Half-year Report -3

RNS Number : 3562K

Bank of Cyprus Holdings PLC

01 September 2021

 

Additional Risk and Capital Management Disclosures

30 June

2021

This report includes additional risk and capital management disclosures. 

1.  Credit risk

Definitions

Non-Performing Exposures ( NPEs¹) are defined as those exposures that satisfy one of the following conditions: 

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

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

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

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

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

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

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

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

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

Material arrears/excesses are defined as follows:

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

-   Exposures other than retail: Total arrears/excess amount greater than €500

and the amount in arrears/excess in relation to the customer's total exposure is at least 1%.

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

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

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

a)  The restructuring date

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

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

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

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

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

1 As per the European Banking Authorities (EBA) standards and European Central Bank's (ECB) Guidance to Banks on Non‑Performing Loans (which was published in March 2017).
 

1.  Credit risk (continued)

Exposures are classified as forborne when concessions are made to debtors who are facing or about to face financial difficulties and cannot meet their contractual obligations.

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

i.  At least three months have passed since the date that the conditions for which the exposure was classified as non-performing cease to be met, and within these three months there are no  default triggers, and

ii.  During the three month period, the behaviour of the obligor should be taken into account, i.e. there are no arrears/excesses and instalments are being repaid normally, and

iii.  During the three month period, the financial situation of the obligor should be taken into account, i.e. the financial situation of the obligor has improved, and

iv.   During the three month period an Unlikely‑to‑Pay criteria assessment is carried out and it is assessed that the obligor can fulfill their obligations without resorting to the liquidation of collateral and there are no other Unlikely-to-Pay criteria.

The definitions of credit‑impaired and default are aligned.

1.  Credit risk (continued)

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

Gross loans and advances to customers

Accumulated impairment, accumulated negative changes in  fair value due to credit risk and provisions

30 June 2021	Group gross customer  loans and advances2	Of which NPEs	Of which exposures with forbearance measures		Accumulated impairment, accumulated negative changes in  fair value due to credit risk and provisions	Of which NPEs	Of which exposures with forbearance measures
			Total exposures with forbearance measures	Of which NPEs			Total exposures with forbearance measures	Of which on NPEs
	€000	€000	€000	€000	€000	€000	€000	€000
Loans and advances to customers
General governments	51,603	1	-	-	2,115	1	-	-
Other financial corporations	122,396	8,264	9,946	3,746	5,078	3,688	1,670	1,420
Non-financial corporations	5,346,633	519,994	821,428	265,243	262,731	235,057	100,580	95,554
Of which: Small and Medium sized Enterprises3 (SMEs)	3,948,315	340,522	456,662	163,887	221,889	200,584	87,336	82,754
Of which: Commercial real estate 3	4,006,554	265,874	675,496	158,070	139,466	124,454	69,071	66,380
Non-financial corporations by sector
Construction	604,864	64,850			43,386
Wholesale and retail trade	994,880	127,654			71,602
Accommodation and food service activities	1,136,146	23,783			13,593
Real estate activities	1,166,171	131,414			28,213
Manufacturing	369,488	42,928			29,719
Other sectors	1,075,084	129,365			76,218
Households	5,188,984	974,725	730,093	494,299	473,151	454,671	204,065	196,604
Of which: Residential mortgage loans3	4,068,157	802,571	620,378	419,504	349,265	339,692	159,942	154,706
Of which: Credit for consumption3	622,568	121,257	89,417	60,650	74,718	70,097	30,245	29,135
	10,709,616	1,502,984	1,561,467	763,288	743,075	693,417	306,315	293,578
Loans and advances to customers classified as held for sale	-	-	-	-	-	-	-	-
Total on-balance sheet	10,709,616	1,502,984	1,561,467	763,288	743,075	693,417	306,315	293,578

