Half-year Report

RNS Number : 9699Y

Bank of Cyprus Holdings PLC

28 August 2018

Mid-Year Financial Report

30 June 2018

Contents	Page
Board of Directors and Executives	1
Forward Looking Statements and Notes	2
Interim Management Report	3
Interim Consolidated Income Statement	22
Interim Consolidated Statement of Comprehensive Income	23
Interim Consolidated Balance Sheet	24
Interim Consolidated Statement of Changes in Equity	25
Interim Consolidated Statement of Cash Flows	27
Notes to the Interim Condensed Consolidated Financial Statements
1. Corporate information	29
2. Unaudited financial statements	29
3. Summary of significant accounting policies	29
4. Going concern	41
5. Operating environment	42
6. Significant judgements, estimates and assumptions	45
7. Transition disclosures	49
8. Segmental analysis	55
9. Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates	63
10. Staff costs and other operating expenses	63
11. Credit losses of financial instruments and impairment of non-financial instruments	64
12. Income tax	65
13. Earnings per share	66
14. Investments	66
15. Derivative financial instruments	67
16. Fair value measurement	68
17. Loans and advances to customers	73
18. Stock of property	73
19. Prepayments, accrued income and other assets	74
20. Non-current assets and disposal groups held for sale	75
21. Funding from central banks	75
22. Customer deposits	76
23. Subordinated loan stock	78
24. Accruals, deferred income and other liabilities	78
25. Share capital	83
26. Cash and cash equivalents	84
27. Analysis of assets and liabilities by expected maturity	85
28. Risk management - Credit risk	86
29. Risk management - Market risk	119
30. Risk management - Liquidity risk and funding	120
31. Capital management	124
32. Related party transactions	125
33. Group companies	128
34. Acquisitions and disposals	131
35. Investments in associates and joint ventures	131
36. Capital commitments	132
37. Events after the reporting period	132
Independent Review Report to the Bank of Cyprus Holdings Public Limited Company	134
Additional Risk and Capital Management Disclosures including Pillar 3 semi-annual disclosures	135
Definitions and explanations on Alternative Performance Measures Disclosures	168

Board of Directors of Bank of Cyprus Holdings Public Limited Company	Prof. Dr. Josef Ackermann CHAIRMAN Maksim Goldman VICE CHAIRMAN
	Arne Berggren Lyn Grobler Dr. Michael Heger John Patrick Hourican Dr. Christodoulos Patsalides Michalis Spanos Ioannis Zographakis Anat Bar-Gera Maria Philippou Paula Hadjisotiriou
Executive Committee	John Patrick Hourican CHIEF EXECUTIVE OFFICER Dr. Christodoulos Patsalides DEPUTY CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER Michalis Athanasiou CHIEF RISK OFFICER Nick Fahy CHIEF EXECUTIVE OFFICER, BANK OF CYPRUS UK Eliza Livadiotou FINANCE DIRECTOR Panicos Nicolaou DIRECTOR CORPORATE BANKING Louis Pochanis DIRECTOR INTERNATIONAL BANKING, WEALTH AND MARKETS Dr. Charis Pouangare DIRECTOR CONSUMER AND SME BANKING Nicolas Scott Smith DIRECTOR RESTRUCTURING AND RECOVERIES DIVISION Anna Sofroniou DIRECTOR REAL ESTATE MANAGEMENT UNIT Aristos Stylianou EXECUTIVE CHAIRMAN, INSURANCE BUSINESSES
Company Secretary	Katia Santis
Legal Advisers as to matters of Irish Law	Arthur Cox
Legal Advisers as to matters of English and US Law	Sidley Austin LLP
Legal Advisers as to matters of Cypriot Law	Chryssafinis & Polyviou LLC
Independent Auditors	Ernst & Young Chartered Accountants Ernst & Young Building Harcourt Centre Harcourt Street Dublin 2 Ireland
Registered Office	Arthur Cox 10 Earlsfort Terrace Dublin 2 D02 T380 Ireland

Forward Looking Statements and Notes

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

Non-IFRS performance measures

Bank of Cyprus Holdings Public Limited Company (the Company) management believes that the non-IFRS performance measures included in this document provide valuable information to the readers of the Mid-Year Financial Report as they enable the readers to identify a more consistent basis for comparing the Group's performance between financial periods and provide more detail concerning the elements of performance which management is most directly able to influence or are relevant for an assessment of Bank of Cyprus Holdings Group. They also reflect an important aspect of the way in which the operating targets are defined and performance is monitored by the Group's management. However, any non-IFRS performed measures in this document are not a substitute for IFRS measures and readers should consider the IFRS measures as well. Refer to 'Definitions and explanations on Alternative Performance Measures Disclosures' on pages 168 to 170 of the Mid-Year Financial Report for the six months ended 30 June 2018 for further information, reconciliations with Interim Condensed Consolidated Financial Statements and calculations of non-IFRS performance measures included throughout this document and the most directly comparable IFRS measures.

The Mid-Year Financial Report for the six months ended 30 June 2018 is available at the Bank of Cyprus Holdings Public Limited Company Registered Office (at 10 Earlsfort Terrace, Dublin 2, D02 T380, Ireland) and on the Group's website www.bankofcyprus.com (Investor Relations/Financial Results).

A. Financial Results

Interim Condensed Consolidated Income Statement

€ million	30 June 2018	30 June 2017
Net interest income	249	316
Net fee and commission income	84	88
Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates	42	23
Insurance income net of claims and commissions	25	25
Net gains from revaluation and disposal of investment properties and on disposal of stock of properties	21	10
Other income	11	8
Total income	432	470
Staff costs	(116)	(111)
Other operating expenses (excluding advisory and other restructuring costs)	(90)	(85)
Special levy and contribution to Single Resolution Fund	(12)	(18)
Total expenses	(218)	(214)
Operating profit	214	256
Loan provisions charge	(99)	(656)
Impairments of other financial and non-financial assets	(13)	(36)
Reversal/(provisions) for litigation and regulatory matters	5	(35)
Total provisions and impairments	(107)	(727)
Share of profit from associates and joint ventures	4	4
Profit/(loss) before tax and restructuring costs	111	(467)
Tax	(5)	(72)
Loss/(profit) attributable to non-controlling interests	2	(1)
Profit/(loss) after tax and before restructuring costs and before the NPE sale (Helix)	108	(540)
Advisory and other restructuring costs - excluding the NPE sale (Helix)	(15)	(14)
Profit/(loss) after tax and before restructuring costs related to held for sale portfolio and loss from loans held for sale	93	(554)
Restructuring costs relating to NPE sale (Helix)	(12)	-
Loss relating to NPE sale (Helix)	(135)	-
Loss after tax	(54)	(554)

Key Performance Ratios	30 June 2018	30 June 2017
Net Interest Margin (annualised)*	2.51%	3.37%
Cost to income ratio	51%	46%
Cost to income ratio excluding special levy and contribution to Single Resolution Fund	48%	42%
Operating profit return on average assets (annualised)*	1.8%	2.3%
Basic earnings/(losses) per share attributable to the owners of the Company-before restructuring costs related to held for sale portfolio and loss from loans held for sale (€ cent)	20.96	(124.19)
Basic losses per share attributable to the owners of the Company (€ cent)	(12.12)	(124.19)

* including the Helix portfolio which has been classified as non-current assets and disposal groups held for sale

A. Financial Results (continued)

Interim Condensed Consolidated Balance Sheet

€ million	30 June 2018	31 December 2017
Cash and balances with central banks	4,163	3,394
Loans and advances to banks	804	1,193
Debt securities, treasury bills and equity investments	1,103	1,121
Net loans and advances to customers	13,001	14,602
Stock of property	1,524	1,641
Non-current assets and disposal groups held for sale	1,451	7
Other assets	1,635	1,641
Total assets	23,681	23,599
Deposits by banks	512	495
Funding from central banks	830	930
Repurchase agreements	248	257
Customer deposits	18,431	17,850
Subordinated loan stock	292	302
Other liabilities	1,125	1,148
Total liabilities	21,438	20,982
Shareholders' equity	2,198	2,586
Non-controlling interests	45	31
Total equity	2,243	2,617
Total liabilities and equity	23,681	23,599

The Group has not restated comparative information for 2017 for financial instruments within the scope of
IFRS 9. Additionally, the recognition and measurement of credit losses under IFRS 9 differs from that under IAS 39. Therefore, the comparative information for 2017, which is reported under IAS 39 is not comparable to the information presented for 2018, which is reported under IFRS 9. New or amended interim disclosures are presented for the current period according to IFRS 9, where applicable, whereas comparative period disclosures are consistent with those made in the prior periods. Adjustments arising from the adoption of IFRS 9 have been recognised directly in equity as at 1 January 2018, as disclosed in Note 7 of these Interim Condensed Consolidated Financial Statements for the six months ended 30 June 2018.

A. Financial Results (continued)

Key Balance Sheet figures and ratios	30 June 2018	31 December 2017
Gross loans and advances to customers (€ million)	18,312	18,755
Accumulated expected credit losses on loans and advances to customers/Accumulated provisions (€ million)	4,100	4,204
Customer deposits (€ million)	18,431	17,850
Loans to deposits ratio (net)	77%	82%
NPE ratio	43%	47%
NPE provisioning coverage ratio	52%	48%
Quarterly average interest earning assets (€ million)	20,025	19,826
Leverage ratio	8.8%	10.4%

Capital ratios and risk weighted assets	30 June 2018	31 December 2017
Common Equity Tier 1 (CET1) ratio (transitional)	11.9%	12.7%
CET1 fully loaded (allowing for IFRS 9 transitional arrangements)	11.5%	12.2%
Total capital ratio	13.4%	14.2%
Risk weighted assets (€ million)	17,368	17,260

The key balance sheet figures and ratios at 30 June 2018 include the Helix portfolio of a net book value of €1,239 million which has been classified as non-current assets and disposal groups held for sale.

The CET 1 (fully loaded) ratio for 30 June 2018, including the full impact of IFRS 9 and deferred tax assets amounts to 10.0%.

A. Financial Results (continued)

A.1 Unaudited reconciliation of Income Statement for the six months ended 30 June 2018 between statutory and underlying bases

€ million	Underlying basis	Reclassification	Statutory basis
Net interest income	249	-	249
Net fee and commission income	84	-	84
Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates	42	14	56
Insurance income net of claims and commissions	25	-	25
Net gains from revaluation and disposal of investment properties and on disposal of stock of properties	21	-	21
Other income	11	-	11
Total income	432	14	446
Total expenses	(218)	(22)	(240)
Operating profit	214	(8)	206
Net gains on derecognition of financial assets measured at amortised cost	-	19	19
Loan provisions charge	(99)	(168)	(267)
Credit losses of other financial instruments and impairments of non-financial instruments	(13)	-	(13)
Reversal of provisions for litigation and regulatory matters	5	(5)	-
Share of profit from associates and joint ventures	4	-	4
Profit/(loss) before tax and restructuring costs	111	(162)	(51)
Tax	(5)	-	(5)
Loss attributable to non-controlling interests	2	-	2
Profit/(loss) after tax and before restructuring costs and before the NPE sale (Helix)	108	(162)	(54)
Advisory and other restructuring costs-excluding the NPE sale (Helix)	(15)	15	-
Profit/(loss) after tax and before restructuring costs related to held for sale portfolio and loss from loans held for sale	93	(147)	(54)
Restructuring costs-relating to NPE sale (Helix)	(12)	12	-
Loss relating to NPE sale (Helix)	(135)	135	-
Loss after tax (attributable to the owners of the Company)	(54)	-	(54)
The reclassification differences between the statutory and underlying bases relate to:

• Loan provisions charge under the underlying basis includes an amount of €14 million relating to net gains on loans and advances to customers at fair value through profit or loss (FVPL) disclosed within 'Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates' in these Interim Condensed Consolidated Financial Statements.

• Additionally, loan provisions charge under the underlying basis includes net gains on derecognition of financial assets measured at amortised cost and credit losses to cover credit risk on loans and advances to customers separately disclosed in the Interim Consolidated Income Statement in these Interim Condensed Consolidated Financial Statements.

• Loss relating to NPE sale (Helix) is disclosed separately under the underlying basis, as part of 'Credit losses to cover credit risk on loans and advances to customers' in these Interim Consolidated Income Statement.

• Reversal of provisions for litigation and regulatory matters of €5 million, advisory and other restructuring costs (excluding Helix) of €15 million (corresponding period €25 million) and restructuring costs relating to NPE sale (Helix) of €12 million are part of 'Other operating expenses' in these Interim Condensed consolidated Financial Statements.

