cash and non‑obligatory balances with central banks classified as held for sale (Note 19)	-	68,425
Loans and advances to banks with original maturity less than three months	325,340	326,426
	8,393,522	5,890,135

Analysis of cash and balances with central banks and loans and advances to banks

	30 June 2021	31 December 2020
	€000	€000
Cash and non‑obligatory balances with central banks	8,068,182	5,495,284
Obligatory balances with central banks	159,309	158,031
Total cash and balances with central banks	8,227,491	5,653,315

Loans and advances to banks with original maturity less than three months	325,340	326,426
Restricted loans and advances to banks	110,751	76,358
Total loans and advances to banks	436,091	402,784
Restricted loans and advances to banks include collaterals under derivative transactions of €51,431 thousand (31 December 2020: €34,032 thousand) which are not immediately available for use by the Group, but are released once the transactions are terminated.

28.   Analysis of assets and liabilities by expected maturity

	30 June 2021			31 December 2020
	Less than one year	Over one year	Total	Less than one year	Over one year	Total
Assets	€000	€000	€000	€000	€000	€000
Cash and balances with central banks	8,068,182	159,309	8,227,491	5,495,284	158,031	5,653,315
Loans and advances to banks	325,340	110,751	436,091	326,426	76,358	402,784
Derivative financial assets	7,458	885	8,343	5,556	19,071	24,627
Investments including investments pledged as collateral	321,539	1,876,533	2,198,072	371,953	1,541,161	1,913,114
Loans and advances to customers	1,245,408	8,721,134	9,966,542	1,369,576	8,516,471	9,886,047
Life insurance business assets attributable to policyholders	7,494	510,600	518,094	15,078	459,109	474,187
Prepayments, accrued income and other assets	250,136	435,026	685,162	144,159	105,718	249,877
Stock of property	406,434	878,386	1,284,820	341,698	1,007,911	1,349,609
Deferred tax assets	37,909	265,481	303,390	37,909	303,451	341,360
Property, equipment and intangible assets	-	445,463	445,463	-	457,730	457,730
Investment properties	31,283	95,866	127,149	25,244	102,844	128,088
Investment in associates and joint venture	-	-	-	-	2,462	2,462
Non‑current assets and disposal groups held for sale	10,696	-	10,696	630,931	-	630,931
	10,711,879	13,499,434	24,211,313	8,763,814	12,750,317	21,514,131
Liabilities
Deposits by banks	104,940	295,741	400,681	82,250	309,699	391,949
Funding from central banks	-	2,985,225	2,985,225	-	994,694	994,694
Derivative financial liabilities	4,191	37,962	42,153	6,805	39,173	45,978
Customer deposits	6,518,346	10,282,905	16,801,251	5,242,058	11,291,154	16,533,212
Insurance liabilities	93,044	615,329	708,373	91,467	580,136	671,603
Accruals, deferred income and other liabilities and pending litigation, claims, regulatory and other matters	265,770	245,814	511,584	258,665	224,842	483,507
Loan stock	45,133	599,966	645,099	172,152	100,000	272,152
Deferred tax liabilities	-	46,465	46,465	-	45,982	45,982
	7,031,424	15,109,407	22,140,831	5,853,397	13,585,680	19,439,077
The main assumptions used in determining the expected maturity of assets and liabilities are set out below.
The investments are classified in the relevant time band based on expectations as to their realisation.  In most cases this is the maturity date, unless there is an indication that the maturity will be prolonged or there is an intention to sell, roll or replace the security with a similar one.
Performing loans and advances to customers in Cyprus are classified based on the contractual repayment schedule. Overdraft accounts are classified in the 'Over one year' time band.  The Stage 3 Loans are classified in the 'Over one year' time band except cash flows from expected receipts which are included within time bands, according to historic amounts of receipts in the recent months.
Stock of property is classified in the relevant time band based on expectations as to its realisation.
A percentage of customer deposits maturing within one year is classified in the 'Over one year' time band, based on the observed behavioural analysis.
The expected maturity of all prepayments, accrued income and other assets and accruals, deferred income and other liabilities is the same as their contractual maturity. If they do not have a contractual maturity, the expected maturity is based on the timing the asset is expected to be realised and the liability is expected to be settled.

29.   Risk management ‑ Credit risk

In the ordinary course of its business the Group is exposed to credit risk which is monitored through various control mechanisms across all Group entities in order to prevent undue risk concentrations and to price credit facilities and products on a risk‑adjusted basis.

Credit risk is the risk that arises from the possible failure of one or more customers to discharge their credit obligations towards the Group.

The Credit Risk Management department in co‑operation with the Credit Risk Control and Monitoring department set the Group's credit disbursement policies and monitor compliance with credit risk policy applicable to each business line and the quality of the Group's loans and advances portfolio through the timely credit risk assessment of customers. The credit exposures of related accounts are aggregated and monitored on a consolidated basis.

The Credit Risk Management department, in co‑operation with the Credit Risk Control and Monitoring department, safeguard the effective management of credit risk at all stages of the credit cycle, monitor the quality of decisions and processes and ensure that credit sanctioning function is being properly managed.

The credit policies are combined with the methods used for the assessment of the customers' creditworthiness (credit rating and credit scoring systems).

The loan portfolio is analysed on the basis of assessments about the customers' creditworthiness, their economic sector of activity and geographical concentration.

The credit risk exposure of the Group is diversified across the various sectors of the economy. Credit Risk Management determines the prohibitive/high credit risk sectors of the economy and sets out stricter policy rules for these sectors, according to their degree of riskiness.

The Market Risk department assesses the credit risk relating to exposures to Credit Institutions and Governments and other debt securities. Models and limits are presented to and approved by the Board of Directors, through the relevant authority based on the authorisation level limits.

The Group's significant judgements, estimates and assumptions regarding the determination of the level of provisions for impairment are described in Note 6 'Significant and other judgements, estimates and assumptions' of these Consolidated Financial Statements.

29.1  Maximum exposure to credit risk and collateral and other credit enhancements

Loans and advances to customers

The Credit Risk Management department determines the amount and type of collateral and other credit enhancements required for the granting of new loans to customers.

The main types of collateral obtained by the Group are mortgages on real estate, cash collateral/blocked deposits, bank guarantees, government guarantees, pledges of equity securities and debt instruments of public companies, fixed and floating charges over corporate assets, assignment of life insurance policies, assignment of rights on certain contracts and personal and corporate guarantees.

The Group regularly monitors the changes in the market value of the collateral and, where necessary, requests the pledging of additional collateral in accordance with the relevant agreement.

Other financial instruments

Collateral held as security for financial assets other than loans and advances to customers is determined by the nature of the financial instrument. Debt securities and other eligible bills are generally unsecured with the exception of asset‑backed securities and similar instruments, which are secured by pools of financial assets. In addition, some debt securities are government‑guaranteed.

The Group has chosen the ISDA Master Agreement for documenting its derivatives activity. It provides the contractual framework within which dealing activity across a full range of over‑the‑counter (OTC) products is conducted and contractually binds both parties to apply close‑out netting across all outstanding transactions covered by an agreement, if either party defaults. In most cases the parties execute a Credit Support Annex (CSA) in conjunction with the ISDA Master Agreement. Under a CSA, the collateral is passed between the parties in order to mitigate the market contingent counterparty risk inherent in their open positions.

Settlement risk arises in any situation where a payment in cash or securities is made in the expectation of a corresponding receipt in securities or cash. The Group sets daily settlement limits for each counterparty.  Settlement risk is mitigated when transactions are effected via established payment systems or on a delivery upon payment basis.

The table below presents the maximum exposure to credit risk before taking into account the tangible and measurable collateral and credit enhancements held.

	30 June 2021	31 December 2020
	€000	€000
Balances with central banks	8,098,809	5,513,629
Loans and advances to banks (Note 27)	436,091	402,784
FVPL debt securities	8,031	19,118
Debt securities classified at amortised cost and FVOCI	1,990,045	1,689,726
Derivative financial instruments (Note 14)	8,343	24,627
Loans and advances to customers (Note 16)	9,966,542	9,886,047
Loans and advances to customers classified as held for sale (Note 19)	-	493,037
Cash and non‑obligatory balances with Central banks classified as held for sale (Note 19)	-	68,425
Debtors (Note 18)	44,557	39,011
Deferred purchase payment consideration (Note 18)	378,141	-
Reinsurers' share of insurance contract liabilities (Note 18)	55,673	53,479
Other assets (Note 18)	74,268	63,200
On‑balance sheet total	21,060,500	18,253,083
Contingent liabilities
Acceptances and endorsements	4,990	4,655
Guarantees	606,851	619,530
Commitments
Documentary credits	9,514	14,866
Undrawn formal stand‑by facilities, credit lines and other commitments to lend	1,980,303	1,986,291
Off‑balance sheet total	2,601,658	2,625,342
	23,662,158	20,878,425

29.2  Credit risk concentration of loans and advances to customers

There are restrictions on loan concentrations which are imposed by the Banking Law in Cyprus, the relevant CBC Directives and CRR. According to these restrictions, banks are prohibited from lending more than 25% of their capital base to a single customer group. The Group's risk appetite statement imposes stricter concentration limits and the Group is taking actions to run down those exposures which are in excess of these internal limits over time.

The credit risk concentration, which is based on industry (economic activity) and business line concentrations, as well as geographical concentration, is presented 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. Market Risk is responsible for analysing the country risk of exposures. ALCO reviews the country risk of exposures on a quarterly basis and the Board, through its Risk Committee, reviews the country risk of exposures and any breaches of country risk limits on a regular basis and at least annually. In accordance with the Group's policy, exposures are analysed by country of risk based on the country of residency for individuals and the country of registration for companies.

The table below presents the geographical concentration of loans and advances to customers separately for countries with high concentration of risk and all other countries with low concentration of risk, are presented within 'Other countries' as per Group policy.

