Interim Financial Report 2020 - Part 2

RNS Number : 4680X
Bank of Cyprus Holdings PLC
28 August 2020
 

 

 

 

 

 

 

 

 

Interim  Financial Report 2020- Part 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 Discl

 

 

Consolidated Condensed Interim Financial Statements for the six months ended   30 June 2020

 

Interim Consolidated Income Statement

 

 

 

Sixmonthsended

30June

 

 

2020

2019 (restated)

Notes

€000

€000

Turnover

7

376,652

485,646

Interestincome

 

198,749

251,805

Incomesimilartointerestincome

 

24,398

26,683

Interestexpense

 

(31,998)

(50,415)

Expensesimilartointerestexpense

 

(23,349)

(23,964)

Netinterestincome

 

167,800

204,109

Fe eandcommissionincome

 

74,909

85,968

Feeandcommissionexpense

 

(3,664)

(5,201)

Netforeignexchangegains

 

10,543

14,117

Netgainsonfinancialinstrumenttransactionsanddisposal/dissolutionofsubsidiariesand associates

8

 

4,848

 

12,155

Insuranceincomenetofclaimsandcommissions

 

28,915

30,036

Netlossesfromrevaluationanddisposalofinvestmentproperties

 

(2,329)

(1,349)

Netgainsondisposalofstockofproperty

 

2,676

17,747

Otherincome

 

8,043

15,679

 

 

291,741

373,261

Staffcosts

9

(96,208)

(114,244)

SpeciallevyondepositsoncreditinstitutionsinCyprus,contributiontoSingleResolution

Fundandotherlevies

9

 

(15,323)

 

(18,732)

Otheroperatingexpenses

9

(94,564)

(112,967)

 

 

85,646

127,318

Netgainsonderecognitionoffinancialassetsmeasuredatamortisedcost

 

2,617

5,429

Creditlossestocovercreditriskonloansandadvancestocustomers

10

(183,711)

(108,911)

Creditlossesofotherfinancialinstruments

10

(626)

(7,367)

Impairmentofnon-financialassets

10

(28,584)

(11,585)

(Loss)/profitbeforeshareofprofitfromassociatesandremeasurement

 

(124,658)

4,884

Remeasurementofinvestmentinassociateuponclassificationasheldforsale

36

-

(25,943)

Shareof(loss)/profitfromassociates

 

(206)

5,312

Lossbeforetax

 

(124,864)

(15,747)

Incometax

11

(4,259)

115,144

(Loss)/profitaftertaxfortheperiod

 

(129,123)

99,397

Attributableto:

 

 

 

OwnersoftheCompany

 

(125,618)

97,398

Non-controllinginterests

 

(3,505)

1,999

(Loss)/profitfortheperiod

 

(129,123)

99,397

 

 

 

 

Basicanddiluted(loss)/profitpershareattributabletotheownersofthe

Company(€cent)

 

12

 

(28.2)

 

21.8

 

* For information on restatement of comparatives refer to Note 3.1.

 

Interim Consolidated Statement of Comprehensive Income

 

 

 

Sixmonthsended

30June

 

 

2020

2019

Notes

€000

€000

(Loss)/profit for the period

 

(129,123)

99,397

Other comprehensive income (OCI)

 

 

 

OCIthatmaybereclassifiedintheconsolidatedincomestatementin subsequent periods

 

 

 

Fair value reserve (debt instruments)

 

 

 

Net (losses)/gains on investments in debt instruments measured at fair valuethroughOCI(FVOCI)

 

 

(18,438)

 

14,426

Transfer to the consolidated income statement on disposal

 

(3,653)

-

 

 

(22,091)

14,426

Foreign currency translation reserve

 

 

 

Profit/(loss) on translation of net investments in foreign branches and subsidiaries

 

 

10,723

 

(7,200)

(Loss)/profit on hedging of net investments in foreign branches and subsidiaries

14

 

(9,496)

 

8,279

Transfer to the consolidated income statement on dissolution/disposal of foreign branches and subsidiaries

 

 

110

 

(426)

 

 

1,337

653

TotalOCIthatmaybereclassifiedintheconsolidatedincome statementinsubsequentperiods

 

 

(20,754)

 

15,079

OCI not to be reclassified in the consolidated income statement in subsequent periods

 

 

 

Fair value reserve (equity instruments)

 

 

 

Shareofnetgainsfromfairvaluechangesofassociates

 

-

4,199

Net (losses)/gains on investments in equity instruments designated at FVOCI

 

(217)

236

 

 

(217)

4,435

Property revaluation reserve

 

 

 

Deferredtax

11

(541)

29

 

 

(541)

29

Actuarial losses on the defined benefit plans

 

 

 

Remeasurement losses on defined benefit plans

 

(4,022)

(2,149)

TotalOCInottobereclassifiedintheconsolidatedincomestatement insubsequentperiods

 

 

(4,780)

 

2,315

Other comprehensive (loss)/income for the period net of taxation

 

(25,534)

17,394

Total comprehensive (loss)/income for the period

 

(154,657)

116,791

 

 

 

 

Attributableto:

 

 

 

OwnersoftheCompany

 

(151,003)

114,770

Non-controlling interests

 

(3,654)

2,021

Total comprehensive (loss)/income for the period

 

(154,657)

116,791

 

 

 

 

 

 

 

 

 

Interim Consolidated Balance Sheet

 

 

 

30 June
2020

31 December
2019

Assets

Notes

€000

€000

Cash and balances with central banks

27

  5,276,398 

  5,060,042 

Loans and advances to banks

27

  621,960 

  320,881 

Derivative financial assets

14

  16,250 

  23,060 

Investments

13

  1,821,413 

  1,682,869 

Investments pledged as collateral

13

  177,517 

  222,961 

Loans and advances to customers

16

  10,104,240 

  10,721,841 

Life insurance business assets attributable to policyholders

 

  446,773 

  458,852 

Prepayments, accrued income and other assets

18

  254,606 

  243,930 

Stock of property

17

  1,344,126 

  1,377,453 

Deferred tax assets

11

  341,333 

  379,126 

Investment properties

 

  134,152 

  136,197 

Property and equipment

 

  280,783 

  288,054 

Intangible assets

 

  176,478 

  178,946 

Investments in associates and joint venture

36

  2,188 

  2,393 

Non‑current assets and disposal groups held for sale

19

  372,591 

  26,217 

Total assets

 

  21,370,808 

  21,122,822 

Liabilities

 

 

 

Deposits by banks

 

  406,357 

  533,404 

Funding from central banks

20

  999,806 

  - 

Repurchase agreements

 

  123,098 

  168,129 

Derivative financial liabilities

14

  55,734 

  50,593 

Customer deposits

21

  16,302,896 

  16,691,531 

Insurance liabilities

 

  628,457 

  640,013 

Accruals, deferred income, other liabilities and other provisions

23

  313,217 

  324,246 

Pending litigation, claims, regulatory and other matters

25

  112,972 

  108,094 

Subordinated loan stock

22

  260,727 

  272,170 

Deferred tax liabilities

11

  47,343 

  46,015 

Total liabilities

 

  19,250,607 

  18,834,195 

Equity

 

 

 

Share capital

24

  44,620 

  44,620 

Share premium

24

  1,294,358 

  1,294,358 

Revaluation and other reserves

 

  190,888 

  210,701 

Retained earnings

 

  345,327 

  490,286 

Equity attributable to the owners of the Company

 

  1,875,193 

  2,039,965 

Other equity instruments

24

  220,000 

  220,000 

Total equity excluding non‑controlling interests

 

  2,095,193 

  2,259,965 

Non‑controlling interests

 

  25,008 

  28,662 

Total equity

 

  2,120,201 

  2,288,627 

Total liabilities and equity

 

  21,370,808 

  21,122,822 

 

 

 

Mr. E.G. Arapoglou

Chairman

Mr. P. Nicolaou

Chief Executive Officer

 

 

 

 

Mr. I. Zographakis

Director

Mrs. E. Livadiotou

Executive Director Finance
             

 

 

 

 

Interim Consolidated Statement of Changes in Equity

 

 

Attributable to shareholders of the Company

 

 

Othe r equity instruments (Note24)

 

 

Non- controlling interests

 

 

Total equity

 

Share capital (Note24)

Share premium (Note24)

Treasury shares (Note24)

Retained earnings

Property revaluation reserve

Financial instruments

fai r value reserve

Lif einsurance in-force business reserve

Foreign currency translation reserve

 

Total

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

1January2020

44,620

1,294,358

(21,463)

490,286

79,286

33,900

102,051

16,927

2,039,965

220,000

28,662

2,288,627

Lossfortheperiod

-

-

-

(125,618)

-

-

-

-

(125,618)

-

(3,505)

(129,123)

Othe r comprehensive (loss)/income after tax for the period

-

-

-

(4,022)

(406)

(22,300)

-

1,343

(25,385)

-

(149)

(25,534)

Tota l comprehensive (loss)/income after tax for the period

-

-

-

(129,640)

(406)

(22,300)

-

1,343

(151,003)

-

(3,654)

(154,657)

Increas einvalueofin-forcelifeinsurance business

 

-

 

-

 

-

 

(1,771)

 

-

 

-

 

1,771

 

-

 

-

 

-

 

-

 

-

Ta xonincreaseinvalueofin-forcelife insurance business

 

-

 

-

 

-

 

221

 

-

 

-

 

(221)

 

-

 

-

 

-

 

-

 

-

Chang e in the holding of Undertakings for Collective Investments in Transferable Securities (UCITS) Fund

 

-

 

-

 

-

 

(19)

 

-

 

-

 

-

 

-

 

(19)

 

-

 

-

 

(19)

PaymentofcoupontoAT1holders(Note24)

-

-

-

(13,750)

-

-

-

-

(13,750)

-

-

(13,750)

3 0 June 2020

44,620

1,294,358

(21,463)

345,327

78,880

11,600

103,601

18,270

1,875,193

220,000

25,008

2,120,201

 

Interim Consolidated Statement of Changes in Equity

 

 

 

 

Attributable to shareholders of the Company

 

Other equity instruments (Note24)

 

 

Non- controlling interests

 

 

Total equity

 

Share capital (Note24)

Share premium (Note24)

Treasury shares (Note24)

Retained earnings

Property revaluation reserve

Financial instruments fai rvalue reserve

Lif einsurance in-force business reserve

Foreign currency translation reserve

 

Total

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

1January2019

44,620

1,294,358

(21,463)

591,941

79,433

15,289

101,001

16,151

2,121,330

220,000

25,998

2,367,328

Profitfortheperiod

-

-

-

97,398

-

-

-

-

97,398

-

1,999

99,397

Othercomprehensive(loss)/incomeaftertax fortheperiod

-

-

-

(2,149)

22

18,846

-

653

17,372

-

22

17,394

Tota l comprehensive income after tax for the period

-

-

-

95,249

22

18,846

-

653

114,770

-

2,021

116,791

Increas einvalueofin-forcelifeinsurance business

 

-

 

-

 

-

 

(4,114)

 

-

 

-

 

4,114

 

-

 

-

 

-

 

-

 

-

Ta x on decrease in value of in-force life insurance business

 

-

 

-

 

-

 

514

 

-

 

-

 

(514)

 

-

 

-

 

-

 

-

 

-

PaymentofcoupontoAT1holders(Note24)

-

-

-

(13,447)

-

-

-

-

(13,447)

-

-

(13,447)

3 0 June 2019

44,620

1,294,358

(21,463)

670,143

79,455

34,135

104,601

16,804

2,222,653

220,000

28,019

2,470,672

 

Interim Consolidated Statement of Cash Flows

 

 

 

Six months ended

3 0 June

 

Net cash flow from operating activities

 

2020

2019

Note

€000

€000

Loss before tax

 

(124,864)

(15,747)

Shareofloss/(profit)fromassociates

 

206

(5,312)

Credi t losses to cover credit risk on loans and advances to customers and net gains on derecognition of financial assetsmeasuredatamortisedcost

 

 

181,094

 

103,482

Depreciatio n of property and equipment and amortisation of intangible assets

 

18,802

17,462

Chang einvalueofin-forcelifeinsurancebusiness

 

(1,771)

(4,114)

Credi t losses of other financial instruments

10

626

7,367

Interes t on debt securities and amortisation of discounts/premiums and catch-up adjustment on debt securities

 

(14,561)

(15,546)

Dividen dincome

 

(172)

(139)

Profi t from revaluation of debt securities designated as fair value hedges

 

(5,408)

(13,416)

Ne t gains on disposal on investments in debt securities

 

(2,865)

-

Ne t gains on disposal of investment properties

 

(234)

-

Interestonsubordinatedloanstock

 

11,602

11,567

Negativeinterestonloansandadvancestobanksandcentralbanks

 

8,035

8,544

Impairmentofstockofproperty

10

28,591

11,585

Remeasuremen t of investment in associate classified as held for sale

36

-

25,943

Los s on disposal/dissolution of subsidiaries/associates

8

184

-

Netgainsondisposalofstockofproperty

 

(2,676)

(17,747)

Ne t losses from revaluation of investment properties and investment properties held for sale

 

2,563

44

 

 

99,152

113,973

Netincrease/(decrease)inloansandadvancestocustomersandotheraccounts

 

78,916

(239,065)

Netdecreaseincustomerdepositsandotheraccounts

 

(564,310)

(272,430)

 

 

(386,242)

(397,522)

Ta x paid

 

(267)

(912)

Net cash used in operating activities

 

(386,509)

(398,434)

Cash flows from investing activities

 

 

 

Purchase s of debt securities and equity securities

 

(433,314)

(277,244)

Proceedsondisposal/redemptionofinvestments:

 

 

 

- debt securities

 

354,498

9,523

Interes t received from debt securities

 

15,945

9,726

Dividen dincomefromequitysecurities

 

172

139

ProceedsondisposalofVelocity2portfolio

 

13,409

-

Proceedsondisposalofsubsidiariesandassociates

 

-

139,760

ProceedsondisposalofProjectHelix

 

-

1,140,231

Purchasesofpropertyandequipment

 

(2,624)

(3,889)

Purchase s of intangible assets

 

(4,608)

(6,878)

Proceedsondisposalsofpropertyandequipmentandintangibleassets

 

19

252

Proceedsondisposalsofinvestmentpropertiesandinvestmentpropertiesheldforsale

 

2,091

11,945

Net cash (used in)/from investing activities

 

(54,412)

1,023,565

Cash flow from financing activities

 

 

 

PaymentofAT1coupon

24

(13,750)

(13,447)

Netproceedsoffundingfromcentralbanks

20

1,000,000

-

Interestonsubordinatedloanstock

 

(23,188)

(21,080)

Interes t on funding from central banks

 

(8,035)

(8,544)

Principl eelementsofleasepayments

 

(4,715)

(4,682)

Net cash from/(used in) financing activities

 

950,312

(47,753)

Net increase in cash and cash equivalents

 

509,391

577,378

Cash and cash equivalents

 

 

 

1January

 

5,130,863

4,804,844

Foreignexchangeadjustments

 

(1,010)

(2,385)

Ne t increase in cash and cash equivalents

 

509,391

577,378

3 0 June

27

5,639,244

5,379,837

 

 

Interim Consolidated Statement of Cash Flows

 

Non cash transactions

 

Repossession of collaterals

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

June 2019: €126,480 thousand).

 

Disposal of Project Helix

Durin g the six months ended 30 June 2019 and upon the disposal of Project Helix, the Group participated in a senior debt in relation to the financing of the Project Helix amounting to €45 million.

 

Acquisition of equity investments

During the six months ended 30 June 2019 the Group acquired equity investments amounting to €6,529 thousand as a result of its loan restructuring activities. The Group elected to classify this equity participation at FVOCI.

 

Note s to the Consolidated Condensed Interim Financial

Statements

 

 

 

 

1 .   Corporate information

 

Ban k of Cyprus Holdings Public Limited Company (the Company) was incorporated in Ireland on 11 July

2016, as a public limited company under company number 585903 in accordance with the provisions of the Companies Act 2014 of Ireland (Companies Act 2014). Its registered office is 10 Earlsfort Terrace, Dublin 2, D02 T380, Ireland.

 

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

 

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

 

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

Stock Exchange (CSE).

 

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

 

Consolidated Condensed Interim Financial Statements

The Consolidated Condensed Interim Financial Statements of the Company for the six months ended 30

June 2020 (the Consolidated Financial Statements) were authorised for issue by a resolution of the Board of

Directors on 27 August 2020.

 

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

 

2 .   Unaudited financial statements

 

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

 

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

 

3 .   Summary of significant accounting policies

 

3. 1   Basis of preparation

 

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

 

The Group elected as a policy choice permitted under IFRS 9 to continue to apply hedge accounting in accordance with IAS 39.

 

Presentation of the Consolidated Financial Statements

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

 

 

 

 

3 .   Summary of significant accounting policies (continued)

 

3. 1   Basis of preparation (continued)

 

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

 

Comparative information

Comparative information was restated as follows:

·   'Fee and commission income' and 'Fee and commission expense' as restated, include elimination of intragroup amounts between 'Fee and commission income' and 'Fee and commission expense' amounting to €1,499 thousand, in line with the respective restatement made in Note 10 of the annual consolidated financial statements for the year ended 31 December 2019, in order to reflect the impact in the six-month comparative period in these Consolidated Financial Statements.

·     Levy in the form of a guarantee fee relating to the revised income tax legislation, Income Tax Law

Amendment 28 (I) of 2019 enacted on 1 March 2019, of €6,255 thousand has been reclassified from

'Fee and commission expense' to 'Special levy on deposits on credit institutions in Cyprus, contribution to Single Resolution Fund and other levies'. The restatement was made in line with the presentation in the annual consolidated financial statements for the year ended 31 December 2019, when the levy in the form of a guarantee fee was presented for the first time in the line of 'Special levy on deposits on credit institutions in Cyprus, contribution to Single Resolution Fund and other levies'.

·   Segmental analysis (Note 7) was restated due to the reorganisational and reporting change in BOC PCL and the set-up of Global corporate as a new business line, as from October 2019. The restatement  was  made  in  line  with  the  presentation  made  for  the  first  time  in  the  annual consolidated financial statements for the year ended 31 December 2019 and in order to reflect the impact in the six-month comparative period in these Consolidated Financial Statements.

·   Comparative information for Τurnover was restated to include the effect of the change in the fee and commission income as described above.

 

The above restatements are consistent with the presentation of such amounts in the consolidated financial statements for the year ended 31 December 2019 within the 2019 Annual Financial Report and these did not have an impact on the results for the period or the equity of the Group.

 

3. 2   Statement of compliance

 

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

 

The Consolidated Financial Statements do not comprise statutory financial statements for the purposes of the Companies Act 2014 of Ireland. The Company's statutory financial statements for the purposes of Chapter 4 of Part 6 of the Companies Act 2014 of Ireland for the year ended 31 December 2019, upon which the auditors have expressed an unqualified opinion, were published on 28 April 2020 and are expected to be delivered to the Registrar of Companies of Ireland within 28 days from 30 September 2020.

 

The Consolidated Financial Statements do not include all the information and disclosures required for the annual financial statements and should be read in conjunction with the Annual Consolidated Financial Statements  of  Bank  of  Cyprus  Holdings  Group  for  the  year  ended  31  December  2019,  prepared  in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, which are available at the Group's website (www.bankofcyprus.com).

 

 

 

 

3 .   Summary of significant accounting policies (continued)

 

3. 3   Changes in accounting policies, presentation and disclosures

 

The accounting policies adopted are consistent with those followed for the preparation of the annual consolidated financial statements for the year ended 31 December 2019, except for the adoption of new and amended standards and interpretations as explained in Note 3.3.1.

 

3.3. 1   New and amended standards and interpretations

 

The Group applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2020. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

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

·     Conceptual Framework in IFRS standards

·     IA S 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Change in Accounting

Estimates and Errors: Definition of 'material' (amendments)

·     IFRS 3: Business Combinations (amendments)

 

The Amendments to IFRS 9, IAS 39 and IFRS 7 relating to Interest Rate Βenchmark Reform mandatorily take effect from 1 January 2020, but early adoption was permitted. The Group has elected to early adopt the interest rate benchmark reform amendments as described in Note 2.2.2 of the annual consolidated financial statements for the year ended 31 December 2019.

 

The Conceptual Framework and the amendments to IAS 1, IAS 8 and IFRS 3 did not have any material impact on the Consolidated Financial Statements.

 

4 .   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

 

 

 

 

4 .   Going concern (continued)

 

·   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 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.

 

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 (Note 5.1).

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

The Group remains focused to implement the actions contemplated in the Financial 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 the 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 Gross Domestic Product (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 (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 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.

 

 

 

 

4 .   Going concern (continued)

 

·   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 position of BOC PCL will allow it to withstand the current shock and absorb the effects of the increasing pressure on revenues and credit losses. In April 2020, Fitch Ratings 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.

·   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.

 

5 .   Operating environment

 

5. 1   Regulatory capital ratios

 

Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2019 the Group's minimum phased-in CET1 capital ratio and Total Capital Ratio remained unchanged for 2020 compared to 2019, when ignoring the phasing-in of the Other Systemically Important Institution (O-SII) buffer.

 

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

 

The Group's minimum phased-in CET1 capital ratio for 2020 was set to 11.0% (2019: 10.5%), comprising a

4.5% Pillar I requirement, a 3.0% Pillar II requirement (P2R), the Capital Conservation Buffer (CCB) of

2.5% (fully phased-in as of 1 January 2019) and the O-SII buffer of 1.0% (2019: 0.5%). The Group's Total Capital requirement is 14.5% (2019: minimum phased-in Total capital ratio of 14.0%), comprising an 8.0% Pillar I requirement (of which up to 1.5% could 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, the CCB of 2.5% and the O-SII buffer of 1.0% (2019: 0.5%). The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer.

 

The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital requirements (Pillar II add-ons). However, the Pillar II add-on capital requirements are a point in time assessment and therefore are subject to change over time.

 

I n April 2020, following the measures announced by the ECB on mitigating COVID 19 impact, BOC PCL received  a  decision  from  the  ECB  amending  the  composition  of  the  Pillar  II  additional  own  funds requirement. Compared to the 2019 final SREP decision received in December 2019 which required Pillar II Requirements to be met in full with CET1, this decision (effective from 12 March 2020) brought earlier the rules on the composition of Pillar II Requirements (P2R), originally scheduled to come into force in January

202 1 with CRD V, allowing banks to use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to meet the Pillar  II  Requirements.  As  a  result,  the  minimum  phased  in  CET1  requirement  decreased  to  9.7%, comprising a 4.5% Pillar I requirement, a 1.7% Pillar II requirement, the CCB of 2.5% (fully phased in as of

1 January 2019) and the O SII buffer of 1.0%. There is no change on the Total Capital requirement.

 

 

 

 

5 .   Operating environment (continued)

 

5. 1   Regulatory capital ratios  (continued)

 

As part of the measures announced by the ECB, in March 2020, to mitigate the implications of COVID-19 impact, banks are allowed to operate temporarily below the capital level defined by the Pillar II Guidance and the CCB. In July 2020 the ECB announced that this measure will stay in place at least until the end-

2022. In April 2020 the ECB temporarily reduced banks capital requirements for market risk. This measure will be reviewed by the ECB after six months. In April 2020 the CBC announced that the phasing-in of the O-SII buffer of 1 January 2021 and 1 January 2022 (0.5% for BOC PCL)  will delay by one year. The O-SII buffer will be fully phased in on 1 January 2023, instead of 1 January 2022 as originally set.

 

The above minimum ratios apply for both BOC PCL and the Group. BOC PCL is 100% subsidiary of the Company and its principal activities are the provision of banking, financial services, insurance services and management and disposal of property predominately acquired in exchange of debt.

 

5. 2   Asset quality

 

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

 

The Group will be revisiting its NPE strategy for the years 2021-2023 in the context of the upcoming business plan.

 

5. 3   Liquidity

 

Group customer deposits totalled €16,303 million at 30 June 2020, compared to €16,692 million at 31

December 2019.  At 30 June 2020 and 31 December 2019 all deposits were in Cyprus. As at 30 June 2020

Group customer deposits accounted for 76% of total assets (31 December 2019: 79%) and 85% of total liabilities (31 December 2019: 89%).

 

As at 30 June 2020 and 31 December 2019, the Group was in compliance with all regulatory liquidity requirements. As at 30 June 2020 and 31 December 2019 the LCR was in compliance with the minimum regulatory requirements of 100% applicable as from 1 January 2018. In addition the Group monitors the NSFR which will become a regulatory indicator when CRR II is enforced with the limit set at 100%.

 

5. 4   Pending litigation, claims, regulatory and other matters

 

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

 

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

 

6 .   Significant and other judgements, estimates and assumptions

 

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

 

 

 

 

6 .   Significant and other judgements, estimates and assumptions (continued)

 

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

 

The most significant judgements, estimates and assumptions relate to classification of financial instruments and calculation of expected credit losses (ECL), estimation of the net realisable value of stock of property and  provisions  which  are  presented  in  Notes  6.1  to  6.4  below.  Other  judgements,  estimates  and assumptions are disclosed in Notes 5.5 to 5.13 of the annual Consolidated Financial Statements for the year ended 31 December 2019.

 

6. 1   Classification of financial assets

 

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

 

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

 

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

 

6. 2   Calculation of expected credit losses

 

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

 

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

 

Assessment of significant increase of credit risk

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

 

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

 

For the retail portfolio, the Group uses a PD at origination incorporating behavioural information (score cards) whereas, for the corporate portfolio, the Group uses the internal credit rating information. In determining the relevant PDs, management estimates are required with respect to the life-time of revolving facilities. For revolving facilities, the origination date is the date when a credit review has taken place instead of the contractual date.

 

 

 

 

6 .   Significant and other judgements, estimates and assumptions (continued)

 

6. 2   Calculation of expected credit losses  (continued)

 

Scenarios and macroeconomic factors

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

 

The outlook for the global economy has deteriorated markedly in 2020 as a result of the COVID-19 pandemic and the lockdown measures to contain it that led to significant disruptions in economic activity. As  a  result,  the  Group  updated  its  forward-looking  scenarios,  factoring  in  updated  macroeconomic assumptions and other monetary and fiscal developments at the national and the EU level, for mitigating the consequences of the pandemic. Uncertainties are still high, and risks are to the downside.