A. Financial Results (continued)

A.2 Balance Sheet Analysis

A.2.1 Capital Base

Shareholders' equity totalled €2,198 million at 30 June 2018, compared to €2,586 million at 31 December 2017. The Common Equity Tier 1 capital (CET1) ratio (transitional basis) stood at 11.9% at 30 June 2018, compared to 12.7% at 31 December 2017. Adjusting for Deferred Tax Assets, the CET1 ratio on a fully-loaded basis (allowing for IFRS 9 transitional arrangements) totalled 11.5% at 30 June 2018, compared to 12.2% at 31 December 2017.

The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU Regulation 2017/2395) where the impact on the impairment amount from the initial application of IFRS 9 on the capital ratios will be phased-in gradually. The amount that will be added each year will decrease based on a weighting factor until the impact of IFRS 9 is fully absorbed at the end of five years. For the year 2018 the impact on the capital ratios will be 5% of the impact on the impairment amounts from the initial application of IFRS 9. The CET1 ratio on a fully-loaded basis (including the full impact of IFRS 9 and deferred tax assets), amounts to 10.0% at 30 June 2018. On a transitional basis and on a fully phased-in basis after the five year period of transition is complete, the impact of IFRS 9 is expected to be manageable and within the Group's capital plans.

As at 30 June 2018, the Total Capital Ratio stood at 13.4%, compared to 14.2% at 31 December 2017.

The Group's capital ratios are above the minimum CET1 regulatory capital ratio of 9.375%, comprising a 4.50% Pillar I requirement, a 3.00% Pillar II requirement and a phased-in CCB of 1.875% and the overall Total Capital Ratio requirement of 12.875%, comprising a Pillar I requirement of 8.00% (of which up to 1.5% can be in the form of Additional Tier 1 capital and up to 2.0% in the form of Tier 2 capital), a Pillar II requirement of 3.00% (in the form of CET1), as well as a phased-in CCB of 1.875%. The European Central Bank (ECB) has also provided non-public guidance for an additional Pillar II CET1 buffer. As per the EBA final guidelines on Supervisory Review and Evaluation Process (SREP) and supervisory stress testing in July 2018 and the Single Supervisory Mechanism's (SSM) 2018 SREP methodology, CET1 held for purposes of Pillar II Capital Guidance (P2G) cannot be used to meet any other capital requirements. Such Pillar II add-ons derive from the Group's individual capital guidance, which is a point in time assessment made in the context of the SREP process and, accordingly, they may vary over time.

As per the EBA final guidelines on SREP and supervisory stress testing and the SSM 2018 SREP methodology issued in July 2018, CET1 held for purposes of P2G cannot be used to meet any other capital requirements (Pillar 1, P2R or the combined buffer requirements), and therefore cannot be used twice. In accordance with the EBA, the Guidelines will be applicable from 1 January 2019 but the final decision on their adoption remains on the discretion of the relevant competent authorities.

In accordance with the provisions of the Macroprudential Oversight of Institutions Law of 2015, the CBC is also the responsible authority for the designation of banks that are Other Systemically Important Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for these systemically important banks. The Group has been designated as an O-SII and the CBC set the O-SII buffer for the Group at 2.0%. This buffer will be phased-in gradually, starting from 1 January 2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%) on 1 January 2022.

Sale of Bank of Cyprus UK Limited (BOC UK)

In July 2018, BOC PCL signed an agreement to sell its wholly owned subsidiary bank in the UK, Bank of Cyprus UK Limited (BOC UK). The impact from this sale on the CET1 ratio had this transaction taken place at 30 June 2018 would have been an increase of approximately 10 bps relating to recycling of a related foreign currency gain of €17 million into CET1, previously recorded in the foreign currency translation reserve, which was not recognised in regulatory capital. The sale is expected to be completed by the end of 2018, subject to regulatory approvals. On completion, the CET1 ratio is expected to be further positively affected by c.75 bps (based on 30 June 2018 results) resulting mainly from the release of risk weighted assets.

A. Financial Results (continued)

A.2 Balance Sheet Analysis (continued)

A.2.1 Capital Base (continued)

Project Helix

The Group has reached an agreement for the sale of a portfolio (the 'Portfolio') of loans and advances to customers with a gross book value of €2.8 billion, of which €2,7 billion relate to non performing exposures (known as 'Project Helix', 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 Apollo Global Management LLC, (NYSE:APO) (together with its consolidated subsidiaries "Apollo"), the purchaser of the Portfolio. Funds managed by Apollo will provide equity capital in relation to the financing of the purchase of the Portfolio. The purchaser was selected following a competitive sale process.

The Portfolio has a net book value of €1.3 billion. At completion, BOC PCL will receive a gross cash consideration of c.€1.4 billion.

The completion of the Transaction remains subject to a number of conditions precedent, including mainly regulatory and other approvals, including the ECB agreeing to a Significant Risk Transfer (SRT) benefit from the Transaction. BOC PCL intends to participate in the senior debt in relation to such financing in an amount of €450 million, subject to regulatory approval.

The impact on the CET1 ratio at 30 June 2018 had this transaction taken place would have been a decrease of c.80 bps relating to the loss of the transaction of c.€135 million, including transaction costs (expected to decline to c.€105 million by the year end, as the time value of money unwinds).

Additional Tier 1

The Company is currently in the process of finalising the terms with, and seeking binding commitments from investors in respect of a privately placed AT1 transaction, of an anticipated size of c.€200 million subject to market conditions. There can be no assurance that an AT1 transaction will take place or, if it does, the terms on which it will be implemented. A further announcement will be made in due course.

In preparation for a potential issuance of AT1 capital instruments, the Company will proceed (subject to approval by the shareholders and the Irish courts) with a capital reduction process which will result in the reclassification of up to €1.5 billion of the Company's share premium as distributable reserves. This will have the effect of eliminating the Company's accumulated losses of €0.5 billion as at 31 December 2017. The reduction of capital has been proposed as a special resolution for approval by shareholders at the Company's Annual General Meeting on 28 August 2018. The reduction of capital will not have any impact on regulatory capital or on the total equity position of the Company, BOC PCL or the Group.

The distributable reserves created will provide the basis for the calculation of distributable items under the Capital Requirements Regulation (EU) No. 575/2013 ('CRR'), which provides that coupons on AT1 capital instruments may only be funded from distributable items. Distributable items for the purposes of the CRR are determined, in part, by reference to distributable reserves. The Company is currently subject to a prohibition on dividend distributions. However, such prohibition will not apply to the payment of coupons on any AT1 capital instruments issued by the Company.

IFRS 9 - Financial Instruments

The Group applied IFRS 9 on 1 January 2018. The new accounting standard allows the impact on the implementation date, 1 January 2018, to be recognised through equity rather than the income statement.

The Group's IFRS 9 impact on transition resulted in a decrease of shareholders' equity of €308 million (€0.69 per share) and was primarily driven by credit impairment provision.

The Group elected to apply the European Union (EU) dynamic transitional arrangements for regulatory capital purposes which result in only 5% of the estimated IFRS 9 impact affecting the capital ratios during 2018. Allowing for IFRS 9 transitional arrangements the impact on Group capital ratios on 1 January 2018 was a reduction of c.9 bps.

A. Financial Results (continued)

A.2 Balance Sheet Analysis (continued)

A.2.1 Capital Base (continued)

IFRS 9 - Financial Instruments (continued)

On a transitional basis and on a fully phased-in basis after the five year period of transition is complete, the impact of IFRS 9 is expected to be manageable and within the Group's capital plans.

Default Definition

According to the European Banking Authority (EBA) guidelines that govern the CRR default definition, issued in January 2017, the default definition will gradually evolve to align with the Non-Performing Exposure (NPE) definition by 1 January 2021. The Group, in line with regulatory discussions, has proceeded with the early adoption of these changes to almost align the EBA CRR definition with the NPE definition as from 1 January 2018, resulting in an increase in RWA, equivalent to a decrease of c.50 bps on regulatory capital ratios.

A.2.2 Funding and Liquidity

Funding

Funding from Central Banks

At 30 June 2018, the BOC PCL's funding from central banks totalled €830 million, which relates wholly to ECB funding (compared to ECB funding of €930 million as at 31 December 2017), comprising solely of funding through Targeted Longer-Term Refinancing Operations (TLTRO II).

Deposits

Group customer deposits increased to €18,431 million at 30 June 2018, compared to €17,850 million at 31 December 2017. Deposits in Cyprus stood at €16,486 million at 30 June 2018, accounting for 89% of Group customer deposits. BOC PCL's deposit market share in Cyprus reached 35.1% at 30 June 2018. Customer deposits accounted for 78% of total assets at 30 June 2018. The Loans to Deposits ratio (L/D) stood at 77% at 30 June 2018, down from 82% at 31 December 2017, compared to a high of 151% at 31 March 2014. The 6% increase in local deposits during the six months ended 30 June 2018, offsets the 4% reduction in deposits of International Business Units (IBUs) in the same period.

Liquidity

At 30 June 2018, the Group Liquidity Coverage Ratio (LCR) stood at 199% (compared to 190% at 31 December 2017) and was in compliance with the minimum regulatory requirement of 100% (increased from a minimum requirement of 80% on 31 December 2017).

The Net Stable Funding Ratio (NSFR) was not introduced on 1 January 2018, as opposed to what was expected. The minimum requirement of NSFR will be 100%. At 30 June 2018, the Group's NSFR, on the basis of the Basel ΙΙΙ standards, stood at 115% (compared to 111% at 31 December 2017).

In accordance with the CRR, the local regulatory liquidity requirements set by the Central Bank of Cyprus (CBC) were abolished on 1 January 2018. The CBC introduced a macroprudential measure in the form of a liquidity add-on imposed on top of the LCR requirement of BOC PCL, which became effective on 1 January 2018. The objective of the measure is to ensure that there will be a gradual release of the excess liquidity in the Cypriot banking system arising from the lower liquidity requirements under the LCR compared to the ones under the local regulatory liquidity requirements previously in place. The add-on applies stricter outflow and inflow rates on some of the parameters used in the calculation of the LCR, as well as additional liquidity requirements in the form of outflow rates on items that are not subject to outflow rates under the LCR. The measure was implemented in two stages, the first stage being applicable from 1 January 2018 until 30 June 2018 and the second stage from 1 July 2018 until 31 December 2018, with a reduction of 50% of the add-on rates from 1 July 2018. As a result of the relaxation of the add-on rates, the surplus liquidity of BOC PCL with respect to the LCR including the add-on, increased by approximately €800 million, to €1.4 billion on 1 July 2018. As at 30 June 2018, BOC PCL was in compliance with the LCR including the add-on, which stood at 114%.

A. Financial Results (continued)

A.2 Balance Sheet Analysis (continued)

A.2.3 Loans

Group gross loans and advances to customers totalled €18,312 million at 30 June 2018, compared to €18,755 million at 31 December 2017. Gross loans and advances to customers in Cyprus totalled €16,223 million at 30 June 2018 and accounted for 89% of Group gross loans and advances to customers. BOC PCL is the single largest credit provider in Cyprus with a market share of 38.6% at 30 June 2018. Gross loans and advances to customers in the UK amounted to €1,818 million at 30 June 2018 and accounted for 10% of Group total gross loans and advances to customers.

New loan originations for the Group reached €1,309 million at 30 June 2018 (of which €1,049 million were granted in Cyprus), exceeding new lending at 30 June 2017.

At 30 June 2018, the Group net loans and advances to customers totalled €13,001 million (compared to €14,602 million at 31 December 2017). In addition, at 30 June 2018, net loans and advances to customers of €1,239 million were classified as non-current assets held for sale in line with IFRS 5 and relate to Helix. There were no loans and advances to customers classified as held for sale in line with IFRS 5 at 31 December 2017.

A.2.4 Loan portfolio quality

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

NPEs as defined by the EBA were reduced to €7,914 million at 30 June 2018, accounting for 43% of gross loans and advances to customers, compared to 47% at 31 December 2017, on the same basis (including the Helix portfolio which has been classified as non-current assets and disposal groups held for sale).

The provisioning coverage ratio of NPEs stood at 52% at 30 June 2018 (compared to 48% at 31 December 2017), on the same basis (including the Helix portfolio which has been classified as non-current assets and disposal groups held for sale).

When taking into account tangible collateral at fair value, NPEs are fully covered.

