Interim Financial Report 2020 - Part 1

RNS Number : 4662X

Bank of Cyprus Holdings PLC

28 August 2020

Interim Financial Report 2020- Part 1

Bank of Cyprus Holdings

BANK OF CYPRUS HOLDINGS GROUP

Ιnterim Financial Report

Six months ended 30 June 2020

Content s Page

Board of Directors and Executives 1

Forward Looking Statements and Notes 2

Interim Management Report 3

Consolidated Condensed Interim Financial statements

Interim Consolidated Income Statement 36

Interim Consolidated Statement of Comprehensive Income 37

Interim Consolidated Balance Sheet 38

Interim Consolidated Statement of Changes in Equity 39

Interim Consolidated Statement of Cash Flows 41

Notes to the Consolidated Condensed Interim Financial Statements

1. Corporate information 43

2. Unaudited financial statements 43

3. Summary of significant accounting policies 43

4. Going concern 45

5. Operating environment 47

6. Significant and other judgements, estimates and assumptions 48

7. Segmental analysis 55

8. Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates 63

9. Staff costs and other operating expenses 63

10. Credit losses of financial instruments and impairment of non-financial assets 65

11. Income tax 65

12. Earnings per share 69

13. Investments 69

14. Derivative financial instruments 70

15. Fair value measurement 71

16. Loans and advances to customers 78

17. Stock of property 78

18. Prepayments, accrued income and other assets 80

19. Non-current assets and disposal groups held for sale 80

20. Funding from central banks 82

21. Customer deposits 83

22. Subordinated loan stock 83

23. Accruals, deferred income, other liabilities and other provisions 84

24. Share capital 84

25. Pending litigation, claims, regulatory and other matters 86

26. Contingent liabilities 92

27. Cash and cash equivalents 92

28. Analysis of assets and liabilities by expected maturity 93

29. Risk management - Credit risk 94

30. Risk management - Market risk 135

31. Risk management - Liquidity risk and funding 135

32. Capital management 139

33. Related party transactions 140

34. Group companies 143

35. Acquisitions and disposals of subsidiaries 146

36. Investments in associates and joint venture 147

37. Events after the reporting period 149

Independent review report to the Bank of Cyprus Holdings Public Limited Company 150

Additional Risk and Capital Management Disclosures, including Pillar III semi-annual disclosures 152

Definitions and explanations of Alternative Performance Measures Disclosures 206

Board of Directors and Executives

as at 27 August 2020

BoardofDirectorsofBankofCyprus

HoldingsPublicLimitedCompany

Efstratios-GeorgiosArapoglou

CHAIRMAN

LynGrobler(electedasVice-Chairpersonon26May2020) VICE-CHAIRPERSON

ArneBerggren

Dr.MichaelHeger

Panico sNicolaou

Dr.ChristodoulosPatsalides

IoannisZographakis

AnatBar-Gera(resignedon26May2020) MariaPhilippou

MaksimGoldman(resignedfromVice-Chairpersonpositionon26May2020) NicosSofianos(electedon14May2020-subjecttoapprovalfromECB) PaulaHadjisotiriou

ExecutiveCommittee

Panico sNicolaou

CHIEFEXECUTIVEOFFICER

Dr.ChristodoulosPatsalides

FIRSTDEPUTYCHIEFEXECUTIVEOFFICER

Dr.CharisPouangare

DEPUTYCHIEFEXECUTIVEOFFICER

Eliz aLivadiotou

EXECUTIVEDIRECTORFINANCE

DemetrisDemetriou

CHIEFRISKOFFICER

MichalisAthanasiou

EXECUTIVEDIRECTORGLOBALCORPORATEBANKING&MARKETS

LouisPochanis

EXECUTIVEDIRECTORINSURANCEBUSINESS

PanicosMouzouris

EXECUTIVEDIRECTORRESTRUCTURINGANDRECOVERIESDIVISION

AnnaSofroniou

EXECUTIVEDIRECTORREALESTATEMANAGEMENTUNIT

Nicola sScottSmith

EXECUTIVEDIRECTORCORPORATEFINANCESOLUTIONS

CompanySecretary

KatiaSantis

LegalAdvisersastomattersofIrish

Law

ArthurCox

LegalAdvisersastomattersof

EnglishandUSLaw

SidleyAustinLLP

LegalAdvisersastomattersof

CypriotLaw

Chryssafini s&PolyviouLLC

StatutoryAuditors

PricewaterhouseCoopers, OneSpencerDock,

NorthWallQuay, Dublin1,

Ireland, D01X9R7

RegisteredOffice

10EarlsfortTerrace

Dubli n2

D02T380

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

Non-IFRS performance measures

Ban k of Cyprus Holdings Public Limited Company (the 'Company') management believes that the non-IFRS performance measures included in this document provide valuable information to the readers of the Interim Financial Report as they enable the readers to identify a more consistent basis for comparing the Group's performance between financial periods and provide more detail concerning the elements of performance which management is most directly able to influence or are relevant for an assessment of the Group. They also reflect an important aspect of the way in which the operating targets are defined and performance is monitored by the Group's management. However, any non-IFRS performance measures in this document are not a substitute for IFRS measures and readers should consider the IFRS measures as the key measures of the 30 June position. Refer to 'Definitions and explanations on Alternative Performance Measures Disclosures' on pages 206 to 217 of the Interim Financial Report for the six months ended 30 June 2020 for further information, reconciliations with Consolidated Condensed Interim Financial Statements and calculations of non-IFRS performance measures included throughout this document and the most directly comparable IFRS measures.

The Interim Financial Report for the six months ended 30 June 2020 is available on the Group's website www.bankofcyprus.com (Investor Relations/Financial Results).

INTERIM MANAGEMENT REPORT

Group financial results on the underlying basis

Commentary on underlying basis

The financial information presented below provides an overview of the Group financial results for the six months ended 30 June 2020 on the 'underlying basis' which the management believes best fits the true measurement of the performance and position of the Group. Reconciliations between statutory basis and underlying basis are included in section 'Reconciliation of the Income Statement for the six months ended

3 0 June 2020 between statutory and underlying basis' below and in 'Definitions and explanations on

Alternative Performance Measures Disclosures' of the Interim Financial Report for the six months ended 30

June 2020 to allow for the comparability of the underlying basis to statutory information.

With the respect to the 'Balance Sheet Analysis', please note the following in relation to the disclosure of pro forma figures and ratios with respect to Project Helix 2. In August 2020 the Group reached an agreement with funds affiliated with Pacific Investment Management Company LLC (PIMCO), for the sale of a portfolio of loans with gross book value as at 30 June 2020 of approximately €898 million on the underlying basis, known as Project Helix 2. Further details on the transaction are provided in 'Loan Portfolio quality' discussed under the 'Balance Sheet Analysis' section below.

All relevant figures are based on 30 June 2020 financial results, unless otherwise stated. Numbers on a pro forma basis are based on the 30 June 2020 underlying basis figures and are adjusted for Project Helix 2 and assume completion of the transaction, which remains subject to customary regulatory and other approvals. Where numbers are provided on a pro forma basis this is stated.

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

NP E sales: NPE sales refer to sales of portfolios completed in each period and contemplated sale transactions, as well as potential further NPE sales, at each reporting date, irrespective of whether or not they meet the held for sale classification criteria at the reporting dates. They include both Project Helix and Project Helix 2, as well as other portfolios.

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

Project Helix 2: Project Helix 2 refers to the portfolio of loans with a gross book value of €898 million as at

30 June 2020 for which an agreement for sale was reached on 3 August 2020.

Group financial results on the underlying basis (continued)

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

Consolidated Condensed Interim Income Statement on the underlying basis


€ million	Sixmonthsended 30June
	2020 1	2019 (represented) 1,2
Net interest income	168	170
Net fee and commission income	71	75
Net foreign exchange gains and net gains on financial instruments transactions and disposal/dissolution of subsidiaries and associates	12	26
Insurance income net of insurance claims and commissions	29	30
Net gains from revaluation and disposal of investment properties and on disposalofstockofproperties	-	16
Other income	8	16
Totalincome	288	333
Staffcosts	(96)	(112)
Other operating expenses	(69)	(84)
Special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF)	(15)	(12)
Total expenses	(180)	(208)
Operating profit	108	125
Loan credit losses	(87)	(87)
Impairments of other financial and non-financial assets	(29)	(10)
(Provisions)/reversal of provision for litigation, claims, regulatory and other matters	(4)	3
Totalloancreditlosses,impairmentsandprovisions	(120)	(94)
(Loss)/profit before tax and non-recurring items	(12)	31
Tax	(5)	-
Loss/(profit) attributable to non-controlling interests	4	(2)
(Loss)/profit after tax and before non-recurring items (attributable totheownersoftheCompany)	(13)	29
Advisory and other restructuring costs-organic	(6)	(10)
(Loss)/profitaftertax-organic(attributabletotheownersofthe Company)	(19)	19
Provisions/net loss relating to NPE sales, including restructuring expenses 3	(107)	(2)
Loss on remeasurement of investment in associate upon classification as held forsale(CNP)netofshareofprofitfromassociates	-	(21)
Reversalofimpairmentofdeferredtaxassets(DTA)andimpairmentofother tax receivables	-	101
(Loss)/profitaftertax(attributabletotheownersoftheCompany)	(126)	97

Key Performance Ratios 4
Net interest margin	1.90 %	1.88%
Cost to income ratio	62 %	63 %
Cost to income ratio excluding special levy and contributions to SRF and DGF	57 %	59 %
Operating profit return on average assets	1.0 %	1.2%
Basic (losses)/earnings per share attributable to the owners of the Company - organic (€ cent)	(4.32)	4.01
Basic (losses)/earnings per share attributable to the owners of the Company (€ cent)	(28.16)	21.84

Group financial results on the underlying basis (continued)

Consolidated Condensed Interim Income Statement on the underlying basis (continued)

1 The financial information is extracted from the published accounts. This information should be read with the information included in the accompanied Consolidated Condensed Interim Financial Statements.

2 The interest income, non-interest income, staff costs, other operating expenses and loan credit losses related to Project Helix are disclosed under 'Provisions/net loss relating to NPE sales, including restructuring expenses' in the underlying basis in order to separate out the impact of this non-recurring transaction.

3 'Provisions/net loss relating to NPE sales, including restructuring expenses' refer to the net loss on transactions completed during each period, net loan credit losses on transactions under consideration and for potential further sales at each reporting date, as well as the restructuring costs relating to these trades. For further details refer to section 'Income Statement Analysis/(Loss)/profit after tax (attributable to the owners of the Company)'.

4 Including the NPE portfolios classified as 'Non-current assets and disposal groups held for sale'.

The following changes were made in the underlying basis, when compared with previous disclosures for the six months ended 30 June 2019:

Reclassifications effected to comparative information were made so that advisory and other restructuring costs for the six months ended 30 June 2019 of approximately €1.5 million (relating to Project Helix 2 loan portfolio, which was classified as held for sale as at 30 June 2020), were reclassified as non-recurring items within 'Provisions/net loss relating to NPE sales, including restructuring expenses΄ in the underlying basis.

