Half-year Report

RNS Number : 1406P

Bank of Cyprus Holdings PLC

29 August 2017

Mid-Year Financial Report

30 June 2017

Contents	Page
Board of Directors and Executives	1
Forward Looking Statements and Notes	2
Interim Management Report	3
Interim Consolidated Income Statement	18
Interim Consolidated Statement of Comprehensive Income	19
Interim Consolidated Balance Sheet	20
Interim Consolidated Statement of Changes in Equity	21
Interim Consolidated Statement of Cash Flows	23
Notes to the Interim Condensed Consolidated Financial Statements
1. Corporate information	25
2. Unaudited financial statements	25
3. Summary of significant accounting policies	25
4. Going concern	28
5. Operating environment	29
6. Significant judgements, estimates and assumptions	31
7. Segmental analysis	35
8. Net gains on financial instrument transactions	42
9. Staff costs and other operating expenses	42
10. Impairment of financial and non-financial instruments	43
11. Income tax	44
12. Earnings per share	44
13. Investments	45
14. Derivative financial instruments	46
15. Fair value measurement	47
16. Loans and advances to customers	51
17. Stock of property	52
18. Prepayments, accrued income and other assets	53
19. Non-current assets held for sale	53
20. Funding from central banks	54
21. Customer deposits	54
22. Subordinated loan stock	56
23. Accruals, deferred income and other liabilities	56
24. Share capital	61
25. Cash and cash equivalents	63
26. Analysis of assets and liabilities by expected maturity	65
27. Risk management - Credit risk	66
28. Risk management - Market risk	90
29. Risk management - Liquidity risk and funding	90
30. Capital management	95
31. Related party transactions	95
32. Group companies	98
33. Acquisitions and disposals	101
34. Investments in associates and joint ventures	102
35. Capital commitments	103
Independent Review Report to the Bank of Cyprus Holdings Public Limited Company	104
Additional Risk and Capital Management Disclosures including Pillar 3 semi-annual disclosures	106
Definitions and explanations on Alternative Performance Measures Disclosures	141

Board of Directors and Executives
as at 28 August 2017

Board of Directors of Bank of Cyprus Holdings Public Limited Company	Prof. Dr. Josef Ackermann CHAIRMAN Maksim Goldman VICE CHAIRMAN
	Arne Berggren Lyn Grobler Dr. Michael Heger John Patrick Hourican Dr. Christodoulos Patsalides Michalis Spanos Ioannis Zographakis
Executive Committee	John Patrick Hourican CHIEF EXECUTIVE OFFICER Dr. Christodoulos Patsalides DEPUTY CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER Michalis Athanasiou CHIEF RISK OFFICER Nick Fahy CHIEF EXECUTIVE OFFICER, BANK OF CYPRUS UK Eliza Livadiotou FINANCE DIRECTOR Panicos Nicolaou DIRECTOR CORPORATE BANKING Louis Pochanis DIRECTOR INTERNATIONAL BANKING SERVICES AND WEALTH, BROKERAGE AND ASSET MANAGEMENT Dr. Charis Pouangare DIRECTOR CONSUMER AND SME BANKING Nicolas Scott Smith DIRECTOR RESTRUCTURING AND RECOVERIES DIVISION Anna Sofroniou DIRECTOR REAL ESTATE MANAGEMENT UNIT Aristos Stylianou EXECUTIVE CHAIRMAN, INSURANCE BUSINESSES
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
Independent Auditors	Ernst & Young Chartered Accountants Ernst & Young Building Harcourt Centre Harcourt Street Dublin 2 Ireland
Registered Office	Arthur Cox, Ten Earlsfort Terrace Dublin 2 D02 T380 Ireland

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. These forward-looking statements include, but are not limited to, statements relating to the Bank of Cyprus Holdings Public Limited Company Group (the Group) intentions, beliefs or current expectations and projections about the Group's future results of operations, financial condition, liquidity, performance, prospects, anticipated growth, provisions, impairments, strategies and opportunities. By their nature, forward-looking statements involve risk and uncertainty because they relate to events, and depend upon circumstances, that will or may occur in the future. Factors that could cause actual business, strategy and/or results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements made by the Group include, but are not limited to: general economic and political conditions in Cyprus and other European Union (EU) Member States, interest rate and foreign exchange fluctuations, legislative, fiscal and regulatory developments and information technology, litigation and other operational risks. Should any one or more of these or other factors materialise, or should any underlying assumptions prove to be incorrect, the actual results or events could differ materially from those currently being anticipated as reflected in such forward-looking statements. The forward-looking statements made in this document are only applicable as from the date of publication of this document. Except as required by any applicable law or regulation, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this document to reflect any change in the Group's expectations or any change in events, conditions or circumstances on which any statement is based.

The definitions and explanation on Alternative Performance Measures Disclosures are presented in 'Definitions and explanations on Alternative Performance Measures Disclosures' of the Mid-Year Financial Report for the six months ended 30 June 2017.

The Mid-Year Financial Report for the six months ended 30 June 2017 is available at the Bank of Cyprus Holdings Public Limited Company Registered Office (at Ten Earlsfort Terrace, Dublin 2, D02 T380, Ireland) and on the Group's website www.bankofcyprus.com (Investor Relations/Financial Results).

Interim Management Report

A. Analysis of Group Financial Results for the six months ended 30 June 2017

A.1 Group reorganisation

On 18 January 2017 Bank of Cyprus Holdings Public Limited Company (the Company) became the sole shareholder of Bank of Cyprus Public Company Ltd (BOC PCL). This reorganisation was treated as a reorganisation of an existing entity that has not changed the substance of the reporting entity.

The owners of BOC PCL before the reorganisation have the same absolute and relative interests in the net assets of the Group (being the Company, BOC PCL and its subsidiaries) immediately before and after the reorganisation, since the assets and liabilities of the Group and the BOC group (being BOC PCL and its subsidiaries) are the same immediately before and after the reorganisation. Hence, the Group is considered as a continuation of BOC group.

As this transaction did not result in any change of economic substance it also did not have any effect on the total equity of the Group. The Group's financial statements reflect the difference in the amounts of share capital, share premium and capital reduction reserves as an adjustment in equity.

A.2 Balance Sheet Analysis

A.2.1 Capital Base

Shareholders' equity totalled €2,543 million at 30 June 2017, compared to €3,071 million at 31 December 2016. The Common Equity Tier 1 capital (CET1) ratio (transitional basis) stood at 12.3% at 30 June 2017, compared to 14.5% at 31 December 2016. During the six months ended 30 June 2017 the CET1 ratio was negatively affected by the loss for the period and by the phase in of transitional adjustments mainly deferred tax assets, despite the reduction in risk weighted assets (RWA). Adjusting for Deferred Tax Assets, the CET1 ratio on a fully-loaded basis totalled 11.8% at 30 June 2017, decreased by 2.1 percentage points when compared to 13.9% at 31 December 2016. As at 30 June 2017, the Total Capital ratio stood at 13.8%, decreased by 0.8 percentage points when compared to 14.6% at 31 December 2016.

The Group's capital ratios are above the minimum CET1 regulatory capital ratio of 9.50% (comprising of a 4.5% Pillar I requirement, a 3.75% Pillar II requirement and a phased-in Capital Conservation Buffer (CCB) of 1.25%) and the overall Total Capital Ratio requirement of 13.00%, comprising of a Pillar I requirement of 8% (of which up to 1.5% can be in the form of Additional Tier 1 capital and up to 2.0% in the form of Tier 2 capital), a Pillar II requirement of 3.75% (in the form of CET1), as well as a phased-in CCB of 1.25%. The European Central Bank (ECB) has also provided non-public guidance for an additional Pillar II CET1 buffer.

The Group continues to develop its processes to enable IFRS 9 to be implemented on 1 January 2018. The Group expects to be in a position to provide a robust estimate on the effect on its CET1 ratio later in the year, when the implementation programme, validation and testing is further advanced. The capital impact of any opening IFRS 9 adjustment to the provision stock is expected to be largely phased-in over a five year period in line with the proposal of the Council of the European Union. As a result, the effect of introducing IFRS 9 on CET1 in 2018 is expected to be small on a phased-in basis.

In January 2017, the Group raised €250 million of Tier 2 capital. The Group will continue, subject to market conditions, to examine opportunities to raise additional Tier 2 and/or AT1 bonds in the next 12 months. This will further strengthen the Group's capital base well ahead of the Minimum Required Eligible Liabilities ('MREL') and create greater versatility into the future.

A. Analysis of Group Financial Results for the six months ended 30 June 2017 (continued)

A.2 Balance Sheet Analysis (continued)

A.2.2 Funding and Liquidity

Funding

Funding from Central Banks

At 30 June 2017, BOC PCL's funding from central banks totalled €900 million, which relates wholly to ECB funding, compared to funding from central banks at 31 December 2016 of €850 million, which comprised Emergency Liquidity Assistance (ELA) funding of €200 million and ECB funding of €650 million. The ECB funding of €900 million at 30 June 2017 comprises €830 million through Targeted Longer-Term Refinancing Operations (TLTRO II), €40 million through Longer-Term Refinancing Operations (LTRO) and €30 million through the Main Refinancing Operations (MRO).

BOC PCL has fully repaid ELA in January 2017.

Deposits

Group customer deposits totalled €16,584 million at 30 June 2017, compared to €16,510 million at 31 December 2016. During the six months ended 30 June 2017, deposits remained broadly stable, with the focus shifting towards the deposit mix and now more than fully fund the loan book. Cyprus deposits stood at €15,010 million at 30 June 2017, accounting for 91% of Group customer deposits. In constant exchange rates, Group customer deposits increased by €288 million and customer deposits in Cyprus increased by €143 million during the first six months of 2017. BOC PCL's deposit market share in Cyprus reached 31.3% at 30 June 2017. Customer deposits accounted for 75% of total assets at 30 June 2017. The Loan to Deposit ratio (L/D) stood at 90% at 30 June 2017, down from 95% at 31 December 2016, compared to a high of 151% at 31 March 2014.

Subordinated loan stock

In January 2017 BOC PCL tapped the debt capital markets and issued a €250 million unsecured and subordinated Tier 2 Capital Note.

Liquidity

As at 30 June 2017 the Group Liquidity Coverage Ratio (LCR) stood at 108% (compared to 49% at 31 December 2016) and is in compliance with the minimum regulatory requirement of 80% (which will increase to 100% by 1 January 2018). As at 30 June 2017, BOC PCL was not in compliance with the local regulatory liquidity requirements with respect to its operations in Cyprus. The Net Stable Funding Ratio (NSFR ratio) is currently expected to be introduced on 1 January 2018, with a minimum requirement of 100%. As at 30 June 2017 the Group's NSFR, on the basis of Basel 3 standards, was 102% (compared to 95% at 31 December 2016). After repayment of ELA in January 2017, the Group has been focusing on measures to improve its liquidity position so as to be in compliance with both LCR and NSFR.

A.2.3 Loans

Group gross loans totalled €19,505 million at 30 June 2017, compared to €20,130 million at 31 December 2016. Gross loans in Cyprus totalled €17,687 million at 30 June 2017 and accounted for 91% of Group gross loans. BOC PCL is the single largest credit provider in Cyprus with a 38.7% loan market share at 30 June 2017. Gross loans in the UK amounted to €1,434 million at 30 June 2017 and accounted for 7% of Group total gross loans. New loan originations for the Group reached €1,143 million for the six months ended 30 June 2017 (of which €845 million were granted in Cyprus and €298 million by the UK subsidiary), more than double the new lending in the corresponding period in the previous year.

At 30 June 2017, Group net loans and advances to customers totalled €14,913 million (31 December 2016: €15,649 million), including net loans and advances to customers with carrying value of €20 million which were classified as held for sale as at 30 June 2017 in line with IFRS 5.

A. Analysis of Group Financial Results for the six months ended 30 June 2017 (continued)

A.2 Balance Sheet Analysis (continued)

A.2.4 Loan portfolio quality

Tackling the Group's loan portfolio quality remains the top priority for management. The Group continues to make steady progress across all asset quality metrics and the loan restructuring activity continues. The Group has been successful in engineering restructuring solutions across the spectrum of its loan portfolio. There is a shift of focus on the Retail and SME portfolios, as well as the terminated Non-performing exposures NPEs (in the Recoveries department), with recoveries via foreclosures to unlock solutions with problematic cases and non-cooperative borrowers, and collections via the specialised unit Retail Arrears Management and other available tools to ensure early and continuous engagement with clients.

Loans in arrears for more than 90 days (90+ DPD) were reduced by €748 million in the first six months ended 30 June 2017. The decrease was the result of restructuring activity, debt for asset swaps and write offs. 90+ DPD stood at €7,561 million at 30 June 2017, accounting for 39% of gross loans (90+ DPD ratio), compared to 41% at 31 December 2016. The provisioning coverage ratio of 90+ DPD improved to 61% at 30 June 2017, compared to 54% at 31 December 2016. When taking into account tangible collateral at fair value, 90+ DPD loans are fully covered. The provisioning coverage ratio of 90+ DPD, calculated with reference to the contractual balances of customers, totalled 73% at 30 June 2017, compared to 67% as at 31 December 2016.

	30 June 2017		31 December 2016
	€million	% of gross loans	€million	% of gross loans
90+ DPD	7,561	38.8%	8,309	41.3%
Comprising:
- Loans with arrears for over 90 days but not impaired	1,420	7.3%	1,408	7.0%
- impaired loans	6,141	31.5%	6,901	34.3%
Of which:
- impaired with no arrears	409	2.1%	472	2.3%
- impaired with arrears less than 90 days	29	0.1%	91	0.5%

NPEs as defined by the European Banking Authority (EBA) were reduced by
€1.3 billion or 12% during the six months ended 30 June 2017 to €9,752 million at 30 June 2017, accounting for 50% of gross loans, compared to 55% at 31 December 2016. This is the fourth consecutive quarter during which the quarterly reduction of NPEs exceeded the reduction of 90+ DPD mainly due to the curing of restructured performing NPEs that met the exit criteria following satisfactory performance post their restructuring. The Group expects the reduction in non-performing loans to continue and is in parallel actively exploring alternative avenues to accelerate this reduction. The provisioning coverage ratio of NPEs improved to 48% at 30 June 2017, up from 41% at 31 December 2016. When taking into account tangible collateral at fair value, NPEs are fully covered. The provisioning coverage ratio of NPEs, calculated with reference to the contractual balances of customers, stood at 60% at 30 June 2017, compared to 54% at 31 December 2016.

	30 June 2017		31 December 2016
	€million	% of gross loans	€million	% of gross loans
NPEs as per EBA definition	9,752	50.0%	11,034	54.8%
Of which:
- NPEs with forbearance measures, no impairments and no arrears	1,558	8.0%	2,037	10.1%

A. Analysis of Group Financial Results for the six months ended 30 June 2017 (continued)

A.2 Balance Sheet Analysis (continued)

A.2.5 Real Estate Management Unit (REMU)

The Real Estate Management Unit (REMU) on-boarded €229 million of assets via the execution of debt for asset swaps during the six months ended 30 June 2017. The focus for REMU is increasingly shifting from on-boarding of assets resulting from debt for asset swaps towards the disposal of these assets. The Group completed disposals of €140 million during the six months ended 30 June 2017. In addition the Group disposed of a property with carrying value €10 million, previously classified as investment property. Post 30 June 2017, the Group completed additional disposals of €35 million. As at 30 June 2017, assets held by REMU had a carrying value of €1.5 billion.

	Six months ended 30 June 2017	2016
Assets held by REMU (Group)	€million	€million
Opening balance	1,427	542
On-boarded assets	229	1,086
Sales	(140)	(166)
Closing balance	1,502	1,427

A.2.6 Non-core overseas exposures

The remaining non-core overseas net exposures (including both on-balance sheet and off-balance sheet exposures) at 30 June 2017 are as follows:

	30 June 2017	31 December 2016
	€million	€million
Greece	240	283
Romania	108	149
Serbia	9	42
Russia	38	44

In accordance with Group's strategy to exit from overseas non-core operations, the operations of the Bank of Cyprus branch in Romania are expected to be terminated during 2017, subject to regulatory approvals. The remaining assets and liabilities of the branch are in the process to be transferred to other entities of the Group.

In addition to the above, at 30 June 2017 there were overseas exposures of €173 million in Greece (compared to exposures of €189 million in Greece and €57 million in Romania as at 31 December 2016), not identified as non-core exposures, since they are considered by management as exposures arising in the normal course of business. There were no overseas exposures not identified as non-core exposures in Romania as at 30 June 2017.

A. Analysis of Group Financial Results for the six months ended 30 June 2017 (continued)

A.3 Income Statement Analysis

A.3.1 Total income

Net interest income (NII) and net interest margin (NIM) for the six months ended 30 June 2017 amounted to €316 million and 3.37% respectively. NII was down by 12% compared to €360 million during the corresponding period in the prior year, reflecting the low interest rate environment and the lower volume of loans primarily as a result of the debt for asset swaps.

Average interest earning assets for the six months ended 30 June 2017 amounted to €18,952 million down by 6% on a yearly basis, largely due to debt for asset swaps.

Non-interest income for the six months ended 30 June 2017 amounted to €154 million, with recurring income comprising net fee and commission income of €88 million and net insurance income of €25 million. Non-interest income for the six months ended 30 June 2017 increased by 27% yoy, largely driven by the new and increased commission charges introduced in the fourth quarter of 2016. Except from insurance income which remained nearly constant compared to the corresponding period last year, the remaining component of non-interest income for the six months ended 30 June 2017 was a profit of €41 million which includes a net gain of €12 million on the disposal of assets by REMU.

Total income for the six months ended 30 June 2017 amounted to €470 million, compared to €482 million for the corresponding period last year (2% decrease yoy), with the reduction primarily reflecting the yoy reduction in NII.

A.3.2 Total expenses

Total expenses for the six months ended 30 June 2017 were €214 million, 52% of which related to staff costs (€111 million), 40% to other operating expenses (€85 million) and 8% to special levy and contribution to Single Resolution Fund (SRF) (€18 million).

The cost to income ratio for the six months ended 30 June 2017 was 46%. Excluding the special levy and contribution to the SRF, the cost to income ratio for the six months ended 30 June 2017 was 42%.

A.3.3 (Loss)/profit before tax, advisory, voluntary exit plan (VEP) and other restructuring costs

Operating profit for the six months ended 30 June 2017 was €256 million, compared to €280 million for the same period last year (down by 9% yoy). The decrease mainly reflects the lower net interest income and higher non-staff costs including contribution to the SRF.

Provision charge for the six months ended 30 June 2017 totalled €656 million, compared to €158 million for the same period last year following increased provisions which increased the provision coverage to 48%, close to the medium term target of 50%. The elevated provisioning levels reflect changes in BOC PCL's provisioning assumptions as a result of the Group's reconsideration of its strategy to more actively explore other innovative strategy solutions to further accelerate balance sheet de-risking. Following this, the annualised provisioning charge for the six months ended 30 June 2017 accounted for 4.2% of gross loans. An amount of c. €500 million reflecting the one-off effect of the change in the provisioning assumptions is included in the calculation of Cost of Risk but is not annualised.

At 30 June 2017, accumulated provisions, including fair value adjustment on initial recognition and provisions for off-balance sheet exposures, totalled €4,638 million (compared to €4,519 million at 31 December 2016) and accounted for 23.8% of gross loans (compared to 22.4% at 31 December 2016).

Impairments of other financial and non-financial assets for the six months ended 30 June 2017 totalled €36 million (compared to €22 million for the same period last year up by 67% yoy) and were primarily affected by impairment charges relating to legacy exposures and impairment losses of stock of properties in Greece and Romania.

A. Analysis of Group Financial Results for the six months ended 30 June 2017 (continued)

A.3 Income Statement Analysis (continued)

A.3.3 Loss before tax, advisory, voluntary exit plan (VEP) and other restructuring costs (continued)

Provisions for litigation and regulatory matters for the six months ended 30 June 2017 amounted to €35 million. The charge relates mainly to a fine imposed by the Cyprus Commission for the Protection of Competition, the increase in provision for litigation for securities issued by BOC PCL between 2007 and 2011 and redress provision for the UK operations. The fine related to complaints filed in 2010 relating to BOC PCL's alleged abuse of its dominant market position in its cards business.

A.3.4 (Loss)/profit after tax

The tax charge for the six months ended 30 June 2017 totalled €72 million, compared to €12 million in the corresponding period in the previous year. The increase is mainly due to the reduction of deferred tax asset by €62 million, following the increase in provision for impairment of loans and advances to customers and evaluation of the recoverability assessment of the deferred tax asset balance.

Loss after tax and before advisory, VEP and other restructuring costs for the six months ended 30 June 2017 totalled €540 million compared to a profit after tax and before advisory, VEP and other restructuring costs of €84 million for the same period last year.

Advisory, VEP and other restructuring costs for the six months ended 30 June 2017 totalled €14 million compared to €87 million for the same period last year (down by 84%). The elevated levels in the previous year relate mainly to the VEP.

Loss after tax attributable to the owners of the Company for the six months ended 30 June 2017 was €554 million compared to a profit after tax of €56 million for the corresponding period last year.

B. Operating Environment

After a protracted recession Cyprus returned to growth in 2015 and continued to expand in the subsequent period. Real GDP increased by 2.8% in 2016, and by 3.7% and 3.5% respectively on a seasonally adjusted basis, in the first and second quarters of 2017. The growth momentum is expected to be maintained over the medium term supported by private consumption, gradually increasing investment, declining unemployment and favourable developments in tourism and business services.

Tourism remains robust aided by geopolitical tensions in competing destinations. Arrivals had reached record levels of 3.2 million people in 2016 according to the Cyprus Statistical Service and continued to expand in the first seven months of the year, rising by about 15% from the same period the year before. In the labour market the unemployment rate declined significantly to 11% in the second quarter on a seasonally adjusted basis, according to Eurostat, compared with a peak of 16.6% in the first quarter of 2015. Consumer inflation turned modestly positive in the first seven months of the year rising by 1% after falling for four consecutive years according to data from the Cyprus Statistical Service. In property markets demand has been rising as evidenced by an increasing number of sales contracts. The Central Bank's Residential Property Price Index increased by 0.2% year-on-year in the first quarter of 2017 and increased by 0.3% on a quarter-on-quarter basis, from the fourth quarter 2016.

In the area of public finance, the general government budget has been near balance since 2014 excluding recapitalisation costs of the cooperative credit sector, and public debt relative to GDP had risen to 107.8% at the end of 2016 according to Eurostat. Cyprus has consistently outperformed its fiscal targets during and after the economic adjustment programme. According to Eurostat, the primary surplus in 2016 was 3% of GDP and the general government budget was also a surplus of 0.4% of GDP.

Overall, the outlook for the medium term remains favourable and an average of real GDP growth of 2.8% is expected in the period 2017-2019 according to the Ministry of Finance. Upside factors relate to a longer period of low oil prices, further improvement of economic fundamentals in the euro area and stronger investment spending as property prices are stabilising and as projects in tourism, energy and public works are being implemented.

B. Operating Environment (continued)

Downside risks to the outlook are associated with the still high levels of non-performing loans, and public debt ratio, and with a possible deterioration of the external environment for Cyprus. This may involve slower growth in the UK with a weakening of the pound as a result of uncertainty resulting from Brexit. The direct consequences on Cyprus from Brexit, will mostly emanate from tourist activity. The possible loss of UK tourist arrivals may be mitigated at least in part, by increases in arrivals of tourists from other destinations as airline connectivity improves. Political uncertainty in Europe triggered by a British exit or by the refugee crisis could also lead to increased economic uncertainty and undermine economic confidence.

In this context of a strengthening economy and narrowing imbalances, the Cyprus government benefited from a series of rating upgrades. Most recently in July 2017, Moody's Investors Service upgraded the long-term issuer rating of the Cyprus sovereign to Ba3 from B1 previously and maintained its outlook to positive. In March 2017, S&P Global Ratings upgraded the Cyprus sovereign to BB+ which is one notch below investment grade. The key drivers for rating upgrades have been stronger economic performance than expected, progress in the banking sector and consistent fiscal outperformance.

C. Business Overview

With the Cypriot operations accounting for 91% of gross loans and 91% of customer deposits, the Group's financial performance is highly correlated to the economic and operating conditions in Cyprus and will consequently benefit from the country's recovery.

The strategic focus of the Group is to reshape its business model to grow in the core Cypriot market through prudent new lending and carefully developing the UK franchise. The Group expects to continue to be able to support the recovery of the Cyprus economy through the provision of new lending. Growth in new lending in Cyprus is focused on selected industries that are more in line with BOC PCL's target risk profile, such as tourism, trade, professional services, information/communication technologies, energy, education and green projects. BOC PCL is currently looking to carefully expand its UK operations, remaining consistent with the Group's overall credit appetite and regulatory environment. With selective presences in London and Birmingham and a predominantly retail funded franchise, the UK strategy is to support its core proposition in the property market, specifically targeting the professional buy-to-let market and further expanding its mortgage business and its savings, current accounts and trade-related products for SMEs, professionals and Cypriot residents.

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. BOC PCL continues its partnership with the European Investment Bank (EIB), the European Investment Fund (EIF), the European Bank for Reconstruction and Development (EBRD) and the Cyprus Government.

Management is also placing emphasis on diversifying income streams by boosting fee income from international transaction services, wealth management and insurance. The Group's insurance companies, EuroLife Ltd and General Insurance of Cyprus Ltd operating in the sectors of life and general insurance respectively, constitute a leading player in the insurance business in Cyprus, with such businesses providing a recurring income, further diversifying the Group's income streams. The insurance income net of insurance claims for the six months ended 30 June 2017 amounted to €25 million (at the same levels as the six months ended 30 June 2016), contributing to 16% of non-interest income.

In order to further improve its funding structure, BOC PCL is stepping up its efforts to grow lower cost deposits, and take advantage of the increased customer confidence towards BOC PCL, as well as improving macroeconomic conditions.

On 19 January 2017, the Company was admitted to listing and trading on the London Stock Exchange ('LSE') and the Cyprus Stock Exchange ('CSE'). The listing on the LSE is another significant milestone in the execution of the Group's strategy. It is expected to improve the liquidity of the Group's stock, which will enhance the Group's visibility and lead to a broader base of investors capable of supporting the Group in the long-term. This will further enhance the confidence of all stakeholders in the Group. The Company continues to work towards a premium listing on the LSE, and intends to apply for a step up to the premium segment of the LSE at a future date, with the intention of becoming eligible for inclusion in the FTSE UK Index series.

D. Outlook

The Group remains on track for implementing its strategic objectives aiming to become a stronger, safer and a more focused 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:

· Materially reduce the level of delinquent loans

· Further improve the funding structure

· Maintain an appropriate capital position by internally generating capital

· Focus on the core Cyprus market and the UK operations

· Achieve a lean operating model

· Deliver value to shareholders and other stakeholders

KEY PILLARS

PLAN OF ACTION

1. Materially reduce the level of delinquent loans

• Sustain momentum in restructuring

• Focus on terminated portfolios (in Recovery Unit) - 'accelerated consensual foreclosures'

• Real estate management via REMU

• Explore alternative NPE reduction measures such as NPE sales, securitisations etc.

2. Further improve the funding structure

• Focus on shape and cost of deposit franchise

• Increase loan pool for the Additional Credit Claim framework of ECB

• Further diversify funding sources

3. Maintain an appropriate capital position

• Internally generate capital

• Potential AT1 issuance

4. Focus on core markets

• Targeted lending in Cyprus into promising sectors to fund recovery

• New loan origination, while maintaining lending yields

• Revenue diversification via fee income from international business, wealth, and insurance

• Careful expansion of UK franchise by leveraging the UK subsidiary

5. Achieve a lean operating model

• Tangible savings through a targeted reduction program

• Introduce technology/processes to improve distribution channels and reduce costs

• Human Resource policies aimed at enhancing productivity

6. Deliver returns

• Deliver appropriate medium term risk-adjusted returns

D. Outlook (continued)

The table below shows the Group's performance against the Medium Term Targets.

Group Key Performance Indicators		Actual December 2016	Actual June 2017	Medium-Term Targets
Asset Quality	90+ Days Past Due ratio	41%	39%	<20%
	NPEs ratio	55%	50%	<30%
	NPEs coverage ratio	41%	48%	>50%
	Provisioning charge (Cost of Risk) (annualised)	1.7%	4.2%*	<1.0%
	Net Loans % Deposits	95%	90%	90-110%
Capital	CET 1 Ratio	14.5%	12.3%	>13%
Capital	Total Capital Ratio	14.6%	13.8%	>15%
Efficiency	Net interest margin (annualised)	3.47%	3.37%	~3.00%
	Net fee and commission income / total income	17%**	19%	>20%
	Cost to Income ratio	41%	46%***	40-45%
Balance Sheet	Total assets	€22.2 bn	€22.1 bn	>€25 bn

* An amount of provisions of c. €500 million reflecting the one-off effect of the change in the provisioning assumptions are included in the calculation of Cost of Risk but is not annualised.

** The net fee and commission income over total income for December 2016 excludes non-recurring fees of approximately €7 million.

*** The cost to income ratio for the six months ended 30 June 2017 excluding the special levy and contribution to the SRF was 42%, compared to 40% for the corresponding period last year.

E. Financial Results

Interim Condensed Consolidated Income Statement

€million	1H2017	1H2016	+/-%
Net interest income	316	360	-12%
Net fee and commission income	88	74	19%
Net foreign exchange gains and net gains on other financial instruments	23	15	48%
Insurance income net of insurance claims	25	25	-1%
Net gains from revaluation and disposal of investment properties and on disposal of stock of properties	10	2	354%
Other income	8	6	50%
Total income	470	482	-2%
Staff costs	(111)	(117)	-5%
Other operating expenses	(85)	(75)	13%
Special levy and contribution to Single Resolution Fund	(18)	(10)	85%
Total expenses	(214)	(202)	6%
Operating profit	256	280	-9%
Provision charge	(656)	(158)	316%
Impairments of other financial and non-financial assets	(36)	(22)	67%
Provisions for litigation and regulatory matters	(35)	0	-
Total provisions and impairments	(727)	(180)	306%
Share of profit from associates and joint ventures	4	2	146%
(Loss)/profit before tax and restructuring costs	(467)	102	-
Tax	(72)	(12)	490%
Profit attributable to non-controlling interests	(1)	(6)	-90%
(Loss)/profit after tax and before restructuring costs	(540)	84	-
Advisory, VEP and other restructuring costs	(14)	(87)	-84%
Net gain on disposal of non-core assets	-	59	-100%
(Loss)/profit after tax	(554)	56	-

In the Interim Consolidated Income Statement, within the Interim Condensed Consolidated Financial Statements for the six months ended 30 June 2017:

· Provision charge includes gain on derecognition of loans and advances to customers and changes in expected cash flows.

· Advisory, VEP and other restructuring costs of €14 million are presented within 'Other operating expenses' (corresponding period of 2016: €25 million within 'Other operating expenses' and €62 million within 'Staff costs').

· The net gain on disposal of non-core assets for the six months ended 30 June 2016 of €1 million and €58 million are presented within 'Other income' and 'Net gains on financial instrument transactions' respectively.