	30 June 2018¹		31 December 2017
	€ million	% of gross loans	€ million	% of gross loans
NPEs as per EBA definition	7,914	43.2%	8,804	46.9%
Of which, in pipeline to exit:
- NPEs with forbearance measures, no arrears²	1,407	7.7%	1,619	8.6%

¹ including the Helix portfolio of a net book value of €1,239 million which has been classified as non-current assets and disposal groups held for sale.

²As at 31 December 2017 analysis was performed on an account basis. As at 30 June 2018, the analysis is performed on a customer basis.

The Group has recorded significant organic NPE reductions for thirteen consecutive quarters.

A. Financial Results (continued)

A.2 Balance Sheet Analysis (continued)

A.2.5 Real Estate Management Unit

The Real Estate Management Unit (REMU) on-boarded €220 million of assets (including construction cost) during the six months ended 30 June 2018 via the execution of debt for asset swaps. The focus for REMU is increasingly shifting from on-boarding of assets resulting from debt for asset swaps towards the disposal of these assets. The Group completed disposals of €126 million during the six months ended 30 June 2018, resulting in a profit on disposal of €21 million for the six months ended 30 June 2018.

Following the incorporation of Cyreit Variable Capital Investment Company PLC (Cyreit), properties of carrying value €166 million were reclassified from the stock of properties (measured at the lower of cost and net realisable value under IAS 2) to investment properties (measured at fair value under IAS 40). These properties, which were subsequently classified as non-current assets and disposal groups held for sale, continue to be managed by REMU.

As at 30 June 2018, assets held by REMU had a carrying value of €1.5 billion. Stock of properties of €39 million was transferred to non-current assets held for sale as it was also included in the portfolio for the NPE sale.

Assets held by REMU (Group)	30 June 2018	31 December 2017
Assets held by REMU (Group)	€ million	€ million
Opening balance	1,641	1,427
On-boarded assets (including construction cost)	220	520
Sales	(126)	(258)
Transfer to investment properties	(166)	-
Transfer to non-current assets held for sale	(39)	-
Closing balance	1,524	1,641

A.2.6 Non-core overseas exposures

The remaining non-core overseas net exposures (including both on-balance sheet and off-balance sheet exposures) at 30 June 2018 are as follows:

	30 June 2018	31 December 2017
	€ million	€ million
Greece	179	193
Romania	72	79
Serbia	7	9
Russia	28	31

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

In accordance with the Group's strategy to exit from overseas non-core operations, the operations of the branch in Romania are expected to be terminated, subject to the completion of deregistration formalities with respective authorities. Most of the remaining assets and liabilities of the branch in Romania with third parties have been transferred to other entities of the Group.

In addition to the above, at 30 June 2018 there were overseas exposures of €154 million in Greece (compared to exposures of €168 million in Greece as at 31 December 2017), not identified as non-core exposures, since they are considered by management as exposures in the normal course of business.

A. Financial Results (continued)

A.3 Income Statement Analysis

A.3.1 Total income

Net interest income (NII) and net interest margin (NIM) for the six months ended 30 June 2018 amounted to €249 million and 2.51% respectively, including the Helix portfolio which has been classified as non-current assets and disposal groups held for sale. NII was down by 21% compared to €316 million during the corresponding period in the prior year, reflecting the lower volume on loans, pressure on lending rates and the cost of liquidity compliance.

Average interest earning assets for the six months ended 30 June 2018 including the Helix portfolio which has been classified as non-current assets and disposal groups held for sale amounted to €20,064 million, up by 6% on a yearly basis.

Non-interest income for the six months ended 30 June 2018 amounted to €183 million, up by 19% on a yearly basis. Non-interest income for the six months ended 30 June 2018 mainly comprised of net fee and commission income of €84 million, net foreign exchange income and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of €42 million, net insurance income of €25 million and net gains from revaluation and disposal of investment properties and on disposal of stock of properties of €21 million.

Net fee and commission income for the six months ended 30 June 2018 amounted to €84 million, compared to €88 million in the corresponding period last year, down by 5% on a yearly basis, mainly due to the implementation of IFRS 9 under which certain commission income types are not recognised for Stage 3 loans.

Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of €42 million for the six months ended 30 June 2018, increased by 81% on a yearly basis, mainly due to the gains on disposal of bonds during the six months ended 30 June 2018 of €19 million.

Total income for the six months ended 30 June 2018 amounted to €432 million, compared to €470 million for the corresponding period last year (8% decrease on a yearly basis).

A.3.2 Total expenses

Total expenses for the six months ended 30 June 2018 were €218 million (compared to €214 million for the six months ended 30 June 2017), 53% of which related to staff costs (€116 million), 41% to other operating expenses (€90 million) and 6% to special levy and contribution to SRF (€12 million comprising the special levy of €11 million and contribution of SRF of €1 million).

Staff costs of €116 million for the six months ended 30 June 2018 were increased by 4% on a yearly basis, mainly due to the effect of the renewal of the annual collective agreement with the employees' union.

Other operating expenses for the six months ended 30 June 2018 were €90 million, increased by 5% on a yearly basis.

A.3.3 Profit/(loss) before tax and restructuring costs

Operating profit for the six months ended 30 June 2018 was €214 million, compared to €256 million for the same period last year (down by 16% on a yearly basis).

The loan provisions charge for the six months ended 30 June 2018 totalled €99 million, compared to €656 million for the same period last year (down by 85% on a yearly basis), as the previous year was affected by the additional provisions of c.€500 million taken during the six months ended 30 June 2017. The annualised provisioning charge for the six months ended 30 June 2018 accounted for 1.1% of gross loans and advances to customers, compared to a provisioning charge of 4.2% for the six months ended 30 June 2017. An amount of approximately €500 million reflecting the one-off effect of the change in the provisioning assumptions was included in the calculation of cost of risk for the six months ended 30 June 2017 but was not annualised.

A. Financial Results (continued)

A.3 Income Statement Analysis (continued)

A.3.3 Profit/(loss) before tax and restructuring costs (continued)

At 30 June 2018, accumulated expected credit losses on loans and advances to customers, including fair value adjustment on initial recognition and provisions for off-balance sheet exposures and including the Helix portfolio which has been classified as non-current assets and disposal groups held for sale, totalled €4,100 million (compared to €4,204 million at 31 December 2017) and accounted for 22.4% of gross loans and advances to customers on the same basis (compared to 22.4% at 31 December 2017).

Credit losses of other financial and impairments of non-financial assets for the six months ended 30 June 2018 totalled €13 million (compared to €36 million for the same period last year, down by 63% on a yearly basis).

Reversal for litigation and regulatory matters for the six months ended 30 June 2018 amounted to €5 million, compared to provisions of €35 million for the six months ended 30 June 2017. The charge for the six months ended 30 June 2017 related mainly to a fine imposed by the Cyprus Commission for the Protection of Competition, the increase in provision for litigation for securities issued by BOC PCL between 2007 and 2011 and redress provision for the UK operations.

A.3.4 Loss after tax

The tax charge for the six months ended 30 June 2018 totalled €5 million compared to €72 million a year earlier, which included increased charge due to the reduction of the level of deferred tax assets of €62 million.

Profit after tax and before restructuring costs and before the NPE sale (Helix) for the six months ended 30 June 2018 was €108 million, compared to a loss after tax and before restructuring costs and for the six months ended 30 June 2017 of €540 million, reflecting the additional provisions of c.€500 million taken in the first half of 2017.

Profit after tax and before restructuring costs related to held for sale portfolio and loss from loans held for sale for the six months ended 30 June 2018 amounted to €93 million, compared to a loss of €554 million a year earlier, reflecting the additional provisions of approximately €500 million taken in the first half of 2017.

Loss after tax attributable to the owners of the Company for the six months ended 30 June 2018 was €54 million, compared to a loss of €554 million for the six months ended 30 June 2017.

B. Operating Environment

The recovery of Cyprus since 2014 is gaining momentum and the medium-term outlook remains favourable, driven by improving macroeconomic conditions, falling unemployment and broadening investments. At the same time, the Cypriot economy continues to face challenges primarily in relation to high public indebtedness and a high level of NPEs.

Real Gross Domestic Product (GDP) increased by 3.9% in 2017 and by 4.0% in the first half of 2018 year-on-year and seasonally adjusted (Cyprus Statistical Service, CSS). The main drivers of the growth were tourism, business services and increasing construction activity. On the expenditure side, growth is driven by domestic demand, namely private consumption and fixed investment. Net exports continued to make a negative contribution to growth since imports increased faster than exports.

Tourist arrivals increased by 14.6% in 2017 and continued to increase in 2018 up by 9.6% year-on-year in the first seven months (CSS). The unemployment rate dropped to 11% on average in 2017 and further to 9.4% in the first quarter and to 8.4% in the second quarter of 2018, seasonally adjusted the latter based on monthly estimates (Eurostat). Average consumer inflation was marginally positive at 0.5% in 2017 after four consecutive years of deflation and continued to rise in 2018, up by 0.6% in the first seven months of the year (CSS), driven by housing and transport costs.

GDP growth is expected to average about 4% per annum in 2018-2019 according to the IMF (Country Report, June 2018). The outlook over the medium term reflects positive underlying dynamics in relation to both public and private debt and improved conditions for the reduction of the high level of non-performing exposures aided by recent legislation improving the foreclosure and insolvency framework and facilitating the sale of non-performing exposures.

B. Operating Environment (continued)

In public finance, the budget surplus increased steeply to 1.8% of GDP in 2017 and is expected to remain substantial in 2018-2019 also averaging around 2.1% of GDP, according to the IMF and the European Commission (IMF country report June 2018; European Commission post programme surveillance report, Spring 2018).

The debt-to-GDP ratio dropped to 97.5% in 2017 and is expected to increase to about 106% in 2018 due to the Cyprus Government's (the Government) capital injection into the Cyprus Cooperative Bank (CyCB) (European Commission, post programme surveillance report, Spring 2018). However, it is expected that this will be a one-off increase that will not affect the underlying debt dynamics in any significant way. While total interest costs will increase as a result of the new bonds issued for the CyCB, it is expected that debt will remain affordable. In 2017, the primary surplus reached 5% of GDP where interest payments were 3.2% of GDP (CSS) or 8% of revenues, compared with 10.4% of revenues in 2013. Strong GDP growth and substantial budget surpluses will allow the debt-to-GDP ratio to drop again to near 100% in 2019 (European Commission).

In April 2018, in order to facilitate the sale of the CyCB, the Government issued Bonds by Private Placement for a total nominal amount of €2.35 billion maturing between 15 to 20 years (Public Debt Management Office, Newsletter, May 2018). The proceeds of the bond issuance and additional funds, were deposited at the State account held at CyCB, for a total of €2.5 billion. Subsequently the Government proceeded with an additional domestic issuance so that the total government bonds issued for the sale of CyCB reached €3.19 billion (total net effect on government debt, per Moody's Investors Service, Credit Opinion, 27 July 2018). The bonds issued in April were exchanged with new bonds maturing between 2018 and 2022, while the cash placement reached €351 million. Against the State's total deposit of €3.54 billion with CyCB, CyCB pledged assets comprising of NPEs, as well as other non-core assets with a total nominal value of approximately €8.34 billion (Public Debt Management Office, Newsletter, July 2018).

In parallel, the Cyprus Parliament passed amendments to the legislation that strengthens the foreclosure, tax and insolvency laws and facilitates the sale of NPEs (Sale of Loans Law), as well as introduced the Securitisation Law, all of which came into effect in July 2018. Also in July, the Government proposed ESTIA, a Scheme that aims to address NPEs backed by primary residence. The eligibility criteria of the Scheme aim to protect socially vulnerable borrowers and it is expected to act as a deterrent and enabler against debts of strategic defaulters.

In the context of a strengthening economy and improving macroeconomic conditions, the Cypriot sovereign has benefited from a series of upgrades. Most recently in July 2018, Moody's Investors Service upgraded Cyprus' sovereign rating to Ba2 from Ba3 and changed the outlook to stable from positive. The upgrade and stable outlook reflect the ongoing recovery and favourable developments in the banking system where the resolution of the CyCB through the sale of its healthy assets and liabilities, materially reduced systemic risks emanating from the banking sector. In April 2018, Fitch Ratings upgraded its Long-Term Issuer Default ratings to 'BB+' from 'BB' which is one notch below investment grade, maintaining its 'positive' outlook. In March 2018, S&P Global Ratings affirmed its long-term sovereign rating at BB+, also one notch below investment grade, and maintained its 'positive' outlook.