30 June 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	1,015,766	662	139	3,685	3,406	117	1,023,775
Manufacturing	344,613	283	188	690	1,166	31,339	378,279
Hotels and catering	885,513	35,129	36,765	469	-	40,105	997,981
Construction	605,387	8,821	112	2,418	630	234	617,602
Real estate	905,265	126,064	1,990	29,377	-	43,002	1,105,698
Private individuals	4,724,389	9,149	146,843	1,326	43,866	80,526	5,006,099
Professional and other services	609,568	989	5,580	3,857	15,597	33,154	668,745
Other sectors	455,368	10	220	626	8	161,805	618,037
	9,545,869	181,107	191,837	42,448	64,673	390,282	10,416,216

30 June 2021	Cyprus	Greece	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By business line	€000	€000	€000	€000	€000	€000	€000
Corporate	1,976,542	10,289	93	354	14,993	2,497	2,004,768
Global corporate	1,376,336	161,030	43,324	36,139	-	292,216	1,909,045
SMEs	1,074,411	684	2,300	2,268	4,649	2,502	1,086,814
Retail
‑ housing	2,951,580	3,271	54,161	606	5,258	25,410	3,040,286
‑ consumer, credit cards and other	888,300	1,367	1,254	195	238	1,880	893,234
Restructuring
‑ corporate	87,511	-	532	-	-	4,180	92,223
‑ SMEs	87,929	-	371	-	244	386	88,930
‑ retail housing	105,645	114	2,949	128	436	1,143	110,415
‑ retail other	57,427	5	730	1	57	264	58,484
Recoveries
‑ corporate	54,099	-	-	2,139	223	267	56,728
‑ SMEs	63,487	10	2,803	307	6,050	3,660	76,317
‑ retail housing	373,398	339	58,776	163	11,326	24,081	468,083
‑ retail other	339,020	35	6,220	4	1,479	1,859	348,617
International banking services	71,993	2,636	17,769	144	19,720	24,121	136,383
Wealth management	38,191	1,327	555	-	-	5,816	45,889
	9,545,869	181,107	191,837	42,448	64,673	390,282	10,416,216

31 December 2020	Cyprus	Greece	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By economic activity	€000	€000	€000	€000	€000	€000	€000
Trade	1,014,445	717	252	3,767	7,291	112	1,026,584
Manufacturing	350,403	389	177	704	1,399	31,717	384,789
Hotels and catering	875,572	35,989	34,736	504	-	40,185	986,986
Construction	613,895	8,689	123	2,786	741	234	626,468
Real estate	867,601	127,342	1,899	33,484	-	41,223	1,071,549
Private individuals	4,670,357	8,024	163,613	1,202	48,361	84,830	4,976,387
Professional and other services	652,928	407	5,711	3,968	23,074	39,933	726,021
Other sectors	432,569	13	219	838	5	168,175	601,819
	9,477,770	181,570	206,730	47,253	80,871	406,409	10,400,603

31 December 2020 (restated)	Cyprus	Greece	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By business line	€000	€000	€000	€000	€000	€000	€000
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	165,162	-	532	-	-	5,323	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	79,618	202	118	-	8	18	79,964
Recoveries
‑ corporate	30,961	-	9	4,949	1	257	36,177
‑ SMEs	57,559	9	3,154	2,643	8,079	3,770	75,214
‑ retail housing	374,056	326	70,621	160	11,947	27,952	485,062
‑ retail other	337,500	34	6,108	4	304	1,890	345,840
International banking services	68,923	2,905	18,262	4	21,169	24,075	135,338
Wealth management	25,001	764	-	-	-	5,779	31,544
	9,477,770	181,570	206,730	47,253	80,871	406,409	10,400,603
Following a reorganisation of the RRD portfolio in early 2021 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.

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 as at 30 June 2021 of €99,537 thousand (31 December 2020: €85,424 thousand).

29.3  Credit risk concentration of loans and advances to customers classified as held for sale

Economic activity, geographical and business line concentrations of Group loans and advances to customers at amortised cost classified as held for sale are presented in the table below.

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)	Cyprus	Greece	United Kingdom	Russia	Other countries	Gross loans at amortised cost
By business line	€000	€000	€000	€000	€000	€000
SMEs	3	-	-	-	-	3
Retail
‑ housing	40	-	-	-	-	40
‑ consumer, credit cards and other	23	-	-	-	-	23
Restructuring
‑ corporate	64,957	-	-	-	-	64,957
‑ SMEs	84,811	-	257	-	254	85,322
‑ retail housing	66,250	-	1,689	163	350	68,452
‑ retail other	29,052	1	327	-	-	29,380
Recoveries
‑ corporate	85,548	-	-	462	103	86,113
‑ SMEs	371,625	149	2,407	919	1,844	376,944
‑ retail housing	312,890	1,305	10,547	7,649	10,227	342,618
‑ retail other	279,991	251	1,869	1,930	3,362	287,403
	1,295,190	1,706	17,096	11,123	16,140	1,341,255
Following a reorganisation of the RRD portfolio in early 2021 and mainly of the terminated exposures, certain loans were reclassified within the 'Restructuring' and 'Recoveries' business lines. As a result comparative information has been restated to present information on a consistent basis. The table below presents the gross loans and advances to customers classified as held for sale for 'Restructuring' and 'Recoveries' business lines as previously presented in the 2020 Annual Financial Report.

31 December 2020	Cyprus	Greece	United Kingdom	Russia	Other countries	Gross loans at amortised cost
By business line	€000	€000	€000	€000	€000	€000
Restructuring
‑ corporate	65,947	-	-	-	-	65,947
‑ SMEs	117,541	1	1,734	163	368	119,807
‑ retail housing	21,584	-	402	-	76	22,062
‑ retail other	39,998	-	137	-	160	40,295
Recoveries
‑ corporate	132,494	-	1,164	3,552	2,918	140,128
‑ SMEs	365,829	149	2,993	842	1,842	371,655
‑ retail housing	298,136	1,305	9,019	5,705	7,492	321,657
‑ retail other	253,595	251	1,647	861	3,284	259,638
	1,295,124	1,706	17,096	11,123	16,140	1,341,189
As at 30 June 2021, there were no loans and advances to customers classified as held for sale.

29.4  Analysis of loans and advances to customers by staging

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2021	€000	€000	€000	€000	€000
Gross loans at amortised cost before residual fair value adjustment on initial recognition	7,075,434	1,926,552	1,255,312	304,118	10,561,416
Residual fair value adjustment on initial recognition	(75,983)	(24,312)	(9,159)	(35,746)	(145,200)
Gross loans at amortised cost	6,999,451	1,902,240	1,246,153	268,372	10,416,216

	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

	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

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, as shown in the tables above.

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

30 June 2021	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	1,441,281	513,334	28,615	21,538	2,004,768
Global corporate	1,291,624	492,230	90,956	34,235	1,909,045
SMEs	807,045	246,271	22,962	10,536	1,086,814
Retail
‑ housing	2,595,506	374,855	57,677	12,248	3,040,286
‑ consumer, credit cards and other	706,672	141,024	29,044	16,494	893,234
Restructuring
‑ corporate	9,955	49,250	23,204	9,814	92,223
‑ SMEs	14,861	19,812	47,446	6,811	88,930
‑ retail housing	1,846	13,080	90,472	5,017	110,415
‑ retail other	1,285	3,953	50,981	2,265	58,484
Recoveries
‑ corporate	-	-	47,416	9,312	56,728
‑ SMEs	-	-	67,889	8,428	76,317
‑ retail housing	-	-	392,425	75,658	468,083
‑ retail other	143	-	293,148	55,326	348,617
International banking services	86,801	45,639	3,717	226	136,383
Wealth management	42,432	2,792	201	464	45,889
	6,999,451	1,902,240	1,246,153	268,372	10,416,216

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
Loans and advances to customers classified as held for sale
The following table presents the Group's gross loans and advances to customers at amortised cost classified as held for sale as at 31 December 2020, by staging and business line concentration. As at 30 June 2021, there were no loans and advances to customers classified as held for sale.

31 December 2020 (restated)	Stage 1	Stage 2	Stage 3	POCI	Total
By business 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

Following a reorganisation of the RRD portfolio in early 2021 and mainly of the terminated exposures, certain loans were reclassified within the 'Restructuring' and 'Recoveries' business lines, as disclosed in Notes 29.2 and 29.3.

The movement of the gross loans and advances to customers at amortised cost by staging, including the loans and advances to customers classified as held for sale, is presented in the tables below:

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2021	€000	€000	€000	€000	€000
1 January	6,615,026	2,145,329	2,502,487	479,016	11,741,858
Transfers to stage 1	811,784	(811,782)	(2)	-	-
Transfers to stage 2	(560,426)	602,381	(41,955)	-	-
Transfers to stage 3	(10,274)	(24,050)	34,324	-	-
Foreign exchange and other adjustments	7	-	1,452	(3)	1,456
Write offs	(255)	(782)	(117,481)	(19,479)	(137,997)
Interest accrued and other adjustments	23,844	102,978	54,582	10,951	192,355
New loans originated or purchased and drawdowns of existing facilities	769,064	12,736	6,107	11,889	799,796
Loans other than Helix 2 portfolio derecognised or repaid (excluding write offs)	(644,376)	(103,090)	(102,577)	(40,316)	(890,359)
Changes to contractual cash flows due to modifications	3,465	(4,539)	(3,002)	28	(4,048)
Derecognition of Helix 2 portfolio	(8,408)	(16,941)	(1,087,782)	(173,714)	(1,286,845)
30 June	6,999,451	1,902,240	1,246,153	268,372	10,416,216

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2020	€000	€000	€000	€000	€000
1 January	6,945,045	1,504,188	3,172,423	560,371	12,182,027
Transfers to stage 1	410,385	(410,335)	(50)	-	-
Transfers to stage 2	(683,049)	778,481	(95,432)	-	-
Transfers to stage 3	(7,314)	(16,500)	23,814	-	-
Foreign exchange and other adjustments	(31)	-	(1,886)	-	(1,917)
Write offs	(364)	(1,481)	(122,900)	(11,319)	(136,064)
Interest accrued and other adjustments	68,564	44,110	94,274	15,881	222,829
New loans originated or purchased and drawdowns of existing facilities	535,038	8,834	27,111	-	570,983
Loans other than Velocity 2 portfolio derecognised or repaid (excluding write offs)	(470,025)	(100,586)	(145,111)	(35,112)	(750,834)
Changes to contractual cash flows due to modifications	(8,488)	(561)	(3,240)	1,015	(11,274)
Derecognition of Velocity 2 portfolio	-	-	(112,402)	(13,123)	(125,525)
30 June	6,789,761	1,806,150	2,836,601	517,713	11,950,225
For revolving facilities, overdrafts and credit cards the net positive change in balance by stage excluding write‑offs is reported in 'New loans originated' and the net negative change is reported as 'Loans derecognised or repaid'.