E. Financial Results (continued)

Key Performance Ratios	1H2017	1H2016	+/-%
Net Interest Margin (annualised)	3.37%	3.59%	-22 bps*
Cost to income ratio	46%	42%	+4 p.p.*
Cost to income ratio excluding special levy and contribution to Single Resolution Fund	42%	40%	+2 p.p.*
Operating profit return on average assets (annualised)	2.3%	2.5%	-20 bps*
Basic earnings per share (€ cent)	(124.19)	0.63	(124.82)

Interim Condensed Consolidated Balance Sheet

€million	30.06.2017	31.12.2016	+/- %
Cash and balances with central banks	2,317	1,506	54%
Loans and advances to banks	708	1,088	-35%
Debt securities, treasury bills and equity investments	918	674	36%
Net loans and advances to customers	14,913	15,649	-5%
Stock of property	1,502	1,427	5%
Other assets	1,729	1,828	-5%
Total assets	22,087	22,172	0%
Deposits by banks	415	435	-5%
Funding from central banks	900	850	6%
Repurchase agreements	256	257	0%
Customer deposits	16,584	16,510	0%
Subordinated loan stock	257	-	-
Other liabilities	1,097	1,014	8%
Total liabilities	19,509	19,066	2%
Shareholders' equity	2,543	3,071	-17%
Non-controlling interests	35	35	2%
Total equity	2,578	3,106	-17%
Total liabilities and equity	22,087	22,172	0%

* p.p = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point

E. Financial Results (continued)

Key Balance Sheet figures and ratios	30.06.2017	31.12.2016	+/- %
Gross loans (€million)	19,505	20,130	-3%
Accumulated provisions (€million)	4,638	4,519	+3%
Customer deposits (€million)	16,584	16,510	0%
Loan to deposit ratio (net)	90%	95%	-5 p.p.*
90+ DPD ratio	39%	41%	-2 p.p.*
90+ DPD provisioning coverage ratio	61%	54%	+7 p.p.*
NPE ratio	50%	55%	-5 p.p.*
NPE provisioning coverage ratio	48%	41%	+7 p.p.*
Quarterly average interest earning assets (€million)	18,996	19,060	0%
Leverage ratio	11,0%	13.2%	-2.2 p.p.*

Capital ratios and risk weighted assets	30.06.2017	31.12.2016	+/- %
Common Equity Tier 1 capital ratio (CET1) (transitional)	12.3%	14.5%	-2.2 p.p.*
CET1 (fully loaded)	11.8%	13.9%	-2.1 p.p.*
Total capital ratio	13.8%	14.6%	-8 bps*
Risk weighted assets (€million)	17,368	18,865	-8%

* p.p = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point

F. Going concern

The management has made an assessment of the Group's ability to continue as a going concern.

The conditions that existed during the six months ended 30 June 2017 and the developments up to the date of approval of these Financial Statements that have been considered in management's going concern assessment include, amongst others, the operating environment in Cyprus and of the Group (Note 5).

The management believes that the Group is taking all necessary measures to maintain its viability and the development of its business in the current economic environment.

The management, taking into consideration the factors described below and the uncertainties that existed at the reporting date, is satisfied that the Group has the resources to continue in business for the foreseeable future and, therefore, the going concern principle is appropriate for the reasons set out below, despite the fact that, as disclosed in Notes 5.2.3 and 29 of the Financial Statements, the Group is currently not in compliance with its liquidity regulatory requirements with respect to its operations in Cyprus and is therefore dependent on continuing regulatory forbearance which can be considered as a material uncertainty as to its ability to continue as a going concern. Following the repayment of ELA in January 2017 (31 December 2016: €200 million), the Group has achieved compliance with the Liquidity Coverage Ratio (LCR).

· Τhe Group's Common Equity Tier 1 (CET1) ratio at 30 June 2017 stands at 12.3% (transitional) and the total capital ratio at 13.8%, higher than the minimum required ratios (Note 5.2.1).

· The increase in the liquid assets of the Group and compliance with the LCR ratio requirements. The ELA funding was repaid in full on 5 January 2017 (Note 5.2.3).

· The increasing level of Group customer deposits (increase of €74 million during the six months ended 30 June 2017). At 30 June 2017 customer deposits stood at €16,584 million.

F. Going concern (continued)

· The Cyprus government rating has been repeatedly upgraded. In July 2017 Moody's Investors Service upgraded the long-term issuer rating of the Cyprus sovereign to Ba3 from B1 and maintained its outlook to positive. In March 2017 S&P Global Ratings upgraded the Cyprus sovereign to BB+ which is one notch below investment grade.

· BOC PCL regained access to the debt capital markets in January 2017 with the issuance of €250 million unsecured subordinated Tier 2 Capital Note.

G. Principal risks and uncertainties

Like other financial organisations, the Group is exposed and expects to continue to be exposed for the remaining of the financial year to risks, the most significant of which are credit risk, liquidity risk and market risk (arising from adverse movements in exchange rates, interest rates and security prices) and insurance risk.

Since the Group is considered as a continuation of the BOC group, detailed information relating to Group risk management is set out in Notes 43 to 46 of the Annual Consolidated Financial Statements of the BOC group for the year ended 31 December 2016 and in the Additional Risk and Capital Management Disclosures which form part of the 2016 Annual Financial Report of the BOC group.

Aside from the risks set out below and those described in Notes 27 to 29 of the Interim Condensed Consolidated Financial Statements and in the Additional Risks and Capital Management Disclosures including Pillar 3 semi-annual disclosures section of this Mid-Year Financial Report there has been no other significant change to the significant risks and uncertainties during the period or no change is expected for the remaining six months of the financial year.

The Group monitors and manages these risks through various control mechanisms.

Additionally, the Group is exposed to the risk of 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 generally acquired in debt satisfaction and is intended to be disposed of in line with the Group's strategy. Further information for stock of property is disclosed in Note 17 of the Interim Condensed Consolidated Financial Statements.

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 of these Interim Condensed Consolidated Financial Statements and in Note 5 of the Annual Consolidated Financial Statements of the BOC group for the year ended 31 December 2016.

H. Events after the reporting date

There are no material events which occurred after the reporting date.

I. Responsibility Statement

The members of the Board of Directors are responsible for preparing the Mid-Year Financial Report in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting' as adopted by the European Union (EU), the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.

Each of the members of the Board of Directors (who are listed on page 1 of the Mid-Year Financial Report) confirm that to the best of their knowledge and belief the Interim Condensed Consolidated Financial Statements for the period ended 30 June 2017 have been prepared in accordance with IAS 34 (adopted pursuant to the procedure provided for under Article 6 of Regulation EC No. 1606/2002 of the European Parliament and of the Council of 19 July 2002) and that they give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and that as required by the Transparency (Directive 2004/109/EC) Regulations 2007, the Mid-Year Financial Report includes a fair review of:

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

· a description of the principal risks and uncertainties for the remaining six months of the financial year (Notes 27 to 29); and

· details of any related party transactions that have materially affected the Group's financial position or performance in the six months ended 30 June 2017, or material changes to related parties transactions described in the Annual Consolidated Financial Statements of the BOC group for the year ended 31 December 2016.

The members of the Board of Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website.

Prof. Dr. Josef Ackermann

Chairman

John Patrick Hourican

Chief Executive Officer

28 August 2017

Interim Condensed Consolidated Financial Statements
for the six months ended

30 June 2017

Interim Consolidated Income Statement

		Six months ended 30 June
		2017	2016
	Notes	€000	€000

Turnover		606,230	640,822
Interest income		423,257	467,658
Interest expense		(106,972)	(107,196)
Net interest income		316,285	360,462
Fee and commission income		93,416	78,412
Fee and commission expense		(5,201)	(4,544)
Net foreign exchange gains		20,570	16,313
Net gains on financial instrument transactions	8	2,439	57,389
Insurance income net of claims and commissions		24,422	24,633
(Losses)/gains from revaluation and disposal of investment properties		(1,925)	5,806
Gains/(losses) on disposal of stock of property		12,235	(3,533)
Other income		7,861	7,577
		470,102	542,515
Staff costs	9	(111,475)	(179,279)
Other operating expenses	9	(151,690)	(109,556)
		206,937	253,680
Gain on derecognition of loans and advances to customers and changes in expected cash flows		94,900	22,166
Provisions for impairment of loans and advances to customers and other customer credit losses	10	(750,920)	(179,925)
Impairment of other financial instruments	10	(22,497)	(12,228)
Impairment of non-financial instruments	10	(13,484)	(9,362)
(Loss)/profit before share of profit from associates and joint ventures		(485,064)	74,331
Share of profit from associates and joint ventures		3,949	1,606
(Loss)/profit before tax		(481,115)	75,937
Income tax	11	(72,282)	(13,695)
(Loss)/profit for the period		(553,397)	62,242

Attributable to:
Owners of the Company/BOC PCL	(553,959)	56,372
Non-controlling interests	562	5,870
(Loss)/profit for the period	(553,397)	62,242

Basic and diluted (losses)/earnings per share (cent) attributable to the owners of the Company/BOC PCL

(124.2)

0.6

Interim Consolidated Statement of Comprehensive Income

	Six months ended 30 June
	2017	2016
	€000	€000
(Loss)/profit for the period	(553,397)	62,242
Other comprehensive income (OCI)
OCI to be reclassified in the consolidated income statement in subsequent periods
Foreign currency translation reserve
Loss on translation of net investment in foreign branches and subsidiaries	(553)	(33,993)
Profit on hedging of net investments in foreign branches and subsidiaries	125	36,286
Transfer to the consolidated income statement on dissolution/disposal of foreign operations	-	1,049
	(428)	3,342
Available-for-sale investments
Net gains/(losses) from fair value changes before tax	23,428	(1,181)
Share of net gains from fair value changes of associates	1,347	662
Transfer to the consolidated income statement on impairment	(98)	530
Transfer to the consolidated income statement on sale	(498)	(51,264)
	24,179	(51,253)
	23,751	(47,911)
OCI not to be reclassified in the consolidated income statement in subsequent periods
Property revaluation
Tax	445	(21)

Actuarial gain/(loss) on the defined benefit plans
Remeasurement gains/(losses) on defined benefit plans	1,317	(15,143)
	1,762	(15,164)
Other comprehensive income/(loss) loss after tax for the period	25,513	(63,075)
Total comprehensive loss for the period	(527,884)	(833)

Attributable to:
Owners of the Company /BOC PCL	(528,533)	(2,004)
Non-controlling interests	649	1,171
Total comprehensive loss for the period	(527,884)	(833)

Interim Consolidated Balance Sheet

		30 June 2017	31 December 2016
Assets	Notes	€000	€000
Cash and balances with central banks	25	2,317,297	1,506,396
Loans and advances to banks	25	707,913	1,087,837
Derivative financial assets	14	7,644	20,835
Investments	13	621,498	373,879
Investments pledged as collateral	13	296,325	299,765
Loans and advances to customers	16	14,892,661	15,649,401
Life insurance business assets attributable to policyholders		509,726	499,533
Prepayments, accrued income and other assets	18	244,280	269,911
Stock of property	17	1,501,731	1,427,272
Investment properties		26,333	38,059
Property and equipment		279,010	280,893
Intangible assets		153,342	146,963
Investments in associates and joint ventures	34	113,993	109,339
Deferred tax assets		383,581	450,441
Non-current assets held for sale	19	31,561	11,411
Total assets		22,086,895	22,171,935
Liabilities
Deposits by banks		414,750	434,786
Funding from central banks	20	900,000	850,014
Repurchase agreements		256,234	257,367
Derivative financial liabilities	14	73,496	48,625
Customer deposits	21	16,583,798	16,509,741
Insurance liabilities		595,943	583,997
Accruals, deferred income and other liabilities	23	382,952	335,925
Subordinated loan stock	22	256,503	-
Deferred tax liabilities		44,998	45,375
Total liabilities		19,508,674	19,065,830
Equity
Share capital	24	44,620	892,294
Share premium	24	2,794,358	552,618
Capital reduction reserve	24	-	1,952,486
Revaluation and other reserves		240,254	218,678
Accumulated losses		(536,619)	(544,930)
Equity attributable to the owners of the Company/BOC PCL		2,542,613	3,071,146
Non-controlling interests		35,608	34,959
Total equity		2,578,221	3,106,105
Total liabilities and equity		22,086,895	22,171,935

Prof. Dr. J. Ackermann Chairman Mr. J. P. Hourican Chief Executive Officer

Mr. I. Zographakis Director Mrs. E. Livadiotou Finance Director

Interim Consolidated Statement of Changes in Equity

	Attributable to the owners of the Company																		Non-controlling interests		Total equity
	Share capital (Note 24)	Share premium (Note 24)		Capital reduction reserve (Note 24)		Treasury shares (Note 24)		Accumulated losses		Property revaluation reserve		Revaluation reserve of available-for-sale investments		Other reserves	Life insurance in-force business reserve	Foreign currency translation reserve	Total
	€000	€000		€000		€000		€000		€000		€000		€000	€000	€000	€000		€000		€000
1 January 2017	892,294	552,618		1,952,486		(25,333)		(544,930)		90,936		7,139		6,059	103,251	36,626	3,071,146		34,959		3,106,105
(Loss)/profit for the period	-	-		-		-		(553,959)		-		-		-	-	-	(553,959)		562		(553,397)
Other comprehensive income/(loss) after tax for the period	-	-		-		-		1,317		445		24,092		-	-	(428)	25,426		87		25,513
Total comprehensive (loss)/income for the period	-	-		-		-		(552,642)		445		24,092		-	-	(428)	(528,533)		649		(527,884)
Increase in value of in-force life insurance business	-	-		-		-		(1,143)		-		-		-	1,143	-	-		-		-
Tax on increase in value of in-force life insurance business	-	-		-		-		143		-		-		-	(143)	-	-		-		-
Transfer of realised profits on disposal of properties	-	-		-		-		7,403		(7,403)		-		-	-	-	-		-		-
Cancellation of shares due to reorganisation (Note 3.1)	(892,294)	-		-		-		-		-		-		-	-	-	(892,294)		-		(892,294)
Change of parent company to Bank of Cyprus Holdings Public Limited Company and issue of new shares (Note 3.1)	44,620	2,241,740		(1,952,486)		-		558,420		-		-		-	-	-	892,294		-		892,294
Disposal of treasury shares	-	-		-		3,870		(3,870)		-		-		-	-	-	-		-		-
30 June 2017	44,620	2,794,358		-		(21,463)		(536,619)		83,978		31,231		6,059	104,251	36,198	2,542,613		35,608		2,578,221
	Attributable to the owners of BOC PCL																			Non-controlling interests		Total equity
	Share capital (Note 24)	Share premium (Note 24)	Capital reduction reserve (Note 24)		Treasury shares (Note 24)		Accumulated losses		Property revaluation reserve		Revaluation reserve of available-for-sale investments		Other reserves		Life insurance in-force business reserve	Foreign currency translation reserve	Reserve of disposal group and assets held for sale	Total
	€000	€000	€000		€000		€000		€000		€000		€000		€000	€000	€000	€000		€000		€000
1 January 2016	892,294	552,618	1,952,486		(41,301)		(601,152)		99,218		47,125		6,059		99,050	30,939	17,619	3,054,955		22,376		3,077,331
Profit for the period	-	-	-		-		56,372		-		-		-		-	-	-	56,372		5,870		62,242
Other comprehensive (loss)/income after tax for the period	-	-	-		-		(15,137)		(21)		(46,554)		-		-	3,336	-	(58,376)		(4,699)		(63,075)
Total comprehensive income /(loss) for the period	-	-	-		-		41,235		(21)		(46,554)		-		-	3,336	-	(2,004)		1,171		(833)
Increase in value of in-force life insurance business	-	-	-		-		(852)		-		-		-		852	-	-	-		-		-
Disposal of subsidiary (Note 33.3.1)	-	-	-		-		17,619		-		-		-		-	-	(17,619)	-		-		-
Acquisition of subsidiary (Note 33.2.1)	-	-	-		-		-		-		-		-		-	-	-	-		18,753		18,753
Disposals of treasury shares	-	-	-		41,301		(40,560)		-		-		-		-	-	-	741		-		741
30 June 2016	892,294	552,618	1,952,486		-		(583,710)		99,197		571		6,059		99,902	34,275	-	3,053,692		42,300		3,095,992

Interim Consolidated Statement of Cash Flows

		Six months ended 30 June
		2017	2016
	Note	€000	€000
Net cash flows from operating activities
(Loss)/profit for the period before tax		(481,115)	75,937
Share of profit from associates and joint ventures		(3,949)	(1,606)
Provisions for impairment of loans and advances to customer and other customer credit losses and gain on derecognition of loans and advances and changes in expected cash flows		656,020	157,759
Depreciation of property and equipment and amortisation of intangible assets		10,133	9,294
Change in value of in-force life insurance business		(1,143)	(852)
Impairment of other financial instruments		22,497	12,228
Profit upon disposal of disposal group held for sale		-	(2,545)
Amortisation of discounts/premiums, catch-up adjustment on debt securities and interest on debt securities and subordinated loan stock		(10,121)	(13,447)
Dividend income		(41)	(119)
Net gains on disposal of available-for-sale investments in equity securities and available-for-sale investments and investments classified as loans and receivables in debt securities		(1,699)	(58,391)
Loss/(profit) from revaluation of debt securities designated as fair value hedges		11,006	(1,323)
Interest on funding from central banks		28	21,483
Interest on subordinated loan stock		10,416	-
Impairment of stock of property		13,484	9,362
Loss on dissolution of subsidiaries		-	1,049
(Gains)/losses on disposal of stock of property		(12,235)	3,533
Losses/(gains) from revaluation and disposals of investment properties, investment properties held for sale, equipment and intangible assets		1,927	(5,844)
		215,208	206,518
Net decrease in loans and advances to customers and other accounts		63,910	212,987
Net increase in customer deposits and other accounts		138,142	733,385
		417,260	1,152,890
Tax paid		(2,672)	(2,352)
Net cash flow from operating activities		414,588	1,150,538
Cash flows (used in)/ from investing activities
Purchases of debt securities and equity securities		(279,381)	(10,302)
Proceeds on disposal/redemption of investments:
- debt securities		61,405	130,521
- equity securities		1,564	46,650
Interest received from debt securities and treasury bills		4,490	9,420
Dividend income from equity securities		41	119
Proceeds on disposal of disposal group held for sale		-	26,500
Purchases of property and equipment		(4,122)	(6,539)
Proceeds on disposal of property and equipment and intangible assets		41	216
Purchases of intangible assets		(9,623)	(7,561)
Proceeds on disposal of investment properties and investment properties held for sale		10,000	13,790
Net cash flow (used in)/from investing activities		(215,585)	202,814
Cash flows from financing activities
Net proceeds/(repayment) of funding from central banks		49,986	(1,352,183)
Proceeds from the issue of subordinated loan stock		248,089	-
Redemption of debt securities in issue		-	(712)
Proceeds from disposal of treasury shares		-	741
Interest on funding from central banks		(28)	(21,483)
Net cash flow from/(used in) financing activities		298,047	(1,373,637)
Net increase/(decrease) in cash and cash equivalents for the period		497,050	(20,285)
Cash and cash equivalents
1 January		2,231,028	2,406,344
Foreign exchange adjustments		473	6,421
Net increase/(decrease) in cash and cash equivalents for the period		497,050	(20,285)
30 June	25	2,728,551	2,392,480

Non-cash transactions

Six months ended 30 June 2017

Repossession of collaterals

During the six months ended 30 June 2017, the Group acquired stock of property by taking possession of collaterals held as security for loans and advances to customers of €229,247 thousand (Note 17).

Six months ended 30 June 2016

Acquisition of S.Z. Eliades Leisure Ltd

During the six months ended 30 June 2016 the Group acquired a 70% interest in the share capital of S.Z. Eliades Leisure Ltd in exchange for the settlement of the majority of the borrowing due from S.Z. Eliades Leisure Ltd to BOC PCL, as part of the restructuring of its debt. The acquisition did not include any cash consideration. Further information is disclosed in Note 33.2.1.

Sale of shares held in Visa Europe Limited

During the six months ended 30 June 2016 the Group sold its shares held in Visa Europe Limited following the purchase of Visa Europe Limited by Visa Inc. The transaction in addition to the cash paid, involved the granting of preferred stock in Visa Inc. with a carrying value of approximately €8 million and a deferred cash component of a carrying value of approximately €4 million.

Repossession of collaterals

During the six months ended 30 June 2016, the Group acquired stock of property by taking possession of collaterals held as security for loans and advances to customers of €641,856 thousand.

Notes to the Interim Condensed Consolidated Financial Statements

1. Corporate information

Bank of Cyprus Holdings Public Limited Company (the 'Company') was incorporated in the Republic of Ireland on 11 July 2016 as a public limited company in accordance with the provisions of the Companies Act 2014 of Ireland. The Company's name on incorporation was Aion Cyprus Public Limited Company and on 10 August 2016 it changed to Bank of Cyprus Holdings Public Limited Company. Its registered office for the period from 11 July 2016 to 20 March 2017 was at Arthur Cox, Earlsfort Centre, Earlsfort Terrace, Dublin 2, Ireland. On 20 March 2017 it was changed to Ten 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 Group (the 'Group') comprises the Company, its subsidiary BOC PCL and the subsidiaries of BOC PCL.

The Company was incorporated with the intention of becoming the holding company of the Group for the purposes of the Group's listing on the London Stock Exchange (LSE). The Company is tax resident in Cyprus. The principal activities of the BOC PCL and its subsidiary companies involve the provision of banking, financial, insurance services and management and disposal of property predominately acquired in debt satisfaction.

On 13 December 2016, at an Extraordinary General Meeting of the shareholders of BOC PCL and together with its subsidiaries, the 'BOC group', a scheme of arrangement between the Company, BOC PCL and the shareholders of BOC PCL has been approved. The scheme of arrangement which became effective on 18 January 2017 introduces the Company as the new holding company of the Group which is also the sole shareholder of BOC PCL.

On 19 January 2017 the shares of the Company were admitted to listing and trading on the LSE and the Cyprus Stock Exchange (CSE).

Interim Condensed Consolidated Financial Statements

The Interim Condensed Consolidated Financial Statements for the six months ended 30 June 2017 (the 'Financial Statements') include the financial statements of the Company and its subsidiaries. They were approved and authorised for issue by a resolution of the Board of Directors on 28 August 2017.

The 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 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 Group reorganisation

As described in Note 1 above, on 18 January 2017 the Company became the sole shareholder of BOC PCL. This reorganisation was treated as a reorganisation of an existing entity that has not changed the substance of the reporting entity.

The owners of BOC PCL before the reorganisation have the same absolute and relative interests in the net assets of Group immediately before and after the reorganisation, since the assets and liabilities of the Group and the BOC group are the same immediately before and after the reorganisation. Hence, the Group is considered as a continuation of BOC group.

3. Summary of significant accounting policies (continued)

3.2 Basis of preparation

The Financial Statements have been prepared on a historical cost basis, except for properties held for own use and investment properties, available-for-sale investments, derivative financial instruments and financial assets at fair value through profit or loss, 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 Financial Statements

The 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.

Comparative information

As described in Note 3.1 above, the Group is considered to be a continuation of the BOC group. As a result the Financial Statements, including comparative amounts, were prepared as if the Group existed at the beginning of the earlier period presented in the Financial Statements.

3.3 Statement of compliance

The Financial Statements have been prepared in accordance with the International Accounting Standard (IAS) applicable to interim financial reporting as adopted by the EU ('IAS 34'), the Transparency (Directive 2004/109/EC) Regulations 2007 and the related Transparency Rules of the Central Bank of Ireland.

The 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 period 11 July 2016 to 31 December 2016, upon which the auditors have expressed an unqualified opinion (with emphasis of matter on material uncertainty related to going concern), were published on 27 April 2017 and are expected to be delivered to the Registrar of Companies of Ireland within 28 days of 30 September 2017.

The 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 Public Company Ltd for the year ended 31 December 2016, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, which are available at the Group's website (www.bankofcyprus.com).

3.4 Changes in accounting policies and disclosures

As described in Note 3.1 above, the Group is considered to be a continuation of the BOC group. A summary of the significant accounting policies of the Group is presented in Note 2 of the Annual Consolidated Financial Statements of BOC group for the year ended 31 December 2016.

Additionally, in January 2017 BOC PCL has issued subordinated loan stock as disclosed in Note 22. The subordinated loan stock is initially measured at the fair value of the consideration received, net of any issue costs. It is subsequently measured at amortised cost using the effective interest rate method, in order to amortise the difference between the cost at inception and the redemption value, over the period to the earliest date that BOC group has the right to redeem the subordinated loan stock.

Interest on subordinated loan stock is included in 'Interest expense' in the consolidated income statement.

3. Summary of significant accounting policies (continued)

3.4 Changes in accounting policies and disclosures (continued)

3.4.1 New and amended standards and interpretations

The accounting policies adopted for the preparation of the Financial Statements are consistent with those followed for the preparation of the Annual Consolidated Financial Statements of BOC group for the year ended 31 December 2016 as disclosed in Note 3.4. In addition, the Group has adopted the following new standards, amendments and interpretations, which did not have a material impact on the Financial Statements:

· Amendments to IAS 7: Disclosure Initiative

· Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses

· Annual Improvements IFRSs 2014-2016 Cycle issued by the International Accounting Standards Board (IASB), which is a collection of amendments to IFRSs. These improvements include:

· IFRS 12 Disclosure of Interests in Other Entities.

3.4.2 Standards and Interpretations that are issued but not yet effective

3.4.2.1 Standards and Interpretations issued by the IASB and adopted by the EU

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement and introduces new requirements for classification and measurement, impairment and hedge accounting. The standard is effective for annual periods beginning on or after 1 January 2018 with early adoption permitted.

Classification and measurement

The classification and measurement of financial assets will depend on the entity's business model for their management and their contractual cash flow characteristics and result in financial assets being measured at amortised cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss. The combined effect of the application of the business model and the contractual cash flow characteristics tests may result in some differences in the population of financial assets measured at amortised cost or fair value compared with IAS 39. The classification of financial liabilities is essentially unchanged, except that, for certain liabilities measured at fair value, gains or losses relating to changes in the entity's own credit risk are to be included in other comprehensive income.

Impairment

The impairment requirements apply to financial assets measured at amortised cost and FVOCI, lease receivables, certain loan commitments and financial guarantee contracts. At initial recognition, allowance (or provision in the case of commitments and guarantees) is required for expected credit losses (ECL) resulting from default events that are possible within the next 12 months (12 month ECL), unless assets are deemed as purchased or originated credit impaired. In the event of a significant increase in credit risk, for assets deemed purchased or originated credit impaired and all credit-impaired assets, allowance (or provision) is required for ECL resulting from all possible default events over the expected life of the financial instrument (lifetime ECL).

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

Hedge accounting

IFRS 9 includes an accounting policy choice to remain with IAS 39 hedge accounting. The standard does not explicitly address macro hedge accounting strategies, which are being considered in a separate project. To remove the risk of any conflict between existing macro hedge accounting practice and the new general hedge accounting requirements, the standard includes an accounting policy choice to remain with IAS 39 hedge accounting.

Transition

The classification, measurement and impairment requirements are applied retrospectively by adjusting the balance sheet at the date of initial application, with no requirement to restate comparative periods. Hedge accounting is generally applied prospectively from that date.

3. Summary of significant accounting policies (continued)

3.4 Changes in accounting policies and disclosures (continued)

3.4.2 Standards and Interpretations that are issued but not yet effective (continued)

3.4.2.1 Standards and Interpretations issued by the IASB and adopted by the EU (continued)

IFRS 9 Financial Instruments (continued)

IFRS 9 implementation project

An IFRS 9 implementation project is currently under way by the Group. The project is headed by the Group Chief Risk Officer and a Steering Committee was set up to monitor the project, comprising of members of the Executive Management team.

The project covers all aspects of IFRS 9 out of which the majority of the effort has concentrated on the development of methodologies for the calculation of impairment of customer loans and advances based on expected credit losses, since IFRS 9 moves away from the current incurred loss model to an expected credit loss model. This change requires more judgment in considering information for current and future provisioning. The expected credit losses model will also result in earlier recognition of credit losses and thus a higher provision charge because it includes not only credit losses already incurred, but also losses that are expected in the future. The Income Statement impact is also likely to be more volatile as expectations and judgements may change and/or due to movements within the three stages stipulated by the standard. The assessment of the impact of IFRS 9 is ongoing and may change upon its full application reflecting balance sheet dynamics at the time of adoption.

The Group expects to be in a position to provide a robust estimate of the IFRS 9 impact later in the year, when the implementation programme, validation and testing is further advanced. The capital impact of any opening IFRS 9 adjustment to the provision stock is expected to be largely phased-in over a five year period in line with the proposal of the Council of the European Union. As a result, the effect of introducing IFRS 9 on CET1 in 2018 is expected to be small on a phased-in basis.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard's requirements will also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity's ordinary activities (e.g., sales of property, plant and equipment or intangibles). Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligations; changes in contract asset and liability account balances between periods and key judgements and estimates. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Group is in the process of assessing the impact of this standard on its results and financial position.

IFRS 15 Revenue from Contracts with Customers (Clarifications)

The objective of the Clarifications is to clarify the IASB's intentions when developing the requirements in IFRS 15 Revenue from Contracts with Customers, particularly the accounting of identifying performance obligations amending the wording of the 'separately identifiable' principle, of principal versus agent considerations including the assessment of whether an entity is a principal or an agent as well as applications of control principle and of licensing providing additional guidance for accounting of intellectual property and royalties. The Clarifications also provide additional practical expedients for entities that either apply IFRS 15 fully retrospectively or that elect to apply the modified retrospective approach. The Clarifications apply for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Group is in the process of assessing the impact of this standard on its results and financial position.

4. Going concern

The management has made an assessment of the Group's ability to continue as a going concern.

The management believes that the Group is taking all necessary measures to maintain its viability and the development of its business in the current economic environment.

4. Going concern (continued)

· Τhe Group's Common Equity Tier 1 (CET1) ratio at 30 June 2017 stands at 12.3% (transitional) and the total capital ratio at 13.8%, higher than the minimum required ratios (Note 5.2.1).

· The increase in the liquid assets of the Group and compliance with the LCR ratio requirements. The ELA funding was repaid in full on 5 January 2017 (Note 5.2.3).

· The increasing level of Group customer deposits (increase of €74 million during the six months ended 30 June 2017). At 30 June 2017 customer deposits stood at €16,584 million.

· BOC PCL regained access to the debt capital markets in January 2017 with the issuance of €250 million unsecured subordinated Tier 2 Capital Note.

5. Operating environment

5.1 Cyprus

After a protracted recession Cyprus returned to growth in 2015 and continued to expand in the subsequent period. Real Gross Domestic Product (GDP) increased by 2.8% in 2016, and by 3.7% and 3.5% respectively on a seasonally adjusted basis, in the first and second quarters of 2017. The growth momentum is expected to be maintained over the medium term supported by private consumption, gradually increasing investment, declining unemployment and favourable developments in tourism and business services.

Tourism remains robust aided by geopolitical tensions in competing destinations. Arrivals had reached record levels of 3,2 million people in 2016 according to the Cyprus Statistical Service and continued to expand in the first seven months of the year, rising by about 15% from the same period the year before. In the labour market the unemployment rate declined significantly to 11% in the second quarter on a seasonally adjusted basis, according to Eurostat, compared with a peak of 16.6% in the first quarter of 2015. Consumer inflation turned modestly positive in the first seven months of the year rising by 1% after falling for four consecutive years according to data from the Cyprus Statistical Service. In property markets demand has been rising as evidenced by an increasing number of sales contracts. The Central Bank's Residential Property Price Index increased by 0.2% year-on-year in the first quarter of 2017 and increased by 0.3% on a quarter-on-quarter basis from the fourth quarter 2016.

5. Operating environment (continued)

5.1 Cyprus (continued)

Downside risks to the outlook are associated with the still high levels of non-performing loans, and public debt ratio and with a possible deterioration of the external environment for Cyprus. This may involve slower growth in the UK with a weakening of the pound as a result of uncertainty resulting from Brexit. The direct consequences on Cyprus from Brexit, will mostly emanate from tourist activity. The possible loss of UK tourist arrivals may be mitigated at least in part, by increases in arrivals of tourists from other destinations as airline connectivity improves. Political uncertainty in Europe triggered by a British exit or by the refugee crisis could also lead to increased economic uncertainty and undermine economic confidence.

5.2 The Group

5.2.1 Regulatory capital ratios

The CET1 ratio of the Group at 30 June 2017 stands at 12.3% (transitional) and the total capital at 13.8%.

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 Additional Tier 1 capital and with up to 2.0% by Tier 2 capital.

The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital requirements (Pillar II add-ons). Following the enactment of the amendments in the Cypriot Banking Law in February 2017 regarding the gradual phase-in of the Capital Conservation Buffer (CCB) and based on the Supervisory Review and Evaluation Process (SREP) performed by the European Central Bank (ECB) in 2016, the Group's minimum CET1 capital ratio as from 1 January 2017 has been reduced to 9.50% compared to 10.75% fully phased-in of CCB (minimum CET1 capital ratio at 31 December 2016: 11.75% fully phased-in of CCB), comprising of a 4.5% Pillar I requirement, a 3.75% Pillar II requirement and a phased-in CCB of 1.25%. The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer.