C. Business Overview

As the Cypriot operations account for 89% of gross loans and 89% of customer deposits, the Group's financial performance is highly correlated to the economic and operating conditions in Cyprus and will consequently benefit from the country's recovery. Most recently in July 2018, Standard and Poor's affirmed BOC PCL's 'B/B' long and short-term issuer credit ratings with a positive outlook. In March 2018, Fitch Ratings Limited affirmed their long-term issuer default rating of B- with stable outlook. BOC PCL currently has a long-term deposit rating from Moody's Investors Service of Caa1 with a positive outlook. The key drivers for the ratings were the improvement in BOC PCL's financial fundamentals, mainly in asset quality, and its funding position.

Tackling BOC PCL's loan portfolio quality is of utmost importance for the Group. The Group has been successful in engineering restructuring solutions across the spectrum of its loan portfolio, and expects the reduction of residual NPEs (post Helix) to continue at a revised pace of c.€200 million per quarter, as portfolio size and business line mix is expected to change radically. In parallel, the Group continues to actively explore alternative avenues to further accelerate this reduction via structured solutions.

Project Helix

The Group has reached an agreement for the sale of a portfolio of loans and advances to customers with a gross book value of €2.8 billion, of which €2,7 billion relate to non performing exposures. The Portfolio has a net book value of €1.3 billion. At completion, BOC PCL will receive a gross cash consideration of c.€1.4 billion. Further information is disclosed in section A2.1 of the Interim Management Report and in Note 37 of these Interim Condensed Consolidated Financial Statements.

ESTIA

In July 2018, the Government announced a scheme aimed at addressing NPEs backed by primary residence, known as ESTIA. This scheme is expected to address up to €0.9 billion of retail core NPEs, subject to eligibility criteria and participation rate. This Estia-eligible portfolio refers to the potentially eligible portfolio based on BOC PCL's available data. Eligibility criteria relate primarily to the open market value (OMV) of the residence, total income and net wealth of the household. These will act as a clear definition of socially protected borrowers, acting as an enabler against strategic defaulters. In accordance with the scheme, the eligible loans are to be restructured to the lower of contractual and open market value, and the Government to subsidise one third of the instalment. The terms of the scheme are subject to finalisation.

Sale of Bank of Cyprus UK Limited (BOC UK)

In July 2018, the Company signed an agreement to sell its wholly owned subsidiary bank in the UK. The sale is expected to be completed by the end of 2018, subject to regulatory approvals. The sale consideration of £103 million (c.€ 117 million) is subject to customary purchase price adjustments for the period up to completion. The consideration is payable in cash, of which half is deferred over 24 months from completion, without any performance conditions attached. The accounting profit from the sale is estimated at c.€3 million. The impact from this sale on the CET1 ratio had this transaction taken place at 30 June 2018 would have been an increase of c.10 bps relating to recycling of a related foreign currency gain of €17 million into CET1, previously recorded in the foreign currency translation reserve, which was not recognised in regulatory capital. On completion, the CET1 ratio is expected to be further positively affected by c.70 bps (based on 30 June 2018 results) resulting mainly from the release of risk weighted assets. The decision to sell the BOC UK is in line with the Group's strategy of delivering value for shareholders and focusing principally on supporting the growing Cypriot economy. Further to this transaction, the Group and BOC UK will sign a cooperation agreement, which will see both organisations cooperating in a number of key areas going forward, including continuity of servicing for existing customers. Following completion, BOC UK is expected to be rebranded to 'Cynergy Bank', a name chosen to reflect the bank's Cypriot heritage, combined with a modern and energetic focus.

C. Business Overview (continued)

Other

The strategic focus of the Group is to reshape its business model to grow in the core Cypriot market through prudent new lending. BOC PCL's capital position is strengthened and the Group expects to continue to be able to support the recovery of the Cyprus economy through the provision of new lending. Growth in new lending in Cyprus is focused on selected industries that are more in line with BOC PCL's target risk profile, such as tourism, trade, professional services, information/communication technologies, energy, education and green projects.

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

Management is also placing emphasis on diversifying income streams by optimizing fee income from international transaction services, wealth management and insurance. The Group's insurance companies, EuroLife Ltd and General Insurance of Cyprus Ltd operating in the sectors of life and general insurance respectively, are leading players in the insurance business in Cyprus, with such businesses providing a recurring income, further diversifying the Group's income streams. The insurance income net of insurance claims for the six months ended 30 June 2018 amounted to €25 million, up by 3% yoy, contributing to 14% of non-interest income.

In order to further improve its funding structure, BOC PCL continues to focus on the shape and cost of deposit franchise taking advantage of the increased customer confidence towards BOC PCL, as well as improving macroeconomic conditions.

BOC PCL is committed to a modernisation agenda designed to transform its business model in order to ensure it can compete efficiently and better service the needs of its customers. To facilitate momentum in delivering changes through an accelerated multi-year Digital Transformation Programme, BOC PCL continues to be working with IBM, its Strategic Digital Transformation Partner. In collaboration with IBM, BOC PCL aims to use market leading digital innovation to improve efficiency and agility across the Group in order to provide a significantly superior experience to its customers.

D. Outlook

The Group is making meaningful progress on its strategic objectives of creating a stronger, safer and a more Cypriot focused institution to support the recovery of the Cypriot economy and delivering appropriate shareholder returns in the medium term. The key pillars of the Group's strategy are to:

· Materially reduce the level of delinquent loans

· Further optimise the funding structure

· Maintain an appropriate capital position by internally generating capital

· Focus on the core Cypriot market

· Achieve a lean operating model

· Deliver value to shareholders and other stakeholders

D. Outlook (continued)

KEY PILLARS

PLAN OF ACTION

1. Materially reduce the level of delinquent loans

• Sustain momentum in restructuring and NPE reduction

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

• Real estate management via REMU

• Continue to explore alternative measures for accelerating NPE reduction, such as NPE sales, securitisations etc.

2. Further optimise the funding structure

• Focus on shape and cost of deposit franchise

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

• Further diversify funding sources

3. Maintain an adequate capital position

• Internally generate capital

• Currently in the process of finalising the terms with, and seeking binding commitments from investors in respect of a privately placed AT1 transaction, of an anticipated size of c.€200 million, subject to market conditions.

4. Focus on core Cyprus market

• Targeted lending in Cyprus into growing sectors to fund recovery

• New loan origination, while maintaining lending yields

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

5. Achieve a lean operating model

• Implementation of digital transformation program underway, aimed at enhancing productivity through alternative distribution channels and reducing operating costs over time

6. Deliver value

• Deliver appropriate medium term risk-adjusted returns

The operating performance of the Group has remained resilient. Clearly, Helix and the disposal of BOC UK will meaningfully change the shape of the Group, although the final impact depends on the timing of necessary approvals which remain uncertain. However, these actions collectively are expected to result in a stronger, safer, more focused Bank of Cyprus, evidenced by expectations that the on-going cost of risk is expected to be below 1%.

The smaller NPE portfolio along with the changed mix of the residual NPEs means that the pace of NPE reduction is now expected to be around €200 mn per quarter. Furthermore, our capital ratios will be strengthened as a result of these corporate actions.

Updated 2019 and Medium Term Guidance will be communicated with full year 2018 results. The pro-forma for Helix and UK sale are disclosed on investors' presentation for first half of 2018.

F. Going concern

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

The conditions that existed during the six months ended 30 June 2018 and the developments up to the date of approval of these Financial Statements that have been considered in the going concern assessment include, amongst others, the operating environment in Cyprus and of the Group (Note 5 of these Interim Condensed 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.

The Directors, taking into consideration the conditions presented in Note 5 of these Interim Condensed Consolidated Financial Statements and the factors described below are satisfied that the Group has the resources to continue in business for a period of at least 12 months from the date of approval of these Financial Statements, and therefore the going concern principle is appropriate for the reasons set out below.

· The Common Equity Tier 1 (CET1) ratio and the total capital ratio stood at 11.9% and 13.4% respectively at 30 June 2018, on a transitional basis, higher than the minimum required ratios (Note 5.2.1 of these Interim Condensed Consolidated Financial Statements).

· The corporate capital accretive actions, currently in progress, which are expected to improve the key financial fundamentals of the Group, mainly in asset quality and capital (Note 37 of these Interim Condensed Consolidated Financial Statements).

· With respect to the project on the sale of loans and advances to customers classified as held for sale (Note 37.2 of these Interim Condensed Consolidated Financial Statements) management acknowledges that the completion of the project remains subject to a number of conditions precedent, including mainly regulatory and other approvals, including the ECB agreeing to a Significant Risk Transfer (SRT) benefit from the transaction. Based on management's expectation, considering its assessment and information available to date is that, the conditions required by the ECB will be met.

· The IFRS 9 impact on a transitional and on a fully phased-in basis, is manageable and within the Group's capital plan.

· The increasing level of Group customer deposits (increase of €582 million during the six months ended 30 June 2018). Customer deposits stood at €18,431 million at 30 June 2018.

· The significant improvement in the Group liquidity position and its liquidity ratios. The Group is in compliance with the Liquidity Coverage Ratio (LCR) and the LCR add-on, which was introduced by the CBC as a macroprudential measure and is applicable from 1 January 2018 (Notes 5.2.3 and 30 of these Interim Condensed Consolidated Financial Statements).

· The continued organic reduction (thirteen consecutive quarters) of Group non-performing exposures (NPEs), which have decreased to €8 billion at 30 June 2018 compared to €9 billion in December 2017 and €10 billion in June 2017 (Note 5.2.2 of these Interim Condensed Consolidated Financial Statements).

· In the context of a strengthening economy and improving macroeconomic conditions, the Cypriot sovereign has benefited from a series of upgrades. Most recently in July 2018, Moody's Investors Service upgraded Cyprus' sovereign rating to Ba2 from Ba3 and changed the outlook to stable from positive. The upgrade and stable outlook reflect the ongoing recovery and favourable developments in the banking system where the resolution of the Cyprus Cooperative Bank (CyCB) through the sale of its healthy assets and liabilities, reduced systemic risks emanating from the banking sector. In April 2018, Fitch Ratings upgraded its Long-Term Issuer Default ratings to 'BB+' from 'BB', which is one notch below investment grade, maintaining its 'positive' outlook. In March 2018, S&P Global Ratings affirmed its long-term sovereign rating at BB+, also one notch below investment grade, and maintained its 'positive' outlook.

G. Principal risks and uncertainties

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

Detailed information relating to Group risk management is set out in Notes 44 to 47 of the Annual Consolidated Financial Statements of the Company for the year ended 31 December 2017 and in the Additional Risk and Capital Management Disclosures which form part of the 2017 Annual Financial Report of the Group.

Aside from the risks set out below and those described in Notes 28 to 30 of these Interim Condensed Consolidated Financial Statements and in the Additional Risks and Capital Management Disclosures including Pillar 3 semi-annual disclosures section of this Mid-Year Financial Report there has been no other significant change to the significant risks and uncertainties during the period and no change is expected for the remaining six months of the financial year.

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

The Group is also exposed to litigation risk, arising from claims, investigations and regulatory matters. Further information is disclosed in Note 24 of these Interim Condensed Consolidated Financial Statements.

Additionally, the Group is exposed to the risk of changes in the fair value of property which is held either for own use or as stock of property or as investment property. Stock of property is predominately acquired in exchange of debt and is intended to be disposed of in line with the Group's strategy. Further information for stock of property is disclosed in Note 18 of these Interim Condensed Consolidated Financial Statements.

In addition, details of the significant judgements, estimates and assumptions which may have a material impact on the Group's financial performance and position are set out in Note 6 of these Interim Condensed Consolidated Financial Statements and in Note 5 of the Annual Consolidated Financial Statements of the Company for the year ended 31 December 2017.

H. Events after the reporting date

The events after the reporting period are disclosed in Note 37 of these Interim Condensed Consolidated Financial Statements.

I. Responsibility Statement

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

Each of the members of the Board of Directors (who are listed on page 1 of the Mid-Year Financial Report) confirm that to the best of their knowledge and belief these Interim Condensed Consolidated Financial Statements for the period ended 30 June 2018 have been prepared in accordance with IAS 34 (adopted pursuant to the procedure provided for under Article 6 of Regulation EC No. 1606/2002 of the European Parliament and of the Council of 19 July 2002) and that they give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and that as required by the Transparency (Directive 2004/109/EC) Regulations 2007, the Mid-Year Financial Report includes a fair review of:

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

· a description of the principal risks and uncertainties for the remaining six months of the financial year (Notes 28 to 30 of these Interim Condensed Consolidated Financial Statements); and

· details of any related party transactions that have materially affected the Group's financial position or performance in the six months ended 30 June 2018, or material changes to related parties transactions described in the Annual Consolidated Financial Statements of the Company for the year ended 31 December 2017.