Reclassifications to current period information for items relating to the NPE sales are disclosed under non recurring items within 'Provisions/net loss relating to NPE sales, including restructuring expenses' under the underlying basis. These are disclosed in Section 'Reconciliation of the Income Statement for the six months ended 30 June 2020 between statutory basis and underlying basis'.

Group financial results on the underlying basis (continued)

Consolidated Condensed Interim Balance Sheet underlying basis

€ million	30 June 2020 1	31December 2019 1
Cash and balances with central banks	5,276	5,060
Loans and advances to banks	622	321
Debt securities, treasury bills and equity investments	1,999	1,906
Net loans and advances to customers	10,104	10,722
Stock of property	1,344	1,378
Investment properties	134	136
Other assets	1,519	1,574
Non-current assets and disposal groups held for sale	373	26
Total assets	21,371	21,123
Deposits by banks	406	533
Funding from central banks	1,000	-
Repurchase agreements	123	168
Customerdeposits	16,303	16,692
Subordinated loan stock	261	272
Othe r liabilities	1,158	1,169
Total liabilities	19,251	18,834
Shareholders' equity	1,875	2,040
Other equity instruments (AT1)	220	220
Total equity excluding non-controlling interests	2,095	2,260
Non-controlling interests	25	29
Total equity	2,120	2,289
Total liabilities and equity	21,371	21,123

Group financial results on the underlying basis (continued)

Consolidated Condensed Interim Balance Sheet underlying basis (continued)

Key Balance Sheet figures and ratios	30 June 2020 Proforma 2	30 June 2020 3	31December 2019
Gross loans (€ million)	11,593	12,491	12,822
Allowance for expected credit losses (€ million)	1,497	2,043	2,096
Customer deposits (€ million)	16,303	16,303	16,692
Loans to deposits ratio (net)	62 %	64 %	64 %
NPE ratio	22 %	28 %	30 %
NPE coverage ratio	58 %	59 %	54 %
Leverageratio	9.1 %	9.1 %	10.0%
Capital ratios and risk weighted assets
Common Equity Tier 1 (CET1) 4	14.4%	14.3%	14.8%
Totalcapitalratio	17.9%	17.8%	18.0%
Risk weighted assets (€ million)	11,848	11,960	12,890

1 The financial information above is extracted from the published accounts. This information should be read together with the information included in the accompanied Consolidated Condensed Interim Financial Statements.

2 Pro forma: Pro forma for the agreement for the sale of NPEs of €0.9 billion (known as Project Helix 2); calculations on a pro forma basis assume completion of Project Helix 2, which is subject to customary regulatory and other approvals.

3 As reported: Including the NPE portfolios classified as 'Non-current assets and disposal groups held for sale'.

4 The CET fully-loaded ratio as at 30 June 2020 (including the full impact of IFRS 9) amounts to 12.6% and

12.7% pro forma for Project Helix 2, compared to 13.1% as at 31 December 2019.

Group financial results on the underlying basis (continued)

Reconciliation of the Income Statement for the six months ended 30 June 2020 between statutory and underlying basis

€million	Underlying basis	NPE sales	Other	Statutory basis
Netinterestincome	168	-	-	168
Netfeeandcommissionincome	71	-	-	71
Netforeignexchangegainsandnetgainsonfinancialinstrumentstransactionsand disposal/dissolutionofsubsidiariesandassociates	12	-	3	15
Insuranceincomenetofinsuranceclaimsandcommissions	29	-	-	29
Netgainsfromrevaluationanddisposalofinvestmentpropertiesandondisposalof stockofproperties	-	-	-	-
Otherincome	8	-	-	8
Totalincome	288	-	3	291
Totalexpenses	(180)	(16)	(10)	(206)
Operatingprofit	108	(16)	(7)	85
Loancreditlosses	(87)	(91)	(3)	(181)
Impairmentsofotherfinancialandnon-financialassets	(29)	-	-	(29)
Provisionsforlitigation,claims,regulatoryandothermatters	(4)	-	4	-
Lossbeforetaxandnon-recurringitems	(12)	(107)	(6)	(125)
Tax	(5)	-	-	(5)
Lossaftertaxattributabletonon-controllinginterests	4	-	-	4
Lossaftertaxandbeforenon-recurringitems(attributabletotheownersof theCompany)	(13)	(107)	(6)	(126)
Advisoryandotherrestructuringcosts-organic	(6)	-	6	-
Lossaftertax-organic*(attributabletotheownersoftheCompany)	(19)	(107)	-	(126)
Provisions/netlossrelatingtoNPEsales,includingrestructuringexpenses	(107)	107	-	-
Lossaftertax(attributabletotheownersoftheCompany)	(126)	-	-	(126)

*This is the loss after tax (attributable to the owners of Company), before the 'Provisions/net loss relating to NPE sales, including restructuring expenses' (for further details refer to section 'Income Statement Analysis/(Loss)/profit after tax attributable to the owners of the Company').

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

NP E sales

· Tota l expenses include restructuring costs of €4 million and operating expenses of €12 million mainly relating to the sale of portfolios of NPEs and are presented within 'Provisions/net loss relating to NPE sales, including restructuring expenses' under the underlying basis.

· Loa n credit losses under the statutory basis include the loan credit losses relating to Project Helix

2 of €68 million, additional loan credit losses of €21 million within the context of IFRS 9 as a result of potential further NPE sales in the future and €2 million additional credit losses on an NPE portfolio (other than Project Helix 2) classified as held for sale; these are disclosed under non- recurring items within 'Provisions/net loss relating to NPE sales, including restructuring expenses' under the underlying basis.

Other reclassifications

· Advisory and other restructuring costs of approximately €6 million included in 'Other operating expenses' under the statutory basis, are separately presented under the underlying basis since they represent one-off items.

· Provisions for litigation, claims, regulatory and other matters amounting to €4 million included in

'Other operating expenses' under the statutory basis, are separately presented under the underlying basis, since they mainly relate to cases that arose outside the normal activities of the Group.

Group financial results on the underlying basis (continued)

Reconciliation of the Income Statement for the six months ended 30 June 2020 between statutory and underlying basis (continued)

· Ne t gains on loans and advances to customers at FVPL of €3 million included in 'Loan credit losses' under the underlying basis are included in 'Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates' under the statutory basis. Their classification under the underlying basis is done as such in order to align them to the net losses on loans and advances to customers at amortised cost.

Balance Sheet Analysis

Capital Base

Tota l equity excluding non-controlling interests totalled €2,095 million at 30 June 2020, compared to

€2,26 0 million at 31 December 2019. Shareholders' equity totalled €1,875 million at 30 June 2020, compared to €2,040 million at 31 December 2019.

The Common Equity Tier 1 capital (CET1) ratio on an IFRS 9 transitional basis stood at 14.3% at 30 June

202 0 (and 14.4% pro forma for Project Helix 2 sale agreement signed in the third quarter of 2020 (referred to as pro forma for Project Helix 2)), compared to 14.8% at 31 December 2019.

Durin g the six months ended 30 June 2020 the CET1 ratio was negatively affected by approximately 70 bps relating to both the loan credit losses recorded as a result of the anticipated Project Helix 2 agreement and net loss relating to all other items under the 'Provisions/net loss on NPE sales, including restructuring expenses', and positively impacted by approximately 50 bps relating to the amendments to the capital regulations introduced in June 2020 as a response to COVID-19 with regards to the extension of the IFRS 9 transitional period and the acceleration of changes to the SME supporting factor (which reduces RWAs).

The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU Regulation 2017/2395) where the impact on the impairment amount from the initial application of IFRS 9 on the capital ratios is phased-in gradually. The amount added each year decreases based on a weighting factor until the impact of IFRS 9 is fully absorbed back to CET1 at the end of the five years. The impact on the capital position for the year 2018 was 5% of the impact on the impairment amounts from the initial application of IFRS 9, increasing to 15% (cumulative) for the year 2019 and to 30% (cumulative) for the year 2020. In June 2020, Regulation (EU) 2020/873, regarding certain adjustments in response to the COVID-19 pandemic, came into force, extending the IFRS 9 transitional arrangements and introducing further relief measures to CET1. Further details are set out further below under 'Implications on capital from the Outbreak of COVID-19'.

The CET1 ratio on a fully loaded basis (including the full impact of IFRS 9) amounted to 12.6% as at 30

June 2020 (and 12.7% pro forma for Project Helix 2) compared to 13.1% at 31 December 2019. On a transitional basis and on a fully phased in basis, after the transition period is complete, and also considering the relaxations announced by the ECB, the impact of IFRS 9 is expected to be manageable and within the Group's capital plans.

The Total Capital ratio stood at 17.8% as at 30 June 2020 (and 17.9% pro forma for Project Helix 2), compared to 18.0% at 31 December 2019.

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

Group financial results on the underlying basis (continued)

Balance Sheet Analysis (continued)

Capital Base (continued)

Based on the final 2019 SREP decision received in December 2019, the Group's minimum phased-in CET1 capital ratio was set at 11.0% (comprising a 4.5% Pillar I requirement, a 3.0% Pillar II requirement (in the form of CET1), the Capital Conservation Buffer of 2.5% (fully phased-in as of 1 January 2019) and the Other Systemically Important Institution Buffer of 1.0%) and the overall Total Capital requirement at 14.5%, comprising an 8.0% Pillar I requirement (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 3.0% Pillar II requirement (in the form of CET1), the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 1.0%. The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer. Pillar II add-on capital requirements derive from the context of the SREP, which is a point in time assessment, and are therefore subject to change over time. The final 2019 SREP decision became effective on 1 January 2020. In the context of ECB's capital easing measures for COVID-19, BOC PCL received an amendment to the December

201 9 SREP decision effective as of 12 March 2020, reducing the Group's minimum phased-in CET1 capital ratio to 9.7% (comprising a 4.5% Pillar I requirement, a 1.7% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 1.0%), following the frontloading of the new rules on the Pillar II Requirement composition, to allow banks to use Additional Tier

1 (AT1) capital and Tier 2 (T2) capital to meet Pillar II Requirements and not only by CET1, initially scheduled to come into effect in January 2021. The Total SREP capital requirement remains unchanged at

14.5%.

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

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

The European Banking Authority (EBA) final guidelines on SREP and supervisory stress testing and the Single Supervisory Mechanism's (SSM) 2018 SREP methodology provide that own funds held for the purposes of Pillar II Guidance cannot be used to meet any other capital requirements (Pillar I, Pillar II requirements or the combined buffer requirement), and therefore cannot be used twice. Following the annual SREP performed by the ECB in 2019 and based on the final 2019 ECB decision received in December

2019, the new provisions are effective from January 2020.

Based on the SREP decisions of prior years, the Company and BOC PCL were under a regulatory prohibition for equity dividend distribution and therefore no dividends were declared or paid during years 2019 and

2018. Following the 2019 SREP decision, the Company and BOC PCL are still under equity dividend distribution prohibition. This prohibition does not apply if the distribution is made via the issuance of new ordinary shares to the shareholders, which are eligible as CET1 capital. No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company or BOC PCL.

The ECB, as part of its supervisory role, has completed an onsite inspection and review on the value of the Group's foreclosed assets with reference date 30 June 2019. The findings, which relate to a possible prudential charge of up to approximately 50 bps, are currently being reviewed by BOC PCL's Joint Supervisory Team and no decision has been communicated to BOC PCL at this stage. The size and timing of the prudential charge (if any) that BOC PCL may be requested to take in order to address the findings of this review remain uncertain and will depend in part on BOC PCL's progress in de-risking its balance sheet.