 

Economi c and credit conditions within geographical areas are influenced by many factors with a high degree of interdependency so that there is no one single factor to which the Group's ECL as a whole are particularly sensitive. Different factors are applied in each country to reflect the local economic conditions, laws and regulations and the assumptions underlying this judgement are highly subjective.

 

The Group uses three different economic scenarios.

 

The table below indicates the most significant macroeconomic variables as well as the scenarios used by the Group as at 30 June 2020 and 31 December 2019 respectively. The Group has used the 30-50-20 probability structure for the adverse, base and favourable scenarios respectively compared to the 20-60-20 structure  derived  using  the  method  described  in  Note  2.19.5  of  the  annual  Consolidated  Financial Statements for the year ended 31 December 2019. This reflects the management's view of specific characteristics of the Cyprus economy that render it more vulnerable to external and internal shocks. Given the added uncertainties and downside risks in the global economy as well as the local economy, related to the COVID-19 pandemic, management decided to maintain an elevated weight on the adverse scenario. This assessment will be reviewed in the third quarter of 2020.

 

The economy continues to face high public and private indebtedness and a high level of NPEs that together raise the degree of vulnerability of the economy and limit its reaction space thus sustaining conditions, which can lead to a deeper recession in response to shocks than under normal times. Also, the economy presents a significant structure risk given a very large external sector, making it especially vulnerable to the external environment. There is also more uncertainty for 2020 and beyond relating to Brexit, trade disputes between the US and China and between the US and the EU, and economic fragility in southern Europe that might   entail a higher risk of a more protracted global recession and financial instability. These factors, render the economy more susceptible to external shocks and weaken its resilience, and may, in management's view not be fully captured in the weights as calculated using the method described in Note

2.19.5 of the Consolidated Financial Statements for the year ended 31 December 2019. Hence management has decided to increase the weight of the adverse scenario to 30%, and correspondingly reduce the weight of the base scenario to 50%.

 

 

 

 

6 .  Significant and other judgements, estimates and assumptions (continued)

 

6. 2  Calculation of expected credit losses  (continued)

 

30 June 2020

 

 

 

Year

 

 

Scenario

 

Weight

%

 

RealGDP (% change)

 

Unemployment rate (% of labour force)

Consumer Price Index (average

%change)

RICS House Price Index (average

%change)

2020

Adverse

30.0

-10.8

10.4

-0.9

-4.0

Baseline

50.0

-6.3

9.2

-0.5

-2.2

Favourable

20.0

-5.2

8.2

-0.4

-2.0

2021

Adverse

30.0

2.5

10.2

0.8

-4.5

Baseline

50.0

5.6

8.0

1.0

-3.6

Favourable

20.0

4.1

7.8

1.0

-3.0

2022

Adverse

30.0

4.8

9.0

0.9

1.0

Baseline

50.0

4.3

6.8

1.0

1.1

Favourable

20.0

4.1

6.7

1.0

1.2

2023

Adverse

30.0

4.0

7.6

1.6

4.4

Baseline

50.0

3.8

6.3

1.7

4.3

Favourable

20.0

3.5

5.9

1.7

4.5

2024

Adverse

30.0

3.2

6.5

1.9

6.0

Baseline

50.0

2.7

6.2

2.0

5.8

Favourable

20.0

2.4

5.7

2.0

6.2

 

31 December 2019

 

 

 

Year

 

 

Scenario

 

Weight

%

 

RealGDP (% change)

 

Unemployment rate (% of labour force)

Consumer Price Index (average

%change)

RICS House Price Index (average

%change)

2020

Adverse

30.0

-0.9

8.2

-0.9

1.9

Baseline

50.0

3.0

5.8

1.1

4.1

Favourable

20.0

4.4

5.4

1.8

4.7

2021

Adverse

30.0

-3.1

10.3

0.3

-0.7

Baseline

50.0

2.5

5.4

1.7

3.1

Favourable

20.0

4.0

4.9

2.5

5.1

2022

Adverse

30.0

0.9

10.7

2.2

2.3

Baseline

50.0

2.2

5.2

2.0

3.3

Favourable

20.0

2.8

4.7

2.1

4.3

2023

Adverse

30.0

4.0

9.6

2.5

3.2

Baseline

50.0

2.2

5.1

2.1

3.2

Favourable

20.0

2.3

4.6

2.1

3.2

2024

Adverse

30.0

4.2

9.8

2.6

3.1

Baseline

50.0

2.0

5.1

2.2

3.1

Favourable

20.0

1.9

4.6

2.2

3.1

 

The adverse scenarios may outpace the base and favourable scenarios after the initial shock has been adjusted to and the economy starts to expand from a lower base. Thus in the adverse scenario GDP will follow a growth trajectory that will ultimately equal and surpass the baseline before converging. Property prices are primarily determined by GDP growth but with a lag. Thus property prices will initially adjust less steeply than GDP, and will start to accelerate after the recovery in GDP has been entrenched. After this point, property prices will accelerate and will match and surpass the pace in the baseline scenario, before finally converging.

 

 

 

 

6 .   Significant and other judgements, estimates and assumptions (continued)

 

6. 2   Calculation of expected credit losses  (continued)

 

The baseline scenario was updated for 30 June 2020 reporting considering available information and relevant developments until then, following the outbreak of COVID-19 pandemic. Along with the rest of the world, the Cyprus economy was emerging from the April-May severe lockdowns and airport closures, and restrictions had started to be relaxed gradually. The significant fiscal support measures the government announced, along with large support programmes from the EU for 2020 and the announcement by the European Commission of the recovery and resilience fund, added an air of optimism, that mitigation measures would cushion the contraction to some degree. Real GDP is expected to decline by 6.3% in 2020 reflecting a significant drop in the first half, particularly in the second quarter. While real GDP will continue to decline in the third and fourth quarters on a year-on-year basis, the contractions will be less steep. The recovery is expected to start from the second quarter of 2021 with real GDP increasing by 5.3% in the year. The unemployment rate will rise on average in 2020, only modestly, to 9.2% reflecting the employment support measures implemented by the government. Unemployment will start to decline from 2021 onwards. Property prices will be affected as income drops and housing demand declines steeply. Specifically, house prices are expected to decline by 2.2% in 2020 and by another 3.6% in 2021 given lagging characteristics.

 

The adverse scenario is consistent with assumptions for the COVID-19 related disruptions under the baseline scenario but to a higher degree of severity. The Cypriot economy relies on services, particularly on tourism and travel. This makes the economy more exposed than other countries to travel restrictions and quarantine measures that have been adopted in Cyprus and across the globe. The hit to the Cyprus economy from falling external demand for travel and tourism services and the knock-on effects to related sectors will be significantly more severe than under the baseline scenario. Real GDP under the adverse scenario will contract by 10.8% and the recovery in 2021 will be weaker with growth of 2.4%. The unemployment rate will rise to 10.4% on average in 2020 and will remain above 10% in 2021 as well, as the recovery will be slow and more uncertain. Property prices will be affected as income drops and housing demand declines steeply. Specifically, house prices are expected to decline by 4.0% in 2020 and by another

4.5% in 2021. Property prices will start to recover form 2022 onwards. Residential property prices will be more resilient due to base effects. Residential property prices had dropped significantly from 2009 to 2015 and recovered only modestly in the period that followed to 2019.

 

Sinc e 1 January 2018, the Group has reassessed the key economic indicators used in the ECL models and is using actual performance ratios of the economy as occasionally revised by the Cyprus statistical service (the latest revision of October 2019 for the period 2010-2017) and the latest forecasts by the International Monetary Fund (IMF) and the European Commission.

 

Qualitative adjustments or overlays are occasionally made when inputs calculated do not capture all the characteristics of the market. These are reviewed and adjusted, if considered necessary, by the Risk Management  Division  and  endorsed  by  the  Group  Provisions  Committee.  Qualitative  adjustments  or overlays were applied to the positive future property value cap to 0% for all scenarios and to all loans and advances to customers which are secured by property collaterals.

 

The RICS indices, which are considered for the purposes of determining the real estate collateral value on realisation date have been used as the basis to estimate updated market values of properties supplemented by management judgement where necessary given the difficulty in differentiating between short term impacts and long term structural changes and the shortage of market evidence for comparison purposes and are capped accordingly in case of any projected increase, whereas any projected decrease is taken into account.

 

 

 

 

6 .   Significant and other judgements, estimates and assumptions (continued)

 

6. 2   Calculation of expected credit losses  (continued)

 

For Stage 3 customers, the calculation of individually assessed provisions is the weighted average of three scenarios: base, adverse and favourable. The base scenario focuses on the following variables, which are based on the specific facts and circumstances of each customer: the operational cash flows, the timing of recovery of collaterals and the haircuts from the realisation of collateral. The base scenario is used to derive additional either more favourable or more adverse scenarios. Under the adverse scenario operational cash flows are decreased by 50%, applied haircuts on real estate collateral are increased by 50% and the timing of recovery of collaterals is increased by 1 year with reference to the baseline scenario, whereas under the favourable scenario applied haircuts are decreased by 5%, with no change in the recovery period with reference to the baseline scenario. Assumptions used in estimating expected future cash flows (including cash flows that may result from the realisation of collateral) reflect current and expected future economic conditions and are generally consistent with those used in the Stage 3 collectively assessed exposures.

 

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

 

Expected lifetime of revolving facilities

Judgement is exercised on the measurement period of expected lifetime for revolving facilities. The determination of the expected life for the revolving portfolio is sensitive to changes in contractual maturities resulting from business decisions. The Group exercises judgement in determining the period over which ECL should be computed.

 

Assessment of loss given default

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

 

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

 

At 30 June 2020 the weighted average haircut (including liquidity haircut and selling expenses) used in the collectively assessed provisions calculation for loans and advances to customers excluding those classified as held for sale is c.32% under the baseline scenario (31 December 2019: c.32%).

 

The timing of recovery from real estate collaterals used in the collectively assessed provisions calculation for loans and advances to customers has been estimated to be on average seven years under the baseline scenario (31 December 2019: average of seven years), excluding those classified as held for sale.

 

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

 

An y positive cumulative average future change in property values forecasted was capped to zero for the six months ended 30 June 2020 and the year ended 31 December 2019. This applies to all scenarios.

 

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

 

 

 

 

6 .   Significant and other judgements, estimates and assumptions (continued)

 

6. 2   Calculation of expected credit losses  (continued)

 

An y changes in these assumptions or difference between assumptions made and actual results could result in significant changes in the amount of required credit losses of loans and advances.

 

Modelling adjustments

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

 

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

 

Overlays in the context of COVID-19

Following the COVID-19 pandemic, the Group as at the reporting date considered the complexities of governmental support programmes and regulatory guidance on treatment of customer payment breaks by the ECL models. In this context, management has considered the data and measurement limitations arising from the extraordinary impact of COVID-19 and addressed them through a management overlay in relation to the significant credit risk deterioration of customers that have applied for the suspension of capital and interest payments until 31 December 2020 (the moratorium). For further details refer to Note 29.6.

 

The initial granting of customer relief does not automatically trigger a migration to Stage 2 or Stage 3 for the customers that have applied for the moratorium. Following an assessment performed for significant increase in credit risk for these customers as at 30 June 2020, a management overlay was applied, in order to capture any bias introduced in the customer's credit ratings by defining collective rules that can assess Stage 1 and Stage 2 misclassified customers, due to unrepresentative outlook of the idiosyncratic risk. The exercise carried out compared the observed with the expected score/rating (excluding days past due and arrears elements that are unavailable for moratorium customers) movement and assessed if any customers exhibit severe deterioration/improvement. A staging overlay was then applied on these customers in order to classify them accordingly to Stage 2 or Stage 1. The isolated impact of this overlay resulted in a transfer of loans of €87 million from Stage 1 to Stage 2 and a transfer of loans of €10 million from Stage 2 to Stage

1 and had an immaterial impact on ECL. Additionally, customers that were identified as having experienced a significant increase in credit risk resulting in a migration of their loans from Stage 1 to Stage 2 during the first quarter of 2020 were not allowed to migrate back to Stage 1 during the second quarter of 2020. The purpose of these overlays is to minimise potential cliff effects with the end of moratorium, by assessing the customers' long term recovery ability, utilising short term behavioural signals.

 

Portfolio segmentation

The individual assessment is performed not only for individually significant assets but also for other exposures meeting specific criteria determined by management. The selection criteria for the individually assessed exposures are based on management judgement and are reviewed on a quarterly basis by the Risk Management Division and are adjusted or enhanced, if deemed necessary.

 

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

 

 

 

 

6 .   Significant and other judgements, estimates and assumptions (continued)

 

6. 2   Calculation of expected credit losses  (continued)

 

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

 

6. 3   Stock of property - estimation of net realisable value

 

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

 

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

 

6. 4   Provisions

 

The  accounting  policy  for  provisions  is  described  in  Note  2.37  of  the  annual  consolidated  financial statements for the year ended 31 December 2019. Judgement is involved in determining whether a present obligation exists and in estimating the probability, timing and amount of any outflows.  Provisions for pending litigations, claims, regulatory and other matters usually require a higher degree of judgement than other types of provisions.  It is expected that the Group will continue to have a material exposure to litigation and regulatory proceedings and investigations relating to legacy issues in the medium term.  The matters for which the Group determines that the probability of a future loss is more than remote will change from time to time, as will the matters as to which a reliable estimate can be made and the estimated possible loss for such matters. Actual results may prove to be significantly higher or lower than the estimate of possible loss in those matters, where an estimate was made. In addition, loss may be incurred in matters with respect to which the Group believed the probability of loss was remote.

 

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

 

7 .   Segmental analysis

 

The Group's activities are mainly concentrated in Cyprus.  Cyprus operations are organised into operating segments based on the line of business. As from October 2019 and following the reorganisation of BOC PCL, a new operating segment was formed, namely Global corporate. Certain identified areas and business products have been classified out of the previously existing reporting lines Corporate and Wealth management and included under the umbrella of the newly established Global corporate, targeting to further diversify the loan portfolio and to pursue revenue streams both locally and abroad. Comparative information in analysis by business line and analysis of total revenue, were restated to account for this change (Note 3.1).

 

The operating segments are analysed below:

·   The Corporate, Small and medium-sized enterprises and Retail business lines are managing loans and advances to customers as detailed in 'Credit risk concentration of loans and advances to customers' (Note 29).

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

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

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

 

 

 

 

7 .   Segmental analysis (continued)

 

·   Wealth management oversees the provision of private banking and wealth management, Market execution and Custody along with Asset Management and Investment Banking.

·   The Real Estate Management Unit manages properties acquired through debt-for-property swaps and properties acquired through the acquisition of certain operations of Laiki Bank in 2013, and executes exit strategies in order to monetise these assets.

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

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

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

·   Overseas activities include Greece, Romania and Russia which are separate operating segments for which information is provided to management but, due to their size, have been grouped for disclosure purposes into one segment, namely 'Overseas'.

 

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

 

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

 

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

 

The loans and advances to customers, the customer deposits and the related income and expense are generally included in the segment where the business is originated, instead of the segment where the transaction is recorded. Loans and advances to customers which are originated in countries where the Group does not have operating entities are included in the country where they are managed.

 

7 .  Segmental analysis (continued)

 

Analysis by business line

 

Corporate

Global
corporate

Small and medium‑sized enterprises

Retail

Restructuring and recoveries

International banking services

Wealth management

REMU

Insurance

Treasury

Other

Total
Cyprus

Overseas

Total

Six months ended 30 June 2020

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

Net interest income/(expense)

  30,976 

  36,401 

  17,666 

  62,691 

  15,240 

  10,569 

  1,310 

  (6,657) 

  (29) 

  257 

  3,682 

  172,106 

  (4,306) 

  167,800 

Net fee and commission income/(expense)

  5,605 

  4,784 

  3,935 

  19,327 

  3,989 

  23,828 

  1,365 

  - 

  (3,100) 

  963 

  10,462 

  71,158 

  87 

  71,245 

Net foreign exchange gains

  282 

  124 

  257 

  836 

  55 

  2,896 

  1,511 

  - 

  - 

  3,869 

  19 

  9,849 

  694 

  10,543 

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

  - 

  3,740 

  - 

  - 

  (733) 

  - 

  - 

  - 

  (244) 

  1,943 

  222 

  4,928 

  (80) 

  4,848 

Insurance income net of claims and commissions

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  28,562 

  - 

  - 

  28,562 

  353 

  28,915 

Net gains/(losses) from revaluation and disposal of investment properties

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  111 

  - 

  - 

  - 

  111 

  (2,440) 

  (2,329) 

Net gains on disposal of stock of property

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  2,611 

  - 

  - 

  28 

  2,639 

  37 

  2,676 

Total other income

  1 

  1 

  7 

  52 

  112 

  1 

  151 

  3,664 

  (256) 

  1 

  2,647 

  6,381 

  1,662 

  8,043 

 

  36,864 

  45,050 

  21,865 

  82,906 

  18,663 

  37,294 

  4,337 

  (271) 

  24,933 

  7,033 

  17,060 

  295,734 

  (3,993) 

  291,741 

Staff costs

  (2,564) 

  (1,298) 

  (2,817) 

(29,574) 

  (8,059) 

  (5,899) 

  (1,122) 

  (1,333) 

  (4,751) 

  (772) 

(37,662) 

  (95,851) 

  (357) 

  (96,208) 

Special levy on deposits on credit institutions, contribution to SRF and other levies

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

(15,323) 

  (15,323) 

  - 

  (15,323) 

Other operating (expenses)/income (excluding advisory and other restructuring costs)

  (6,113) 

  (4,290) 

  (7,151) 

(48,326) 

  (12,952) 

  (8,560) 

  (1,557) 

  (2,955) 

  (4,055) 

  (6,152) 

  20,074 

  (82,037) 

  (2,640) 

  (84,677) 

Other operating expenses ‑ advisory and other  restructuring costs

  (4) 

  - 

  - 

  - 

  (8,763) 

  - 

  - 

  (506) 

  - 

  - 

  (614) 

  (9,887) 

  - 

  (9,887) 

 

  28,183 

  39,462 

  11,897 

  5,006 

  (11,111) 

  22,835 

  1,658 

  (5,065) 

  16,127 

  109 

(16,465) 

  92,636 

  (6,990) 

  85,646 

Net (losses)/gains on derecognition of financial assets measured at amortised cost

  (367) 

  1,850 

  402 

  (582) 

  363 

  (9) 

  4 

  - 

  - 

  - 

  941 

  2,602 

  15 

  2,617 

Credit (losses)/gains to cover credit risk on loans and advances to customers

  (5,623) 

  (21,057) 

  (899) 

  2,210 

  (156,581) 

  9,910 

  (219) 

  - 

  - 

  - 

  (5) 

(172,264) 

  (11,447) 

(183,711) 

Credit gains/(losses) of other financial instruments

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  31 

  (206) 

  188 

  (163) 

  (150) 

  (476) 

  (626) 

Impairment of non‑financial assets

  - 

  - 

  - 

  - 

  - 

  - 

  - 

(26,118) 

  - 

  - 

  - 

  (26,118) 

  (2,466) 

  (28,584) 

Share of loss from associates

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  (206) 

  (206) 

  - 

  (206) 

Profit/(loss) before tax

  22,193 

  20,255 

  11,400 

  6,634 

  (167,329) 

  32,736 

  1,443 

(31,152) 

  15,921 

  297 

(15,898) 

(103,500) 

  (21,364) 

(124,864) 

Income tax

  (2,774) 

  (2,532) 

  (1,425) 

  (829) 

  20,916 

  (4,092) 

  (180) 

  3,894 

  (1,736) 

  (37) 

(14,899) 

  (3,694) 

  (565) 

  (4,259) 

Profit/(loss) after tax

  19,419 

  17,723 

  9,975 

  5,805 

  (146,413) 

  28,644 

  1,263 

(27,258) 

  14,185 

  260 

(30,797) 

(107,194) 

  (21,929) 

(129,123) 

Non‑controlling interests‑profit

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  3,505 

  3,505 

  - 

  3,505 

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

  19,419 

  17,723 

  9,975 

  5,805 

(146,413) 

  28,644 

  1,263 

(27,258) 

  14,185 

  260 

(27,292) 

(103,689) 

  (21,929) 

(125,618) 

 

 

 

 

 

 

 

7 .   Segmental analysis (continued)

 

 

Corporate

Global
corporate

Small and medium‑sized enterprises

Retail

Restructuring and recoveries

International banking services

Wealth management

REMU

Insurance

Treasury

Other

Total
Cyprus

Overseas

Total

 

Six months ended 30 June 2019 (restated)

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

 

Net interest income/(expense)

  33,462 

  28,031 

  20,327 

  80,099 

  32,218 

  17,962 

  2,179

  (7,403) 

  29 

  (941) 

  2,015 

  207,978 

  (3,869) 

  204,109 

 

Net fee and commission income/(expense)

  5,516 

  3,076 

  4,676 

  21,583 

  11,241 

  26,050 

  1,023

  - 

  (3,106) 

  1,063 

  9,538 

  80,660 

  107 

  80,767 

 

Net foreign exchange gains/(losses)

  276 

  149 

  328 

  1,308 

  96 

  3,660 

  1,630

  - 

  - 

  9,451 

  (1,751) 

  15,147 

  (1,030) 

  14,117 

 

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

  (97) 

  97 

  - 

  - 

  - 

  - 

  12

  - 

  1,070 

  4,930 

  6,009 

  12,021 

  134 

  12,155 

 

Insurance income net of claims and commissions

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  28,824 

  - 

  - 

  28,824 

  1,212 

  30,036 

 

Net gains/(losses) from revaluation and disposal of investment properties

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  630 

  - 

  - 

  (748) 

  (118) 

  (1,231) 

  (1,349) 

 

Net gains on disposal of stock of property

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  17,497 

  - 

  - 

  59 

  17,556 

  191 

  17,747 

 

Total other income

  3 

  1 

  6 

  47 

  23 

  1 

  1

  1,128 

  9 

  - 

  13,349 

  14,568 

  1,111 

  15,679 

 

 

  39,160 

  31,354 

  25,337 

  103,037 

  43,578 

  47,673 

  4,845

  11,852 

  26,826 

  14,503 

  28,471 

  376,636 

  (3,375) 

  373,261 

 

Staff costs

  (3,448) 

  (1,211) 

  (2,854) 

  (37,848) 

  (12,677) 

  (8,184) 

  (1,814)

  (1,331) 

  (5,087) 

  (844) 

(38,539) 

(113,837) 

  (407) 

(114,244) 

 

Special levy on deposits on credit institutions and contribution to Single Resolution Fund and other levies

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

(18,732) 

  (18,732) 

  - 

  (18,732) 

 

Other operating (expenses)/income (excluding advisory and other restructuring costs)

  (7,972) 

  (4,794) 

  (8,603) 

  (49,532) 

  (18,457) 

  (12,350) 

  (1,843)

  (2,636) 

  (4,576) 

  (3,906) 

  24,624 

  (90,045) 

  (3,879) 

  (93,924) 

 

Other operating expenses ‑ advisory and other  restructuring costs

  (110) 

  (77) 

  (108) 

  (781) 

  (15,442) 

  (207) 

  (42)

  (2,237) 

  - 

  (39) 

  - 

  (19,043) 

  - 

  (19,043) 

 

 

  27,630 

  25,272 

  13,772 

  14,876 

  (2,998) 

  26,932 

  1,146

  5,648 

  17,163 

  9,714 

  (4,176) 

  134,979 

  (7,661) 

  127,318 

 

Net gains/(losses) on derecognition of financial assets measured at amortised cost

  3,054 

  879 

  162 

  171 

  (844) 

  294 

  18

  - 

  - 

  - 

  1,682 

  5,416 

  13 

  5,429 

 

Credit gains/(losses) to cover credit risk on loans and advances to customers

  4,320 

  (1,014) 

  5,395 

  (15,607) 

  (103,965) 

  332 

  397

  - 

  - 

  - 

  632 

(109,510) 

  599 

(108,911) 

 

Credit (losses)/gains of other financial instruments

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  (86) 

  797 

  (15) 

  696 

  (8,063) 

  (7,367) 

 

Impairment of non‑financial assets

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  (9,942) 

  - 

  - 

  - 

  (9,942) 

  (1,643) 

  (11,585) 

 

Remeasurement of investment in associate classified as held for sale

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

(25,943) 

  (25,943) 

  - 

  (25,943) 

 

Share of loss from associates

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  5,312 

  5,312 

  - 

  5,312 

 

Profit/(loss) before tax

  35,004 

  25,137 

  19,329 

  (560) 

  (107,807) 

  27,558 

  1,561

  (4,294) 

  17,077 

  10,511 

(22,508) 

  1,008 

(16,755) 

  (15,747) 

 

Income tax

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  (1,853) 

  - 

  117,199 

  115,346 

  (202) 

  115,144 

 

Profit/(loss) after tax

  35,004 

  25,137 

  19,329 

  (560) 

  (107,807) 

  27,558 

  1,561

  (4,294) 

  15,224 

  10,511 

  94,691 

  116,354 

(16,957) 

  99,397 

 

Non‑controlling interests‑profit

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  - 

  (1,999) 

  (1,999) 

  - 

  (1,999) 

 

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

  35,004 

  25,137 

  19,329 

  (560) 

  (107,807) 

  27,558 

  1,561

  (4,294) 

  15,224 

  10,511 

  92,692 

  114,355 

(16,957) 

  97,398 

 

Profit before tax under the business line 'Global corporate' as restated includes €24,210 thousand profit before tax from 'Corporate' and €927 thousand profit before tax from 'Wealth Management'.