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

Prof. Dr. Josef Ackermann

Chairman

John Patrick Hourican

Chief Executive Officer

28 August 2018

Interim Condensed Consolidated Financial Statements

for the six months ended

30 June 2018

		Six months ended 30 June
		2018	2017
	Notes	€000		€000
Turnover		550,688		606,230
Interest income		334,986		425,678
Income similar to interest income		26,296		-
Interest expense		(89,106)		(109,393)
Expense similar to interest expense		(22,777)		-
Net interest income		249,399		316,285
Fee and commission income		88,345		93,416
Fee and commission expense		(4,932)		(5,201)
Net foreign exchange gains		18,202		20,570
Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates	9	37,378		2,439
Insurance income net of claims and commissions		25,094		24,422
Net gains/(losses) from revaluation and disposal of investment properties		422		(1,925)
Net gains on disposal of stock of property		21,009		12,235
Other income		11,276		7,861
		446,193		470,102
Staff costs	10	(116,384)		(111,475)
Special levy on deposits on credit institutions in Cyprus		(12,073)		(17,700)
Other operating expenses	10	(111,428)		(133,990)
		206,308		206,937
Net gains on derecognition of financial assets measured at amortised cost		19,381		94,900
Credit losses to cover credit risk on loans and advances to customers	11	(267,724)		(750,920)
Credit losses of other financial instruments	11	(3,331)		(22,497)
Impairment of non-financial instruments	11	(10,117)		(13,484)
Loss before share of profit from associates and joint ventures		(55,483)		(485,064)
Share of profit from associates and joint ventures		4,520		3,949
Loss before tax		(50,963)		(481,115)
Income tax	12	(4,814)		(72,282)
Loss for the period		(55,777)		(553,397)

Attributable to:
Owners of the Company	(54,048)	(553,959)
Non-controlling interests	(1,729)	562
Loss for the period	(55,777)	(553,397)

Basic and diluted losses per share (cent) attributable to the owners of the Company

(12.1)

(124.2)

	Six months ended 30 June
	2018	2017
	€000	€000
Loss for the period	(55,777)	(553,397)
Other comprehensive income (OCI)
OCI to be reclassified in the consolidated income statement in subsequent periods
Fair value reserve (debt instruments)
Net losses on investments in debt instruments measured at fair value through OCI (FVOCI)	(10,455)	-
Transfer to the consolidated income statement on disposal	(19,787)	-
	(30,242)	-
Foreign currency translation reserve
Profit/(loss) on translation of net investment in foreign branches and subsidiaries	4,017	(553)
(Loss)/profit on hedging of net investments in foreign branches and subsidiaries	(3,859)	125
Transfer to the consolidated income statement on disposal/dissolution of foreign operations	(48)	-
	110	(428)
Available-for-sale investments
Net gains from fair value changes before tax	-	23,428
Share of net gains from fair value changes of associates	-	1,347
Transfer to the consolidated income statement on impairment	-	(98)
Transfer to the consolidated income statement on sale	-	(498)
	-	24,179
	(30,132)	23,751
OCI not to be reclassified in the consolidated income statement in subsequent periods
Fair value reserve (equity instruments)
Share of net losses from fair value changes of associates	(1,935)	-
Net gains on investments in equity instruments designated at FVOCI	2,857	-
	922	-
Property revaluation
Tax	17	445

Actuarial gain on the defined benefit plans
Remeasurement gains on defined benefit plans	2,784	1,317
	3,723	1,762
Other comprehensive (loss)/income loss after tax for the period	(26,409)	25,513
Total comprehensive loss for the period	(82,186)	(527,884)

Attributable to:
Owners of the Company	(80,453)	(528,533)
Non-controlling interests	(1,733)	649
Total comprehensive loss for the period	(82,186)	(527,884)

		30 June 2018	31 December 2017
Assets	Notes	€000	€000
Cash and balances with central banks	26	4,162,858	3,393,934
Loans and advances to banks	26	804,369	1,192,633
Derivative financial assets	15	16,117	18,027
Investments	14	827,381	830,483
Investments pledged as collateral	14	276,082	290,129
Loans and advances to customers	17	13,001,182	14,602,454
Life insurance business assets attributable to policyholders		416,204	429,890
Prepayments, accrued income and other assets	19	239,121	226,105
Stock of property	18	1,523,873	1,641,422
Investment properties		20,188	19,646
Property and equipment		276,062	279,814
Intangible assets		168,502	165,952
Investments in associates and joint ventures	35	117,777	118,113
Deferred tax assets		380,778	383,498
Non-current assets and disposal groups classified as held for sale	20	1,450,506	6,500
Total assets		23,681,000	23,598,600
Liabilities
Deposits by banks		512,371	495,308
Funding from central banks	21	830,000	930,000
Repurchase agreements		247,803	257,322
Derivative financial liabilities	15	33,820	50,892
Customer deposits	22	18,431,449	17,849,919
Insurance liabilities		608,878	605,448
Accruals, deferred income and other liabilities	24	436,929	444,602
Subordinated loan stock	23	291,454	302,288
Deferred tax liabilities		45,042	46,113
Total liabilities		21,437,746	20,981,892
Equity
Share capital	25	44,620	44,620
Share premium	25	2,794,358	2,794,358
Revaluation and other reserves		219,191	273,708
Accumulated losses		(860,533)	(527,128)
Equity attributable to the owners of the Company		2,197,636	2,585,558
Non-controlling interests		45,618	31,150
Total equity		2,243,254	2,616,708
Total liabilities and equity		23,681,000	23,598,600

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

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

	Attributable to the owners of the Company										Non-controlling interests	Total equity
	Share capital (Note 25)	Share premium (Note 25)	Treasury shares (Note 25)	Accumulated losses	Property revaluation reserve	Financial instruments fair value reserve	Other reserves	Life insurance in-force business reserve	Foreign currency translation reserve	Total	Non-controlling interests	Total equity
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
1 January 2018	44,620	2,794,358	(21,463)	(527,128)	92,878	54,485	6,059	105,651	36,098	2,585,558	31,150	2,616,708
Impact of adopting IFRS 9 at 1 January 2018 (Note 7)	-	-	-	(299,150)	-	(8,470)	-	-	-	(307,620)	-	(307,620)
Restated balance at 1 January 2018	44,620	2,794,358	(21,463)	(826,278)	92,878	46,015	6,059	105,651	36,098	2,277,938	31,150	2,309,088
Loss for the period	-	-	-	(54,048)	-	-	-	-	-	(54,048)	(1,729)	(55,777)
Other comprehensive income/(loss) after tax for the period	-	-	-	2,784	17	(29,316)	-	-	110	(26,405)	(4)	(26,409)
Total comprehensive (loss)/income for the period	-	-	-	(51,264)	17	(29,316)	-	-	110	(80,453)	(1,733)	(82,186)
Increase in value of in-force life insurance business	-	-	-	(515)	-	-	-	515	-	-	-	-
Tax on increase in value of in-force life insurance business	-	-	-	65	-	-	-	(65)	-	-	-	-
Transfer of realised profits on disposal of properties	-	-	-	3,361	(3,361)	-	-	-	-	-	-	-
Transfer of property revaluation reserve and other reserve of subsidiary to accumulated losses (Note 33)	-	-	-	14,014	(7,955)	-	(6,059)	-	-	-	-	-
Decrease in share capital of subsidiary	-	-	-	(554)	-	-	-	-	-	(554)	(395)	(949)
Transfer of loss on disposal of FVOCI equity investments to accumulated losses	-	-	-	(67)	-	67	-	-	-	-	-	-
Increase in non-controlling interests due to change in the shareholding of subsidiary	-	-	-	705	-	-	-	-	-	705	16,596	17,301
30 June 2018	44,620	2,794,358	(21,463)	(860,533)	81,579	16,766	-	106,101	36,208	2,197,636	45,618	2,243,254

	Attributable to the owners of the Company											Non-controlling interests	Total equity
	Share capital (Note 25)	Share premium (Note 25)	Capital reduction reserve	Treasury shares (Note 25)	Accumulated losses	Property revaluation reserve	Financial instruments fair value reserve	Other reserves	Life insurance in-force business reserve	Foreign currency translation reserve	Total	Non-controlling interests	Total equity
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
1 January 2017	892,294	552,618	1,952,486	(25,333)	(544,930)	90,936	7,139	6,059	103,251	36,626	3,071,146	34,959	3,106,105
(Loss)/profit for the period	-	-	-	-	(553,959)	-	-	-	-	-	(553,959)	562	(553,397)
Other comprehensive income/(loss) after tax for the period	-	-	-	-	1,317	445	24,092	-	-	(428)	25,426	87	25,513
Total comprehensive (loss)/income for the period	-	-	-	-	(552,642)	445	24,092	-	-	(428)	(528,533)	649	(527,884)
Increase in value of in-force life insurance business	-	-	-	-	(1,143)	-	-	-	1,143	-	-	-	-
Tax on increase in value of in-force life insurance business	-	-	-	-	143	-	-	-	(143)	-	-	-	-
Transfer of realised profits on disposal of properties	-	-	-	-	7,403	(7,403)	-	-	-	-	-	-	-
Cancellation of shares due to reorganisation	(892,294)	-	-	-	-	-	-	-	-	-	(892,294)	-	(892,294)
Change of parent company to Bank of Cyprus Holdings Public Limited Company and issue of new shares	44,620	2,241,740	(1,952,486)	-	558,420	-	-	-	-	-	892,294	-	892,294
Disposal of treasury shares	-	-	-	3,870	(3,870)	-	-	-	-	-	-	-	-
30 June 2017	44,620	2,794,358	-	(21,463)	(536,619)	83,978	31,231	6,059	104,251	36,198	2,542,613	35,608	2,578,221

		Six months ended 30 June
	Note	2018	2017
Net cash flows from operating activities		€000	€000
Loss for the period before tax		(50,963)	(481,115)
Share of profit from associates and joint ventures		(4,520)	(3,949)
Credit losses to cover credit risk on loans and advances to customers and net gains on derecognition of financial assets measured at amortised cost		248,343	656,020
Depreciation of property and equipment and amortisation of intangible assets		12,013	10,133
Change in value of in-force life insurance business		(515)	(1,143)
Credit losses of other financial instruments		3,331	22,497
Amortisation of discounts/premiums, catch-up adjustment on debt securities and interest on debt securities and subordinated loan stock		(11,883)	(10,121)
Dividend income		(143)	(41)
Net gains on disposal of investments at FVOCI and amortised cost		(19,787)	-
Net gains on disposal of available-for-sale investments in equity securities and available-for-sale investments and investments classified as loans and receivables in debt securities		-	(1,699)
Loss from revaluation of debt securities designated as fair value hedges		94	11,006
Interest on funding from central banks		3	28
Interest on subordinated loan stock		11,567	10,416
Impairment of stock of property		10,106	13,484
Profit on dissolution of subsidiaries		(46)	-
Loss on disposal of associate		191	-
Gains on disposal of stock of property		(21,009)	(12,235)
(Gains)/losses from revaluation, impairment and disposals of investment properties, investment properties held for sale, equipment and intangible assets		(495)	1,927
		176,287	215,208
Net (decrease)/increase in loans and advances to customers and other accounts		(283,531)	63,910
Net increase in customer deposits and other accounts		590,977	138,142
		483,733	417,260
Tax paid		(1,470)	(2,672)
Net cash flow from operating activities		482,263	414,588
Cash flows from/(used in) investing activities
Purchases of debt securities and equity securities		(226,103)	(279,381)
Proceeds on disposal/redemption of investments:
- debt securities		235,062	61,405
- equity securities		5,030	1,564
Interest received from debt securities and treasury bills		7,441	4,490
Dividend income from equity securities		143	41
Proceeds on disposal of associates		2,083	-
Purchases of property and equipment		(5,476)	(4,122)
Proceeds on disposal of property and equipment and intangible assets		1,778	41
Purchases of intangible assets		(9,738)	(9,623)
Proceeds on disposal of investment properties and investment properties held for sale		6,500	10,000
Net cash flow from/(used in) investing activities		16,720	(215,585)
Cash flows (used in)/from financing activities
Net (repayment)/proceeds of funding from central banks		(100,000)	49,986
Proceeds from the issue of subordinated loan stock		-	248,089
Interest on subordinated loan stock		(22,258)	-
Net proceeds from increase in non-controlling interests due to change in shareholding of subsidiaries		17,596	-
Interest on funding from central banks		(3)	(28)
Net cash flow (used in)/from financing activities		(104,665)	298,047
Net increase in cash and cash equivalents for the period		394,318	497,050
Cash and cash equivalents
1 January		4,280,231	2,231,028
Foreign exchange adjustments		2,857	473
Net increase in cash and cash equivalents for the period		394,318	497,050
30 June	26	4,677,406	2,728,551

Non-cash transactions

Repossession of collaterals

During the six months ended 30 June 2018, the Group acquired stock of property by taking possession of collaterals held as security for loans and advances to customers of €210,241 thousand (six months ended 30 June 2017: €229,247 thousand) (Note 18).