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

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

1.  Credit risk (continued)

31 December 2020	Gross loans and advances to customers				Accumulated impairment, accumulated negative changes in  fair value due to credit risk and provisions
	Group gross customer loans and advances4	Of which NPEs	Of which exposures with forbearance measures		Accumulated impairment, accumulated negative changes in  fair value due to credit risk and provisions	Of which NPEs	Of which exposures with forbearance measures
			Total exposures with forbearance measures	Of which NPEs			Total exposures with forbearance measures	Of which on NPEs
	€000	€000	€000	€000	€000	€000	€000	€000
Loans and advances to customers
General governments	50,771	1	-	-	1,949	-	-	-
Other financial corporations	115,668	10,494	17,303	4,568	7,232	5,545	2,604	1,907
Non-financial corporations	5,364,716	574,205	499,948	304,406	272,331	245,647	106,238	101,989
Of which: Small and Medium sized Enterprises 5	3,797,095	387,568	327,344	193,938	230,595	210,511	91,092	87,496
Of which: Commercial real estate5	4,042,172	346,607	367,083	193,959	154,807	139,915	77,104	74,009
Non-financial corporations by sector
Construction	614,135	75,550			42,791
Wholesale and retail trade	997,904	134,135			80,885
Accommodation and food service activities	1,123,380	19,836			12,766
Real estate activities	1,129,066	140,532			30,355
Manufacturing	376,551	45,142			28,185
Other sectors	1,123,680	159,010			77,349
Households	5,160,342	1,055,706	821,614	544,408	523,938	495,784	231,313	221,722
Of which: Residential mortgage loans5	4,059,939	882,336	690,514	465,939	396,275	382,063	185,648	178,570
Of which: Credit for consumption5	622,102	133,351	89,725	68,763	82,951	74,473	33,363	32,285
	10,691,497	1,640,406	1,338,865	853,382	805,450	746,976	340,155	325,618
Loans and advances to customers classified as held for sale	1,341,255	1,312,166	754,795	731,624	848,218	832,419	447,731	434,657
Total on-balance sheet	12,032,752	2,952,572	2,093,660	1,585,006	1,653,668	1,579,395	787,886	760,275

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

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

2.  Liquidity risk and funding

2.1  Encumbered and unencumbered assets

Asset encumbrance arises from collateral pledged against secured funding and other collateralised obligations. 

An asset is classified as encumbered if it has been pledged as collateral against secured funding and other collateralised obligations and, as a result, is no longer available to the Bank of Cyprus Holdings Group (the Group) for further collateral or liquidity requirements. The total encumbered assets of the Group amounted to €4,433,120 thousand as at 30 June 2021 (31 December 2020: €2,958,877 thousand). 

An asset is classified as unencumbered if it has not been pledged as collateral against secured funding and other collateralised obligations. Unencumbered assets are further analysed into those that are available and can potentially be pledged and those that are not readily available to be pledged. As at 30 June 2021, the Group held €16,581,330 thousand (31 December 2020: €15,033,868 thousand) of unencumbered assets that can potentially be pledged and can be used to support potential liquidity funding needs and €1,437,611 thousand (31 December 2020: €2,173,289 thousand) of unencumbered assets that are not readily available to be pledged for funding requirements in their current form.

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 Bank of Cyprus Public Company Ltd (BOC PCL) in 2011 under its Covered Bond Programme. Furthermore, as at 30 June 2021 housing loans of a nominal amount €1,965 million (31 December 2020: €1,827 million) in Cyprus are pledged as collateral for funding from the ECB (Note 20 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2021).

The table below presents an analysis of the Group's encumbered and unencumbered assets and the extent to which these assets are currently pledged for funding or other purposes.  The carrying amount of such assets is disclosed below:

30 June 2021	Encumbered	Unencumbered		Total
	Pledged as collateral	Which can potentially be pledged	Which are not readily available to be pledged
	€000	€000	€000	€000
Cash and other liquid assets	113,401	7,971,278	578,903	8,663,582
Investments	1,315,329	866,884	15,859	2,198,072
Loans and advances to customers	3,004,390	6,152,528	809,624	9,966,542
Non-current assets held for sale	-	-	10,696	10,696
Property	-	1,590,640	22,529	1,613,169
Total on-balance sheet	4,433,120	16,581,330	1,437,611	22,452,061

31 December 2020
Cash and other liquid assets	78,831	5,389,179	588,089	6,056,099
Investments	37,105	1,837,573	38,436	1,913,114
Loans and advances to customers	2,842,941	6,150,122	892,984	9,886,047
Non-current assets held for sale	-	-	630,931	630,931
Property	-	1,656,994	22,849	1,679,843
Total on-balance sheet	2,958,877	15,033,868	2,173,289	20,166,034

2.   Liquidity risk and funding (continued)

2.1   Encumbered and unencumbered assets (continued)

Encumbered assets primarily consist of loans and advances to customers and investments in debt securities.  These are mainly pledged for the funding facilities of the Central Banks (ECB and CBC) and for the covered bond ( Notes 20 and 31 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2021 respectively ). Encumbered assets include cash and other liquid assets placed with banks as collateral under ISDA agreements which are not immediately available for use by the Group, but are released once the transactions are terminated. Cash is mainly used to cover collateral required for (i) derivatives and (ii) trade finance transactions and guarantees issued. It may also be used as part of the supplementary assets for the covered bond.

BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the Covered Bonds Directive of 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 bond were 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 and have a conditional Pass-Through structure. All the bonds are held by BOC PCL. The covered bond s are eligible collateral for the Eurosystem credit operations and are placed as collateral for accessing funding from the ECB.

Unencumbered assets which can potentially be pledged include Cyprus loans and advances which are less than 90 days past due. Balances with central banks are reported as unencumbered and can be pledged, to the extent that there is excess available over the minimum reserve requirement. The minimum reserve requirement is reported as unencumbered not readily available to be pledged.

Unencumbered assets that are not readily available to be pledged primarily consist of loans and advances which are prohibited by contract or law to be encumbered or which are more than 90 days past due or for which there are pending litigations or other legal actions against the customer, a proportion of which would be suitable for use in secured funding structures but are conservatively classified as not readily available for collateral. Properties whose legal title has not been transferred to the Company or a subsidiary are not considered to be readily available as collateral.

Insurance assets held by Group insurance subsidiaries are not included in the table above or below as they are primarily due to the insurance policyholders.

 

2.   Liquidity risk and funding (continued)

2.1   Encumbered and unencumbered assets (continued)

The carrying and fair value of the encumbered and unencumbered investments of the Group as at 30 June 2021 and 31 December 2020 are as follows:

30 June 2021	Carrying value of encumbered investments	Fair value of encumbered investments	Carrying value of unencumbered investments	Fair value of unencumbered investments
	€000	€000	€000	€000
Equity securities	-	-	199,996	199,996
Debt securities	1,315,329	1,329,595	682,747	683,019
Total investments	1,315,329	1,329,595	882,743	883,015

31 December 2020
Equity securities	-	-	204,270	204,270
Debt securities	37,105	37,601	1,671,739	1,688,644
Total investments	37,105	37,601	1,876,009	1,892,914

2.2   Liquidity regulation

The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR) under CRD IV/CRR (as supplemented by Delegated Regulations (EU) 2015/61). The Group also has to comply with its Net Stable Funding Ratio (NSFR) calculated as per the Capital Requirements Regulation II (CRR II), enforced in June 2021, with the limit set at 100%.

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

As at 30 June 2021 the Group was in compliance with all regulatory liquidity requirements. As at 30 June 2021, the LCR stood at 303% for the Group (compared to 254% at 31 December 2020) and was in compliance with the minimum regulatory requirement of 100%. As at 30 June 2021 the Group's NSFR was 150% (compared to 139% at 31 December 2020 on the basis of the Basel III standards).

 

2.   Liquidity risk and funding (continued)

2.3  Liquidity reserves

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

Composition of the liquidity reserves	30 June 2021			31 December 2020
	Internal Liquidity Reserves	Liquidity reserves as per LCR Delegated Reg (EU) 2015/61 LCR eligible		Internal Liquidity Reserves	Liquidity reserves as per LCR Delegated Reg (EU) 2015/61 LCR eligible
		Level 1	Level 2A		Level 1	Level 2A
	€000	€000	€000	€000	€000	€000
Cash and balances with central banks	8,069,371	8,069,371	-	5,568,431	5,568,431	-
Placements with banks	232,263	-	-	248,839	-	-
Liquid investments	422,460	290,428	159,498	1,409,850	1,240,773	133,073
Available ECB Buffer	45,054	-	-	762,001	-	-
Total	8,769,148	8,359,799	159,498	7,989,121	6,809,204	133,073

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

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

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

Current available ECB buffer is not part of the Liquidity reserves as per LCR.

The Liquidity Reserves are managed by Treasury.

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

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

 

2.   Liquidity risk and funding (continued)

2.3  Liquidity reserves (continued)

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

3.   Other risks

3.1  Operational risk

Operational risk is defined as the risk of a direct or indirect impact loss resulting from inadequate or failed internal processes, people and systems or external events. The Group includes in this definition compliance, legal and reputational risk.

The Group recognises that the control of operational risk is directly related to effective and efficient management practices and high standards of corporate governance. To that effect, the management of operational risk is geared towards maintaining a strong internal control governance framework and managing operational risk exposures through a consistent set of management processes that drive risk identification, assessment, control and monitoring.

The main objectives of operational risk management within the Group are: (i) raising operational risk awareness and building the appropriate risk culture, (ii) providing adequate and timely information to the Group's management at all levels in relation to the operational risk profile at a company, unit and activity level, so as to facilitate decision making for risk control activities, and (iii) mitigating operational risk to ensure that operational losses do not cause material damage to the Group's franchise and that the impact on the Group's profitability and corporate objectives is contained.