Significant increase in credit risk (SICR)

IFRS 9 requires that in the event of a significant increase in credit risk since initial recognition, the calculation basis of the loss allowance would change from 12 month ECLs to lifetime ECLs.

The assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting date, by considering the change in the risk of default occurring over the remaining life of the financial instrument since initial recognition.

Significant increase in credit risk for loans and advances to customers

Primarily, the Group uses the lifetime probability of default (PDs) as the quantitative metric in order to assess transition from Stage 1 to Stage 2 for all portfolios. The Group considers an exposure to have experienced significant increase in credit risk (SICR) by comparing the PD at the reporting date with the PD at initial recognition to compute the relative increase in regards to the corresponding threshold. The threshold has been determined by using statistical analysis on historical information of credit migration exposures on the basis of days past due, for the different segments.  The Group applies the thresholds presented in the table below to each portfolio/segment, based on the following characteristics: customer type, product type and rating at origination. The threshold is then assigned to each facility according to the facility's portfolio/segment.

For Retail, SME and Corporate portfolios, the threshold applied varies depending on the original credit quality of the borrower. For specific segments instruments with lower default probabilities at inception due to good credit quality of the counterparty, the SICR threshold is set as probability at inception times a multiple which is higher than a multiple used for instruments with higher default probabilities at inception.

The SICR trigger is activated based on the comparison of the ratio of current lifetime PD to the remaining Lifetime PD at origination (PD@O) to the pre‑established threshold. If the resulting ratio is higher than the pre‑established threshold then deterioration is assumed to have occurred and the exposure is transferred to Stage 2. The thresholds calibration is driven by changes in the PD models which are assessed semi‑annually.

The table below summarises the quantitative measure of the SICR trigger which varies depending on the credit quality at origination as follows, applied on 30 June 2021 and 31 December 2020:

Segment	Rating at origination	PD Deterioration thresholds applied at 30 June 2021	PD Deterioration thresholds applied at 31 December 2020
Retail	1‑3    4‑5    6‑7	1‑7 X PD@O        1‑4 X PD@O     1‑4 X PD@O	1‑7 X PD@O      1‑4 X PD@O    1‑4 X PD@O
SME	1‑3    4‑5    6‑7	3 X PD@O      3 X PD@O      3 X PD@O	3 X PD@O      3 X PD@O      3 X PD@O
Corporate	1‑7	1‑2 X PD@O	1‑2 X PD@O
For exposures which are subject to individual impairment assessment, the following qualitative factors in addition to the ones incorporated in the PD calculation, are considered:
· significant change in collateral value or guarantee or financial support provided by shareholders/directors,
· significant adverse changes in business, financial and/or economic conditions in which the borrower operates.
The Group also considers, as a backstop criterion, that a significant increase in the credit risk occurs when contractual payments are more than 30 days past due (past due materiality is applied). Loans that meet this condition are classified in Stage 2. The transfer to Stage 2 does not take place in cases where certain exposures are past due for more than 30 days but certain materiality limits are not met (such as arrears up to €100 and funded balances up to 1% in the case of retail exposures and arrears up to €500 and funded balances up to 1% on all exposures other than retail).  The materiality levels are set in accordance with the ECB Regulation (EU) 2018/1845.

During the six months ended 30 June 2021, another qualitative factor that triggers SICR has been introduced, that is the granting of forbearance measures to performing borrowers. Stage 1 exposures that are classified as 'performing forborne' are automatically transferred to Stage 2. The impact of this new criterion was €202 million of loans and advances to customers to be transferred from Stage 1 to Stage 2 and the respective impact on the ECL was an increase of €1,486 thousand.

The thresholds for movement between Stage 1 and Stage 2 are symmetrical. After a financial asset has been transferred to Stage 2, if its credit risk is no longer considered to have significantly increased relative to its initial recognition, the financial asset will move back to Stage 1.

29.5  Credit losses of loans and advances to customers, including loans and advances to customers held for sale

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

30 June 2021	Stage 1	Stage 2	Stage 3	POCI	Total
	€000	€000	€000	€000	€000
1 January	22,619	49,127	1,376,412	204,477	1,652,635
Transfers to stage 1	11,504	(11,504)	-	-	-
Transfers to stage 2	(3,543)	9,116	(5,573)	-	-
Transfers to stage 3	(437)	(197)	634	-	-
Impact on transfer between stages during the period*	(10,536)	1,291	2,328	(264)	(7,181)
Foreign exchange and other adjustments	165	-	1,193	(44)	1,314
Write offs	(255)	(782)	(117,482)	(19,479)	(137,998)
Interest (provided) not recognised in the income statement	-	-	30,896	4,322	35,218
New loans originated or purchased*	4,606	-	-	-	4,606
Loans other than Helix 2 portfolio derecognised or repaid (excluding write offs)*	(246)	(436)	(12,673)	397	(12,958)
Write offs*	242	350	(4,331)	579	(3,160)
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	(3,306)	(4,450)	65,757	9,120	67,121
Changes to contractual cash flows due to modifications not resulting in derecognition*	(654)	1,020	(5,044)	(2,033)	(6,711)
Disposal of  Helix 2 portfolio	(3,197)	(12,802)	(725,525)	(109,569)	(851,093)
30 June	16,962	30,733	606,592	87,506	741,793
Individually assessed	5,748	11,858	86,297	7,869	111,772
Collectively assessed	11,214	18,875	520,295	79,637	630,021
	16,962	30,733	606,592	87,506	741,793
* Individual components of the 'Impairment loss net of reversals on loans and advances to customers' (Note 10).
The main driver for the impairment loss for the period is due to additional credit losses recorded for the six months ended 30 June 2021 in relation to Helix 2 disposal of approximately €15 million, approximately €23 million on NPEs as part of the Group's de‑risking activities and the assumptions used on the time and value of  realisation of collateral as disclosed in this Note, the impact of the updated macroeconomic scenarios across all stages of approximately €7 million and a reversal of €7 million being the net impact on transfers between stages during the period.

30 June 2020	Stage 1	Stage 2	Stage 3	POCI	Total
	€000	€000	€000	€000	€000
1 January	16,665	25,380	1,555,339	206,166	1,803,550
Transfers to stage 1	2,712	(2,707)	(5)	-	-
Transfers to stage 2	(2,590)	16,154	(13,564)	-	-
Transfers to stage 3	(89)	(977)	1,066	-	-
Impact on transfer between stages during the period*	(2,690)	(3,233)	3,830	(88)	(2,181)
Foreign exchange and other adjustments	-	-	(1,717)	80	(1,637)
Write offs	(702)	(845)	(123,120)	(11,357)	(136,024)
Interest (provided) not recognised in the income statement	-	-	35,259	4,369	39,628
New loans originated or purchased*	1,907	-	-	-	1,907
Loans derecognised or repaid (excluding write offs)*	(283)	(513)	(15,647)	(1,273)	(17,716)
Write offs*	533	358	14,832	1,394	17,117
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	12,322	4,984	148,287	27,559	193,152
Changes to contractual cash flows due to modifications not resulting in derecognition*	(8,861)	(4,063)	5,150	(50)	(7,824)
Disposal of Velocity2 portfolio	-	-	(100,764)	(11,334)	(112,098)
30 June	18,924	34,538	1,508,946	215,466	1,777,874
Individually assessed	4,453	10,052	141,639	8,899	165,043
Collectively assessed	14,471	24,486	1,367,307	206,567	1,612,831
	18,924	34,538	1,508,946	215,466	1,777,874
* Individual components of the 'Impairment loss net of reversals on loans and advances to customers' (Note 10).
The above tables do not include the residual fair value adjustments on initial recognition of loans acquired from Laiki Bank as this forms part of the gross carrying amount and ECL on financial guarantees which are part of other liabilities on the balance sheet.
The analysis of credit losses of loans and advances to customers, including the loans and advances to customers held for sale, by business line is presented in the table below:

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2021	€000	€000	€000	€000	€000
Corporate	5,853	8,378	17,201	659	32,091
Global corporate	3,563	7,643	34,638	428	46,272
SMEs	1,864	2,782	9,142	188	13,976
Retail
‑ housing	2,559	5,004	8,883	348	16,794
‑ consumer, credit cards and other	2,802	3,727	8,241	795	15,565
Restructuring
‑ corporate	99	932	8,684	2,185	11,900
‑ SMEs	76	914	14,731	931	16,652
‑ retail housing	13	460	27,214	1,287	28,974
‑ retail other	22	209	22,880	1,136	24,247
Recoveries
‑ corporate	-	-	24,410	4,054	28,464
‑ SMEs	-	-	36,628	3,701	40,329
‑ retail housing	-	-	186,848	38,324	225,172
‑ retail other	-	-	206,750	33,465	240,215
International banking services	32	682	154	4	872
Wealth management	79	2	188	1	270
	16,962	30,733	606,592	87,506	741,793

	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2020 (restated)	€000	€000	€000	€000	€000
Corporate	3,652	6,003	21,811	624	32,090
Global corporate	4,375	5,600	38,758	1,076	49,809
SMEs	2,352	4,263	7,182	363	14,160
Retail
‑ housing	4,616	6,947	12,259	437	24,259
‑ consumer, credit cards and other	3,551	7,731	9,741	925	21,948
Restructuring
‑ corporate	286	4,014	55,586	2,863	62,749
‑ SMEs	2,114	6,683	49,512	3,519	61,828
‑ retail housing	1,398	6,020	73,348	3,197	83,963
‑ retail other	195	1,197	52,051	2,239	55,682
Recoveries
‑ corporate	-	-	65,917	10,452	76,369
‑ SMEs	-	-	245,825	35,644	281,469
‑ retail housing	-	-	373,743	67,590	441,333
‑ retail other	3	-	368,793	75,064	443,860
International banking services	67	658	1,707	5	2,437
Wealth management	10	11	179	479	679
	22,619	49,127	1,376,412	204,477	1,652,635

Following a reorganisation of the RRD portfolio in early 2021 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 credit losses of loans and advances to customers, including the loans and advances to customers held for sale, by staging and business line concentration for 'Restructuring' and 'Recoveries' business lines as previously presented in the 2020 Annual Financial Report.