Group financial results on the underlying basis (continued)

Balance Sheet Analysis (continued)

Capital Base (continued) Share Premium reductionBOC PCL

BO C PCL will proceed (subject to approvals by the ECB and the Court of Cyprus) with a capital reduction process which will result in the reclassification of approximately up to €619 million of the BOC PCL's share premium balance as distributable reserves, which shall be available for distribution to the shareholders of BOC PCL. The reduction of capital will not have any impact on regulatory capital or the total equity position of BOC PCL or the Group.

The distributable reserves provide the basis for the calculation of distributable items under the Capital Requirements Regulation (EU) No. 575/2013 (CRR), which provides that coupons on AT1 capital instruments may only be funded from distributable items.

Company

The Company will proceed (subject to approval by the ECB and the Irish High Court) with a capital reduction process which will result in the reclassification of up to €700 million of the Company's share premium as distributable reserves. The capital reduction has been approved at the Company's Annual General Meeting in May 2020. The capital reduction will not have any impact on regulatory capital or the total equity position of the Company, BOC PCL or the Group.

The distributable reserves provide the basis for the calculation of distributable items under the CRR, which provides that coupons on AT1 capital instruments may only be funded from distributable items.

Project Helix 2

I n August 2020, the Group reached an agreement for the sale of a portfolio of loans with gross book value of approximately €898 million (of which €886 million relate to non-performing exposures) as at 30 June

2020 , known as Project Helix 2. The impact of this transaction on the Group's CET1 ratio at 30 June 2020 is a decrease of approximately 50 bps relating to the loan credit losses in relation to the anticipated agreement of €68 million, including transaction costs. At completion, currently expected in the first half of

2021, the transaction is expected to have a negative impact of 36 bps on the Group's CET1 ratio. Upon the full payment of the deferred consideration and without taking into consideration any positive impact from the earnout, depending on the performance of the portfolio, the transaction is expected to have an overall positive capital impact of 10 bps on the Group's CET1 ratio.

All relevant figures and pro forma calculations are based on 30 June 2020 financial results, unless otherwise stated. Calculations on a pro forma basis assume completion of the transaction, which remains subject to customary regulatory and other approvals.

Further NPE sales in the future

The Group remains committed to assess the potential to accelerate the decrease in NPEs through further NPE sales in the future and in the context of IFRS 9, BOC PCL recognised additional loan credit losses of €21 million in the first half of 2020 and as at 30 June 2020, resulting in a decrease on the Group's CET1 ratio of approximately 14 bps. On completion of an NPE trade, the Group's capital ratios would benefit from any associated RWAs reduction, subject to regulatory approval.

Group financial results on the underlying basis (continued)

Balance Sheet Analysis (continued)

Capital Base (continued)

Legislative amendments for the conversion of DTA to DTC

Legislativ e amendments allowing for the conversion of specific deferred tax assets (DTA) into deferred tax credits (DTC) were adopted by the Cyprus Parliament on 1 March 2019 and published on the Official Gazette of the Republic on 15 March 2019. The law amendments cover the utilisation of income tax losses transferred from Laiki Bank to BOC PCL in March 2013. The introduction of CRD IV in January 2014 and its subsequent phasing-in led to a more capital-intensive treatment of this DTA for BOC PCL. The law amendments resulted in an improved regulatory capital treatment, under CRR, of the DTA amounting to approximately €285 million or a CET1 uplift of approximately 190 bps in March 2019.

The Group understands that, in response to concerns raised by the European Commission with regard to the provision of state aid arising out of the treatment of such tax losses, the Cyprus Government is considering the adoption of modifications to the Law, potentially including requirements for an additional annual fee over and above the 1.5% annual guarantee fee already acknowledged, to maintain the conversion of such DTAs into tax credits. In anticipation of such modifications the Group recorded an additional amount of €13 million by way of an estimated additional fee (for the years 2018 and 2019), bringing the total guarantee fee recognised for the year 2019 to €19 million.

Project Helix

I n June 2019, Project Helix was completed resulting in a positive impact of approximately 140 bps on both the Group's CET1 and Total Capital ratios, mainly from the release of risk weighted assets. Project Helix had an overall net positive impact on the Group capital ratios of approximately 60 bps.

Sale of investment in CNP Cyprus Insurance Holdings Ltd

I n October 2019, the sale of the Group's investment in its associate CNP Cyprus Insurance Holdings Limited (CNP) was completed, resulting in a positive impact of approximately 30 bps on both the Group's CET1 and Total Capital ratios, mainly from the release of risk weighted assets. The shareholding had been acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and was sold to CNP Assurances S.A. for a cash consideration of €97.5 million.

Voluntary Staff Exit Plan

I n October 2019, the Group completed a voluntary staff exit plan (VEP) at a total cost of €81 million, recorded in the consolidated income statement in the fourth quarter of 2019, resulting in a negative impact of approximately 60 bps on both the Group's CET1 and Total Capital ratios.

Implications on capital from the Outbreak of COVID-19

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

Group financial results on the underlying basis (continued)

Balance Sheet Analysis (continued)

Capital Base (continued)

I n the context of the ECB's capital easing measures for COVID-19, BOC PCL received an amendment to the December 2019 SREP decision effective as of 12 March 2020, reducing the Group's minimum phased in CET1 capital ratio to 9.7%, following the frontloading of the new rules on the Pillar II Requirement composition, to allow banks to use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to meet Pillar II Requirements and not only by CET1, initially scheduled to come into effect in January 2021. The Total SREP capital requirement remains unchanged. In addition, the ECB allows banks to operate temporarily below the level of Pillar II Guidance (P2G), the capital conservation buffer (CCB) and the countercyclical buffer. The CBC has set the level of the countercyclical buffer for Cyprus at 0% for the six months up to 30 June 2020 and the year 2019. The CBC has also set the level of the countercyclical buffer for Cyprus at 0% for the period 1 July 2020 to September 2020. In July 2020, the ECB committed to allow banks to operate below the P2G and the combined buffer requirement until at least end of 2022, without automatically triggering supervisory actions.

I n addition, in April 2020, the CBC decided to delay the phasing-in of the 1 January 2021 and 1 January

202 2 of the O-SII buffer (0.5% for BOC PCL) by 12 months. Consequently, the O-SII buffer will be fully phased-in on 1 January 2023, instead of 1 January 2022 as originally set.

Moreover, in June 2020, Regulation (EU) 2020/873, in response to the COVID-19 pandemic, came into force, bringing forward some of the capital relieving measures that were due to come into force at a later stage and introducing modifications as part of the wider efforts of competent authorities to provide the support necessary to the institutions. The main adjustments affecting the Group's own funds relate to accelerating the implementation of the new SME discount factor under CRR II in June 2020, instead of June

2021, extending the IFRS 9 transitional arrangements and introducing further relief measures to CET1, advancing the application of prudential treatment of software assets as amended by CRR II, and introducing temporary treatment of unrealized gains and losses to exposures to central governments, regional governments or local authorities, measured at fair value through other comprehensive income.

With respect to the SME discount factor, banks will be required to hold less capital against SMEs as revised capital discount factors come into effect. These changes became effective in June 2020 and added to capital

44 bps.

Th e amendments to the existing IFRS 9 transitional arrangements relate to the extension of the transitional period for the recalculation of the transitional adjustment on credit losses on Stages 1 and 2 loans (dynamic component). A 100% add-back of IFRS 9 provisions is allowed for the years 2020 and 2021 reducing to

75 % in 2022, to 50% in 2023 and to 25% in 2024. The calculation at each reporting period is to be made against Stage 1 and Stage 2 provisions as at 1 January 2020, instead of 1 January 2018. The calculation of the static component has not been amended. These amendments became effective in June 2020 and added to capital 8 bps as at 30 June 2020.

I n relation to the prudential treatment of intangibles, software assets will no longer need to be deducted in full in CET1 calculations, subject to certain criteria. This change shall apply when the associated EBA regulatory technical standard is approved and shall become effective.

Finally, institutions may remove from the calculation of their CET1 the amount of unrealised gains and losses accumulated since 31 December 2019 accounted for as 'fair value changes of debt instruments measured at fair value through other comprehensive income' in the balance sheet, corresponding to exposures to central governments, to regional governments or to local authorities and to public sector entities, excluding those financial assets that are credit-impaired, subject to a scaling factor set at 100% from January to December 2020, at 70% from January to December 2021 and at 40% from January to December 2022. BOC PCL expects to apply the temporary relief starting in the third quarter of 2020.

Since 30 June 2020, and up to 17 August 2020, the mark-to market valuation of the debt securities in the portfolio held at FVOCI remained broadly flat. Any change is recognised directly in equity i.e. through Other Comprehensive Income (OCI).

Group financial results on the underlying basis (continued)

Balance Sheet Analysis (continued)

Capital Base (continued)

Furthermore, on 17 August 2020, the Group held Cyprus sovereign debt securities of a nominal amount of

€740 million (compared to €715 million on 30 June 2020 and €477 million on 31 December 2019 ), of which

€33 6 million is held at FVOCI portfolio (compared to €337 million on 30 June 2020 and €342 million on 31

December 2019) and €404 million is held at amortised cost portfolio (compared to €378 million on 30 June

202 0 and €135 million on 31 December 2019). The increase in the first half of 2020 is mainly due to the

Group's participation in the issuance of 52-week treasury bills of the Cyprus Government in April 2020.

Regulations and Directives

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

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

Bank Recovery and Resolution Directive (BRRD)

Minimum Requirement for Own Funds and Eligible Liabilities (MREL)

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

I n May 2020, BOC PCL received formal notification from the CBC in its capacity as National Resolution Authority, of the final decision by the Single Resolution Board (SRB), for the binding minimum requirement for own funds and eligible liabilities (MREL) for BOC PCL, determined as the preferred resolution point of entry. The MREL requirement was set at 28.36% of risk weighted assets as of 30 June 2019 and must be met by 31 December 2025. This MREL requirement would be equivalent to 18.54% of total liabilities and own funds (TLOF) as at 30 June 2019. The MREL requirement is in line with BOC PCL's expectations, and largely in line with its funding plans.

This decision is based on the current legislation, it is expected to be updated annually and could be subject to subsequent changes by the resolution authorities, especially considering the developments of the BRRD and its transposition into the local legislation.

The MREL ratio of BOC PCL as at 30 June 2020, calculated according to SRB's eligibility criteria currently in effect, and based on BOC PCL's internal estimate stood at 18.21% of RWAs (31 December 2019: 18.54%).

Group financial results on the underlying basis (continued)

Balance Sheet Analysis (continued)

Funding and liquidity

Funding

Funding from Central Banks

At 30 June 2020, BOC PCL's funding from central banks amounted to €1 billion, which relates to ECB funding, comprising solely of funding through the Targeted Longer-Term Refinancing Operations (TLTRO III) obtained during the six months ended 30 June 2020. At 31 December 2019, BOC PCL had no funding from central banks. In June 2020, BOC PCL borrowed €1 billion from the fourth TLTRO III operation, despite its comfortable liquidity position, given the favourable borrowing rate, in combination with the relaxation of collateral terms.