 

 

7 .   Segmental analysis (continued)

 

Analysis of total revenue

 

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

 

 

 

Sixmonthsended30June

2020

 

Corporate

Global corporate

Smal land medium-sized enterprises

 

Retail

Restructuring andrecoveries

International banking services

Wealth management

 

REMU

 

Insurance

 

Treasury

 

Other

Total

Cyprus

 

Overseas

 

Total

 

€000

 

€000

 

€000

 

€000

 

€000

 

€000

 

€000

 

€000

 

€000

 

€000

 

€000

 

€000

 

€000

 

€000

Revenu e from third parties

39,089

49,664

21,860

64,440

44,982

27,846

3,412

6,467

24,667

(5,178)

7,604

284,853

6,888

291,741

Inter-segment

(expense)/revenue

 

(2,225)

 

(4,614)

 

5

 

18,466

 

(26,319)

 

9,448

 

925

 

(6,738)

 

266

 

12,211

 

(1,425)

 

-

 

-

 

-

RevenuebetweenCyprusand othercountries

-

-

-

-

-

-

-

-

-

-

10,881

10,881

(10,881)

-

 

Total revenue

36,864

45,050

21,865

82,906

18,663

37,294

4,337

(271)

24,933

7,033

17,060

295,734

(3,993)

291,741

 

Sixmonthsended30June

2019(restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tota l revenue from third parties

40,250

34,239

24,657

62,857

98,100

29,511

1,907

19,255

29,302

6,126

32,937

379,141

(5,880)

373,261

Inter-segment

(expense)/revenue

 

(1,090)

 

(2,885)

 

680

 

40,180

 

(54,522)

 

18,162

 

2,938

 

(7,403)

 

(2,476)

 

8,377

 

(1,961)

 

-

 

-

 

-

RevenuebetweenCyprusand othercountries

-

-

-

-

-

-

-

-

-

-

(2,505)

(2,505)

2,505

-

 

Total revenue

39,160

31,354

25,337

103,037

43,578

47,673

4,845

11,852

26,826

14,503

28,471

376,636

(3,375)

373,261

 

Tota l revenue under the business line 'Global corporate' as restated includes €29,889 thousand total revenue from 'Corporate' and €1,465 thousand total revenue from 'Wealth management'.

 

The revenue from 'Overseas segment' mainly relates to banking and financial services for the six months ended 30 June 2020 and 2019.

 

 

 

 

7 .  Segmental analysis (continued)

 

Analysis of assets and liabilities

 

 

 

3 0 June 2020

 

Corporate

Global corporate

Smal land medium-sized enterprises

 

Retail

Restructuring andrecoveries

International banking services

Wealth management

 

REMU

 

Insurance

 

Treasury

 

Other

Total

Cyprus

 

Overseas

 

Total

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

1,926,724

2,090,100

1,087,859

3,669,619

1,515,539

126,615

29,120

1,365,900

891,657

7,655,109

1,363,395

21,721,637

147,828

21,869,465

Inter-segmentassets

-

-

-

-

-

-

-

-

(22,914)

-

(54,682)

(77,596)

-

(77,596)

 

1,926,724

2,090,100

1,087,859

3,669,619

1,515,539

126,615

29,120

1,365,900

868,743

7,655,109

1,308,713

21,644,041

147,828

 

21,791,869

AssetsbetweenCyprusand overseas operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(421,061)

Total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

21,370,808

 

31December2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

1,937,813

2,107,543

1,092,937

3,638,880

1,786,170

130,720

29,516

1,382,907

880,721

7,097,866

1,398,349

21,483,422

161,378

21,644,800

Inter-segmentassets

-

-

-

-

-

-

-

-

(32,448)

-

(57,862)

(90,310)

-

(90,310)

 

1,937,813

2,107,543

1,092,937

3,638,880

1,786,170

130,720

29,516

1,382,907

848,273

7,097,866

1,340,487

21,393,112

161,378

 

21,554,490

AssetsbetweenCyprusand overseas operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(431,668)

Total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

21,122,822

 

 

 

 

7 .  Segmental analysis (continued)

 

 

 

3 0 June 2020

 

Corporate

Global corporate

Smal land medium-sized enterprises

 

Retail

Restructuring andrecoveries

International banking services

Wealth management

 

Insurance

 

Treasury

 

Other

Total

Cyprus

 

Overseas

 

Total

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

1,030,223

683,485

764,103

10,139,808

88,983

3,324,561

271,733

692,287

1,865,665

451,113

19,311,961

438,428

19,750,389

Inter-segmen tliabilities

-

-

-

-

-

-

-

-

(77,596)

-

(77,596)

-

(77,596)

 

1,030,223

683,485

764,103

10,139,808

88,983

3,324,561

271,733

692,287

1,788,069

451,113

19,234,365

438,428

 

19,672,793

Liabilitie sbetweenCyprusand overseas operations

 

 

 

 

 

 

 

 

 

 

 

 

 

(422,186)

Total liabilities

 

 

 

 

 

 

 

 

 

 

 

 

19,250,607

 

31December2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

1,117,222

691,550

770,655

10,140,920

97,290

3,543,315

330,579

696,033

1,062,156

457,414

18,907,134

450,164

19,357,298

Inter-segmen tliabilities

-

-

-

-

-

-

-

-

(90,310)

-

(90,310)

-

(90,310)

 

1,117,222

691,550

770,655

10,140,920

97,290

3,543,315

330,579

696,033

971,846

457,414

18,816,824

450,164

 

19,266,988

Liabilitie sbetweenCyprusand overseas operations

 

 

 

 

 

 

 

 

 

 

 

 

 

(432,793)

Total liabilities

 

 

 

 

 

 

 

 

 

 

 

 

18,834,195

 

Segmental analysis of customer deposits and loans and advances to customers is presented in Notes 21 and 29.2 and 29.6 respectively.

 

 

 

 

7 .  Segmental analysis (continued)

 

Analysis of turnover

 

 

Sixmonthsended

30 June

 

 

2020

2019 (restated)

 

€000

€000

Interest income and income similar to interest income

223,147

278,488

Fees and commission income

74,909

85,968

Foreign exchange gains

10,543

14,117

Gross insurance premiums

88,254

86,581

(Losses)/gains of investment properties and stock of properties

(28,244)

4,813

Other income

8,043

15,679

 

376,652

485,646

 

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

 

 

Sixmonthsended

30 June

 

2020

2019

 

€000

€000

Net losses from revaluation and disposal of investment properties

(2,329)

(1,349)

Net gains on disposal of stock of property

2,676

17,747

Impairment of stock of property(Note10)

(28,591)

(11,585)

 

(28,244)

4,813

 

Comparative  information  for  turnover  analysis  was  restated  to  include  the  effect  of  change  in  the presentation of fee and commission income as disclosed in Note 3.1.

 

 

 

 

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

 

 

Sixmonthsended

30 June

 

2020

2019

 

€000

€000

Tradingportfolio:

 

 

- derivative financial instruments

(811)

1,506

Other investments at FVPL:

 

 

- debt securities

11

9,181

- equity securities

22

1,556

Net gains on disposal of FVOCI debt securities

2,865

-

Net gains on loans and advances to customers at FVPL

3,007

17

Revaluation of financial instruments designated as fair value hedges:

 

 

- hedging instruments

(9,315)

(11,092)

- hedged items

9,030

11,400

Net gains/(losses) on financial liabilities at FVPL

223

(413)

Loss on disposal/dissolution of subsidiaries and associates

(184)

-

 

4,848

12,155

 

The loss on disposal/dissolution of subsidiaries for the six months ended 30 June 2020 relates to loss on the dissolution of the subsidiary Bank of Cyprus (Channel Islands) Ltd as described in Note 34.

 

9 .  Staff costs and other operating expenses

 

Staff costs

 

 

Sixmonthsended

30 June

 

2020

2019

€000

€000

Salaries

78,593

93,989

Employer's contributions to state social insurance

11,915

13,045

Retirement benefit plan costs

5,700

7,210

 

96,208

114,244

 

The number of persons employed by the Group as at 30 June 2020 was 3,579. The number of persons employed by the Group as at 31 December 2019 was 3,672 and as at 30 June 2019 4,155. These included

10 0 and 108 persons respectively relating to Project Helix, whose transfer to the buyer was concluded in

January 2020.

 

I n October 2019 the Group proceeded with a voluntary exit plan for its employees in Cyprus, with a cost amounting to €81,166 thousand. In total, 464 employees accepted the voluntary exit plan and left the Group in late 2019 and early 2020.

 

 

 

 

9 .  Staff costs and other operating expenses (continued)

 

Other operating expenses

 

 

Sixmonthsended

30 June

 

2020

2019

€000

€000

Repairs and maintenance of property and equipment

15,621

15,262

Other property-related costs

6,199

9,290

Consultancy and other professional services fees

4,872

8,494

Insurance

3,679

3,454

Advertising and marketing

2,634

6,819

Depreciation of property and equipment

9,955

9,862

Amortisation of intangible assets

8,847

7,600

Communication expenses

3,323

4,047

Provisions for pending litigations, claims, regulatory and other matters(Note

25.3)

 

16,044

 

8,961

Printing and stationery

908

1,433

Local cash transfer expenses

1,255

1,397

Other operating expenses

11,340

17,305

 

84,677

93,924

Advisory and other restructuring costs

9,887

19,043

 

94,564

112,967

 

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

 

During the six months ended 30 June 2020, the Group recognised €146 thousand relating to rent expense for short term leases, included  within 'Other property related costs (30 June 2019: €235 thousand) and

€4,86 8 thousand relating to the depreciation of right-of-use assets, included   within 'Depreciation of property and equipment' (30 June 2019: €4,405 thousand).

 

Th e special tax levy on credit institutions in Cyprus (the Special Levy) is imposed on the level of deposits as at the end of the previous quarter, at the rate of 0.0375% per quarter. Following an amendment of the Imposition of Special Credit Institution Tax Law in 2017, the Single Resolution Fund contribution, which is charged annually by the Single Resolution Board, is offset with the Special Levy up to the level of the total annual Special Levy charge. The Special levy on deposits on credit institutions in Cyprus and contribution to Single Resolution Fund amounted to €12,416 thousand (30 June 2019: €12,477 thousand) and is presented on the face of the consolidated income statement, together with the guarantee fee on annual tax credit amounting to €nil (30 June 2019: €6,255 thousand) (Note 11).

 

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 contribution of BOC PCL has been set at

€2,90 7 thousand for the six months ended 30 June 2020 and has been recorded in 'Special levy on deposits on credit institutions in Cyprus, contribution to Single Resolution Fund and other levies' in the consolidated income statement.

 

 

 

 

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

 

 

 

Sixmonthsended

30 June

 

2020

2019

€000

€000

Credit losses to cover credit risk on loans and advances to customers

 

 

Impairment loss net of reversals on loans and advances to customers(Note

29.8)

 

184,455

 

129,424

Recoveries of loans and advances to customers previously written off

(12,011)

(14,739)

Changes in expected cash flows

15,375

(240)

Financial guarantees and commitments

(4,108)

(5,534)

 

183,711

108,911

 

Credit losses of other financial instruments

 

 

Amortised cost treasury bills

506

40

Amortisedcostdebtsecurities

(229)

(162)

FVOCI debt securities

(19)

9

Loans and advances to banks

74

1,304

Other financial assets(Note18)

294

6,176

 

626

7,367

 

Impairment of non-financial assets

 

 

Stock of property(Note17)

28,591

11,585

Other non-financial assets

(7)

-

 

28,584

11,585

 

Changes in expected cash flows for the six months ended 30 June 2020 relate mainly to gross modification loss arising as a result of the modification to loan terms offered pursuant to the moratorium (Note 29.6) as a result of the COVID-19 pandemic.

 

11 .   Income tax

 

 

Sixmonthsended

30 June

 

2020

2019

€000

€000

Current tax:

 

 

-Cyprus

1,734

2,570

- Overseas

49

223

Cyprus special defence contribution

23

148

Deferred tax charge/(credit)

671

(114,692)

Prior years' tax adjustments

795

(3,422)

Other tax charges

987

29

 

4,259

(115,144)

 

Th e Group's share of income tax from associates for the six months ended 30 June 2019 amounted to €703 thousand.

 

The net deferred tax assets comprise of:

 

 

 

 

11 .  Income tax (continued)

 

 

30 June

2020

31December

2019

€000

€000

Deferred tax assets

341,333

379,126

Deferredtaxliabilities

(47,343)

(46,015)

Net deferred tax assets

293,990

333,111

 

The deferred tax assets relate to Cyprus operations.

 

The movement of the net deferred tax assets is set out below:

 

 

30 June

2020

31December

2019

€000

€000

1January

333,111

257,496

Deferred tax recognised in the consolidated income statement

(671)

113,436

Deferred tax recognised in the consolidated statement of comprehensive income

 

(541)

 

88

Transfer to current tax receivables following conversion into tax credit

(37,909)

(37,909)

30 June/31 December

293,990

333,111

 

Income Tax Law Amendment 28 (I) of 2019

O n 1 March 2019 the Cyprus Parliament adopted legislative amendments to the Income Tax Law (the 'Law')

which were published in the Official Gazette of the Republic on 15 March 2019 ('the amendments').

 

The main provisions of the legislation are set out below:

·   The amendments allow for the conversion of specific tax losses into tax credits.

·   The Law applies only to tax losses transferred following resolution of a credit institution within the framework of 'The Resolution of Credit and Other Institutions Law'.

·   The losses are capped to the amount of Deferred Tax Assets (DTA) recognised on the balance sheet of the audited financial statements of the acquiring credit institution in the year of acquisition. Tax losses in excess of the capped amount can only be utilised in cases involving transfers of tax losses in relation to tax reorganisations, completed before 1 October 2019. Post 1 October 2019, any excess tax losses expire.

·   Acquired tax losses are converted into 15 equal annual instalments for credit institutions that will enter into resolution in the future or into 11 equal annual instalments for credit institutions which were in resolution pre 31 December 2017.

·   Eac h annual instalment can be claimed as a deductible expense in the determination of the taxable income for the relevant year. Annual instalments are capped and cannot create additional losses for the credit institution.

·   An y amount of annual instalment not utilised is converted into a tax credit (with reference to the applicable tax rate enacted at the time of the conversion) and it can be utilised in the tax year following the tax year to which this tax credit relates to. Any unutilised tax credit in the relevant year is converted into a receivable from the Cyprus Government.

·   The tax credit can be used against a tax liability (Corporate Income Tax Law, VAT Law or Bank levy Law) of the credit institution or any other eligible subsidiary for group relief. Any unutilised tax credits in the relevant year are converted into a receivable from the Cyprus Government.

·   I n  financial  years  where  a  credit  institution  has  accounting  losses  the  amount  of  the  annual instalment is recalculated. Upon recalculation, the mechanics outlined above remain unchanged.

·   I n case a credit institution in scope goes into liquidation the total amount of unused annual instalments  are  converted  to  tax  credits  and  immediately  become  a  receivable  from  the Government.

·   A guarantee fee of 1.5% on annual tax credit is payable annually by the credit institution to the

Government.

 

 

 

 

11 .   Income tax (continued)

 

BO C PCL has DTA that meets the requirements of the Law relating to income tax losses transferred to BOC PCL as a result of the acquisition of certain operations of Laiki Bank, on 29 March 2013, under 'The Resolution of Credit and Other Institutions Law'. The DTA recognised following the acquisition of certain operations of Laiki in 2013 amounted to €417 million for which BOC PCL paid a consideration as part of the respective acquisition. Under the Law, BOC PCL can convert up to an amount of €3.3 billion tax losses to tax credits (which led to the creation of DTA amounting to €417 million), with the conversion being based on the tax rate applicable at the time of conversion. As a result, a reversal of previously recognised DTA impairment  of  €115  million  was  recognised  in  the  six  months  ended  30  June  2019.  Following  the amendment of the Law, the period of utilisation of the tax losses which may be converted into tax credits remains unchanged (i.e. by end of 2028).

 

During the six months ended 30 June 2020, an amount of €37,909 thousand has been reclassified from the

DTA to current tax receivables (2019: €37,909 thousand).

 

As a result of the above amendments in the Income Tax Law, the Group has deferred tax assets amounting to €341,182 thousand as at 30 June 2020 (31 December 2019: €379,091 thousand) that meet the requirements under this Law the recovery of which is guaranteed.

 

The DTA subject to the Law is accounted for on the same basis, as described in Note 2.13 of the consolidated financial statements for the year ended 31 December 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 referred to above in order to maintain the conversion of such DTAs into tax credits. In anticipation of such modifications the Group had recorded an additional amount of €12,500 thousand by way of an estimated additional fee (for the years 2018 and 2019), bringing the total guarantee fee recognised to €18,755 thousand for the year ended 31 December 2019.

 

 

 

 

11 .  Income tax (continued)

 

Accumulated income tax losses

 

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

 

 

 

 

 

 

 

 

30 June 2020

 

 

Total income tax losses

Income tax lossesfor which a deferred tax assetwas recognised

Income tax lossesfor whichno deferred tax assetwas recognised

€000

€000

€000

Expiring within 5 years

653,411

-

653,411

Utilisation in annual instalments up to 2028

2,729,454

2,729,454

-

 

3,382,865

2,729,454

653,411

 

 

 

 

31 December 2019

 

 

 

Expiring within 5 years

520,988

-

520,988

Utilisation in annual instalments up to 2028

3,032,727

3,032,727

-

 

3,553,715

3,032,727

520,988

 

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

 

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

 

 

 

 

12 .  Earnings per share

 

 

Sixmonthsended

30 June

Basic and diluted (loss)/profit per share attributable to the owners oftheCompany

 

2020

 

2019

(Loss)/profit for the period attributable to the owners of the Company (€

thousand)

(125,618)

97,398

 

 

Weighted average number of shares in issue during the period, excluding treasury shares (thousand)

446,058

446,058

 

 

Basic and diluted (loss)/profit per share (€ cent)

(28.2)

21.8

 

 

13 .  Investments

 

 

Investments

30 June

2020

31December

2019

 

€000

€000

Investments mandatorily measured at FVPL

203,462

176,106

Investments at FVOCI

668,700

701,704

Investments at amortised cost

949,251

805,059

 

1,821,413

1,682,869

 

Durin g the six months ended 30 June 2020, the Group has proceeded to invest in debt securities, as part of its investing strategy which mainly related to the acquisition of treasury bills.

 

The amounts pledged as collateral are shown below:

 

 

Investments pledged as collateral

30 June

2020

31December

2019

 

€000

€000

Investments at FVOCI

154,459

199,916

Investments at amortised cost

23,058

23,045

 

177,517

222,961

 

The decrease in investments pledged as collateral during the six months ended 30 June 2020 related mainly to the maturity of investments pledged as collateral by the Group. Encumbered assets are disclosed in Note

31.

 

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

 

The maximum exposure to credit risk for debt securities is disclosed in Note 29.1.

 

Investments in equity securities and mutual funds as at 30 June 2020, included above, amount to €17,761 thousand and €176,879 thousand respectively (31 December 2019: €17,686 thousand and €150,137 thousand respectively).

There were no reclassifications of investments during the six months ended 30 June 2020 or the year 2019. The debt securities which are measured at FVPL are mandatorily classified, because they failed to meet the

SPPI criteria.

 

During the six months ended 30 June 2020 and the year 2019 no equity investments measured at FVOCI

have been disposed of. There were no other transfers from OCI to retained earnings during the period.

 

 

 

 

13 .   Investments (continued)

 

The fair value of the financial assets that have been reclassified out of FVPL to FVOCI on transition to IFRS

9, amounts to €12,145 thousand at 30 June 2020 (31 December 2019: €12,098 thousand). The fair value gain that would have been recognised in the consolidated income statement if these financial assets had not been reclassified as part of the transition to IFRS 9, amounts to €50 thousand (31 December 2019: €158 thousand). The effective interest rate of these instruments is 1.6%-5.0% per annum (2019: 1.6%-5.0%) and the respective interest income during the six months ended 30 June 2020 amounts to €139 thousand (30 June 2019: €197 thousand).

 

14 .   Derivative financial instruments

 

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

 

 

30June2020

3 1December2019

 

Contract amount

Fairvalue

 

Contract amount

Fair value

Assets

Liabilities

Assets

Liabilities

€000

€000

€000

€000

€000

€000

Tradingderivatives

 

 

 

 

 

 

Forwardexchangeratecontracts

43,483

306

335

21,939

165

111

Currencyswaps

951,470

3,538

5,342

1,170,915

775

5,897

Interestrateswaps

259,487

459

1,026

263,159

315

551

Currency options

2,775

214

234

1,800

10

296

Interestratecaps/floors

1,183,477

129

7

1,684,871

772

-

 

2,440,692

4,646

6,944

3,142,684

2,037

6,855

Derivativesqualifyingforhedge accounting

 

 

 

 

 

 

Fair value hedges - interest rate swaps

 

1,014,912

 

7,640

 

48,772

 

1,068,926

 

19,542

 

43,727

Net investments - forward exchange rate contracts and currencyswaps

 

 

92,935

 

 

3,964

 

 

18

 

 

96,821

 

 

1,481

 

 

11

 

1,107,847

11,604

48,790

1,165,747

21,023

43,738

 

Total

3,548,539

16,250

55,734

4,308,431

23,060

50,593

 

Hedge accounting

 

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

 

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

 

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

 

Fair value hedges

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

 

 

 

 

14 .   Derivative financial instruments (continued)

 

Hedges of net investments

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

 

As at 30 June 2020, deposits, and forward and swap exchange rate contracts amounting to €9,771 thousand  and  €92,935  thousand  respectively  (31  December  2019:  €10,667  thousand  and  €96,821 thousand respectively) have been designated as hedging instruments and have given rise to a loss of

€9,49 6 thousand (30 June 2019: gain of €8,279 thousand) which was recognised in the 'Foreign currency translation reserve' in the consolidated statement of comprehensive income, against the profit or loss from the retranslation of the net assets of the overseas subsidiaries and other foreign operations.

 

15 .   Fair value measurement

 

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

 

 

30 June 2020

31December2019

Carrying value

 

Fair value

Carrying value

 

Fair value

Financial assets

€000

€000

€000

€000

Cash and balances with central banks

5,276,398

5,276,398

5,060,042

5,060,042

Loans and advances to banks

621,960

620,356

320,881

319,852

Investments mandatorily measured at FVPL

203,462

203,462

176,106

176,106

Investments at FVOCI

823,159

823,159

901,620

901,620

Investments at amortised cost

972,309

987,353

828,104

844,795

Derivative financial assets

16,250

16,250

23,060

23,060

Loans and advances to customers

10,104,240

9,905,223

10,721,841

10,720,292

Life insurance business assets attributable to policyholders

 

435,163

 

435,163

 

447,172

 

447,172

Financial assets classified as held for sale

361,652

361,652

25,929

25,929

Other financial assets

120,233

120,233

146,596

146,596

 

18,934,826

18,749,249

18,651,351

18,665,464

Financial liabilities

 

 

 

 

Funding from central banks and deposits by banks

 

1,406,163

 

1,338,947

 

533,404

 

475,792

Repurchase agreements

123,098

125,364

168,129

170,816

Derivative financial liabilities

55,734

55,734

50,593

50,593

Customerdeposits

16,302,896

16,298,117

16,691,531

16,692,463

Subordinated loan stock

260,727

248,765

272,170

293,623

Other financial liabilities and lease liabilities

240,610

240,610

255,210

255,210

 

18,389,228

18,307,537

17,971,037

17,938,497

 

The fair value of financial assets and liabilities in the above table is as at the reporting date and does not represent any expectations about their future value.

 

The Group uses the following hierarchy for determining and disclosing fair value: Level 1: investments valued using quoted prices in active markets.

 

 

 

 

15 .   Fair value measurement (continued)

 

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

 

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

 

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

 

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

 

Derivative financial instruments

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

 

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

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

 

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

 

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

 

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

 

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

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

 

Loans and advances to customers

The fair value of loans and advances to customers is based on the present value of expected future cash flows. Future cash flows have been based on the future expected loss rate per loan portfolio, taking into account expectations for the credit quality of the borrowers. The discount rate includes components that capture the risk free rate per currency, funding cost, servicing cost and the cost of capital, considering the risk weight of each loan.

 

 

 

 

15 .   Fair value measurement (continued)

 

Customer deposits

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

 

Repurchase agreements

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

 

Loans and advances to banks

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

 

Deposits by banks and funding from central banks

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

 

Subordinated loan stock

The current issue of BOC PCL is liquid with quoted prices in an active market.

 

Model inputs for valuation

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

 

 

 

 

15 .  Fair value measurement (continued)

 

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

 

 

30 June 2020

Level 1

Level 2

Level 3

Total

€000

€000

€000

€000

Financial assets

 

 

 

 

Loans and advances to customers measured atFVPL

 

-

 

-

 

293,541

 

293,541

Trading derivatives

 

 

 

 

Forward exchange rate contracts

-

306

-

306

Currencyswaps

-

3,538

-

3,538

Interest rate swaps

-

459

-

459

Currency options

-

214

-

214

Interest rate caps/floors

-

129

-

129

 

-

4,646

-

4,646

Derivatives qualifying for hedge accounting

 

 

 

 

Fair value hedges-interest rate swaps

-

7,640

-

7,640

Net investments-forward exchange rate contracts and currency swaps

 

-

 

3,964

 

-

 

3,964

 

-

11,604

-

11,604

Investments mandatorily measured at FVPL

123,655

51,346

28,461

203,462

Investments at FVOCI

806,364

3,041

13,754

823,159

 

930,019

70,637

335,756

1,336,412

Other financial assets not measured at fair value

 

 

 

 

Loans and advances to banks

-

620,356

-

620,356

Investments at amortised cost

647,613

302,699

37,041

987,353

Loans and advances to customers

-

-

9,611,682

9,611,682

 

647,613

923,055

9,648,723

11,219,391

 

For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discount factor by 10% would result in a decrease of €5,323 thousand in their fair value and a decrease in the discount factor by 10% would result in an increase of €2,112 thousand in their fair value.

 

For one investment included in debt securities mandatorily measured at FVPL as a result of the SPPI assessment and categorised as Level 3 with a carrying amount of €23,887 thousand as of 30 June 2020, a change in the conversion factor by 10% would result in a change in the value of the debt securities by

€2,389 thousand.