1. Corporate information

Bank of Cyprus Holdings Public Limited Company (the Company) was incorporated in the Republic of Ireland on 11 July 2016 as a public limited company in accordance with the provisions of the Companies Act 2014 of Ireland. 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 traded on the London Stock Exchange (LSE) and the Cyprus Stock Exchange (CSE).

Interim Condensed Consolidated Financial Statements

The Interim Condensed Consolidated Financial Statements for the six months ended 30 June 2018 (the Financial Statements) include the financial statements of the Company, BOC PCL and its subsidiaries. They were approved and authorised for issue by a resolution of the Board of Directors on 28 August 2018.

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

2. Unaudited financial statements

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

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

3. Summary of significant accounting policies

3.1 Basis of preparation

The 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, financial assets (including loans and advances to customers and investments) at fair value through profit or loss, and derivative financial instruments 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 Financial Statements

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

Comparative information

3. Summary of significant accounting policies (continued)

3.1 Basis of preparation (continued)

Comparative information (continued)

Reclassifications to comparative information were made to conform to current year presentation. Specifically, investments previously classified in 'Life insurance business assets attributable to policyholders' totalling €91,190 thousand were reclassified to 'Investments' and an amount of €2,402 thousand was reclassified from 'Prepayments, accrued income and other assets' to 'Life insurance assets attributable to policyholders'.

Additionally, negative interest income on loans and advances to banks and central banks amounting to €2,421 thousand was reclassified from 'Interest income' to 'Interest expense'.

The changes in presentation did not have an impact on the financial performance of the Group for the period.

3.2 Statement of compliance

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

The Financial Statements do not comprise statutory financial statements for the purposes of the Companies Act 2014 of Ireland. The Company's statutory financial statements for the purposes of Chapter 4 of Part 6 of the Companies Act 2014 of Ireland for the year ended 31 December 2017, upon which the auditors have expressed an unqualified opinion, were published on 27 March 2018 and are expected to be delivered to the Registrar of Companies of Ireland within 28 days from 30 September 2018.

The Financial Statements do not include all the information and disclosures required for the annual financial statements and should be read in conjunction with the Annual Consolidated Financial Statements of Bank of Cyprus Holdings Group for the year ended 31 December 2017, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, which are available at the Group's website (www.bankofcyprus.com).

3.3 Changes in accounting policies 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 2017, 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 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:

· IFRS 9 Financial Instruments

· IFRS 15 Revenue from contracts with customers

· IFRS 15 Revenue from contracts with customers (clarifications)

· IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance contracts (amendments)

The impact of adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from contracts with customers is described below. The amendments to IFRS 4 did not have any impact on the Financial Statements. New or amended interim disclosures have been provided for the current period, where applicable, and comparative period disclosures are consistent with those made in the prior year.

IFRS 9 Financial Instruments

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

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies and disclosures (continued)

3.3.1 New and amended standards and interpretations (continued)

IFRS 9 Financial Instruments (continued)

Impact of IFRS 9

The Group's IFRS 9 impact on transition including the insurance subsidiaries of the Group, is disclosed in
Note 7. The new accounting processes, internal controls, governance framework, judgements and estimation techniques will continue to be refined and undergo validation.

Transition

The classification, measurement and impairment requirements were applied retrospectively by adjusting the balance sheet at the date of initial application, and as permitted by IFRS 9 the Group did not restate comparative information for prior periods. As a result, the comparative information for 2017 pursuant to IAS 39 is reported in compliance with the accounting and measurement methods disclosed in the Annual Financial Report 2017 in Notes 2.14, 2.15 and 2.16. The impact on the implementation date, 1 January 2018, was recognised as an adjustment on equity. No deferred tax asset was recognised on IFRS 9 impact upon transition.

Update to significant accounting policies from the adoption of IFRS 9

Initial recognition of financial instruments

The policy on initial recognition of financial instruments has remained the same as described in Note 2.14 of the Annual Consolidated Financial Statements for the year ended 31 December 2017.

Classification and measurement

The classification and measurement of financial assets depends on how these are managed as part of the Business Models the Group operates under and their contractual cash flow characteristics (whether the cash flows represent solely payments of principle and interest (SPPI)). These factors determine whether the financial assets are measured either at amortised cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVPL).

Financial instruments measured at amortised cost

Financial instruments are measured at amortised cost if they meet both of the following conditions:

· The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows.

· The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.

This classification relates to cash and balances with central banks, loans and advances to banks, loans and advances to customers that pass the SPPI test, debt securities held under the 'Hold to collect' business model and other financial assets. These financial assets are measured at amortised cost using the effective interest rate method (EIR) less allowances for expected credit losses (ECL).

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies and disclosures (continued)

3.3.1 New and amended standards and interpretations (continued)

IFRS 9 Financial Instruments (continued)

Update to significant accounting policies from the adoption of IFRS 9 (continued)

Classification and measurement (continued)

Financial instruments measured at FVOCI with gains or losses recycled to profit or loss on derecognition

Financial instruments are measured at FVOCI if they meet both of the following conditions:

· The financial asset is held within a business model the objective of which is achieved by both collecting contractual cash flows and selling financial assets.

· The contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI on the principal amount outstanding.

This classification relates to debt securities held under the 'Hold to collect and sell' business model that pass the SPPI criterion. FVOCI instruments are subsequently measured at fair value with unrealised gains and losses recognised in other comprehensive income. Upon derecognition, any accumulated balances in other comprehensive income are reclassified to the consolidated income statement and reported within 'Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates'. The interest income, foreign exchange differences and ECL are recognised in the consolidated income statement in the respective lines.

Financial instruments measured at FVPL

Equity investments are measured at fair value through profit and loss. On transition to IFRS 9 and on initial recognition thereafter, there is an option to make an irrevocable election for equity investments not held for trading and that meet the definition of Equity under IAS 32 'Financial Instruments: Presentation', to be measured at fair value through other comprehensive income. This election is made on an instrument-by-instrument basis. Fair value gains or losses on these equity instruments are recognised in other comprehensive income and are not recycled to profit or loss upon derecognition but are transferred directly to retained earnings. Dividends on equity instruments are recognised in the consolidated income statement and reported within 'Other income'.

All other financial assets are measured at FVTPL with changes recognised in the consolidated income statement in 'Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates'.

Financial assets managed on a fair value basis and those that are held for trading are measured at fair value through profit and loss. These include financial assets acquired principally for trading, assets mandatorily measured on a fair value basis and derivatives, except to the extent that they are designated in a hedging relationship, in which case the IAS 39 hedge accounting requirements continue to apply.

Business model assessment

The Group assesses the business model at a portfolio level. The portfolio level is determined at the aggregation level that reflects how the Group manages its financial assets and is based on observable factors which include:

• how the performance of the business model and the financial assets held within that business model are evaluated and reported to the Group's key management personnel.

• the risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way in which those risks are managed.

• how managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected).

• expected frequency, value and timing of sales are also important aspects of the Group's assessment.

If cash flows after initial recognition are realised in a way that is different from the Group's original expectations, the Group does not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward.

On transition to IFRS 9, business models were determined on the date of initial application based on facts and circumstances that existed on 1 January 2018 and re-assessed at each reporting date.

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies and disclosures (continued)

3.3.1 New and amended standards and interpretations (continued)

IFRS 9 Financial Instruments (continued)

Update to significant accounting policies from the adoption of IFRS 9 (continued)

Classification and measurement (continued)

SPPI assessment

The Group assesses whether the individual financial assets' cash flows represent solely payments of principal and interest on the principal amount outstanding (SPPI test). For the purposes of this assessment, principal is defined as the fair value of the financial asset on initial recognition. Interest is defined as consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin. In assessing whether contractual cash flows are SPPI, the Group considers the terms that could change the contractual cash flows so that they would not meet the condition for SPPI, and be inconsistent to a basic lending arrangement, including: (i) contingent and leverage features, (ii) interest rates which are beyond the control of the Group or variable interest rate consideration, (iii) features that could modify the time value of money, (iv) prepayment and extension options, (v) non-recourse arrangements and (vi) convertible features.

In addition, where the contractual terms of a financial asset introduce exposure to risk or volatility that are inconsistent with a basic lending arrangement, the related financial asset will be measured at FVPL. These include certain loans and advances to customers and certain debt securities. These financial assets are measured at fair value with changes recognised in the consolidated income statement, in 'Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates'. The related interest income and expense is recognised in 'Income similar to interest income' and 'Expense similar to interest expense' respectively.

Financial liabilities

Financial liabilities continue to be measured at amortised cost except those held for trading and derivative financial liabilities. In addition, the possibility exists of applying the fair value option. The remeasurement effect for financial liabilities designated in the fair value option resulting from the Group's own credit risk is recognised in other comprehensive income. Financial liabilities held for trading and derivative liabilities are reported in the balance sheet in a separate line item and measured at fair value through profit or loss.

Interest income and similar income

Interest income is recognised in the consolidated income statement by applying the effective interest rate
(EIR) to the gross carrying amount of financial asset other than credit-impaired assets.

When a financial asset becomes credit-impaired and is therefore classified as Stage 3, interest income is calculated by applying the EIR to the net amortised cost of the financial asset. If the financial asset cures and is no longer credit-impaired, the Group reverts to calculating interest income on the gross carrying amount.

Interest revenue on purchased or originated credit-impaired (POCI) financial assets is recognised using the Credit Adjusted Effective Interest Rate (CAEIR) calculated at initial recognition. The CAEIR is applied on the amortised cost of the financial asset, being the gross carrying amount of the financial asset less any loss allowance.

Interest income from financial assets at amortised cost and financial assets at FVOCI are presented separately within the caption 'Interest income', with interest income on financial instruments at FVTPL presented in 'Income similar to interest income'. All form part of the 'Net Interest Income'.

The Group holds loans and advances to banks and central banks with negative interest rates. The Group discloses interest on these assets as interest expense.

Reclassification of financial assets and liabilities

The Group does not reclassify its financial assets subsequent to their initial recognition apart from exceptional circumstances in which the Group acquires, disposes of, or terminates a business line. Financial liabilities are never reclassified.

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies and disclosures (continued)

3.3.1 New and amended standards and interpretations (continued)

IFRS 9 Financial Instruments (continued)

Update to significant accounting policies from the adoption of IFRS 9 (continued)

Impairment

IFRS 9 uses a forward looking ECL model, requiring judgement, estimates and assumptions in determining the level of ECLs. The impairment requirements apply to financial assets that are not measured at FVPL. ECLs are recorded for all financial assets measured at amortised cost and FVOCI, lease receivables, loan commitments and financial guarantee contracts. Under IFRS 9, no impairment loss is recognised on equity investments.

At initial recognition, impairment allowance (or provision in the case of commitments and guarantees) is required for ECL resulting from default events that are possible within the next 12 months (12 month ECL), unless assets are deemed as purchased or originated credit impaired (POCI). Subsequently, in the event of a significant increase in credit risk occurs since initial recognition, impairment allowance is required resulting from all possible default events over the expected life of the financial instrument (lifetime ECL), otherwise the allowance is based on the 12 months ECL.

The Group classifies its financial assets into Stage 1, Stage 2, Stage 3 and POCI for ECL measurement as described below:

Stage 1: Financial assets which have not had a significant increase in credit risk since initial recognition are considered to be Stage 1 and 12-month ECL is recognised.

Stage 2: Financial assets that are considered to have experienced a significant increase in credit risk since initial recognition are considered to be Stage 2 and lifetime losses are recognised.

Stage 3: Financial assets which are considered to be credit-impaired (refer to following section of the note on how the Group defines credit-impaired and default) and lifetime losses are recognised.

POCI: Purchased or originated financial assets are financial assets that are credit-impaired on initial recognition. POCI assets include loans purchased or originated at a deep discount that reflect incurred credit losses.