Deposits

Customer deposits totalled €16,303 million at 30 June 2020, compared to €16,692 million at 31 December

2019, reduced by 2% since the year end.

The deposit market share in Cyprus for BOC PCL reached 35.0% as at 30 June 2020, compared to 35.1% as at 31 December 2019. Customer deposits accounted for 76% of total assets and 85% of total liabilities at

30 June 2020, compared to 79% of total assets and 89% of total liabilities at 31 December 2019.

The net Loans to Deposit ratio (L/D) stood at 64% as at 30 June 2020, compared to 64% at 31 December

2019. The L/D ratio had reached a peak of 151% as at 31 March 2014.

Subordinated Loan Stock

At 30 June 2020 BOC PCL's subordinated loan stock (including accrued interest) amounted to €261 million, compared to €272 million as at 31 December 2019, and relates to unsecured subordinated Tier 2 Capital Notes of nominal value €250 million, issued by BOC PCL in January 2017.

Liquidity

At 30 June 2020 the Group Liquidity Coverage Ratio (LCR) stood at 257%, compared to 208% at 31

December 2019, and was in compliance with the minimum regulatory requirement of 100%.

The liquidity surplus in LCR at 30 June 2020 amounted to €3.9 billion, compared to €3.2 billion at 31

December 2019. The increase in the six months ended 30 June 2020 is driven by the borrowing of €1 billion

TLTRO III in June 2020.

The Net Stable Funding Ratio (NSFR) has not yet been introduced. It will be enforced as a regulatory ratio under CRR II in 2021, with the limit set at 100%. At 30 June 2020, the Group's NSFR, on the basis of Basel Ι standards, stood at 134%, compared to 127% at 31 December 2019.

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

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

· The ECB will allow banks to operate below the defined level of 100% of the LCR until at least end-

2021.

Group financial results on the underlying basis (continued)

Balance Sheet Analysis (continued)

Funding and liquidity (continued)

· Collateral easing measures: The package included a set of collateral easing measures, which resulted in increasing the banks' borrowing capacity at the ECB operations and improving the liquidity buffers due to the lower haircuts applied to the ECB eligible collaterals the bank holds, that comprises of bonds and Credit Claims. The collateral easing packages are designed mainly as temporary measures that will remain in place until September 2021 with the flexibility to be extended or modified. Furthermore, the ECB enlarged the scope of the Additional Credit Claim (ACC) framework, increasing the universe of eligible loans. In addition, the ECB announced changes in collateral rules, temporarily accepting collaterals with a rating below investment grade, up to a certain rating level.

· Favourable terms of LTRO operations: the package contained measures to provide liquidity support to the euro area financial system, such as a series of LTROs which ran from March to June 2020 so participants could shift their outstanding LTRO amounts to TLTRO III, as well as significant favourable amendments in the terms and characteristics of TLTRO III. Furthermore, a new series of additional longer-term refinancing operations, called Pandemic Emergency Longer-Term Refinancing Operations (PELTROs), were introduced with an interest rate of 25 basis points below the average rate applied in the Eurosystem's main refinancing operations (currently 0%) over the life of the respective PELTROs that are maturing in the third quarter of 2021.

Loans

Group gross loans totalled €12,491 million at 30 June 2020, compared to €12,822 million at 31 December

2019 . Gross loans of the Group's Cyprus operations totalled €12,416 million at 30 June 2020 accounting for

99% of Group gross loans, compared to €12,736 million at 31 December 2019 accounting for 99% of Group gross loans. Pro forma for Project Helix 2, gross loans are reduced by €898 million to €11,593 million as at

30 June 2020.

New loans granted in Cyprus reached €689 million during the six months ended 30 June 2020 compared to

€1,11 1 million for the six months ended 30 June 2019 (down by 38%). The reduction in new loans follows the restrictive measures as a result of the outbreak of COVID-19.

At 30 June 2020, the Group net loans and advances to customers totalled €10,104 million, compared to

€10,72 2 million at 31 December 2019. At 30 June 2020 net loans and advances to customers of €362 million were classified as a disposal group held for sale in line with IFRS 5, of which €352 million relate to Project Helix 2 and €10 million to Project Helix tail, compared to €26 million as at 31 December 2019 relating to Project Helix tail and Velocity 2.

BO C PCL is the single largest credit provider in Cyprus with a market share of 41.7% at 30 June 2020, compared to 41.1% at 31 December 2019.

Loan portfolio quality

Tackling the Group's loan portfolio quality remains the top priority for management. The Group has continued to make steady progress across all asset quality metrics and the loan restructuring activity has continued. The Group has been successful in engineering restructuring solutions across the spectrum of its loan portfolio.

Non-performing exposures (NPEs) as defined by the European Banking Authority (EBA) were reduced to

€3,46 8 million at 30 June 2020, compared to €3,880 million at 31 December 2019, despite the COVID-19 lockdown in March 2020. The Group has recorded organic NPE reductions for twenty-one consecutive quarters. Pro forma for Project Helix 2, NPEs are reduced by €886 million to €2,582 million on the basis of

30 June 2020 figures.

Group financial results on the underlying basis (continued)

Balance Sheet Analysis (continued)

Loan portfolio quality (continued)

The NPEs account for 28% of gross loans as at 30 June 2020, compared to 30% at 31 December 2019 (including the NPE portfolios classified as 'Non-current assets and disposal groups held for sale'). Pro forma for Project Helix 2, the NPE ratio is reduced to 22% on the basis of the 30 June 2020 figures.

The NPE coverage ratio improved to 59% at 30 June 2020 compared to 54% at 31 December 2019 (including the NPE portfolios classified as 'Non-current assets and disposal groups held for sale'). When taking into account tangible collateral at fair value, NPEs are fully covered.

Pro forma for Project Helix 2, the NPE coverage ratio is reduced to 58% on the basis of the 30 June 2020 figures.

30 June

2020

31December

2019

€ million

% gross loans

€ million

% gross loans

NPEs as per EBA definition

3,468

27.8 %

3,880

30.3%

O f which:

- NPEs with forbearance measures, no arrears*

346

2.8 %

428

3.3%

*The analysis is performed on a customer basis.

Project Helix 2

I n August 2020, the Group reached agreement for the sale of a portfolio of loans with gross book value of approximately €898 million (of which €886 million relate to non-performing exposures) as at 30 June 2020, known as Project Helix 2.

This portfolio had a contractual balance of €1.46 billion as at the reference date of 30 September 2019 and comprises mainly retail and small-to-medium-sized enterprises, secured by real estate collateral. As at 30

June 2020, this portfolio is classified as a disposal group held for sale and it also includes other assets comprising properties and cash already received since the reference date of approximately €34 million.

The gross consideration amounts to 46% of the gross book value and 29% of the contractual balance payable in cash, of which 35% is payable at completion, currently expected in the first half of 2021, and the remaining 65% is deferred without any conditions attached. The deferred component is payable in three broadly equal instalments over 48 months from completion. The consideration can be increased through an earnout arrangement, depending on the performance of the portfolio.

This portfolio will be transferred to a licensed Cypriot Credit Acquiring Company (the 'CyCAC') by BOC PCL. The shares of the CyCAC will then be acquired by certain funds affiliated with Pacific Investment Management Company LLC (PIMCO), the purchaser of the portfolio.

Following a transitional period where servicing will be retained by BOC PCL, it is intended that the servicing of the portfolio will be carried out by a third party servicer selected and appointed by the CyCAC. Arrangements in relation to the migration of servicing from BOC PCL to the servicer, including the timing of the migration, remain under discussion between the parties.

Project Helix 2 accelerates the Group's strategy of de-risking its balance sheet, by reducing its stock of NPEs by 26% to €2,582 million pro forma on the basis of the 30 June 2020 figures, and its NPE ratio by 6 p.p. to

22% pro forma on the basis of the 30 June 2020 figures.

Group financial results on the underlying basis (continued)

Balance Sheet Analysis (continued)

Loan portfolio quality (continued)

Project Velocity 2

I n May 2020, the Group completed the sale of a non-performing loan portfolio of primarily retail unsecured exposures, with a contractual balance of €398 million and gross book value of €144 million as at the reference date of 31 August 2019 (known as Project Velocity 2) to B2Kapital Cyprus Ltd. This portfolio comprised of approximately of 10,000 borrowers, including approximately 8,400 private individuals and approximately 1,600 small-to-medium-sized enterprises. The gross book value of this portfolio as at the date of disposal was €133 million. The sale was broadly neutral to both the profit and loss and to capital.

Project Helix

I n June 2019, the Group announced the completion of Project Helix, that refers to the sale of a portfolio of loans with a gross book value of €2.8 billion (of which €2.7 billion related to non-performing loans) (the

'Portfolio') secured by real estate collateral, to certain funds affiliated with Apollo Global Management LLC, the agreement for which was announced on 28 August 2018. Cash consideration of approximately €1.2 billion was received on completion, reflecting adjustments resulting from, inter alia, loan repayments received on the Project Helix portfolio since the reference date of 31 March 2018. The participation of BOC PCL in the senior debt in relation to financing the transaction was syndicated down from the initial level of

€45 0 million to approximately €45 million, representing approximately 4% of the total acquisition funding. Upon completion, the NPE ratio was reduced by approximately 11 p.p. to 33% as at 30 June 2019, approximately 70% lower than its peak in 2014.

Project Velocity 1

I n June 2019, the Group completed the sale of a non-performing loan portfolio of primarily retail unsecured exposures, with a contractual balance of €245 million and a gross book value of €34 million as at the reference date of 30 September 2018 (known as 'Project Velocity 1') to APS Delta s.r.o. This portfolio comprised 9,700 heavily delinquent borrowers, including 8,800 private individuals and 900 small-to- medium-sized enterprises. The gross book value of this portfolio as at the date of disposal was €30 million. The sale was broadly neutral to both the profit and loss and to capital.

ESTIA

I n July 2018 the Government announced a scheme aimed at addressing NPEs backed by primary residence, known as ESTIA (the 'Scheme'). The ESTIA eligible portfolio of €0.8 billion of retail NPEs as at 30 June

2020, referred to the potentially eligible portfolio following on-going detailed assessment based on the available data of BOC PCL on Open Market Value (OMV) and NPE status. The eligibility criteria act as a clear definition of socially protected borrowers, acting as an enabler against strategic defaulters. In accordance with the Scheme, the eligible loans are to be restructured to the lower of the contractual balance and the OMV. The Government subsidises one third of the instalment of the restructured loan, subject to the borrowers servicing their restructured loans.

The Scheme is expected to resolve part of the ESTIA-eligible portfolio (€61 million as per latest available figures in August 2020), to identify non-viable customers for which alternative restructuring solutions are being considered, including by the Government (€45 million as per latest available figures in August 2020), and to facilitate the resolution of the remaining customers (€695 million as per latest available figures in August 2020), mainly by focusing on realising collateral through consensual and non-consensual foreclosures.

Group financial results on the underlying basis (continued)

Balance Sheet Analysis (continued)

Loan portfolio quality (continued)

Following the outbreak of COVID-19, the scheme opened for new applicants for a two-week period in June

2020, and the deadline for borrowers to complete their application was further extended to the end of July

2020.