	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2020	€000	€000	€000	€000	€000
Restructuring
‑ corporate	286	3,993	58,438	3,294	66,011
‑ SMEs	2,383	9,979	62,891	3,802	79,055
‑ retail housing	401	1,742	51,358	2,034	55,535
‑ retail other	923	2,200	57,810	2,688	63,621
Recoveries
‑ corporate	-	-	96,183	22,286	118,469
‑ SMEs	-	-	254,462	31,585	286,047
‑ retail housing	-	-	360,331	66,721	427,052
‑ retail other	3	-	343,302	68,158	411,463
	3,996	17,914	1,284,775	200,568	1,507,253
Credit losses of loans and advances to customers as at 31 December 2020 include credit losses relating to loans and advances to customers classified as held for sale as presented in the table below:

	Stage 1	Stage 2	Stage 3	POCI	Total
	€000	€000	€000	€000	€000
31 December 2020	3,260	12,254	721,470	111,234	848,218
During the six months ended 30 June 2021 the total non‑contractual write‑offs recorded by the Group amounted to €116,667 thousand (30 June 2020: €104,705 thousand). The contractual amount outstanding on financial assets that were written off during the six months ended 30 June 2021 and that are still subject to enforcement activity is €450,015 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 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.
At 30 June 2021 the weighted average haircut (including liquidity haircut and selling expenses) used in the collectively assessed provision calculation for loans and advances to customers is approximately 32% under the baseline scenario (31 December 2020: approximately 32%, excluding those classified as held for sale).
The timing of recovery from real estate collaterals used in the collectively assessed provision calculation for loans and advances to customers has been estimated to be on average seven years under the baseline scenario (2020: average of seven years, excluding those classified as held for sale).
For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the haircuts used are based on the specific facts and circumstances of each case.
For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with 50%, 30% and 20% probability respectively.

For Stage 3 customers, the base scenario focuses on the following variables, which are based on the specific facts and circumstances of each customer: the operational cash flows, the timing of recovery of collaterals and the haircuts from the realisation of collateral. The base scenario is used to derive additional favourable and 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 takes into consideration the timing of 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' in Note 10.

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 provisions.

Any changes in these assumptions or difference 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.

Sensitivity analysis

The Group has performed sensitivity analysis relating to the loan portfolio in Cyprus, which represents 99% of the total loan portfolio of the Group with reference date 30 June 2021 (31 December 2020 exclude the loans and advances to customers classified as held for sale).

The Group has altered for the purpose of sensitivity analysis the below parameters and the impact on the ECL, for both individually and collectively assessed ECL calculations, is presented in the table below:

	Increase/(decrease) on ECL for loans and advances to customers at amortised cost
	30 June 2021	31 December 2020
	€000	€000
Increase the adverse weight by 5% and decrease the favourable weight by 5%	3,589	3,599
Decrease the adverse weight by 5% and increase the favourable weight by 5%	(3,605)	(3,658)
Increase the expected recovery period by 1 year	17,648	21,904
Decrease the expected recovery period by 1 year	(17,222)	(18,746)
Increase the collateral realisation haircut by 5%	35,909	42,769
Decrease the collateral realisation haircut by 5%	(33,027)	(36,934)
Increase in the PDs of stages 1 and 2 by 20%	8,930	8,718
Decrease in the PDs of stages 1 and 2 by 20%	(6,181)	(7,824)

29.6  Currency concentration of loans and advances to customers

The following table presents the currency concentration of the Group's loans and advances at amortised cost.

	30 June 2021	31 December 2020
Gross loans at amortised cost	€000	€000
Euro	9,868,989	9,833,176
US Dollar	335,168	344,446
British Pound	96,078	91,213
Russian Rouble	15,715	14,957
Romanian Lei	346	344
Swiss Franc	92,092	108,198
Other currencies	7,828	8,269
	10,416,216	10,400,603

Loans and advances to customers classified as held for sale

The following table presents the currency concentration of the Group's loans and advances at amortised cost classified as held for sale.

	31 December 2020
Gross loans at amortised cost	€000
Euro	1,285,894
US Dollar	7,023
British Pound	709
Swiss Franc	42,964
Other currencies	4,665
	1,341,255

29.7  Forbearance

Forbearance measures occur in situations in which the borrower is considered to be unable to meet the terms and conditions of the contract due to financial difficulties.  Taking into consideration these difficulties, the Group decides to modify the terms and conditions of the contract to provide the borrower with the ability to service the debt or refinance the contract, either partially or fully.

The practice of extending forbearance measures constitutes a grant of a concession whether temporarily or permanently to that borrower.  A concession may involve restructuring the contractual terms of a debt or payment in some form other than cash, such as an arrangement whereby the borrower transfers collateral pledged to the Group.

The loans forborne continue to be classified as Stage 3 in the case they are performing forborne exposures under probation for which additional forbearance measures are extended, or performing forborne exposures, previously classified as NPEs that present more than 30 days past due within the probation period.

Modifications of loans and advances that do not affect payment arrangements, such as restructuring of collateral or security arrangements, are not regarded as sufficient to categorise the facility as credit impaired, as by themselves they do not necessarily indicate credit distress affecting payment ability such that would require the facility to be classified as NPE.

Rescheduled loans and advances are those facilities for which the Group has modified the repayment programme (e.g. provision of a grace period, suspension of the obligation to repay one or more instalments, reduction in the instalment amount and/or elimination of overdue instalments relating to capital or interest).

For an account to qualify for rescheduling it must meet certain criteria including that the customer must be considered to be viable. The extent to which the Group reschedules accounts that are eligible under its existing policies may vary depending on its view of the prevailing economic conditions and other factors which may change from year to year. In addition, exceptions to policies and practices may be made in specific situations in response to legal or regulatory agreements or orders.

The forbearance characteristic contributes in two specific ways for the calculation of lifetime ECL for each individual facility. Specifically, it is taken into consideration in the scorecard development where if this characteristic is identified as statistically significant it affects negatively the rating of each facility. It also contributes in the construction of the through the cycle probability of default and cure curves, where when feasible a specific curve for the forborne products is calculated and assigned accordingly.

Forbearance activities may include measures that restructure the borrower's business (operational restructuring) and/or measures that restructure the borrower's financing (financial restructuring).

Restructuring options may be of a short or long‑term nature or a combination thereof. The Group has developed and deployed sustainable restructuring solutions, which are suitable for the borrower and acceptable for the Group.

Short‑term restructuring solutions are defined as restructured repayment solutions of duration of less than two years. In the case of loans for the construction of commercial property and project finance, a short‑term solution may not exceed one year.

Short‑term restructuring solutions can include the following:

· Interest only: during a defined short‑term period, only interest is paid on credit facilities and no principal repayment is made.

· Reduced payments: decrease of the amount of repayment instalments over a defined short‑term period in order to accommodate the borrower's new cash flow position.

· Arrears and/or interest capitalisation: forbearance by capitalisation of the arrears and of any unpaid interest to the outstanding principal balance for repayment under a rescheduled program.

· Grace period: an agreement allowing the borrower a defined delay in fulfilling the repayment obligations usually with regard to the principal.

Long‑term restructuring solutions can include the following:

· Interest rate reduction: permanent or temporary reduction of interest rate (fixed or variable) into a fair and sustainable rate.

· Extension of maturity: extension of the maturity of the loan which allows a reduction in instalment amounts by spreading the repayments over a longer period.

· Additional security: when additional liens on unencumbered assets are obtained as additional security from the borrower in order to compensate for the higher risk exposure and as part of the restructuring process.

· Forbearance of penalties in loan agreements: temporary or permanent waiver, of violations of covenants in the loan agreements.

· Rescheduling of payments: the existing contractual repayment schedule is adjusted to a new sustainable repayment program based on a realistic, current and forecasted, assessment of the cash flow generation of the borrower.

· Strengthening of the existing collateral: a restructuring solution may entail the pledge of additional security for instance, in order to compensate for the reduction in interest rates or to balance the advantages the borrower receives from the restructuring.

· New loan facilities: new loan facilities may be granted during a restructuring agreement, which may entail the pledge of additional security and in the case of inter‑creditor arrangements the introduction of covenants in order to compensate for the additional risk incurred by the Group in providing a new financing to a distressed borrower.

· Debt consolidation: the consolidation of multiple exposures into a single loan or limited number of loans.

· Debt/equity swaps: partial set‑off of the debt and obtaining of an equivalent amount of equity by the Group, with the remaining debt right‑sized to the cash flows of the borrower to allow repayment to the Group from repayment on the re‑sized debt and from the eventual sale of the equity stake in the business. This solution is used only in exceptional cases and only where all other efforts for restructuring are exhausted and after ensuring compliance with the banking law.

· Debt/asset swaps: agreement between the Group and the borrower to voluntarily dispose of the secured asset to partially or fully repay the debt. The asset may be acquired by the Group and any residual debt may be restructured within an appropriate repayment schedule in line with the borrower's reassessed repayment ability.

· Debt write‑off: cancellation of part or the whole of the amount of debt outstanding by the borrower. The Group applies the debt forgiveness solution only as a last resort and in remote cases having taken into consideration the ability of the borrower to repay the remaining debt in the agreed timeframe and the moral hazard.

· Split and freeze: the customer's debt is split into sustainable and unsustainable parts. The sustainable part is restructured and continues to operate. The unsustainable part is 'frozen' for the restructured duration of the sustainable part. At the maturity of the restructuring, the frozen part is either forgiven pro‑rata (based on the actual repayment of the sustainable part) or restructured.

29.8  Rescheduled loans and advances to customers

The below table presents the movement of the Group's rescheduled loans and advances to customers measured at amortised cost including those classified as held for sale. The rescheduled loans related to loans and advances classified as held for sale as at 30 June 2021 amounts to nil (31 December 2020: €754,795 thousand and 30 June 2020: €526,566 thousand).

	30 June 2021	30 June 2020
	€000	€000
1 January	1,981,825	2,502,933
New loans and advances rescheduled in the period	405,472	37,776
Loans no longer classified as rescheduled and repayments	(283,370)	(369,956)
Write off of rescheduled loans and advances	(58,758)	(39,941)
Interest accrued on rescheduled loans and advances	25,932	125,851
Foreign exchange adjustments	385	1,655
Derecognition of Helix 2/Velocity 2 portfolio	(733,448)	(30,824)
	1,338,038	2,227,494

The classification as forborne loans is discontinued when all EBA criteria for the discontinuation of the classification as forborne exposure are met. The criteria are set out in the EBA Final draft Implementing Technical Standards (ITS) on supervisory reporting and non‑performing exposures.

The below tables present the Group's rescheduled loans and advances to customers by staging, economic activity and business line classification excluding those classified as held for sale, as well as ECL allowances and tangible collateral held for rescheduled loans.