Operational risks can arise from all business lines and from all activities carried out by the Group and are thus diverse in nature. To enable effective management of all material operational risks, the operational risk management framework adopted by the Group is based on the three lines of defence model, through which risk ownership is dispersed throughout the organisation. The first line of defence comprises of management and staff who have immediate responsibility of day-to-day operational risk management and own the risk.  Each business unit owner is responsible for identifying and managing all the risks that arise from the unit's activities as an integral part of their first line responsibilities.

The second line of defence comprises of the Risk Management function whose role is to provide inter-alia operational risk oversight and independent and objective challenge to the first line of defence, supported by other specialist control and support functions including the Group Compliance Division and Information Security functions. The third line of defence comprises of the Internal Audit function, which provides independent assurance over the integrity and effectiveness of the risk management framework throughout the Group.

According to the Pandemic Incident Management Plan, which was invoked following the COVID-19 outbreak, Business Continuity arrangements have been put in place, which include splitting the operations of the critical units at separate locations other than their main business sites along with remote access from home capabilities as applicable. All the controls are undertaken as usual and no additional losses or incidents have been identified as a result of the pandemic.

 

3.   Other risks (continued)

3.1  Operational risk (continued)

As a result of the customers' accelerated shift towards digital channels, the Fraud Risk Management unit further enhanced BOC PCL's current fraud prevention controls and automated policies. The Operational Risk Management (ORM) unit was also faced with an increased number of process/procedure assessments, as well as new product assessments that emerged due to the special circumstances created by COVID-19.

Further to the actions taken in response to the COVID-19 pandemic, ongoing activities/initiatives towards further enhancement of ORM involved inter alia the following: (i) provision of a fraud risk awareness seminar to staff and top-management, (ii) formation of a new COSO-ACFE Fraud Risk Assessment framework going beyond the current RCSA process, (iii) the newly established 'Third Party Risk Management' unit under the ORM Department  has completed the risk assessment of all the outsourcing engagement renewals by the first quarter of 2021, and (iv) ongoing reviews and enhancements of the internal ORM policies, procedures and the ORM database.

Operational risk loss events are classified and recorded in the Group's Risk and Compliance Management System (RCMS) system, which serves as an enterprise tool integrating all risk-control data (i.e. risks, loss incidents, Key Risk Indicators) to provide a holistic view with regards to risk identification, corrective action and statistical analysis. During the six months ended 30 June 2021, 55 loss events with gross loss equal to or greater than €1,000 each were recorded including incidents of prior years (mostly legal cases) for which losses materialised in the first six months of 2021 (six months ended 30 June 2020: 99 loss events).

The Group strives to continuously enhance its risk control culture and increase the awareness of its employees on operational risk issues through ongoing staff training (both classroom/workshop type of training, which were suspended in 2020 due to COVID-19 circumstances, and e-learning sessions).

The Group also maintains adequate insurance policies to cover for unexpected material operational losses.

Business resilience is treated as a priority and as such the Group places significant importance on continuously enhancing the continuity arrangements, to ensure timely recovery in the case of events, such as the COVID-19 pandemic, that may cause disruptions to the business operations.

3.2  Political risk

Cyprus is a small open, services-based economy, with a large external sector and concentrated country dependence for tourism and investment flows. As a result, external factors which are beyond the control of the Group, including developments in the European Union and in the global economy, or in specific countries with which Cyprus maintains close economic and investment links, most notably the UK and Russia, can have a disproportionate impact on domestic economic activity. Cyprus has a relatively large tourism sector and its growth outlook in the year and beyond will depend on its own epidemiological assessment but also on progress to end the pandemic in the world at large. Perceptions about the risk profile of the sovereign and the country at large can change quickly with material implications for servicing costs and access to capital funding.

Exports and imports of goods and services, each accounted for about 70% of GDP in 2019. Tourism, a significant source of export earnings, has been hit hard by the COVID-19 pandemic. Services exports dropped steeply in 2020 and the ratio of total exports of goods and services to GDP declined to near 60%. A smaller drop in imports meant a significant deterioration of the current account and the widening of an already large deficit. The economy's high degree of openness leaves it vulnerable to sharp fluctuations in external demand and weighs on its overall risk profile. On the fiscal side, the debt profile also deteriorated, and the debt ratio rose steeply as a result of an expansive fiscal policy to mitigate the effects of the pandemic on economic activity and jobs. Tensions in the eastern Mediterranean and over relations with Turkey remain high and harbour significant risks.