Additional strategies to accelerate de-risking

The Group remains committed to assess the potential to accelerate the decrease in NPEs through further NPE sales in the future and in the context of IFRS 9, other than the loan credit losses of €68 million recorded for Project Helix 2, BOC PCL recognised additional loan credit losses of €21 million in the second quarter of 2020 and as at 30 June 2020, resulting in a decrease on the Group's CET1 of approximately 14 bps. In December 2019, additional loan credit losses of €75 million were recognised as a result of the anticipated balance sheet de-risking at the time.

As at 30 June 2020, a portfolio of credit facilities related to Project Helix of mainly secured non-performing exposures (known as 'Helix Tail') with gross book value of €44 million, compared to €46 million as at 31

December 2019, was classified as a disposal group held for sale.

Real Estate Management Unit (REMU)

Th e Real Estate Management Unit (REMU) on-boarded €30 million of assets during the six months ended 30

June 2020 compared to €126 million during the six months ended 30 June 2019, via the execution of debt for asset swaps and repossessed properties. The focus of REMU is increasingly shifting from on-boarding of assets resulting from debt for asset swaps towards the disposal of these assets. The Group completed organic disposals of €24 million during the six months ended 30 June 2020 (compared to €92 million for the same period last year), resulting in a profit on disposal of nil for the six months ended 30 June 2020 (compared to a profit on disposal of €16 million for the six months ended 30 June 2019).

During the six months ended 30 June 2020, the Group executed sale-purchase agreements (SPAs) with contract value of €27 million (170 properties), compared to €110 million (258 properties) for the six months ended 30 June 2019, excluding the sale of the Cyreit. In addition, the Group had signed SPAs for disposals of assets with contract value of €53 million as at 30 June 2020, compared to €89 million as at 30

June 2019. Stock of property with a carrying value of €11 million as at 30 June 2020 transferred to non- current assets and disposal groups held for sale, as it was included in the Project Helix 2 portfolio.

Completion of sale of Cyreit

I n November 2018, BOC PCL signed an agreement for the disposal of its entire holding in the investment shares of the Cyreit Variable Capital Investment Company PLC (Cyreit). During the first half of 2019, the Group completed the sale of the Cyreit (21 properties), recognising a loss of approximately €1 million. The total proceeds from the disposal of Cyreit were €160 million.

Completion of Project Helix

With the completion of Project Helix in the second half of 2019, properties with a carrying value of €109 million in the Project Helix portfolio were derecognised as of 30 June 2019.

Assets held by REMU

As at 30 June 2020, assets held by REMU had a carrying value of €1,456 million (comprising properties of

€1,34 4 million classified as 'Stock of property' and €112 million as 'Investment properties'), compared to

€1,49 0 million as at 31 December 2019 (comprising properties of €1,378 million classified as 'Stock of property' and €112 million as 'Investment properties').

I n addition to assets held by REMU, properties classified as 'Investment properties' with carrying value of

€2 3 million as at 30 June 2020 (compared to €24 million as at 31 December 2019), relate to legacy properties held by BOC PCL before the set-up of REMU in January 2016.

Group financial results on the underlying basis (continued)

Balance Sheet Analysis (continued)

Overseas exposure

The Group continues its efforts for further deleveraging and disposal of non-essential assets and operations in Greece, Romania and Russia.

At 30 June 2020 there were overseas exposures of €269 million in Greece relating to both loans and properties, compared to €265 million as at 31 December 2019, not identified as non-core exposures, since they are considered by management as exposures arising in the normal course of business.

Income Statement Analysis

Total income

Ne t interest income (NII) and net interest margin (NIM) for the six months ended 30 June 2020 amounted to €168 million and 1.90% respectively on the underlying basis. NII and NIM for the six months ended 30

June 2019 amounted to €170 million and 1.88% respectively. The NIM remained broadly flat when compared to previous year, as the pressure on effective loan yields is offset by the decreased cost of deposits.

Averag e interest earning assets for the first half of 2020 amounted to €17,741 million compared to €18,270 million for the first half of 2019, down by 3% a year earlier, mainly driven by the reduction of liquid assets following repayment of ECB funding (TLTRO II) in September 2019, as well as to the reduction in net loans.

Non interest income for the six months ended 30 June 2020 amounted to €121 million (six months ended

3 0 June 2019: €163 million), comprising net fee and commission income of €71 million, net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of €12 million, net insurance income of €29 million, net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties of nil and other income of €8 million.

Ne t fee and commission income for the six months ended 30 June 2020 amounted to €71 million, down by

5% compared to the same period last year, negatively affected by the COVID-19 lockdown.

Ne t foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of €12 million for the six months ended 30 June 2020, comprising net foreign exchange gains of €10 million and net gains on revaluation of financial instruments of €2 million, decreased by 54% compared to the same period last year mainly driven by the lower net revaluation gains.

Ne t insurance income amounted to €29 million for the six months ended 30 June 2020, compared to €30 million for the same period last year and remained broadly flat.

Ne t gains from revaluation and disposal of investment properties and on disposal of stock of properties for the six months ended 30 June 2020 amounted to nil, impacted by the COVID-19 lockdown, compared to net gains of €16 million for the six months ended 30 June 2019. REMU profit remains volatile.

Tota l income for the six months ended 30 June 2020 amounted to €288 million, compared to €333 million for the six months ended 30 June 2019, down by 13%.

Total expenses

Tota l expenses for the six months ended 30 June 2020 were €180 million compared to €208 million for the six months ended 30 June 2019, 53% of which related to staff costs (€96 million), 38% to other operating expenses (€69 million) and 9% to special levy and contribution to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF) (€15 million).

Tota l operating expenses for the six months ended 30 June 2020 were €165 million compared to €196 million for the six months ended 30 June 2019, down by 16%.

Group financial results on the underlying basis (continued)

Income Statement Analysis (continued)

Total expenses (continued)

Staff costs of €96 million for the six months ended 30 June 2020 decreased by 14% compared to €112 million for the six months ended 30 June 2019, mainly driven by cost savings following the completion of the voluntary staff exit plan (VEP) in the fourth quarter 2019, through which approximately 11% of the Group's full-time employees were approved to leave at a total cost of €81 million, recorded in the consolidated income statement in the fourth quarter 2019. The annual savings net of the impact from the renewal of the collective agreement for 2019 and 2020, are estimated at €23 million or 11% of staff costs.

The Group employed 3,579 persons as at 30 June 2020 (compared to 3,672 as at 31 December 2019, including approximately 100 persons relating to Project Helix who were transferred to the buyer upon full migration in January 2020). The staff costs related to these persons are included under 'Provisions/net loss relating to NPE sales, including restructuring expenses' in the underlying basis.

Other operating expenses for the six months ended 30 June 2020 were €69 million, decreased by 19% compared to the same period in 2019, mainly due to lower consultancy, marketing and property-related costs.

Special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF) for the six months ended 30 June 2020 was €15 million, compared to €12 million for the six months ended 30 June

2019. The increase of 23% compared to the same period last year is driven by the contribution of BOC PCL to the Deposit Guarantee Fund (DGF) of €3 million, which relates to the six months ended 30 June 2020 and recorded in the first quarter of 2020 in line with IFRSs.

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

The cost to income ratio excluding special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF) for the six months ended 30 June 2020 was 57% compared to 59% for the six months ended 30 June 2019, reflecting a 16% reduction in total operating expenses and a 13% reduction in total income compared to 30 June 2019. Cost management remains a key focus going forward.

(Loss)/profit before tax and non-recurring items

Operating profit for the six months ended 30 June 2020 was €108 million compared to €125 million for the six months ended 30 June 2019, down by 13%, mainly due to lower total income.

The loan credit losses for the six months ended 30 June 2020 totalled €87 million, broadly flat, compared to

€8 7 million for the six months ended 30 June 2019. The charge for the six months ended 30 June 2020 includes €38 million loan credit losses reflecting the impact of IFRS 9 Forward Looking Information (FLI) driven by the deterioration of the macroeconomic outlook, as a result of the economic effects of the COVID-

19 outbreak.

Th e annualised loan credit losses charge (cost of risk) for the six months ended 30 June 2020 accounted for

1.39% of gross loans, compared to an annualised loan credit losses charge of 1.34% for the six months ended 30 June 2019 on the same basis.

At 30 June 2020, the allowance for expected loan credit losses, including residual fair value adjustment on initial recognition and credit losses on off-balance sheet exposures totalled €2,043 million (compared to

€2,09 6 million at 31 December 2019) and accounted for 16.4% of gross loans (compared to 16.3% at 31

December 2019).

Group financial results on the underlying basis (continued)

Income Statement Analysis (continued)

(Loss)/profit before tax and non-recurring items (continued)

Impairments of other financial and non-financial assets for the six months ended 30 June 2020 amounted to

€2 9 million, compared to €10 million for the six months ended 30 June 2019, relating mainly to specific, large, illiquid REMU properties.

Provisions for litigation, claims, regulatory and other matters for the six months ended 30 June 2020 totalled €4 million, compared to a reversal of provisions of €3 million for the six months ended 30 June

2019.

(Loss)/profit after tax (attributable to the owners of the Company)

The tax charge for the six months ended 30 June 2020 is €5 million, compared to nil for the six months ended 30 June 2019.

Loss after tax and before non-recurring items (attributable to the owners of the Company) for the six months ended 30 June 2020 was €13 million, compared to a profit of €29 million for the six months ended

30 June 2019.

Advisory and other restructuring costs - organic for the six months ended 30 June 2020 amounted to €6 million, compared to €10 million for the six months ended 30 June 2019.

Loss after tax arising from the organic operations (attributable to the owners of the Company) for the six months ended 30 June 2020 amounted to €19 million, compared to a profit of €19 million for the six months ended 30 June 2019.

Provisions/ne t loss relating to NPE sales, including restructuring expenses for the six months ended 30 June

2020 amounts to €107 million, compared to €2 million for the six months ended 30 June 2019, and includes mainly loan credit losses in relation to the anticipated Project Helix 2 agreement of €68 million and additional loan credit losses of €21 million as a result of potential further NPE sales in the future. Restructuring costs relating to NPE sales of €4 million for the six months ended 30 June 2020 were also included.

Loss on remeasurement of investment in associate upon classification as held for sale (CNP) net of share of profit from associates totalled €21 million for the six months ended 30 June 2019, comprising a loss on remeasurement of investment in associate upon classification as held for sale of €26 million and a share of profit from associates of €5 million. In October 2019 the Group completed the sale of its entire shareholding of 49.9% in its associate CNP Cyprus Insurance Holdings Limited (CNP) that had been acquired as part of the acquisition of certain operations of Laiki Bank in 2013, for a cash consideration of €97.5 million.

The reversal of impairment of DTA and impairment of other tax receivables totalled €101 million for the six months 30 June 2019, comprising the net positive impact of €109 million following amendments to the Income Tax legislation in Cyprus adopted in March 2019, and an impairment of €8 million relating to Greek tax receivables adversely impacted from legislative changes. The carrying value of the remaining receivable as at 30 June 2020 was €5 million, compared to €5 million as at 31 December 2019.

Loss after tax attributable to the owners of the Company for the six months ended 30 June 2020 was €126 million, compared to a profit of €97 million for the six months ended 30 June 2019.