The overall Total Capital Ratio requirement as from 1 January 2017 following the amendments in the Cypriot Banking Law in February 2017 regarding the gradual phase-in of CCB, has been reduced to 13.00% compared to 14.25% (fully phased-in of CCB), comprising of a Pillar I requirement of 8% (of which up to 1.5% can be in the form of Additional Tier 1 capital and up to 2.0% in the form of Tier 2 capital), a Pillar II requirement of 3.75% (in the form of CET1), as well as a phased-in CCB of 1.25%.

The minimum CET1 requirement including Pillar II, applicable for the year 2016 was determined by the ECB at 11.75% in November 2015 and included CCB on a fully loaded basis.

The Group's capital position at 30 June 2017 exceeds both its Pillar I and its Pillar II add-on capital requirements. However, the Group's Pillar II add-on capital requirements are a point-in-time assessment and therefore are subject to change over time.

5.2.2 Asset quality

The Group's loans that are impaired or past due for more than 90 days (90+ DPD) have decreased by 9% during the six months ended 30 June 2017 and totalled €7,560 million at 30 June 2017, representing 39% of gross loans before fair value adjustment on initial recognition (Note 27). The provisioning coverage ratio improved to 61% compared to 54% at 31 December 2016. The Group non-performing exposures (NPEs), as defined by the European Banking Authority (EBA), totalled €9,752 million at 30 June 2017 and accounted for 50% of gross loans before fair value adjustment on initial recognition. The provisioning coverage ratio of NPEs totalled 48% at 30 June 2017 compared to 41% at 31 December 2016.

5. Operating environment (continued)

5.2 The Group (continued)

5.2.2 Asset quality (continued)

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. 90+ DPD have decreased by 42% since their peak of €13,003 million as at 31 December 2013. NPEs have decreased by 36% since their peak of €15,175 million as at 31 March 2015.

5.2.3 Liquidity

Group customer deposits totalled €16,584 million at 30 June 2017 compared to €16,510 million at 31 December 2016. Customer deposits in Cyprus reached €15,010 million at 30 June 2017 and €15,043 million at 31 December 2016. Customer deposits accounted for 75% of total assets as at 30 June 2017 (compared to 74% at 31 December 2016 and a low of 48% at 31 March 2014).

ELA was fully repaid on 5 January 2017. ELA is available to solvent Euro area credit institutions and although BOC PCL has received no specific assurance, management expects that BOC PCL will continue to have access to the central bank liquidity facilities, in line with applicable rules if it were to face a 'stress event' that gave rise to temporary liquidity problems. If a stress event were to occur in the future, BOC PCL would seek to utilise ELA funding, assuming it has sufficient available eligible collateral at the time.

The credit ratings of the Republic of Cyprus by the main credit rating agencies albeit improving, continue to be below investment grade. As a result, the ECB is not able to include Cyprus Government bonds in its asset purchase programme, or as eligible collateral for Eurosystem monetary operations, as was the case when the waiver for collateral eligibility due to the country being under an economic adjustment programme existed.

In January 2017 BOC PCL issued €250 million unsecured and subordinated Tier 2 Capital Note under BOC PCL's EMTN Programme. The note was priced at par, with a coupon of 9.25% (Note 22).

As at 30 June 2017 the LCR stood at 108% (compared to 49% at 31 December 2016) and is in compliance with the minimum regulatory requirement of 80%. As at 30 June 2017, BOC PCL was not in compliance with the local regulatory liquidity requirements with respect to its operations in Cyprus and is therefore dependent on continuing regulatory forbearance. The Net Stable Funding Ratio (NSFR ratio) is currently expected to be introduced on 1 January 2018, with a minimum requirement of 100%. As at 30 June 2017 the Group's NSFR, on the basis of Basel ΙΙΙ standards, was 102% (compared to 95% at 31 December 2016). After repayment of ELA in January 2017, the Group is focusing on measures to improve its liquidity position and remains on track to exceed the minimum requirement by 1 January 2018 with respect to LCR, which will increase to 100% as of that date, and NSFR.

5.2.4 Pending litigation, claims and regulatory matters

The management has considered the potential impact of pending litigation, claims and regulatory 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 novelty of the said claims and the uncertainties inherent in a unique situation, based on the information available at present and on the basis of the law as it currently stands, the management considers that the said claims are considered unlikely to have a material adverse impact on the financial position and capital adequacy of the Group (Note 23).

6. Significant 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 affected in future periods.

6. Significant judgements, estimates and assumptions (continued)

The key assumptions concerning the future and other key sources of estimation of 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 in the Annual Consolidated Financial Statements of BOC group for the year ended 31 December 2016, as detailed in the basis of preparation of these Financial Statements (Note 3.2).

The critical judgements, estimates and assumptions are set out below.

6.1 Provision for impairment of loans and advances to customers

The Group reviews its loans and advances to customers to assess whether a provision for impairment should be recorded in the consolidated income statement. In particular, management is required to estimate the amount and timing of future cash flows in order to determine the amount of provision required and the calculation of the impairment allowance involves the use of judgement. Such estimates are based on assumptions about a number of factors and therefore actual impairment losses may differ.

The carrying amount of the loan is reduced through the use of a provision account and the amount of the loss is recognised in the consolidated income statement. Loans together with the associated provisions are written off when there is no realistic prospect of future recovery. Partial write-offs, including non contractual write-offs, may also occur when it is considered that there is no realistic prospect for the recovery of the contractual cash flows. In addition, write-offs may reflect restructuring activity with customers and are part of the terms of the agreement and subject to satisfactory performance.

The Group may change certain estimates from period to period, however it is impracticable to estimate the effect of such individual estimates due to interdependencies between estimates and as the profile of the population of loans changes from period to period.

A very important factor for the estimation of provisions 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 the collateral, taxes and expenses on the repossession and subsequent sale of the collateral as well as any other applicable haircuts. Indexation has been used to estimate updated market values of properties, while assumptions were made on the basis of a macroeconomic scenario for future changes in property values. The Group at 30 June 2017, following a reconsideration of its strategy, to more actively explore other innovative strategic solutions to further accelerate balance sheet de-risking, has modified certain of its provisioning assumptions and estimates.

At 30 June 2017 the average haircut (including liquidity haircut and selling expenses) used in the collective provisions calculation is 32% (31 December 2016: average of 10% of the current market value of the property for those collaterals for which the increase in their value is capped to zero and 10% of the projected market value of the property for those collaterals for which their value is expected to drop).

The timing of recovery from real estate collaterals used in the collective provision calculation has been estimated to be on average 6 years (31 December 2016: average of 3 years except for customers in Debt Recovery, average of 6 years).

For the calculation of specific provisions, the timing of recovery of collaterals as well as the haircuts used were based on the specific facts and circumstances of each case.

In accordance with the Loan Impairment and Provisioning Procedures Directives of 2014 and 2015 of the Central Bank of Cyprus (CBC), the cumulative average future change in property values during the year has been capped to zero.

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 EBA, which provide guidance and expectations as to relevant definitions and the treatment/classification of certain parameters/assumptions used in the estimation of provisions.

6. Significant judgements, estimates and assumptions (continued)

6.1 Provision for impairment of loans and advances to customers (continued)

Any changes in these assumptions or difference between assumptions made and actual results could result in significant changes in the amount of required provisions for impairment of loans and advances.

For individually significant assets, impairment allowances are calculated on an individual basis and all relevant considerations that have a bearing on the expected future cash flows are taken into account (for example, the business prospects for the customer, the realisable value of collateral, the Group's position relative to other claimants, the reliability of customer information and the likely cost and duration of the work-out process). The level of the impairment allowance is the difference between the value of the discounted expected future cash flows (discounted at the loan's original effective interest rate) and its carrying amount. Subjective judgements are made in the calculation of future cash flows. Furthermore, judgements change with time as new information becomes available or as work-out strategies evolve, resulting in frequent revisions to the impairment allowance as individual decisions are taken. Changes in these estimates would result in a change in the allowances and have a direct impact on the impairment charge.

In addition to provisions for impairment on an individual basis, the Group also makes collective impairment provisions. The Group adopts a formulaic approach for collective provisions, which includes assigning probabilities of default and loss given default for portfolios of loans. This methodology is subject to estimation uncertainty, partly because it is not practicable to identify losses on an individual loan basis because of the large number of loans in each portfolio. In addition, the use of historical information for probabilities of default and loss rates is supplemented with significant management judgement to assess whether current economic and credit conditions are such that the actual level of incurred losses is likely to be greater or less than that suggested by historical experience.

Impairment assessment also includes 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; otherwise the provision is calculated on a collective basis, taking into account the probability of loss for the portfolio in which the customer is included for on-balance sheet exposures impairment assessment. The Group may change certain estimates from period to period, however it is impracticable to estimate the effect of such individual estimates due to interdependencies between estimates and as the profile of the population of off-balance sheet exposure changes from period to period.

In normal circumstances, historical experience provides the most objective and relevant information from which to assess inherent loss within each portfolio. In certain circumstances, historical loss experience provides less relevant information about the incurred loss in a given portfolio at the reporting date, for example, where there have been changes in economic, regulatory or behavioural conditions such that the most recent trends in the portfolio risk factors are not fully reflected. In these circumstances, such risk factors are taken into account when calculating the appropriate levels of impairment allowances, by adjusting the provision for impairment derived solely from historical loss experience.

The total amount of the Group's provision for impairment of loans and advances is inherently uncertain because it is highly sensitive to changes in economic and credit conditions across a number of geographical areas.

Loans subject to collective impairment assessment whose terms have been renegotiated are no longer considered past due, but are treated as up to date loans for measurement purposes. Loans subject to collective impairment assessment whose terms have been renegotiated are taken into account in determining the inputs for collective impairment calculation. Loans subject to individual impairment assessment, whose terms have been renegotiated, are subject to ongoing review to determine whether they remain impaired. The carrying amounts of loans that have been classified as renegotiated retain this classification in accordance with the rules of the technical standard of the EBA.

6. Significant judgements, estimates and assumptions (continued)

6.1 Provision for impairment of loans and advances to customers (continued)

Economic and credit conditions within geographical areas are influenced by many factors with a high degree of interdependency so that there is no one single factor to which the Group's loan impairment provisions as a whole are particularly sensitive. Different factors are applied in each country to reflect the local economic conditions, laws and regulations and the assumptions underlying this judgement are highly subjective. The methodology and the assumptions used in calculating impairment losses are reviewed regularly. It is possible that the actual results could be different from the assumptions made, resulting in a material adjustment to the carrying amount of loans and advances.

Further details on impairment allowances and related credit information are set out in Note 27.

6.2 Tax

The Group operates and is therefore subject to tax in various countries. Estimates are required in determining the provision for taxes at the reporting date. The Group recognises income tax liabilities for transactions and assessments whose tax treatment is uncertain. Where the final tax is different from the amounts initially recognised in the consolidated income statement, such differences will impact the income tax expense, the tax liabilities and deferred tax assets or liabilities of the period in which the final tax is agreed with the relevant tax authorities.

Deferred tax assets are recognised by the Group in respect of tax losses to the extent that it is probable that future taxable profits will be available against which the losses can be utilised. Judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits, together with future tax-planning strategies. These variables have been established on the basis of significant management judgement and are subject to uncertainty. It is possible that the actual future events could be different from the assumptions made, resulting in a material adjustment to the carrying amount of deferred tax assets.

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 with reference to the fair value of properties adjusted for any impact of specific circumstances on the sale process of each property. 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 large 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

Judgement is involved in determining whether a present obligation exists and in estimating the probability, timing and amount of any outflows. Provisions for pending litigations, claims and regulatory 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 estimated possible loss for such matters. Actual results may prove to be significantly higher or lower than the estimate of 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 and claims refer to Note 23.

6.5 Exercise of significant influence

The Group determines whether it exercises significant influence on companies in which it has shareholdings of less 20% if other factors exist that demonstrate significant influence. In performing this assessment it considers its representation in the Board of Directors which gives rise to voting rights of more than 20% and participation in policy-making processes, including participation in decisions about dividends and other distributions.

7. Segmental analysis

The Group is organised into operating segments based on the geographic location of each unit. The main geographical locations that the Group operates in, are Cyprus and the United Kingdom. In addition, the Cyprus segment is further organised into operating segments based on the line of business.

The remaining Group's activities in Greece, Romania and Russia are separate operating segments for which information is provided to management but, due to their size, have been grouped for disclosure purposes into one segment, namely 'Other countries'.

The Group's activities in Cyprus, United Kingdom and other countries include mainly the provision of banking, financial and insurance services, as well as management of properties either held as stock or as investment property.

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.

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 originated, instead of the segment where the transaction is recorded. Loans and advances to customers which are originated in countries where the Group does not have operating entities are included in the segment where they are managed.

7. Segmental analysis (continued)

	Cyprus	United Kingdom	Other countries	Total
Six months ended 30 June 2017	€000	€000	€000	€000
Net interest income	297,146	17,870	1,269	316,285
Net fee and commission income	84,743	3,262	210	88,215
Net foreign exchange gains	20,380	171	19	20,570
Net gains/(losses) on financial instrument transactions	2,499	(48)	(12)	2,439
Insurance income net of claims and commissions	23,744	-	678	24,422
Losses from revaluation and disposal of investment properties	(1,925)	-	-	(1,925)
Gains on disposal of stock of property	12,214	-	21	12,235
Other income	7,206	-	655	7,861
	446,007	21,255	2,840	470,102
Staff costs (Note 9)	(100,247)	(10,398)	(830)	(111,475)
Other operating expenses (excluding advisory and other restructuring costs) (Note 9)	(121,420)	(12,274)	(4,218)	(137,912)
Other operating expenses - advisory and other restructuring costs (Note 9)	(13,451)	-	(327)	(13,778)
	210,889	(1,417)	(2,535)	206,937
Gain on derecognition of loans and advances to customers and changes in expected cash flows	94,885	15	-	94,900
Provisions for impairment of loans and advances to customers and other customer credit losses	(733,100)	(1,206)	(16,614)	(750,920)
(Impairment)/reversal of impairment of other financial instruments	(24,585)	-	2,088	(22,497)
Impairment of non-financial instruments	(379)	-	(13,105)	(13,484)
Share of profit from associates and joint ventures	3,949	-	-	3,949
Loss before tax	(448,341)	(2,608)	(30,166)	(481,115)
Income tax	(70,370)	(881)	(1,031)	(72,282)
Loss for the period	(518,711)	(3,489)	(31,197)	(553,397)
Non-controlling interests - profit	(562)	-	-	(562)
Loss after tax attributable to the owners of the Company	(519,273)	(3,489)	(31,197)	(553,959)

7. Segmental analysis (continued)

	Cyprus	United Kingdom	Other countries	Total
Six months ended 30 June 2016	€000	€000	€000	€000
Net interest income	336,440	15,386	8,636	360,462
Net fee and commission income	70,512	2,919	437	73,868
Net foreign exchange gains	4,997	289	11,027	16,313
Net gains/(losses) on financial instrument transactions	57,856	223	(690)	57,389
Insurance income/(loss) net of claims and commissions	24,646	-	(13)	24,633
Gains/(losses) from revaluation and disposal of investment properties	6,147	-	(341)	5,806
Losses on disposal of stock of property	(3,428)	-	(105)	(3,533)
Other income	6,628	-	949	7,577
	503,798	18,817	19,900	542,515
Staff costs (excluding voluntary exit plan and other termination benefits) (Note 9)	(108,661)	(7,139)	(1,066)	(116,866)
Staff costs - voluntary exit plan and other termination benefits (Note 9)	(62,413)	-	-	(62,413)
Other operating expenses (excluding advisory and other restructuring costs) (Note 9)	(71,942)	(6,916)	(5,739)	(84,597)
Other operating expenses - advisory and other restructuring costs (Note 9)	(23,666)	-	(1,293)	(24,959)
	237,116	4,762	11,802	253,680
Gain on derecognition of loans and advances to customers and changes in expected cash flows	22,137	29	-	22,166
(Provisions)/reversal of provisions for impairment of loans and advances to customers and other customer credit losses	(148,024)	1,118	(33,019)	(179,925)
(Impairment)/reversal of impairment of other financial instruments	(12,895)	-	667	(12,228)
Impairment of non-financial instruments	(4,112)	-	(5,250)	(9,362)
Share of profit from associates and joint ventures	1,606	-	-	1,606
Profit/(loss) before tax	95,828	5,909	(25,800)	75,937
Income tax	(12,453)	(954)	(288)	(13,695)
Profit/(loss) for the period	83,375	4,955	(26,088)	62,242
Non-controlling interests - profit	(5,870)	-	-	(5,870)
Profit/(loss) after tax attributable to the owners of BOC PCL	77,505	4,955	(26,088)	56,372

7. Segmental analysis (continued)

Analysis of total revenue

Total revenue includes net interest income, net fee and commission income, net foreign exchange gains, net gains on financial instrument transactions, insurance income net of claims and commissions, (losses)/gains from revaluation and disposal of investment properties, gains/(losses) on disposal of stock of property and other income.

	Cyprus	United Kingdom	Other countries	Total
Six months ended 30 June 2017	€000	€000	€000	€000
Total revenue from third parties	441,882	22,128	6,092	470,102
Inter-segment revenue/(expense)	4,125	(873)	(3,252)	-
Total revenue	446,007	21,255	2,840	470,102

Six months ended 30 June 2016
Total revenue from third parties	496,369	19,814	26,332	542,515
Inter-segment revenue/(expense)	7,429	(997)	(6,432)	-
Total revenue	503,798	18,817	19,900	542,515

The revenue for Cyprus operating segment is further analysed in analysis by business line in this note.
The revenue for other countries segment mainly relates to banking and financial services for both 2017 and 2016.

Analysis of assets

	Cyprus	United Kingdom	Other countries	Total
30 June 2017	€000	€000	€000	€000
Assets	20,720,487	1,779,393	644,335	23,144,215
Inter-segment assets				(1,057,320)
Total assets				22,086,895

31 December 2016
Assets	20,851,999	1,658,337	754,645	23,264,981
Inter-segment assets				(1,093,046)
Total assets				22,171,935

7. Segmental analysis (continued)

Analysis of liabilities

	Cyprus	United Kingdom	Other countries	Total
30 June 2017	€000	€000	€000	€000
Liabilities	17,996,339	1,668,877	903,642	20,568,858
Inter-segment liabilities				(1,060,184)
Total liabilities				19,508,674

31 December 2016
Liabilities	17,577,993	1,595,805	988,457	20,162,255
Inter-segment liabilities				(1,096,425)
Total liabilities				19,065,830

Segmental analysis of customer deposits and loans and advances to customers is presented in Notes 21 and 27, respectively.

Analysis by business line

In addition to monitoring operations by geographical location, management also monitors the operating results of each business line for the Cyprus segment of the Group, and such information is presented to the Group Executive Committee.

Income and expenses directly associated with each business line are included in determining the line's performance. Transfer pricing methodologies are applied between the business lines to present their results on an arm's length basis. Total other operating income includes net foreign exchange gains, net gains on financial instrument transactions, insurance income net of claims and commissions, gains/(losses) from revaluation and disposal of investment properties, gains/(losses) on disposal of stock of property and other income. Total other operating income, staff costs and other operating expenses incurred directly by the business lines are allocated to the business lines as incurred. Indirect other operating income and indirect other operating expenses are allocated to the head office function. Management monitors the profit/(loss) before tax of each business line. Additionally, for the purposes of the Cyprus analysis by business line, notional tax at the 12.5% Cyprus tax rate is charged/credited on profit or loss before tax of each business line and therefore any taxable and non-taxable items are excluded from this notional charge/credit.

The business line 'Other' includes Group and head office functions such as treasury, finance, risk management, compliance, legal, corporate affairs and human resources. Head office functions provide services to the operating segments.

7. Segmental analysis (continued)

Analysis by business line (continued)

	Corporate	Small and medium-sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Other	Total Cyprus
Six months ended 30 June 2017	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Net interest income/(expense)	50,027	26,285	114,156	74,233	36,147	5,472	(8,581)	226	(819)	297,146
Net fee and commission income/(expense)	6,882	5,055	25,306	5,802	33,029	1,111	-	(2,483)	10,041	84,743
Total other operating income	346	314	2,185	178	3,663	1,858	11,443	24,235	19,896	64,118
	57,255	31,654	141,647	80,213	72,839	8,441	2,862	21,978	29,118	446,007
Staff costs and other operating expenses	(5,887)	(5,970)	(57,166)	(15,030)	(13,342)	(2,105)	(3,976)	(8,184)	(110,007)	(221,667)
Advisory and other restructuring costs - other operating expenses	-	-	-	(8,338)	-	-	(2,763)	-	(2,350)	(13,451)
	51,368	25,684	84,481	56,845	59,497	6,336	(3,877)	13,794	(83,239)	210,889
Gain on derecognition of loans and advances to customers and changes in expected cash flows	9,809	2,394	8,560	71,095	655	51	-	-	2,321	94,885
Provisions for impairment of loans and advances to customers and other customer credit losses	(9,451)	(31,215)	(38,997)	(644,821)	(7,380)	(86)	-	-	(1,150)	(733,100)
Impairment of other financial instruments	-	-	-	-	-	-	-	-	(24,585)	(24,585)
Impairment of non-financial instruments	-	-	-	-	-	-	-	-	(379)	(379)
Share of profit from associates and joint ventures	-	-	-	-	-	-	-	-	3,949	3,949
Profit/(loss) before tax	51,726	(3,137)	54,044	(516,881)	52,772	6,301	(3,877)	13,794	(103,083)	(448,341)
Income tax	(6,466)	392	(6,756)	64,610	(6,596)	(788)	485	(1,400)	(113,851)	(70,370)
Profit/(loss) for the period	45,260	(2,745)	47,288	(452,271)	46,176	5,513	(3,392)	12,394	(216,934)	(518,711)
Non-controlling interests - profit	-	-	-	-	-	-	-	-	(562)	(562)
Profit/(loss) after tax attributable to the owners of the Company	45,260	(2,745)	47,288	(452,271)	46,176	5,513	(3,392)	12,394	(217,496)	(519,273)

7. Segmental analysis (continued)

Analysis by business line (continued)

	Corporate	Small and medium-sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Other	Total Cyprus
Six months ended 30 June 2016	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Net interest income/(expense)	39,099	32,459	126,092	114,361	31,405	3,631	(4,982)	199	(5,824)	336,440
Net fee and commission income/(expense)	4,639	4,231	22,168	6,499	24,971	1,090	-	(2,140)	9,054	70,512
Total other operating income/(expense)	350	284	2,114	302	3,473	2,022	(3,111)	25,029	66,383	96,846
	44,088	36,974	150,374	121,162	59,849	6,743	(8,093)	23,088	69,613	503,798
Staff costs and other operating expenses	(5,286)	(5,958)	(59,799)	(17,634)	(12,986)	(2,538)	(4,888)	(7,007)	(64,507)	(180,603)
Restructuring costs - voluntary exit plan and other termination benefits	(968)	(1,139)	(22,930)	(8,237)	(4,468)	(224)	(97)	(3,230)	(21,120)	(62,413)
Advisory and other restructuring costs - other operating expenses	(16)	(3)	(54)	(6,047)	(44)	(3)	(1,857)	-	(15,642)	(23,666)
	37,818	29,874	67,591	89,244	42,351	3,978	(14,935)	12,851	(31,656)	237,116
Gain/(loss) on derecognition of loans and advances to customers and changes in expected cash flows	3,342	2,184	6,019	9,622	1,731	868	-	-	(1,629)	22,137
Reversal of provisions/(provisions) for impairment of loans and advances to customers and other customer credit losses	8,049	(19,789)	21,706	(157,815)	329	(1,081)	-	-	577	(148,024)
Impairment of other financial instruments	-	-	-	-	-	-	-	-	(12,895)	(12,895)
Impairment of non-financial instruments	-	-	-	-	-	-	(3,726)	-	(386)	(4,112)
Share of profit from associates and joint ventures	-	-	-	-	-	-	-	-	1,606	1,606
Profit/(loss) before tax	49,209	12,269	95,316	(58,949)	44,411	3,765	(18,661)	12,851	(44,383)	95,828
Income tax	(6,151)	(1,534)	(11,914)	7,369	(5,551)	(471)	2,333	(1,390)	4,856	(12,453)
Profit/(loss) for the period	43,058	10,735	83,402	(51,580)	38,860	3,294	(16,328)	11,461	(39,527)	83,375
Non-controlling interests - profit	-	-	-	-	-	-	-	-	(5,870)	(5,870)
Profit/(loss) after tax attributable to the owners of BOC PCL	43,058	10,735	83,402	(51,580)	38,860	3,294	(16,328)	11,461	(45,397)	77,505

In addition, loans and advances to customers and deposits of the above business lines are reported to the Group Executive Committee. Such an analysis is disclosed in Notes 27 and 21 respectively.

8. Net gains on financial instrument transactions

	Six months ended 30 June
	2017	2016
	€000	€000
Trading portfolio:
- equity securities	157	(316)
- debt securities	48	7
- derivative financial instruments	209	870
Other investments at fair value through profit or loss:
- debt securities	(57)	(236)
- equity securities	289	377
Net gains on disposal of available-for-sale investments:
- equity securities	1,520	58,330
- debt securities	179	18
Net gains on disposal/repayment of loans and receivables:
- debt securities	-	43
Realised losses on disposal of loans	(12)	(690)
Revaluation of financial instruments designated as fair value hedges:
- hedging instruments	6,631	(3,818)
- hedged items	(6,525)	3,853
Loss on dissolution of subsidiaries	-	(1,049)
	2,439	57,389

In the comparative period, the gains on disposal of available-for-sale equity securities primarily relate to gain on sale of shares held in Visa Europe Limited following the approved purchase of Visa Europe Limited by Visa Inc.

9. Staff costs and other operating expenses

Staff costs

	Six months ended 30 June
	2017	2016
	€000	€000
Salaries	92,921	95,093
Employer's contributions to state social insurance	11,237	13,985
Retirement benefit plan costs	7,317	7,788
	111,475	116,866
Restructuring costs - voluntary exit plans and other termination benefits	-	62,413
	111,475	179,279

9. Staff costs and other operating expenses (continued)

Staff costs (continued)

The number of persons employed by the Group as at 30 June 2017 was 4,311 (31 December 2016: 4,284,
30 June 2016: 4,279). In February and June 2016 the BOC group proceeded with voluntary exit plans for its employees in Cyprus, the cost of which is included in staff costs and amounted to €62,413 thousand. In total 429 employees accepted the voluntary exit plans. During the six months ended 30 June 2016, 358 employees left the Group under the plans.

Other operating expenses

	Six months ended 30 June
	2017	2016
	€000	€000
Repairs and maintenance of property and equipment	13,627	14,000
Other property-related costs	8,595	6,182
Operating lease rentals for property and equipment	5,159	4,837
Special levy on deposits of credit institutions in Cyprus	17,700	9,581
Consultancy and other professional services fees	8,578	4,326
Insurance	4,336	5,732
Advertising and marketing	8,751	8,104
Depreciation of property and equipment	5,809	5,788
Amortisation of intangible assets	4,324	3,506
Communication expenses	4,507	3,551
Provisions/(reversal of provisions) and settlements of litigations, claims and provisions for regulatory matters (Note 23)	34,929	(191)
Printing and stationery	1,586	1,690
Local cash transfer expenses	1,282	1,406
Contribution to depositor protection scheme	120	24
Other operating expenses	18,609	16,061
	137,912	84,597
Advisory and other restructuring costs	13,778	24,959
	151,690	109,556

Advisory and other restructuring costs comprise mainly fees of external advisors in relation to: (i) customer loan restructuring activities which are not part of the effective interest rate, (ii) the listing on the London Stock Exchange and (iii) disposal of operations and non-core assets.

10. Impairment of financial and non-financial instruments

	Six months ended 30 June
	2017	2016
	€000	€000
Provisions net of reversals of provisions for impairment of loans and advances to customers and other customer credit losses
Loans and advances to customers (Note 27)	741,327	179,758
Financial guarantees and commitments	9,593	167
	750,920	179,925

10. Impairment of financial and non-financial instruments (continued)

Impairment/(reversal of impairment) of other financial instruments	Six months ended 30 June
	2017	2016
	€000	€000
Available-for-sale equity securities	(98)	530
Available-for-sale mutual funds	-	56
Loans and advances to banks	21,684	13,820
Other assets	911	(2,625)
Deposits by banks	-	447
	22,497	12,228

Impairment of non-financial instruments
Stock of property (Note 17)	13,484	9,362

11. Income tax

	Six months ended 30 June
	2017	2016
	€000	€000
Current tax:
- Cyprus	2,219	2,063
- overseas	1,118	1,104
Cyprus special defence contribution	50	31
Deferred tax	66,927	5,570
Prior year tax adjustments	968	2,993
Other tax charges	1,000	1,934
	72,282	13,695

The increase in the deferred tax charge is due to the reduction of the level of deferred tax asset by €62 million following increase in provision for impairment of loans and advances to customers and evaluation of the recoverability assessment of the deferred tax asset balance.

12. Earnings per share

	Six months ended 30 June
	2017	2016
Basic and diluted (losses)/earnings per share attributable to the owners of the Company/BOC PCL
(Loss)/profit for the period attributable to the owners of the Company/BOC PCL (€ thousand)	(553,959)	56,372
Weighted average number of shares in issue during the period, excluding treasury shares (thousand)	446,056	8,919,162
Basic and diluted (losses)/earnings per share (€ cent)	(124.2)	0.6

13. Investments

	30 June 2017	31 December 2016
	€000	€000
Investments
Investments at fair value through profit or loss	32,453	43,016
Investments available-for-sale	519,088	262,789
Investments classified as loans and receivables	69,957	68,074
	621,498	373,879

The amounts pledged as collateral under repurchase agreements with banks are shown below:

	30 June 2017	31 December 2016
	€000	€000
Investments pledged as collateral
Investments available-for-sale	296,325	299,765

All investments pledged as collateral under repurchase agreements can be sold or repledged by the counterparty.

Loans and receivables at 30 June 2017 include €49,956 thousand (31 December 2016: €49,185 thousand) of debt securities issued by the Cyprus government and listed on the Cyprus Stock Exchange which have been determined to be individually impaired, in prior years.

There were no reclassifications of investments between categories in the current period or in 2016.

14. Derivative financial instruments

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

	30 June 2017			31 December 2016
	Contract amount	Fair value		Contract amount	Fair value
	Contract amount	Assets	Liabilities	Contract amount	Assets	Liabilities
	€000	€000	€000	€000	€000	€000
Trading derivatives
Forward exchange rate contracts	23,638	210	283	43,820	794	589
Currency swaps	1,865,252	2,575	24,556	1,774,916	15,875	8,215
Interest rate swaps	116,545	180	943	230,874	480	1,901
Currency options	626	7	372	7,986	85	198
	2,006,061	2,972	26,154	2,057,596	17,234	10,903
Derivatives qualifying for hedge accounting
Fair value hedges - interest rate swaps	1,071,959	4,199	46,038	418,293	87	37,463
Net investments - forward exchange rate contracts	117,819	473	1,304	178,605	3,514	259
	1,189,778	4,672	47,342	596,898	3,601	37,722
Total	3,195,839	7,644	73,496	2,654,494	20,835	48,625

Hedge accounting

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 branches 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 branches, as well as overseas associates and joint ventures and forward exchange rate contracts.

As at 30 June 2017, deposits and forward exchange rate contracts amounting to €136,251 thousand and €117,819 thousand respectively (31 December 2016: €100,756 thousand and €178,605 thousand respectively) have been designated as hedging instruments and have given rise to a gain of €125 thousand (corresponding period of 2016: gain of €36,286 thousand; year ended 31 December 2016: gain of €53,408 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 branches.

15. Fair value measurement

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

	30 June 2017		31 December 2016
	Carrying value	Fair value	Carrying value	Fair value
	€000	€000	€000	€000
Financial assets
Cash and balances with central banks	2,317,297	2,317,297	1,506,396	1,506,396
Loans and advances to banks	707,913	652,658	1,087,837	1,092,964
Investments at fair value through profit or loss	32,453	32,453	43,016	43,016
Investments available-for-sale	815,413	815,413	562,554	562,554
Investments classified as loans and receivables	69,957	74,380	68,074	69,451
Derivative financial assets	7,644	7,644	20,835	20,835
Loans and advances to customers	14,892,661	15,194,534	15,649,401	16,791,164
Life insurance business assets attributable to policyholders	495,536	495,536	485,633	485,633
Assets held for sale	20,179	18,698	-	-
Other assets	123,918	123,918	131,811	131,811
	19,482,971	19,732,531	19,555,557	20,703,824
Financial liabilities
Obligations to central banks and deposits by banks	1,314,750	1,314,750	1,284,800	1,284,800
Repurchase agreements	256,234	285,321	257,367	292,752
Derivative financial liabilities	73,496	73,496	48,625	48,625
Customer deposits	16,583,798	16,594,948	16,509,741	16,492,715
Subordinated loan stock	256,503	283,632	-	-
Other liabilities	190,813	190,813	168,422	168,422
	18,675,594	18,742,960	18,268,955	18,287,314

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 observable market 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.