3.   Other risks (continued)

3.2  Political risk (continued)

Tensions in the eastern Mediterranean can escalate with adverse consequences. This is not a high probability event, but its impact can potentially be high. Cyprus' offshore oil and gas exploration activities in its exclusive economic zone, have met with Turkey's objections, who among other are disputing some of the maritime areas to the west of Cyprus as part of its continental shelf. In order to extract and transport gas from the region, investments in infrastructure will be needed. Such infrastructure will not be in place in the next couple of years.

The stalemate over the Cyprus problem can also lead to increased tensions between Cyprus and Turkey. This is a likely event in the near and the medium term, but unlikely to have a high impact if tensions are limited to the diplomatic sphere as now expected. Failure to reach a negotiated agreement in the last round of negotiations that culminated at the summit at Crans Montana in July 2017, have led to unilateral actions by Turkey and the Turkish Cypriots making the resumption of talks highly unlikely.

Political fragmentation in Cyprus poses a risk of obstructing the reform process.

Unprecedented fiscal stimulus in response to the pandemic sharply increased public debt in relation to GDP across most countries particularly the advanced. Higher public debts and monetary accommodation have not yet produced any sustained higher inflation or sharp increases in borrowing costs. Current inflation spikes are mainly driven by rising commodity prices reflecting pandemic related supply-demand imbalances. A scenario of sustained high inflation is of low probability but of a very high impact if it materialises. However, in the event of sustained inflation the ECB would respond by tightening policy prematurely. If this occurs, risks associated with public debt will rise.

Economic recovery will accelerate across Europe and the world at large in the second half of the year as domestic lockdown measures are lifted and as travel restrictions are eased.A relaxation of measures and continued stimulus policies will result in strong consumption, trade, and investment across the continent. The summer season will bring some relief to the tourism dependent countries in the south. But the recovery will be uneven, and risks remain. The emergence of new COVID-19 variants and a subsequent re-introduction of tighter social distancing measures could still derail the economic recovery in Europe.

The most serious downside risk is the uncertainty around how prolonged the coronavirus pandemic is going to be. Lockdowns and risk aversion can lead to more protracted economic weaknesses globally. The safety and effectiveness of the vaccines have not been tested broadly enough. Hence, there is a risk that the virus contagion may be deeper and longer. The vaccines may prove less effective particularly in terms of preventing infection and transmission. The virus is also mutating in new strains. The development of vaccines has been a positive factor, but risks remain regarding their effectiveness and lasting impact on business activities such as travel and tourism, which leaves Cyprus particularly exposed. Cyprus has been hit hard by the coronavirus pandemic in 2020 with tourist arrivals and revenues falling by about 85%.  In the first seven months of 2021 tourist arrivals increased but remained subdued, representing 29% of corresponding arrivals in 2019.

The risk of disruption from Brexit-related developments has not evaporated. The trade cooperation agreement signed between the EU and the UK in December 2020, averted a no-deal Brexit. However, the deal is about trade in goods to the exclusion of services trade. The talks on several important areas have been deferred and the evolution of the UK-EU trade relationship may transform into something more complex and may involve delays and higher costs to shipments of finished goods. At the same time exit from the coronavirus pandemic will be challenging. The financial system has remained relatively resilient to the pandemic, but domestic factors, including excessive private-sector debt, low profitability in the real economy and a structurally weak housing market, will continue to pose risks to the broader financial sector stability.

 

3.   Other risks (continued)

3.2  Political risk (continued)

Russia's relations with the West remain strained since the annexation of Crimea in 2014, and both the US and EU maintain a range of targeted economic sanctions. After a drop in oil prices triggered by the coronavirus pandemic, which pushed Russia into a recession in 2020, the economic recovery is likely to be slow in the light of structural factors and still low oil prices.The government remains committed to tight fiscal policies and a positive current account balance, allowing for the steady accumulation of international reserves. The introduction of a fiscal rule in 2017 by which oil revenue in excess of USD42/barrel are diverted into the national wealth fund, allowed Russia to save significant additional reserves. A high stock of reserve assets insulates the country from external shocks.  Given that the banking sector has linkages with business and professional services with Russia and that Russia has become a major market for Cypriot tourism, adverse events and developments in the Russian economy may potentially have an impact on the Cyprus economy.

Given the above, the Group recognises that unforeseen political events can have negative effects on the Group's activities, operating results and position.