Operating environment

The global economy and certainly the European economy, particularly the southern member states, are now faced with a bleaker prospect in 2020 than initially projected. Economic performance in the first half of the year has been worse than expected and progress towards containing the pandemic has been slower. The International Monetary Fund (IMF), in its summer update released in late June 2020, expects the global economy to contract by 4.9% in 2020 compared with a projected 3.0% contraction in their May 2020 update. The Organisation for Economic Co-operation and Development (OECD) now expects a 6.0% baseline contraction in the year and the European Commission expects the EU to contract by 8.3%. The expected performance of the different countries in the EU varies significantly from a contraction of 5.2% in Denmark to a contraction of 11.2% in Italy.

Europea n Union support

I n response to the COVID-19 crisis, the ECB extended its quantitative easing programme and negative interest rates, and introduced additional measures, most importantly the Pandemic Emergency Purchase Programme (PEPP). This programme was initiated in March 2020 with an initial size of €750 billion and has been increased to €1.35 trillion in June 2020 and extended until at least mid-2021. The maturing principal payments from securities purchased under the PEPP will be reinvested until at least the end of 2022. The ECB also maintains ample liquidity in the banking system through its refinancing operations, but also by easing the rules around collateral that banks can use in exchange for central bank liquidity. The ECB is strongly committed to preventing financial fragmentation in the Eurozone which keeps funding costs low and minimises the risk of a sovereign debt crisis in highly leveraged economies. The ECB is therefore the lender of last resort, but the size of the current crisis requires large scale fiscal intervention by governments and EU-led regional transfers.

I n April 2020, the EU introduced a significant fiscal programme totalling €540 billion. This consisted of the European Stability Mechanism (ESM) Pandemic crisis support for €240 billion; the European Investment Bank (EIB) guarantee fund for loans to SMEs for €200 billion; and the SURE employment support for €100 billion.

I n July 2020, following three days of intense negotiations, the governments of the 27 member states of the European Union reached an agreement on the initial proposals of the European Commission for a COVID-19 recovery programme. This consists of a €750 billion fund that will be incorporated into the EU's seven-year budget framework 2021-2027. A total of €390 billion will be allotted as grants (instead of the initial proposal for €500 billion grants), and the remaining €360 billion will be allotted as loans. The European Commission will be allowed to borrow from debt markets and will primarily aid southern countries, including Cyprus, hit hard by the pandemic.

Fiscal policy

Cyprus recorded a fiscal surplus of 1.7% of GDP in 2019 which reduced the debt-to-GDP ratio to 95.5% from 100.6% at the end of 2018. The outbreak of the COVID-19 pandemic and the measures introduced to contain it and support companies and employment, will push the budget into deficit which will be substantial. Spending will be significantly higher in the year reflecting the financial support packages, and tax revenues will be lower as a result of the deep recession.

The recovery of Cyprus following the financial crisis in 2013 was relatively solid. Real GDP grew annually at an average pace of 4.4% in 2015-2019. This was primarily driven by gross fixed investment expenditures and the export of services. On the supply side the recovery was broad, driven primarily by construction, manufacturing, trade, tourism, information and communication, and professional services. As a result, total output surpassed its pre-crisis level by about 10% in 2019. In 2020, the Cyprus economy faces the prospect of a deep recession as a result of the COVID-19 crisis. The Commission expects that the Cyprus economy will contract by 7.8% in the year. The recovery in 2021 is expected to be only partial with GDP rising by 5.3% and will thus take longer to restore output to pre-COVID-19 levels.

Operating environment (continued)

The Cyprus economy exhibits an over-reliance on the tourism sector which leaves it more exposed than most other countries, to the travel restrictions and quarantine measures adopted in response to the COVID-

1 9 crisis. In the first quarter of the year, with containment measures in place for less than one month, real GDP increased by 0.8% year-on-year, seasonally adjusted compared with an increase of 3.4% respectively the year before. Real GDP in the second quarter dropped by 11.9% as containment measures were in full effect and as there were no tourist arrivals at all in April and May 2020.

The containment measures introduced in response to COVID-19, the consequent loss of income and employment, despite the government's support measures, are expected to affect private consumption. Private consumption is expected to be recovering as the economy will be emerging from the lockdown and confidence improves. Public consumption is expected to increase significantly in the year reflecting the government's substantial fiscal response to the COVID-19 crisis. Fixed investment, which is more sensitive to uncertainty and worsening economic conditions, is expected to drop more steeply as projects get postponed and to recover gradually as the recovery gets underway and projects are revived.

The biggest hit to economic growth in Cyprus is expected to come from a steep drop in external demand for travel and tourism services and the indirect effects to related sectors including trade, manufacturing and other services. The tourism related sector 'accommodation and food services', accounted for 6% of real gross values added in 2019 and about 11.6% of employment. Total gross tourist receipts amounted to

12.2% of GDP in 2019. Tourist activity in Cyprus is highly seasonal with approximately 75% of arrivals and receipts occurring in the second and third quarters, when the hit from COVID-19 is expected to be the greatest. In the seven-month period from January 2020 to July 2020 total tourist arrivals were down by

85%, compared to the corresponding period in the prior year. Likewise, tourist spending in the six months to June 2020 declined by 88% against the same period in the prior year.

Consumer prices have been moderating in the first half of the year and are expected to continue to moderate in the second half, driven by falling domestic demand and weak global energy prices. As the economy starts to emerge from recession in 2021, and as energy prices start to strengthen, inflation is expected to pick up gradually.

I n the external sector the current account deficit widened in 2019 driven by strong domestic demand that increased imports disproportionately. In 2020 the current account deficit is not expected to be significantly altered in comparison with the previous year. The trade balance is expected to narrow sharply reflecting the impact of the recession on imports. The steep decline of travel and transport earnings are expected to narrow the services balance, thus offsetting the narrowing of the trade balance.

Banking sector and non-performing exposures

I n the banking sector of Cyprus, total loans to residents and non-residents alike, were €32.2 billion at the end of June 2020. This corresponds to 157% of 2020 estimated nominal GDP. Total loans consisted of €6.9 billion to non-residents and €25.4 billion to residents or €25.1 billion excluding the Government. The latter, which include €9 billion in non-performing in March 2020, were approximately 122% of nominal GDP.

The stock of NPEs declined from €20.9 billion at the end of December 2017 to €10.4 billion as at the end of December 2018 after the sale of loans by the BOC PCL (Project Helix) and the resolution of the Cyprus Cooperative Bank. NPEs dropped to €9.1 billion at the end of December 2019 and were marginally lower at

€9.0 billion at the end of March 2020. NPEs consisted of €4.6 billion from households and €4.0 billion from non-financial companies mainly SMEs. Financial companies comprised the remaining €0.4 billion.

The ratio of NPEs to gross loans in Cyprus was 27.8% at the end of March 2020 from 28.0% at the end of December 2019 and 30.5% at the end of December 2018. The share of restructured facilities was 44.5% and the coverage ratio stood at 57.3% at the end of March 2020.

Operating environment (continued)

Sovereign ratings

The sovereign risk ratings of the Cyprus Government improved considerably in recent years reflecting improvements in economic resilience and consistent fiscal outperformance. Cyprus demonstrated policy commitment to correcting fiscal imbalances through reform and restructuring of its banking system. Cyprus continues to face high public debt and a large remaining stock of non-performing loans. While the COVID-19 crisis is expected to cause a deep recession near-term reversing some of the gains achieved in previous years, the longer-term outlook remains solid and the impact on the credit profile is expected to be temporary.

Moody's maintains a long-term credit rating of Ba2 since July 2018 and a positive outlook since September

2019. In April 2020 Moody's Investors Service issued an Update on their credit opinion for the Cyprus Sovereign and revised their forecasts for the Cyprus economy in view of the COVID-19 outbreak. According to the Update, the outbreak will weigh on near-term growth and fiscal prospects but the impact on the credit profile is expected to be temporary. S&P Global Ratings maintains an investment grade rating of BBB- with a stable outlook since September 2018. The rating and the outlook were last affirmed in March 2020. Fitch Ratings maintains a Long-Term Issuer Default rating of investment grade at BBB- since November

2018, last affirmed in April 2020. Its outlook was upgraded to positive in October 2019 and revised it to stable in April 2020, reflecting the significant impact the global COVID-19 pandemic might have on the Cyprus economy and fiscal position.

Business Overview

The Group's financial performance is highly correlated to the economic and operating conditions in Cyprus. In July 2020, Standard and Poor's affirmed their long-term issuer credit rating on BOC PCL of 'B+' (stable outlook). In November 2019, Fitch Ratings affirmed their long-term issuer default rating of B- (positive outlook). In April 2020, Fitch Ratings revised their outlook to negative, reflecting the significant impact the outbreak of COVID-19 might have on the Cyprus economy and consequently on BOC PCL. In June 2019, Moody's Investors Service affirmed the BOC PCL's long-term deposit rating of B3 (positive outlook).

The Group continued to deliver on its strategic priorities while supporting its customers, colleagues and community in which it operates through COVID-19. In light of the gradual reopening of the economy, the Group is ensuring that all of its branches operate as usual and in accordance with the guidelines and recommendations issued by the Ministry of Health.

Additionally, the Group continues to closely monitor developments in and the effects of COVID-19 on both the global and Cypriot economy. There have been early signs of recovery in the Cypriot economy, but the outlook remains highly uncertain and the impact of lower rates and economic fragility is expected to continue for at least the rest of the year. More specifically, there continues to be much uncertainty related to COVID-19, in particular, the risk of a second wave and the timeline for a vaccine to become widely available. As a result, the longer-term impacts of COVID-19 on the economy and the Group's financial performance remain uncertain.

The changed economic environment has resulted in lower levels of economic activity and credit formation. In common with other European banks, the prolonged low interest rate environment also continues to present a challenge to the Group's profitability. As a consequence of the pandemic, BOC PCL has updated its macroeconomic assumptions underlying the IFRS 9 calculation of loan credit losses in the first half of 2020 in line with the relevant regulatory guidance, resulting in increased organic loan credit losses for the six months ended 30 June 2020 of €38 million. While further improvement in economic activity is expected in the second half of 2020, BOC PCL continues to expect, under the base scenario, the Cypriot economy to contract by 6.3% in 2020, with gradual recovery from 2021 onwards, with GDP growth of 5.6% for 2021. BOC PCL's projections are in line with those published by the IMF, the Cyprus Ministry of Finance, the EBRD, the European Commission and the Economics Research Centre of the University of Cyprus.

The Group's medium-term strategic priorities remain clear, with a sustained focus on strengthening its balance sheet, and improving asset quality and efficiency, whilst maintaining good capital position, in order to continue to play a vital role in supporting the recovery of the Cypriot economy. The Group continues to explore opportunities to improve efficiency through its digital transformation programme in order to provide products and services, while reducing operating costs.

Business Overview (continued)

Upon the outbreak of COVID-19 in March 2020, the Pandemic Incident Management Plan (PIMP) of the Group was invoked and a dedicated team has been monitoring the situation domestically and globally and providing guidance on health and safety measures, travel advice and business continuity for our Group. Local government guidelines are being followed in response to the virus. Also, the potential economic implications for the sectors where the Group is active are being assessed in order to identify possible mitigating actions for supporting the economy, such as supporting viable affected business and households with new lending to cover liquidity, working capital, capital expenditure and investment purposes related to the activity of the borrower.