15. Fair value measurement (continued)

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, equity options 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 the Group's own credit quality respectively.

The Group calculates the CVA by applying the probability of default (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 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 Capital Requirement Regulations (CRR) and takes into account the netting agreements where they exist. A standard loss given default (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 available-for-sale and investments at fair value through profit or loss

Available-for-sale investments and investments at fair value through profit or loss 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 funding cost and the cost of capital.

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 the Company. The fair values of deposits repayable on demand and deposits protected by the Deposit Protection Guarantee Scheme are approximated by their carrying values.

Repurchase agreements

Repurchase agreements are collateralised bank takings. Given that the collateral provided by the Group is greater than the amount borrowed, the fair value calculation of these repurchase agreements only takes into account the time value of money.

15. Fair value measurement (continued)

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 credit spread of each counterparty. For short-term lending, the fair value is approximated by the carrying value.

Deposits by banks

Since almost all deposits by banks are very short-term, the fair value is an approximation of the carrying value.

Subordinated loan stock

The current issue is liquid with observable quoted prices in active markets.

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 assets and liabilities recorded at fair value, by level of the fair value hierarchy:

	Level 1	Level 2	Level 3	Total
30 June 2017	€000	€000	€000	€000
Financial assets
Trading derivatives
Forward exchange rate contracts	-	210	-	210
Currency swaps	-	2,575	-	2,575
Interest rate swaps	-	180	-	180
Currency options	-	7	-	7
	-	2,972	-	2,972
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps	-	4,199	-	4,199
Net investments-forward exchange rate contracts	-	473	-	473
	-	4,672	-	4,672

Investments at fair value through profit or loss
Trading investments	11,452	-	644	12,096
Other investments at fair value through profit or loss	19,446	750	161	20,357
	30,898	750	805	32,453
Investments available-for-sale	797,581	42	17,790	815,413
	828,479	8,436	18,595	855,510

For available-for-sale equity securities categorised as Level 3, for one investment with a carrying amount of €9,703 thousand, a change in the conversion factor by 10% would result in a change in the value of the equity securities by €970 thousand.

15. Fair value measurement (continued)

		Level 1		Level 2		Level 3		Total
30 June 2017		€000		€000		€000		€000
Financial liabilities
Trading derivatives
Forward exchange rate contracts		-		283		-		283
Currency swaps		-		24,556		-		24,556
Interest rate swaps		-		943		-		943
Currency options		-		372		-		372
		-		26,154		-		26,154
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps		-		46,038		-		46,038
Net investment-forward exchange rate contracts		-		1,304		-		1,304
		-		47,342		-		47,342
	-		73,496		-		73,496

31 December 2016
Financial assets
Trading derivatives
Forward exchange rate contracts	-		794		-		794
Currency swaps	-		15,875		-		15,875
Interest rate swaps	-		480		-		480
Currency options	-		85		-		85
	-		17,234		-		17,234
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps	-		87		-		87
Net investments-forward exchange rate contracts	-		3,514		-		3,514
	-		3,601		-		3,601
Investments at fair value through profit or loss
Trading investments	11,787		-		686		12,473
Other investments at fair value through profit or loss	19,189		11,176		178		30,543
	30,976		11,176		864		43,016
Investments available-for-sale	545,898		41		16,615		562,554
	576,874		32,052		17,479		626,405

For available-for-sale equity securities categorised as Level 3, for one investment with a carrying amount of €8,740 thousand, a change in the conversion factor by 10% would result in a change in the value of the equity securities by €874 thousand.

15. Fair value measurement (continued)

	Level 1	Level 2	Level 3	Total
31 December 2016	€000	€000	€000	€000
Financial liabilities
Trading derivatives
Forward exchange rate contracts	-	589	-	589
Currency swaps	-	8,215	-	8,215
Interest rate swaps	-	1,901	-	1,901
Currency options	-	198	-	198
	-	10,903	-	10,903
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps	-	37,463	-	37,463
Net investments-forward exchange rate contracts	-	259	-	259
	-	37,722	-	37,722
	-	48,625	-	48,625

During the six months ended 30 June 2017 and during the year 2016 there were no significant transfers between Level 1 and Level 2.

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

	2017	2016
	€000	€000
1 January	17,479	55,253
Additions	23	13,867
Disposals and write offs	(100)	(51,937)
Net gains from fair value changes recognised in the consolidated statement of comprehensive income	1,279	485
Realised losses recognised in the consolidated income statement	(88)	-
Foreign exchange adjustments	2	(189)
30 June/31 December	18,595	17,479

16. Loans and advances to customers

	30 June 2017	31 December 2016
	€000	€000
Gross loans and advances to customers	18,671,907	19,201,642
Provisions for impairment of loans and advances to customers (Note 27)	(3,779,246)	(3,552,241)
	14,892,661	15,649,401

Additional analysis and information regarding credit risk and analysis of the provisions for impairment of loans and advances to customers are set out in Note 27.

17. Stock of property

The carrying value of stock 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 2017 an impairment loss of €13,484 thousand was recognised in 'Impairment of non-financial instruments' in the consolidated income statement arising from measuring items at lower of cost and net realisable value. At 30 June 2017, stock of €491,422 thousand (31 December 2016: €608,985 thousand) is carried at net realisable value which is approximately the 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. The stock of property pledged as collateral for central bank funding facilities under Eurosystem monetary policy operations and ELA amounts to €20,963 thousand (31 December 2016: €22,055 thousand).

The carrying value of the stock of property is analysed in the tables below.

	2017	2016
	€000	€000
1 January	1,427,272	515,858
Acquisition of subsidiary	-	75,632
Additions	229,247	1,010,059
Disposals	(141,108)	(139,316)
Transfer (to)/from own use properties	(129)	1,371
Impairment (Note 10)	(13,484)	(36,220)
Foreign exchange adjustments	(67)	(112)
30 June/31 December	1,501,731	1,427,272

Analysis by type and country	Cyprus	Greece	Romania	Total
30 June 2017	€000	€000	€000	€000
Residential properties	115,230	31,700	8,564	155,494
Offices and other commercial properties	279,392	53,821	10,091	343,304
Manufacturing and industrial properties	87,022	52,630	510	140,162
Hotels	63,504	540	-	64,044
Land (fields and plots)	784,948	5,478	7,471	797,897
Properties under construction	830	-	-	830
Total	1,330,926	144,169	26,636	1,501,731

31 December 2016
Residential properties	90,308	36,810	9,641	136,759
Offices and other commercial properties	256,152	55,676	12,340	324,168
Manufacturing and industrial properties	81,572	53,735	511	135,818
Hotels	74,578	544	-	75,122
Land (fields and plots)	739,058	5,732	9,824	754,614
Properties under construction	791	-	-	791
Total	1,242,459	152,497	32,316	1,427,272

18. Prepayments, accrued income and other assets

	30 June 2017	31 December 2016
	€000	€000
Receivables relating to disposal of operations	42,781	57,056
Reinsurers' share of insurance contract liabilities	48,542	49,973
Taxes refundable	35,008	33,582
Debtors	25,044	24,571
Prepaid expenses	1,775	1,765
Retirement benefit plan assets	1,183	668
Other assets	89,947	102,296
	244,280	269,911

As at 30 June 2017 and 31 December 2016, the receivables relating to disposal of operations related to the disposal of the Ukrainian operations during 2014 which are secured and repayable in June 2019.

During the six months ended 30 June 2017, an impairment of €911 thousand was recognised in relation to other assets (corresponding period of 2016: reversal of impairment loss of €2,625 thousand) (Note 10).

19. Non-current assets held for sale

	30 June 2017	31 December 2016
	€000	€000
Non-current assets held for sale:
- investment properties	11,382	11,411
- loans and advances to customers	20,179	-
	31,561	11,411

The following non-current assets were classified as held for sale as at 30 June 2017 and 31 December 2016:

Investment properties

The investment properties classified as held for sale are properties which management is committed to sell and has proceeded with an active programme to complete this plan. The disposals are expected to take place within 12 months from the date of classification. Investment properties classified as held for sale are measured at fair value. The results of the fair value changes are presented within '(Losses)/gains from revaluation and disposal of investment properties' in the consolidated income statement and are within the Cyprus or UK operating segments for investment properties in Cyprus and in the UK and in the Other countries operating segment for Greek and Romania investment properties.

Loans and advances to customers

The loans and advances to customers classified as held for sale are loans and advances which management is committed to sell and has proceeded with an active programme to complete this plan. The plan is expected to be completed within 12 months from the classification date. Further information is disclosed in Note 27.

20. Funding from central banks

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

	30 June 2017	31 December 2016
	€000	€000
Emergency Liquidity Assistance (ELA)	-	200,014
Main Refinancing Operations (MRO)	30,000	-
Longer-Term Refinancing Operations (LTRO)	40,000	50,000
Targeted Longer-Term Refinancing Operations (TLTRO)	830,000	600,000
	900,000	850,014

As at 30 June 2017, ECB funding was at €900 million of which €30 million was from the weekly MRO, €40 million was from the 3-month LTRO and €830 million was from the 4-year TLTRO II.

The interest rate applied to TLTRO II will be fixed for each operation at the rate applied in the MRO prevailing at the time of allotment and is subject to a lower rate for counterparties whose eligible net lending in the pre-specified period exceeds their benchmark. This lower rate will be linked to the interest rate on the deposit facility prevailing at the time of the allotment of each operation.

ELA funding was repaid in full by BOC PCL on 5 January 2017.

Details on encumbered assets related to the above funding facilities are disclosed in Note 29.

21. Customer deposits

	30 June 2017	31 December 2016
	€000	€000
By type of deposit
Demand	5,922,807	6,182,096
Savings	1,109,629	1,061,786
Time or notice	9,551,362	9,265,859
	16,583,798	16,509,741
By geographical area
Cyprus	15,010,106	15,043,362
United Kingdom	1,570,261	1,464,651
Romania	3,431	1,728
	16,583,798	16,509,741
By currency
Euro	12,827,176	12,397,828
US Dollar	1,797,257	2,201,980
British Pound	1,805,319	1,690,118
Russian Rouble	40,782	92,472
Romanian Lei	3,379	1,669
Swiss Franc	9,505	18,087
Other currencies	100,380	107,587
	16,583,798	16,509,741

21. Customer deposits (continued)

By customer sector	Cyprus	United Kingdom	Romania	Total
30 June 2017	€000	€000	€000	€000
Corporate	1,382,851	49,419	3,252	1,435,522
SMEs	630,626	201,540	76	832,242
Retail	8,038,945	1,319,302	103	9,358,350
Restructuring
- Corporate	115,721	-	-	115,721
- SMEs	39,494	-	-	39,494
Recoveries
- Corporate	7,956	-	-	7,956
International banking services	4,096,277	-	-	4,096,277
Wealth management	698,236	-	-	698,236
	15,010,106	1,570,261	3,431	16,583,798
31 December 2016
Corporate	1,184,681	53,457	1,446	1,239,584
SMEs	566,172	204,166	178	770,516
Retail	7,778,136	1,207,028	104	8,985,268
Restructuring
- Corporate	192,442	-	-	192,442
- SMEs	27,685	-	-	27,685
Recoveries
- Corporate	11,176	-	-	11,176
International banking services	4,494,755	-	-	4,494,755
Wealth management	788,315	-	-	788,315
	15,043,362	1,464,651	1,728	16,509,741

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

22. Subordinated loan stock

Contractual interest rate

30 June

2017

31 December

2016

€000

Subordinated Tier 2 Capital Note

9.25%

256,503

BOC PCL maintains a Euro Medium Term Note (ΕΜΤΝ) Programme with an aggregate nominal amount up to €4,000 million.

In January 2017, BOC PCL issued a €250 million unsecured and subordinated Tier 2 Capital Note (Note) under BOC PCL's EMTN Programme. The Note was priced at par with a coupon of 9.25% payable in January, yearly. 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.

23. Accruals, deferred income and other liabilities

Other liabilities at 30 June 2017 include retirement benefit plan liabilities of €20,759 thousand (31 December 2016: €22,776 thousand) and provisions for pending litigations, claims and regulatory matters of €81,313 thousand (31 December 2016: €48,882 thousand) for which the movement is presented below.

23.1 Provisions for pending litigation, claims and regulatory matters

The movement for the period in the provisions for pending litigation, claims and regulatory matters is as follows:

	2017	2016
	€000	€000
1 January	48,882	34,749
Increase of provisions during the period (Note 9)	36,149	4,533
Utilisation of provisions	(2,008)	(7,813)
Release of provisions during the period (Note 9)	(1,220)	(4,724)
Foreign exchange adjustments	(490)	(95)
30 June	81,313	26,650

The provisions for pending litigation, claims and regulatory matters are analysed as follows:

	2017	2016
	€000	€000
Pending litigation or claims	37,525	25,234
Regulatory matters	43,788	23,648
30 June/31 December	81,313	48,882

The recognition of provisions for pending litigation, claims and regulatory matters is determined in accordance with the accounting policies set out in Note 2.30.1 of the Annual Consolidated Financial Statements of BOC group for the year ended 31 December 2016, as detailed in Note 3.4.

23. Accruals, deferred income and other liabilities (continued)

23.2 Pending litigation, claims and regulatory matters

The Group in the ordinary course of business is subject to enquiries and examinations, requests for information, audits, investigations and 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 is 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. 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 matters as at 30 June 2017 and hence it is not believed that such matters, when concluded, will have a material impact upon the financial position of the Group.

23.2.1 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 officers 'persuaded' them to proceed with the purchase and/or purported to offer 'investment advice', BOC PCL may face significant difficulties. To date, a small 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. Provision has been made based on management's best estimate of probable outflows and based on advice of legal counsel.

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) 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.

23. Accruals, deferred income and other liabilities (continued)

23.2 Pending litigation, claims and regulatory matters (continued)

23.2.1 Pending litigation and claims (continued)

Shareholders

Numerous claims were filed by shareholders in 2013 (some of whom were shareholders of BOC PCL) 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. It is expected that actions for damages will be instituted by the shareholders in due course before the District Courts of Cyprus.

Claims based on set-off

Certain claims have been filed by customers against BOC PCL alleging that the implementation of the bail-in under the Bail-in Decrees was not carried out correctly in relation to them and, in particular, that their rights of set-off were not properly respected. BOC PCL intends to contest such claims.

Laiki Bank depositors and shareholders

BOC PCL has been joined as a defendant with regards to certain claims which have been brought against Laiki Bank by its depositors, shareholders and holders of debt securities. These claims have been brought on grounds similar to the claims brought by BOC PCL's bailed-in depositors and shareholders as described above. BOC PCL, inter alia, maintains the position that it should not be a party to these proceedings.

Implementation of Decrees

Occasionally, other claims are brought against BOC PCL in respect of the implementation of the Decrees issued following the adoption of the Resolution Law (as regards the way and methodology whereby such Decrees have been implemented).

Legal position of the Group

All 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, however at this stage the Group does not expect a material impact on its financial position.

Employment litigation

Former senior officers of BOC PCL have instituted a total of three claims for unfair dismissal and for Provident Fund entitlements against BOC PCL and Trustees of the Provident Fund. As at the present date one case had been dismissed as filed out of time, but the plaintiff has appealed against this ruling. The Group does not consider that these cases will have a material impact upon its financial position.

23. Accruals, deferred income and other liabilities (continued)

23.2 Pending litigation, claims and regulatory matters (continued)

23.2.1 Pending litigation and claims (continued)

Greek case

In connection with a legal dispute (one case by BOC PCL against Themis and one by Themis against BOC PCL) relating to the BOC PCL's discontinued operations in Greece (Themis case), a provision was recognised in previous periods (30 September 2014: €38,950 thousand) following a court judgement of the Athens Court of Appeal (dismissing BOC PCL's case and upholding the Themis case). This provision was reversed as at 31 December 2014 following the dismissal of the judgement by the Greek Supreme Court in March 2015. The Supreme Court further ruled that these claims (BOC PCL 's claim against Themis for approximately €25 million which had been transferred to Piraeus Bank SA in March 2013, as well as Themis' claim against BOC PCL for a similar amount) are reconsidered by the Supreme Court on the merits at the instigation of the affected party. Both cases were heard in December 2016 and the court reserved its judgement. The Group does not consider that this case will have a material impact upon its financial position.

Swiss Francs loans litigation in Cyprus and UK

A 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 intends to contest such proceedings. The Group does not expect that these actions will have a material impact upon 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 United Kingdom are currently stayed in order for the parties to have time to negotiate possible settlements.

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.

The Attorney General has filed a criminal case against BOC PCL and five former members of the Board of Directors for alleged breach of Article 302 (conspiracy to defraud) of Cyprus' criminal code and Article 19 of the Manipulation of Insider Information and Market Manipulation (Market Abuse) Law. The alleged offence refers to the non-publication in a timely manner of the increased capital shortfall of BOC PCL in 2012. BOC PCL denies all allegations. The case is pending in court. The maximum penalty on BOC PCL, if found guilty, will be the imposition of a fine that is not expected to have a material impact on the financial position of the Group.

The Attorney General has filed a separate criminal case against BOC PCL and six former members of the Board of Directors of BOC PCL for alleged breach of Article 19 of the Manipulation of Insider Information and Market Manipulation (Market Abuse) Law, with respect to the Greek Government Bonds. The alleged offence refers to the non-disclosure of the purchase of the Greek Government Bonds during a specified period. BOC PCL denies all allegations. The case is pending in court. The maximum penalty on BOC PCL, if found guilty, will be the imposition of a fine that is not expected to have a material impact on the financial position of the Group.

In January 2017 the Attorney General has filed a criminal case against a number of current and former officers of BOC PCL relating to the reclassification of Greek Government Bonds in April 2010. No charges were instituted against BOC PCL in this case.

23. Accruals, deferred income and other liabilities (continued)

23.2 Pending litigation, claims and regulatory matters (continued)

23.2.2 Provisions for 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 Greek Government Bond 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.

Additionally, the HCMC has imposed a fine of €3 thousand on BOC PCL regarding the sale of Greek Government Bonds on behalf of the Greek Government. BOC PCL will consider the decision once served on it and will decide whether or not to file an appeal.

The Cyprus Securities and Exchange Commission (CySEC) Investigations

CySEC investigations concerning possible price manipulation attributable to BOC PCL for the period from 1 November 2009 to 30 June 2010 post the investment in Banca Transylvania and the adequacy of provisions for the impairment of loans and advances in year 2011 were completed and they are currently pending with the CySEC Board.

As the above investigations are in progress or decisions have been reserved, it is not practical at this stage for the Group to estimate reliably the possible consequences thereof, though it is not expected that any resulting liability or damages will have a material impact on the financial position of the Group.

Additionally, in late 2014 CySEC completed an investigation into the value of goodwill in CB Uniastrum Bank LLC disclosed in the interim financial statements of the Group in 2012. In October 2016, CySEC issued a decision, concluding that BOC PCL was in breach of certain laws regarding disclosure in accordance, inter alia, with the Market Manipulation (Market Abuse) Law of 2005 and has imposed an administrative fine upon BOC PCL of €25 thousand. CySEC also imposed higher fines upon certain former members of the Board of Directors and former management of BOC PCL. BOC PCL filed a recourse before the Administrative Court against the decisions of CySEC and the fine imposed upon BOC PCL. In March 2017, CySEC filed a legal action against BOC PCL, claiming the amount of €25 thousand imposed as a fine.

In 2015, CySEC carried out an investigation into the reclassification of Greek Government Bonds in April 2010, which was also completed in 2016 with no findings against BOC PCL.

The investigation regarding the adequacy of provisions for impairment of loans and advances in year 2013 in light of the results of the Asset Quality Review was also completed in 2016 with no finding against BOC PCL.

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 (the 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.

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 staying pending the final outcome of the recourse.

23. Accruals, deferred income and other liabilities (continued)

23.2 Pending litigation, claims and regulatory matters (continued)

23.2.2 Provisions for regulatory matters (continued)

UK regulatory matters

During 2016 BOC group reported on a conduct principle issue for which a provision for €21,508 thousand has been recorded. The level of the provision represents the best estimate of all probable outflows arising from customer redress based on information available to management. Management has continued to reassess the adequacy of the provision, as well as the assumptions underlying the calculations based upon experience and other relevant factors prevailing at that time. A pilot mailing of invitations to complain is in progress to a statistically representative group of customers. The results of this pilot will be used to reassess the adequacy of the provision.

23.3 Other 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 made, based on management's best estimate of probable outflows, where it was assessed that such an outflow is probable.

24. Share capital

	Company		BOC PCL
	30 June 2017		31 December 2016
	Shares (thousand)	€000	Shares (thousand)	€000
Authorised
Ordinary shares of €0.10 each	10,000,000	1,000,000	47,677,593	4,767,759
Issued
1 January	8,922,945	892,294	8,922,945	892,294
Cancellation of shares due to reorganisation	(8,922,945)	(892,294)	-	-
Issue of shares	446,200	44,620	-	-
30 June 2017/31 December 2016	446,200	44,620	8,922,945	892,294

Authorised and issued share capital

2017

The Extraordinary General Meeting (EGM) of the shareholders of BOC PCL held on 13 December 2016 approved a scheme of arrangement between the Company, BOC PCL and its shareholders. The scheme of arrangement introduces the Company as the new holding company of the Group. Additionally the EGM authorised the directors of BOC PCL to take all actions necessary or appropriate to carry the scheme of arrangement into effect. The scheme of arrangement was sanctioned by the District Court of Nicosia on 21 December 2016.

24. Share capital (continued)

Authorised and issued share capital (continued)

2017 (continued)

Following the submission of the Court Order to the Registrar of Companies and the Registration, by the latter, of the reduction of capital, the scheme of arrangement became effective on 18 January 2017. As a result on the same date, the authorised share capital of BOC PCL which amounted to €4,767,759,272.00 divided into 47,677,592,720 ordinary shares with a nominal value of €0.10 each was reduced to €3,875,464,818.70 divided into 38,754,648,453.30 ordinary shares with a nominal value of €0.10 each and its issued share capital which amounted to €892,294,453.30 divided into 8,922,944,533 ordinary shares with a nominal value of €0.10 each was reduced to nil by cancelling all the shares comprising the issued share capital of BOC PCL (the Existing Shares) resulting in the creation of a capital reduction reserve in the accounts of BOC PCL, equal to the aggregate nominal value of the Existing Shares so cancelled, and which shall be retained as a non-distributable capital reserve in accordance with the provisions of subsection (e) of section 64 of the Companies Law, Cap. 113 (the Reduction of Capital).

Following the reduction of the share capital of BOC PCL, the authorised share capital was increased to €4,767,759,272 divided into 47,677,592,720 ordinary shares with a nominal value of €0.10 each through the creation of 8,922,944,533 ordinary shares with a nominal value of €0.10 each, each of which shall have the same rights and shall rank pari passu with the existing ordinary shares of BOC PCL. Also, the reserve arising in the books of account of BOC PCL as a result of the cancellation of the Existing Shares was applied in paying up in full at par 8,922,944,533 new ordinary shares with a nominal value of €0.10 each in the capital of BOC PCL, which were issued and allotted, credited as fully paid, to the Company or its nominee(s) in accordance with the scheme of arrangement.

As mentioned above, all of the shares comprising the issued share capital of BOC PCL were cancelled and BOC PCL issued and allotted 8,922,944,533 new ordinary shares of nominal value €0.10 each, credited as fully paid to the Company; and the Company issued and allotted New Shares and procured the issue of Depositary Interests representing New Shares, in accordance with the terms of the scheme of arrangement. Each one New Share or one Depository Interest represents one New Share for each individual holding of 20 Existing Shares. As a result, the Company issued 446,199,933 ordinary shares with a nominal value of €0.10 each.

2016

There were no changes to the issued share capital during the year 2016.

All issued ordinary shares carry the same rights.

Share premium reserve

2017

As a result of the implementation of the scheme of arrangement, the share premium reserve was created in an amount equal to the difference between the nominal value of the shares issued pursuant to the terms of the scheme of arrangement and the net asset value of BOC PCL.

2016

The share premium reserve was maintained pursuant to the provisions of section 55 of the Companies Law, Cap. 113 and was not available for distribution to equity holders in the form of a dividend.

The share premium as at 31 December 2016 was created in 2014 and 2015 by the issuance of 4,167,234 thousand shares of a nominal value of €0.10 each of a subscription price of €0.24 each, and was reduced by the relevant transaction costs of €30,794 thousand.

Reorganisation of the Group

Following the reorganisation of the Group on 18 January 2017 the Company became the sole shareholder of BOC PCL and consequently the new parent of the Group. This transaction did not result in any change of economic substance and hence did not have any effect on the total equity of the Group. The Group financial results reflect the difference of €558,420 thousand in the amounts of share capital, share premium and capital reduction reserves as an adjustment in equity.

24. Share capital (continued)

Reorganisation of the Group (continued)

As these Financial Statements are a continuation of the consolidated financial statements of the BOC group for the year ended 31 December 2016, the components of equity for the year then ended reflect the capital structure of BOC PCL and following the reorganisation these components of equity reflect the capital structure of the Company.

Capital reduction reserve

2016

The capital reduction reserve was maintained pursuant to the provisions of section 55 of the Companies Law, Cap. 113 and was not available for distribution to equity holders in the form of a dividend.

The capital reduction reserve was created upon the reduction of the nominal value of ordinary shares from €1.00 each to €0.10 each in 2014. The reduction in capital amounted to €4,280,140 thousand, of which an amount of €2,327,654 thousand was applied against accumulated losses and an amount of €1,952,486 thousand was credited to the capital reduction reserve.

Treasury shares of the Company

Shares of the Company held by entities controlled by the Group are deducted from equity on the purchase, sale, issue or cancellation of such shares. No gain or loss is recognised in the consolidated income statement. During 2016 all treasury shares other than those held by the life insurance subsidiary of BOC group have been disposed of.

The life insurance subsidiary of the Group, as at 30 June 2017, held a total of 142 thousand shares of the Company (31 December 2016: 2,889 thousand shares of BOC PCL), 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 2016: €25,333 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 (as approved on 24 November 2015 by the Annual General Meeting of BOC PCL) 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 until the date of replacement of the Long Term Incentive Plan by the Share Option Plan at the level of the Company.

25. Cash and cash equivalents

Cash and cash equivalents comprise:

	30 June 2017	30 June 2016
	€000	€000
Cash and non-obligatory balances with central banks	2,169,718	1,392,577
Treasury bills repayable within three months	20,001	9,992
Loans and advances to banks with original maturity less than three months	538,832	989,911
	2,728,551	2,392,480

25. Cash and cash equivalents (continued)

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

	30 June 2017	31 December 2016
	€000	€000
Cash and non-obligatory balances with central banks	2,169,718	1,363,699
Obligatory balances with central banks	147,579	142,697
Total cash and balances with central banks	2,317,297	1,506,396

Loans and advances to banks with original maturity less than three months	538,832	867,329
Restricted loans and advances to banks	143,107	136,398
Other loans and advances to banks	25,974	84,110
Total loans and advances to banks	707,913	1,087,837

Restricted loans and advances to banks relate to collateral under derivative transactions of €86,743 thousand (31 December 2016: €55,017 thousand) which is not immediately available for use by the Group, but is released once the transactions are terminated.

26. Analysis of assets and liabilities by expected maturity

	30 June 2017			31 December 2016
	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	2,169,828	147,469	2,317,297	1,364,949	141,447	1,506,396
Loans and advances to banks	598,400	109,513	707,913	953,160	134,677	1,087,837
Derivative financial assets	3,325	4,319	7,644	20,590	245	20,835
Investments	60,177	857,646	917,823	76,415	597,229	673,644
Loans and advances to customers	4,350,368	10,542,293	14,892,661	5,546,601	10,102,800	15,649,401
Life insurance business assets attributable to policyholders	15,659	494,067	509,726	19,510	480,023	499,533
Prepayments, accrued income and other assets	105,022	139,258	244,280	110,968	158,943	269,911
Stock of property	637,551	864,180	1,501,731	457,104	970,168	1,427,272
Property, equipment and intangible assets	3,488	428,864	432,352	21	427,835	427,856
Investment properties	-	26,333	26,333	-	38,059	38,059
Investments in associates and joint ventures	-	113,993	113,993	-	109,339	109,339
Deferred tax assets	7,483	376,098	383,581	2,970	447,471	450,441
Non-current assets held for sale	31,561	-	31,561	11,411	-	11,411
	7,982,862	14,104,033	22,086,895	8,563,699	13,608,236	22,171,935
Liabilities
Deposits by banks	334,743	80,007	414,750	354,778	80,008	434,786
Funding from central banks	70,000	830,000	900,000	250,014	600,000	850,014
Repurchase agreements	-	256,234	256,234	-	257,367	257,367
Derivative financial liabilities	26,826	46,670	73,496	9,434	39,191	48,625
Customer deposits	6,110,764	10,473,034	16,583,798	5,367,559	11,142,182	16,509,741
Insurance liabilities	89,694	506,249	595,943	86,002	497,995	583,997
Accruals, deferred income and other liabilities	269,096	113,856	382,952	273,332	62,593	335,925
Subordinated loan stock	-	256,503	256,503	-	-	-
Deferred tax liabilities	16	44,982	44,998	17	45,358	45,375
	6,901,139	12,607,535	19,508,674	6,341,136	12,724,694	19,065,830

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. The latter would be the case where there is secured borrowing, requiring the pledging of bonds and these bonds mature before the maturity of the secured borrowing. The maturity of bonds is then extended to cover the period of the secured borrowing.

26. Analysis of assets and liabilities by expected maturity (continued)

Trading investments are classified in the 'less than one year' time band.

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 impaired loans as defined in

Note 27, net of specific and collective provisions, and the loans which are past due for more than 90 days, are classified in the 'over one year' time band except from expected receipts which are included within time bands, according to historic amounts of receipts in the last months.

Stock of property is classified in the relevant time band based on expectations as to its realisation.

The ELA funding which forms part of the funding from central banks has been included in the 'less than one year' time band as at 31 December 2016, since it was expected to be repaid within one year. Funding under ELA has a contractual maturity of less than one year.

A percentage of customer deposits in Cyprus maturing within one year is transferred in the 'over one year' time band, based on the observed behavioural analysis. In the United Kingdom deposits are classified on the basis of contractual maturities.

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 don't 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.

27. 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 obligations towards the Group.

The Credit Risk department sets the Group's credit disbursement policies and monitors compliance with credit risk policy applicable to each business line and monitors the quality of the Group's loans and advances portfolio through the timely assessment of problematic customers. The credit exposures from related accounts are aggregated and monitored on a consolidated basis.

Credit Risk department, safeguards the effective management of credit risk at all stages of the credit cycle, monitors the quality of decisions and processes and ensures 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 the country in which they operate.

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

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

The Market Risk department assesses the credit risk relating to investments in liquid assets (mainly loans and advances to banks and debt securities) and submits its recommendations for limits to be set for banks and countries to the Assets and Liabilities Committee (ALCO) for approval.