 

 

 

 

15 .  Fair value measurement (continued)

 

 

30 June 2020

Level 1

Level 2

Level 3

Total

€000

€000

€000

€000

Financial liabilities

 

 

 

 

Trading derivatives

 

 

 

 

Forward exchange rate contracts

-

335

-

335

Currencyswaps

-

5,342

-

5,342

Interest rate swaps

-

1,026

-

1,026

Currency options

-

234

-

234

Interest rate caps/floors

-

7

-

7

 

-

6,944

-

6,944

Derivatives qualifying for hedge accounting

 

 

 

 

Fair value hedges-interest rate swaps

-

48,772

-

48,772

Net investments-forward exchange rate contracts and currency swaps

 

-

 

18

 

-

 

18

 

-

48,790

-

48,790

 

-

55,734

-

55,734

Other financial liabilities not measured at fair value

 

 

 

 

Funding from central banks

-

991,213

-

991,213

Deposits by banks

-

347,734

-

347,734

Repurchase agreements

-

125,364

-

125,364

Customerdeposits

-

-

16,298,117

16,298,117

Subordinated loan stock

248,765

-

-

248,765

 

248,765

1,464,311

16,298,117

18,011,193

 

 

 

 

15 .  Fair value measurement (continued)

 

 

31 December 2019

Level 1

Level 2

Level 3

Total

€000

€000

€000

€000

Financial assets

 

 

 

 

Loans and advances to customers measured at FVPL

 

-

 

-

 

369,293

 

369,293

Trading derivatives

 

 

 

 

Forward exchange rate contracts

-

165

-

165

Currencyswaps

-

775

-

775

Interest rate swaps

-

315

-

315

Currency options

-

10

-

10

Interest rate caps/floors

-

772

-

772

 

-

2,037

-

2,037

Derivatives qualifying for hedge accounting

 

 

 

 

Fair value hedges-interest rate swaps

-

19,542

-

19,542

Net investments-forward exchange rate contracts and currency swaps

 

-

 

1,481

 

-

 

1,481

 

-

21,023

-

21,023

Investments mandatorily measured at FVPL

100,270

51,243

24,593

176,106

Investments at FVOCI

886,680

1,026

13,914

901,620

 

986,950

75,329

407,800

1,470,079

Other financial assets not measured at fair value

 

 

 

 

Loans and advances to banks

-

319,852

-

319,852

Investments at amortised cost

751,326

53,523

39,946

844,795

Loans and advances to customers

-

-

10,350,999

10,350,999

 

751,326

373,375

10,390,945

11,515,646

 

For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discount factor by 10% would result in a decrease of €5,696 thousand in their fair value and a decrease in the discount factor by 10% would result in an increase of €1,549 thousand in their fair value.

 

For one investment included in debt securities mandatorily measured at FVPL as a result of the SPPI

assessment and categorised as Level 3 with a carrying amount of €23,593 thousand as at 31 December

2019, a change in the conversion factor by 10% would result in a change in the value of the debt securities by €2,359 thousand.

 

 

 

 

15 .  Fair value measurement (continued)

 

 

31 December 2019

Level 1

Level 2

Level 3

Total

€000

€000

€000

€000

Financial liabilities

 

 

 

 

Trading derivatives

 

 

 

 

Forward exchange rate contracts

-

111

-

111

Currencyswaps

-

5,897

-

5,897

Interest rate swaps

-

551

-

551

Currency options

-

296

-

296

 

-

6,855

-

6,855

Derivatives qualifying for hedge accounting

 

 

 

 

Fair value hedges-interest rate swaps

-

43,727

-

43,727

Net investments-forward exchange rate contracts and currency swaps

 

-

 

11

 

-

 

11

 

-

43,738

-

43,738

 

-

50,593

-

50,593

Other financial liabilities not measured at fair value

 

 

 

 

Deposits by banks

-

475,792

-

475,792

Repurchase agreements

-

170,816

-

170,816

Customerdeposits

-

-

16,692,463

16,692,463

Subordinated loan stock

293,623

-

-

293,623

 

293,623

646,608

16,692,463

17,632,694

 

The cash and balances with central banks are financial instruments whose carrying value is a reasonable approximation of fair value, because they are mostly short-term in nature or are repriced to current market rates frequently. The carrying value of other financial assets and other financial liabilities and assets classified as held for sale is a close approximation of their fair value and they are categorised as Level 3.

 

During the six months ended 30 June 2020 and the year ended 31 December 2019 there were no significant transfers between Level 1 and Level 2.

 

Movements in Level 3 assets measured at fair value

Transfers from Level 3 to Level 2 occur when the market for some securities becomes more liquid, which eliminates the need for the previously required significant unobservable valuation inputs. Following a transfer to Level 2 the instruments are valued using valuation models incorporating observable market inputs. Transfers into Level 3 reflect changes in market conditions as a result of which instruments become less liquid. Therefore, the Group requires significant unobservable inputs to calculate their fair value.

 

 

 

 

15 .  Fair value measurement (continued)

 

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

 

 

30June2020

3 1December2019

Loan s and advancesto customers

Financial instruments

 

Total

Loans and advances to customers

Financial instruments

 

Total

€000

€000

€000

€000

€000

€000

1January

369,293

38,507

407,800

395,572

23,146

418,718

Additions

-

3,777

3,777

-

6,529

6,529

Disposals

-

(292)

(292)

-

(473)

(473)

TransferstoLevel2

-

-

-

-

(22)

(22)

Fair value gains

-

223

223

-

9,327

9,327

Net gains on loans and advances to customers measured at FVPL(Note

8)

 

 

3,007

 

 

-

 

 

3,007

 

 

2,891

 

 

-

 

 

2,891

Repayments of loans

(84,943)

-

(84,943)

(44,860)

-

(44,860)

Interest on loans

6,184

-

6,184

15,690

-

15,690

 

30 June/31 December

293,541

42,215

335,756

369,293

38,507

407,800

 

16 .  Loans and advances to customers

 

 

30June

2020

31December

2019

€000

€000

Gross loans and advances to customers at amortised cost

11,039,253

12,008,146

Allowance for ECL for impairment of loans and advances to customers(Note29.8)

(1,228,554)

(1,655,598)

 

9,810,699

10,352,548

Loans and advances to customers measured at FVPL

293,541

369,293

 

10,104,240

10,721,841

 

Loans and advances to customers pledged as collateral are disclosed in Note 31.

 

Additional analysis and information regarding credit risk and analysis of the allowance for ECL of loans and advances to customers are set out in Note 29.

 

17 .   Stock of property

 

The carrying amount of stock of property is determined as the lower of cost and net realisable value. Impairment is recognised if the net realisable value is below the cost of the stock of property. During the six months ended 30 June 2020 an impairment loss of €28,591 thousand (30 June 2019: €11,585 thousand) was recognised in 'Impairment of non-financial assets' in the consolidated income statement. At 30 June

2020, stock of €502,336 thousand (31 December 2019: €310,573 thousand) is carried at net realisable value which is approximately the fair value less costs to sell.

 

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

 

 

 

 

17 .  Stock of property  (continued)

 

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

 

 

30 June

2020

31December

2019

€000

€000

Net book value at 1 January

1,377,453

1,426,857

Additions

27,927

176,688

Disposals

(21,904)

(193,526)

Transfers to investment properties

-

(1,006)

Transfers of stock of property of Serbian entities to non-current assets held for sale

 

-

 

(2,427)

Transfers from own use properties

-

234

Transfers to disposal group(Note19)

(10,651)

(3,816)

Impairment (Note10)

(28,591)

(25,294)

Foreign exchange adjustments

(108)

(257)

Net book value at 30 June/31 December

1,344,126

1,377,453

 

Analysis by type and country

Cyprus

Greece

Romania

Total

30 June 2020

€000

€000

€000

€000

Residentialproperties

167,695

20,496

115

188,306

Offices and other commercial properties

142,473

22,906

5,675

171,054

Manufacturing and industrial properties

45,989

20,204

49

66,242

Hotels

24,025

457

-

24,482

Land (fields and plots)

884,237

7,012

2,793

894,042

Total

1,264,419

71,075

8,632

1,344,126

 

31 December 2019

 

 

 

 

Residentialproperties

167,330

21,300

116

188,746

Offices and other commercial properties

147,568

24,013

5,745

177,326

Manufacturing and industrial properties

46,703

22,754

50

69,507

Hotels

24,286

494

-

24,780

Land (fields and plots)

906,980

7,286

2,828

917,094

Total

1,292,867

75,847

8,739

1,377,453

 

 

 

 

18 .  Prepayments, accrued income and other assets

 

 

30 June

2020

31December

2019

€000

€000

 

Financial assets

 

 

Receivables relating to disposal of operations, loan portfolios and other assets

 

28,078

 

53,354

Debtors

40,143

39,663

Receivable relating to tax

4,632

5,102

Other assets

47,380

48,477

 

120,233

146,596

 

Non financial assets

 

 

Reinsurers' share of insurance contract liabilities

50,102

50,609

Current tax receivable

48,354

10,335

Prepaid expenses

826

1,256

Other assets

35,091

35,134

 

134,373

97,334

 

254,606

243,930

 

As at 30 June 2020, the remaining receivable relating to the disposal of operations in the UK amounts to

€28,07 8 thousand (31 December 2019: €29,575 thousand). Half of the consideration was received upon completion of the transaction, an amount was repaid in November 2019 and the remaining is receivable in November 2020, without any performance conditions attached. As at 31 December 2019, the receivable relating to the disposal of the Ukrainian operations in 2014, amounted to €23,779 thousand and the deferred consideration was due to be paid to BOC PCL under a repayment programme which had been extended from June 2019 to December 2022. The receivable was fully secured. The receivable was repaid in February 2020.

 

During the six months ended 30 June 2020, credit losses of €294 thousand were recognised in relation to prepayments, accrued income and other assets. This includes ECL losses of €769 thousand and net reversal of impairments amounting to €475 thousand. During the six months ended 30 June 2019 credit losses amounted to €6,176 thousand, which included ECL of €7,764 thousand and net reversal of impairments amounting to €1,588 thousand (Note 10).

 

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

 

The following non-current assets and disposal groups were classified as held for sale as at 30 June 2020 and

31 December 2019:

 

 

30 June

2020

31December

2019

€000

€000

Disposal group 1

362,770

-

Disposal group 2

9,533

25,929

Other exposures held by Serbian subsidiary

288

288

 

372,591

26,217

 

 

 

 

19 .  Non-current assets and disposal groups held for sale  (continued)

 

 

30 June

2020

31December

2019

 

Disposal

Group1

Disposal

Group2

Disposal

Group 2

 

€000

€000

€000

Gross loans and advances to customers

868,893

42,079

173,881

Allowance for ECL for impairment of loans and advances to customers(Note29.8)

 

(516,774)

 

(32,546)

 

(147,952)

 

352,119

9,533

25,929

Stock of property

10,651

-

-

30 June/31 December

362,770

9,533

25,929

 

Disposal group 1

Disposal group 1 comprises of a portfolio loans and advances to customers (the 'Portfolio') and stock of property known as Project Helix 2 ('Project Helix 2' or the 'Transaction') as described below. The disposal group has been classified as held for sale as at 30 June 2020 as management is committed to sell it and has proceeded with an active programme to complete this plan. The sale is expected to be completed within 12 months from the classification date.

 

I n August 2020, the Group reached an agreement for the sale of the Portfolio. 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.

 

Further analysis of the loans and advances to customers portfolio, which is included in this disposal group, is disclosed in Note 29.7.

 

Disposal group 2

As at 30 June 2020, Disposal group 2 comprises loans and advances to customers of Project Helix tail (31

December 2019: Disposal group 2 comprised loans and advances to customers of Projects Helix tail and

Velocity 2) as further analysed below. The disposal groups were classified as held for sale as at 30 June

202 0 and 31 December 2019 as management was committed to sell it and had proceeded with an active programme to complete this plan. The plan is expected to be completed within 12 months from the classification date.

 

Project Helix tail relates to a portfolio of credit facilities related to Project Helix (a portfolio of loans and advances to customers for which the sale was completed in June 2019) with a carrying value of €9,533 thousand and €11,998 thousand as at 30 June 2020 and 31 December 2019 respectively.

 

Velocity 2 related to a portfolio of unsecured loans and advances to customers with a net book value of

€13,93 1 thousand as at 31 December 2019 for which an agreement to sell was reached in January 2020 and completed in May 2020. Loans were derecognised upon completion of the sale giving rise to no gain or loss. Upon completion, the portfolio comprised of gross loans and advances to customers amounting to

€125,525 thousand with a net book value of €13,555 thousand.

 

 

 

 

19 .  Non-current assets and disposal groups held for sale  (continued)

 

Further analysis of the loans and advances to customers' portfolio, which is included in these disposal groups, is disclosed in Note 29.7.

 

Other exposures held by Serbian subsidiary

The portfolio held by Serbian subsidiary related to loans with collaterals in Serbia and properties in Serbia. It was disposed of in August 2019 except for two properties with a carrying value of €288 thousand as at 30

June 2020 and 31 December 2019. These properties are still classified as non-current assets held for sale and are expected to be disposed of during 2020.

 

20 .  Funding from central banks

 

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

 

 

30 June

2020

31December

2019

€000

€000

Targeted Longer-Term Refinancing Operations (TLTRO IΙI)

999,806

-

 

As at 30 June 2020, ECB funding amounted to €1 billion that was borrowed from the fourth TLTRO III (31

December 2019: €nil).

 

The interest rate that will be applicable to the TLTRO III funding will depend on the eligible net lending during the specified periods laid out in the terms of the ECB operation.

 

I n recognition of the challenging credit environment during the pandemic period, the Governing Council of the ECB has decided for the period from 24 June 2020 to 23 June 2021 that the interest rate on all TLTRO III will be 50 basis points below the average rate applied in the Eurosystem's main refinancing operations over the same period. The interest rate on the main refinancing operations is currently 0%. For counterparties whose eligible net lending reaches the lending performance threshold, the interest rate applied from 24 June 2020 to 23 June 2021 on all TLTRO III will be 50 basis points below the average interest rate on the deposit facility prevailing over the same period, and in any case not higher than minus

1%. The deposit facility rate is currently minus 0.5%. The maturity of TLTRO III is three years from the settlement of each operation but there is an option available to repay the amounts borrowed under TLTRO III one year from the settlement of each operation starting in September 2021.

 

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

 

 

 

 

21 .  Customer deposits

 

 

30 June

2020

31December

2019

€000

€000

By type of deposit

 

 

Demand

7,624,072

7,595,231

Savings

1,762,006

1,567,344

Time or notice

6,916,818

7,528,956

 

16,302,896

16,691,531

By geographical area

 

 

Cyprus

16,302,896

16,691,531

 

 

 

Bycurrency

 

 

Euro

14,619,863

15,009,828

US Dollar

1,313,532

1,286,292

British Pound

274,095

288,289

Russian Rouble

22,257

30,113

Romanian Lei

45

-

SwissFranc

11,335

10,803

Other currencies

61,769

66,206

 

16,302,896

16,691,531

 

By business line

 

 

Corporate

1,030,223

1,117,222

Globalcorporate

683,485

691,550

SMEs

764,103

770,655

Retail

10,139,808

10,140,920

Restructuring

 

 

- Corporate

50,287

52,421

-SMEs

24,061

28,222

-Retailother

9,761

10,507

Recoveries

 

 

- Corporate

4,874

6,140

International banking services

3,324,561

3,543,315

Wealth management

271,733

330,579

 

16,302,896

16,691,531

 

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

 

22 .  Subordinated loan stock

 

 

 

30 June

2020

31December

2019

 

Contractual interest rate

€000

€000

Subordinated Tier 2 Capital Note with nominal value of €250 million

 

9.25% up to 19 January 2022

 

260,727

 

272,170

 

BO C PCL maintains a Euro Medium Term Note (Ε) Programme with an aggregate nominal amount up to

€4,000 million.

 

 

 

 

22 .   Subordinated loan stock (continued)

 

I n January 2017, BOC PCL issued a €250 million unsecured and subordinated Tier 2 Capital Note (the Note) under BOC PCL's EMTN Programme. The Note was priced at par with a coupon of 9.25% per annum payable annually up to 19 January 2022 and then a rate at the then prevailing 5-year swap rate plus a margin of

9.176 % per annum up to 19 January 2027, payable annually. The Note matures on 19 January 2027. BOC PCL has the option to redeem the Note early on 19 January 2022, subject to applicable regulatory consents. The Note is listed on the Luxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF) market. The fair value as at 30 June 2020 is disclosed in Note 15.

 

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

 

 

30 June

2020

31December

2019

€000

€000

Income tax payable and related provisions

7,721

5,025

Special defence contribution payable

212

2,065

Retirementbenefitplansliabilities

11,659

9,212

Provisions for financial guarantees and commitments

17,694

22,112

Liabilities for investment-linked contracts under administration

14,854

9,237

Accrued expenses and other provisions

60,420

89,620

Deferred income

14,941

13,611

Items in the course of settlement

62,945

49,975

Leas e liabilities

25,244

29,704

Othe r liabilities

97,527

93,685

 

313,217

324,246

 

24 .  Share capital

 

 

30 June 2020

31December2019

Number of shares (thousand)

 

€000

Number of shares (thousand)

 

€000

Authorised

 

 

 

 

Ordinary shares of €0.10 each

10,000,000

1,000,000

10,000,000

1,000,000

Issued

 

 

 

 

1 January and 30 June/31 December

446,200

44,620

446,200

44,620

 

Authorised and issued share capital

 

All issued ordinary shares carry the same rights.

 

Ther e were no changes to the authorised or issued share capital during the six months ended 30 June 2020 and during the year ended 31 December 2019.

 

 

 

 

24 .   Share capital  (continued)

 

Share premium reserve

 

2020

There were no changes to the share premium reserve during the six months ended 30 June 2020.

 

Capital reduction process

The Annual General Meeting of the shareholders of the Company held in May 2020, approved 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 is still subject to approval by the ECB and the Irish High Court.

 

2019

There were no changes to the share premium reserve during the year ended 31 December 2019.

 

Treasury shares of the Company

 

Shares of the Company held by entities controlled by the Group are deducted from equity on the purchase, sale, issue or cancellation of such shares. No gain or loss is recognised in the consolidated income statement.

 

Th e life insurance subsidiary of the Group, as at 30 June 2020, held a total of 142 thousand ordinary shares of the Company of a nominal value of €0.10 each (31 December 2019: 142 thousand ordinary shares of a nominal value of €0.10 each), as part of its financial assets which are invested for the benefit of insurance policyholders. The cost of acquisition of these shares was €21,463 thousand (31 December 2019: €21,463 thousand).

 

Share-based payments - share options

 

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

 

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

 

Other equity instruments

 

 

30 June

2020

31December

2019

€000

€000

Reset Perpetual Additional Tier 1 Capital Securities

220,000

220,000

 

 

 

 

24 .   Share capital  (continued)

 

I n December 2018 the Company issued €220 million Subordinated Fixed Rate Reset Perpetual Additional Tier 1 Capital Securities (AT1). AT1 constitutes an unsecured and subordinated obligation of the Company. The coupon is at 12.50% and is payable semi-annually. The Company may elect to cancel any interest payment for an unlimited period, on a non-cumulative basis, whereas it mandatorily cancels interest payment under certain circumstances. AT1 is perpetual and has no fixed date for redemption but can be redeemed (in whole but not in part) at the Company's option on the fifth anniversary of the issue date and each subsequent fifth anniversary subject to the prior approval of the regulator. AT1 is listed on the Luxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF) market. A first coupon payment, for the year 2020 to AT1 holders, in the amount of  €13,750 thousand, was made in June 2020 and has been recognised in retained earnings (30 June 2019: €13,447 thousand).

 

25 .   Pending litigation, claims, regulatory and other matters

 

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

 

Apart from what is described below, the Group considers that none of these matters is material, either individually or in aggregate. The Group has not disclosed an estimate of the potential financial effect on its contingent liabilities arising from these matters where it is not practicable to do so because it is too early or the outcome is too uncertain or, in cases where it is practicable, where disclosure could prejudice conduct of the matters. Provisions have been recognised for those cases where the Group is able to estimate probable losses. Where an individual provision is material, the fact that a provision has been made is stated. Any provision recognised does not constitute an admission of wrongdoing or legal liability.  While the outcome of these matters is inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of legal proceedings and regulatory matters as at 30 June

202 0 and hence it is not believed that such matters, when concluded, will have a material impact upon the financial position of the Group.

 

25. 1   Pending litigation and claims

 

Investigations and litigation relating to securities issued by BOC PCL

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

 

The bonds and capital securities in respect of which claims have been brought are the following: 2007

Capital Securities, 2008 Convertible Bonds, 2009 Convertible Capital Securities (CCS) and 2011 Convertible

Enhanced Capital Securities (CECS).

 

 

 

 

25 .   Pending litigation, claims, regulatory and other matters  (continued)

 

25. 1   Pending litigation and claims (continued)

 

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

 

I n July 2019 the first capital securities case to reach the Areios Pagos (Supreme Court of Greece) has been adjudged in favour of BOC PCL, ruling in effect that BOC PCL can rely on the defence of Frustration (i.e. intervening event out of the control of BOC PCL, in this case BOC PCL's resolution and recapitalisation through the bail-in of deposits) to show that the risks associated with the sale of the capital securities because of the consequences of the bail-in were unforeseeable.

 

Th e case will be retried by the Larissa District Court as per the direction of the Supreme Court, however the ruling of the Supreme Court on this point is final and binding on lower courts and BOC PCL's position therefore is that BOC PCL will, most probably, win the case at the Larissa District Court.

 

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

 

Bail-in related litigation

Depositors

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

 

Shareholders

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

 

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

 

 

 

 

25 .   Pending litigation, claims, regulatory and other matters  (continued)

25. 1  Pending litigation and claims (continued) Legal position of the Group

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

 

Provident fund case

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

 

Employment litigation

Former senior officers of BOC PCL have instituted one claim for unfair dismissal and one claim for Provident Fund entitlements against BOC PCL and the Trustees of the Provident Fund. As at the present date one case has been dismissed as filed out of time, but the plaintiff subsequently filed a civil action in the District Court on the same grounds as the previous case which was filed in the Labour Disputes Court. The Group does not consider that these cases will have a material impact on its financial position.

 

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

 

Swiss Francs loans litigation in Cyprus and UK

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

 

UK property lending claims

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

 

Banking business cases

Ther e are a number of banking business cases where the amounts claimed are significant. Management has assessed the probability of loss as remote and does not expect any remote future outflows with respect to these cases to have a material impact on the financial position of the Group. These cases primarily concern allegations as to BOC PCL's standard policies and procedures allegedly resulting to damages and other losses for the claimants.

 

Consumer Protection Service

I n July 2017, the Consumer Protection Service ('CPS') has imposed a fine of €170 thousand upon BOC PCL after concluding an ex officio investigation regarding some terms in both BOC PCL's and Marfin Popular Bank's loan documentation, that were found to constitute unfair commercial practices. Decisions of the CPS (according to rulings of the Administrative Court) are not binding but merely an expression of opinion. Against this decision, BOC PCL has filed an application before the Administrative Court which has not yet issued its judgement. The case is set for Directions in November 2020.

 

 

 

 

25 .   Pending litigation, claims, regulatory and other matters  (continued)

 

25. 1   Pending litigation and claims (continued)

 

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

 

Data Protection Commissioner (DCP)

A customer of BOC PCL complained to the Office of the Commissioner for Personal Data Protection that BOC PCL violated certain provisions of the General Data Protection Regulation (GDPR). Following written exchanges with the Commissioner's Office, the latter decided to impose a fine of €15 thousand on BOC PCL.

 

General criminal investigations and proceedings

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

 

I n January 2017 the Attorney General had filed a criminal case against a number of current and former officers of BOC PCL relating to the reclassification of Greek Government Bonds in April 2010. No charges were instituted against BOC PCL in this case. Two of the former officers accused, had already been acquitted on the basis of preliminary objections raised by them. The Attorney General had filed an appeal against the acquittals. The Supreme Court dismissed the Attorney General's appeal. On 19 March 2020, the Assize Court of Nicosia discontinued the criminal case and discharged all accused, including the current officers of BOC PCL, who had been charged with various criminal offences relating to events occurring before the financial crisis of 2013 and the bailing-in of BOC PCL. The Court ruled that there had been clear and serious abuse of the process of the Court and that in fact the specific prosecution should never have been instituted.

 

Others

A n investigation is in process relating to the examination of any exaggerated and/or fabricated claims paid by the non-life insurance subsidiary of the Group. The information usually required by IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' is not disclosed on the grounds that it can be expected to seriously prejudice the outcome of the investigation and of the potential litigation. Based on the information available at present, management's view is that it is unlikely for this matter to have a material adverse impact on the financial position and capital adequacy of the non-life insurance subsidiary and thereby the Group, considering also the relevant insurance policy in place, a reimbursement is virtually certain to be received upon settlement of any relevant obligation that may arise.

 

25. 2   Regulatory matters

 

The Hellenic Capital Market Commission (HCMC) Investigation

The HCMC is currently in the process of investigating matters concerning the Group's investment in Greek Government Bonds from 2009 to 2011, including, inter-alia, related non-disclosure of material information in BOC PCL's CCS and CECS and rights issue prospectus (tracking the investigation carried out by CySEC in

2013), Greek government bonds' reclassification, ELA disclosures and allegations by some Greek Government Bond investors regarding BOC PCL's non-compliance with Markets in Financial Instruments Directive (MiFID) in respect of investors' direct investments in Greek Government Bonds.

 

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

 

 

 

 

25 .   Pending litigation, claims, regulatory and other matters  (continued)

 

25. 2   Regulatory matters  (continued)

 

I n January 2020,  a  fine  has  been  imposed  on  BOC PCL by the HCMC regarding the sale of Greek Government Bonds on behalf of the Greek Government. The decision has recently been served on BOC PCL. BOC PCL will not file an appeal and the fine will be paid in due course. The amount of the fine of €5 thousand is not material.

 

I n May 2020, a fine has been imposed on BOC PCL by the HCMC regarding the failure of BOC PCL to comply with certain articles of the HCMC. BOC PCL will not file an appeal and the €5 thousand fine, which is not material, will be paid in due course.

 

Labour Inspection Body of Greece

As for other potential matters involving the exposure of BOC PCL to losses, there are twelve fines imposed by the Labour Inspection Body of Greece in the years prior to 2013, which amount in total to €84 thousand. Four of the said fines have been paid on 1 June 2020.

 

The Cyprus Securities and Exchange Commission (CySEC) Investigations

As at 30 June 2020 and 31 December 2019 there were no pending CySEC investigations against BOC PCL.