3.3   Cyber risk

Cyber-risk is a significant inherent risk, which could cause a material disruption to the operations of the Group. The Group's information systems have been and will continue to be exposed to an increasing threat of continually evolving cybercrime. Customers and other third parties to which the Group is significantly exposed, including the Group's service providers (such as data processing companies to which the Group has outsourced certain services), face similar threats.

At the same time, the Group has an internal specialised Information Security team which constantly monitors current and future cyber security threats (either internal or external, malicious or accidental) and invests in enhanced cyber security measures and controls to protect, prevent and appropriately respond against such threats for its systems and information.

The Group collaborates with industry bodies, the National Computer Security Incident Response Team (CSIRT) and intelligence-sharing working groups to be better equipped with the growing threat from cyber criminals.

In addition, the Group maintains insurance coverage which covers certain aspects of cyber risks and it is subject to exclusion of certain terms and conditions.

Advanced social engineering attacks were used by attackers for credentials stealing and malware dissemination during the COVID-19 pandemic. The Group's cyber security systems have protected the Group from such threats and are continually improved by strengthening detection, response and protection mechanisms in order to continually contain such threats and keep risks within Group's appetite thresholds.

3.4  Business and strategic risk

Business and strategic risk arises from changes in the external environment including economic trends and competition.

The Group faces intense competition in the markets in which it operates in the Cyprus economy and in other parts of Europe. Competition primarily originates from other commercial banks, branches and subsidiaries of foreign banks, and insurance companies offering savings and investment products.It also faces competition from financial technology companies. The Group remains today the biggest and most systemically important local banking organisation in Cyprus.

Any intensification of competition as a result of more competitive interest rates being offered on deposits and advances compared to those offered by the Group, may create pressure on Group profitability.

 

3.   Other risks (continued)

3.4  Business and strategic risk (continued)

In order to mitigate its exposure to the business and strategic risk, the Group has a clear strategy with key objectives. The strategy is developed within the risk appetite of the Group and is monitored closely on a regular basis. The Group remains ready to explore opportunities that complement its strategy.

3.5  Litigation risk

The Group may, from time to time, become involved in legal or arbitration proceedings which may affect its operations and results.  Litigation risk arises from pending or potential legal proceedings and regulatory investigations against the Group (Note 25 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2021) and in the event that legal issues are not properly dealt with by the Group. This may result in financial and/or reputational loss to the Group.

The Legal Services department (LSD) monitors the pending litigations against the Group and assesses the probability of loss for each legal action against the Group based on International Accounting Standards, as well as estimates the amount of the potential loss where deemed as probable. Also, legal risk reporting on pending litigations and latest developments to the Board of Directors' and management committees is in place.

3.6   Insurance risk

The Group, through its subsidiaries EuroLife Ltd ('EuroLife') and General Insurance of Cyprus Ltd ('GIC'), provides life insurance and non-life insurance services, respectively, and is exposed to certain risks specific to these businesses.

Insurance events are unpredictable and the actual number and amount of claims and benefits will vary from year to year from the estimate established using actuarial and statistical techniques. Insurance risk therefore is the risk that an insured event under an insurance contract occurs and uncertainty over the amount and the timing of the resulting claim exists.

The above risk exposure is mitigated by the Group through the diversification across a large portfolio of insurance contracts. The variability of risks is also reduced by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements. Although the Group has reinsurance coverage, it is not relieved of its direct obligations to policyholders and is thus exposed to credit risk with respect to ceded insurance, to the extent that any reinsurer is unable to meet the obligations assumed under such reinsurance arrangements. For that reason, the creditworthiness of reinsurers is evaluated by considering their solvency and credit rating and reinsurance arrangements are monitored and reviewed to ensure their adequacy as per the reinsurance policy. In addition, counterparty risk assessment is performed on a frequent basis.

Both EuroLife and GIC perform their annual stress tests (ORSA) which aim to ensure, among others, the appropriate identification and measurement of risks, an appropriate level of internal capital in relation to the each company's risk profile, and the application and further development of suitable risk management and internal control systems.

3.7   Regulatory risk

The Group conducts its businesses subject to on-going regulation and associated regulatory risk, including the effects of changes in the laws, regulations, policies, voluntary codes of practice and interpretations. Failure to comply with regulatory requirements could lead to, amongst other things, increased costs for the Group, and limitations on BOC PCL's capacity to lend and could have a material adverse effect on the business, financial condition, results of operations and prospects of the Group.