27. Risk management - Credit risk (continued)

Maximum exposure to credit risk and collateral and other credit enhancements

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

	30 June 2017	31 December 2016
	€000	€000
Balances with central banks	2,183,068	1,373,802
Loans and advances to banks (Note 25)	707,913	1,087,837
Trading investments - debt securities	517	476
Debt securities at fair value through profit or loss	-	10,426
Debt securities classified as available-for-sale and loans and receivables	862,203	608,666
Derivative financial instruments (Note 14)	7,644	20,835
Loans and advances to customers (Note 16)	14,892,661	15,649,401
Loans and advances to customers held for sale (Note 19)	20,179	-
Debtors (Note 18)	25,044	24,571
Reinsurers' share of insurance contract liabilities (Note 18)	48,542	49,973
Other assets and receivables relating to disposal of operations	98,874	107,240
On-balance sheet total	18,846,645	18,933,227
Contingent liabilities
Acceptances and endorsements	7,197	7,606
Guarantees	744,239	797,269
Commitments
Documentary credits	25,159	27,636
Undrawn formal stand-by facilities, credit lines and other commitments to lend	2,145,368	2,035,191
Off-balance sheet total	2,921,963	2,867,702
Total credit risk exposure	21,768,608	21,800,929

27. Risk management - Credit risk (continued)

Maximum exposure to credit risk and collateral and other credit enhancements (continued)

The Group's maximum exposure to credit risk is analysed by geographic area as follows:

	30 June 2017	31 December 2016
On-balance sheet	€000	€000
Cyprus	16,970,134	17,067,617
Greece	53,266	57,314
Russia	34,357	40,974
United Kingdom	1,715,423	1,602,229
Romania	73,465	165,093
	18,846,645	18,933,227

Off-balance sheet
Cyprus	2,818,574	2,738,382
Greece	80,278	112,596
Russia	-	-
United Kingdom	22,804	16,327
Romania	307	397
	2,921,963	2,867,702

Total on and off-balance sheet
Cyprus	19,788,708	19,805,999
Greece	133,544	169,910
Russia	34,357	40,974
United Kingdom	1,738,227	1,618,556
Romania	73,772	165,490
	21,768,608	21,800,929

The Group offers guarantee facilities to its customers under which the Group may be required to make payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs.

Letters of credit and guarantee (including standby letters of credit) commit the Group to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Such commitments expose the Group to risks similar to those of loans and advances and are therefore monitored by the same policies and control processes.

Loans and advances to customers

The Credit Risk 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.

27. Risk management - Credit risk (continued)

Maximum exposure to credit risk and collateral and other credit enhancements (continued)

The Group's management 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 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.

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 the 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.

In addition to the above, the Group's overseas subsidiaries must comply with guidelines for large exposures as set by the regulatory authorities of the countries in which they operate.

BOC PCL categorises its loans using the following customer sectors:

· Retail - all personal customers and small businesses with facilities from BOC PCL of up to €260 thousand, excluding professional property loans;

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

· 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.

In addition, Bank of Cyprus UK Ltd defines corporate loans as loans over €1 million. SME loans are loans less than €1 million and retail loans relate to individuals.

Fair value adjustment on initial recognition

The fair value adjustment on initial recognition relates to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans. In accordance with the provisions of IFRS 3, this adjustment has decreased the gross balance of loans and advances to customers. However, for IFRS 7 disclosure purposes as well as for credit risk monitoring, the aforementioned adjustment is not presented within the gross balances of loans and advances.

Loan and advances to customers classified as held for sale

All information presented in this note includes all loans and advances to customers classified as held for sale with a gross value after fair value adjustment on initial recognition of €21,181 thousand.

27. Risk management - Credit risk (continued)

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

Geographical and industry concentrations of Group loans and advances to customers are presented below:

	Cyprus	Greece	United Kingdom	Romania	Russia	Total	Fair value adjustment on initial recognition	Gross loans after fair value adjustment on initial recognition
30 June 2017	€000	€000	€000	€000	€000	€000	€000	€000
By economic activity
Trade	2,068,362	537	12,972	8,525	53,157	2,143,553	(76,746)	2,066,807
Manufacturing	651,046	-	6,939	6,939	24,619	689,543	(21,371)	668,172
Hotels and catering	1,409,114	-	104,787	3,176	-	1,517,077	(65,751)	1,451,326
Construction	2,580,610	-	2,937	12,764	12,252	2,608,563	(177,825)	2,430,738
Real estate	1,932,291	19,495	1,206,359	128,718	1	3,286,864	(86,197)	3,200,667
Private individuals	6,836,528	214	40,545	262	-	6,877,549	(210,040)	6,667,509
Professional and other services	1,234,529	-	58,346	12,025	67,376	1,372,276	(77,818)	1,294,458
Other sectors	975,009	336	1,298	32,541	-	1,009,184	(95,773)	913,411
	17,687,489	20,582	1,434,183	204,950	157,405	19,504,609	(811,521)	18,693,088
By customer sector
Corporate	7,270,080	20,368	1,175,849	194,193	146,831	8,807,321	(396,073)	8,411,248
SMEs	3,902,655	-	229,904	10,498	10,574	4,153,631	(184,508)	3,969,123
Retail
- housing	4,140,815	-	11,401	99	-	4,152,315	(95,781)	4,056,534
- consumer, credit cards and other	2,038,166	214	17,029	160	-	2,055,569	(126,955)	1,928,614
International banking services	280,525	-	-	-	-	280,525	(3,356)	277,169
Wealth management	55,248	-	-	-	-	55,248	(4,848)	50,400
	17,687,489	20,582	1,434,183	204,950	157,405	19,504,609	(811,521)	18,693,088

27. Risk management - Credit risk (continued)

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

	Cyprus	Greece	United Kingdom	Romania	Russia	Total	Fair value adjustment on initial recognition	Gross loans after fair value adjustment on initial recognition
30 June 2017	€000	€000	€000	€000	€000	€000	€000	€000
By business line
Corporate	3,214,853	20,368	1,171,288	127,371	146,831	4,680,711	(87,504)	4,593,207
SMEs	1,343,821	-	229,904	10,295	10,574	1,594,594	(22,037)	1,572,557
Retail
- housing	3,078,673	-	11,401	99	-	3,090,173	(32,915)	3,057,258
- consumer, credit cards and other	1,107,520	214	14,974	160	-	1,122,868	(15,543)	1,107,325
Restructuring
- major corporate	1,461,761	-	-	33,875	-	1,495,636	(101,090)	1,394,546
- corporate	920,056	-	-	-	-	920,056	(11,056)	909,000
- SMEs	1,154,590	-	-	-	-	1,154,590	(43,929)	1,110,661
- retail housing	393,531	-	-	-	-	393,531	(5,687)	387,844
- retail other	199,942	-	-	-	-	199,942	(7,665)	192,277
Recoveries
- corporate	1,673,410	-	4,561	32,947	-	1,710,918	(196,423)	1,514,495
- SMEs	1,404,244	-	-	203	-	1,404,447	(118,542)	1,285,905
- retail housing	668,611	-	-	-	-	668,611	(57,179)	611,432
- retail other	730,704	-	2,055	-	-	732,759	(103,747)	629,012
International banking services	280,525	-	-	-	-	280,525	(3,356)	277,169
Wealth management	55,248	-	-	-	-	55,248	(4,848)	50,400
	17,687,489	20,582	1,434,183	204,950	157,405	19,504,609	(811,521)	18,693,088

Restructuring major corporate business line includes customers with exposures over €100,000 thousand, whereas restructuring corporate business line includes customers with exposures between €6,000 thousand and €100,000 thousand.

27. Risk management - Credit risk (continued)

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

	Cyprus	Greece	United Kingdom	Romania	Russia	Total	Fair value adjustment on initial recognition	Gross loans after fair value adjustment on initial recognition
31 December 2016	€000	€000	€000	€000	€000	€000	€000	€000
By economic activity
Trade	2,044,324	-	13,964	11,141	55,100	2,124,529	(87,576)	2,036,953
Manufacturing	658,811	-	7,133	7,735	25,396	699,075	(25,734)	673,341
Hotels and catering	1,302,543	-	112,773	3,263	-	1,418,579	(62,665)	1,355,914
Construction	2,874,331	-	3,181	75,918	12,793	2,966,223	(210,436)	2,755,787
Real estate	2,022,559	19,599	1,056,924	200,825	6,934	3,306,841	(114,140)	3,192,701
Private individuals	6,980,383	214	45,557	3,093	-	7,029,247	(227,057)	6,802,190
Professional and other services	1,332,250	-	54,865	12,458	97,148	1,496,721	(80,501)	1,416,220
Other sectors	1,054,255	337	1,361	32,927	-	1,088,880	(120,344)	968,536
	18,269,456	20,150	1,295,758	347,360	197,371	20,130,095	(928,453)	19,201,642
By customer sector
Corporate	7,517,473	19,936	1,040,941	334,440	179,293	9,092,083	(481,340)	8,610,743
SMEs	4,100,298	-	222,337	12,641	11,144	4,346,420	(202,240)	4,144,180
Retail
- housing	4,202,358	-	13,314	100	-	4,215,772	(100,509)	4,115,263
- consumer, credit cards and other	2,064,802	214	19,166	179	6,934	2,091,295	(135,350)	1,955,945
International banking services	321,571	-	-	-	-	321,571	(3,619)	317,952
Wealth management	62,954	-	-	-	-	62,954	(5,395)	57,559
	18,269,456	20,150	1,295,758	347,360	197,371	20,130,095	(928,453)	19,201,642

27. Risk management - Credit risk (continued)

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

	Cyprus	Greece	United Kingdom	Romania	Russia	Total	Fair value adjustment on initial recognition	Gross loans after fair value adjustment on initial recognition
31 December 2016	€000	€000	€000	€000	€000	€000	€000	€000
By business line
Corporate	2,557,653	19,936	1,036,331	237,203	165,592	4,016,715	(71,064)	3,945,651
SMEs	1,377,837	-	222,337	12,442	11,144	1,623,760	(29,071)	1,594,689
Retail
- housing	3,531,293	-	13,314	100	-	3,544,707	(40,640)	3,504,067
- consumer, credit cards and other	1,317,434	214	17,617	179	-	1,335,444	(26,435)	1,309,009
Restructuring
- major corporate	2,080,586	-	-	33,947	-	2,114,533	(156,190)	1,958,343
- corporate	1,014,853	-	-	-	-	1,014,853	(22,795)	992,058
- SMEs	1,219,572	-	-	-	-	1,219,572	(50,393)	1,169,179
Recoveries
- corporate	1,864,381	-	4,610	63,290	13,701	1,945,982	(231,291)	1,714,691
- SMEs	1,502,889	-	-	199	-	1,503,088	(122,776)	1,380,312
- retail housing	671,065	-	-	-	-	671,065	(59,869)	611,196
- retail other	747,368	-	1,549	-	6,934	755,851	(108,915)	646,936
International banking services	321,571	-	-	-	-	321,571	(3,619)	317,952
Wealth management	62,954	-	-	-	-	62,954	(5,395)	57,559
	18,269,456	20,150	1,295,758	347,360	197,371	20,130,095	(928,453)	19,201,642

The loans and advances to customers in Cyprus include lending exposures to Greek entities granted by BOC PCL in Cyprus in its normal course of business with a carrying value of €67,009 thousand (31 December 2016: €82,154 thousand) and lending exposures in Cyprus with collaterals in Greece with a carrying value of €105,562 thousand (31 December 2016: €106,968 thousand). Additionally as at 30 June 2017, the loans and advances to customers in Cyprus include lending exposures to Serbian entities or with collaterals in Serbia with a carrying value of €15,000 thousand (31 December 2016: €9,700 thousand).

27. Risk management - Credit risk (continued)

Currency concentration of loans and advances to customers

	Cyprus	Greece	United Kingdom	Romania	Russia	Total	Fair value adjustment on initial recognition	Gross loans after fair value adjustment on initial recognition
30 June 2017	€000	€000	€000	€000	€000	€000	€000	€000
Euro	16,835,586	20,582	227	203,426	16,072	17,075,893	(780,911)	16,294,982
US Dollar	129,527	-	442	-	44,303	174,272	(5,713)	168,559
British Pound	71,586	-	1,423,053	90	-	1,494,729	(456)	1,494,273
Russian Rouble	197	-	-	-	97,030	97,227	(1)	97,226
Romanian Lei	-	-	-	1,434	-	1,434	-	1,434
Swiss Franc	579,995	-	2,293	-	-	582,288	(21,012)	561,276
Other currencies	70,598	-	8,168	-	-	78,766	(3,428)	75,338
	17,687,489	20,582	1,434,183	204,950	157,405	19,504,609	(811,521)	18,693,088
31 December 2016
Euro	17,202,680	20,150	229	345,931	16,079	17,585,069	(882,038)	16,703,031
US Dollar	217,503	-	490	-	73,457	291,450	(10,281)	281,169
British Pound	41,312	-	1,276,658	88	-	1,318,058	(538)	1,317,520
Russian Rouble	142	-	-	-	107,835	107,977	(1)	107,976
Romanian Lei	1	-	-	1,341	-	1,342	-	1,342
Swiss Franc	719,584	-	7,570	-	-	727,154	(31,170)	695,984
Other currencies	88,234	-	10,811	-	-	99,045	(4,425)	94,620
	18,269,456	20,150	1,295,758	347,360	197,371	20,130,095	(928,453)	19,201,642

27. Risk management - Credit risk (continued)

Credit quality of loans and advances to customers

The following table presents the credit quality of the Group's loans and advances to customers:

	30 June 2017			31 December 2016
	Gross loans before fair value adjustment on initial recognition	Fair value adjustment on initial recognition	Gross loans after fair value adjustment on initial recognition	Gross loans before fair value adjustment on initial recognition	Fair value adjustment on initial recognition	Gross loans after fair value adjustment on initial recognition
	€000	€000	€000	€000	€000	€000
Neither past due nor impaired	11,154,272	(189,368)	10,964,904	10,990,773	(166,185)	10,824,588
Past due but not impaired	2,209,562	(33,703)	2,175,859	2,238,127	(38,743)	2,199,384
Impaired	6,140,775	(588,450)	5,552,325	6,901,195	(723,525)	6,177,670
	19,504,609	(811,521)	18,693,088	20,130,095	(928,453)	19,201,642

Past due loans are those with delayed payments or in excess of authorised credit limits. Impaired loans are those for which a provision for impairment has been recognised on an individual basis or for which incurred losses exist at their initial recognition or customers in Debt Recovery.

During the six months ended 30 June 2017 the total non-contractual write-offs recorded by the Group amounted to €245,452 thousand (year 2016: €517,694 thousand). The remaining gross loan balance of these customers as at 30 June 2017 was €150,477 thousand (31 December 2016: €305,591 thousand), of which €23,171 thousand (31 December 2016: €19,651 thousand) were past due for more than 90 days but not impaired and €99,572 thousand (31 December 2016: €130,964 thousand) were impaired.

Loans and advances to customers that are past due but not impaired

	30 June 2017	31 December 2016
Past due analysis:	€000	€000
- up to 30 days	467,401	455,394
- 31 to 90 days	322,186	375,161
- 91 to 180 days	216,789	128,675
- 181 to 365 days	201,129	140,714
- over one year	1,002,057	1,138,183
	2,209,562	2,238,127

The fair value of the collateral that the Group holds (to the extent that it mitigates credit risk) in respect of loans and advances to customers that are past due but not impaired as at 30 June 2017 is
€1,792,138 thousand (31 December 2016: €1,762,528 thousand). The fair value of the collateral is capped to the gross carrying value of the loans and advances to customers.

27. Risk management - Credit risk (continued)

Credit quality of loans and advances to customers (continued)

Impaired loans and advances to customers

	30 June 2017		31 December 2016
	Gross loans and advances	Fair value of collateral	Gross loans and advances	Fair value of collateral
	€000	€000	€000	€000
Cyprus	5,747,583	3,514,466	6,384,503	3,953,086
Greece	20,368	18,215	19,936	17,962
Russia	157,405	13,687	196,144	87,381
United Kingdom	12,209	4,603	12,041	7,213
Romania	203,210	51,407	288,571	54,436
	6,140,775	3,602,378	6,901,195	4,120,078

The fair value of the collateral presented above has been computed based on the extent that the collateral mitigates credit risk and has been capped to the gross carrying value of the loans and advances to customers.

	30 June 2017	31 December 2016
Impaired:	€000	€000
- no arrears	408,465	471,855
- up to 30 days	15,236	62,119
- 31 to 90 days	13,842	29,201
- 91 to 180 days	50,653	49,572
- 181 to 365 days	91,233	51,438
- over one year	5,561,346	6,237,010
	6,140,775	6,901,195

Interest income on impaired loans

Interest income from loans and advances to customers includes interest on the recoverable amount of impaired loans and advances to customers amounting to €74,730 thousand (corresponding period of 2016: €102,377 thousand).

27. Risk management - Credit risk (continued)

Provision for impairment of loans and advances to customers, including loans and advances to customers held for sale

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

	Cyprus	United Kingdom	Other countries	Total
2017	€000	€000	€000	€000
1 January	3,170,161	10,782	371,298	3,552,241
Transfer between geographical areas	23	(23)	-	-
Foreign exchange and other adjustments	42,927	(128)	(6,012)	36,787
Applied in writing off impaired loans and advances	(398,684)	(81)	(97,643)	(496,408)
Interest accrued on impaired loans and advances	(57,127)	(2)	(394)	(57,523)
Collection of loans and advances previously written off	3,822	-	2	3,824
Charge for the period (Note 10)	729,051	1,206	11,070	741,327
30 June	3,490,173	11,754	278,321	3,780,248
Individual impairment	2,658,569	9,342	278,315	2,946,226
Collective impairment	831,604	2,412	6	834,022

	Cyprus	United Kingdom	Other countries	Total
2016	€000	€000	€000	€000
1 January	3,731,750	39,394	422,289	4,193,433
Dissolution of subsidiaries	-	(6,154)	-	(6,154)
Acquisition of subsidiary	(8,577)	-	-	(8,577)
Foreign exchange and other adjustments	84,110	(3,441)	1,721	82,390
Applied in writing off impaired loans and advances	(511,826)	(3,699)	(61,647)	(577,172)
Interest accrued on impaired loans and advances	(76,360)	-	(704)	(77,064)
Collection of loans and advances previously written off	445	-	25	470
Charge/(reversal) for the period (Note 10)	152,474	(1,118)	28,402	179,758
30 June	3,372,016	24,982	390,086	3,787,084
Individual impairment	3,014,735	22,171	383,082	3,419,988
Collective impairment	357,281	2,811	7,004	367,096

The above table does not include the fair value adjustments on initial recognition of loans acquired from Laiki Bank and provisions for impairment on financial guarantees and commitments which are part of other liabilities on the balance sheet. The balance of provisions for impairment of loans and advances to customers at 30 June 2017 includes €1,002 thousand for loans and advances to customers classified as held for sale. There were no loans and advances to customers classified as held for sale as at 30 June 2016 or as at 31 December 2016.

27. Risk management - Credit risk (continued)

Provision for impairment of loans and advances to customers, including loans and advances to customers held for sale (continued)

For the calculation of specific provisions, the timing of recovery of collaterals as well as the haircuts used were based on the specific facts and circumstances of each case.

27. Risk management - Credit risk (continued)

Provision for impairment of loans and advances to customers including loans and advances to customers held for sale (continued)

Sensitivity analysis

The Group has performed sensitivity analysis on certain of the loan impairment assumptions relating to the loan portfolio in Cyprus with reference date 30 June 2017. The impact on the provisions for impairment of loans and advances is presented below:

	Increase/(decrease) on provisions for impairment of loans and advances
Change in provisions assumptions:	€000
Increase the timing of recovery from collaterals by 1 year for all customers	127,834
Decrease the timing of recovery from collaterals by 1 year for all customers	(136,845)
Increase haircuts by 5% on all customers	132,929
Decrease haircuts by 5% on all customers	(134,077)
Increase the average expected recovery period by 1 year and decrease of haircuts by 5% on all customers	20
Decrease the average expected recovery period by 1 year and increase haircuts by 5% on all customers	2,286

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 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. As such, it constitutes an objective indicator that requires assessing whether impairment is needed.

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 indicate impairment as by themselves they do not necessarily indicate credit distress affecting payment ability.

Rescheduled loans and advances are those facilities for which the Group has modified the repayment programme (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) and current accounts/overdrafts for which the credit limit has been increased with the sole purpose of covering an excess.

For an account to qualify for rescheduling it must meet certain criteria including that the client's business 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.

27. Risk management - Credit risk (continued)

Forbearance (continued)

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 combination thereof. The Group has developed and deployed 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: the capitalisation of arrears and/or of accrued interest arrears to the principal; that is forbearance of the arrears and addition 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.

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

Long-term restructuring solutions can include the following:

· 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: waiver, temporary or permanent, 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 combination 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.

27. Risk management - Credit risk (continued)

Forbearance (continued)

· 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.

Rescheduled loans and advances to customers

The below tables present the Group's rescheduled loans and advances to customers by industry sector, geography and credit quality classification, as well as impairment provisions and tangible collateral held for rescheduled loans.

27. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

	Cyprus	Greece	Russia	United Kingdom	Romania	Total
2017	€000	€000	€000	€000	€000	€000
1 January	7,401,870	337	83,893	90,323	78,881	7,655,304
New loans and advances rescheduled in the period	270,153	-	-	48,376	4,127	322,656
Assets no longer classified as rescheduled (including repayments)	(658,408)	(1)	(2,218)	(36,142)	(13,926)	(710,695)
Applied in writing off rescheduled loans and advances	(222,091)	-	-	-	(13,000)	(235,091)
Interest accrued on rescheduled loans and advances	154,977	-	-	8	745	155,730
Foreign exchange adjustments	(6,699)	-	(3,441)	(2,394)	(97)	(12,631)
30 June	6,939,802	336	78,234	100,171	56,730	7,175,273
2016
1 January	8,391,624	24,865	138,376	116,232	119,185	8,790,282
New loans and advances rescheduled in the period	708,038	-	-	31,480	20,514	760,032
Assets no longer classified as rescheduled (including repayments)	(781,846)	-	(71,306)	(30,452)	(1,396)	(885,000)
Applied in writing off rescheduled loans and advances	(386,597)	-	-	(278)	(83)	(386,958)
Interest accrued on rescheduled loans and advances	170,695	22	575	346	537	172,175
Foreign exchange adjustments	159	-	11,634	(10,796)	(61)	936
30 June	8,102,073	24,887	79,279	106,532	138,696	8,451,467

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

27. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

Credit quality

	Cyprus	Greece	Russia	United Kingdom	Romania	Total
30 June 2017	€000	€000	€000	€000	€000	€000
Neither past due nor impaired	3,653,747	-	-	85,597	113	3,739,457
Past due but not impaired	1,300,870	-	-	12,601	60	1,313,531
Impaired	1,985,185	336	78,234	1,973	56,557	2,122,285
	6,939,802	336	78,234	100,171	56,730	7,175,273
31 December 2016
Neither past due nor impaired	4,021,923	-	-	85,722	85	4,107,730
Past due but not impaired	1,212,177	-	671	2,509	225	1,215,582
Impaired	2,167,770	337	83,222	2,092	78,571	2,331,992
	7,401,870	337	83,893	90,323	78,881	7,655,304

27. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

Fair value of collateral

	Cyprus	Russia	United Kingdom	Romania	Total
30 June 2017	€000	€000	€000	€000	€000
Neither past due nor impaired	3,299,750	-	85,551	127	3,385,428
Past due but not impaired	1,094,531	-	12,599	-	1,107,130
Impaired	1,435,498	17,760	1,891	25,375	1,480,524
	5,829,779	17,760	100,041	25,502	5,973,082
31 December 2016
Neither past due nor impaired	3,772,578	-	85,661	80	3,858,319
Past due but not impaired	1,021,347	671	2,504	182	1,024,704
Impaired	1,828,036	47,740	1,974	22,060	1,899,810
	6,621,961	48,411	90,139	22,322	6,782,833

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

27. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

Credit risk concentration

	Cyprus	Greece	Russia	United Kingdom	Romania	Total
30 June 2017	€000	€000	€000	€000	€000	€000
By economic activity
Trade	660,763	-	33,930	233	2,325	697,251
Manufacturing	212,956	-	15,988	-	1,392	230,336
Hotels and catering	488,617	-	-	4,347	3,162	496,126
Construction	1,381,037	-	8,435	165	11,361	1,400,998
Real estate	1,023,595	-	-	84,997	38,009	1,146,601
Private individuals	2,408,860	-	-	1,268	60	2,410,188
Professional and other services	416,379	-	19,881	9,161	80	445,501
Other sectors	347,595	336	-	-	341	348,272
	6,939,802	336	78,234	100,171	56,730	7,175,273
By customer sector
Corporate	3,128,248	336	73,131	85,114	55,786	3,342,615
SMEs	1,622,532	-	5,103	13,926	884	1,642,445
Retail
- housing	1,571,103	-	-	-	-	1,571,103
- consumer, credit cards and other	554,099	-	-	1,131	60	555,290
International banking services	61,720	-	-	-	-	61,720
Wealth management	2,100	-	-	-	-	2,100
	6,939,802	336	78,234	100,171	56,730	7,175,273

27. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

Credit risk concentration (continued)

	Cyprus	Greece	Russia	United Kingdom	Romania	Total
30 June 2017	€000	€000	€000	€000	€000	€000
By business line
Corporate	924,822	336	73,131	85,114	51,438	1,134,841
SMEs	421,868	-	5,103	13,926	884	441,781
Retail
- housing	1,135,454	-	-	-	-	1,135,454
- consumer, credit cards and other	325,518	-	-	1,131	60	326,709
Restructuring
- major corporate	951,788	-	-	-	113	951,901
- corporate	728,034	-	-	-	-	728,034
- SMEs	802,252	-	-	-	-	802,252
- retail housing	261,775	-	-	-	-	261,775
- retail other	106,451	-	-	-	-	106,451
Recoveries
- corporate	523,604	-	-	-	4,235	527,839
- SMEs	398,412	-	-	-	-	398,412
- retail housing	173,874	-	-	-	-	173,874
- retail other	122,130	-	-	-	-	122,130
International banking services	61,720	-	-	-	-	61,720
Wealth management	2,100	-	-	-	-	2,100
	6,939,802	336	78,234	100,171	56,730	7,175,273

27. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

Credit risk concentration (continued)

	Cyprus	Greece	Russia	United Kingdom	Romania	Total
31 December 2016	€000	€000	€000	€000	€000	€000
By economic activity
Trade	668,305	-	35,229	261	1,624	705,419
Manufacturing	214,248	-	16,347	-	1,263	231,858
Hotels and catering	619,259	-	-	12,139	3,249	634,647
Construction	1,539,773	-	8,934	176	25,175	1,574,058
Real estate	1,047,280	-	-	69,426	47,192	1,163,898
Private individuals	2,515,157	-	-	996	60	2,516,213
Professional and other services	446,946	-	23,383	7,325	-	477,654
Other sectors	350,902	337	-	-	318	351,557
	7,401,870	337	83,893	90,323	78,881	7,655,304
By customer sector
Corporate	3,418,231	337	78,488	74,987	77,556	3,649,599
SMEs	1,675,528	-	5,405	14,501	1,265	1,696,699
Retail
- housing	1,661,487	-	-	-	-	1,661,487
- consumer, credit cards and other	567,426	-	-	835	60	568,321
International banking services	74,704	-	-	-	-	74,704
Wealth management	4,494	-	-	-	-	4,494
	7,401,870	337	83,893	90,323	78,881	7,655,304

27. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

Credit risk concentration (continued)

	Cyprus	Greece	Russia	United Kingdom	Romania	Total
31 December 2016	€000	€000	€000	€000	€000	€000
By business line
Corporate	711,872	337	78,488	74,987	77,391	943,075
SMEs	464,163	-	5,405	14,501	1,265	485,334
Retail
- housing	1,494,123	-	-	-	-	1,494,123
- consumer, credit cards and other	449,107	-	-	835	60	450,002
Restructuring
- major corporate	1,371,448	-	-	-	165	1,371,613
- corporate	790,600	-	-	-	-	790,600
- SMEs	815,597	-	-	-	-	815,597
Recoveries
- corporate	544,311	-	-	-	-	544,311
- SMEs	395,768	-	-	-	-	395,768
- retail housing	167,364	-	-	-	-	167,364
- retail other	118,319	-	-	-	-	118,319
International banking services	74,704	-	-	-	-	74,704
Wealth management	4,494	-	-	-	-	4,494
	7,401,870	337	83,893	90,323	78,881	7,655,304

27. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

Provisions for impairment

	Cyprus	Greece	Russia	United Kingdom	Romania	Total
30 June 2017	€000	€000	€000	€000	€000	€000
Individual impairment	881,077	336	62,531	1,665	37,327	982,936
Collective impairment	539,867	-	-	409	-	540,276
	1,420,944	336	62,531	2,074	37,327	1,523,212
31 December 2016
Individual impairment	899,178	337	65,297	1,855	59,791	1,026,458
Collective impairment	200,069	-	359	365	2	200,795
	1,099,247	337	65,656	2,220	59,793	1,227,253

28. 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 and security prices. The Market Risk department is responsible for monitoring the risk 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.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. It arises mainly as a result of timing differences on the repricing of assets, liabilities and off-balance sheet items.

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 debt securities issued mostly by governments.

The Group considers that the profile of its market risk has remained similar to the one prevailing at 31 December 2016 as presented in Note 44 of the Αnnual Consolidated Financial Statements of BOC group for the year 2016.

29. 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 or 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 aims to achieve diversified funding sources in addition to the Group's core deposit base, and 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 being 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 almost at every meeting the liquidity position of the Group. Information on inflows/outflows is also provided.

29. Risk management - Liquidity risk and funding (continued)

Management and structure (continued)

The ALCO is responsible for setting the policies for the effective management and monitoring of liquidity across the Group. It also monitors the liquidity position of its major banking units at least monthly. Bank of Cyprus UK Ltd ALCO is responsible for monitoring the liquidity position of the unit and ensuring compliance with the approved policies. Given the current liquidity position of BOC PCL, the ALCO considers the monitoring of liquid assets and the cash inflows/outflows of BOC PCL in Cyprus, to be of utmost importance.

Group Treasury is responsible for liquidity management at Group level and for overseeing the operations of Bank of Cyprus UK Ltd, to ensure compliance with internal and regulatory liquidity policies and provide direction as to the actions to be taken regarding liquidity needs. The Group Treasury also manages the treasury business of Bank of Cyprus Romania, which is in run-down mode. Every unit is responsible for managing its liquidity and targets to finance its own needs in the medium term. Group Treasury assesses on a continuous basis, and informs ALCO at regular time intervals, the adequacy of the liquid assets and takes the necessary actions to enhance the Group's liquidity position.

Liquidity is also monitored daily by Market Risk, which is an independent department responsible to monitor compliance at the level of individual units, as well as at Group level, with both internal policies and limits, and with the limits set by the regulatory authorities in the countries where the Group operates. Market Risk reports to ALCO the regulatory liquidity position of the various units 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 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. The key objectives are to provide the Group with a range of options to ensure its viability in a stress, to set consistent Early Warning and Recovery Indicators and to enable the Group to be adequately prepared to respond to stressed conditions.

Monitoring process

Daily

The daily monitoring of cash flows and highly liquid assets is important to safeguard and ensure the uninterrupted operations of the Group's activities. Market Risk prepares a report for submission to the CBC and ECB/Single Supervisory Mechanism (SSM), indicating the opening and closing liquidity position, net customer movements and other movements analysed by the main currencies. In addition, Group Treasury monitors daily and intraday the customer inflows and outflows in the main currencies used by the Group.

Since May 2016, 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 two-week stress period, and adequate capacity to raise funding under a three month period, under all scenarios.

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

29. Risk management - Liquidity risk and funding (continued)

Monitoring process (continued)

Daily (continued)

The designing of the stress tests followed best practice guidance and was based on the liquidity risk drivers which are recognised internationally by both the Prudential Regulation Authority (PRA) and EBA SREP. 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 by 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 and cash collateral for derivatives and repos.

Weekly

Market Risk prepares a weekly report of Euro and foreign currency liquidity mismatch which is submitted to the CBC.

Monthly

Market Risk prepares reports monitoring compliance with internal and regulatory liquidity ratios, for all banking units and for the Group 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 and deposits by tenor are also presented to the ALCO.

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

Group Treasury prepares a liquidity report which is submitted to the ALCO on a monthly basis. The report indicates the liquidity position of BOC PCL, data on monthly customer flows, as well as other important developments related to liquidity.

Quarterly

The results of the stress testing scenarios prepared daily are reported to ALCO and Board Risk Committee quarterly. Moreover, Market Risk reports the Net Stable Funding Ratio (NSFR), Leverage Ratio to the CBC/ECB quarterly and various other liquidity reports, included in the short-term exercise of the SSM per their SREP guidelines.

Annually

The Group prepares on an annual basis its report on Internal Liquidity Adequacy Assessment Process (ILAAP). Market Risk coordinates the preparation of ICAAP.

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

Liquidity ratios

The Group LCR presented in the table below, 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. It became a minimum standard on 1 July 2015. The minimum requirement began at 60% in 2015, rising in annual steps to reach 100% on 1 January 2018. During 2017 the minimum requirement is 80%.