 

Central Bank of Cyprus (CBC)

In June 2020 BOC PCL has won the recourse that it had filed before the Administrative Court with regards to the decision and fine that was imposed in September 2013 upon BOC PCL by CBC concerning the selling practices that BOC PCL used during the 2009 capital securities issuance.

 

Commission for the Protection of Competition Investigation

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

 

There was also an allegation concerning BOC PCL's arrangements with American Express, namely that such exclusive arrangements violated Cypriot and EU competition law. On both matters, the CPC has concluded that BOC PCL (in common with other banks and JCC) has breached the relevant provisions of the applicable law for the protection of competition. In January 2016, the CPC imposed a fine of €18 million upon BOC PCL and BOC PCL filed a recourse against the decision and the fine. The payment of the fine has been stayed pending the final outcome of the recourse. In June 2018 the Administrative court accepted BOC PCL's position and cancelled the decision as well as the fine imposed upon BOC PCL. During 2018, the Attorney General has filed an appeal before the Supreme court with respect to such decision. The said appeal is still pending as at period end.

 

BOC PCL is under investigation from CPC regarding alleged violations of the Competition Law with respect to unfair contract terms for the period from 2012 to 2016. BOC PCL has responded to a questionnaire in September 2019 and then to a further questionnaire on 17 February 2020. This investigation is currently at a very early stage to predict its outcome.

 

CP C has ruled in March 2020 that there is breach of competition law in relation to BOC PCL's participation in the shareholding of Fairways Ltd. A fine will be imposed upon BOC PCL following submission of BOC PCL's written address on mitigation.  The fine is not expected to be material.

 

Additionally, in June 2020 the abovementioned authority requested information in the form of a questionnaire with regards to the card payments system providers of BOC PCL. BOC PCL responded on time to the CPC. This inquiry is at a very early stage for any predictions to be made as to the outcome.

 

 

 

 

25 .   Pending litigation, claims, regulatory and other matters  (continued)

 

25. 2   Regulatory matters  (continued)

 

UK regulatory matters

The provision outstanding as at 30 June 2020 is €1,426 thousand (31 December 2019: €1,645 thousand). As part of the agreement for the sale of Bank of Cyprus UK Ltd, a liability with regards to UK regulatory matters remains an obligation for settlement by the Group.  The level of the provision represents the best estimate of all probable outflows arising from customer redress based on information available to management. Management continues to reassess the adequacy of the provision, as well as the assumptions underlying the calculations based upon experience and other relevant factors prevailing at the time.

 

Romanian Competition Council

A n investigation has been initiated by the Romanian Competition Council in October 2019 on all leasing companies in Romania. All leasing companies were members of the professional association ALB (Asociatia Societatilor Financiare din Romania) and the Romanian Competition Council is alleging that there was an illegal exchange of information between them. BOC Asset Management Romania S.A. is included in the said investigation due to the fact that it is a member of the said association. Upon receipt of the investigation report BOC Asset Management Romania S.A. - assisted by Romanian attorneys - prepared and submitted its observations on the report and subsequently it has submitted its defence. This may result in the imposition of a fine on BOC Asset Management Romania S.A., which is not expected to be material.

 

25. 3   Provisions for pending litigation, claims, regulatory and other matters

 

 

 

 

 

2020

Pending litigation or claims

(Note25.1)

 

Regulatory matters (Note25.2)

 

Other matters

(Note25.4)

 

 

Total

€000

€000

€000

€000

1January

70,075

13,691

24,328

108,094

Increase of provisions including unwinding of discount (Note9)

 

5,059

 

277

 

12,000

 

17,336

Utilisation of provisions

(9,375)

(653)

(1,014)

(11,042)

Release of provisions(Note9)

(1,292)

-

-

(1,292)

Foreign exchange adjustments

-

(124)

-

(124)

30 June

64,467

13,191

35,314

112,972

 

2019

 

 

 

 

1January

74,372

29,569

13,010

116,951

Increase of provisions including unwinding of discount(Note9)

 

195

 

390

 

11,644

 

12,229

Utilisation of provisions

(8,234)

(13,325)

(1,926)

(23,485)

Release of provisions(Note9)

(1,788)

(1,480)

-

(3,268)

Foreign exchange adjustments

-

(52)

-

(52)

30 June

64,545

15,102

22,728

102,375

 

The increase in provisions for the six months ended 30 June 2020 was primarily driven by the progressed status of the pending investigations and litigations relating to securities issued by BOC PCL in Greece, as well as the additional provisions taken for other matters in relation to the disposal process of certain of its operations. Since 31 December 2019, €11,042 thousand of provisions for pending litigations, claims, regulatory and other matters, have been utilised (corresponding period 2019: €23,485 thousand).

 

A n increase by 5% in the probability of loss rate for pending litigation and claims (31 December 2019: 5%) with all other variables held constant, would lead to an increase in the actual provision by €6,097 thousand at 30 June 2020 (31 December 2019: increase by €5,848 thousand).

 

 

 

 

25 .   Pending litigation, claims, regulatory and other matters  (continued)

 

25. 4   Οther matters

 

Other matters include among others, provisions for various other open examination requests by governmental and other public bodies, legal matters and provisions for warranties and indemnities related to the disposal process of certain operations of the Group (Note 26).

 

Some information required by the IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' is not disclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation or the outcome of the negotiation in relation to provisions for warranties and indemnities related to the disposal process of certain operations of the Group.

 

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

'Insurance liabilities'.

 

26 .   Contingent liabilities

 

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

 

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

 

27 .   Cash and cash equivalents

 

Cash and cash equivalents comprise:

 

 

30 June

2020

31December

2019

€000

€000

Cash and non-obligatory balances with central banks

5,118,151

4,899,994

Loans and advances to banks with original maturity less than three months

521,093

230,869

 

5,639,244

5,130,863

 

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

 

 

30 June

2020

31December

2019

€000

€000

Cash and non-obligatory balances with central banks

5,118,151

4,899,994

Obligatory balances with central banks

158,247

160,048

Total cash and balances with central banks

5,276,398

5,060,042

 

Loans and advances to banks with original maturity less than three months

521,093

230,869

Restricted loans and advances to banks

100,867

88,712

Other loans and advances to banks

-

1,300

Total loans and advances to banks

621,960

320,881

 

 

 

 

27 .   Cash and cash equivalents (continued)

 

Restricted  loans  and  advances  to  banks  include  collaterals  under  derivative  transactions  of  €57,940 thousand (31 December 2019: €41,104 thousand) which are not immediately available for use by the Group, but are released once the transactions are terminated.

 

28 .   Analysis of assets and liabilities by expected maturity

 

 

30June2020

3 1December2019

Lessthan one year

Over one year

Total

Less than oneyear

Ove r one year

Total

Assets

€000

€000

€000

€000

€000

€000

Cash and balances with central banks

 

5,118,151

 

158,247

 

5,276,398

 

4,899,994

 

160,048

 

5,060,042

Loans and advances to banks

 

521,093

 

100,867

 

621,960

 

232,169

 

88,712

 

320,881

Derivative financial assets

8,197

8,053

16,250

3,217

19,843

23,060

Investments including investments pledged as collateral

 

 

490,774

 

 

1,508,156

 

 

1,998,930

 

 

446,293

 

 

1,459,537

 

 

1,905,830

Loans and advances to customers

 

1,244,125

 

8,860,115

 

10,104,240

 

1,521,642

 

9,200,199

 

10,721,841

Life insurance business assets attributable to policyholders

 

 

6,203

 

 

440,570

 

 

446,773

 

 

14,528

 

 

444,324

 

 

458,852

Prepayments, accrued income and other assets

 

196,412

 

58,194

 

254,606

 

192,831

 

51,099

 

243,930

Stoc k of property

393,015

951,111

1,344,126

582,878

794,575

1,377,453

Deferredtaxassets

37,909

303,424

341,333

37,909

341,217

379,126

Property, equipment and intangible assets

 

10,730

 

446,531

 

457,261

 

14

 

466,986

 

467,000

Investment properties

29,495

104,657

134,152

-

136,197

136,197

Investment in associates and joint venture

 

-

 

2,188

 

2,188

 

-

 

2,393

 

2,393

Non-current assets and disposalgroupsheldforsale

 

372,591

 

-

 

372,591

 

26,217

 

-

 

26,217

 

8,428,695

12,942,113

21,370,808

7,957,692

13,165,130

21,122,822

 

Liabilities

 

 

 

 

 

 

Depositsbybanks

84,981

321,376

406,357

203,406

329,998

533,404

Funding from central banks

-

999,806

999,806

-

-

-

Repurchase agreements

123,098

-

123,098

168,129

-

168,129

Derivative financial liabilities

10,089

45,645

55,734

11,839

38,754

50,593

Customer deposits

5,105,515

11,197,381

16,302,896

5,327,735

11,363,796

16,691,531

Insurance liabilities

85,879

542,578

628,457

88,796

551,217

640,013

Accruals,deferredincome and other liabilities and pending litigation, claims, regulatory and other matters

 

 

 

304,044

 

 

 

122,145

 

 

 

426,189

 

 

 

273,914

 

 

 

158,426

 

 

 

432,340

Subordinated loan stock

-

260,727

260,727

-

272,170

272,170

Deferred tax liabilities

-

47,343

47,343

-

46,015

46,015

 

5,713,606

13,537,001

19,250,607

6,073,819

12,760,376

18,834,195

 

The main assumptions used in determining the expected maturity of assets and liabilities are set out below.

 

 

 

 

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

 

The investments are classified in the relevant time band based on expectations as to their realisation.  In most cases this is the maturity date, unless there is an indication that the maturity will be prolonged or there is an intention to sell, roll or replace the security with a similar one.  The latter would be the case where there is secured borrowing, requiring the pledging of bonds and these bonds mature before the maturity of the secured borrowing.  The maturity of bonds is then extended to cover the period of the secured borrowing.

 

Performing loans and advances to customers in Cyprus are classified based on the contractual repayment schedule. Overdraft accounts are classified in the 'Over one year' time band.  The Stage 3 Loans are classified in the 'Over one year' time band except cash flows from expected receipts which are included within time bands, according to historic amounts of receipts in the recent months.

 

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

 

A percentage of customer deposits in Cyprus maturing within one year is classified in the 'Over one year'

time band, based on the observed behavioural analysis.

 

The expected maturity of all prepayments, accrued income and other assets and accruals, deferred income and other liabilities is the same as their contractual maturity. If they do not have a contractual maturity, the expected maturity is based on the timing the asset is expected to be realised and the liability is expected to be settled.

 

29 .   Risk management - Credit risk

 

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

 

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

 

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

 

The Credit Risk Management department, safeguards the effective management of credit risk at all stages of the credit cycle, monitors the quality of decisions and processes and ensures that credit sanctioning function is being properly managed.

 

The  credit  policies  are  combined  with   the  methods  used  for  the  assessment  of  the  customers'

creditworthiness (credit rating and credit scoring systems).

 

The loan portfolio is analysed on the basis of assessments about the customers' creditworthiness, their economic sector of activity and the country in which they operate.

 

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

 

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

 

The Market Risk department assesses the credit risk relating to exposures to Credit Institutions and Governments. Models and limits are presented to and approved by the Board of Directors, through its Risk Committee and Assets and Liabilities Committee (ALCO), on an annual basis.

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 1  Maximum exposure to credit risk and collateral and other credit enhancements

 

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

 

 

30 June

2020

31December

2019

On-balance sheet

€000

€000

Cyprus

18,199,860

17,890,028

Other countries

39,417

45,382

 

18,239,277

17,935,410

 

 

 

Off-balance sheet

 

 

Cyprus

2,504,470

2,563,718

Other countries

55,755

58,290

 

2,560,225

2,622,008

 

 

 

Total on and off-balance sheet

 

 

Cyprus

20,704,330

20,453,746

Other countries

95,172

103,672

 

20,799,502

20,557,418

 

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

 

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

 

Loans and advances to customers

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

 

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

 

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

 

Other financial instruments

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

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 1  Maximum  exposure  to  credit  risk  and  collateral  and  other  credit  enhancements

(continued)

 

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

 

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

 

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

 

 

30 June

2020

31December

2019

€000

€000

Balances with central banks

5,160,549

4,908,487

Loans and advances to banks(Note27)

621,960

320,881

FVPL debt securities

24,387

24,093

Debt securities classified at amortised cost and FVOCI

1,779,904

1,713,914

Derivative financial instruments(Note14)

16,250

23,060

Loans and advances to customers(Note16)

10,104,240

10,721,841

Loans and advances to customers classified as held for sale(Note19)

361,652

25,929

Receivables relating to disposal of operations, loan portfolios and other assets(Note18)

 

28,078

 

53,354

Debtor s(Note18)

40,143

39,663

Reinsurers' share of insurance contract liabilities(Note18)

50,102

50,609

Other assets(Note18)

52,012

53,579

On-balance sheet total

18,239,277

17,935,410

Contingentliabilities

 

 

Acceptances and endorsements

4,797

5,816

Guarantees

632,693

683,084

Commitments

 

 

Documentary credits

11,482

11,767

Undrawn formal stand-by facilities, credit lines and other commitments to lend

 

1,911,253

 

1,921,341

Off-balance sheet total

2,560,225

2,622,008

 

20,799,502

20,557,418

 

29. 2   Credit risk concentration of loans and advances to customers

 

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

 

 

 

 

29 .   Risk management - Credit risk (continued)

 

29. 2   Credit risk concentration of loans and advances to customers (continued)

 

For the application of these restrictions, BOC PCL categorises its loans per customer group, using the following customer sectors:

 

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

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

·   Corporate - any company or group of companies (including personal and housing loans to the directors or shareholders of a company) with available credit lines with BOC PCL in excess of an aggregate principal amount of €6 million or having a minimum annual credit turnover of €10 million.

 

Fair value adjustment on initial recognition

The fair value adjustment on initial recognition related to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013. In accordance with the provisions of IFRS

3, this adjustment decreased the gross balance of loans and advances to customers.  However, for IFRS 7 disclosure purposes as well as for credit risk monitoring, the residual of the fair value adjustment on initial recognition as at each balance sheet date is not presented within the gross balances of loans and advances.

 

The Group presents its credit risk concentration below, which is based on industry (economic activity) concentration and by business line under which its customers are managed. A geographical analysis, based on the country in which loans are managed, is presented in the table below. This geographical analysis presents loans in Romania and Russia within 'Other countries'.

 

 

 

 

 

 

30June2020

 

 

Cyprus

 

 

Other countries

 

 

Total

 

Residualfairvalue adjustmenton initialrecognition

Grossloansat amortised cost after residual fair valueadjustment oninitial recognition

Byeconomicactivity

€000

€000

€000

€000

€000

Trade

1,216,435

11,330

1,227,765

(11,569)

1,216,196

Manufacturing

418,215

2,898

421,113

(3,931)

417,182

Hotels and catering

961,388

858

962,246

(25,050)

937,196

Construction

706,587

3,090

709,677

(9,016)

700,661

Real estate

1,087,028

24,205

1,111,233

(16,432)

1,094,801

Private individuals

5,345,763

869

5,346,632

(87,519)

5,259,113

Professional and other services

706,647

31,948

738,595

(18,077)

720,518

Othersectors

700,782

689

701,471

(7,885)

693,586

 

11,142,845

75,887

11,218,732

(179,479)

11,039,253

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 2  Credit risk concentration of loans and advances to customers (continued)

 

 

 

 

 

 

30June2020

 

 

Cyprus

 

 

Other countries

 

 

Total

 

Residualfairvalue adjustmenton initialrecognition

Grossloansat amortised cost after residual fair valueadjustment oninitial recognition

Bybusinessline

€000

€000

€000

€000

€000

Corporate

1,965,818

21,206

1,987,024

(25,865)

1,961,159

Globalcorporate

1,942,680

46,075

1,988,755

(28,918)

1,959,837

SMEs

1,112,655

7,841

1,120,496

(15,894)

1,104,602

Retail

 

 

 

 

 

- housing

2,875,193

-

2,875,193

(34,529)

2,840,664

- consumer, credit cards and other

874,444

765

875,209

119

875,328

Restructuring

 

 

 

 

 

-corporate

205,837

-

205,837

(3,045)

202,792

- SMEs

200,071

-

200,071

(1,772)

198,299

- retail housing

216,261

-

216,261

(1,872)

214,389

- retail other

131,933

-

131,933

(1,758)

130,175

Recoveries

 

 

 

 

 

-corporate

44,708

-

44,708

297

45,005

- SMEs

238,480

-

238,480

(7,991)

230,489

- retail housing

670,253

-

670,253

(29,128)

641,125

- retail other

501,181

-

501,181

(25,340)

475,841

International banking services

130,239

-

130,239

(1,304)

128,935

Wealth management

33,092

-

33,092

(2,479)

30,613

 

11,142,845

75,887

11,218,732

(179,479)

11,039,253

 

 

 

 

31 December 2019

 

Cyprus

 

Other countries

 

Total

Residualfairvalue adjustmenton initialrecognition

Gross loans after residualfairvalue adjustmenton initialrecognition

Byeconomicactivity

€000

€000

€000

€000

€000

Trade

1,334,506

11,092

1,345,598

(16,375)

1,329,223

Manufacturing

456,129

3,222

459,351

(4,659)

454,692

Hotels and catering

932,435

840

933,275

(17,436)

915,839

Construction

838,388

3,272

841,660

(10,821)

830,839

Real estate

1,131,179

23,777

1,154,956

(14,760)

1,140,196

Private individuals

5,892,821

929

5,893,750

(110,332)

5,783,418

Professional and other services

797,044

41,970

839,014

(22,745)

816,269

Othersectors

741,858

683

742,541

(4,871)

737,670

 

12,124,360

85,785

12,210,145

(201,999)

12,008,146

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 2  Credit risk concentration of loans and advances to customers (continued)

 

 

 

 

 

31 December 2019

 

Cyprus

 

Other countries

 

Total

Residualfairvalue adjustmenton initialrecognition

Gross loans after residualfairvalue adjustmenton initialrecognition

Bybusinessline

€000

€000

€000

€000

€000

Corporate

1,970,656

22,371

1,993,027

(18,212)

1,974,815

Globalcorporate

1,862,119

53,972

1,916,091

(16,342)

1,899,749

SMEs

1,118,499

8,632

1,127,131

(16,827)

1,110,304

Retail

 

 

 

 

 

- housing

2,834,411

-

2,834,411

(41,724)

2,792,687

- consumer, credit cards and other

893,199

810

894,009

1,835

895,844

Restructuring

 

 

 

 

 

-corporate

323,670

-

323,670

(2,545)

321,125

- SMEs

322,284

-

322,284

(5,007)

317,277

- retail housing

353,593

-

353,593

(3,059)

350,534

- retail other

181,768

-

181,768

(2,723)

179,045

Recoveries

 

 

 

 

 

-corporate

93,299

-

93,299

(2,692)

90,607

- SMEs

449,559

-

449,559

(15,981)

433,578

- retail housing

882,311

-

882,311

(37,654)

844,657

- retail other

670,787

-

670,787

(37,256)

633,531

International banking services

134,940

-

134,940

(1,288)

133,652

Wealth management

33,265

-

33,265

(2,524)

30,741

 

12,124,360

85,785

12,210,145

(201,999)

12,008,146

 

Th e residual fair value adjustment on initial recognition for loans and advances to customers included in the

Cyprus geographical area amounts to €179,349 thousand (31 December 2019: €201,853 thousand).

 

Th e loans and advances to customers in Cyprus include lending exposures to Greek entities granted by BOC PCL in Cyprus in its normal course of business with a carrying value of €183,819 thousand (31 December

2019 : €184,130 thousand) and lending exposures in Cyprus with collaterals in Greece with a carrying value of €84,941 thousand (31 December 2019: €80,324 thousand).

 

29. 3  Credit risk concentration of loans and advances to customers classified as held for sale

 

Industry and business lines concentrations and geographical analysis of Group loans and advances to customers at amortised cost classified as held for sale are presented in the table below.

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 3  Credit risk concentration of loans and advances to customers classified as held for sale

(continued)

 

 

 

 

 

 

30June2020

 

 

Cyprus

 

 

Other countries

 

 

Total

 

Residualfairvalue adjustmenton initialrecognition

Grossloansat amortised cost after residual fair valueadjustment oninitial recognition

Byeconomicactivity

€000

€000

€000

€000

€000

Trade

84,185

-

84,185

(3,753)

80,432

Manufacturing

29,094

-

29,094

(1,000)

28,094

Hotels and catering

21,881

-

21,881

(1,104)

20,777

Construction

114,205

-

114,205

(4,282)

109,923

Real estate

52,901

-

52,901

(2,110)

50,791

Private individuals

531,066

-

531,066

(15,378)

515,688

Professional and other services

64,148

-

64,148

(2,845)

61,303

Othersectors

44,660

-

44,660

(696)

43,964

 

942,140

-

942,140

(31,168)

910,972

 

 

 

 

 

 

30June2020

 

 

Cyprus

 

 

Other countries

 

 

Total

 

Residualfairvalue adjustmenton initialrecognition

Grossloansat amortised cost after residual fair valueadjustment oninitial recognition

Bybusinessline

€000

€000

€000

€000

€000

Corporate

314

-

314

-

314

SMEs

4

-

4

-

4

Retail

 

 

 

 

 

- housing

56

-

56

-

56

- consumer, credit cards and other

169

-

169

(4)

165

Restructuring

 

 

 

 

 

-corporate

69,974

-

69,974

(693)

69,281

- SMEs

63,043

-

63,043

(594)

62,449

- retail housing

68,489

-

68,489

(261)

68,228

- retail other

26,200

-

26,200

(417)

25,783

Recoveries

 

 

 

 

 

-corporate

68,085

-

68,085

(1,575)

66,510

- SMEs

241,272

-

241,272

(9,187)

232,085

- retail housing

229,642

-

229,642

(7,712)

221,930

- retail other

174,804

-

174,804

(10,725)

164,079

International banking services

88

-

88

-

88

 

942,140

-

942,140

(31,168)

910,972

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 3  Credit risk concentration of loans and advances to customers classified as held for sale

(continued)

 

 

 

 

 

 

31 December 2019

 

 

Cyprus

 

 

Other countries

 

 

Total

 

Residualfairvalue adjustmenton initialrecognition

Grossloansat amortised cost after residual fair valueadjustment oninitial recognition

Byeconomicactivity

€000

€000

€000

€000

€000

Trade

19,263

-

19,263

(1,224)

18,039

Manufacturing

6,649

-

6,649

(322)

6,327

Hotels and catering

5,725

-

5,725

(561)

5,164

Construction

11,187

-

11,187

(595)

10,592

Real estate

1,416

-

1,416

(153)

1,263

Private individuals

117,137

-

117,137

(6,474)

110,663

Professional and other services

18,068

-

18,068

(1,490)

16,578

Othersectors

5,519

-

5,519

(264)

5,255

 

184,964

-

184,964

(11,083)

173,881

 

 

 

 

 

 

31 December 2019

 

 

Cyprus

 

 

Other countries

 

 

Total

 

Residualfairvalue adjustmenton initialrecognition

Grossloansat amortised cost after residual fair valueadjustment oninitial recognition

Bybusinessline

€000

€000

€000

€000

€000

Corporate

710

-

710

-

710

SMEs

5

-

5

-

5

Retail

 

 

 

 

 

- consumer, credit cards and other

330

-

330

-

330

Restructuring

 

 

 

 

 

-corporate

7,706

-

7,706

(88)

7,618

- SMEs

1,157

-

1,157

(2)

1,155

- retail housing

1,142

-

1,142

(15)

1,127

- retail other

41,996

-

41,996

(1,884)

40,112

Recoveries

 

 

 

 

 

-corporate

18,493

-

18,493

(853)

17,640

- SMEs

21,997

-

21,997

(1,306)

20,691

- retail housing

5,316

-

5,316

(564)

4,752

- retail other

86,039

-

86,039

(6,365)

79,674

International banking services

73

-

73

(6)

67

 

184,964

-

184,964

(11,083)

173,881

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 4  Currency concentration of loans and advances to customers

 

 

 

 

 

 

 

30June2020

 

 

Cyprus

 

 

Other countries

 

 

Total

 

Residualfairvalue adjustmenton initialrecognition

Grossloansat amortised cost after residual fair valueadjustment oninitial recognition

€000

€000

€000

€000

€000

Euro

10,489,331

48,237

10,537,568

(173,341)

10,364,227

US Dollar

395,756

8,626

404,382

(3,384)

400,998

British Pound

93,588

740

94,328

(251)

94,077

Russian Rouble

1

17,657

17,658

-

17,658

Romanian Lei

-

627

627

-

627

SwissFranc

152,996

-

152,996

(1,934)

151,062

Other currencies

11,173

-

11,173

(569)

10,604

 

11,142,845

75,887

11,218,732

(179,479)

11,039,253

 

31 December 2019

 

 

 

 

 

Euro

11,424,516

56,164

11,480,680

(198,488)

11,282,192

US Dollar

398,914

7,580

406,494

(355)

406,139

British Pound

85,293

836

86,129

(204)

85,925

Russian Rouble

1

20,536

20,537

-

20,537

Romanian Lei

-

669

669

-

669

SwissFranc

200,879

-

200,879

(2,619)

198,260

Other currencies

14,757

-

14,757

(333)

14,424

 

12,124,360

85,785

12,210,145

(201,999)

12,008,146

 

29. 5  Currency concentration of loans and advances to customers classified as held for sale

 

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

 

 

 

 

 

 

 

30June2020

 

 

Cyprus

 

 

Other countries

 

 

Total

 

Residualfairvalue adjustmenton initialrecognition

Grossloansat amortised cost after residual fair valueadjustment oninitial recognition

€000

€000

€000

€000

€000

Euro

898,388

-

898,388

(30,354)

868,034

US Dollar

6,702

-

6,702

(53)

6,649

British Pound

445

-

445

-

445

SwissFranc

33,031

-

33,031

(751)

32,280

Other currencies

3,574

-

3,574

(10)

3,564

 

942,140

-

942,140

(31,168)

910,972

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 5  Currency concentration of loans and advances to customers classified as held for sale

(continued)

 

 

 