There is strong commitment by the management of the Group for an on-going and transparent dialogue with the Regulators (JST, ECB, and CBC). Also, a dedicated Executive Steering Group through the Regulatory Affairs department monitors the regulatory agenda to ensure that all regulatory matters are brought to the attention of management in a timely manner.

4.   Capital management

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

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

On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V) came into force. As an amending regulation, the existing provisions of CRR apply, unless they are amended by CRR II. Certain provisions took immediate effect (primarily relating to Minimum Requirement for Own Funds and Eligible Liabilities (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 the acceleration of the implementation of the new SME discount factor (lower RWAs), extending the IFRS 9 transitional arrangements and introducing further relief measures to CET1 allowing to fully add back to CET1 any increase in ECL recognised in 2020 and 2021 for non-credit impaired financial assets and phasing in this starting from 2022 and advancing the application of 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 CET1 ratio of the Group as at 30 June 2021 stands at 14.22% and the total capital ratio at 19.23% on a transitional basis.

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

CET1 Regulatory Capital Requirements	2021	2020*
Pillar I - CET1 Requirement	4.50%	4.50%
Pillar II - CET1 Requirement	1.69%	1.69%
Capital Conservation Buffer (CCB)**	2.50%	2.50%
Other Systematically Important Institutions (O-SII) Buffer	1.00%	1.00%
Minimum CET1 Regulatory Requirements	9.69%	9.69%

* As amended in April 2020 by ECB SREP amending decision following COVID-19 outbreak

** Fully phased in as of 1 January 2019

 

4.   Capital management (continued)

Minimum Total Capital Regulatory Requirements	2021	2020
Pillar I - Total Capital Requirement	8.00%	8.00%
Pillar II - Total Capital Requirement	3.00%	3.00%
Capital Conservation Buffer (CCB)*	2.50%	2.50%
Other Systematically Important Institutions (O-SII) Buffer	1.00%	1.00%
Minimum Total Capital Regulatory Requirements	14.50%	14.50%

* Fully phased in as of 1 January 2019

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

The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer.

As part of the relaxation measures following the COVID-19 outbreak, 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 Pillar II Guidance (P2G), the CCB and the Countercyclical Capital Buffer (CCyB). In July 2020, the ECB committed to allow banks to operate below P2G and the Combined Buffer Requirement until at least the end of 2022, without automatically triggering supervisory actions.

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

The capital position of the Group and BOC PCL as at 30 June 2021 exceeds both their Pillar I and their Pillar II add-on capital requirements. However, the Pillar II add-on capital requirements are a point-in-time assessment and therefore are subject to change over time.

The CBC, in accordance with the Macroprudential Oversight of Institutions Law of 2015, sets, on a quarterly basis, the 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 the 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 Other Systemically Important Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for these systemically important banks. BOC PCL has been designated as an O-SII and the CBC set the O-SII buffer at 2.0%.

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

The insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance including the minimum solvency ratio as at 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 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.

 

4.   Capital management (continued)

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

Regulatory capital	Group		BOC PCL
	30 June 2021	31 December 20206	30 June 2021	31 December 20206
	€000	€000	€000	€000
Transitional Common Equity Tier 1 (CET1)7	1,571,421	1,722,751	1,535,261	1,688,296
Transitional Additional Tier 1 capital (AT1)	220,000	220,000	220,000	220,000
Tier 2 capital (T2)	332,544	192,248	343,343	250,000
Transitional total regulatory capital	2,123,965	2,134,999	2,098,604	2,158,296
Risk weighted assets - credit risk8	9,916,278	10,504,937	9,933,961	10,516,023
Risk weighted assets - market risk	-	-	-	-
Risk weighted assets - operational risk	1,131,438	1,131,438	1,078,575	1,078,575
Total risk weighted assets	11,047,716	11,636,375	11,012,536	11,594,598
	%	%	%	%
Transitional Common Equity Tier 1 ratio	14.22	14.80	13.94	14.56
Transitional total capital ratio	19.23	18.35	19.06	18.61

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

Fully loaded	Group		BOC PCL
	30 June 20219	31 December 20209	30 June 20219	31 December 20209
	%	%	%	%
Common Equity Tier 1 ratio	12.91	12.94	12.62	12.69
Total capital ratio	18.01	16.74	17.81	16.83

During the six months ended 30 June 2021 CET1 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 of approximately 44 bps (further explained below), costs relating to the tender process for the existing Tier 2 Capital Notes and ECL charges, and was positively affected by pre-provision income, the impact of the derecognition of the Helix 2 portfolio and the decrease in risk-weighted assets. As a result, the CET1 ratio has decreased by 58 bps during the six months ended 30 June 2021.