ECL is recognised in profit or loss with a corresponding ECL allowance reported as a decrease in the carrying value of financial assets measured at amortised cost on the balance sheet. For financial assets measured at fair value through OCI the carrying value is not reduced, but the accumulated amount of impairment allowance is recognised in OCI. For off-balance sheet instruments, accumulated provisions for ECL are reported in 'Accruals, deferred income and other liabilities', except in the case of loan commitments where ECL on the loan commitment is recognised together with the loss allowance of the relevant on balance-sheet exposure, as the Group cannot separately identify the ECL on the loan commitment from those on the on-balance sheet exposure component. ECL for the period is recognised within the consolidated income statement in 'Credit losses to cover credit risk on loans and advances to customers'.

The Group calculates 12-month ECLs and lifetime ECLs either on an individual basis or collective basis, depending on the nature of the underlying portfolio of financial instruments.

The individual assessment is performed for individually significant assets and also for exposures based on other criteria (such as exposures of key management personnel). A risk based approach is used on the selection criteria of the individually assessed population such as NPE or forborne exposures above a certain amount, decrease of a certain percentage on the yearly credit turnover and decrease of a certain percentage on assigned collaterals.

The ECL is calculated on an individually assessed basis and all relevant considerations of the expected future cash flows are taken into account (for example, the business prospects for the customer, the realisable value of collateral, the Group's position relative to other claimants, the reliability of customer information and the likely cost and duration of the work-out process).

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies and disclosures (continued)

3.3.1 New and amended standards and interpretations (continued)

IFRS 9 Financial Instruments (continued)

Update to significant accounting policies from the adoption of IFRS 9 (continued)

Impairment (continued)

All customer exposures that are not individually assessed, are assessed on a collective basis. For the purposes of calculating ECL, exposures are grouped into granular portfolios/segments with shared risk characteristics. The granularity is based on different levels of segmentation which, among other factors include customer type, exposure class and portfolio type.

Key impairment concepts

Impairment under IFRS 9 introduces a number of key concepts as described below.

Significant increase in credit risk

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

The assessment of whether credit risk has increased significantly since initial recognition, is performed at each reporting 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

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, by considering whether the lifetime PD at the reporting date exceeds the lifetime PD at origination by using an established relative threshold. The Group considers an exposure to have significant increase in credit risk by comparing the PD at the reporting date with the PD at initial recognition to compute the increase in regards to the corresponding threshold. The Group applies the thresholds presented in the table below to each portfolio/segment, based on the following characteristics: customer type, product type and rating at origination. The threshold is then assigned to each facility according to the facilities portfolio/segment.

Segment	Threshold
Retail	1-7
SME	1-4
Corporate	2

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.

Exposures originated during the period but for which no rating exists at the reporting date are considered to have suffered a significant increase in credit risk and transition to Stage 2.

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies and disclosures (continued)

3.3.1 New and amended standards and interpretations (continued)

IFRS 9 Financial Instruments (continued)

Update to significant accounting policies from the adoption of IFRS 9 (continued)

Impairment (continued)

Significant credit risk increase for loans and advances to customers (continued)

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 less than €500 or one installment in arrears in the case of retail exposures and arrears less than €1,000 or greater than 10% of the funded balances on all exposures other than retail), then the transfer to Stage 2 does not take place.

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 their credit rating at origination with the credit rating on the reporting date. Significant deterioration in credit risk is considered to have occurred when the adjusted rating of the exposures drops to such an extent that the new rating relates to a riskier category (i.e. from a non-investments grade to speculative and then to highly speculative).

All financial assets are transferred out of Stage 2 into Stage 1, if their credit risk is no longer considered to be significantly increased since initial recognition based on the assessments described above.

Credit impaired and definition of default

The Group considers loans and advances to customers that meet the non performing exposure (NPE) definition as per European Banking Authority (EBA) standards to be in default and hence Stage 3 (credit-impaired). Therefore such loans have ECL calculated on a lifetime basis and are considered to be in default for credit risk management purposes.

According to the EBA standards and European Central Bank's (ECB) Guidance to Banks on Non Performing Loans (which was published in March 2017), NPEs are defined as those exposures that satisfy one of the following conditions:

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

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

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

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

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

When a specific part of the exposures of a customer that fulfil the NPE criteria set out above are greater than 20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total customer exposure is classified as non-performing; otherwise only the specific part of the exposure is classified as non-performing.

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies and disclosures (continued)

3.3.1 New and amended standards and interpretations (continued)

IFRS 9 Financial Instruments (continued)

Update to significant accounting policies from the adoption of IFRS 9 (continued)

Impairment (continued)

Credit impaired and definition of default (continued)

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

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

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

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

(iv) No Unlikely-to-Pay criteria exist for the debtor.

(v) The debtor has made post-forbearance payments of a not-insignificant amount of capital (different capital thresholds exist according to the facility type).

At the time an account exits Stage 3, the rating at origination is compared to the rating at the reporting date. If the rating at the reporting date is higher than the rating at the origination date then the loan is transferred to Stage 1, otherwise it is transferred to Stage 2.

Debt securities, loans and advances to banks and balances with central banks are considered defaulted and transferred to Stage 3 if the issuers have failed to pay either interest or principal (Grade C in accordance with Moody's rating agency). In addition a number of other criteria are considered such as adverse changes in business, financial and economic conditions as well as external market indicators (credit spreads, credit default swap (CDS) prices).

Scenarios and forward-looking inputs

The Group uses reasonable and supportable information, including forward-looking information, in the calculation of ECLs. ECLs are the unbiased probability-weighted credit losses determined by evaluating a range of possible outcomes and considering future economic conditions. ECLs are calculated for three macroeconomic scenarios, baseline, downside and upside and the output is the weighted average ECL based on the assigned probability of each scenario (Note 28).

Macroeconomic scenarios impact both the probability of default (PD) and the loss given default (LGD). Specifically, forward looking information is embedded in the PDs based on regression equations derived on the basis of historical data. Using statistical analysis, the most significant macro-variables have been selected in order to predict accurately the expected default rates.

In regards to the LGD, the forward looking information is incorporated via the property indices for the types of properties (housing, commercial, industrial). In particular, for each collateral a forward looking projection of the realisable value is calculated before discounting back to reporting date to quantify the expected cash shortfall.

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies and disclosures (continued)

3.3.1 New and amended standards and interpretations (continued)

IFRS 9 Financial Instruments (continued)

Update to significant accounting policies from the adoption of IFRS 9 (continued)

Impairment (continued)

Scenarios and forward-looking inputs (continued)

The table below indicates the most significant macroeconomic variables as well as the scenarios used by the Group.

YEAR	Scenario	Weight	Real GDP (% change)	Unemployment rate (% of labour force)	Consumer Price Index (average, % change)	RICS House Price Index (average, % change)
2018	Adverse	30%	-2.08%	9.96%	-0.17%	1.41%
	Baseline	50%	3.79%	9.24%	0.59%	2.94%
	Favourable	20%	5.30%	9.07%	0.66%	3.45%
2019	Adverse	30%	2.22%	12.21%	-1.25%	-2.14%
	Baseline	50%	3.86%	8.51%	1.19%	4.65%
	Favourable	20%	3.56%	7.93%	2.23%	6.18%
2020	Adverse	30%	4.11%	13.44%	1.25%	-0.17%
	Baseline	50%	3.19%	7.94%	1.56%	1.01%
	Favourable	20%	2.93%	7.42%	2.11%	2.97%
2021	Adverse	30%	3.93%	12.53%	1.84%	-0.61%
	Baseline	50%	2.87%	7.47%	1.47%	0.73%
	Favourable	20%	2.34%	7.00%	1.98%	2.94%
2022	Adverse	30%	3.66%	11.26%	1.92%	2.69%
	Baseline	50%	2.38%	7.16%	1.50%	2.11%
	Favourable	20%	2.07%	6.70%	2.05%	3.61%

The RICS indices, which are considered for the purposes of determining the real estate collateral value on realisation date are capped at the reporting date value, in case of any projected increase, whereas any projected decrease is taken into account. As a result the indexed value for all collaterals is less or equal to their corresponding open market value as of the reporting date.

This process involves consideration of a variety of external actual and forecast information (International Monetary Fund (IMF), European Commission, Economist Intelligence Unit (EIU), Moody's Analytics) which is complemented by economic expert judgement.

Predicted relationships between the key indicators and default and loss rates on the portfolios of financial assets have been developed based on an analysis of historical data over the past 5 years.

Qualitative adjustments or overlays are occasionally made when inputs calculated do not capture all the characteristics of the market at the reporting date.

Inputs into measurement of ECL

The Group calculates ECLs based on a three-weighted scenarios to measure the expected cash flows shortfalls, discounted at an approximation to the EIR as calculated at initial recognition. A cash shortfall is the difference between the cash flows that are due in accordance with the contract and the cash flows expected to be received.

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies and disclosures (continued)

3.3.1 New and amended standards and interpretations (continued)

IFRS 9 Financial Instruments (continued)

Update to significant accounting policies from the adoption of IFRS 9 (continued)

Impairment (continued)

Inputs into measurement of ECL (continued)

The Group calculates ECL using the following three components:

• exposure at default (EAD),

• loss given default (LGD) and

• probability of default (PD)

EAD represents the expected exposure in the event of a default during the life of a financial instrument. EAD methodology is differentiated for the following categories: revolving and non-revolving exposures. In case of revolving exposures, the projected EAD is the carrying value plus the credit conversion factor applied on the undrawn amount. The credit conversion factor model is derived based on empirical data from the last 5 years.

For non-revolving exposures the term is based on the contractual term of the exposure and both on-balance sheet and off-balance sheet exposures are amortised in accordance with the principal contractual payment schedule of each exposure. In regards to the credit-impaired exposures, the EAD is equal to the on balance sheet amount as at the reporting date.

PD represents the probability an exposure has to default and is calculated based on statistical rating models, calculated per segment level and taking into consideration each individual's exposure rating as well as forward looking information based on macroeconomic inputs.

For each exposure, lifetime PD represents the probability of default within the lifetime horizon and is based on the underlying models of marginal probability of default through the cycle (MPD TTC), MPD individual, MPD point in time and Marginal Probability of Paid-off (MPP). In particular, the first element, MPD TTC is constructed per segment, illustrating the probability of default status depending on number of months since the origination date. The PD for each month since the originated date is calculated under the condition that exposures survived until the prior month. The MPD individual is allocated to linked individual exposures through a scaling factor constructed based on the current individual risk assessment, which is represented by the Group's PD per rating grade. MPD is adjusted to reflect the current and forward looking information based on the macroeconomic inputs. Finally, the MPP Component is the curve that shows the probability of full payment of a particular exposure based on specific period in months since the open date of the exposure. MPP is estimated for each particular segment and depends on the contractual terms of the exposure. For revolving facilities where there is no contractual survival maturity, one curve per segment is developed. The combination of these four models give rise to a PD value for each month for the lifetime of the exposure.

LGD represents an estimate of the loss if default occurs at a given time. It is usually expressed as a percentage of the EAD. It takes into account parameters such as historical loss and/or recovery rates as well as the collateral value which is discounted to the present value determining the amount of the expected shortfall.

The structure of the LGD model considers the following:

• Curing where the probability of cure model was derived based on historical observations.

• Non-curing including cash recovery or realisation of collaterals either voluntarily i.e. debt for asset swap or through forced sale, auctions and foreclosure and receivership.

ECL measurement period

The period for which lifetime losses are determined is based on the contractual life of a financial instrument. For non-revolving exposures the expected lifetime is the period from the reporting date to the termination date of the facility.

For revolving facilities, credit cards and corporate and retail overdrafts BOC PCL has the right to cancel and/or reduce the facilities with two months' notice. The BOC PCL does not limit its exposure to credit losses to the contractual notice period, but instead the next review date is used for determining the measurement period over which to calculate ECLs.

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies and disclosures (continued)

3.3.1 New and amended standards and interpretations (continued)

IFRS 9 Financial Instruments (continued)

Update to significant accounting policies from the adoption of IFRS 9 (continued)

Financial guarantees, letters of credit and undrawn loan commitments

The Group issues financial guarantees to its customers, consisting of letters of credit, letters of guarantee and acceptances. Financial guarantees are initially recognised at fair value, in 'Accruals, deferred income and other liabilities'. Subsequently, the Group's liability under each guarantee is measured at the higher of: (a) the amount initially recognised reduced by the cumulative amortised premium which is periodically recognised in the consolidated income statement in 'Fee and commission income' in accordance with the terms of the guarantee, and (b) the amount of ECL provision (refer to item Impairment in this Note).