	30 June 2021	31 December 2020
	€000	€000
Stage 1	2,005	199,193
Stage 2	643,385	242,493
Stage 3	613,313	686,944
POCI	79,335	98,400
	1,338,038	1,227,030
As described in Note 29.4, as at 30 June 2021 the Group introduced the granting of forbearance measures as a criterion of SICR.

Fair value of collateral

	30 June 2021	31 December 2020
	€000	€000
Stage 1	996	161,449
Stage 2	588,289	225,402
Stage 3	487,232	550,358
POCI	73,115	88,925
	1,149,632	1,026,134

The fair value of collateral presented above has been computed based on the extent that the collateral mitigates credit risk.

Credit risk concentration

	30 June 2021	31 December 2020
By economic activity	€000	€000
Trade	75,796	87,815
Manufacturing	28,982	31,353
Hotels and catering	194,999	46,145
Construction	144,283	69,188
Real estate	93,383	101,489
Private individuals	690,311	763,723
Professional and other services	82,878	94,385
Other sectors	27,406	32,932
	1,338,038	1,227,030

30 June 2021	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	1,897	122,946	14,507	-	139,350
Global corporate	-	209,279	25,920	-	235,199
SMEs	2	75,608	15,235	1,067	91,912
Retail
‑ housing	-	139,411	44,140	3,328	186,879
‑ consumer, credit cards and other	106	43,319	20,328	1,849	65,602
Restructuring
‑ corporate	-	17,949	10,640	9,452	38,041
‑ SMEs	-	10,490	37,229	5,165	52,884
‑ retail housing	-	9,934	72,867	3,927	86,728
‑ retail other	-	3,232	33,053	1,094	37,379
Recoveries
‑ corporate	-	-	24,548	3,619	28,167
‑ SMEs	-	-	28,159	5,310	33,469
‑ retail housing	-	-	189,640	29,036	218,676
‑ retail other	-	-	93,434	14,951	108,385
International banking services	-	11,217	3,426	109	14,752
Wealth management	-	-	187	428	615
	2,005	643,385	613,313	79,335	1,338,038

31 December 2020 (restated)	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	19,359	26,319	20,618	2,117	68,413
Global corporate	69,789	18,908	26,125	-	114,822
SMEs	23,041	22,750	11,504	1,458	58,753
Retail
‑ housing	55,086	108,175	54,892	3,925	222,078
‑ consumer, credit cards and other	17,391	27,694	22,962	2,876	70,923
Restructuring
‑ corporate	6,162	13,186	41,857	14,992	76,197
‑ SMEs	4,856	9,483	41,234	5,819	61,392
‑ retail housing	2,284	9,302	100,443	3,407	115,436
‑ retail other	475	2,906	43,446	1,426	48,253
Recoveries
‑ corporate	-	-	13,308	4,732	18,040
‑ SMEs	-	-	27,600	7,380	34,980
‑ retail housing	-	-	183,999	32,419	216,418
‑ retail other	-	-	89,402	16,803	106,205
International banking services	750	3,770	9,376	119	14,015
Wealth management	-	-	178	927	1,105
	199,193	242,493	686,944	98,400	1,227,030

Following a reorganisation of the RRD portfolio in early 2021 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 rescheduled loans and advances to customers by staging and business line concentration for 'Restructuring' and 'Recoveries' business lines as previously presented in the 2020 Annual Financial Report.

31 December 2020	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Restructuring
‑ corporate	6,162	13,406	49,380	14,856	83,804
‑ SMEs	5,993	14,556	31,049	6,776	58,374
‑ retail housing	1,388	4,350	93,962	2,612	102,312
‑ retail other	234	2,565	52,588	1,401	56,788
Recoveries
‑ corporate	-	-	8,238	7,440	15,678
‑ SMEs	-	-	42,885	4,769	47,654
‑ retail housing	-	-	176,025	32,891	208,916
‑ retail other	-	-	87,162	16,233	103,395
	13,777	34,877	541,289	86,978	676,921

ECL allowances

	30 June 2021	31 December 2020
	€000	€000
Stage 1	54	4,317
Stage 2	12,293	9,729
Stage 3	261,355	287,188
POCI	31,329	37,888
	305,031	339,122

30.   Risk management ‑ Market risk

Market risk is the risk of loss from adverse changes in market prices namely from changes in interest rates, exchange rates, property and security prices.  The Market Risk department is responsible for monitoring the risk on financial instruments resulting from such changes with the objective to minimise the impact on earnings and capital. The department also monitors liquidity risk and credit risk with counterparties and countries. It is also responsible for monitoring compliance with the various market risk policies and procedures.

The Group considers that the profile of its market risk has remained similar to the one prevailing at 31 December 2020 as presented in Note 46 of the Group annual consolidated financial statements for the year ended 31 December 2020.

Interest rate risk

Interest rate risk refers to the current or prospective risk to Group's capital and earnings arising from adverse movements in interest rates that affect the Group's banking book positions.

Interest rate benchmark reform

The Group is actively preparing for the transition to alternative rates, including the assessment of appropriate fallback provisions for LIBOR‑linked contracts and transition mechanisms in its floating rate assets and liabilities with maturities after 2021, when most IBORs are expected to cease to be published. The most significantly impacted areas and the risks arising from IBORS' transition to alternative interest rate benchmarks are: updating systems and processes affected from the transition, reviewing and amending legal IBORS' referencing contracts, negotiation of revised legal documents with customers, development of new products, impact on risk management processes and systems, market risk profile changes due to IBOR transition, and financial and accounting matters including among other hedge accounting issues. The Group will continue to assess, monitor and dynamically manage risks, and implement specific mitigating controls when required, progressing towards an orderly transition to alternative benchmarks.

BOC PCL has in place an action plan in order to facilitate the transition to alternative rates, including a plan for amending credit facilities contracts. BOC PCL continues to work on technology and business process changes to ensure operational readiness in preparation for LIBOR cessation and transition to alternative RFRs in line with official sector expectations and milestones.

The following table summarises the significant non‑derivative exposures impacted by interest rate benchmark reform as at 30 June 2021 and 31 December 2020:

30 June 2021	EURIBOR	GBP LIBOR	USD LIBOR	CHF LIBOR	Other LIBOR	Total
Non‑derivative financial assets	€000	€000	€000	€000	€000	€000
Loans and advances to customers	4,570,921	94,353	324,509	32,402	3,155	5,025,340
Investments	29,661	-	-	-	-	29,661
Loans and advances to banks	105,420	1,949	40,973	4,858	8,720	161,920
Total	4,706,002	96,302	365,482	37,260	11,875	5,216,921
Non‑derivative financial liabilities
Deposits by banks	157,335	5,323	429	-	1,367	164,454
Total	157,335	5,323	429	-	1,367	164,454

31 December 2020	EURIBOR	GBP LIBOR	USD LIBOR	CHF LIBOR	Other LIBOR	Total
Non‑derivative financial assets	€000	€000	€000	€000	€000	€000
Loans and advances to customers	4,463,730	89,523	331,684	36,967	4,102	4,926,006
Investments	32,993	-	-	-	-	32,993
Loans and advances to banks	69,405	1,858	69,326	4,968	9,420	154,977
Total	4,566,128	91,381	401,010	41,935	13,522	5,113,976
Non‑derivative financial liabilities
Deposits by banks	154,435	1,110	1,074	-	4,668	161,287
Total	154,435	1,110	1,074	-	4,668	161,287
EURIBOR is in compliance with the EU Benchmarks Regulation and can continue to be used as a benchmark interest rate for existing and new contracts. The Group therefore, does not consider that Group's exposure to EURIBOR is affected by the BMR reform as at 30 June 2021 and 31 December 2020.
For derivatives in hedging relationships subject to IBOR reform refer to Note 14.

Currency risk

Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

Price risk

Equity securities price risk

The risk of loss from changes in the price of equity securities arises when there is an unfavourable change in the prices of equity securities held by the Group as investments.

Debt securities price risk

Debt securities price risk is the risk of loss as a result of adverse changes in the prices of debt securities held by the Group. Debt security prices change as the credit risk of the issuer changes and/or as the interest rate changes for fixed rate securities. The Group invests a significant part of its liquid assets in highly rated securities. The average Moody's Investors Service rating of the debt securities portfolio of the Group as at 30 June 2021 was A3 (31 December 2020: Baa1). The average rating excluding the Cyprus Government bonds and non‑rated transactions as at 30 June 2021 was Aa2 (31 December 2020: Aa1).

31.   Risk management ‑ Liquidity risk and funding

Liquidity risk is the risk that the Group is unable to fully or promptly meet current and future payment obligations as and when they fall due.  This risk includes the possibility that the Group may have to raise funding at high cost or sell assets at a discount to fully and promptly satisfy its obligations.

It reflects the potential mismatch between incoming and outgoing payments, taking into account unexpected delays in repayment and unexpectedly high payment outflows. Liquidity risk involves both the risk of unexpected increases in the cost of funding of the portfolio of assets and the risk of being unable to liquidate a position in a timely manner on reasonable terms.

In order to limit this risk, management has adopted a policy of managing assets with liquidity in mind and monitoring cash flows and liquidity on a daily basis. The Group has developed internal control processes and contingency plans for managing liquidity risk.

Management and structure

The Board of Directors sets the Group's Liquidity Risk Appetite which sets the level of risk at which the Group should operate.

The Board of Directors, through its Risk Committee, approves the Liquidity Policy Statement and reviews at frequent intervals the liquidity position of the Group.

The ALCO is responsible for setting the policies for the effective management and monitoring of liquidity across the Group.

The Treasury Division is responsible for liquidity management at Group level to ensure compliance with internal policies and regulatory liquidity requirements and provide direction as to the actions to be taken regarding liquidity needs.  Treasury assesses on a continuous basis, the adequacy of the liquid assets and takes the necessary actions to ensure a comfortable liquidity position.

Liquidity is also monitored daily by Market Risk, which is an independent department responsible for monitoring compliance with both internal policies and limits, and with the limits set by the regulatory authorities. Market Risk reports to ALCO the regulatory liquidity position of the Group, at least monthly.  It also provides the results of various stress tests to ALCO at least quarterly.

Liquidity is monitored and managed on an ongoing basis through:

(i)  Risk appetite: established Group Risk Appetite together with the appropriate limits for the management of all risks including liquidity risk.

(ii)  Liquidity policy: sets the responsibilities for managing liquidity risk as well as the framework, limits and stress test assumptions.