 

 

 

 

31 December 2019

 

 

Cyprus

 

 

Other countries

 

 

Total

 

Residualfairvalue adjustmenton initialrecognition

Grossloansat amortised cost after residual fair valueadjustment oninitial recognition

€000

€000

€000

€000

€000

Euro

180,844

-

180,844

(10,794)

170,050

US Dollar

71

-

71

(16)

55

British Pound

2

-

2

-

2

SwissFranc

2,532

-

2,532

(110)

2,422

Other currencies

1,515

-

1,515

(163)

1,352

 

184,964

-

184,964

(11,083)

173,881

 

29. 6  Analysis of loans and advances to customers by staging

 

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

 

 

30 June 2020

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

Gross loans at amortised cost before residual fair value adjustment on initial recognition

 

 

 

6,871,742

 

 

 

1,816,327

 

 

 

2,088,007

 

 

 

442,656

 

 

 

11,218,732

Residual fair value adjustment oninitialrecognition

 

(85,119)

 

(20,661)

 

(13,269)

 

(60,430)

 

(179,479)

Grossloansatamortised cost after residual fair value adjustment on initial recognition

 

 

 

6,786,623

 

 

 

1,795,666

 

 

 

2,074,738

 

 

 

382,226

 

 

 

11,039,253

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 6  Analysis of loans and advances to customers by staging (continued)

 

Grossloansatamortised cost before residual fair value adjustment on initial recognition

 

 

Stage 1

 

 

Stage 2

 

 

Stage 3

 

 

POCI

 

 

Total

30 June 2020

€000

€000

€000

€000

€000

By business line

 

 

 

 

 

Corporate

1,607,613

292,471

50,913

36,027

1,987,024

Globalcorporate

1,517,201

292,916

143,461

35,177

1,988,755

SMEs

777,711

303,682

28,458

10,645

1,120,496

Retail

 

 

 

 

 

- housing

2,226,945

548,275

88,206

11,767

2,875,193

- consumer, credit cards and other

 

588,313

 

223,834

 

45,300

 

17,762

 

875,209

Restructuring

 

 

 

 

 

- corporate

29,154

47,448

109,158

20,077

205,837

- SMEs

32,774

41,480

110,893

14,924

200,071

- retail housing

1,488

5,216

203,479

6,078

216,261

- retail other

182

1,752

124,783

5,216

131,933

Recoveries

 

 

 

 

 

- corporate

-

-

36,054

8,654

44,708

- SMEs

-

-

209,125

29,355

238,480

- retail housing

-

-

534,052

136,201

670,253

- retail other

228

18

391,427

109,508

501,181

International banking services

75,750

43,458

10,757

274

130,239

Wealth management

14,383

15,777

1,941

991

33,092

 

6,871,742

1,816,327

2,088,007

442,656

11,218,732

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 6  Analysis of loans and advances to customers by staging (continued)

 

Residual fair value adjustment on initial recognition

 

Stage 1

 

Stage 2

 

Stage 3

 

POCI

 

Total

30 June 2020

€000

€000

€000

€000

€000

By business line

 

 

 

 

 

Corporate

(20,500)

(5,067)

(97)

(201)

(25,865)

Globalcorporate

(25,825)

(2,622)

404

(875)

(28,918)

SMEs

(10,969)

(4,433)

(436)

(56)

(15,894)

Retail

 

 

 

 

 

- housing

(28,090)

(6,249)

311

(501)

(34,529)

- consumer, credit cards and other

 

(271)

 

652

 

(196)

 

(66)

 

119

Restructuring

 

 

 

 

 

- corporate

15

(588)

(2,344)

(128)

(3,045)

- SMEs

(246)

(161)

(805)

(560)

(1,772)

- retail housing

(21)

24

(1,238)

(637)

(1,872)

- retail other

1

19

(708)

(1,070)

(1,758)

Recoveries

 

 

 

 

 

- corporate

2,204

-

(114)

(1,793)

297

- SMEs

-

-

(2,079)

(5,912)

(7,991)

- retail housing

-

-

(2,414)

(26,714)

(29,128)

- retail other

-

-

(3,424)

(21,916)

(25,340)

International banking services

(410)

(869)

(24)

(1)

(1,304)

Wealth management

(1,007)

(1,367)

(105)

-

(2,479)

 

(85,119)

(20,661)

(13,269)

(60,430)

(179,479)

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 6  Analysis of loans and advances to customers by staging (continued)

 

Grossloansatamortised cost after residual fair value adjustment on initial recognition

 

 

Stage 1

 

 

Stage 2

 

 

Stage 3

 

 

POCI

 

 

Total

30 June 2020

€000

€000

€000

€000

€000

By business line

 

 

 

 

 

Corporate

1,587,113

287,404

50,816

35,826

1,961,159

Globalcorporate

1,491,376

290,294

143,865

34,302

1,959,837

SMEs

766,742

299,249

28,022

10,589

1,104,602

Retail

 

 

 

 

 

- housing

2,198,855

542,026

88,517

11,266

2,840,664

- consumer, credit cards and other

 

588,042

 

224,486

 

45,104

 

17,696

 

875,328

Restructuring

 

 

 

 

 

- corporate

29,169

46,860

106,814

19,949

202,792

- SMEs

32,528

41,319

110,088

14,364

198,299

- retail housing

1,467

5,240

202,241

5,441

214,389

- retail other

183

1,771

124,075

4,146

130,175

Recoveries

 

 

 

 

 

- corporate

2,204

-

35,940

6,861

45,005

- SMEs

-

-

207,046

23,443

230,489

- retail housing

-

-

531,638

109,487

641,125

- retail other

228

18

388,003

87,592

475,841

International banking services

75,340

42,589

10,733

273

128,935

Wealth management

13,376

14,410

1,836

991

30,613

 

6,786,623

1,795,666

2,074,738

382,226

11,039,253

 

 

31 December 2019

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

Gross loans at amortised cost before residual fair value adjustment on initial recognition

 

 

 

7,020,377

 

 

 

1,523,823

 

 

 

3,038,733

 

 

 

627,212

 

 

 

12,210,145

Residual fair value adjustment oninitialrecognition

 

(75,508)

 

(20,455)

 

(16,516)

 

(89,520)

 

(201,999)

Grossloansatamortised cost after residual fair value adjustment on initial recognition

 

 

 

6,944,869

 

 

 

1,503,368

 

 

 

3,022,217

 

 

 

537,692

 

 

 

12,008,146

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 6  Analysis of loans and advances to customers by staging (continued)

 

Grossloansatamortised cost before residual fair value adjustment on initial recognition

 

 

Stage 1

 

 

Stage 2

 

 

Stage 3

 

 

POCI

 

 

Total

31 December 2019

€000

€000

€000

€000

€000

By business line

 

 

 

 

 

Corporate

1,643,073

248,464

60,676

40,814

1,993,027

Globalcorporate

1,467,004

263,296

149,464

36,327

1,916,091

SMEs

849,347

226,351

40,463

10,970

1,127,131

Retail

 

 

 

 

 

- housing

2,237,619

435,853

149,257

11,682

2,834,411

- consumer, credit cards and other

 

644,345

 

169,440

 

60,826

 

19,398

 

894,009

Restructuring

 

 

 

 

 

- corporate

32,992

61,896

198,152

30,630

323,670

- SMEs

49,279

55,902

195,681

21,422

322,284

- retail housing

2,613

3,881

336,931

10,168

353,593

- retail other

430

607

173,213

7,518

181,768

Recoveries

 

 

 

 

 

- corporate

-

-

74,899

18,400

93,299

- SMEs

-

-

374,671

74,888

449,559

- retail housing

-

-

706,060

176,251

882,311

- retail other

216

-

503,408

167,163

670,787

International banking services

76,253

45,300

12,805

582

134,940

Wealth management

17,206

12,833

2,227

999

33,265

 

7,020,377

1,523,823

3,038,733

627,212

12,210,145

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 6  Analysis of loans and advances to customers by staging (continued)

 

Residual fair value adjustment on initial recognition

 

Stage 1

 

Stage 2

 

Stage 3

 

POCI

 

Total

31 December 2019

€000

€000

€000

€000

€000

By business line

 

 

 

 

 

Corporate

(18,187)

(963)

1,241

(303)

(18,212)

Globalcorporate

(10,924)

(4,871)

-

(547)

(16,342)

SMEs

(11,522)

(4,374)

(244)

(687)

(16,827)

Retail

 

 

 

 

 

- housing

(35,575)

(5,653)

(237)

(259)

(41,724)

- consumer, credit cards and other

 

2,303

 

(377)

 

64

 

(155)

 

1,835

Restructuring

 

 

 

 

 

- corporate

(113)

(1,351)

(833)

(248)

(2,545)

- SMEs

(86)

(557)

(2,266)

(2,098)

(5,007)

- retail housing

(9)

(15)

(2,039)

(996)

(3,059)

- retail other

-

-

(1,134)

(1,589)

(2,723)

Recoveries

 

 

 

 

 

- corporate

-

-

(262)

(2,430)

(2,692)

- SMEs

-

-

(2,625)

(13,356)

(15,981)

- retail housing

-

-

(3,668)

(33,986)

(37,654)

- retail other

-

-

(4,390)

(32,866)

(37,256)

International banking services

(288)

(983)

(17)

-

(1,288)

Wealth management

(1,107)

(1,311)

(106)

-

(2,524)

 

(75,508)

(20,455)

(16,516)

(89,520)

(201,999)

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 6  Analysis of loans and advances to customers by staging (continued)

 

Grossloansatamortised cost after residual fair value adjustment on initial recognition

 

 

Stage 1

 

 

Stage 2

 

 

Stage 3

 

 

POCI

 

 

Total

31 December 2019

€000

€000

€000

€000

€000

By business line

 

 

 

 

 

Corporate

1,624,886

247,501

61,917

40,511

1,974,815

Globalcorporate

1,456,080

258,425

149,464

35,780

1,899,749

SMEs

837,825

221,977

40,219

10,283

1,110,304

Retail

 

 

 

 

 

- housing

2,202,044

430,200

149,020

11,423

2,792,687

- consumer, credit cards and other

 

646,648

 

169,063

 

60,890

 

19,243

 

895,844

Restructuring

 

 

 

 

 

- corporate

32,879

60,545

197,319

30,382

321,125

- SMEs

49,193

55,345

193,415

19,324

317,277

- retail housing

2,604

3,866

334,892

9,172

350,534

- retail other

430

607

172,079

5,929

179,045

Recoveries

 

 

 

 

 

- corporate

-

-

74,637

15,970

90,607

- SMEs

-

-

372,046

61,532

433,578

- retail housing

-

-

702,392

142,265

844,657

- retail other

216

-

499,018

134,297

633,531

International banking services

75,965

44,317

12,788

582

133,652

Wealth management

16,099

11,522

2,121

999

30,741

 

6,944,869

1,503,368

3,022,217

537,692

12,008,146

 

 

 

 

29 .   Risk management - Credit risk (continued)

 

29. 6   Analysis of loans and advances to customers by staging (continued)

 

The movement of the gross loans at amortised cost after residual fair value adjustment on initial recognition by staging including the loans and advances to customers classified as held for sale is presented in the table below. Details on the loans and advances to customers classified as held for sale are disclosed in Note 29.7.

 

 

30 June 2020

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

1January

6,945,045

1,504,188

3,172,423

560,371

12,182,027

Transfers to stage 1

410,385

(410,335)

(50)

-

-

Transfers to stage 2

(683,049)

778,481

(95,432)

-

-

Transfers to stage 3

(7,314)

(16,500)

23,814

-

-

Foreign exchange and other adjustments

 

(31)

 

-

 

(1,886)

 

-

 

(1,917)

Write offs

(364)

(1,481)

(122,900)

(11,319)

(136,064)

Interest accrued and other adjustments

 

68,564

 

44,110

 

94,274

 

15,881

 

222,829

New loans originated or purchased and drawdowns of existingfacilities

 

 

535,038

 

 

8,834

 

 

27,111

 

 

-

 

 

570,983

Loans other than Velocity 2 portfolioderecognisedor repaid (excluding write offs)

 

 

(470,025)

 

 

(100,586)

 

 

(145,111)

 

 

(35,112)

 

 

(750,834)

Changes to contractual cash flows due to modifications

 

(8,488)

 

(561)

 

(3,240)

 

1,015

 

(11,274)

Disposal of Velocity 2 portfolio

-

-

(112,402)

(13,123)

(125,525)

30 June

6,789,761

1,806,150

2,836,601

517,713

11,950,225

 

 

31 December 2019

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

1January

5,964,996

1,991,921

6,073,519

1,111,891

15,142,327

Transfers to stage 1

1,099,371

(935,543)

(163,828)

-

-

Transfers to stage 2

(616,576)

776,129

(159,553)

-

-

Transfers to stage 3

(98,708)

(117,022)

215,730

-

-

Foreign exchange and other adjustments

 

10

 

-

 

533

 

-

 

543

Write offs

(3,351)

(5,096)

(369,744)

(63,674)

(441,865)

Interest accrued and other adjustments

 

47,600

 

216,036

 

258,631

 

67,757

 

590,024

New loans originated or purchased and drawdowns of existingfacilities

 

 

1,801,886

 

 

49,540

 

 

67,220

 

 

798

 

 

1,919,444

Loans other than Helix and Velocity1portfolio derecognised or repaid (excluding write offs)

 

 

 

(1,239,757)

 

 

 

(426,773)

 

 

 

(551,549)

 

 

 

(148,439)

 

 

 

(2,366,518)

Changes to contractual cash flows due to modifications

 

487

 

72

 

(298)

 

(717)

 

(456)

Disposal of Helix and Velocity

1 portfolios

 

(10,913)

 

(45,076)

 

(2,198,238)

 

(407,245)

 

(2,661,472)

31 December

6,945,045

1,504,188

3,172,423

560,371

12,182,027

 

 

 

 

29 .   Risk management - Credit risk (continued)

 

29. 6   Analysis of loans and advances to customers by staging (continued)

 

For revolving facilities, overdrafts and credit cards the net positive change in balance by stage excluding write-offs is reported in 'New loans originated' and the net negative change is reported as 'Loans derecognised or repaid'.

 

Geographical analysis

The following table presents the staging of the Group's loans and advances to customers at amortised cost before residual fair value adjustment on initial recognition by geographical analysis:

 

30 June 2020

Stage 1

Stage 2

Stage 3

POCI

Total

 

€000

€000

€000

€000

€000

Cyprus

6,871,046

1,816,327

2,012,816

442,656

11,142,845

Other countries

696

-

75,191

-

75,887

 

6,871,742

1,816,327

2,088,007

442,656

11,218,732

 

31 December 2019

Stage 1

Stage 2

Stage 3

POCI

Total

 

€000

€000

€000

€000

€000

Cyprus

7,019,591

1,523,823

2,953,734

627,212

12,124,360

Other countries

786

-

84,999

-

85,785

 

7,020,377

1,523,823

3,038,733

627,212

12,210,145

 

Significant increase in credit risk

 

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

 

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

 

Significant credit risk increase for loans and advances to customers

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

 

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

 

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

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 6  Analysis of loans and advances to customers by staging (continued)

 

The table below summarises the quantitative measure of the SICR trigger which varies depending on the credit quality at origination as follows, applied on 30 June 2020 and 31 December 2019:

 

 

Segment

 

Rating at origination

PD Deterioration thresholds applied at

30 June 2020

PD Deterioration thresholds applied at

31 December 2019

 

Retail

1-3

4-5

6-7

2-9 X PD@O

1-6 X PD@O

1-3 X PD@O

2- 9X PD@O

1-6 X PD@O

1-3 X PD@O

 

SME

1-3

4-5

6-7

4-6 X PD@O

2-4 X PD@O

1-2 X PD@O

4-6 X PD@O

2-4 X PD@O

1-2 X PD@O

Corporate

1-7

2 X PD@O

2 X PD@O

 

For exposures which are subject to individual impairment assessment, the following qualitative factors in addition to the ones incorporated in the PD calculation, are considered:

·   significant change in collateral value or guarantee or financial support provided by

shareholders/directors,

·   significant adverse changes in business, financial and/or economic conditions in which the borrower operates.

 

The Group also considers, as a backstop criterion, that a significant increase in the credit risk occurs when contractual payments are more than 30 days past due (past due materiality is applied). Loans that meet this condition are classified in Stage 2. In cases where certain exposures are past due for more than 30 days if certain materiality limits are not met (such as arrears equal to €100 and funded balances equal to

1 % in the case of retail exposures and arrears equal to €500 and funded balances equal to 1% on all exposures other than retail), then the transfer to Stage 2 does not take place.  The materiality levels are set in accordance with the ECB Regulation (EU) 2018/1845.

 

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

 

As a result of COVID-19, the CBC together with the Government announced the suspension of capital and interest payments until 31 December 2020 for natural persons, self-employed persons and businesses for all eligible borrowers with no arrears for more than 30 days as at 29 February 2020. This was passed through a bill in Parliament on 29 March 2020. Following the Emergency Measures by Financial Institutions and Supervisory Authorities Decree of 2020, dated 30 March 2020, the Group proceeded to announce the procedure through which its clients may apply for the suspension of instalments and interest on their credit facilities. In response to the moratorium the Association of Cyprus Banks also announced the non- capitalisation of interest for the period during which the moratorium is in effect.

 

The Group has considered regulatory and supervisory statements issued by EBA in cooperation with ESMA, on 25 March 2020, that provide guidance to banks for the estimation of the expected impact on their financial figures from COVID-19. In particular, the EBA clarified that generalised payment delays due to legislative initiatives and addressed to all borrowers do not lead to any automatic classification in default, forborne or unlikeness to pay. Individual assessments of the likeliness to pay should be prioritized. On 2

April 2020, EBA issued detailed guidelines aiming to provide clarity on the treatment of legislative and non- legislative moratoria applied before 30 June 2020. The approach adopted by the Group in response to COVID-19, including the treatment of payment breaks for customers applied for moratorium, is consistent with regulatory guidance. For further details refer to Note 6.2 'Calculation of Expected Credit Losses'.

 

 

 

 

29 .   Risk management - Credit risk (continued)

 

29. 6   Analysis of loans and advances to customers by staging (continued)

 

Significant credit risk increase for financial instruments other than loans and advances to customers

Low credit risk simplification is adopted for debt security instruments, loans and advances to banks and balances with central banks with external credit ratings that are rated as investment grade. The assessment of low credit risk is based on both the external credit rating and the internal scoring (which considers latest available information on the instrument and issuer). The combination of the two provides an adjusted credit rating. An adjusted rating which remains investment grade is considered as having low credit risk.

 

For debt securities, loans and advances to banks and balances with central banks which are below investment grade, the low credit risk exemption does not apply and therefore an assessment of significant credit deterioration takes place, by comparing both, their adjusted credit rating at origination with the adjusted credit rating on the reporting date and the PD at origination with the PD on the reporting date. Significant deterioration in credit risk is considered to have occurred when the adjusted credit rating of the exposures drops to such an extent that the new credit rating relates to a riskier category (i.e. from a non investment grade to speculative and then to highly speculative) or when the PD of the exposure at the origination date compared to the PD at the reporting date has increased by a level greater than the pre set threshold.

 

29. 7   Analysis of loans and advances to customers classified as held for sale

 

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

 

 

30 June 2020

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

Gross loans at amortised cost before residual fair value adjustment on initial recognition

 

 

 

3,050

 

 

 

10,213

 

 

 

767,098

 

 

 

161,779

 

 

 

942,140

Residual fair value adjustment oninitialrecognition

 

88

 

271

 

(5,235)

 

(26,292)

 

(31,168)

Grossloansatamortised cost after residual fair value adjustment on initial recognition

 

 

 

3,138

 

 

 

10,484

 

 

 

761,863

 

 

 

135,487

 

 

 

910,972

 

 

31 December 2019

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

Gross loans at amortised cost before residual fair value adjustment on initial recognition

 

 

 

176

 

 

 

807

 

 

 

153,608

 

 

 

30,373

 

 

 

184,964

Residual fair value adjustment oninitialrecognition

 

-

 

13

 

(3,402)

 

(7,694)

 

(11,083)

Grossloansatamortised cost after residual fair value adjustment on initial recognition

 

 

 

176

 

 

 

820

 

 

 

150,206

 

 

 

22,679

 

 

 

173,881

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 7  Analysis of loans and advances to customers classified as held for sale  (continued)

 

30 June 2020

Stage 1

Stage 2

Stage 3

POCI

Total

Grossloansatamortised cost before residual fair value adjustment on initial recognition

 

 

€000

 

 

€000

 

 

€000

 

 

€000

 

 

€000

Corporate

-

314

-

-

314

SMEs

-

-

-

4

4

Retail

 

 

 

 

 

- housing

-

-

56

-

56

- consumer, credit cards and other

 

-

 

-

 

166

 

3

 

169

Restructuring

 

 

 

 

 

- corporate

77

1,089

67,188

1,620

69,974

- SMEs

1,976

2,849

56,095

2,123

63,043

- retail housing

764

5,443

60,248

2,034

68,489

- retail other

233

518

24,504

945

26,200

Recoveries

 

 

 

 

 

- corporate

-

-

55,644

12,441

68,085

- SMEs

-

-

189,716

51,556

241,272

- retail housing

-

-

192,046

37,596

229,642

- retail other

-

-

121,347

53,457

174,804

International banking services

-

-

88

-

88

 

3,050

10,213

767,098

161,779

942,140

 

30 June 2020

Stage 1

Stage 2

Stage 3

POCI

Total

Residual fair value adjustment on initial recognition

 

€000

 

€000

 

€000

 

€000

 

€000

Retail

 

 

 

 

 

- consumer, credit cards and other

 

-

 

-

 

(4)

 

-

 

(4)

Restructuring

 

 

 

 

 

- corporate

-

10

(591)

(112)

(693)

- SMEs

99

170

(762)

(101)

(594)

- retail housing

(11)

72

(230)

(92)

(261)

- retail other

-

18

(201)

(234)

(417)

Recoveries

 

 

 

 

 

- corporate

-

-

(351)

(1,224)

(1,575)

- SMEs

-

-

(981)

(8,206)

(9,187)

- retail housing

-

-

(1,206)

(6,506)

(7,712)

- retail other

-

1

(909)

(9,817)

(10,725)

 

88

271

(5,235)

(26,292)

(31,168)

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 7  Analysis of loans and advances to customers classified as held for sale  (continued)

 

30 June 2020

Grossloansatamortised cost after residual fair value adjustment on initial recognition

Stage 1

Stage 2

Stage 3

POCI

Total

 

 

€000

 

 

€000

 

 

€000

 

 

€000

 

 

€000

Corporate

-

314

-

-

314

SMEs

-

-

-

4

4

Retail

 

 

 

 

 

- housing

-

-

56

-

56

- consumer, credit cards and other

 

-

 

-

 

162

 

3

 

165

Restructuring

 

 

 

 

 

- corporate

77

1,099

66,597

1,508

69,281

- SMEs

2,075

3,019

55,333

2,022

62,449

- retail housing

753

5,515

60,018

1,942

68,228

- retail other

233

536

24,303

711

25,783

Recoveries

 

 

 

 

 

- corporate

-

-

55,293

11,217

66,510

- SMEs

-

-

188,735

43,350

232,085

- retail housing

-

-

190,840

31,090

221,930

- retail other

-

1

120,438

43,640

164,079

International banking services

-

-

88

-

88

 

3,138

10,484

761,863

135,487

910,972

 

31 December 2019

Stage 1

Stage 2

Stage 3

POCI

Total

Grossloansatamortised cost before residual fair value adjustment on initial recognition

 

 

€000

 

 

€000

 

 

€000

 

 

€000

 

 

€000

Corporate

-

360

350

-

710

SMEs

-

-

2

3

5

Retail

 

 

 

 

 

- consumer, credit cards and other

 

139

 

47

 

144

 

-

 

330

Restructuring

 

 

 

 

 

- corporate

20

397

6,164

1,125

7,706

- SMEs

7

1

952

197

1,157

- retail housing

4

-

1,128

10

1,142

- retail other

6

2

37,281

4,707

41,996

Recoveries

 

 

 

 

 

- corporate

-

-

14,757

3,736

18,493

- SMEs

-

-

15,749

6,248

21,997

- retail housing

-

-

4,154

1,162

5,316

- retail other

-

-

72,908

13,131

86,039

International banking services

-

-

19

54

73

 

176

807

153,608

30,373

184,964

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 7  Analysis of loans and advances to customers classified as held for sale  (continued)

 

31 December 2019

Stage 1

Stage 2

Stage 3

POCI

Total

Residual fair value adjustment on initial recognition

 

€000

 

€000

 

€000

 

€000

 

€000

Restructuring

 

 

 

 

 

- corporate

-

13

(2)

(99)

(88)

- SMEs

-

-

-

(2)

(2)

- retail housing

-

-

(9)

(6)

(15)

- retail other

-

-

(732)

(1,152)

(1,884)

Recoveries

 

 

 

 

 

- corporate

-

-

(214)

(639)

(853)

- SMEs

-

-

(357)

(949)

(1,306)

- retail housing

-

-

(200)

(364)

(564)

- retail other

-

-

(1,888)

(4,477)

(6,365)

International banking services

-

-

-

(6)

(6)

 

-

13

(3,402)

(7,694)

(11,083)

 

31 December 2019

Stage 1

Stage 2

Stage 3

POCI

Total

Grossloansatamortised cost after residual fair value adjustment on initial recognition

 

 

€000

 

 

€000

 

 

€000

 

 

€000

 

 

€000

Corporate

-

360

350

-

710

SMEs

-

-

2

3

5

Retail

 

 

 

 

 

- consumer, credit cards and other

 

139

 

47

 

144

 

-

 

330

Restructuring

 

 

 

 

 

- corporate

20

410

6,162

1,026

7,618

- SMEs

7

1

952

195

1,155

- retail housing

4

-

1,119

4

1,127

- retail other

6

2

36,549

3,555

40,112

Recoveries

 

 

 

 

 

- corporate

-

-

14,543

3,097

17,640

- SMEs

-

-

15,392

5,299

20,691

- retail housing

-

-

3,954

798

4,752

- retail other

-

-

71,020

8,654

79,674

International banking services

-

-

19

48

67

 

176

820

150,206

22,679

173,881

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 8  Credit  losses  of  loans  and  advances  to  customers,  including  loans  and  advances  to customers held for sale

 

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

 

30 June 2020

Cyprus

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

1January

16,665

25,380

1,493,892

206,166

1,742,103

Transfers to stage 1

2,712

(2,707)

(5)

-

-

Transfers to stage 2

(2,590)

16,154

(13,564)

-

-

Transfers to stage 3

(89)

(977)

1,066

-

-

Impact on transfer between stages during  the period*

 

(2,690)

 

(3,233)

 

3,830

 

(88)

 

(2,181)

Foreign exchange and other adjustments

 

-

 

-

 

458

 

80

 

538

Write offs

(702)

(845)

(109,778)

(11,357)

(122,682)

Interest (provided) not recognised in the income statement

 

 

-

 

 

-

 

 

39,127

 

 

4,369

 

 

43,496

New loans originated or purchased*

 

1,907

 

-

 

-

 

-

 

1,907

Loans derecognised or repaid

(excluding write offs)*

 

(283)

 

(513)

 

(16,463)

 

(1,273)

 

(18,532)

Write offs*

533

358

6,004

1,394

8,289

Changes to models and inputs (changes in PDs, LGDs and EADs)usedforECL calculations*

 

 

 

12,322

 

 

 

4,984

 

 

 

144,498

 

 

 

27,559

 

 

 

189,363

Changes to contractual cash flows due to modifications not resulting in derecognition*

 

 

(8,861)

 

 

(4,063)

 

 

5,150

 

 

(50)

 

 

(7,824)

Disposal of Velocity 2 portfolio

-

-

(100,764)

(11,334)

(112,098)

30 June

18,924

34,538

1,453,451

215,466

1,722,379

Individually assessed

4,453

10,052

89,760

8,899

113,164

Collectively assessed

14,471

24,486

1,363,691

206,567

1,609,215

 

18,924

34,538

1,453,451

215,466

1,722,379

 

* Individual components of the 'Impairment loss net of reversals on loans and advances to customers'

 

The main driver for the changes to 'models and inputs used for ECL calculations' is the LGD input which has impacted mainly Stage 3 and POCI loans due to additional credit losses recorded in the period ended 30

June 2020 reflecting expectations on the agreement for sale for Project Helix 2 (Note 37.1) and for potential further NPEs sales in the future. In addition, the impact of the updated macroeconomic scenarios is reflected within line item 'models and inputs used for ECL calculations'.