I n accordance with the Pandemic Plan, the Group adopted a set of measures to ensure minimum disruption to its operations. The measures comprise rules for quarantine for vulnerable employees due to health conditions and for those returning from epicentres of the infection. The Group replaced face-to-face meetings with telecommunications, adjusting the customary etiquette of personal contact, including those with customers. Staff for critical functions has been split into separate locations. In addition, to ensure continuity of business, a number of employees have been working from home and the remote access capability has been upgraded significantly. Additionally, the Group follows strict rules of hygiene, increased intensity of cleaning and disinfection of spaces, and other measures to protect the health and safety of staff and customers. Some of these measures have gradually been relaxed, whilst close monitoring of the situation continues.

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

As part of the measures to support borrowers affected by COVID-19 and the wider Cypriot economy, the Cyprus Parliament voted for the suspension of loan repayments for interest and principal for the nine months remaining to the end of the year, for all eligible borrowers with no arrears for more than 30 days as at the end of February 2020. As at 30 June 2020, over 25,000 customers were approved, relating to approximately €6.0 billion gross loans (comprising gross loans to individuals of €2.1 billion and gross loans to businesses of €3.9 billion), representing 66% of total gross loans excluding legacy. The Group continues to monitor the creditworthiness of all customers who applied for the loan moratorium.

The individual assessment of businesses under moratorium was initiated in May 2020, with an initial focus on high risk customers. The 30 largest businesses under moratorium comprise nearly half of all business loans under moratorium and amount to €1.7 billion. Approximately 70% of these have already been reviewed without triggering a change in the unlikely to pay criterion (UTP). In addition, approximately 9% of businesses under moratorium have paid at least one instalment by 30 June 2020.

The individual assessment of private individuals under moratorium has also commenced with priority to individuals with low credit scoring and employed in high risk industries, such as tourism. In addition, approximately 25% of private individuals under moratorium have paid at least one instalment by 30 June

2020.

The strategic focus of the Group on asset quality, funding, capital and efficiency aims to ensure that it maintains its financial strength.

Tackling the BOC PCL loan portfolio quality is of utmost importance for the Group. Despite the challenging market conditions resulting from the outbreak of COVID-19, the Group reached an agreement for the sale of a portfolio of loans with gross book value of approximately €898 million (of which €886 million related to non performing exposures), as at 30 June 2020, known as Project Helix 2, another significant disposal of NPEs by BOC PCL. The combined de-risking actions, in the first six months of 2020 including Project Helix 2, have reduced NPEs by €1.3 billion. Overall, since the peak in 2014, the stock of NPEs has been reduced by

€12.4 billion or 83% to €2.6 billion and the NPE ratio is reduced to 22%.

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

Business Overview (continued)

The Group remains committed to further de-risking of the balance sheet and it will continue to seek solutions, both organic and inorganic to achieve this. The Group will continue to assess the potential to accelerate the decrease in NPEs on the balance sheet through additional sales of NPEs in the future. At the same time, following the outbreak of COVID-19 the Group will remain focused on arresting any potential asset quality deterioration and early managing arrears.

The July 2018 foreclosure law amendments have expedited the process and limited options to frustrate execution. In July 2019, the Cyprus Parliament voted through certain changes to the 2018 law which, in the most part, seek to (a) provide additional checks and balances where banks are seeking to foreclose small loans (<€350 thousand) secured by a principal private residence, and (b) extend the foreclosure timetable by extending various notice periods. Following recent developments, the Supreme Court ruled that the foreclosure amendments voted by the Parliament in July 2019 are constitutional and were passed into law in June 2020. Following the outbreak of COVID-19, the foreclosure process has been suspended until 31

August 2020, in line with the latest decision of the Association of Cyprus Banks.

The Group continues to provide high quality new loans via prudent underwriting standards and 98% of new exposures in Cyprus since 2016 are performing. During the quarter ended 30 June 2020, new lending amounted to €238 million reduced by 47% compared to the quarter ended 31 March 2020, reflecting the COVID-19 lockdown. Growth in new lending in Cyprus has been focused on selected industries more in line with BOC PCL's target risk profile such as tourism, trade, real estate, professional services, technologies, energy, information/communication, education and green projects, and following the outbreak of COVID-19, the focus remains to support the Cypriot economy in order to overcome this crisis. The demand for new lending is expected to pick up in the second half of 2020, especially for new housing loans in the context of the Government scheme for interest rate subsidy. The pipeline for new housing loans is strong at over €65 million as at 21 August 2020.

Following the outbreak of COVID-19, the sectors most adversely affected are tourism, trade, transport and construction. The Group has a well-diversified performing loan portfolio. As at 30 June 2020, the Group's non-legacy loan book exposure to tourism was limited to €1.1 billion, out of a total non-legacy loan book of

€9.1 billion. Respectively, the Group's non-legacy loan book exposure to trade was also €1.0 billion, whilst to construction was limited to €0.5 billion.

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

Management is also placing emphasis on diversifying income streams by optimising fee income from international transaction services, wealth management and insurance. The Group's insurance companies, EuroLife Ltd and General Insurance of Cyprus Ltd (GIC) operating in the sectors of life and non-life insurance respectively, are leading players in the insurance business in Cyprus, as such business have been providing a stable, recurring fee income, further diversifying the Group's income streams. The insurance income net of claims and commissions for the six months ended 30 June 2020 amounted to €29 million, down by 4%, contributing to 24% of non-interest income.

I n order to further optimise its funding structure, BOC PCL continues to focus on the shape and cost of deposit franchise, taking advantage of the increased customer confidence towards BOC PCL. The cost of deposits has been reduced by 68 bps to 8 bps over the last 30 months and the reduction is expected to continue. The reduction in the cost of deposits amounted to 8 bps in the six months ended 30 June 2020, compared to a reduction of 17 bps in the six months ended 30 June 2019.

Business Overview (continued)

In addition, there are efforts underway to improve credit spreads, despite competition pressures. Moreover, liquidity fees for specific customer groups have been introduced in March 2020. The introduction of liquidity fees to a broader group of corporate clients, that was delayed due to the COVID-19 pandemic, is under consideration, once allowed by market conditions. In August 2020 the Ministry of Finance has issued three decrees, setting a limit on charges and fees charged in a calendar year to accounts with certain characteristics and for certain transactions. The review of fees and commission charges is underway, whilst transactional fee volumes are expected to recover to pre-COVID-19 levels, as the Cypriot economy continues to recover. Finally, in June 2020, BOC PCL borrowed €1 billion from the fourth TLTRO III operation, despite its comfortable liquidity position, given the favourable borrowing rate, in combination with the relaxation of collateral terms. The annual potential benefit to the net interest income is estimated at €5 million.

A key focus of the Group remains the active management of funding costs and on-going running expenses. The Digital Transformation Programme that started in 2017 has begun to deliver an improved customer experience (see section below), whilst the branch footprint rationalisation continued throughout 2019 and

2020, further improving the operating model of BOC PCL. The number of branches was reduced by 18% in

2019 and the branch network is now less than half the size it was in 2013. Management remains focused on further improvement in efficiency.

Digital Transformation

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

I n recent months, various new features were introduced on the new mobile app, to enhance self-service functionalities. Users can now retrieve a forgotten user id, set a new passcode in case they forgot their old one and activate their subscription without having to contact the bank. Additionally, users can now purchase a Digipass through the mobile app, a verification instrument that allows them to perform a variety of transactions securely. Moreover, customers can now register for a subscription to BOC PCL's digital channels without having to fill in a physical form or visit a branch. Integration with modern payment solutions has been made easier as users can now add their Visa cards to the BoC Wallet (Android) and the Apple Pay (iOS) through the mobile banking app directly. Likewise, Visa cardholders are now able to make secure and fast payments through their Garmin smartwatch (Garmin Pay) without having to carry their mobile phone. Finally, eligible subscribers for QuickPay (new users) are now prompted at login to set up the QuickPay default account.

Moreover, the launch of the new Cards and Payments systems has been completed. This is expected to offer customised solutions and improve the customer banking experience. For example, it is expected to offer new features through mobile banking in 2020, such as the ability for the customer to freeze their credit or debit card in the event of a loss (freeze and unfreeze), and the ability to determine a maximum limit for specific transactions.

Th e adoption of digital products and services continued to grow and gain momentum in 2019. As at the end of 2019, 78% of the number of transactions involving deposits, cash withdrawals and internal/external transfers were performed through digital channels (compared to 67% two years earlier). Regarding the use of mobile banking, the number of active users increased by 20% in 2019 and by a further 13% in the seven months to the end of July 2020.

Business Overview (continued)

Digital Transformation (continued)

I n 2020, as a result of the COVID-19 restrictive measures, a reduction in cash withdrawals and deposits performed through the branch network has been observed. An increase in the adoption of digital products and services and in digital subscriber penetration has also been observed as more customers have gained access to digital channels and more cards have been issued. As at the end of July 2020, 72% of customers were digitally engaged (up by 12 p.p. from 60% since the digital transformation programme was initiated in September 2017). A further increase is expected in the third quarter of 2020 driven by the increase in the number of subscribers and the number of cards that have been issued. Within this context, BOC PCL has launched various initiatives aiming to provide better, faster and safer services. Such initiatives include amongst others the issuance of debit cards free of charge and on a fast track basis until the end of September 2020, the provision of SMS Digipass devices free of charge, and the ability for new customers to apply for account opening via BOC PCL's website.

As part of BOC PCL's ambition to be one of the cornerstones of the digital economy, customers have been enabled to authorise the release of their identification details to the Government, using the internet banking credentials thus enabling a digital registration on the Government Gateway Portal (Ariadni) where they can use electronic services that are made available by the Government of Cyprus (up until now citizens needed to be physically present to identify themselves).

I n addition, BOC PCL has taken the necessary actions to enable customers to purchase Qualified Digital Signature certificates, which can be used to digitally sign bank, Government as well as any other document that requires a signature, eliminating the need for physical presence and enhancing the customer experience. It should be noted that BOC PCL is one of the first banks in Europe to offer a fully digital application process to acquire a Qualified Digital Signature certificate.

Furthermore, changes in the workplace, with the introduction of new technologies and tools that will drastically change the employee experience, improving collaboration and knowledge sharing across the organisation, are expected to be seen in 2020.

Strategy and Outlook

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

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

· Reduce the level of delinquent loans, arrest any asset quality deterioration and early manage arrears resulting from the outbreak of COVID-19

· Achieve a lean operating model

· Maintain an appropriate capital position by internally generating capital

· Further optimise the funding structure

· Focus on the core Cyprus market

· Deliver value to shareholders and other stakeholders

Strategy and Outlook (continued)

KEY PILLARS

ACTION TAKEN IN THE FIRST HALF OF 2020 AND 2019

PLAN OF ACTION*

1 .Reduce the level of delinquent loans, arrest any asset quality deterioration and early manage arrears resulting from the outbreak of COVID-19

· Please refer to sections

'Loan Portfolio Quality' and 'Real Estate Management Unit'

· Focus on realising collateral via consensual and non- consensual foreclosures

· Real estate management via

REMU

· Continue to explore alternative measures for accelerating NPE reduction, suchasNPEsales, securitisations etc.