(iii)  Liquidity limits: a number of internal and regulatory limits are monitored on a daily, monthly and quarterly basis. Where applicable, a traffic light system (RAG) has been introduced for the ratios, in order to raise flags when the ratios deteriorate.

(iv)  Early warning indicators: monitoring of a range of indicators for early signs of liquidity risk in the market or specific to the Group. These are designed to immediately identify the emergence of increased liquidity risk so as to maximise the time available to execute appropriate mitigating actions.

(v)  Liquidity Contingency Plan: maintenance of a Liquidity Contingency Plan (LCP) which is designed to provide a framework where a liquidity stress could be effectively managed. The LCP provides a communication plan and includes management actions to respond to liquidity stresses.

(vi)  Recovery Plan: the Group has developed a Recovery Plan (RP), the key objectives of which are, among others, to set key Recovery and Early Warning Indicators so as to monitor these and to set in advance a range of recovery options to enable the Group to be adequately prepared to respond to stressed conditions and restore the Group's position.

Monitoring process

Daily

The daily monitoring of customer flows and the stock of highly liquid assets is important to safeguard and ensure the uninterrupted operations of the Group's activities. Market risk prepares a daily report analysing the internal liquidity buffer and comparing it to the previous day's buffer. The historical summary results of this report is made available to ALCO and to members of the Risk Division, Treasury and Financial Control department. In addition, Treasury monitors daily and intraday the customer inflows and outflows in the main currencies used by the Group.

Market Risk also prepares daily stress testing for bank specific, market wide and combined scenarios. The requirement is to have sufficient liquidity buffer to enable BOC PCL to survive a twelve‑month stress period, including capacity to raise funding under all scenarios.

Moreover, an intraday liquidity stress test takes place to ensure that the Group maintains sufficient liquidity buffer in immediately accessible form, to enable it to meet the stressed intraday payments.

The liquidity buffer is made up of: Banknotes, CBC balances (excluding the Minimum Reserve Requirements (MRR)), unpledged cash and nostro current accounts, as well as money market placements up to the stress horizon, available ECB credit line and market value net of haircut of unencumbered/available liquid bonds.  These bonds are High Quality Liquid Assets (HQLA) as per the LCR definitions and/or ECB Eligible bonds.

The designing of the stress tests followed guidance and was based on the liquidity risk drivers which are recognised internationally by both the Prudential Regulation Authority (PRA) and EBA. In addition, it takes into account SREP recommendations as well as the Annual Risk Identification Process of the Group. The stress tests assumptions are included in the Group Liquidity Policy which is reviewed on an annual basis and approved by the Board. However, whenever it is considered appropriate to amend the assumptions during the year, approval is requested from ALCO and the Board Risk Committee. The main items shocked in the different scenarios are: deposit outflows, wholesale funding, loan repayments, off balance sheet commitments, marketable securities, own issue covered bond, additional credit claims, interbank takings and cash collateral for derivatives and repos.

Weekly

Market Risk prepares a report indicating the level of Liquid Assets including Credit Institutions Money Market Placements as per LCR definitions.

Monthly

Market Risk prepares reports monitoring compliance with internal and regulatory liquidity ratios requirements and submits them to the ALCO, the Executive Committee and the Board Risk Committee. It also calculates the expected flows under a stress scenario and compares them with the projected available liquidity buffer in order to calculate the survival days. The fixed deposit renewal rates, the percentage of International Banking Services deposits over total deposits and the percentage of instant access deposits are also presented to the ALCO. The liquidity mismatch in the form of the Maturity Ladder report (for both contractual and behavioural flows) is also presented to ALCO and the resulting mismatch between assets and liabilities is compared to previous month's mismatch. A monthly customer deposit analysis by Business Line, Tenor and currency is also presented to ALCO.

Market Risk also prepares a monthly liquidity report which is submitted to the ECB. The report includes information on deposits breakdown, cash flow information, survival period, LCR ratio, rollover of funding, funding gap (through the Maturity ladder analysis) and concentration of funding and collateral details. It concludes on the overall liquidity position of BOC PCL and describes the measures implemented and to be implemented in the short term to improve liquidity position.

Market Risk reports the LCR and Additional Liquidity Monitoring Metrics (ALMM) to the CBC/ECB monthly.

Quarterly

The results of the stress testing scenarios prepared daily are reported to ALCO and Board Risk Committee quarterly as part of the quarterly Internal Liquidity Adequacy Assessment Process (ILAAP) review. Market Risk reports the Net Stable Funding Ratio (NSFR) to the CBC/ECB quarterly.

Annually

The Group prepares on an annual basis its report on ILAAP. The ILAAP report provides a holistic view of the Group's liquidity adequacy under normal and stress conditions. Within ILAAP, the Group evaluates its liquidity risk within the context of established policies, the processes for the identification, measurement, management and monitoring of liquidity implemented by the institution.

As part of the Group's procedures for monitoring and managing liquidity risk, there is a Group Liquidity Contingency Plan (LCP) for handling liquidity difficulties. The LCP details the steps to be taken in the event that liquidity problems arise, which escalate to a special meeting of the extended ALCO. The LCP sets out the members of this committee and a series of the possible actions that can be taken. The LCP, which forms part of the Group's Liquidity Policy, is reviewed by ALCO at least annually, during the ILAAP review. The ALCO submits the updated Liquidity Policy with its recommendations to the Board through the Board Risk Committee for approval. The approved Liquidity Policy is notified to the SSM.

Liquidity ratios

The Group LCR is calculated based on the Delegated Regulation (EU) 2015/61. It is designed to establish a minimum level of high‑quality liquid assets sufficient to meet an acute stress lasting for 30 calendar days. Τhe minimum requirement is 100%. The Group also calculates its Net Stable Funding Ratio (NSFR) as per Capital Requirements Regulation II (CRR II), enforced in June 2021, with the limit set at 100%.

Main sources of funding

As at 30 June 2021 the Group's main sources of funding were its deposit base and central bank funding, through the Eurosystem monetary policy operations. Wholesale funding is also becoming an important source of funding, following the refinancing of the Tier 2 for €300 million in April 2021 and the issuance of senior preferred debt of €300 million in June 2021.

With respect to TLTRO III operations, BOC PCL borrowed in March 2021 an amount of €1,700 million and in June 2021 another €300 million, having previously borrowed in June 2020 €1,000 million under the TLTRO III given the favourable borrowing rate, in combination with the relaxation of collateral terms (lower haircuts and widening of eligibility of credit claims), all being part of the ECB's COVID‑19 aid package. As a result, at 30 June 2021 the carrying value of the ECB funding was €2,985 million (31 December 2020: €995 million).

As at 30 June 2021, the wholesale funding nominal amount was €863 million. This includes funding raised from the wholesale debt capital markets of €220 million AT1 issued in December 2018, €300 million new Tier 2 issued in April 2021, €43 million remaining outstanding from the Tier 2 issued in January 2017 and €300 million senior preferred debt issued in June 2021.

Funding to subsidiaries

The funding provided by BOC PCL to its subsidiaries for liquidity purposes is repayable as per the terms of the respective agreements.

Any new funding to subsidiaries requires approval from the ECB and the CBC.

The subsidiaries may proceed with dividend distributions in the form of cash to BOC PCL, provided that they are not in breach of their regulatory capital and liquidity requirements. Certain subsidiaries have a recommendation from their regulator to exercise caution and prudence regarding dividend distributions and to consider the impact of COVID‑19 on their operating models, solvency, liquidity and financial position.

Collateral requirements and other disclosures

Collateral requirements

The carrying values of the Group's encumbered assets as at 30 June 2021 and 31 December 2020 are summarised below:

	30 June 2021	31 December 2020
	€000	€000
Cash and other liquid assets	113,401	78,831
Investments	1,315,329	37,105
Loans and advances	3,004,390	2,842,941
	4,433,120	2,958,877
Cash is mainly used to cover collateral required for derivatives, trade finance transactions and guarantees issued. It may also be used as part of the supplementary assets for the covered bond. The increase in cash and other liquid assets presented as encumbered assets during the six months ended 30 June 2021 was driven mainly by the cash encumbered for derivatives, for the covered bond and for trade finance transactions.
As at 30 June 2021 and as at 31 December 2020, investments are mainly used as collateral for ECB funding or as supplementary assets for the covered bond. The increase in the investments presented as encumbered assets during the six months ended 30 June 2021 was driven by the pledging of additional debt securities to the ECB for obtaining funding through the TLTRO III in March 2021 and June 2021.
Loans and advances indicated as encumbered as at 30 June 2021 and 31 December 2020, are mainly used as collateral for funding from the ECB and the covered bond.
Loans and advances to customers include mortgage loans of a nominal amount of €1,009 million as at 30 June 2021 (31 December 2020: €1,017 million) in Cyprus, pledged as collateral for the covered bond issued by BOC PCL in 2011 under its Covered Bond Programme. Furthermore as at 30 June 2021 housing loans of a nominal amount of €1,965 million (31 December 2020: €1,827 million) in Cyprus, are pledged as collateral for funding from the ECB (Note 20).
BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the Covered Bonds Directive of the CBC. Under the Covered Bond Programme, BOC PCL has in issue covered bonds of €650 million secured by residential mortgages originated in Cyprus.  On 28 May 2021, the terms of the covered bonds have been amended to extend the maturity date to 12 December 2026 and set the interest rate to 3 months Euribor plus 1.25% on a quarterly basis. The covered bonds are traded on the Luxemburg Bourse. The covered bonds have a conditional Pass Through structure.  All the bonds are held by BOC PCL. The covered bonds are eligible collateral for the Eurosystem credit operations and are placed as collateral for accessing funding from the ECB.
Other disclosures
Deposits by banks include balances of €41,107 thousand as at 30 June 2021 (31 December 2020: €44,220 thousand) relating to borrowings from international financial and similar institutions for funding, aiming to facilitate access to finance and improve funding conditions for small or medium sized enterprises, active in Cyprus. The carrying value of the respective loans and advances granted to such enterprises serving this agreement amounts to €79,937 thousand as at 30 June 2021 (31 December 2020: €88,963 thousand).

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

On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V) came into force. As an amending regulation, the existing provisions of CRR apply unless they are amended by CRR II. Certain provisions took immediate effect (primarily relating to MREL), but most changes became effective as of June 2021. The key changes introduced consist of among others, changes to qualifying criteria for Common Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) instruments, introduction of requirements for MREL and a binding Leverage Ratio requirement and a Net Stable Funding Ratio (NSFR).