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 8  Credit  losses  of  loans  and  advances  to  customers,  including  loans  and  advances  to customers held for sale  (continued)

 

30 June 2020

Other countries

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

1January

-

-

61,447

-

61,447

Foreign exchange and other adjustments

 

-

 

-

 

(2,175)

 

-

 

(2,175)

Write offs

-

-

(13,342)

-

(13,342)

Interest (provided) not recognised in the income statement

 

 

-

 

 

-

 

 

(3,868)

 

 

-

 

 

(3,868)

Loans derecognised or repaid

(excluding write offs)*

 

-

 

-

 

816

 

-

 

816

Write offs*

-

-

8,828

-

8,828

Changes to models and inputs (changes in PDs, LGDs and EADs)usedforECL calculations*

 

 

 

-

 

 

 

-

 

 

 

3,789

 

 

 

-

 

 

 

3,789

30 June

-

-

55,495

-

55,495

Individually assessed

-

-

51,879

-

51,879

Collectively assessed

-

-

3,616

-

3,616

 

-

-

55,495

-

55,495

 

*Individual components of the 'Impairment loss net of reversals on loans and advances to customers'

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 8  Credit  losses  of  loans  and  advances  to  customers,  including  loans  and  advances  to customers held for sale  (continued)

 

30 June 2020

Total

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

1January

16,665

25,380

1,555,339

206,166

1,803,550

Transfers to stage 1

2,712

(2,707)

(5)

-

-

Transfers to stage 2

(2,590)

16,154

(13,564)

-

-

Transfers to stage 3

(89)

(977)

1,066

-

-

Impact on transfer between stages during  the period*

 

(2,690)

 

(3,233)

 

3,830

 

(88)

 

(2,181)

Foreign exchange and other adjustments

 

-

 

-

 

(1,717)

 

80

 

(1,637)

Write offs

(702)

(845)

(123,120)

(11,357)

(136,024)

Interest (provided) not recognised in the income statement

 

 

-

 

 

-

 

 

35,259

 

 

4,369

 

 

39,628

New loans originated or purchased*

 

1,907

 

-

 

-

 

-

 

1,907

Loans derecognised or repaid

(excluding write offs)*

 

(283)

 

(513)

 

(15,647)

 

(1,273)

 

(17,716)

Write offs*

533

358

14,832

1,394

17,117

Changes to models and inputs (changes in PDs, LGDs and EADs)usedforECL calculations*

 

 

 

12,322

 

 

 

4,984

 

 

 

148,287

 

 

 

27,559

 

 

 

193,152

Changes to contractual cash flows due to modifications not resulting in derecognition*

 

 

(8,861)

 

 

(4,063)

 

 

5,150

 

 

(50)

 

 

(7,824)

Disposal of Velocity 2 portfolio

-

-

(100,764)

(11,334)

(112,098)

30 June

18,924

34,538

1,508,946

215,466

1,777,874

Individually assessed

4,453

10,052

141,639

8,899

165,043

Collectively assessed

14,471

24,486

1,367,307

206,567

1,612,831

 

18,924

34,538

1,508,946

215,466

1,777,874

 

*Individual components of the 'Impairment loss net of reversals on loans and advances to customers' (Note

10).

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 8  Credit  losses  of  loans  and  advances  to  customers,  including  loans  and  advances  to customers held for sale  (continued)

 

30 June 2019

Stage 1

Stage 2

Stage 3

POCI

Total

Cyprus

€000

€000

€000

€000

€000

1January

26,233

73,870

2,783,232

431,924

3,315,259

Transfers to stage 1

14,659

(8,355)

(6,304)

-

-

Transfers to stage 2

(4,532)

17,601

(13,069)

-

-

Transfers to stage 3

(1,068)

(17,395)

18,463

-

-

Impact on transfer between stages during  the period*

 

(9,227)

 

10,713

 

10,369

 

(1,049)

 

10,806

Foreign exchange and other adjustments

 

-

 

-

 

3,568

 

331

 

3,899

Write offs

(2,426)

(2,339)

(195,808)

(43,538)

(244,111)

Interest (provided) not recognised in the income statement

 

 

-

 

 

-

 

 

70,257

 

 

9,132

 

 

79,389

New loans originated or purchased*

 

5,074

 

-

 

-

 

-

 

5,074

Loans derecognised or repaid

(excluding write offs)*

 

(446)

 

(3,239)

 

(55,917)

 

(7,188)

 

(66,790)

Write offs*

996

1,075

24,347

4,138

30,556

Changes to models and inputs (changes in PDs, LGDs and EADs)usedforECL calculations*

 

 

 

(3,453)

 

 

 

218

 

 

 

127,947

 

 

 

25,952

 

 

 

150,664

Changes to contractual cash flows due to modifications not resulting in derecognition*

 

 

(74)

 

 

429

 

 

(369)

 

 

(275)

 

 

(289)

Disposal of Helix and Velocity

1 portfolios

 

(7,778)

 

(22,248)

 

(1,313,522)

 

(204,512)

 

(1,548,060)

30 June

17,958

50,330

1,453,194

214,915

1,736,397

Individually assessed

6,859

22,983

131,054

14,769

175,665

Collectively assessed

11,099

27,347

1,322,140

200,146

1,560,732

 

17,958

50,330

1,453,194

214,915

1,736,397

 

*Individual components of the 'Impairment loss net of reversals on loans and advances to customers'

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 8  Credit  losses  of  loans  and  advances  to  customers,  including  loans  and  advances  to customers held for sale  (continued)

 

30 June 2019

Stage 1

Stage 2

Stage 3

POCI

Total

Other countries

€000

€000

€000

€000

€000

1January

135

-

146,611

-

146,746

Impact on transfer between stages during  the period*

 

-

 

-

 

70

 

-

 

70

Foreign exchange and other adjustments

 

-

 

2

 

3,332

 

-

 

3,334

Write offs

-

-

(2,550)

-

(2,550)

Interest (provided) not recognised in the income statement

 

 

-

 

 

-

 

 

4,514

 

 

-

 

 

4,514

Loans derecognised or repaid

(excluding write offs)*

 

(132)

 

-

 

(187)

 

-

 

(319)

Write offs*

-

-

17

-

17

Changes to models and inputs (changes in PDs, LGDs and EADs)usedforECL calculations*

 

 

 

-

 

 

 

-

 

 

 

(365)

 

 

 

-

 

 

 

(365)

Disposal of Helix portfolio

-

-

(54,765)

-

(54,765)

30 June

3

2

96,677

-

96,682

Individually assessed

-

-

90,937

-

90,937

Collectively assessed

3

2

5,740

-

5,745

 

3

2

96,677

-

96,682

 

*Individual components of the 'Impairment loss net of reversals on loans and advances to customers'.

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 8  Credit  losses  of  loans  and  advances  to  customers,  including  loans  and  advances  to customers held for sale  (continued)

 

30 June 2019

Stage 1

Stage 2

Stage 3

POCI

Total

Total

€000

€000

€000

€000

€000

1January

26,368

73,870

2,929,843

431,924

3,462,005

Transfers to stage 1

14,659

(8,355)

(6,304)

-

-

Transfers to stage 2

(4,532)

17,601

(13,069)

-

-

Transfers to stage 3

(1,068)

(17,395)

18,463

-

-

Impact on transfer between stages during  the period*

 

(9,227)

 

10,713

 

10,439

 

(1,049)

 

10,876

Foreign exchange and other adjustments

 

-

 

2

 

6,900

 

331

 

7,233

Write offs

(2,426)

(2,339)

(198,358)

(43,538)

(246,661)

Interest (provided) not recognised in the income statement

 

 

-

 

 

-

 

 

74,771

 

 

9,132

 

 

83,903

New loans originated or purchased*

 

5,074

 

-

 

-

 

-

 

5,074

Loans derecognised or repaid

(excluding write offs)*

 

(578)

 

(3,239)

 

(56,104)

 

(7,188)

 

(67,109)

Write offs*

996

1,075

24,364

4,138

30,573

Changes to models and inputs (changes in PDs, LGDs and EADs)usedforECL calculations*

 

 

 

(3,453)

 

 

 

218

 

 

 

127,582

 

 

 

25,952

 

 

 

150,299

Changes to contractual cash flows due to modifications not resulting in derecognition*

 

 

(74)

 

 

429

 

 

(369)

 

 

(275)

 

 

(289)

Disposal of Helix and Velocity

1 portfolios

 

(7,778)

 

(22,248)

 

(1,368,287)

 

(204,512)

 

(1,602,825)

30 June

17,961

50,332

1,549,871

214,915

1,833,079

Individually assessed

6,859

22,983

221,991

14,769

266,602

Collectively assessed

11,102

27,349

1,327,880

200,146

1,566,477

 

17,961

50,332

1,549,871

214,915

1,833,079

 

* Individual components of the 'Impairment loss net of reversals on loans and advances to customers' (Note

10).

 

The above tables do not include the residual fair value adjustments on initial recognition of loans acquired from Laiki Bank as this forms part of the gross carrying amount and ECL on financial guarantees which are part of other liabilities on the balance sheet.

 

 

 

 

29 .   Risk management - Credit risk (continued)

 

29. 8   Credit losses of loans and advances to customers, including loans and advances to customers held for sale  (continued)

 

The movement of credit losses of loans and advances to customers for 2020 and 2019 includes credit losses relating to loans and advances to customers classified as held for sale. Their balance by staging and geographical area is presented in the table below:

 

 

30 June 2020

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

Cyprus

1,371

5,317

464,484

78,148

549,320

Total

1,371

5,317

464,484

78,148

549,320

Individually assessed

-

-

-

-

-

Collectively assessed

1,371

5,317

464,484

78,148

549,320

 

1,371

5,317

464,484

78,148

549,320

 

31 December 2019

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

Cyprus

7

42

130,551

17,352

147,952

Total

7

42

130,551

17,352

147,952

Individually assessed

-

-

115

64

179

Collectively assessed

7

42

130,436

17,288

147,773

 

7

42

130,551

17,352

147,952

 

 

The credit losses of loans and advances (including the loans and advances to customers held for sale), by business line is presented in the table below:

 

 

30 June 2020

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

Corporate

3,460

2,003

23,620

539

29,622

Globalcorporate

2,978

8,979

59,431

2,356

73,744

SMEs

2,191

3,306

10,026

350

15,873

Retail

 

 

 

 

 

- housing

4,670

7,314

14,524

277

26,785

- consumer, credit cards and other

 

2,937

 

4,148

 

11,672

 

842

 

19,599

Restructuring

 

 

 

 

 

- corporate

381

1,741

72,094

3,268

77,484

- SMEs

1,797

2,653

57,581

3,897

65,928

- retail housing

326

3,422

113,334

3,212

120,294

- retail other

124

379

81,449

3,132

85,084

Recoveries

 

 

 

 

 

- corporate

-

-

61,780

12,214

73,994

- SMEs

-

-

248,820

35,317

284,137

- retail housing

-

-

390,399

72,589

462,988

- retail other

3

-

361,463

76,975

438,441

International banking services

51

584

1,740

33

2,408

Wealth management

6

9

1,013

465

1,493

 

18,924

34,538

1,508,946

215,466

1,777,874

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29. 8  Credit  losses  of  loans  and  advances  to  customers,  including  loans  and  advances  to customers held for sale  (continued)

 

 

31 December 2019

Stage 1

Stage 2

Stage 3

POCI

Total

€000

€000

€000

€000

€000

Corporate

2,133

846

28,615

676

32,270

Globalcorporate

3,447

5,016

60,175

1,908

70,546

SMEs

1,525

1,940

12,458

334

16,257

Retail

 

 

 

 

 

- housing

2,871

4,720

19,499

413

27,503

- consumer, credit cards and other

 

2,247

 

3,077

 

15,823

 

1,104

 

22,251

Restructuring

 

 

 

 

 

- corporate

232

2,834

80,347

3,195

86,608

- SMEs

2,905

4,695

72,662

5,224

85,486

- retail housing

1,052

1,445

143,988

3,985

150,470

- retail other

173

251

125,335

7,190

132,949

Recoveries

 

 

 

 

 

- corporate

-

-

55,912

13,719

69,631

- SMEs

-

-

213,544

29,726

243,270

- retail housing

-

-

337,807

62,576

400,383

- retail other

2

-

386,193

75,507

461,702

International banking services

73

546

2,223

157

2,999

Wealth management

5

10

758

452

1,225

 

16,665

25,380

1,555,339

206,166

1,803,550

 

During the six months ended 30 June 2020 the total non-contractual write-offs recorded by the Group amounted to €104,705 thousand (30 June 2019: €145,112 thousand).

 

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

 

At 30 June 2020 the weighted average haircut (including liquidity haircut and selling expenses) used in the collectively assessed provision calculation for loans and advances to customers excluding those classified as held for sale is c.32% under the baseline scenario (31 December 2019: c.32%).

 

The timing of recovery from real estate collaterals used in the collectively assessed provision calculation for loans and advances to customers has been estimated to be on average seven years under the baseline scenario (31 December 2019: average of seven years), excluding those classified as held for sale.

 

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

 

 

 

 

29 .   Risk management - Credit risk (continued)

 

29. 8   Credit losses of loans and advances to customers, including loans and advances to customers held for sale  (continued)

 

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

10.

 

For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with

50%, 30% and 20% probability respectively.

 

An y positive cumulative average future change in forecasted property values was capped to zero for the six months ended 2020 and year 2019. This applies to all scenarios.

 

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

 

An y changes in these assumptions or difference between assumptions made and actual results could result in significant changes in the estimated amount of expected credit losses of loans and advances.

 

Sensitivity analysis

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

 

 

 

 

29 .   Risk management - Credit risk (continued)

 

29. 8   Credit losses of loans and advances to customers, including loans and advances to customers held for sale  (continued)

 

The Group has altered for the purpose of sensitivity analysis the weights of the economic scenarios and changed the collateral realisation periods and the impact on the ECL, for both individually and collectively assessed ECL calculations, as presented in the table below:

 

 

Increase/(decrease) on ECL for loans and advances to customersatamortisedcost

30 June

2020

31 December

2019

€000

€000

Increase the adverse weight by 5% and decrease the favourable weight by 5%

 

3,250

 

2,702

Decrease the adverse weight by 5% and increase the favourable weight by 5%

 

(3,250)

 

(2,682)

Increase the expected recovery period by 1 year

29,160

42,064

Decrease the expected recovery period by 1 year

(26,475)

(42,200)

Increase the collateral realisation haircut by 5%

59,179

81,569

Decrease the collateral realisation haircut by 5%

(55,149)

(75,148)

Increase in the PDs of stages 1 and 2 by 20%

7,439

5,486

Decrease in the PDs of stages 1 and 2 by 20%

(7,404)

(5,632)

 

A number of sensitivity runs were carried out as at 30 June 2020 and 31 December 2019 in order to stress the expected lifetime on revolving facilities. The expected lifetime for all Stage 1 and Stage 2 facilities was extended to three, five, seven and nine years and the impact on the carrying value upon increase in the imposed lifetime is shown in the table below:

 

Increase in the expected lifetime of revolving facilities

Increase on the ECL carrying value of Stage 1 facilities

Increase on the ECL carrying value of Stage 2 facilities

 

30 June

2020

31December

2019

30 June

2020

31December

2019

 

€000

€000

€000

€000

3 years

4,367

4,160

3,837

2,400

5 years

7,290

7,030

6,001

3,960

7 years

9,611

9,390

7,577

5,080

9 years

11,483

11,370

8,771

5,950

 

The main drivers of the deviation between the 2019 and 2020 sensitivities of the revolving facilities are the underlying ECL and the stage mixture of the portfolio due to the Covid-19 reflected macro-economic scenario.

 

29. 9   Forbearance

 

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

 

 

 

 

29 .   Risk management - Credit risk (continued)

 

29. 9   Forbearance  (continued)

 

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

 

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

 

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

 

Rescheduled loans and advances are those facilities for which the Group has modified the repayment programme (provision of a grace period, suspension of the obligation to repay one or more instalments, reduction in the instalment amount and/or elimination of overdue instalments relating to capital or interest) and current accounts/overdrafts for which the credit limit has been increased with the sole purpose of covering an excess.

 

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

 

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

 

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

 

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

 

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

 

Short-term restructuring solutions can include the following:

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

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

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

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

 

 

 

 

29 .   Risk management - Credit risk (continued)

 

29. 9   Forbearance  (continued)

 

Long-term restructuring solutions can include the following:

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

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

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

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

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

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

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

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

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

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

·     Deb t write-off: cancellation of part or the whole of the amount of debt outstanding by the borrower.

The Group applies the debt forgiveness solution only as a last resort and in remote cases having taken into consideration the ability of the borrower to repay the remaining debt in the agreed timeframe and the moral hazard.

·   Spli t  and  freeze:  the  customer's  debt  is  split  into  sustainable  and  unsustainable  parts.  The sustainable part is restructured and continues to operate. The unsustainable part is 'frozen' for the restructured duration of the sustainable part. At the maturity of the restructuring, the frozen part is either forgiven pro-rata (based on the actual repayment of the sustainable part) or restructured.

 

29.1 0   Rescheduled loans and advances to customers

 

The below table presents the movement of the Group's rescheduled loans and advances to customers measured at amortised cost including those classified as held for sale (by geography). The rescheduled loans related to loans and advances classified as held for sale as at 30 June 2020 amounts to €526,566 thousand (31 December 2019: €42,803 thousand, 30 June 2019: nil).

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29.1 0  Rescheduled loans and advances to customers (continued)

 

 

 

Cyprus

Other countries

 

Total

2020

€000

€000

€000

1January

2,469,566

33,367

2,502,933

New loans and advances rescheduled in the period

37,776

-

37,776

Loans no longer classified as rescheduled and repayments

(369,330)

(626)

(369,956)

Applied in writing off rescheduled loans and advances

(39,938)

(3)

(39,941)

Interest accrued on rescheduled loans and advances

124,947

904

125,851

Foreign exchange adjustments

3,037

(1,382)

1,655

Disposal of Velocity 2 portfolio

(30,824)

-

(30,824)

30 June

2,195,234

32,260

2,227,494

 

 

 

Cyprus

Other countries

 

Total

2019

€000

€000

€000

1January

4,566,470

48,806

4,615,276

New loans and advances rescheduled in the period

101,057

-

101,057

Loans no longer classified as rescheduled and repayments

(439,401)

(713)

(440,114)

Applied in writing off rescheduled loans and advances

(76,914)

-

(76,914)

Interest accrued on rescheduled loans and advances

57,936

122

58,058

Foreign exchange adjustments

2,247

4,784

7,031

Disposal of Helix and Velocity 1 portfolios

(1,370,825)

-

(1,370,825)

30 June

2,840,570

52,999

2,893,569

 

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

 

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

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29.1 0  Rescheduled loans and advances to customers (continued)

 

 

 

Cyprus

Other countries

 

Total

30 June 2020

€000

€000

€000

Stage 1

233,775

106

233,881

Stage 2

296,365

-

296,365

Stage 3

1,000,192

32,154

1,032,346

POCI

138,336

-

138,336

 

1,668,668

32,260

1,700,928

 

 

 

Cyprus

Other countries

 

Total

31 December 2019

€000

€000

€000

Stage 1

357,658

114

357,772

Stage 2

299,448

-

299,448

Stage 3

1,567,155

33,253

1,600,408

POCI

202,502

-

202,502

 

2,426,763

33,367

2,460,130

 

Fair value of collateral

 

 

 

Cyprus

Other countries

 

Total

30 June 2020

€000

€000

€000

Stage 1

220,290

106

220,396

Stage 2

242,928

-

242,928

Stage 3

787,496

16,327

803,823

POCI

126,012

-

126,012

 

1,376,726

16,433

1,393,159

 

 

 

Cyprus

Other countries

 

Total

31 December 2019

€000

€000

€000

Stage 1

334,938

114

335,052

Stage 2

254,238

-

254,238

Stage 3

1,276,055

16,102

1,292,157

POCI

187,363

-

187,363

 

2,052,594

16,216

2,068,810

 

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

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29.1 0  Rescheduled loans and advances to customers (continued)

 

Credit risk concentration

 

 

30 June 2020

 

Cyprus

Other countries

 

Total

By economic activity

€000

€000

€000

Trade

135,447

6,215

141,662

Manufacturing

49,547

1,413

50,960

Hotels and catering

62,538

-

62,538

Construction

120,608

473

121,081

Real estate

117,785

13,123

130,908

Private individuals

1,038,714

132

1,038,846

Professional and other services

107,868

10,904

118,772

Other sectors

36,161

-

36,161

 

1,668,668

32,260

1,700,928

 

 

30 June 2020

 

Cyprus

Other countries

 

Total

By business line

€000

€000

€000

Corporate

83,743

15,977

99,720

Globalcorporate

103,353

13,123

116,476

SMEs

82,568

3,044

85,612

Retail

 

 

 

- housing

268,796

-

268,796

- consumer, credit cards and other

82,712

116

82,828

Restructuring

 

 

 

- corporate

104,324

-

104,324

- SMEs

137,426

-

137,426

- retail housing

164,643

-

164,643

- retail other

80,323

-

80,323

Recoveries

 

 

 

- corporate

21,888

-

21,888

- SMEs

105,797

-

105,797

- retail housing

271,400

-

271,400

- retail other

143,204

-

143,204

International banking services

15,247

-

15,247

Wealth management

3,244

-

3,244

 

1,668,668

32,260

1,700,928

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29.1 0  Rescheduled loans and advances to customers (continued)

 

30 June 2020

Stage 1

Stage 2

Stage 3

POCI

Total

By business line

€000

€000

€000

€000

€000

Corporate

25,107

46,035

26,523

2,055

99,720

Globalcorporate

59,480

40,978

16,018

-

116,476

SMEs

30,937

31,535

20,638

2,502

85,612

Retail

 

 

 

 

 

- housing

80,614

109,550

74,270

4,362

268,796

- consumer, credit cards and other

 

20,225

 

27,580

 

32,311

 

2,712

 

82,828

Restructuring

 

 

 

 

 

- corporate

322

9,889

75,631

18,482

104,324

- SMEs

14,006

22,928

89,746

10,746

137,426

- retail housing

1,323

2,908

157,663

2,749

164,643

- retail other

32

1,273

77,305

1,713

80,323

Recoveries

 

 

 

 

 

- corporate

-

-

16,342

5,546

21,888

- SMEs

-

-

91,584

14,213

105,797

- retail housing

-

-

225,770

45,630

271,400

- retail other

-

-

116,629

26,575

143,204

International banking services

1,835

3,215

10,080

117

15,247

Wealth management

-

474

1,836

934

3,244

 

233,881

296,365

1,032,346

138,336

1,700,928

 

 

31 December 2019

 

Cyprus

Other countries

 

Total

By economic activity

€000

€000

€000

Trade

187,008

5,824

192,832

Manufacturing

67,568

1,601

69,169

Hotels and catering

80,704

-

80,704

Construction

281,820

535

282,355

Real estate

161,629

12,793

174,422

Private individuals

1,427,904

143

1,428,047

Professional and other services

145,220

12,470

157,690

Other sectors

74,910

1

74,911

 

2,426,763

33,367

2,460,130

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29.1 0  Rescheduled loans and advances to customers (continued)

 

 

31 December 2019

 

Cyprus

Other countries

 

Total

By business line

€000

€000

€000

Corporate

106,889

17,000

123,889

Globalcorporate

172,924

12,794

185,718

SMEs

104,271

3,449

107,720

Retail

 

 

 

- housing

322,880

-

322,880

- consumer, credit cards and other

98,973

124

99,097

Restructuring

 

 

 

- corporate

181,986

-

181,986

- SMEs

226,447

-

226,447

- retail housing

269,648

-

269,648

- retail other

111,534

-

111,534

Recoveries

 

 

 

- corporate

46,299

-

46,299

- SMEs

191,847

-

191,847

- retail housing

376,391

-

376,391

- retail other

196,431

-

196,431

International banking services

17,017

-

17,017

Wealth management

3,226

-

3,226

 

2,426,763

33,367

2,460,130

 

 

 

 

29 .  Risk management - Credit risk (continued)

 

29.1 0  Rescheduled loans and advances to customers (continued)

 

31 December 2019

Stage 1

Stage 2

Stage 3

POCI

Total

By business line

€000

€000

€000

€000

€000

Corporate

32,875

49,897

38,369

2,748

123,889

Globalcorporate

104,633

68,291

12,794

-

185,718

SMEs

40,025

33,453

31,632

2,610

107,720

Retail

 

 

 

 

 

- housing

118,262

71,835

128,167

4,616

322,880

- consumer, credit cards and other

 

27,598

 

20,901

 

48,059

 

2,539

 

99,097

Restructuring

 

 

 

 

 

- corporate

3,901

17,843

141,185

19,057

181,986

- SMEs

26,658

28,055

157,682

14,052

226,447

- retail housing

1,811

3,077

260,227

4,533

269,648

- retail other

239

443

108,838

2,014

111,534

Recoveries

 

 

 

 

 

- corporate

-

-

36,395

9,904

46,299

- SMEs

-

-

154,134

37,713

191,847

- retail housing

-

-

316,500

59,891

376,391

- retail other

-

-

154,670

41,761

196,431

International banking services

1,770

5,166

9,959

122

17,017

Wealth management

-

487

1,797

942

3,226

 

357,772

299,448

1,600,408

202,502

2,460,130

 

ECL allowances

 

 

 

Cyprus

Other countries

 

Total

30 June 2020

€000

€000

€000

Stage 1

2,498

-

2,498

Stage 2

9,443

-

9,443

Stage 3

425,516

22,857

448,373

POCI

55,841

-

55,841

 

493,298

22,857

516,155

 

 

 

Cyprus

Other countries

 

Total

31 December 2019

€000

€000

€000

Stage 1

4,391

-

4,391

Stage 2

9,595

-

9,595

Stage 3

638,308

22,379

660,687

POCI

78,088

-

78,088

 

730,382

22,379

752,761

 

 

 

 

30 .   Risk management - Market risk

 

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

 

The Group considers that the profile of its market risk has remained similar to the one prevailing at 31

December 2019 as presented in Note 47 of the annual consolidated financial statements of the Group for the year 2019.