· Continue to closely monitor the creditworthiness of customers under moratorium with priority to high risk customers

2 .Achieve a lean operating model

· Please refer to sections

'(Loss)/profit after tax (attributabletothe owners of the Company)' and 'Total expenses' for further details in relation to the voluntary staff exit

plan that took place in the last quarter of 2019 and section 'Business Overview'

· Implementation of Digital Transformation Programme underway, aimed at enhancing productivity through alternative distribution channels and reducing operating costs over time

· Management remains focused on further improvement in efficiency

3 .Maintain an appropriate capital position

· Please refer to section

'Capital Base'

· Internally generating capital

4 .Further optimise the funding structure

· Please refer to section

'Funding and Liquidity'

· Focus on shape and cost of deposit franchise

· Introduction of liquidity fees, to a broader group of corporate clients, that was delayed due to the COVID-19 pandemic, under consideration, once allowed by market conditions

5 . Focus on core Cyprus market

· Please refer to sections

'Loans', 'Total income' and

'Business Overview'

· Targeted lending in Cyprus into growing sectors to fund recovery

· New loan origination, while maintaining and improving lending yields, despite competition pressures

· Revenue diversification via fee and commission income from international banking, wealth and insurance which provides stable, recurring income

6 .Deliver value

· Please refer to Key Balance Sheet figures and ratios, as well as the Capital ratios and risk weighted assets

· Deliverappropriatemedium- term risk-adjusted returns

Strategy and Outlook (continued)

*For further information relating to the 'Plan of Action' please refer to section 'Business Overview'.

The Group is closely monitoring developments in, and the effects of COVID-19 on both the global and Cypriot economy. The gradual easing of the restrictive measures has led to increased economic activity, however uncertainty remains, in particular the risk of a second wave and the timeline for a vaccine to become widely available. As a result, the longer term impacts of COVID-19 on the economy and the Group's financial performance remain uncertain.

I n common with other European banks, the persistently low interest rate environment continues to present a challenge to the Group's profitability. As a consequence of the current challenging economic conditions resulting from the COVID-19 outbreak, the Group has updated its macroeconomic assumptions underlying the IFRS 9 calculation of loan credit losses for the first half of 2020 in line with the relevant regulatory guidance, resulting in increased organic loan credit losses for the six months ended 30 June 2020 of €38 million.

The Group's medium term strategic priorities remain clear, with a sustained focus on strengthening its balance sheet and improving asset quality and efficiency, whilst maintaining good capital position, in order to continue to play a vital role in supporting the Cypriot economy.

Going concern

The Directors have made an assessment of the Group's ability to continue as a going concern for a period of

1 2 months from the date of approval of these Consolidated Financial Statements. The Directors believe that the Group is taking all necessary measures to maintain its viability and the development of its business in the current economic environment.

I n making this assessment, the Directors considered the Group's business, financial projections and the significant transactions that took place during 2020 and up to the date of approval of these Consolidated Condensed Interim Financial Statements, primarily the agreement for the sale of non-performing loans (Project Helix 2). The Directors have also considered the impact of COVID-19 outbreak on the Group's activities and the uncertainties and disruption created in the operating environment in Cyprus and worldwide.

Following the COVID-19 outbreak in early 2020, the Group prepared a reforecast plan, whereby the Group incorporated considerations of the impact of the COVID-19 outbreak on the Group's capital and liquidity position in the context of the emerging developments in the economy, the Cyprus government economic relief measures and the amended regulatory requirements, including the measures taken by the regulators and other authorities following the COVID-19 outbreak. This included the development of macroeconomic scenarios, base and adverse, which are severe yet plausible scenarios. The scenarios developed take into consideration the following drivers and implications:

· Government guidance and policy response to the crisis

· Capital and liquidity relief measures as well as other supervisory actions

· Lost output and productivity as a consequence of travel restrictions and social distancing

· Impact on employment levels and relevant unemployment rates

· Impact on relevant economic variables, the most significant of which include residential and commercial property prices, national output and lending volumes

· Other considerations such as the possible prudential charge, if any, that BOC PCL may be requested to take in order to address the findings of the onsite inspection and review on the value of the Group's foreclosed assets completed by the ECB with reference date 30 June 2019. It is noted that no decision has been communicated to BOC PCL at this stage.

The Directors have concluded that the Group, the Company and BOC PCL have the ability to continue to operate as a going concern for a period of 12 months from the date of approval of these Consolidated Condensed Interim Financial Statements.

Given the evolving nature of the COVID-19 pandemic crisis, the Group will continue to update its macroeconomic scenarios and assess the potential impact on the Group's financial performance and position as well as capital and liquidity position.

Going concern (continued)

Capital

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

· The Common Equity Tier 1 (CET1) ratio and the Total Capital ratio on a transitional basis at 30

June 2020 are higher than the SREP requirements.

· The Group's capital position which allows further risk reduction and recalibration of the cost base.

The Group remains focused to implement the actions contemplated in the Financial and Capital Plan previously submitted to the ECB, albeit over a longer timeframe as a result of the COVID-19 outbreak.

· The capital relief measures announced by the ECB, the EBA, the CBC, the Cyprus Government and the Eurogroup in order to allow the banks to absorb the impact of the COVID-19 outbreak and support the real economy, as well as the regulatory forbearance as allowed by the Guidelines issued in April 2020 by the EBA.

· The measures taken by the Group to protect its employees and the activation of the Group's

Business Continuity Plan ensuring that critical operations are not interrupted.

Funding and liquidity

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

· The Group is in compliance with the Liquidity Coverage Ratio (LCR) and is significantly above the

minimum requirements.

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

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

Economic environment

· As the Cypriot operations account for 99% of gross loans and 100% of customer deposits, the Group's financial performance is highly correlated to the economic and operating conditions in Cyprus. Although the sovereign risk ratings of the Cyprus Government improved considerably in recent years, reflecting expectations of a sustained decline in public debt as a ratio to GDP, expected further declines in non-performing exposures and a more stable price environment following a protracted period of deflation and low inflation, the pandemic is estimated to lead to a deep recession in 2020 before recovery and take shape in 2021.

· I n July 2020, Standard & Poor's Global Ratings (S&P) estimated that real GDP of the Cypriot economy will shrink by 7.5% in 2020, followed by a 5.5% recovery in 2021, as it will take time for sectors that are vital to the Cypriot economy, such as tourism, to recover from the COVID-19 pandemic. Similarly in July 2020, Moody's issued an annual credit analysis for the Cyprus Government, according to which Moody's expect the economy to contract by 7.5% this year, with the impact of the outbreak of COVID-19 concentrated in the first half of the year, and the economy to return to healthy growth rates from 2021 (GDP growth rate for 2021 expected at

6%).

· I n April 2020, Fitch Ratings (Fitch) affirmed its rating and revised its outlook to stable, reflecting the significant impact the COVID-19 pandemic might have on the Cyprus economy and fiscal position.

· With respect to the BOC PCL's ratings, in July 2020, S&P affirmed their long-term issuer credit rating on BOC PCL of 'B+' and the short-term issuer credit rating of 'B', with a stable outlook, expressing the view that the enhanced capital reserves and the good liquidity of BOC PCL will allow it to withstand the current shock and absorb the effects of the increasing pressure on revenues and credit losses. In April 2020, Fitch revised their outlook of BOC PCL to negative, reflecting the significant impact the outbreak of COVID-19 might have on the Cyprus economy and consequently BOC PCL.

Going concern (continued)

· The global and domestic macroeconomic conditions as a result of the COVID-19 crisis are the primary risk factors for the Cyprus economy and the banking sector in Cyprus. The Group continues to closely monitor developments in and the effects of COVID-19 on both the global and Cypriot economy as there continues to be much uncertainty related to COVID-19, in particular, the risk of a second wave and the timeline for a vaccine to become widely available. As a result, the longer term impacts of COVID-19 on the economy and the Group's financial performance remain uncertain. In the context of efforts to relieve individuals and businesses most affected by the coronavirus and its associated restrictive measures, the Cyprus government has announced a package of tax and other relief measures. At the same time, the ECB and the CBC are taking a number of measures to enhance the liquidity of the credit institutions and also facilitate the gradual absorption of the effects on the capital adequacy ratios.

Principal risks and uncertainties - Risk management and mitigation

Like other financial organisations, the Group is exposed to risks, the most significant of which are credit risk, liquidity risk, market risk (arising from adverse movements in exchange rates, interest rates and security prices) and insurance risk. The Group monitors, manages and mitigates these risks through various control mechanisms. Detailed information relating to Group risk management is set out in Notes 29 to 31 to the Consolidated Condensed Interim Financial Statements and in the 'Additional Risk and Capital Management Disclosures, including Pillar III semi-annual disclosures' which form part of the Interim Financial Report for the six months ended 30 June 2020.

The Group is also exposed to litigation risk, arising from claims, investigations, regulatory and other matters. Further information is disclosed in Note 25 to the Consolidated Condensed Interim Financial Statements.

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

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

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

Detail s of the financial instruments and hedging activities of the Group are set out in Note 14 to the

Consolidated Condensed Interim Financial Statements.

The spread of COVID-19 and its longer term impacts on the economy and the Group's financial performance remain uncertain. Specifically, COVID-19 could have an adverse impact across risks including the credit portfolio, operational risk, people, capital, funding and liquidity. The Group is closely monitoring the potential effects of COVID-19 and impact on its operations, businesses and financial performance, including liquidity and capital usage.

Events after the reporting date

Project Helix 2

In August 2020, the Group reached an agreement for the sale of a portfolio (the 'Portfolio') of loans and advances to customers (known as 'Project Helix 2' or the 'Transaction'). The Portfolio will be transferred to a licensed Cypriot Credit Acquiring Company (the 'CyCAC') by BOC PCL. The shares of the CyCAC will then be acquired by certain funds affiliated with Pacific Investment Management Company LLC (PIMCO), the purchaser of the Portfolio.

As at 30 June 2020, the Portfolio including stock of property had a net book value of €362,770 thousand. The gross consideration amounts to €422,000 thousand before transaction and other costs, of which 35% is payable at completion and the remaining 65% is deferred without any conditions attached. The deferred component is payable in three broadly equal instalments over 48 months from completion. The consideration can be increased through an earnout arrangement, depending on the performance of the Portfolio.

The completion of the Transaction is currently estimated to occur in the first half of 2021 and remains subject to a number of conditions, including customary regulatory and other approvals.

Statement of Directors' Responsibilities

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

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

• the Consolidated Condensed Interim Financial Statements, prepared in accordance with lAS 34

Interim Financial Reporting as adopted by the EU, give a true and fair view of the assets, liabilities and financial position of the Group at 30 June 2020, and its loss for the period then ended; and

• that as required by the Transparency (Directive 2004/109/EC) Regulations 2007, the Interim

Financial Report includes a fair review of:

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

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

(c) details of any related party transactions that have materially affected the Group's financial position or performance in the six months ended 30 June 2020, and material changes to related party transactions described in the Annua l Report for the year ended 31 December

2019.

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

Efstratios‑Georgios Arapoglou

Chairman

Panicos Nicolaou

Chief Executive Officer

27 August 2020

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