The amendments that came into effect on 28 June 2021 are in addition to those introduced in June 2020 through Regulation (EU) 2020/873, which among other brought forward certain CRR II changes in light of the COVID‑19 pandemic. The main adjustments of Regulation (EU) 2020/873 that had an impact on the Group's capital ratio relate to i) the acceleration of the CRR II provision for the implementation of the new SME discount factor (lower RWAs), ii) 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 iii) advancing the application of prudential treatment of software assets as amended by CRR II (which came into force in December 2020). In addition, Regulation (EU) 2020/873 introduced a temporary treatment of unrealized gains and losses on exposures to central governments, to regional governments or to local authorities measured at fair value through other comprehensive income which the Group elected to apply and implemented from the third quarter of 2020.

The Group and BOC PCL have complied with the minimum capital requirements (Pillar I and Pillar II).

The insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance including the minimum solvency ratio as at 30 June 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 Cyprus Securities and Exchange Commission (CySEC) laws and regulations as at 30 June 2021 and 31 December 2020. The regulated investment firm (CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd (CISCO) complies with the minimum capital adequacy ratio requirements as at 30 June 2021 and 31 December 2020.

Additional information on regulatory capital is disclosed in 'Additional Risk and Capital Management Disclosures' included in the Interim Financial Report 2021 and in the 'Interim Pillar III disclosures 2021', which are available on the Group's website www.bankofcyprus.com (Investor Relations).

33.   Related party transactions

Related parties of the Group include associates and joint ventures, key management personnel, members of the Board of Directors and their connected persons.

Fees and emoluments of members of the Board of Directors and other key management personnel

	Six months ended 30 June
	2021	2020
Director emoluments	€000	€000
Executives
Salaries and other short‑term benefits	337	369
Employer's contributions	20	27
Retirement benefit plan costs	30	29
	387	425
Non‑executives
Fees	615	545
Total directors' emoluments	1,002	970
Other key management personnel emoluments
Salaries and other short‑term benefits	1,792	1,892
Employer's contributions	138	112
Retirement benefit plan costs	100	75
Total other key management personnel emoluments	2,030	2,079
Total	3,032	3,049
The fees of the non‑executive Directors include fees as members of the Board of Directors of the Company and its subsidiaries, as well as of committees of the Board of Directors.

Other key management personnel

The other key management personnel emoluments include the remuneration of the members of the Executive Committee since the date of their appointment to the Committee and other members of the management team who report directly to the Chief Executive Officer or to the Deputy Chief Executive Officer.

Aggregate amounts outstanding and additional transactions

The table below shows the loans and advances, deposits and other credit balances held by the members of the Board of Directors and key management personnel and their connected persons, as at the balance sheet date:

	30 June 2021	31 December 2020
	€000	€000
Loans and advances
‑ members of the Board of Directors and other key management personnel	2,397	2,515
‑ connected persons	19,846	19,453
	22,243	21,968
Deposits
‑ members of the Board of Directors and other key management personnel	2,129	2,017
‑ connected persons	1,834	2,801
	3,963	4,818
Accruals and other liabilities
‑ balances with entity providing key management personnel services	2,454	2,013

The above table does not include period/year‑end balances for members of the Board of Directors and their connected persons who resigned during the period/year.

All transactions with members of the Board of Directors and their connected persons are made on normal business terms as for comparable transactions, including interest rates, with customers of a similar credit standing.  A number of loans and advances have been extended to other key management personnel on the same terms as those applicable to the rest of the Group's employees and their connected persons on the same terms as those of customers.

Connected persons include spouses, minor children and companies in which directors/other key management personnel, hold directly or indirectly, at least 20% of the voting shares in a general meeting, or act as executive director or exercise control of the entities in any way.

Additional to members of the Board of Directors, related parties include entities providing key management personnel services to the Group.

	Six months ended 30 June
	2021	2020
	€000	€000
Interest income for the period	366	357
Commission income for the period	1	3
Insurance premium income for the period	160	99
Subscriptions and insurance expenses for the period	348	445
Staff costs, consultancy and restructuring expenses with entity providing key management personnel services	7,035	4,915
Interest income and expense are disclosed for the period during which they were members of the Board of Directors or served as key management personnel.
In addition to loans and advances, there were contingent liabilities and commitments in respect of members of the Board of Directors and their connected persons, mainly in the form of documentary credits, guarantees and commitments to lend, amounting to €60 thousand (31 December 2020: €57 thousand).
There were also contingent liabilities and commitments to other key management personnel and their connected persons amounting to €1,985 thousand (31 December 2020: €3,007 thousand).
The total unsecured amount of the loans and advances and contingent liabilities and commitments to members of the Board of Directors, key management personnel and other connected persons (using forced‑sale values for tangible collaterals and assigning no value to other types of collaterals) at 30 June 2021 amounted to €1,152 thousand (31 December 2020: €1,197 thousand).
During the period ended 30 June 2021 premiums of €68 thousand (corresponding period 2020: €21 thousand) and claims of €15 thousand (corresponding period 2020: €nil claims) were paid between the members of the Board of Directors of the Company and their connected persons and the insurance subsidiaries of the Group.
There were no other transactions during the six months ended 30 June 2021 and the year ended 31 December 2020 with connected persons of the current members of the Board of Directors or with any members who resigned during the period/year.

34.   Group companies

The main subsidiary companies and branches included in the Consolidated Financial Statements of the Group, their country of incorporation, their activities and the percentage held by the Company (directly or indirectly) as at 30 June 2021 are:

Company	Country	Activities	Percentage holding (%)
Bank of Cyprus Holdings Public Limited Company	Ireland	Holding company	n/a
Bank of Cyprus Public Company Ltd	Cyprus	Commercial bank	100
EuroLife Ltd	Cyprus	Life insurance	100
General Insurance of Cyprus Ltd	Cyprus	Non‑life insurance	100
The Cyprus Investment and Securities Corporation Ltd (CISCO)	Cyprus	Investment banking and brokerage	100
BOC Asset Management Ltd	Cyprus	Management administration and safekeeping of UCITS Units	100
Kermia Ltd	Cyprus	Property trading and development	100
Kermia Properties & Investments Ltd	Cyprus	Property trading and development	100
LCP Holdings and Investments Public Ltd	Cyprus	Holding company	67
JCC Payment Systems Ltd	Cyprus	Card processing transaction services	75
CLR Investment Fund Public Ltd	Cyprus	Investment company	20
Auction Yard Ltd	Cyprus	Auction company	100
BOC Secretarial Company Ltd	Cyprus	Secretarial services	100
S.Z. Eliades Leisure Ltd	Cyprus	Land development and operation of a golf resort	70
Bank of Cyprus Public Company Ltd (branch of BOC PCL)	Greece	Administration of guarantees and holding of real estate properties	n/a
BOC Asset Management Romania S.A.	Romania	Collection of the existing portfolio of receivables, including third party collections	100
MC Investment Assets Management LLC	Russia	Problem asset management company	100
Fortuna Astrum Ltd	Serbia	Problem asset management company	100

In addition to the above companies, at 30 June 2021 BOC PCL had 100% shareholding in the companies listed below, whose activity is the ownership and management of immovable property:

Cyprus:  Belvesi Properties Ltd, Hamura Properties Ltd, Noleta Properties Ltd, Tolmeco Properties Ltd, Arlona Properties Ltd, Dilero Properties Ltd, Ensolo Properties Ltd, Folimo Properties Ltd, Pelika Properties Ltd, Cobhan Properties Ltd, Innerwick Properties Ltd, Ramendi Properties Ltd, Nalmosa Properties Ltd, Emovera Properties Ltd, Estaga Properties Ltd, Skellom Properties Ltd, Blodar Properties Ltd, Tebane Properties Ltd, Cranmer Properties Ltd, Vieman Ltd, Les Coraux Estates Ltd, Natakon Company Ltd, Oceania Ltd, Dominion Industries Ltd, Ledra Estate Ltd, EuroLife Properties Ltd, Laiki Lefkothea Center Ltd, Labancor Ltd, Joberco Ltd, Zecomex Ltd, Domita Estates Ltd, Memdes Estates Ltd, Thryan Properties Ltd, Edoric Properties Ltd, Canosa Properties Ltd, Kernland Properties Ltd, Jobelis Properties Ltd, Melsolia Properties Ltd, Koralmon Properties Ltd, Lasteno Properties Ltd, Spacous Properties Ltd, Calinora Properties Ltd, Marcozaco Properties Ltd, Soluto Properties Ltd, Solomaco Properties Ltd, Linaland Properties Ltd, Andaz Properties Ltd, Unital Properties Ltd, Neraland Properties Ltd, Wingstreet Properties Ltd, Nolory Properties Ltd, Lynoco Properties Ltd, Fitrus Properties Ltd, Lisbo Properties Ltd, Mantinec Properties Ltd, Colar Properties Ltd, Irisa Properties Ltd, Provezaco Properties Ltd, Hillbay Properties Ltd, Ofraco Properties Ltd, Forenaco Properties Ltd, Hovita Properties Ltd, Astromeria Properties Ltd, Orzo Properties Ltd, Regetona Properties Ltd, Arcandello Properties Ltd, Camela Properties Ltd, Fareland Properties Ltd, Barosca Properties Ltd, Fogland Properties Ltd, Tebasco Properties Ltd, Homirova Properties Ltd, Valecross Properties Ltd, Altco Properties Ltd, Olivero Properties Ltd, Jaselo Properties Ltd, Elosa Properties Ltd, Flona Properties Ltd, Toreva Properties Ltd, Resoma Properties Ltd, Mostero Properties Ltd, Helal Properties Ltd, Yossi Properties Ltd, Pendalo Properties Ltd, Frontyard Properties Ltd, Bonsova Properties Ltd, Garmozy Properties Ltd, Palmco Properties Ltd, Thermano Properties Ltd, Venicous Properties Ltd, Lorman Properties Ltd, Eracor Properties Ltd, Rulemon Properties Ltd, Thelemic Properties Ltd, Maledico Properties Ltd, Dentorio Properties Ltd, Valioco Properties Ltd, Bascone Properties Ltd, Balasec Properties Ltd, Bendolio Properties Ltd, Diafor Properties Ltd, Kartama Properties Ltd, Paradexia Properties Ltd, Paramina Properties Ltd, Nouralia Properties Ltd, Resocot Properties Ltd, Soblano Properties Ltd, Talamon Properties Ltd, Weinar Properties Ltd, Zemialand Properties Ltd, Asianco Properties Ltd, Cimonia Properties Ltd, Coeval Properties Ltd, Comenal Properties Ltd, Finevo Properties Ltd, Mazima Properties Ltd, Nesia Properties Ltd, Nigora Properties Ltd, Riveland Properties Ltd, Rosalica Properties Ltd, Secretsky Properties Ltd, Senadaco Properties Ltd, Tasabo Properties Ltd, Venetolio Properties Ltd, Zandexo Properties Ltd, Flymoon Properties Ltd, Meriaco Properties Ltd, Odolo Properties Ltd, Calandomo Properties Ltd, Molemo Properties Ltd, Nivamo Properties Ltd, Edilia Properties Ltd, Icazo Properties Ltd, Limoro Properties Ltd, Samilo Properties Ltd, Jalimo Properties Ltd, Sendilo Properties Ltd, Baleland Properties Ltd, Prodino Properties Ltd, Stevolo Properties Ltd and Zenoplus Properties Ltd.