 

Interest rate risk

 

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

 

Currency risk

 

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

 

Price risk

 

Equity securities price risk

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

 

Debt securities price risk

Deb t securities price risk is the risk of loss as a result of adverse changes in the prices of debt securities held by the Group. Debt security prices change as the credit risk of the issuer changes and/or as the interest rate changes for fixed rate securities. The Group invests a significant part of its liquid assets in highly rated securities. The average Moody's Investors Service rating of the debt securities portfolio of the Group as at 30 June 2020 was Α3 (31 December 2019: A2). The average rating excluding the Cyprus Government bonds and non-rated transactions as at 30 June 2020 was Αa1 (31 December 2019: Aa2).

 

 

31 .   Risk management - Liquidity risk and funding

 

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

 

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

 

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

 

Management and structure

 

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

 

The Board of Directors, through its Risk Committee, approves the Liquidity Policy Statement and reviews at frequent intervals the liquidity position of the Group. Information on inflows/outflows is also provided.

 

 

 

 

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

 

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

 

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

 

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

 

Liquidity is monitored and managed on an ongoing basis through:

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

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

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

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

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

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

 

Monitoring process

 

Daily

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

 

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

 

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

 

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

 

 

 

 

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

 

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

 

Weekly

Market Risk prepares a report indicating the level of Liquid Assets including Credit Institutions Money Market

Placements as per LCR definitions.

 

Bi-Weekly report

Market Risk prepares a liquidity report twice a month which is submitted to the ECB. The report includes information on the following: deposits breakdown, cash flow information, survival period, LCR ratio, rollover of funding, funding gap (through the Maturity ladder analysis), concentration of funding and collateral details. It concludes on the overall liquidity position of BOC PCL and describes the measures implemented and to be implemented in the short-term to improve liquidity position. Starting with end of June 2020, this report is becoming weekly following an ECB request.

 

Monthly

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

 

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

 

Quarterly

The results of the stress testing scenarios prepared daily are reported to ALCO and Board Risk Committee quarterly as part of the quarterly Internal Liquidity Adequacy Assessment Process (ILAAP) review. Market Risk reports the Net Stable Funding Ratio (NSFR) to the CBC/ECB quarterly as well as various other liquidity reports, included in the short term exercise of the SSM per their SREP guidelines.

 

Annually

The Group prepares on an annual basis its report on ILAAP.

 

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

 

Liquidity ratios

 

The Group LCR is calculated based on the Delegated Regulation (EU) 2015/61. It is designed to establish a minimum level of high-quality liquid assets sufficient to meet an acute stress lasting for 30 calendar days. Τhe minimum requirement is 100%.

 

 

 

 

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

 

Main sources of funding

 

As at 30 June 2020 the Group's main sources of funding were its deposit base and central bank funding, through the Eurosystem monetary policy operations.

 

I n June 2020, ECB funding of €1,000 million was raised under the TLTRO III given the favourable borrowing rate, in combination with the relaxation of collateral terms (lower haircuts and widening of eligibility of credit claims), all being part of the ECB's COVID-19 aid package. In addition, the option to repay this funding on a quarterly basis as from September 2021 is another favourable term of this borrowing. In September 2019, ECB funding of €830 million in the form of 4-Year TLTRO II was repaid early thus no ECB funding was outstanding as at December 2019.

 

Funding to subsidiaries

 

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

 

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

 

Collateral requirements and other disclosures

 

Collateral requirements

The carrying values of the Group's encumbered assets as at 30 June 2020 and 31 December 2019 are summarised below:

 

 

30 June

2020

31December

2019

€000

€000

Cash and other liquid assets

102,778

90,437

Investments

177,517

222,961

Loans and advances

2,697,113

2,537,031

 

2,977,408

2,850,429

 

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

 

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

 

Loans and advances indicated as encumbered as at 30 June 2020 and 31 December 2019 are mainly used as collateral for available funding from the ECB and the covered bond.

 

Loans and advances to customers include mortgage loans of a nominal amount of €1,003 million as at 30

June 2020 (31 December 2019: €1,000 million) in Cyprus, pledged as collateral for the covered bond issued by BOC PCL in 2011 under its Covered Bond Programme. Furthermore as at 30 June 2020 housing loans of a nominal amount of €1,662 million (31 December 2019: €1,498 million) in Cyprus, are pledged as collateral for funding from the ECB (Note 20).

 

 

 

 

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

 

BO C PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the Covered Bonds Directive of the CBC. Under the Covered Bond Programme, BOC PCL has in issue covered bonds of €650 million secured by residential mortgages originated in Cyprus.  On 6 June 2018, the terms of the covered bonds have been amended to extend the maturity date to 12 December 2021 and set the interest rate to 3 months Euribor plus 2.50% on a quarterly basis. The covered bonds are traded on the Luxemburg Bourse. The covered bonds have a conditional Pass-Through structure.  All the bonds are held by BOC PCL. The covered bonds are eligible collateral for the Eurosystem credit operations and are placed as collateral for accessing funding from the ECB.

 

Other disclosures

Further, deposits by banks include balances of €47,977 thousand as at 30 June 2020 (31 December 2019:

€51,93 4 thousand) relating to borrowings from international financial and similar institutions for funding, aiming to facilitate access to finance and improve funding conditions for small or medium sized enterprises, active in Cyprus. The carrying value of the respective loans and advances granted to such enterprises serving this agreement amounts to €91,839 thousand as at 30 June 2020 (31 December 2019: €93,668 thousand).

 

32 .   Capital management

 

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

 

The Group follows the EU Regulations, primarily the CRR and CRD IV as amended by CRR II applicable as at the reporting date and any other decisions or circulars issued by the regulators, ECB and CBC with respect to the capital adequacy calculations.

 

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 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).

 

Moreover, in June 2020 Regulation (EU) 2020/873 came into force which provides for certain amendments in response to the COVID-19 pandemic, bringing forward some of the capital-relieving measures that were due to come into force at a later stage and introducing modifications as part of the wider efforts of competent authorities to provide the support necessary to the institutions. The main adjustments affecting the Group's own funds as at 30 June 2020 relate to accelerating the implementation of the new SME discount factor under CRR II in June 2020 instead of June 2021 (lower RWAs), extending the IFRS 9 transitional arrangements and introducing further relief measures to CET1 allowing to fully add back to CET1 any increase in ECL recognised in 2020 and 2021 for non-credit impaired loans and phasing-in this starting from 2022. In addition, the amendments, introduce temporary treatment of unrealized gains and losses on exposures to central governments, to regional governments or to local authorities measured at fair value through other comprehensive income which is expected to be implemented by the Group in the third quarter of 2020. Lastly finalisation of changes on the application of prudential treatment of software assets as amended by CRR II is expected in the second half of 2020 advancing the implementation to 2020 instead of 2021.

 

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

 

 

 

 

32 .   Capital management (continued)

 

The insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance including the minimum solvency ratio. The regulated UCITS management company of the Group, BOC Asset Management Ltd complies with the regulatory capital requirements of the Cyprus Securities and Exchange Commission (CySEC) laws and regulations as at 30 June 2020. The regulated investment firm (CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd (CISCO) lacks behind the minimum initial capital requirement and the additional capital conservation buffer as at 30 June 2020 and 31 December

2019, whereas as at 30 June 2020 it also fell below the minimum total capital ratio hurdle of CySEC. A business and capital plan was submitted to CySEC in December 2019. CySEC has provided CISCO with a written extension until 31 December 2020 to comply with the capital requirements, as per its Supervisory Review and Evaluation Process (SREP).

 

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

 

33 .   Related party transactions

 

Relate d parties of the Group include associates and joint ventures, key management personnel, Board of

Directors and their connected persons.

 

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

 

 

Sixmonthsended

30 June

 

2020

2019

Director emoluments

€000

€000

Executives

 

 

Salaries and other short term benefits

369

1,248

Employer's contributions

27

62

Retirement benefit plan costs

29

109

 

425

1,419

Non-executives

 

 

Fees

545

499

Total directors' emoluments

970

1,918

Other key management personnel emoluments

 

 

Salaries and other short term benefits

1,892

1,425

Employer's contributions

112

76

Retirement benefit plan costs

75

63

Total other key management personnel emoluments

2,079

1,564

Total

3,049

3,482

 

The fees of the non-executive Directors include fees as members of the Board of Directors of the Company and its subsidiaries, as well as of committees of the Board of Directors.

 

Other key management personnel

The other key management personnel emoluments include the remuneration of the members of the Executive Committee since the date of their appointment to the Committee and other members of the management team who report directly to the Chief Executive Officer or to the First Deputy Chief Executive Officer or Deputy Chief Executive Officer (prior to the change in the group organisational structure, those who reported directly to the Chief Executive Officer or the Deputy Chief Executive Officer and Chief Operating Officer).

 

 

 

 

33 .  Related party transactions (continued)

 

Aggregate amounts outstanding and additional transactions

 

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

 

 

30 June

2020

31December

2019

€000

€000

Loansandadvances

 

 

- members of the Board of Directors and other key management personnel

2,835

3,246

- connected persons

19,147

19,290

 

21,982

22,536

Deposits

 

 

- members of the Board of Directors and other key management personnel

1,899

1,896

- connected persons

2,825

4,979

 

4,724

6,875

Accruals and other liabilities

 

 

- balances with entity providing key management personnel services

3,611

9,827

 

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

 

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

 

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

 

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

 

 

Sixmonthsended

30 June

 

2020

2019

€000

€000

Interest income for the period

357

30

Interest expense on deposits for the period

-

3

Commission income for the period

3

1

Insurance premium income for the period

99

75

Subscriptionsandinsuranceexpensesfortheperiod

445

611

Staff costs, consultancy and restructuring expenses with entity providing key management personnel services

 

4,915

 

6,617

 

Interest income and expense are disclosed for the period during which they were members of the Board of

Directors or served as key management personnel.

 

 

 

 

33 .   Related party transactions (continued)

 

In addition to loans and advances, there were contingent liabilities and commitments in respect of members of  the  Board  of  Directors  and  their  connected  persons,  mainly  in  the  form  of  documentary  credits, guarantees and commitments to lend, amounting to €68 thousand (31 December 2019: €78 thousand).

 

There were also contingent liabilities and commitments to other key management personnel and their connected persons amounting to €2,854 thousand (31 December 2019: €1,367 thousand).

 

The total unsecured amount of the loans and advances and contingent liabilities and commitments to members of the Board of Directors, key management personnel and other connected persons (using forced- sale values for tangible collaterals and assigning no value to other types of collaterals) at 30 June 2020 amounted to €1,195 thousand (31 December 2019: €1,216 thousand).

 

At 30 June 2020 the Group has a deposit of €3,589 thousand (31 December 2019: €2,848 thousand) with Piraeus Bank SA, in which Mr Arne Berggren is a non-executive Director. The Group has also provided certain indemnities to Piraeus Bank SA as part of the disposal of Kyprou Leasing SA in 2015.

 

During the period ended 30 June 2020 premiums of €21 thousand (corresponding period 2019: €17 thousand) and €nil claims (corresponding period 2019: €690 thousand) were paid between the members of the Board of Directors of the Company and their connected persons and the insurance subsidiaries of the Group.

 

There were no other transactions during the six months ended 30 June 2020 and the year ended 31

December 2019 with connected persons of the current members of the Board of Directors or with any members who resigned during the period/year.

 

 

 

 

34 .   Group companies

 

The main subsidiary companies and branches included in the Consolidated Financial Statements of the Group, their country of incorporation, their activities and the percentage held by the Company (directly or indirectly) as at 30 June 2020 are:

 

 

Company

 

Country

 

Activities

Percentage holding (%)

Bank of Cyprus Holdings Public Limited Company

Ireland

Holding company

n/a

Bank of Cyprus Public Company Ltd

Cyprus

Commercial bank

100

The Cyprus Investment and Securities Corporation Ltd

(CISCO)

Cyprus

Investment banking and brokerage

100

GeneralInsuranceofCyprusLtd

Cyprus

Non-life insurance

100

EuroLife Ltd

Cyprus

Life insurance

100

Kermia Ltd

Cyprus

Property trading and development

100

Kermia Properties & Investments Ltd

Cyprus

Property trading and development

100

Global Balanced Fund of Funds Salamis Variable Capital Investment Company PLC (formerly Cytrustees Investment Public Company Ltd)

 

Cyprus

 

UCITSFund

 

56

LCP Holdings and Investments Public Ltd

Cyprus

Holding company

67

JCC Payment Systems Ltd

Cyprus

Card processing transaction services

75

CLR Investment Fund Public Ltd

Cyprus

Investment company

20

Auction Yard Ltd

Cyprus

Auction company

100

BOC Secretarial Company Ltd

Cyprus

Secretarial services

100

S.Z. Eliades Leisure Ltd

Cyprus

Land development and operationofagolfresort

70

 

BOC Asset Management Ltd

 

Cyprus

Management administration andsafekeepingofUCITS Units

 

100

BankofCyprusPublicCompanyLtd(branchofBOC PCL)

 

Greece

Administration of guarantees and holding of real estate properties

 

n/a

 

BOC Asset Management Romania S.A.

 

Romania

Collection of the existing portfolioofreceivables, including third party collections

 

100

MC Investment Assets Management LLC

Russia

Problem asset management company

100

Fortuna Astrum Ltd

Serbia

Problem asset management company

100

 

 

 

 

34 .  Group companies (continued)

 

I n addition to the above companies, at 30 June 2020 BOC PCL had 100% shareholding in the companies listed below, whose activity is the ownership and management of immovable property:

 

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

 

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

 

Further, at 30 June 2020 BOC PCL had 100% shareholding in Obafemi Holdings Ltd, Stamoland Properties

Ltd, Unoplan Properties Ltd, Petrassimo Properties Ltd and Gosman Properties Ltd.

 

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

 

 

 

 

34 .   Group companies (continued)

 

At 30 June 2020 BOC PCL had 100% shareholding in the companies listed below which are reserved to accept property:

 

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

 

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

 

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

 

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

 

Cyprus :  Laiki Bank (Nominees) Ltd, Thames Properties Ltd, Paneuropean Ltd, Philiki Ltd, Cyprialife Ltd, Imperial Life Assurance Ltd, Philiki Management Services Ltd, Nelcon Transport Co. Ltd, Weinco Properties Ltd, Renalandia Properties Limited, Crolandia Properties Ltd, Iperi Properties Ltd, Finerose Properties Ltd, Fantasio Properties Ltd, Demoro Properties Ltd, Elosis Properties Ltd, Polkima Properties Ltd, Pariza Properties Ltd, Prosilia Properties Ltd, Otoba Properties Ltd, Dolapo Properties Limited, Nivoco Properties Limited, Bramwell Properties Ltd, CYCMC II Ltd, CYCMC III Ltd, CYCMC IV Ltd and BOC Terra AIF V.C.I Plc.

 

Greece:  Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki (branch of General Insurance of Cyprus

Ltd), Kyprou Commercial SA and Kyprou Properties SA.

 

All Group companies are accounted for as subsidiaries using the full consolidation method. All companies listed above, except for Global Balanced Fund of Funds Salamis Variable Capital Investment Company PLC which is a UCITS Fund, have share capital consisting of ordinary shares.

 

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

 

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

 

Dissolution and disposal of subsidiaries

 

As at 30 June 2020, the following subsidiaries were in the process of dissolution or in the process of being struck off: BC Romanoland Properties Ltd, Blindingqueen Properties Ltd, Buchuland Properties Ltd, Corner LLC, Diners Club (Cyprus) Ltd, Fairford Properties Ltd, Leasing Finance LLC, Mirodi Properties Ltd, Nallora Properties Ltd, Omiks Finance LLC, Salecom Ltd, Sylvesta Properties Ltd, Commonland Properties Ltd, Fledgego Properties Ltd, Loneland Properties Ltd, Frozenport Properties Ltd, Melgred Properties Ltd, Unknownplan Properties Ltd, Battersee Real Estate SRL, Bocoland Properties SRL, Selilar Properties SRL, Tantora Properties SRL and Trecoda Real Estate SRL.

 

Ban k of Cyprus (Channel Islands) Ltd was dissolved during the six months ended 30 June 2020 and Gozala

Properties Ltd was disposed of during the six months ended 30 June 2020.

 

 

 

 

35 .  Acquisitions and disposals of subsidiaries

 

35. 1  Acquisitions during 2020

 

There were no acquisitions during the six months ended 30 June 2020.

 

35. 2  Disposals during 2020

 

There were no disposals during the six months ended 30 June 2020.

 

35. 3  Acquisitions during 2019

 

There were no acquisitions during 2019.

 

35. 4  Disposals during 2019

 

35.4. 1  Disposal of Cyreit Variable Capital Investment Company PLC (Cyreit)

 

In June 2019, the Group completed the sale of its entire holding of 88.2% in Cyreit.

 

The carrying value of the BOC PCL's share of assets and liabilities disposed of as at the date of their disposal are presented below:

 

Assets

€000

Loans and advances to banks

7,980

Investment properties

133,401

 

141,381

Liabilities

 

Othe r liabilities

(314)

Net identifiable assets sold

141,067

 

The final purchase consideration amounted to €141,139 thousand. The disposal resulted in a gain of €72 thousand disclosed within 'Net losses from revaluation and disposal of investment properties'.

 

The net cash flows of Cyreit were as follows:

 

 

30 June

2019

€000

Net cash inflow for the period from operating activities

1,330

 

There were no cash equivalents as at the date of disposal.

 

 

 

 

35 .  Acquisitions and disposals of subsidiaries (continued)

 

35.4 .  Disposals during 2019 (continued)

 

35.4. 2  Disposal of NMH group

 

I n December 2019, the Group completed the sale of its entire holding of 64% in NMH group. The carrying value of the assets and liabilities disposed of as at the date of their disposal are presented below:

 

Assets

€000

Property and equipment

91,219

Other assets

420

Placements with banks

2,161

 

93,800

Liabilities

 

Othe r liabilities

(6,340)

Net identifiable assets sold

87,460

 

The accumulated losses allocated to non-controlling interest amount to €847 thousand. The purchase consideration amounted to €92,193 thousand and involved the settlement of existing facilities and provision of new lending giving rise to a gain on disposal of €3,886 thousand disclosed within 'Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates'.

 

The net cash flows of NMH group are as follows:

 

 

2019

€000

Operating

(1,148)

Investing

(33)

1,181

Net cash inflow for the year

-

 

The cash and cash equivalents as at the date of disposal amounted to €1,936 thousand.

 

36 .  Investments in associates and joint venture

 

Carrying value of the investments in associates and joint venture

 

 

Percentage holdings

30 June

2020

31December

2019

(%)

€000

€000

Apollo Global Equity Fund of Funds Variable Capital

Investment Company Plc

 

33.1

 

2,188

 

2,393

Aris Capital Management LLC

30.0

-

-

Rosequeens Properties Limited

33.3

-

-

Rosequeens Properties SRL

33.3

-

-

Tsiros (Agios Tychon) Ltd

50.0

-

-

M.S.(Skyra)VassasLtd

15.0

-

-

Fairways Automotive Holdings Ltd

45.0

-

-

 

 

2,188

2,393

 

 

 

 

36 .   Investments in associates and joint venture  (continued)

 

The share of profit from associate CNP Cyprus Insurance Holdings Ltd for the six months ended 30 June

201 9 amounting to €5,312 thousand refers to the period up to the date of classification of CNP Cyprus

Insurance Holdings Ltd as held for sale as described below.

 

Investments in associates

 

CNP Cyprus Insurance Holdings Ltd

The holding in CNP Cyprus Insurance Holdings Ltd of 49.9% had been acquired as part of the acquisition of certain operations of Laiki Bank in 2013. In May 2019 BOC PCL signed a binding agreement to sell its entire shareholding to CNP Assurances S. A. who owned the remaining 50.1% and was the controlling party. The investment was classified as held for sale as at 30 June 2019 and prior to this classification it was remeasured at fair value less cost to sell; a loss of €25,943 thousand was recognised in the consolidated income statement for the six months ended 30 June 2019. The sale was completed in October 2019 and the sale consideration of €97,500 thousand was payable in cash on completion. There was no accounting loss on the sale.

 

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

The Group holds effectively 33.1% (31 December 2019: 34.1%) of the UCITS of Apollo due to acquisition of UCITS from other parties. The Group considers that it exercises significant influence over Apollo even though no Board representation exists, because due to its UCITS holdings, it possesses the power to potentially appoint members of the Board of Directors.

 

Rosequeens Properties Limited and Rosequeens Properties SRL

The Group effectively owns 33.3% of the share capital of Rosequeens Properties SRL which is incorporated in Romania and owns a shopping mall in Romania. The shareholding was acquired after BOC PCL took part in a public auction for the settlement of customer loan balances amounting to approximately €21 million. The Group's share of net assets of the associate at 30 June 2020 and 31 December 2019 had €nil accounting value as the net assets of the associate had a negative balance.

 

Aris Capital Management LLC

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

 

M.S. (Skyra) Vassas Ltd

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

 

Fairways Automotive Holdings Ltd

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

 

 

 

 

36 .   Investments in associates and joint venture  (continued)

 

Investment in joint venture

 

Tsiros (Agios Tychon) Ltd

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

 

The percentage holdings are in ordinary shares or membership interests.

 

37 .   Events after the reporting period

 

37. 1   Project Helix 2

 

I n 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.

 

 

 

 

Independent review report  to  Bank of Cyprus Holdings

Public  Limited Company

 

 

Report on the consolidated condensed interim financial statements

 

Om · conclusion

 

We have reviewed  Bank of Cyprus Holdings Public  Limited  Company's  (the  ' company' )   (together with its subsidiaries the  'group')  consolidated condensed interim financial statements (the  'interim financial  statements')  in the interim financial report for the six month period ended 30 June 2020 ('interim financial  report').  Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34,  'Interim  Financial Reporting', as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency  Ru1es of the Central Bank of Ireland.

 

What  we  have  reviewed

 

The interim financial statements, comprising:

 

•   the interim consolidated balance sheet as at 30 June 2020;

 

•   the interim consolidated income statement and interim consolidated statement of comprehensive income for the period then ended;

 

•   the interim consolidated statement of cash flows for the period then ended;

 

•   the interim consolidated statement of changes in equity for the period then ended; and

 

•   the explanatory notes to the interim financial statements.

 

The interim financial statements included in the interim financial report have been prepared in accordance with International Accounting Standard 34, 'Interim  Financial Reporting', as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency  Ru1es of the Central Bank of Ireland.

 

As  disclosed in note 3.2 to the interim financial statements, the financial reporting framework that has been applied  in  the preparation  of the full annual financial statements of the group is applicable law and International Financial Reporting Standards  (IFRSs) as adopted by the European Union.

 

Responsibilities  for the interim financial statements and the review

 

Om·responsibilities and those  of the directors

 

The interim financial report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors  are  responsible for preparing the interim  financial  report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency  Ru1es of the Central Bank oflreland.

 

Our responsibility is to express a conclusion on the interim financial statements in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Ru1es of the Central Bank of Ireland and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other

purpose or to any other person to  whom  this report is shown or into  whose  hands it may come save where expressly agreed by our prior consent in writing.

 

What a review  of interim financial statements involves

 

We conducted our review in accordance with International Standard  on Review Engagements (UK and Ireland) 2410,

'Review  of Interim Financial Information  Performed by the Independent Auditor of the Entity' issued by the Auditing

Practices Board for use in the United Kingdom and Ireland. A review of interim financial information  consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review

procedures.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (Ireland) and ,  consequently ,  does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit .  Accordingly ,  we do not express an audit opinion .

 

We have read the other information contained in the interim financial report and considered whether it contains any apparent  misstatements or material inconsistencies with the information  in the interim financial statements.

 

 

 

PricewaterhouseCoopers Chartered Accountants Dublin, Ireland

 

27  August  2020

 

 

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