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

6 As per Annual Report 2020 and Pillar III Disclosures 2020.

7 CET1 includes regulatory deductions, comprising, amongst others, intangible assets amounting to €27,675 thousand for the Group and €24,700 thousand for BOC PCL as at 30 June 2021 (31 December 2020: €27,171 thousand for the Group and €24,269 thousand for BOC PCL). As at 30 June 2021 an amount of €17,930 thousand is considered prudently valued for CRR purposes and it is not deducted from CET1 (31 December 2020:€21,985 thousand).

8 Includes Credit Valuation Adjustments (CVA).

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

4.   Capital management (continued)

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

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

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

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 the Group's own funds resulting in a decrease in the Group's CET1 ratio by approximately 44 bps as at 30 June 2021.

In April 2021, the Company issued €300 million unsecured and subordinated Tier 2 Capital Notes (the 'New T2 Notes') and 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 on terms substantially identical to the terms and conditions of the New T2 Notes.

At the same time, BOC PCL invited the holders of its €250 million Fixed Rate Reset Tier 2 Capital Notes due January 2027 (the 'Existing T2 Notes') to tender their Existing T2 Notes for purchase by BOC PCL. As a result, a cost of €12 million was recorded in the income statement in the second quarter 2021 and resulting 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. The Existing T2 Notes are redeemable at the option of BOC PCL (subject to applicable regulatory consents) in January 2022.

Minimum requirement for own funds and eligible liabilities

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. BOC PCL must comply with the MREL requirement at the consolidated level, comprising BOC PCL and its subsidiaries.

4.   Capital management (continued)

The MREL ratio of the Bank 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 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.

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

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

The Group also undertakes quarterly reviews of its ICAAP results, which are submitted to the ALCO and the Risk Committee of the Board of Directors, considering the latest actual and forecasted information. During the quarterly review, the Group's risk profile and risk management policies are reviewed and any material changes/developments since the annual ICAAP exercise are assessed in terms of capital adequacy. Both the annual ICAAP for 2020 and the quarterly ICAAP reviews indicated that the Group has sufficient capital and available mitigants to support its risk profile and its business and to enable it to meet its regulatory requirements, both in a base case and in stress conditions.

The Group also undertakes a quarterly review for the ILAAP through quarterly stress tests submitted to the ALCO and the Risk Committee of the Board of Directors. Any material changes since the year-end are assessed in terms of liquidity. The quarterly review identifies whether the Group has an adequate liquidity buffer to cover the stress outflows. The Group's ILAAP analysis demonstrates that the volume and capacity of liquidity resources available to the Group are adequate. Both the annual ILAAP for 2020 and the quarterly ILAAP reviews indicated that BOC PCL's liquidity position is at a very comfortable level. BOC PCL maintains liquidity resources which are adequate to ensure its ability to meet obligations as they fall due under ordinary and stressed conditions.

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

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

The ECB published on 30 July 2021 the results of the stress test. As per the relevant ECB press release 'the results of the 2021 stress test, which show that the euro area banking system is resilient to adverse economic developments. Banks were in better shape at the start of the exercise than they were three years ago, but capital depletion at the system level was higher'. As in previous years, the stress test is not a pass/fail exercise. By its standard procedures, the ECB considers the quantitative performance in the adverse scenario as an input when reconsidering the level of the Pillar II Guidance in its 2021 SREP assessment and the qualitative performance as one aspect when holistically reviewing the Pillar II Requirement. 

The stress test was based on a Static balance sheet approach, thus using the Group's financial and capital position as at 31 December 2020 as a starting point.

The results for the Group, as published by the ECB, are presented below:

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

		High-level individual results by range			Scenario sensitivities: 2021-2023 projections
		adverse scenario, FL			(delta over total REA FL 2020)
Institution	Sample	Maximum CET1 ratio (FL) depletion by ranges	Minimum CET1 ratio (FL) by ranges	Minimum Tier 1 leverage ratio (FL) by ranges	Delta projected NII adverse vs. baseline scenario (in %)	Delta projected  LLPs adverse vs. baseline scenario (in %)	Delta projected profit/ loss adverse vs. base-line scenario (in %)
Bank of Cyprus Holdings Public Limited Company	SSM	600 to 899 bps	CET1R < 8%	LR < 4%	-2.0%	3.3%	-8.3%

Given the static balance sheet methodology, the 2021 ECB SREP Stress Test does not incorporate the impact of any capital accretive results post 31 December 2020.

 

END

 

 

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