Romania: Otherland Properties Dorobanti SRL, Green Hills Properties SRL, Imoreth Properties SRL, Inroda Properties SRL, Zunimar Properties SRL, Allioma Properties SRL and Nikaba Properties SRL.

Further, at 30 June 2021 BOC PCL had 100% shareholding in Obafemi Holdings Ltd, Stamoland Properties Ltd, Unoplan Properties Ltd, Petrassimo Properties Ltd and Gosman Properties Ltd.

The main activities of the above companies are the holding of shares and other investments and the provision of services.

At 30 June 2021 BOC PCL had 100% shareholding in BOC Terra AIF V.C.I Plc which is a real estate alternative investment fund.

At 30 June 2021 BOC PCL had 100% shareholding in the companies listed below which are reserved to accept property:

Cyprus: Tavoni Properties Ltd, Amary Properties Ltd, Holstone Properties Ltd, Alepar Properties Ltd, Cramonco Properties Ltd, Monata Properties Ltd, Aktilo Properties Ltd, Alezia Properties Ltd, Aparno Properties Ltd, Enelo Properties Ltd, Stormino Properties Ltd, Lomenia Properties Ltd, Vertilia Properties Ltd, Carilo Properties Ltd, Gelimo Properties Ltd, Rifelo Properties Ltd, Avaleto Properties Ltd, Midelox Properties Ltd, Ameleto Properties Ltd, Orilema Properties Ltd, Montira Properties Ltd, Larizemo Properties Ltd and Olisto Properties Ltd.

In addition, BOC PCL holds 100% of the following intermediate holding companies:

Cyprus: Otherland Properties Ltd, Battersee Properties Ltd, Trecoda Properties Ltd, Bonayia Properties Ltd, Bocaland Properties Ltd, Romaland Properties Ltd, Janoland Properties Ltd, Imoreth Properties Ltd, Inroda Properties Ltd, Tantora Properties Ltd, Zunimar Properties Ltd, Selilar Properties Ltd, Nikaba Properties Ltd, Allioma Properties Ltd, Landanafield Properties Ltd and Hydrobius Ltd.

BOC PCL also holds 100% of the following companies which are inactive:

Cyprus: Birkdale Properties Ltd, Laiki Bank (Nominees) Ltd, Thames Properties Ltd, Paneuropean Ltd, Philiki Ltd, Cyprialife Ltd, Imperial Life Assurances Ltd, Philiki Management Services Ltd, Nelcon Transport Co. Ltd, Weinco Properties Ltd, Iperi Properties Ltd, Finerose Properties Ltd, CYCMC II Ltd, CYCMC IV Ltd and Steparco Ltd.

Greece: Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki (branch of General Insurance of Cyprus Ltd), Kyprou Commercial SA and Kyprou Properties SA.

All Group companies are accounted for as subsidiaries using the full consolidation method. All companies listed above have share capital consisting of ordinary shares.

Control over CLR Investment Fund Public Ltd (CLR) and its subsidiaries without substantial shareholding

The Group considers that it exercises control over CLR and its subsidiaries (Europrofit Capital Investors Public Ltd, Axxel Ventures Ltd and CLR Private Equity Ltd) through control of the members of the Board of Directors and is exposed to variable returns through its holding.

Restructuring of investment of banking and brokerage activities

On 19 November 2020, the Group proceeded with a restructuring of its investment banking and brokerage activities through the acquisition by CISCO of LCP Holdings and Investments Public Ltd and CLR Investment Fund Public Ltd. This was achieved by an increase in the share capital of CISCO to BOC PCL in exchange of the shares held by BOC PCL in both companies. In particular 67% of LCP Holdings and Investments Public Ltd and 20% in CLR Investment Fund Public Ltd are owned by CISCO as at 30 June 2021 and 31 December 2020. In January 2021, CISCO also proceeded with the acquisition of BOC Asset Management Ltd from BOC PCL. The above restructuring did not have an impact on the results of the Group.

Dissolution and disposal of subsidiaries

As at 30 June 2021, the following subsidiaries were in the process of dissolution or in the process of being struck off: Renalandia Properties Ltd, Crolandia Properties Ltd, Fantasio Properties Ltd, Demoro Properties Ltd, Elosis Properties Ltd, Polkima Properties Ltd, Pariza Properties Ltd, Prosilia Properties Ltd, Otoba Properties Ltd, Dolapo Properties Ltd, Nivoco Properties Ltd, Bramwell Properties Ltd, BC Romanoland Properties Ltd, Blindingqueen Properties Ltd, Buchuland Properties Ltd, Corner LLC, Fairford Properties Ltd, Leasing Finance LLC, Mirodi Properties Ltd, Nallora Properties Ltd, Omiks Finance LLC, Salecom Ltd, Sylvesta Properties Ltd, Commonland Properties Ltd, Fledgego Properties Ltd, Melgred Properties Ltd, Battersee Real Estate SRL and Trecoda Real Estate SRL.

Diners Club (Cyprus) Ltd, Frozenport Properties Ltd, Loneland Properties Ltd, Unknownplan Properties Ltd and Romaland Properties SRL were dissolved during the six months ended 30 June 2021. Global Balanced Fund of Funds Salamis Variable Capital Investment Company PLC (formerly Cytrustees Investment Public Company Ltd), Jongeling Properties Ltd, Kedonian Properties Ltd, Mikosa Properties Ltd, Vemoto Properties Ltd, Subworld Properties Ltd, Intelamon Properties Ltd, Rofeno Properties Ltd and CYCMC III Ltd were disposed of during the six months ended 30 June 2021.

35.   Acquisitions and disposals of subsidiaries

35.1  Acquisitions during 2021

There were no acquisitions during the six months ended 30 June 2021.

35.2  Disposals during 2021

There were no material disposals during the six months ended 30 June 2021.

35.3  Acquisitions during 2020

There were no acquisitions during 2020.

35.4  Disposals during 2020

There were no material disposals during 2020.

36.   Investments in associates and joint venture

Carrying value of the investments in associates and joint venture

	Percentage holding	30 June 2021	31 December 2020
	(%)	€000	€000
Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc	‑	-	2,462
Aris Capital Management LLC	30.0	-	-
Rosequeens Properties Limited	33.3	-	-
Rosequeens Properties SRL	33.3	-	-
Tsiros (Agios Tychon) Ltd	50.0	-	-
M.S. (Skyra) Vassas Ltd	15.0	-	-
Fairways Automotive Holdings Ltd	45.0	-	-
		-	2,462

Investments in associates

Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc (Apollo)

In March 2021 the Group completed the sale of its entire holding of 34.2% of the UCITS of Apollo. The Group considered that it exercised significant influence over Apollo even though no Board representation existed, because due to its UCITS holdings, it possessed the power to potentially appoint members of the Board of Directors. During the six months ended 30 June 2021, an amount of €137 thousand was recognised in the consolidated income statement as the Group's share of profit from Apollo. The loss on the sale of the investment in associate amounted to €97 thousand and has been recognised in 'Net (losses)/gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates' (Note 8) during the six months ended 30 June 2021.

Aris Capital Management LLC

The Group's holding in Aris Capital Management LLC of 30.0% was transferred to the Group following the acquisition of certain operations of Laiki Bank in 2013. The investment is considered to be fully impaired and its value is restricted to zero.

Rosequeens Properties Limited and Rosequeens Properties SRL

The Group effectively owns 33.3% of the share capital of Rosequeens Properties SRL which is incorporated in Romania and owns a shopping mall in Romania. The shareholding was acquired after BOC PCL took part in a public auction for the settlement of customer loan balances amounting to approximately €21 million. The Group's share of net assets of the associate at 30 June 2021 and 31 December 2020 had nil accounting value as the net assets of the associate had a negative balance.

M.S. (Skyra) Vassas Ltd

In the context of its loan restructuring activities, the Group acquired 15.0% interest in the share capital of M.S. (Skyra) Vassas Ltd.  M.S. (Skyra) Vassas Ltd is the parent company of a group of companies (Skyra Vassas group) with operations in the production, processing and distribution of aggregates (crushed stone and sand) and provision of other construction materials, and services based on core products such as ready‑mix concrete, asphalt and packing of aggregates. The Group considers that it exercises significant influence over the Skyra Vassas group as the Group has the power to have representation to the Board of Directors and to vote for matters relating to the relevant activities of the business. The investment is considered to be fully impaired and its value is restricted to zero.

Fairways Automotive Holdings Ltd

In the context of its loan restructuring activities, the Group acquired 45.0% interest in the share capital of Fairways Automotive Holdings Ltd. Fairways Automotive Holdings Ltd is the parent company of Fairways Ltd operating in the import and trading of motor vehicles and spare parts. The Group considers that it exercises significant influence over the company. The investment is considered to be fully impaired and its value is restricted to zero.

Investment in joint venture

Tsiros (Agios Tychon) Ltd

The Group holds a 50.0% shareholding in Tsiros (Agios Tychon) Ltd.  The shareholder agreement with the other shareholder of Tsiros (Agios Tychon) Ltd stipulates a number of matters which require consent by both shareholders, therefore the Group considers that it jointly controls the company. The carrying value of Tsiros (Ayios Tychon) Ltd is restricted to zero.

The percentage holdings are in ordinary shares or membership interests.

37.   Events after the reporting period

Renewal of collective agreement

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

There were no other material events after the balance sheet date.

 

END

 

 

IR EASNFELLFEEA