The Group LCR is calculated monthly by Market Risk and sent to CBC/ECB 15 days after the month end. Following ELA repayment in January 2017, BOC PCL has been concentrating its efforts in increasing liquid assets and thus improving its LCR.

29. Risk management - Liquidity risk and funding (continued)

Liquidity ratios (continued)

The Group's LCR ratio was as follows:

	30 June 2017	31 December 2016
	%	%
End of reporting period	108	49
Average monthly ratio	85	5
Highest monthly ratio	108	49
Lowest monthly ratio	58	0

BOC PCL is currently not in compliance with the local regulatory liquidity requirements (which are expected to be abolished by the year-end) with respect to its operations in Cyprus and therefore is dependent on continuing regulatory forbearance, however the Group is currently in compliance with its regulatory liquidity requirements with respect to the LCR.

As at 30 June 2017 and 31 December 2016 Bank of Cyprus UK Ltd was in compliance with its regulatory liquidity requirements.

Sources of funding

During the six months ended 30 June 2017, the Group's main sources of funding were its deposit base and central bank funding, through the Eurosystem monetary policy operations.

ELA was fully repaid on 5 January 2017 (31 December 2016: €200 million).

The liquidity received from central banks is subject to the relevant regulations and requires qualifying assets as collateral.

The funding via Eurosystem monetary policy operations ranges from short term to long term.

As at 30 June 2017, ECB funding was at €900 million Of which, €30 million was from the weekly MRO, €40 million was from the-3 month LTRO and €830 million was from the 4-year TLTRO.

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. BOC PCL's subsidiary Bank of Cyprus UK Ltd cannot place funds with the Group in excess of maximum limits set by the local regulator.

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 avoid any dividend distribution at this point in time.

29. Risk management - Liquidity risk and funding (continued)

Collateral requirements

The carrying values of the Group's encumbered assets as at 30 June 2017 and 31 December 2016 are summarised below:

	30 June 2017	31 December 2016
	€000	€000
Cash and other liquid assets	146,418	139,975
Investments	334,317	359,813
Loans and advances	2,363,698	2,853,511
Property	92,111	93,574
	2,936,544	3,446,873

Cash is mainly used to cover collateral required for (i) derivatives and repurchase transactions and (ii) trade finance transactions and guarantees issued. It is also used as part of the supplementary assets for the covered bond.

Investments are mainly used as collateral for repurchase transactions with commercial banks as well as supplementary assets for the covered bond.

Loans and advances indicated as encumbered as at 30 June 2017 and 31 December 2016 are mainly used as collateral for funding from the CBC, the covered bond and the ECB.

As at 30 June 2017 no loans and advances to customers were pledged as collateral for ELA (31 December 2016: €787 million). Loans and advances to customers include mortgage loans of a nominal amount €998 million (31 December 2016: €1,002 million) in Cyprus, pledged as collateral for the covered bond issued by BOC PCL in 2011 under the Covered Bond Programme. Furthermore housing loans of a nominal amount €1,186 million (31 December 2016: €765 million) in Cyprus are pledged as collateral for the funding from the ECB (Note 20). At 30 June 2017 BOC PCL's subsidiary Bank of Cyprus UK Ltd has pledged €184 million (31 December 2016: €244 million) of loans and advances to customers with the Funding for Lending Scheme (FLS) of the Bank of England. These are available for use as collateral for the subsidiary's participation in the scheme. As at 30 June 2017 the subsidiary had drawn down Treasury bills of €97 million (31 December 2016: €29 million) under the FLS. These Treasury bills are not recorded on the consolidated balance sheet as ownership remains with the Bank of England.

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. The covered bonds have a maturity date of 18 December 2018, bear interest of 3 months Euribor plus 3.25% on a quarterly basis and are traded on the Luxemburg Bourse. The covered bonds have a conditional Pass-Through structure. All the bonds are held by BOC PCL. The credit rating of the covered bonds was upgraded to an investment grade rating and the covered bond has become eligible collateral for the Eurosystem credit operations. As from 2 October 2015, it has been placed as collateral for accessing funding from the ECB.

Recent developments

The credit ratings of the Republic of Cyprus by the main credit rating agencies continue to be below investment grade. As a result, the ECB does not include Cyprus Government Bonds in its asset purchase programme, or as eligible collateral for Eurosystem monetary operations.

29. Risk management - Liquidity risk and funding (continued)

Recent developments (continued)

Following the full repayment of ELA on 5 January 2017, all ELA collateralised loans have been released, but ELA pledged properties remained pledged as of 30 June 2017. As at 14 July 2017, all ELA pledged properties have been released.

30. 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 shareholder value.

The capital adequacy regulations which govern the Group's operations are established by the CBC/ECB.

The Group complies with the minimum capital requirements (Pillar I and Pillar II).

In addition, the Group's overseas banking subsidiaries comply with the regulatory capital requirements of the local regulators in the countries in which they operate. The insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance including the minimum solvency ratio. The regulated investment firms of the Group comply with the regulatory capital requirements of the CySEC laws and regulations.

Additional information on regulatory capital is disclosed in the Additional Risk and Capital Management Disclosures including Pillar 3 semi-annual disclosures (Unaudited) which are available on the Group's Website www.bankofcyprus.com (Investor Relations).

31. Related party transactions

	30 June 2017	31 December 2016
	€000	€000
Loans and advances:
- members of the Board of Directors and other key management personnel	2,717	2,811
- connected persons	440	458
	3,157	3,269

Deposits:
- members of the Board of Directors and other key management personnel	2,522	2,981
- connected persons	2,850	3,559
	5,372	6,540

The above table does not include period/year-end balances i.e. 30 June 2017 and 31 December 2016 respectively, for members of the Board of Directors and their connected persons who resigned during the period/year.

31. Related party transactions (continued)

Interest income and expense from members of the Board of Directors and connected persons and other key management personnel and connected persons from loans and advances and deposits for the six months ended 30 June 2017 amounted to €43 thousand and €30 thousand respectively (corresponding period of 2016: €55 thousand and €38 thousand respectively). The interest income and expense are disclosed from the date of their appointment.

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 €89 thousand (31 December 2016: €61 thousand). There were also contingent liabilities and commitments to other key management personnel and their connected persons amounting to €400 thousand (31 December 2016: €385 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 2017 amounted to €652 thousand (31 December 2016: €635 thousand).

At 30 June 2017 the Group has a deposit of €90 thousand (31 December 2016: €4,614 thousand) with Piraeus Bank SA, in which Mr Arne Berggren is a non-executive Director. The Group has also provided certain indemnities to Piraeus Bank SA as part of the disposal of Kyprou Leasing SA in 2015.

At 31 December 2016 the Group had an investment in Invesco Euro Short Term Bond Fund, in which Mr Wilbur L. Ross Jr. was an executive Director. The fair value of the investment at 31 December 2016 amounted to €4,047 thousand. Mr Ross resigned from the Board of Directors of the Company on 1 March 2017.

During the six months ended 30 June 2017 premiums of €16 thousand and claims of €17 thousand were paid between the members of the Board of Directors of the Company and their connected persons and the insurance subsidiaries of the Group and commissions amounting to €4 thousand were received by the Group for the provision of investment services.

Additionally, during the six months ended 30 June 2017, BOC PCL has signed an agreement to rent property owned by connected persons to the director Mr Michalis Spanos covering the period from 1 June 2017 to 31 May 2027. The monthly rental expense amounts to €4 thousand commencing from June 2018.

There were no other transactions during the six months ended 30 June 2017 and 2016 with connected persons of the current members of the Board of Directors nor with any members who resigned during the period.

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.

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

In the opinion of the Board of Directors, there have been no related party transactions or changes there in, since the year ended 31 December 2016, that have materially affected the Group's financial position or performance during the six months ended 30 June 2017.

31. Related party transactions (continued)

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

	Six months ended 30 June
	2017	2016
Director emoluments	€000	€000
Executives
Salaries and other short term benefits	1,075	934
Employer's contributions	42	46
Retirement benefit plan costs	94	84
	1,211	1,064
Non-executives
Fees	428	410
Total directors' emoluments	1,639	1,474
Other key management personnel emoluments
Salaries and other short term benefits	1,602	1,524
Termination benefits	-	397
Employer's contributions	119	97
Retirement benefit plan costs	100	82
Total other key management personnel emoluments	1,821	2,100
Total	3,460	3,574

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.

The termination benefits relate to compensation paid to members of the Executive Committee who left the Group under the voluntary exit plan.

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 and Chief Operating Officer.

32. 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 2017 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
The Cyprus Investment and Securities Corporation Ltd (CISCO)	Cyprus	Investment banking, asset management and brokerage	100
General Insurance of Cyprus Ltd	Cyprus	General insurance	100
EuroLife Ltd	Cyprus	Life insurance	100
Kermia Ltd	Cyprus	Property trading and development	100
Kermia Properties & Investments Ltd	Cyprus	Property trading and development	100
Cytrustees Investment Public Company Ltd	Cyprus	Closed-end investment company	54
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 the Company)	Greece	Administration of guarantees and holding of real estate properties	N/A
Bank of Cyprus UK Ltd	United Kingdom	Commercial bank	100
Bank of Cyprus Financial Services Ltd (formerly BOC Financial Services Ltd)	United Kingdom	Financial advisory services	100
BOC Asset Management Romania S.A. (formerly Cyprus Leasing 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
Kyprou Finance (NL) B.V.	Netherlands	Financing services	100
Fortuna Astrum Ltd	Serbia	Problem asset management company	100

In addition to the above companies, at 30 June 2017 BOC PCL had 100% shareholding in the companies listed below whose activity is the ownership and management of immovable property:

32. Group companies (continued)

Cyprus: Timeland Properties Ltd, Cobhan Properties Ltd, Bramwell Properties Ltd, Birkdale Properties Ltd, Newington Properties Ltd, Innerwick Properties Ltd, Ramendi Properties Ltd, Ligisimo Properties Ltd, Polkima Properties Ltd, Nalmosa Properties Ltd, Smooland Properties Ltd, Emovera Properties Ltd, Estaga Properties Ltd, Skellom Properties Ltd, Blodar Properties Ltd, Spaceglowing Properties Ltd, Threefield Properties Ltd, Ecunaland 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, Steparco Ltd, Joberco Ltd, Zecomex Ltd, Domita Estates Ltd, Memdes Estates Ltd, Pamaco Platres Complex Ltd, Vameron Properties Ltd, Thryan Properties Ltd, Otoba Properties Ltd, Edoric Properties Ltd, Canosa Properties Ltd, Silen Properties Ltd, Kernland Properties Ltd, Unduma Properties Ltd, Kimrar Properties Ltd, Jobelis Properties Ltd, Pekiro Properties Ltd, Melsolia Properties Ltd, Nimoland Properties Ltd, Lozzaria Properties Ltd, Koralmon Properties Ltd, Petrassimo Properties Ltd, Kedonian Properties Ltd, Lasteno Properties Ltd, Armozio 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, Canemia Properties Ltd, Wingstreet Properties Ltd, Nolory Properties Ltd, Lynoco Properties Ltd, Fitrus Properties Ltd, Lisbo Properties Ltd, Mantinec Properties Ltd, Syniga Properties Ltd, Colar Properties Ltd, Irisa Properties Ltd, Valiro Properties Ltd, Avolo Properties Ltd, Bracando Properties Ltd, Provezaco Properties Ltd, Hillbay Properties Ltd, Jungax Properties Ltd, Ofraco Properties Ltd, Forenaco Properties Ltd, Vidalaco Properties Ltd, Hovita Properties Ltd, Badrul Properties Ltd, Belaland Properties Ltd, Bothwick Properties Ltd, Fireford Properties Ltd, Citlali Properties Ltd, Endar Properties Ltd, Astromeria Properties Ltd, Orzo Properties Ltd, Basiga Properties Ltd, Regetona Properties Ltd, Arcandello Properties Ltd, Camela Properties Ltd, Nerofarm Properties Ltd, Subworld Properties Ltd, Jongeling Properties Ltd, Introserve Properties Ltd, Alomco Properties Ltd, Cereas Properties Ltd, Fareland Properties Ltd, Sindelaco Properties Ltd, Barosca Properties Ltd, Fogland Properties Ltd, Tebasco Properties Ltd, Dolapo Properties Ltd, Homirova Properties Ltd, Valecross Properties Ltd, Altco Properties Ltd, Forsban Properties Ltd, Marisaco Properties Ltd, Olivero Properties Ltd, Cavadino Properties Ltd, Jaselo Properties Ltd, Elosa Properties Ltd, Garveno Properties Ltd, Flona Properties Ltd, Toreva Properties Ltd, Resoma Properties Ltd, Mostero Properties Ltd, Helal Properties Ltd, Yossi Properties Ltd, Gozala Properties Ltd, Pendalo Properties Ltd, Frontyard Properties Ltd, Bascot Properties Ltd, Bonsova Properties Ltd, Nasebia Properties Ltd, Vanemar Properties Ltd, Garmozy Properties Ltd, Orasmo Properties Ltd, Palmco Properties Ltd, Thermano Properties Ltd, Indene Properties Ltd, Ingane Properties Ltd, Venicous Properties Ltd, Lasmane Properties Ltd, Lorman Properties Ltd, Caruzoco Properties Ltd, Consoly Properties Ltd, Eracor Properties Ltd, Alomnia Properties Ltd, Rulemon Properties Ltd, Thelemic Properties Ltd, Maledico Properties Ltd, Dentorio Properties Ltd, Valioco Properties Ltd, Bascone Properties Ltd, Artozaco Properties Ltd, Elizano Properties Ltd, Letimo Properties Ltd (previously K. Athienitis Kalamon Ltd), Allodica Properties Ltd, Balasec Properties Ltd, Bendolio Properties Ltd, Carnota Properties Ltd, Desogus Properties Ltd, Diafor Properties Ltd, Fantasio Properties Ltd, Kartama Properties Ltd, Nelipo Properties Ltd, Paradexia Properties Ltd, Paramina Properties Ltd, Prosilia Properties Ltd, Nouralia Properties Ltd, Resocot Properties Ltd, Soblano Properties Ltd, Talamon Properties Ltd, Warmbaths Properties Ltd, Weinar Properties Ltd and Zemialand Properties Ltd.

32. Group companies (continued)

Romania: Otherland Properties Dorobanti SRL, Battersee Real Estate SRL, Trecoda Real Estate SRL, Green Hills Properties SRL, Bocaland Properties SRL, Commonland Properties SRL, Romaland Properties SRL, Blindingqueen Properties SRL, Fledgego Properties SRL, Hotel New Montana SRL, Loneland Properties SRL, Imoreth Properties SRL, Inroda Properties SRL, Melgred Properties SRL, Tantora Properties SRL, Zunimar Properties SRL, Allioma Properties SRL and Nikaba Properties SRL.

Further, at 30 June 2017 BOC PCL had 100% shareholding in Obafemi Holdings Ltd, Stamoland Properties Ltd, Gosman Properties Ltd and Unoplan Properties Ltd whose main activities are the holding of shares and other investments and the provision of services and they are registered in Cyprus.

At 30 June 2017 BOC PCL had 100% shareholding in the companies listed below which are reserved to accept property:

Cyprus: Belvesi Properties Ltd, Tavoni Properties Ltd, Demoro Properties Ltd, Primaco Properties Ltd, Amary Properties Ltd, Hamura Properties Ltd, Gileco Properties Ltd, Meriaco Properties Ltd, Venetolio Properties Ltd, Flymoon Properties Ltd, Senadaco Properties Ltd, Intelamon Properties Ltd, Holstone Properties Ltd, Mazima Properties Ltd, Lancast Properties Ltd, Alepar Properties Ltd, Jomento Properties Ltd, Rosalica Properties Ltd, Zandexo Properties Ltd, Calandomo Properties Ltd, Cramonco Properties Ltd, Bigwaive Properties Ltd, Tasabo Properties Ltd, Coeval Properties Ltd, Asianco Properties Ltd, Barway Properties Ltd, Fastflow Properties Ltd, Kenelyne Properties Ltd, Monata Properties Ltd, Pariza Properties Ltd, Riveland Properties Ltd, Secretsky Properties Ltd, Valecast Properties Ltd, Nigora Properties Ltd, Legamon Properties Ltd, Comenal Properties Ltd, Nivoco Properties Ltd, Devoco Properties Ltd, Harimo Properties Ltd, Finacap Properties Ltd, Teresan Properties Ltd and Ganina Properties Ltd.

Romania: Selilar Properties SRL.

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

Cyprus: Otherland Properties Ltd, Pittsburg Properties Ltd, Battersee Properties Ltd, Trecoda Properties Ltd, Bonayia Properties Ltd, Bocaland Properties Ltd, Buchuland Properties Ltd, Commonland Properties Ltd, Romaland Properties Ltd, BC Romanoland Properties Ltd, Blindingqueen Properties Ltd, Fledgego Properties Ltd, Janoland Properties Ltd, Threerich Properties Ltd, Loneland Properties Ltd, Unknownplan Properties Ltd, Frozenport Properties Ltd, Imoreth Properties Ltd, Inroda Properties Ltd, Melgred Properties Ltd, Tantora Properties Ltd, Zunimar Properties Ltd, Selilar Properties Ltd, Mirodi Properties Ltd, Nallora Properties Ltd, Nikaba Properties Ltd, Allioma Properties Ltd, Landanafield Properties Ltd and Hydrobius Properties Ltd.

The Group also holds 100% of the following companies which are inactive:

Cyprus: Laiki Bank (Nominees) Ltd, Fairford Properties Ltd, Thames Properties Ltd, Paneuropean Ltd, Philiki Ltd, Cyprialife Ltd, Imperial Life Assurance Ltd, Philiki Management Services Ltd, Nelcon Transport Co. Ltd, Ilera Properties Ltd, Weinco Properties Ltd, Calomland Properties Ltd, Lameland Properties Ltd, BOC Asset Management Ltd, Renalandia Properties Ltd, Sylvesta Properties Ltd, Crolandia Properties Ltd, Iperi Properties Ltd and Finerose Properties 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.

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

The Group considers that it exercises control over CLR through control of the members of the Board of Directors and is exposed to variable returns through its holding.

32. Group companies (continued)

Dissolution and disposal of subsidiaries

As at 30 June 2017, the following subsidiaries were in the process of dissolution or in the process of being struck off: Samarinda Navigation Co Ltd, Kyprou Securities SA, BOC Ventures Ltd, Salecom Ltd, Diners Club (Cyprus) Ltd, Leasing Finance LLC, Corner LLC, Omiks Finance LLC, Unknownplan Properties SRL, Bank of Cyprus (Channel Islands) Ltd, Buchuland Properties SRL, Frozenport Properties SRL, Janoland Properties SRL, Mirodi Properties SRL, Nallora Properties SRL and Pittsburg Properties SRL.

In accordance with the Group's strategy to exit from overseas non-core operations, the operations of the Bank of Cyprus branch in Romania are expected to be terminated during 2017. The remaining assets and liabilities of the branch are in the process to be transferred to other entities of the Group.

Longtail Properties Ltd and Tefkros Investments Ltd were dissolved during the six months ended 30 June 2017. Moonland Properties Ltd, Lepidoland Properties Ltd, Danoma Properties Ltd, Metin Properties Ltd, Jemina Properties Ltd, Flitous Properties Ltd, Belzeco Properties Ltd, Landeed Properties Ltd, Nabela Properties Ltd, Singleserve Properties Ltd, Consento Properties Ltd, Molla Properties Ltd, Lezanco Properties Ltd, Balisimo Properties Ltd and Tezia Properties Ltd were disposed of during the six months ended 30 June 2017 as part of BOC PCL's strategy to dispose of repossessed properties.

33. Acquisitions and disposals

33.1 Acquisitions and disposals during the six months ended 30 June 2017

There were no acquisitions or disposals during the six months ended 30 June 2017.

33.2 Acquisition during the six months ended 30 June 2016

33.2.1 Acquisition of S.Z. Eliades Leisure Ltd

In the context of its loan restructuring activities, the Group acquired on 15 June 2016 a 70% interest in the share capital of S.Z. Eliades Leisure Ltd in exchange for the settlement of borrowings due from it of a total gross amount of €52,335 thousand. S.Z. Eliades Leisure Ltd operates in land development and the operation of a golf resort in Cyprus. The fair value of the consideration for the acquisition of the 70% share in S.Z. Eliades Leisure Ltd amounts to €43,758 thousand. The acquisition did not include any cash consideration. The Group considers that it controls S.Z. Eliades Leisure Ltd.

The non-controlling interest is measured at the proportionate share of the identifiable net assets acquired.

The fair value of assets and liabilities of S.Z. Eliades Leisure Ltd at the date of acquisition are presented below:

	€000
Assets
Property and equipment	20,308
Stock of property	48,632
Prepayments, accrued income and other assets	580
	69,520
Liabilities
Deferred tax liability	3,807
Accruals, deferred income and other liabilities	3,202
	7,009
Net identifiable assets acquired	62,511
Less non-controlling interest	(18,753)
Net assets acquired	43,758

No cash and cash equivalents were acquired.

33. Acquisitions and disposals (continued)

33.3 Disposal during the six months ended 30 June 2016

33.3.1 Disposal of Kermia Hotels Ltd and adjacent land

In June 2016, the Group completed the sale of 100% of its subsidiary Kermia Hotels Ltd and adjacent land which was classified as a disposal group held for sale as at 31 December 2015.

The carrying value of assets and liabilities disposed of as at the date of their disposal are presented below:

	€000
Assets
Property and equipment	27,130
Prepayments, accrued income and other assets	678
Cash and cash equivalent	1,132
	28,940
Liabilities
Deferred tax liability	3,677
Accruals, deferred income and other liabilities	1,308
	4,985
Total net assets sold	23,955

The cash consideration received amounts to €26,500 thousand and the disposal resulted in a gain of €2,545 thousand.

34. Investments in associates and joint ventures

Carrying value of the investments in associates and joint ventures

	Percentage holding	30 June 2017	31 December 2016
	(%)	€000	€000
CNP Cyprus Insurance Holdings Ltd	49.90	111,689	107,172
Interfund Investments Plc	23.12	2,304	2,167
Aris Capital Management LLC	30.00	-	-
Rosequeens Properties Limited	33.33	-	-
Rosequeens Properties SRL	33.33	-	-
Tsiros (Agios Tychon) Ltd	50.00	-	-
M.S. (Skyra) Vassas Ltd	15.00	-	-
D.J. Karapatakis & Sons Limited	7.50	-	-
Rodhagate Entertainment Ltd	7.50	-	-
Fairways Automotive Holdings Ltd	45.00	-	-
		113,993	109,339

34. Investments in associates and joint ventures (continued)

Investments in associates

The carrying value of Rosequeens Properties Limited, Rosequeens Properties SRL, Aris Capital Management LLC, M.S (Skyra) Vassas Ltd, D.J. Karapatakis & Sons Ltd, Rodhagate Entertainment Ltd and Fairways Automotive Holdings Ltd is restricted to zero.

M.S. (Skyra) Vassas Ltd

Ιn the context of its loan restructuring activities, the Group acquired 15.00% 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.

D.J. Karapatakis & Sons Limited and Rodhagate Entertainment Ltd

Ιn the context of its loan restructuring activities, the Group acquired a 7.50% interest in the share capital of D.J. Karapatakis & Sons Limited and Rodhagate Entertainment Ltd, operating in leisure, tourism, film and entertainment industries in Cyprus. The Group considers that it exercises significant influence over the two companies 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 businesses. The investments are considered to be fully impaired and their value is restricted to zero.

Investment in joint ventures

Tsiros (Agios Tychon) Ltd

The Group holds a 50% 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.

35. Capital commitments

Capital commitments for the acquisition of property, equipment and intangible assets as at 30 June 2017 amount to €12,533 thousand (31 December 2016: €14,830 thousand).

Independent review report to the Bank of Cyprus Holdings plc

Introduction

We have been engaged by the Bank of Cyprus Holdings plc (the "Company" or the "Group") to review interim condensed consolidated financial statements in the mid-year financial report for the six months ended 30 June 2017 which comprises the interim consolidated income statement, the interim consolidated statement of comprehensive income, the interim consolidated balance sheet, the interim consolidated statement of changes in equity, the interim consolidated statement of cash flows and the related Notes 1 to 35. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The mid-year financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the mid-year financial report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.

As disclosed in note 3.3, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this mid-year financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the mid-year financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom and Ireland. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the mid-year financial report for the six months ended 30 June 2017 are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.

Emphasis of Matter

We draw your attention to Note 4 'Going concern' which discusses management's assessment as to the ability of the Company to continue as a going concern and the fact that the Company has acquired the full shareholding of Bank of Cyprus Public Company Limited during the period. Bank of Cyprus Public Company Limited has not consistently maintained compliance with its regulatory liquidity requirements, which indicates the existence of a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern. Our conclusion is not qualified in respect of this matter.

Eoin MacManus

for and on behalf of Ernst & Young

Chartered Accountants and Statutory Audit Firm

28 August 2017

Additional Risk and Capital Management Disclosures, including Pillar 3 semi-annual disclosures

30 June

2017

Additional Risk and Capital Management Disclosures,
including Pillar 3 semi-annual disclosures (Unaudited)

This report includes additional risk and capital management disclosures.

In addition, this report includes information prepared in accordance with the Capital Requirements Regulation (CRR) and amended Capital Requirements Directive IV (CRD IV). The disclosures have been prepared in accordance with the European Banking Authority (EBA) Guidelines on materiality, proprietary and confidentiality and on disclosure frequency under Articles 432(1), 432(2) and 433 of Regulation (EU) No 575/2013 (EBA/2014/14) and EBA Guidelines on disclosure requirements under Part Eight of Regulation (EU) No 575/2013. These disclosures include all those that were early adopted as at 31 December 2016, where they are required to be disclosed on a semi-annual basis.

1. Credit risk

The Central Bank of Cyprus (CBC) issued to credit institutions the Loan Impairment and Provisioning Procedures Directives of 2014 and 2015 (Directive), which provides guidance to banks for loan impairment policy and procedures for provisions. The purpose of this Directive is to ensure that credit institutions have in place adequate provisioning policies and procedures for the identification of credit losses and prudent application of International Financial Reporting Standards (IFRSs) in the preparation of their financial statements. The Directive requires certain disclosures in relation to the loan portfolio quality, provisioning policy and levels of provision. The disclosures required by the Directive, in addition to those presented in Notes 3 and 27 of the interim condensed consolidated financial statements for the period ended 30 June 2017 are set out in the following tables. The tables disclose Non-Performing Exposures (NPEs) based on the definitions of EBA standards.

According to the EBA standards, NPEs are defined as those exposures that satisfy one of the following conditions:

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

(ii) Defaulted or impaired exposures as per the approach provided in the CRR (Article 178).

(iii) Material exposures (as defined below) which are more than 90 days past due.

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

(v) Performing forborne exposures under probation that present more than 30 days past due within the probation period.

Exposures include all on and off balance sheet exposures, except those held for trading, and are categorised as such for their entire amount without taking into account the existence of collateral.

The following materiality criteria are applied:

· When the problematic exposures of a customer that fulfil the NPE criteria set out above are 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 problematic part of the exposure is classified as non-performing.

· Material arrears/excesses are defined as follows:

- Retail exposures:

- Loans: Arrears amount greater than €500 or number of instalments in arrears is greater than one.

- Overdrafts: Excess amount is greater than €500 or greater than 10% of the approved limit.

- Exposures other than retail: Total customer arrears/excesses are greater than €1,000 or greater than 10% of the total customer funded balances.

NPEs may cease to be considered as non-performing only when all of the following conditions are met:

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

(ii) One year has passed since the forbearance measures were extended.

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

Additional Risk and Capital Management Disclosures,
including Pillar 3 semi-annual disclosures (Unaudited)

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				Provision for impairment and fair value adjustment on initial recognition
30 June 2017	Group gross customer loans and advances	Of which NPEs	Of which exposures with forbearance measures		Total provision for impairment and fair value adjustment on initial recognition	Of which NPEs	Of which exposures with forbearance measures
30 June 2017	Group gross customer loans and advances	Of which NPEs	Total exposures with forbearance measures	Of which on NPEs		Of which NPEs	Total exposures with forbearance measures	Of which on NPEs
	€000	€000	€000	€000	€000	€000	€000	€000
General governments	102,363	3,869	4,451	3,605	2,818	2,005	2,021	1,940
Other financial corporations	440,042	330,703	230,988	203,541	189,600	187,131	108,827	107,776
Non-financial corporations	11,177,341	5,793,650	4,612,497	3,079,130	2,998,982	2,887,871	1,315,151	1,264,209
Of which: Small and Medium sized Enterprises (SMEs)	8,637,533	5,067,663	3,583,370	2,577,593	2,615,572	2,533,852	1,092,176	1,054,448
Of which: Commercial real estate²	8,531,363	4,596,972	3,984,733	2,580,276	2,291,355	2,195,816	1,097,869	1,051,583
Non-financial corporations by sector
Construction	2,567,636	1,869,983			998,461
Wholesale and retail trade	2,070,455	992,179			520,293
Accommodation and food service activities	1,438,162	540,202			262,357
Real estate activities	2,848,665	1,173,284			582,690
Manufacturing	673,706	366,388			179,169
Other sectors	1,578,717	851,614			456,012
Households	7,784,863	3,623,759	2,695,789	1,856,286	1,400,369	1,335,066	483,789	466,911
Of which: Residential mortgage loans²	5,319,933	2,498,826	2,082,457	1,414,892	750,055	701,467	296,432	284,238
Of which: Credit for consumption²	1,025,488	535,017	301,052	231,958	282,436	272,979	82,250	78,905
Total on-balance sheet	19,504,609	9,751,981	7,543,725	5,142,562	4,591,769	4,412,073	1,909,788	1,840,836

Note: The above table includes loans and advances classified as held for sale (Note 19 of the Interim Condensed Consolidated Financial Statements for the period ended 30 June 2017).

1. Credit risk (continued)

31 December 2016	Gross loans and advances to customers				Provision for impairment and fair value adjustment on initial recognition
	Group gross customer loans and advances¹	Of which NPEs	Of which exposures with forbearance measures		Total provision for impairment and fair value adjustment on initial recognition	Of which NPEs	Of which exposures with forbearance measures
	Group gross customer loans and advances¹	Of which NPEs	Total exposures with forbearance measures	Of which on NPEs		Of which NPEs	Total exposures with forbearance measures	Of which on NPEs
	€000	€000	€000	€000	€000	€000	€000	€000
General governments	103,626	4,241	4,978	4,073	2,685	1,615	1,861	1,555
Other financial corporations	487,262	372,797	234,505	203,512	220,013	216,926	119,703	119,701
Non-financial corporations	11,590,608	6,818,489	5,052,743	3,738,859	3,020,161	2,932,686	1,211,059	1,178,127
Of which: Small and Medium sized Enterprises²	9,398,025	6,116,979	4,306,269	3,294,185	2,642,367	2,564,855	1,030,218	998,465
Of which: Commercial real estate²	8,951,533	5,535,377	4,413,488	3,252,816	2,240,852	2,168,019	1,004,617	974,143
Non-financial corporations by sector
Construction	2,921,229	2,242,250			1,009,104
Wholesale and retail trade	2,060,864	1,060,451			445,368
Accommodation and food service activities	1,334,040	705,634			262,566
Real estate activities	2,900,224	1,438,774			664,801
Manufacturing	682,641	394,884			165,308
Other sectors	1,691,610	976,496			473,014
Households	7,948,599	3,838,722	2,803,740	1,942,888	1,237,835	1,168,475	334,936	317,645
Of which: Residential mortgage loans²	5,413,446	2,601,852	2,166,098	1,469,563	603,504	551,690	192,535	179,947
Of which: Credit for consumption²	1,062,416	589,843	312,853	242,723	292,588	283,181	65,865	62,917
Total on-balance sheet	20,130,095	11,034,249	8,095,966	5,889,332	4,480,694	4,319,702	1,667,559	1,617,028

_________________________

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

2 The analysis shown in lines 'non-financial corporations' and 'households' is non-additive across 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 Group for further collateral or liquidity requirements. The total encumbered assets of the Group amounted to €2,936,544 thousand as at 30 June 2017 (31 December 2016: €3,446,873 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 be pledged and those that are not readily available to be pledged. As at 30 June 2017, the Group held €13,776,544 thousand (31 December 2016: €12,608,521 thousand) of unencumbered assets that can be pledged and can be used to support potential liquidity funding needs and €3,937,645 thousand (31 December 2016: €4,595,181 thousand) of unencumbered assets that are not readily available to be pledged for funding requirements in their current form.

As at 30 June 2017 no loans and advances to customers were pledged as collateral for Emergency Liquidity Assistance (ELA) (31 December 2016: €787 million). Loans and advances to customers include mortgage loans of a nominal amount €998 million (31 December 2016: €1,002 million) in Cyprus, pledged as collateral for the covered bond issued by Bank of Cyprus Public Company Ltd (BOC PCL) in 2011 under the Covered Bond Programme. Furthermore housing loans of a nominal amount €1,186 million (31 December 2016: €765 million) in Cyprus are pledged as collateral for the funding from the ECB (Note 20 of the interim condensed consolidated financial statements for the period ended 30 June 2017). At 30 June 2017 BOC PCL's subsidiary Bank of Cyprus UK Ltd has pledged €184 million (31 December 2016: €244 million) of loans and advances to customers with the Funding for Lending Scheme (FLS) of the Bank of England. These are available for use as collateral for the subsidiary's participation in the scheme. As at 30 June 2017 the subsidiary had drawn down Treasury bills of €97 million (31 December 2016: €29 million) under the FLS. These Treasury bills are not recorded on the consolidated balance sheet as ownership remains with the Bank of England.

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.

	Encumbered	Unencumbered		Total
30 June 2017	Pledged as collateral	which can be pledged	which are not readily available to be pledged
	€000	€000	€000	€000
Cash and bank placements	146,418	2,565,769	313,023	3,025,210
Investments	334,317	564,448	19,058	917,823
Loans and advances to customers	2,363,698	9,049,189	3,479,774	14,892,661
Non-current assets held for sale	-	11,044	20,517	31,561
Property	92,111	1,586,094	105,273	1,783,478
Total on-balance sheet	2,936,544	13,776,544	3,937,645	20,650,733

31 December 2016
Cash and bank placements	139,975	2,092,643	361,615	2,594,233
Investments	359,813	298,419	15,412	673,644
Loans and advances to customers	2,853,511	8,659,324	4,136,566	15,649,401
Non-current assets and disposal group classified as held for sale	-	11,065	346	11,411
Property	93,574	1,547,070	81,242	1,721,886
Total on-balance sheet	3,446,873	12,608,521	4,595,181	20,650,575

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 and property. These are mainly pledged for the funding facilities under the Eurosystem monetary policy operations and the ELA of the CBC (Note 20 of the interim condensed consolidated financial statements for the six months ended 30 June 2017) and for the covered bond. In the case of ELA, as collateral is not usually released upon repayment of the funding, there may be an inherent buffer which could be utilised for further funding if required. Investments are mainly used as collateral for repurchase transactions with commercial banks as well as supplementary assets for the covered bond (Note 29 of the interim condensed consolidated financial statements for the six months ended 30 June 2017). Encumbered assets include cash and other liquid assets placed with banks as collateral under ISDA/GMRA 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 repurchase transactions and (ii) trade finance transactions and guarantees issued. It is also used as part of the supplementary assets for the covered bond.

Unencumbered assets that are available and can be pledged include Cyprus loans and advances which are less than 90 days past due as well as loans of overseas subsidiaries and branches which are not pledged. Customer loans of overseas subsidiaries and branches cannot be pledged with the CBC as collateral for ELA. Moreover, for some of the overseas subsidiaries and branches, these assets are only available to be pledged for other purposes for the needs of the particular subsidiary/branch and not to provide liquidity to any other entity of the Group. 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 since it is not readily available as collateral.

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 over 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 in the name of the Company or the subsidiary are not considered to be readily available as collateral.

Insurance assets held by Group insurance subsidiaries are not included in the table 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 2017 and 31 December 2016 are as follows:

	Carrying value of encumbered investments	Fair value of encumbered investments	Carrying value of unencumbered investments	Fair value of unencumbered investments
30 June 2017	€000	€000	€000	€000
Equity securities	1,698	1,698	53,405	53,405
Debt securities	332,619	332,619	530,101	534,524
Total investments	334,317	334,317	583,506	587,929

31 December 2016
Equity securities	1,562	1,562	52,514	52,514
Debt securities	358,251	358,454	261,317	262,491
Total investments	359,813	360,016	313,831	315,005

2.2 Liquidity regulation

In addition to the liquidity ratios applicable at each banking location that the Group operates, it has to comply with the Liquidity Coverage Ratio (EU) 2015/61 (LCR). It also monitors its position against the Basel Quantitative Impact Study (QIS) Net Stable Funding Ratio (NSFR). The LCR is designed to promote short-term resilience of a Group's liquidity risk profile by ensuring that it has sufficient high quality liquid resources to survive an acute stress scenario lasting for 30 days. The NSFR has been developed to promote a sustainable maturity structure of assets and liabilities.

The CRR requires phased-in compliance with the LCR standard as from 1 October 2015 with an initial minimum ratio of 60%, increasing to 70% in 2016, 80% in 2017 and 100% as from January 2018. Starting from January 2016, the LCR is calculated monthly based on the final published Delegated Regulation (EU) 2015/61. The Delegated Regulation was enacted in September 2016 and the LCR is calculated under this Regulation.

In October 2014, the Basel Committee on Banking Supervision published a final standard for the NSFR with the minimum requirement to be introduced in January 2018 at 100%. The methodology for calculating the NSFR is based on an interpretation of the Basel standards published in October 2014 and includes a number of assumptions which are subject to change prior to adoption by the European Commission through the CRR.

As at 30 June 2017 the Group is in compliance with its regulatory liquidity requirements with respect to the LCR. On the basis of Regulation (EU) 2015/61 the Group's LCR as at 30 June 2017 was 108% (31 December 2016: 49%); on the basis of Basel QIS standards the Group's NSFR was 102% (31 December 2016: 95%). Following the full repayment of ELA funding on 5 January 2017, the Group is concentrating its efforts to comply with its regulatory liquidity ratios.

Furthermore, BOC PCL and Bank of Cyprus UK Ltd must comply with their local regulatory liquidity ratios. The minimum regulatory liquidity ratios for the operations in Cyprus are set by the CBC. As at 30 June 2017 BOC PCL was not in compliance with the local regulatory liquidity requirements.

2. Liquidity risk and funding (continued)

2.3 Liquidity reserves

Composition of the liquidity reserves	30 June 2017		31 December 2016
	Liquidity reserves	Liquidity reserves of which Delegated Reg. (EU) 2015/61 LCR eligible Level 1	Liquidity reserves	Liquidity reserves of which Delegated Reg. (EU) 2015/61 LCR eligible Level 1
	€000	€000	€000	€000
Cash and balances with central banks	2,297,259	1,975,988	1,505,120	1,146,015
Nostro and overnight placements with banks	403,212	-	423,603	-
Other placements with banks	51,756	-	376,145	-
Liquid investments	563,917	517,454	154,787	256,325
Available ECB Buffer	8,792	-	124,998	-
Other investments	7,437	-	6,340	-
Total	3,332,373	2,493,442	2,590,993	1,402,340

Investments under Liquidity Reserve are shown at market value net of haircut (as prescribed by regulators) in order to reflect the actual liquidity value that can be obtained. The Liquidity Reserves exclude Local Law Government of Cyprus Issues. Liquid investments include off balance sheet Bank of England Treasury Bills acquired by Bank of Cyprus UK Ltd through the encumbrance of customer loans with the Bank of England. Under LCR Liquidity Reserves, all Cyprus Government Bonds remain eligible for inclusion as Level 1 assets given that they are issued by a Member State. LCR does not require liquid assets to be eligible as collateral for central bank operations and are included at market value.

The Liquidity Reserves are managed by Group Treasury.

As at 30 June 2017, ECB funding was at €900 million, of which €30 million was from the weekly MRO, €40 million was from the 3-month LTRO and €830 million was from the 4-year TLTRO II.

In December 2016, BOC PCL borrowed an amount of €600 million through the new series of TLTRO (TLTRO II) announced by the ECB in March 2016 and an amount of €50 million through the LTRO. In March 2017, the €50 million borrowed through the LTRO matured and €40 million was re-borrowed. Moreover, in March 2017, BOC PCL raised an additional €230 million funding from ECB, through TLTRO II, using as collateral a pool of housing loans that satisfy the criteria of the Additional Credit Claims as set out in accordance with the Implementation of the Eurosystem Monetary Policy Framework Directives of 2015 and 2016. In April 2017, an additional €40 million was borrowed through the MRO and in May 2017 €10 million of the MRO was repaid.

2. Liquidity risk and funding (continued)

2.3 Liquidity reserves (continued)

In January 2017, BOC PCL issued a €250 million unsecured and subordinated Tier 2 Capital Note (Note) under BOC PCL's EMTN Programme. The Note was priced at par with a coupon of 9.25%. 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.

3. Minimum Required Own Funds for Credit, Market and Operational Risk

Group's approach to assessing the adequacy of its internal capital

The Group's capital projections are developed with the objective of maintaining capital that is adequate in quantity and quality to support the Group's risk profile, regulatory and business needs.

The Group's capital projections are frequently monitored against relevant internal target capital ratios to ensure they remain appropriate and consider risks to the plan, including possible future regulatory changes.

The overall key pillars, aiming to return the Group to profitability and delivering value to shareholders, whilst maintaining sufficient capital throughout are as follows:

· Materially reduce the level of delinquent loans

· Further improve the funding structure and liquidity ratios

· Maintain an appropriate capital position by internally generating capital

· Focus on the core Cyprus market and on the UK operations

· Achieve a lean operating model

· Deliver value to shareholders and other stakeholders

Overview of RWA

		RWA		Minimum capital requirements
		30 June 2017	31 March 2017	30 June 2017
		€000	€000	€000
1	Credit risk (excluding counterparty credit risk (CCR))	14,581,725	15,720,644	1,166,538
2	Of which the standardised approach	14,581,725	15,720,644	1,166,538
6	CCR	50,151	50,688	4,012
7	Of which mark to market	24,763	25,188	1,981
11	Of which risk exposure amount for contributions to the default fund of a Central Counterparty (CCP)	-	-	-
12	Of which Credit Valuation Adjustment (CVA)	25,388	25,500	2,031
13	Settlement Risk	-	-	-
19	Market risk	5,061	6,424	405
20	Of which the standardised approach	5,061	6,424	405
22	Large Exposures	-	-	-
23	Operational risk	1,888,975	1,888,975	151,118
25	Of which standardised approach	1,888,975	1,888,975	151,118
27	Amounts below the thresholds for deduction (subject to 250% risk weight)	842,465	1,013,858	67,397
29	Total	17,368,377	18,680,589	1,389,470

The rows not applicable to the Group are not presented in the table above.

3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)

Overview of RWA (continued)

The main changes in RWAs are observed in line 2 which mainly derives from the redistribution of the exposures to lower risk exposure classes. Particularly (a) a significant decrease in balance sheet amounts in the higher risk exposure classes (exposures in default and higher-risk categories) due to repayments and increase in provisioning (b) a movement of exposure amounts from higher risk exposure classes (exposures in default and higher-risk categories) towards lower risk categories (Corporates, Retail, Secured by mortgages on immovable properties, and Other items) due to customer loan restructurings, new customer loans and debt-for-property and debt-for-equity swaps deleveraging actions, and (c) a significant increase in balance sheet amounts to exposures with central governments or central banks which carry 0% risk weight.

3.1 Credit Risk

The Standardised Approach has been applied to calculate the minimum capital requirement in accordance with the requirements laid down in Article 92 of the CRR:

Exposure Portfolio	30 June 2017	31 December 2016
Exposure Portfolio	€000	€000
Central governments or central banks	-	-
Regional governments or local authorities	111	50
Public sector entities	-	-
Multilateral development banks	-	-
International organisations	-	-
Institutions	18,986	27,392
Corporates	274,901	275,992
Retail	113,306	113,800
Secured by mortgages on immovable property	124,545	129,272
Exposures in default	268,574	325,800
Items associated with particular high risk	215,853	245,739
Covered bonds	315	93
Claims on institutions and corporates with a short-term credit assessment	-	-
Collective investments undertakings (CIU)	4	3
Equity	25,639	26,635
Other items	193,683	201,812
Total Capital Requirement for Credit Risk	1,235,917	1,346,588

A material decrease in credit risk capital requirements is observed between the two periods due to (a) a significant decrease in balance sheet amounts in the higher risk exposure classes (exposures in default and higher-risk categories) due to repayments and intense provisioning and (b) a movement of exposure amounts from higher risk exposure classes (exposures in default and higher-risk categories) towards lower risk categories (Corporates, Retail, Secured by mortgages on immovable properties, and Other items) due to customer loan restructurings, new customer loans and debt-for-property and debt-for-equity swaps deleveraging actions.

3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)

3.2 Market risk under the standardised approach

The minimum capital requirement calculated under the standardised approach in accordance with Title IV: Own funds requirements for Market Risk of the CRR is as follows:

		30 June 2017		31 December 2016
		RWAs	Capital requirements	RWAs	Capital requirements
		€000	€000	€000	€000
	Outright products
1	Interest rate risk (general and specific)	-	-	-	-
2	Equity risk (general and specific)	3,877	310	3,847	308
3	Foreign exchange risk	-	-	-	-
4	Commodity risk	-	-	-	-
	Options
5	Simplified approach	-	-	-	-
6	Delta-plus method	-	-	-	-
7	Scenario approach	-	-	-	-
8	Securitisation (specific risk)	-	-	-	-
9	Total	3,877	310	3,847	308

The table above does not include the minimum capital requirement for Collective Investment Undertaking (CIUs) of €95 thousand (RWA: €1,184 thousand) (31 December 2016: CIUs of €190 thousand and RWA: €2,384 thousand).

There is no own funds requirement for the foreign exchange risk, since the materiality threshold set by Article 351 of the CRR is not met.

3.3 Operational Risk

The Group uses the Standardised Approach for the operational risk capital calculation. The capital requirement calculated for operational risk for 2016, includes a one-off regulatory adjustment in relation to operations in Russia, which were sold in 2015, as permission to be excluded from the calculation of the capital requirement for operational risk was granted by the regulators at the beginning of January 2017. The operations in Russia, which were sold in 2015, followed the Basic Indicator Approach.

As at 30 June 2017, the minimum capital requirement in relation to operational risk calculated in accordance with the Standardised Approach amounts to €151,118 thousand (31 December 2016: €159,776 thousand).

30 June 2017	Standardised approach
30 June 2017	€000
Corporate finance (CF)	169
Trading and Sales (TS)	3,492
Retail Brokerage (RBr)	57
Commercial Banking (CB)	117,582
Retail Banking (RB)	18,077
Payment and Settlement (PS)	11,394
Agency Services (AS)	235
Asset Management (AM)	112
Total Capital Requirement for Operational Risk	151,118

3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)

3.3 Operational Risk (continued)

31 December 2016	Standardised approach	Basic indicator approach	Total
	€000	€000	€000
Corporate finance (CF)	169	-	169
Trading and Sales (TS)	3,492	-	3,492
Retail Brokerage (RBr)	57	-	57
Commercial Banking (CB)	117,582	8,658	126,240
Retail Banking (RB)	18,077	-	18,077
Payment and Settlement (PS)	11,394	-	11,394
Agency Services (AS)	235	-	235
Asset Management (AM)	112	-	112
Total Capital Requirement for Operational Risk	151,118	8,658	159,776

3.4 Credit Valuation Adjustment (CVA) Risk

CVA captures the credit risk of derivative counterparties not already included in Counterparty Credit Risk (i.e. the potential loss on derivatives due to increase in the credit spread of the counterparty).

30 June

2017

31 December

2016

€000

CVA (Credit Valuation Adjustment) Capital Requirement

2,031

2,355

3.5 Non-deducted participations in insurance undertakings

	30 June 2017	31 December 2016
	€000	€000
Holdings of own funds instruments of a financial sector entity where the institution has a significant investment not deducted from own funds (before risk-weighting)	113,240	117,871
Total RWAs	283,100	294,678

4. Other risks

Political risk

External factors which are beyond the control of the Group, such as developments in the European and the global economy, as well as political and government actions in Cyprus can affect the operations of the Group, its strategy and prospects, either directly or indirectly through their possible impact on the domestic economy.

Cyprus is a small open economy with a large export sector. Exports of goods and services in 2016 were 62% of Gross Domestic Product (GDP). As a result the Cyprus economy is exposed to developments outside its borders, particularly in Russia, the UK and Greece. Cyprus is also exposed to developments in the European Union and the Eurozone that may lead to a payments crisis or changes in the regulatory and supervisory framework.

The exit of the UK from the EU may lead to an economic recession in the UK itself and to possible disruptions in the Eurozone with pressure to bear on the euro and the pound sterling.

4. Other risks (continued)

Political risk (continued)

There are close trade and investment links between Cyprus and the UK which means that the Cyprus economy is vulnerable to the impact on the UK economy of UK's exit from the EU. The pound sterling has already depreciated sharply against the euro losing about 20% of its value since early June 2016. The initial impact on the UK economy so far has been less severe than initially forecasted but the economy is slowing down with inflation on the rise because of the currency depreciation. The European Commission expects growth of 1.8% in 2017 and 1.3% in 2018 in a baseline scenario. In an adverse scenario, it is very likely for real GDP to contract in 2018-2019.

A slowdown in economic activity in the UK and outright contraction in an adverse scenario, coupled with the decline in the exchange rate of the pound against the euro, will reduce the competitiveness of Cypriot exports to the UK. Exports of goods to the UK are about 8% of total exports of goods on average in the three years to 2016. This compares to a share of about 29% on average in the three years to 2004. Cyprus' trade has been increasingly diverting toward the euro area after accession to the EU.

On the services side, particularly tourism, the UK remains a significant source country. Arrivals from the UK were 36.3% of total arrivals in 2016. This compares with a share of 35.7% in 2014 and a share near 60% about a decade ago.

The exit of the UK from the EU poses risks for Cyprus and mitigating actions will be required for trade diversion.

Developments in other non-EU countries with which Cyprus maintains significant economic links, the unresolved Cyprus problem, and political and social unrest or escalation of military conflict in neighbouring countries and/or other overseas areas may adversely affect the Cyprus economy.

Russia is an important economic partner of Cyprus both in terms of tourism and international business flows. Any developments that impact negatively on these linkages will have a negative impact on the economy and will thus affect the Group's operations.

The economic situation in Russia has been gradually improving driven by the stabilisation in oil prices, the return of foreign direct investment and booms in certain sectors, for example agriculture. These factors are helping the country pull out of recession. Following a marginal drop in real GDP in 2016, a modest rebound is expected in 2017-2018 according to the European Commission (European Economic Forecast, Spring 2017). Real GDP is expected to rise by 1.2% and 1.4% respectively in 2017 and 2018. However, diversification of the economy and medium term growth are hindered by structural factors.

Meantime, tensions between Russia and the West continue. The EU maintains sanctions against Russia and the US has added more. This situation may lead to escalating tensions in areas of conflict including Ukraine and the Baltic countries.

Cyprus is less exposed to the crisis in Greece than it was prior to its own crisis. However, the indirect effects in the case of a disorderly default in Greece and/or Greece's departure from the Eurozone could be severe if it damages confidence in the wider euro area and dampens economic growth in the region. Greece is poised to return to growth in 2017 and whilst its exit from the Eurozone is now less likely than before, it is still a possible event within a five year horizon.

The Greek economy stagnated in 2016 due to a setback in the fourth quarter, but the recovery is expected to restart this year. Real GDP increased by 0.8% in the first quarter from a year earlier and expected to increase by 2.1% on average for the year as a whole according to the European Commission (European Economic Forecast, Spring 2017). The recovery is expected to continue into 2018 with real GDP expected to increase by 2.5%.

4. Other risks (continued)

Political risk (continued)

Greece and the Eurozone reached an agreement on June 15 on the bailout programme and Greece received €8,5 billion to pay debt maturing in July. According to a statement released by the Eurogroup after the meeting, debt relief for Greece, such as longer maturities and lower interest rates, will be considered after the end of the bailout programme in July 2018.

In another significant development, in July 2017, the board of the International Monetary Fund provisionally approved a contribution of $1,8 billion to the Greek bailout fund to be provided after European creditors agree to debt relief. Also Greece issued a €3 billion five year bond to private investors at a yield of 4.625%. This was the first debt issuance by Greece in three years and was a test run for the country's return to market funding after its bailout programme ends next year.

Global economy risks remain elevated as highlighted by extremely low interest rates. In the United States, the Federal Reserve, after eight years of near zero interest rates, started hiking in December 2015 and since then, raised the fed funds rate three times to 1.25%. The yield curve is flattening, which indicates that the probability of recession is rising. Fiscal expansionary policies, once implemented, will stimulate growth and inflation, but as this remains off by a couple of years, deflationary pressures prevail.

In geopolitical terms the escalation of tensions over the North Korean peninsula holds the prospect for market volatility. North Korea remains under stiff UN sanctions and continues to hold the threat of a nuclear escalation, which the United States cannot ignore. Caution is thus warranted.

The European Union and the Eurozone remain fragmented despite recent electoral successes by moderate forces, and there are widespread disagreements regarding the nature of future reforms. As such, the medium term will see policy inaction and the divisions at national levels will deepen.

Regarding the ECB's monetary policy, the future will depend on the outlooks for growth and inflation. The recent rekindle of inflationary tendencies rests on weak foundations and is not sustainable. Despite overly accommodative monetary policies, deflationary pressures remain in place in the advanced world including Europe and the United States. In this context, ECB is expected to be particularly cautious in tapering its Quantitative Easing programme and in tightening its monetary stance. Unless economic activity accelerates further and inflation picks up, tapering will be slow and tightening will start later rather than early, by late 2020 or early 2021. Under an optimistic scenario with growth accelerating and inflation expectations firming, tightening is likely to start by late 2018 or early 2019.

Given the above, the Group recognises that unforeseen political events can have negative effects on the fulfilment of contractual relationships and obligations of its customers and other counterparties, which may have a significant impact on the Group's activities, operating results and position.

5. Capital management

The CRR and CRD IV became effective, comprising the European regulatory package designed to transpose the new capital, liquidity and leverage standards of Basel III into the European Union's legal framework, on 1 January 2014. CRR establishes the prudential requirements for capital, liquidity and leverage that entities need to abide by. It is immediately binding on 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, CRD IV needs to be transposed into national laws, and allows national regulators to impose additional capital buffer requirements. CRR introduced significant changes in the prudential regulatory regime applicable to banks including amended minimum capital adequacy ratios, changes to the definition of capital and the calculation of risk weighted assets and the introduction of new measures relating to leverage, liquidity and funding. CRR permits a transitional period for certain of the enhanced capital requirements and certain other measures, such as the leverage ratio, which will be largely fully effective by 2019.

5. Capital management (continued)

In addition, the Regulation (EU) 2016/445 of the ECB on the exercise of options and discretions available in Union law (ECB/2016/4) provides certain transitional arrangements which supersede the national discretions unless they are stricter than the EU Regulation 2016/44.

The CET1 ratio of the Group at 30 June 2017 stands at 12.3% (transitional) and the total capital ratio at 13.8%.

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 Additional Tier 1 capital and with up to 2.0% by Tier 2 capital.

The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital requirements (Pillar II add-ons). Following the enactment of the amendments in the Cypriot Banking Law in February 2017 regarding the gradual phase-in of the Capital Conservation Buffer (CCB) and based on the Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2016, the Group's minimum CET1 capital ratio as from 1 January 2017 has been reduced to 9.50% compared to 10.75% fully phased-in of CCB (minimum CET1 capital ratio at 31 December 2016: 11.75% fully phased-in of CCB), comprising of a 4.5% Pillar I requirement, a 3.75% Pillar II requirement and a phased-in CCB of 1.25%. The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer.

The minimum CET1 requirement including Pillar II, applicable for the year 2016 was determined by the ECB at 11.75% in November 2015 and included CCB on a fully loaded basis.

Based on the provisions of the Macroprudential Oversight of Institutions Law of 2015 which came into force on 1 January 2016, the CBC is the designated Authority responsible for setting the macroprudential buffers that derive from the CRD IV.

In accordance with the provisions of this law, the CBC sets, on a quarterly basis, the Countercyclical Capital buffer (CCyB) level in accordance with the methodology described in this law. The CCyB is effective as from 1 January 2016 and is determined by the CBC ahead of the beginning of each quarter. The CBC has set the level of the CCyB at 0% for the years of 2016 and 2017.

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. The Group has been designated as an O-SII and the CBC set the O-SII buffer for the Group at 2%. This buffer will be phased-in gradually, starting from 1 January 2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%) on 1 January 2022.

Following the enactment of the amendments in the Cypriot Banking Law on 3 February 2017, the Capital Conservation Buffer (CCB) is gradually phased-in at 0.625% in 2016, 1.25% in 2017, 1.875% in 2018 and is fully implemented on 1 January 2019 at 2.5%.

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. Although the precise calibration and ultimate designation of the Group's MREL has not yet been finalised, the Bank is monitoring developments in this area very closely.

5. Capital management (continued)

The Group's overseas banking subsidiaries comply with the regulatory capital requirements of the local regulators in the countries in which they operate. The insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance including the minimum solvency ratio. The regulated investment firms of the Group comply with the regulatory capital requirements of the CySEC laws and regulations.

5.1 Capital position

The capital position of the Group under CRD IV/CRR basis (after applying the transitional arrangements) is presented below.

Regulatory capital	30 June 2017	31 December 2016
Regulatory capital	€000	€000
Transitional Common Equity Tier 1 (CET1) ^3,4	2,141,968	2,727,997
Transitional Additional Tier 1 capital (AT1)	-	-
Tier 2 capital (T2)	247,909	21,423
Transitional total regulatory capital⁴	2,389,877	2,749,420
Risk weighted assets - credit risk ⁵	15,474,341	16,861,793
Risk weighted assets - market risk	5,061	6,231
Risk weighted assets - operational risk	1,888,975	1,997,200
Total risk weighted assets	17,368,377	18,865,224

	%	%
Transitional Common Equity Tier 1 ratio	12.3	14.5
Transitional total capital ratio	13.8	14.6

During the six months ended 30 June 2017, the CET1 was negatively affected by the loss for the period and by the phase in of transitional adjustments, mainly deferred tax asset. The Risk-Weighted Assets (RWA) were positively affected by the Group's ongoing efforts for risk-weighted assets optimisation as well as of the increased provisioning. As a result of the above, the CET1 ratio decreased by 220 bps during the period.

[3] CET1 includes regulatory deductions, primarily comprising deferred tax assets and intangible assets amounting to €124,650 thousand and €88,407 thousand as at 30 June 2017 and 31 December 2016 respectively.

[4] Following the Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), the deferred tax asset phase-in period reduced from 10 to 5 years, with effect as from the reporting of 31 December 2016.

[5] Includes Credit Valuation Adjustments (CVA)

6. Leverage ratio

According to CRR Article 429, the leverage ratio, expressed as a percentage, is calculated as the capital measure divided by the total exposure measure of the Group.

The leverage ratio of the Group is presented below:

	30 June 2017	31 December 2016
Transitional basis	€000	€000
Capital measure (CET1)	2,141,968	2,727,997
Total exposure measure	22,030,648	22,833,225
Leverage ratio (%)	9.7	11.9

Fully loaded basis
Capital measure (CET1)	2,043,454	2,611,563
Total exposure measure	22,036,744	22,785,112
Leverage ratio (%)	9.3	11.5

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

The Group prepared the ICAAP and ILAAP reports for the year 2016. Both reports were approved by the Board of Directors and have been submitted to the ECB in April 2017.

The Group also undertakes a quarterly review of its ICAAP results. During the quarterly review of the ICAAP, the Group's risk profile and risk management policies and processes are reviewed and any changes since the full ICAAP exercise are taken into consideration. The quarterly review identifies whether the Group is exposed to new risks and assesses the adequacy of capital resources in order to cover its risks, as these have evolved (compared to the full ICAAP exercise). Given completion of the full ICAAP report in April 2017, the two quarterly reviews will take place in the third quarter of 2017 and in the fourth quarter of 2017 covering the period up to end of June 2017 and the period up to end of September 2017, respectively.

A quarterly review is also performed for the ILAAP through quarterly stress tests submitted to the Assets and Liabilities Committee (ALCO) and Board Risk Committee, as from 2016. During the quarterly review, the liquidity risk drivers are assessed and, if needed, the stress test assumptions are amended accordingly. The quarterly review identifies whether the Group has an adequate liquidity buffer to cover the stress outflows.

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

8. Other Pillar 3 disclosures

8.1 Ageing of past-due exposures

30 June 2017	Gross carrying values
30 June 2017	< 30 days	>30 days < 60 days	>60 days < 90 days	>90 days < 180 days	>180 days < 1 year	> 1 year
	€000	€000	€000	€000	€000	€000
Loans⁶	482,637	179,626	156,402	267,442	292,362	6,563,403
Debt securities	-	-	-	-	-	-
Total exposures	482,637	179,626	156,402	267,442	292,362	6,563,403

31 December 2016	Gross carrying values
31 December 2016	< 30 days	>30 days < 60 days	>60 days < 90 days	>90 days < 180 days	>180 days < 1 year	> 1 year
	€000	€000	€000	€000	€000	€000
Loans⁶	517,513	181,480	222,883	178,247	192,152	7,375,193
Debt securities	-	-	-	-	-	-
Total exposures	517,513	181,480	222,883	178,247	192,152	7,375,193

[6] Amounts presented are before fair value adjustment on initial recognition relating to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans. This adjustment has decreased the gross balance of loans and advances to customers.

8. Other Pillar 3 disclosures (continued)

8.2 Non-performing and forborne exposures

The table below discloses NPEs based on the definitions of the EBA standards.

30 June 2017	Gross carrying amount of performing and non-performing exposures							Accumulated impairment and provisions and negative fair value adjustments due to credit risk				Collaterals and financial guarantees received
		Of which performing but past due > 30 days and <= 90 days	Of which performing forborne	Of which non-performing				On performing exposures		On non-performing exposures		On non-performing exposures	Of which forborne exposures
		Of which performing but past due > 30 days and <= 90 days	Of which performing forborne		Of which defaulted	Of which impaired	Of which forborne		Of which forborne		Of which forborne	On non-performing exposures	Of which forborne exposures
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Debt securities	862,161	-	-	-	-	-	-	-	-	-	-	-	-
Loans and advances
Central Banks	2,183,069	-	-	-	-	-	-	-	-	-	-	-	-
Credit Institutions	695,543	-	-	-	-	-	-	-	-	-	-	-	-
Loans and advances to customers⁷	19,504,609	67,812	2,401,163	9,751,981	8,100,931	6,140,772	5,142,562	178,134	68,952	4,413,635	1,840,836	4,872,120	5,176,877
Off-balance-sheet exposures	2,920,487	n/a	25,473	409,206	340,009	n/a⁸	15,139	4,376	20	42,233	704	58,830	20,062

Note: The above table includes loans and advances classified as held for sale (Note 19 of the Interim Condensed Consolidated Financial Statements for the period ended 30 June 2017).

[7] Amounts presented are before fair value adjustment on initial recognition relating to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans.

[8] Per EBA guidelines no disclosure is required.

8. Other Pillar 3 disclosures (continued)

8.2 Non-performing and forborne exposures (continued)

31 December 2016	Gross carrying amount of performing and non-performing exposures							Accumulated impairment and provisions and negative fair value adjustments due to credit risk				Collaterals and financial guarantees received
		Of which performing but past due > 30 days and <= 90 days	Of which performing forborne	Of which non-performing				On performing exposures		On non-performing exposures		On non-performing exposures	Of which forborne exposures
		Of which performing but past due > 30 days and <= 90 days	Of which performing forborne		Of which defaulted	Of which impaired	Of which forborne		Of which forborne		Of which forborne	On non-performing exposures	Of which forborne exposures
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Debt securities	619,568	-	-	-	-	-	-	-	-	-	-	-	-
Loans and advances
Central Banks	1,373,803	-	-	-	-	-	-	-	-	-	-	-	-
Credit Institutions	1,075,199	-	-	-	-	-	-	-	-	-	-	-	-
Loans and advances to customers⁹	20,130,095⁹	107,160	2,206,634	11,034,249	8,837,158	6,886,890	5,889,332	160,992⁹	50,531	4,319,703⁹	1,617,028	7,854,750	6,760,774
Off-balance-sheet exposures	2,881,262	n/a	11,817	481,273	365,335	n/a¹⁰	24,421	1,793	2	36,403	391	83,957	22,056

[9] Amounts presented are before fair value adjustment on initial recognition relating to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans.

[10] Per EBA guidelines no disclosure is required.

8. Other Pillar 3 disclosures (continued)

8.3 Analysis of Counterparty Credit Risk (CCR) exposure by approach

The table below shows the analysis of CCR per approach. The approach followed by the Group is the mark to market method.

30 June 2017	Notional	Replacement cost/current market value	Potential future credit exposure	Effective expected positive exposure (EEPE)	Multiplier	Exposure at Default (EAD) post Credit Risk Mitigation (CRM)	RWA
	€000	€000	€000	€000		€000	€000
Mark to market		320	11,279			11,599	5,188
Original exposure	-	-				-	-
Standardised approach		-			-	-	-
Internal model method (IMM) (for derivatives and Securities Financing Transactions (SFTs))				-	-	-	-
Of which securities financing transactions				-	-	-	-
Of which derivatives and long settlement transactions				-	-	-	-
Of which from contractual cross- product netting				-	-	-	-
Financial collateral simple method (for SFTs)						-	-
Financial collateral comprehensive method (for SFTs)						-	-
Value at Risk (VaR) for SFTs						-	-
Total							5,188

8. Other Pillar 3 disclosures (continued)

8.3 Analysis of Counterparty Credit Risk (CCR) exposure by approach (continued)

31 December 2016	Notional	Replacement cost/current market value	Potential future credit exposure	Effective expected positive exposure (EEPE)	Multiplier	Exposure at Default (EAD) post Credit Risk Mitigation (CRM)	RWA
	€000	€000	€000	€000		€000	€000
Mark to market		6,727	11,543			8,639	3,588
Original exposure	-	-				-	-
Standardised approach		-			-	-	-
IMM (for derivatives and SFTs)				-	-	-	-
Of which securities financing transactions				-	-	-	-
Of which derivatives and long settlement transactions				-	-	-	-
Of which from contractual cross- product netting				-	-	-	-
Financial collateral simple method (for SFTs)						-	-
Financial collateral comprehensive method (for SFTs)						-	-
VaR for SFTs						-	-
Total							3,588

8.4 CVA capital charge

The table below provides CVA regulatory calculations (with a breakdown by standardised and advanced approaches).

		30 June 2017		31 December 2016
		Exposure value	RWA	Exposure value	RWA
		€000	€000	€000	€000
1	Total portfolios subject to the advanced method	-	-	-	-
2	(i) VaR component (including the 3× multiplier)		-		-
3	(ii) SVaR component (including the 3× multiplier)		-		-
4	All portfolios subject to the standardised method	56,226	25,388	55,629	29,438
EU4	Based on the original exposure method	-	-	-	-
5	Total subject to the CVA capital charge	56,226	25,388	55,629	29,438

8. Other Pillar 3 disclosures (continued)

8.5 Standardised approach - CCR exposures by regulatory portfolio and risk

A breakdown of CCR exposures, calculated under the standardised approach, by portfolio (type of counterparties) and by risk weight (business attributed according to the Standardised approach), is presented below:

30 June 2017 Exposure classes		Risk weight											Total	Of which unrated
30 June 2017 Exposure classes		0%	2%	4%	10%	20%	50%	70%	75%	100%	150%	Others	Total	Of which unrated
		€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
1	Central governments or central banks	-	-	-	-	-	-	-	-	-	-	-	-	-
2	Regional governments or local authorities	-	-	-	-	-	-	-	-	-	-	-	-	-
3	Public sector entities	-	-	-	-	-	-	-	-	-	-	-	-	-
4	Multilateral development banks	-	-	-	-	-	-	-	-	-	-	-	-	-
5	International organisations	-	-	-	-	-	-	-	-	-	-	-	-	-
6	Institutions	-	-	-	-	11,582	44,167	-	-	-	-	-	55,749	10,352
7	Corporates	-	-	-	-	-	-	-	-	476	-	-	476	476
8	Retail	-	-	-	-	-	-	-	-	-	-	-	-	-
9	Institutions and corporates with a short-term credit assessment	-	-	-	-	-	-	-	-	-	-	-	-	-
10	Other items	-	-	-	-	-	-	-	-	-	-	-	-	-
11	Total	-	-	-	-	11,582	44,167	-	-	476	-	-	56,225	10,828

8. Other Pillar 3 disclosures (continued)

8.5 Standardised approach - CCR exposures by regulatory portfolio and risk (continued)

31 December 2016 Exposure classes		Risk weight
31 December 2016 Exposure classes		0%	2%	4%	10%	20%	50%	70%	75%	100%	150%	Others	Total	Of which unrated
		€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
1	Central governments or central banks	-	-	-	-	-	-	-	-	-	-	-	-	-
2	Regional governments or local authorities	-	-	-	-	-	-	-	-	-	-	-	-	-
3	Public sector entities	-	-	-	-	-	-	-	-	-	-	-	-	-
4	Multilateral development banks	-	-	-	-	-	-	-	-	-	-	-	-	-
5	International organisations	-	-	-	-	-	-	-	-	-	-	-	-	-
6	Institutions	-	-	-	-	12,977	41,929	-	-	-	-	-	54,906	11,757
7	Corporates	-	-	-	-	-	-	-	-	723	-	-	723	723
8	Retail	-	-	-	-	-	-	-	-	-	-	-	-	-
9	Institutions and corporates with a short-term credit assessment	-	-	-	-	-	-	-	-	-	-	-	-	-
10	Other items	-	-	-	-	-	-	-	-	-	-	-	-
11	Total	-	-	-	-	12,977	41,929	-	-	723	-	-	55,629	12,480

8. Other Pillar 3 disclosures (continued)

8.6 Impact of netting and collateral held on exposure values

30 June 2017	Gross positive fair value or net carrying amount	Netting benefits	Netted current credit exposure	Collateral held	Net credit exposure
	€000	€000	€000	€000	€000
Derivatives	7,439	7,119	320	-	320
SFTs	44,627	-	44,627	-	44,627
Cross-product netting	-	-	-	-	-
Total	52,066	7,119	44,947	-	44,947

31 December 2016
Derivatives	21,116	14,051	7,065	6,162	903
SFTs	46,990	-	46,990	-	46,990
Cross-product netting	-	-	-	-	-
Total	68,106	14,051	54,055	6,162	47,893

8.7 Composition of collateral for exposures to CCR

A breakdown of all types of collateral posted or received to support or reduce CCR exposures, is presented below:

30 June 2017	Collateral used in derivative transactions				Collateral used in SFTs
	Fair value of collateral received		Fair value of posted collateral		Fair value of collateral received	Fair value of posted collateral
	Segregated	Unsegregated	Segregated	Unsegregated	Fair value of collateral received	Fair value of posted collateral
	€000	€000	€000	€000	€000	€000
Cash	-	92	-	(72,100)	-	(14,736)
Total	-	92	-	(72,100)	-	(14,736)

31 December 2016
Cash	-	11,678	-	(36,945)	-	(19,080)
Total	-	11,678	-	(36,945)	-	(19,080)

8. Other Pillar 3 disclosures (continued)

8.8 Credit quality of exposures by exposure class and instrument

Customer loan restructurings, intense provisioning, debt-for-property and debt-for equity swaps deleveraging actions led to: (a) an overall decrease in the overall exposures between the two periods and (b) an absolute and relative decrease in the defaulted gross exposures compared to non-defaulted exposures since 31 December 2016. Debt-for-property and debt-for-equity swaps resulted in a movement of exposures towards exposure class "Other exposures".

"Credit risk adjustment charges of the period" include changes in column (c) between the current and the previous period calculated at exposure class level.

Materiality applied: All exposure classes that at the current and previous reporting period do not exceed 1% of total net exposures have been included in "Other".

The below table has been completed in accordance to the regulatory requirements. Columns (c) and (e) represent the value adjustments reported in regulatory reports relating to the calculation of the RWA.

	a	b	c	d	e	f	g
30 June 2017	Gross carrying values of		Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
30 June 2017	Defaulted exposures	Non-defaulted exposures	Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d-e)
	€000	€000	€000	€000	€000	€000	€000
Central governments or central banks	-	3,021,432	-	-	1	-	3,021,431
Institutions	-	775,281	6	-	1	-	775,274
Corporates	-	4,908,674	41,774	-	129,516	8,356	4,737,384
Of which: SMEs	-	3,467,543	38,346	-	87,662	13,314	3,341,535
Retail	-	3,233,961	43,957	-	62,523	10,036	3,127,481
Of which: SMEs	-	956,791	10,784	-	11,718	5,556	934,289
Secured by mortgages on immovable property	-	4,390,335	10,194	-	35,092	1,789	4,345,049
Of which: SMEs	-	1,758,040	2,379	-	16,000	1,469	1,739,661
Exposures in default	10,130,843	-	3,442,670	-	3,306,295	302,544	3,381,878
Items associated with particularly high risk	2,685,260	1,392,359	946,274	-	1,076,733	(57,378)	2,054,612
Other exposures	-	2,281,608	-	-	-	-	2,281,608
Other	37	298,388	52	-	866	45	297,507
Total standardised approach	12,816,140	20,302,038	4,484,927	-	4,611,027	265,392	24,022,224
Of which: Loans	12,460,677	14,465,720	4,439,667	-	4,610,823	255,535	17,875,907
Of which: Debt securities	-	862,161	-	-	-	-	862,161
Of which: Off-balance sheet exposures	355,425	2,554,828	45,260	-	204	9,857	2,864,789

8. Other Pillar 3 disclosures (continued)

8.8 Credit quality of exposures by exposure class and instrument (continued)

	a	b	c	d	e	f	g
31 December 2016	Gross carrying values of		Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
31 December 2016	Defaulted exposures	Non-defaulted exposures	Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d-e)
	€000	€000	€000	€000	€000	€000	€000
Central governments or central banks	-	1,994,935	-	-	1	-	1,994,934
Institutions	-	1,157,808	6	-	2	(6)	1,157,800
Corporates	-	4,849,022	33,418	-	154,317	2,256	4,661,287
Of which: SMEs	-	3,516,744	25,032	-	128,645	15,197	3,363,067
Retail	-	3,255,099	33,921	-	65,999	(4,227)	3,155,179
Of which: SMEs	-	968,763	5,228	-	11,371	(445)	952,164
Secured by mortgages on immovable property	-	4,358,501	8,405	-	31,560	(1,936)	4,318,536
Of which: SMEs	-	1,693,832	910	-	13,627	(718)	1,679,295
Exposures in default	10,363,863	-	3,140,126	-	3,259,821	(142,288)	3,963,916
Items associated with particularly high risk	3,048,843	1,318,004	1,003,652	-	1,085,061	(83,455)	2,278,134
Other exposures	-	2,268,656	-	-	-	-	2,268,656
Other	107	281,628	7	-	1,258	(27)	280,470
Total standardised approach	13,412,813	19,483,653	4,219,535	-	4,598,019	(229,683)	24,078,912
Of which: Loans	13,047,763	13,897,482	4,184,132	-	4,597,011	(223,408)	18,164,102
Of which: Debt securities	-	619,051	-	-	-	-	619,051
Of which: Off-balance sheet exposures	364,945	2,501,549	35,403	-	1,008	(6,275)	2,830,083

8. Other Pillar 3 disclosures (continued)

8.9 Credit quality of exposures by industry

"Credit risk adjustment charges of the period" include changes in column (c) between the current and the previous period calculated at industry level.

"Other services" include exposures to Private individuals, Activities of extraterritorial organizations and bodies, Other services activities, and Financial and Insurance activities.

Materiality applied: All industry sectors that at the current and previous period do not exceed 1% of total net exposures have been included in "Other".

The below table has been completed in accordance to the regulatory requirements. Columns (c) and (e) represent the value adjustment reports for the calculation of the RWA.

The defaulted gross exposures have absolutely and relatively decreased in comparison to non-defaulted exposures since 31 December 2016, due to intense provisioning mainly to defaulted portfolios, deleveraging and debt-for-asset swaps actions in the defaulted portfolios. The relative increase observed in "Public administration and defence, compulsory social security" exposures results from an increase in balance sheet values relating to investments in government bonds and balances with central banks.

	a	b	c	d	e	f	g
30 June 2017	Gross carrying values of		Specific risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
30 June 2017	Defaulted exposures	Non-defaulted exposures	Specific risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d-e)
	€000	€000	€000	€000	€000	€000	€000
Manufacturing	512,609	546,379	164,696	-	183,379	(3,734)	710,913
Construction	2,837,311	1,384,247	897,722	-	1,035,036	(80,271)	2,288,800
Wholesale and retail trade	1,401,173	1,886,250	441,363	-	486,001	10,606	2,360,059
Accommo-dation and food service activities	723,357	1,273,089	238,770	-	285,136	(7,515)	1,472,540
Information and communication	159,676	145,681	60,318	-	44,861	1,909	200,178
Real estate activities	1,392,013	2,359,054	508,874	-	445,699	(96,879)	2,796,494
Professional, scientific and technical activities	546,569	431,939	119,233	-	281,132	(18,714)	578,143
Public administra-tion and defence, compulsory social security	12,337	3,132,559	1,292	-	2,456	455	3,141,148
Human health services and social work activities	114,251	292,065	35,577	-	34,689	2,968	336,050
Other services	4,471,062	8,119,191	1,833,392	-	1,557,518	472,470	9,199,343
Other	645,782	731,584	183,690	-	255,120	(15,903)	938,556
Total	12,816,140	20,302,038	4,484,927	-	4,611,027	265,392	24,022,224

8. PILLAR 3 Disclosures (continued)

8.9 Credit quality of exposures by industry (continued)

	a	b	c	d	e	f	g
31 December 2016	Gross carrying values of		Specific risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
31 December 2016	Defaulted exposures	Non-defaulted exposures	Specific risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d-e)
	€000	€000	€000	€000	€000	€000	€000
Manufacturing	496,096	539,367	168,430	-	171,579	(42,629)	695,454
Construction	3,097,547	1,455,163	977,993	-	996,657	(129,720)	2,578,060
Wholesale and retail trade	1,374,080	1,955,207	430,757	-	471,960	(21,303)	2,426,570
Accommodation and food service activities	820,681	1,012,165	246,285	-	280,908	(2,407)	1,305,653
Information and communication	152,082	211,164	58,409	-	42,119	(3,150)	262,718
Real estate activities	1,584,212	2,240,633	605,753	-	457,437	35,236	2,761,655
Professional, scientific and technical activities	583,573	438,748	137,947	-	291,561	(7,554)	592,813
Public administration and defence, compulsory social security	12,539	2,111,859	837	-	2,678	209	2,120,883
Human health services and social work activities	113,551	280,230	32,609	-	32,879	737	328,293
Other services	4,434,751	8,554,084	1,360,919	-	1,530,864	(14,090)	10,097,052
Other	743,701	685,033	199,596	-	319,377	(45,012)	909,761
Total	13,412,813	19,483,653	4,219,535	-	4,598,019	(229,683)	24,078,912

8. Other Pillar 3 disclosures (continued)

8.10 Credit quality of exposures by geography

"Credit risk adjustment charges of the period" include changes in column (c) between the current and the previous period calculated at exposure class level.

Materiality applied: All EU countries that the current and previous reporting period do not exceed 1% of total net exposures have been included in "Other countries" and all non-EU countries that at the current and previous reporting period do not exceed 1% of total net exposures, including exposures to supranational, have been included in "Other geographical areas".

The below table has been completed in accordance to the regulatory requirements. Columns (c) and (e) represent the value adjustments as they are reported in the regulatory reports relating to the calculation of the RWA.

	a	b	c	d	e	f	g
30 June 2017	Gross carrying value of		Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
30 June 2017	Defaulted exposures	Non-defaulted exposures	Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d-e)
	€000	€000	€000	€000	€000	€000	€000
EU Countries	12,407,757	19,681,836	4,282,117	-	4,533,296	320,464	23,274,180
Cyprus	11,381,134	16,769,119	3,835,856	-	4,165,010	271,335	20,149,387
United Kingdom	373,375	1,967,529	129,161	-	131,391	13,259	2,080,352
France	121	301,492	39	-	671	11	300,903
Greece	228,814	300,015	48,501	-	148,699	17,971	331,629
Other countries	424,313	343,681	268,560	-	87,525	17,888	411,909
Non EU Countries	408,383	620,202	202,810	-	77,731	(55,072)	748,044
Russian Federation	223,843	83,426	137,265	-	16,084	(27,179)	153,920
Other geographical areas	184,540	536,776	65,545	-	61,647	(27,893)	594,124
Total	12,816,140	20,302,038	4,484,927	-	4,611,027	265,392	24,022,224

8. Other Pillar 3 disclosures (continued)

8.10 Credit quality of exposures by geography (continued)

	a	b	c	d	e	f	g
31 December 2016	Gross carrying value of		Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
31 December 2016	Defaulted exposures	Non-defaulted exposures	Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d-e)
	€000	€000	€000	€000	€000	€000	€000
EU Countries	12,907,315	18,769,709	3,961,653	-	4,527,796	(226,857)	23,187,575
Cyprus	11,824,876	15,591,235	3,564,521	-	4,133,718	(170,185)	19,717,872
United Kingdom	387,916	1,852,573	115,902	-	127,614	(17,533)	1,996,973
France	106	303,578	28	-	671	(4)	302,985
Greece	213,333	382,630	30,530	-	147,797	(32,531)	417,636
Other countries	481,084	639,693	250,672	-	117,996	(6,604)	752,109
Non EU Countries	505,498	713,944	257,882	-	70,223	(2,826)	891,337
Russian Federation	256,368	110,508	164,444	-	15,129	11,286	187,303
Other geographical areas	249,130	603,436	93,438	-	55,094	(14,112)	704,034
Total	13,412,813	19,483,653	4,219,535	-	4,598,019	(229,683)	24,078,912

8.11 Changes in the stock of defaulted and impaired loans and debt securities

Defaulted exposures are exposures that are defaulted in accordance with Article 178 of the CRR.

	Gross carrying value defaulted exposures
	30 June 2017	31 December 2016
	€000	€000
Opening balance	13,412,815	13,998,357
Loans and debt securities that have defaulted or impaired since the last reporting period	733,355	968,108
Returned to non-defaulted status	(267,912)	(284,897)
Amounts written off	(496,408)	(1,055,265)
Other changes	(565,710)	(213,488)
Closing balance	12,816,140	13,412,815

8. Other Pillar 3 disclosures (continued)

8.12 Standardised approach - Credit risk exposure and Credit Risk Mitigation (CRM) effects

The table below illustrates the effect of all CRM techniques applied in accordance with the CRR under the financial collateral comprehensive method.

The RWA density has significantly decreased since 31 December 2016 due to redistribution of the exposures to lower risk exposure classes. Particularly, (a) a significant decrease in balance sheet amounts in the higher risk exposure classes (exposures in default and higher-risk categories) due to repayments and intense increased provisioning, (b) a movement of exposure amounts from higher risk exposure classes (exposures in default and higher-risk categories) towards lower risk categories (Corporates, Retail, Secured by mortgages on immovable properties, and Other items) due to customer loan restructurings, new customer loans, and debt-for-property and debt-for-equity swaps deleveraging actions, and (c) a significant increase in balance sheet amounts to exposures with central governments or central banks which carry 0% risk weight.

Exposure classes with zero exposure values are not included in the template below:

30 June 2017	Exposures before Credit Conversion Factor (CCF) and CRM		Exposures post CCF and CRM		RWAs and RWA density
Exposure classes	On-balance sheet amount	Off-balance sheet amount	On-balance sheet amount	Off-balance sheet amount	RWAs	RWA density
	€000	€000	€000	€000	€000	%
Central governments or central banks	3,021,339	92	3,104,760	-	-	0.0
Regional government or local authorities	61,917	7,831	6,868	80	1,389	20.0
Public sector entities	28,121	590	17,924	7	1	0.0
Multilateral development banks	9,148	-	9,148	-	-	0.0
International organisations	11,750	-	11,750	-	-	0.0
Institutions	658,760	60,764	665,192	19,404	212,921	31.1
Corporates	3,378,856	1,358,052	3,203,500	297,404	3,435,902	98.1
Retail	2,204,261	923,220	1,962,715	40,230	1,416,324	70.7
Secured by mortgages on immovable property	4,286,072	58,977	4,162,219	30,961	1,556,807	37.1
Exposures in default	3,163,167	218,711	3,119,706	48,357	3,357,175	106.0
Higher-risk categories	1,830,577	224,035	1,745,758	53,018	2,698,164	150.0
Covered bonds	39,341	-	39,341	-	3,934	10.0
Collective investment undertakings	52	-	52	-	52	100.0
Equity	138,757	-	138,757	-	320,490	231.0
Other items	2,269,091	12,517	2,269,091	12,517	2,421,032	106.1
Total	21,101,209	2,864,789	20,456,781	501,978	15,424,191	73.6

8. Other Pillar 3 disclosures (continued)

8.12 Standardised approach - Credit risk exposure and Credit Risk Mitigation (CRM) effects (continued)

31 December 2016	Exposures before CCF and CRM		Exposures post CCF and CRM		RWAs and RWA density
Exposure classes	On-balance sheet amount	Off-balance sheet amount	On-balance sheet amount	Off-balance sheet amount	RWAs	RWA density
	€000	€000	€000	€000	€000	%
Central governments or central banks	1,994,906	28	2,045,333	-	-	0.0
Regional government or local authorities	58,384	12,552	3,036	95	626	20.0
Public sector entities	32,270	600	18,041	7	1	0.0
Multilateral development banks	9,360	-	9,360	-	-	0.0
International organisations	11,823	-	11,823	-	-	0.0
Institutions	1,019,117	74,146	1,027,587	31,190	318,843	30.1
Corporates	3,449,820	1,210,744	3,267,286	226,777	3,449,352	98.7
Retail	2,157,150	998,029	1,948,526	59,290	1,422,499	70.8
Secured by mortgages on immovable property	4,255,562	62,974	4,145,741	29,571	1,615,895	38.7
Exposures in default	3,726,558	237,358	3,675,261	34,704	4,072,498	109.8
Higher-risk categories	2,058,042	220,092	2,003,647	44,177	3,071,736	150.0
Covered bonds	11,667	-	11,667	-	1,167	10.0
Collective investment undertakings	41	-	41	-	41	100.0
Equity	143,773	-	143,773	-	332,938	231.6
Other items	2,255,096	13,560	2,255,096	13,560	2,522,648	111.2
Total	21,183,569	2,830,083	20,566,218	439,371	16,808,244	80.0

8. Other Pillar 3 disclosures (continued)

8.13 Standardised approach

The table below presents the breakdown of exposures under the standardised approach by asset class and risk weight (corresponding to the riskiness attributed to the exposure according to the standardised approach). The exposures are disclosed post conversion factors and post risk mitigation techniques.

Risk weights or exposure classes with zero exposure values are not included in the table below:

30 June 2017	Risk weight										Total	Of which unrated¹¹
Exposure classes	0%	10%	20%	35%	50%	75%	100%	150%	250%	Deducted
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Central governments or central banks	3,104,760	-	-	-	-	-	-	-	-	-	3,104,760	-
Regional government or local authorities	-	-	6,948	-	-	-	-	-	-	-	6,948	-
Public sector entities	17,924	-	7	-	-	-	-	-	-	-	17,931	-
Multilateral development banks	9,148	-	-	-	-	-	-	-	-	-	9,148	9,148
International organisations	11,750	-	-	-	-	-	-	-	-	-	11,750	11,750
Institutions	3,276	-	605,235	-	75,461	-	11,888	44,486	-	-	740,346	-
Corporates	-	-	-	-	-	-	3,500,659	721	-	-	3,501,380	3,501,380
Retail	-	-	-	-	-	2,002,945	-	-	-	-	2,002,945	2,002,945
Secured by mortgages on immovable property	-	-	-	3,106,616	1,086,443	-	121	-	-	-	4,193,180	4,193,180
Exposures in default	-	-	-	-	-	-	2,789,839	378,224	-	-	3,168,063	3,168,063
Higher-risk categories	-	-	-	-	-	-	-	1,798,776	-	-	1,798,776	1,798,776
Covered bonds	-	39,341	-	-	-	-	-	-	-	-	39,341	-
Collective investment undertakings	-	-	-	-	-	-	52	-	-	-	52	52
Equity	-	-	-	-	-	-	17,602	-	121,155	-	138,757	138,757
Other items	134,217	-	62,632	-	-	-	1,868,928	-	215,831	197,466	2,479,074	2,479,074
Total	3,281,075	39,341	674,822	3,106,616	1,161,904	2,002,945	8,189,089	2,222,207	336,986	197,466	21,212,451	17,303,125

[11] Includes all exposures for which an issue/issuer or country rating (where applicable) is not available or they follow uniform regulatory treatment under the standardized approach of the CRR.

8. Other Pillar 3 disclosures (continued)

8.13 Standardised approach (continued)

31 December 2016	Risk weight										Total	Of which unrated¹²
Exposure classes	0%	10%	20%	35%	50%	75%	100%	150%	250%	Deducted
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Central governments or central banks	2,045,333	-	-	-	-	-	-	-	-	-	2,045,333	-
Regional government or local authorities	-	-	3,131	-	-	-	-	-	-	-	3,131	-
Public sector entities	18,041	-	7	-	-	-	-	-	-	-	18,048	-
Multilateral development banks	9,360	-	-	-	-	-	-	-	-	-	9,360	9,360
International organisations	11,823	-	-	-	-	-	-	-	-	-	11,823	11,823
Institutions	3,543	-	944,899	-	85,098	-	18,619	61,524	-	-	1,113,683	-
Corporates	-	-	-	-	-	-	3,493,834	952	-	-	3,494,786	3,494,786
Retail	-	-	-	-	-	2,007,816	-	-	-	-	2,007,816	2,007,816
Secured by mortgages on immovable property	-	-	-	2,833,605	1,284,913	-	56,794	-	-	-	4,175,312	4,175,312
Exposures in default	-	-	-	-	-	-	2,984,899	725,066	-	-	3,709,965	3,709,965
Higher-risk categories	-	-	-	-	-	-	-	2,047,824	-	-	2,047,824	2,047,824
Covered bonds	-	11,667	-	-	-	-	-	-	-	-	11,667	-
Collective investment undertakings	-	-	-	-	-	-	41	-	-	-	41	41
Equity	-	-	-	-	-	-	17,663	-	126,110	-	143,773	143,773
Other items	132,588	-	41,085	-	-	-	1,815,351	-	279,632	193,226	2,461,882	2,461,882
Total	2,220,688	11,667	989,122	2,833,605	1,370,011	2,007,816	8,387,201	2,835,366	405,742	193,226	21,254,444	18,062,582

[12] Includes all exposures for which an issue/issuer or country rating (where applicable) is not available or they follow uniform regulatory treatment under the standardised approach of the CRR.

Accumulated provisions	Αccumulated provisions comprise (i) provisions for impairment of customer loans and advances to customers, (ii) the fair value adjustment on initial recognition of loans, and (iii) provisions for off-balance sheet exposures (contingent liabilities and commitments) disclosed on the balance sheet within other liabilities.
Cost to Income ratio	Cost-to-income ratio is calculated as the total staff costs and other operating expenses (excluding advisory and other restructuring costs) divided by total income (excluding gains/(losses) on disposals of non-core assets).

Interest earning assets	Interest earning assets is the sum of: cash and balances with central banks, loans and advances to banks, net loans and advances to customers, investments (excluding equities and mutual funds) and derivatives.

Leverage ratio	The leverage ratio is calculated as the total equity to total assets as presented on the balance sheet.

Loans in arrears for more than 90 days (90+ DPD)	Loans in arrears for more than 90 days (90+ DPD) are defined as loans past-due for more than 90 days and loans that are impaired (impaired loans are those (i) for which a provision for impairment has been recognised on an individual basis or (ii) for which incurred losses existed at their initial recognition or (iii) customers in Debt Recovery).

Loans in arrears for more than 90 days (90+ DPD) ratio	Loans past-due for more than 90 days (as defined) divided by loans before the deduction of accumulated provisions (as defined).

Net fee and commission income over total income	Fee and commission income less fee and commission expense divided by total income (as defined), but excluding gains/(losses) on disposals of non-core assets.

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

Net loans to deposit ratio	Net loans to deposits ratio is calculated as the net loans and advances to customers divided by customer deposits. Where applicable, loans and deposits held for sale are added to the numerator and denominator respectively.

Non-performing exposures (NPEs)	According to the EBA standards, a loan is considered a non-performing exposure if: (i) the debtor is assessed as unlikely to pay its credit obligations in full without the realisation of the collateral, regardless of the existence of any past due amount or of the number of days past due, or (ii) the exposures are impaired i.e. in cases where there is a specific provision, or (iii) there are material exposures which are more than 90 days past due, or (iv) there are performing forborne exposures under probation for which additional forbearance measures are extended, or (v) there are performing forborne exposures under probation that present more than 30 days past due within the probation period. The NPEs are reported before the deduction of accumulated provisions (as defined).
NPE ratio	NPE ratio is non-performing exposures (as defined) divided by loans before the deduction of accumulated provisions (as defined).

Operating profit return on average assets	Operating profit return on average assets is calculated as the operating profit divided by the average of total assets for the relevant period.

Provisioning charge (cost of risk)	Provisioning charge (cost of risk) is calculated as the provisions for impairment of customer loans plus the gain on derecognition of loans and advances to customers for the period (annualised) divided by average customer loans before accumulated provisions (as defined).
Provisioning coverage ratio for 90+ DPD	Provisioning coverage ratio for 90+ DPD is calculated as the accumulated provisions (as defined) divided by 90+ DPD (as defined).

Provisioning coverage ratio for 90+ DPD calculated with reference to the contractual balances of customers	Provisioning coverage ratio for 90+ DPD is calculated as the accumulated provisions (as defined) divided by 90+DPD (as defined), after the addition of total contractual interest due on those loans to both to the numerator and denominator.

Provisioning coverage ratio for NPEs	Provisioning coverage ratio for NPEs is calculated as accumulated provisions (as defined) over NPEs (as defined).

Total income	Comprises total of net interest income, fee and commission income, fee and commission expense, net foreign exchange gains, net gains on financial instrument transactions, insurance income net of claims and commissions, (losses)/gains from revaluation and disposal of investment properties, gains/(losses) on disposal of stock of property and other income.

Footnotes

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

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

3 CET1 includes regulatory deductions, primarily comprising deferred tax assets and intangible assets amounting to €124,650 thousand and €88,407 thousand as at 30 June 2017 and 31 December 2016 respectively.

4 Following the Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), the deferred tax asset phase-in period reduced from 10 to 5 years, with effect as from the reporting of 31 December 2016.

5 Includes Credit Valuation Adjustments (CVA)

6 Amounts presented are before fair value adjustment on initial recognition relating to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans. This adjustment has decreased the gross balance of loans and advances to customers.

7 Amounts presented are before fair value adjustment on initial recognition relating to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans.

8 Per EBA guidelines no disclosure is required.

9 Amounts presented are before fair value adjustment on initial recognition relating to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans.

10 Per EBA guidelines no disclosure is required.

11 Includes all exposures for which an issue/issuer or country rating (where applicable) is not available or they follow uniform regulatory treatment under the standardized approach of the CRR.

12 Includes all exposures for which an issue/issuer or country rating (where applicable) is not available or they follow uniform regulatory treatment under the standardised approach of the CRR.

This information is provided by RNS

The company news service from the London Stock Exchange

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Contents

Page

Notes to the Interim Condensed Consolidated Financial Statements

Insurance liabilities

Accruals, deferred income and other liabilities

Deferred tax liabilities

Total liabilities

Property revaluation reserve

Property revaluation reserve

4. Going concern

4. Going concern (continued)

5.2.1 Regulatory capital ratios

5.2.3 Liquidity

5.2.4 Pending litigation, claims and regulatory matters

6. Significant judgements, estimates and assumptions

6. Significant judgements, estimates and assumptions (continued)

6. Significant judgements, estimates and assumptions (continued)

6. Significant judgements, estimates and assumptions (continued)

Financial assets

Financial assets

Contractual interest rate

Debt securities price risk

Non-executives

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