ECL resulting from financial guarantees is recorded in 'Credit losses to cover credit risk on loans and advances to customers'. The balance of the liability for financial guarantees that remains is recognised in 'Fee and commission income' in the consolidated income statement when the guarantee is fulfilled, cancelled or expired.

Undrawn loan commitments and letters of credits are commitments under which, over the duration of the commitment the Group is required to provide a loan with pre-specified terms to the customer. From 1 January 2018 these contracts are in scope of the ECL requirements. Corresponding ECL are presented within 'Accruals, deferred income and other liabilities' on the Group's balance sheet except in the case of loan commitments where ECL on the loan commitment is recognised together with the loss allowance of the relevant on balance-sheet exposure as the Group cannot separately identify the ECL on the loan commitment from those on the on-balance sheet exposure component. ECL relating to these other loan commitments is recorded in 'Credit losses to cover credit risk on loans and advances to customers' in the consolidated income statement.

When a customer draws on a commitment, the resulting loan is presented within (i) financial assets at fair value held for trading, consistent with the associated derivative loan commitment, (ii) financial assets at fair value not held for trading, following loan commitments designated at fair value through profit or loss or (iii) loans and advances to customers, when the associated loan commitment is not fair valued through profit or loss.

Financial instruments modifications and derecognition

The contractual terms of a financial instrument may be modified due to various reasons, either due to commercial renegotiations or due to distressed restructurings with a view to maximise recovery.

In the event that the terms and conditions of a financial asset are renegotiated or otherwise modified, the Group considers whether the modification results in derecognition of the existing financial asset and the recognition of a new financial asset. A derecognition of a financial asset (or part of a financial asset) and a recognition of a new financial asset would occur where there has been a substantial modification on the revised terms to the original cash flows.

Judgement is required to assess whether a change in the contractual terms is substantial enough to lead to derecognition. The Group considers a series of factors of both qualitative and quantitative nature when making such judgements on a modification in the contractual cash flows, including change in the currency, change in counterparty introduction of an equity feature and other.

Where the modification does not result in derecognition, the Group recognises a modification gain or loss, based on the modified cash flows discounted at the original EIR and the existing gross carrying value of the financial asset.

Modifications to, and exchanges of, financial liabilities are treated as extinguishments and derecognised, when the revised terms are substantially different to the original term.

In the case of a new financial asset classified at amortised cost or FVOCI, an assessment is performed on whether it should be classified as Stage 1 or POCI for ECL measurement.

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies and disclosures (continued)

3.3.1 New and amended standards and interpretations (continued)

IFRS 9 Financial Instruments (continued)

Update to significant accounting policies from the adoption of IFRS 9 (continued)

Write off

The Group reduces the gross carrying amount of a financial asset when there is no reasonable expectation of recovering it. In such case, financial assets are written off either partially or in full. Write off refers to both contractual and non-contractual write offs.

If the amount of write-offs is greater than the amount of accumulated loss allowance, the difference is first treated as an addition to the allowance that is then applied against the gross carrying amount. Recoveries, in part or in full, of amounts previously written-off are credited to the consolidated income statement.

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.

IFRS 15 Revenue from Contracts with Customers

On January 1 2018, the Group adopted IFRS 15 'Revenue from Contracts with Customers', which specifies how and when revenue is recognised and applies to all contracts with customers, except those which are in scope of other standards such as income recognition related to financial instruments in scope of IFRS 9. IFRS 15 establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard's requirements also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the Group's ordinary activities (e.g. sales of equipment or intangibles).

IFRS 15 specifies that variable consideration is only recognised when the related performance obligation has been satisfied and to the extent that it is highly probable that a significant reversal will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

IFRS 15 also provides guidance on when revenues and expenses should be presented on a gross or net basis and establishes a cohesive set of disclosure requirements for information on the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers.

The Standard also requires entities to provide users of financial statements with more informative and relevant disclosures. IFRS 15 did not have a material impact on the Group's consolidated financial statements.

4. Going concern

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

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.

The Directors, taking into consideration the conditions presented in Note 5 and the factors described below are satisfied that the Group has the resources to continue in business for a period of at least 12 months from the date of approval of these Financial Statements, and therefore the going concern principle is appropriate for the reasons set out below.

· The corporate capital accretive actions, currently in progress, which are expected to improve the key financial fundamentals of the Group, mainly in asset quality and capital (Note 37).

4. Going concern (continued)

· With respect to the project on the sale of loans and advances to customers classified as held for sale (Note 37.2) management acknowledges that the completion of the project remains subject to a number of conditions precedent, including mainly regulatory and other approvals, including the ECB agreeing to a Significant Risk Transfer (SRT) benefit from the transaction. Based on management's expectation, considering its assessment and information available to date is that, the conditions required by the ECB will be met.

· The IFRS 9 impact on a transitional and on a fully phased-in basis, is manageable and within the Group's capital plan.

· The increasing level of Group customer deposits (increase of €582 million during the six months ended 30 June 2018). Customer deposits stood at €18,431 million at 30 June 2018.

5. Operating environment

5.1 Cyprus

Tourist arrivals increased by 14.6% in 2017 and continued to increase in 2018, up by 9.6% year-on-year in the first seven months (CSS). The unemployment rate dropped to 11% on average in 2017 and further to 9.4% in the first quarter and to 8.4% in the second quarter of 2018, seasonally adjusted the latter based on monthly estimates (Eurostat). Average consumer inflation was marginally positive at 0.5% in 2017 after four consecutive years of deflation and continued to rise in 2018, up by 0.6% in the first seven months of the year (CSS), driven by housing and transport costs.

5. Operating environment (continued)

5.1 Cyprus (continued)

5.2 The Group

5.2.1 Regulatory capital ratios

The CET1 ratio of the Group at 30 June 2018 stands at 11.9% and the total capital ratio at 13.4% on a transitional basis.

The minimum Pillar I total capital requirement is 8.0% and may be met, in addition to the 4.5% CET1 requirement, with up to 1.5% by Additional Tier 1 capital and with up to 2.0% by Tier 2 capital.

The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital requirements (Pillar II add-ons).

The Group's minimum phased-in CET1 capital ratio requirement for 2017 was 9.50%, comprised of a 4.50% Pillar I requirement, a 3.75% Pillar II requirement and the Capital Conservation Buffer (CCB) of 1.25%. Following the Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2017 and based on the confirmation received in December 2017, the Pillar II requirement applicable from 1 January 2018, has been reduced to 3.00% from 3.75%. As a result, the Group's minimum phased-in CET1 capital ratio has been reduced to 9.375% from 9.50%, comprising of a 4.50% Pillar I requirement, a 3.00% Pillar II requirement and the CCB of 1.875% applicable as from 1 January 2018. The ECB has also provided revised lower non-public guidance for an additional Pillar II CET1 buffer.

5. Operating environment (continued)

5.2 The Group (continued)

5.2.1 Regulatory capital ratios (continued)

The overall Total Capital Ratio Requirement for 2017 was 13.00%, comprising of a Pillar I requirement of 8.00% (of which up to 1.50% can be in the form of Additional Tier 1 capital and up to 2.00% in the form of Tier 2 capital), a Pillar II requirement of 3.75% (in the form of CET1) and the CCB of 1.25% applicable for 2017. Following the 2017 SREP, the overall Total Capital Ratio Requirement has been reduced to 12.875% from 13.00%, comprising of 8.00% Pillar I requirement, a 3.00% Pillar II requirement and the CCB of 1.875% applicable as from 1 January 2018.

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

The capital position of the Group and BOC PCL at 30 June 2018 exceeds both their Pillar I and their Pillar II add-on capital requirements. However, the Pillar II add-on capital requirements are a point-in-time assessment and therefore are subject to change over time.

5.2.2 Asset quality

The Group NPEs, as defined by the European Banking Authority (EBA), including loans and advances to customers which have been classified as non-current assets held for sale totalled €8,022 million at 30 June 2018 and accounted for 44% of gross loans before fair value adjustment on initial recognition. The provisioning coverage ratio of NPEs totalled 52% at 30 June 2018 compared to 48% at 31 December 2017.

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. NPEs have decreased by 47% since their peak of €15,175 million as at 31 March 2015.

5.2.3 Liquidity

Group customer deposits totalled €18,431 million at 30 June 2018 compared to €17,850 million at 31 December 2017. Customer deposits in Cyprus reached €16,486 million at 30 June 2018 and €15,983 million at 31 December 2017. Customer deposits accounted for 78% of total assets as at 30 June 2018 (compared to 76% at 31 December 2017 and a low of 48% at 31 March 2014).

Post repayment of the ELA in January 2017, the Group focused on measures to improve its liquidity position in order to comply with the regulatory liquidity requirements. As at 30 June 2018, the Group was in compliance with all regulatory liquidity requirements. As at 30 June 2018 the LCR stood at 199% for the Group (compared to 190% at 31 December 2017) and was in compliance with the minimum regulatory requirement of 100% applicable as from 1 January 2018. As at 30 June 2018, the Group's Net Stable Funding Ratio (NSFR), on the basis of the Basel ΙΙΙ standards, was 115% (compared to 111% at 31 December 2017). The NSFR was not introduced on 1 January 2018 as per expectations.

On 1 January 2018, the local regulatory requirements, set by the CBC, were abolished as per Article 412(5) of EU Regulation No 575/2013.

5. Operating environment (continued)

5.2 The Group (continued)

5.2.3 Liquidity (continued)

The second stage requires more relaxed outflow and inflow rates compared to the initial ones, and are applicable from 1 July 2018 until 31 December 2018. Specifically, there was a reduction of 50% of the LCR add-on rates as from 1 July 2018.

The additional liquidity requirement is expected to be applicable up to 31 December 2018. The CBC may propose to modify or extend the period of application of this macroprudential measure. As at 30 June 2018, the Group and BOC PCL were in compliance with both the LCR and the LCR add-on.

5.2.4 Pending litigation, claims and regulatory matters

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

Despite the novelty of the said claims, based on the information available at present and on the basis of the law as it currently stands, the management considers that the said claims are considered unlikely to have a material adverse impact on the financial position and capital adequacy of the Group (Note 24).

6. Significant judgements, estimates and assumptions

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

The key assumptions concerning the future and other key sources of estimation of uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are described in the Annual Consolidated Financial Statements for the year ended 31 December 2017, as detailed in the basis of preparation of these Financial Statements (Note 3.1).

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

6.1 Classification of loans and advances to customers

The Group exercises judgement upon determining the classification of loans and advances to customers, 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 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.

6.2 Calculation of expected credit losses

The calculation of ECL requires management to apply significant judgement and make estimates and assumptions. 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:

6. Significant judgements, estimates and assumptions (continued)

6.2 Calculation of expected credit losses (continued)

Assessment of significant increase of credit risk

IFRS 9 does not include a definition of significant increase in credit risk. The Group assesses whether significant increase in credit risk has occurred since initial recognition using predominantly quantitative and in certain cases qualitative information. The determination of the relevant thresholds to determine whether the significant increase in credit risk has occurred, involves 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 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 driven by 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.

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. 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.

Economic and credit conditions within geographical areas are influenced by many factors with a high degree of interdependency so that there is no one single factor to which the Group's 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. It is possible that the actual results could be different from the assumptions made, resulting in a material adjustment to the carrying amount of customer loans and advances.

The Group uses three different economic scenarios as described in Note 3.3.1.

For Stage 3 customers, the calculation of individually assessed provisions is the weighted average of three scenarios; base, adverse and favourable. 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, whereas under the favourable scenario applied haircuts are decreased by 5%, with no change in the recovery period.

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 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 to estimate updated market values of properties, while assumptions were made on the basis of a macroeconomic scenario for future changes in property values.

6. Significant judgements, estimates and assumptions (continued)

6.2 Calculation of expected credit losses (continued)

Assessment of loss given default (continued)

At 30 June 2018 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% (31 December 2017: c.34%).

The timing of recovery from real estate collaterals used in the collectively assessed provisions calculation for loans and advances to customers other than those classified as held for sale has been estimated to be on average 6 years (2017: average of 6 years).

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. Judgement may also be exercised over staging during the individual assessment.

Any positive cumulative average future change in property values forecasted was capped to zero both for the period during the six months ended 30 June 2018 and the year ended 31 December 2017. This applies to all scenarios.

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

Any changes in these assumptions or difference between assumptions made and actual results could result in significant changes in the 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 monitoring of model performance and stability, review of model relationships and back testing. In certain cases, judgment may 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. Any management overlays are approved by the Risk Management Division and endorsed by the Provisions 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 based on the relevant ECL model.

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.

In addition to individually assessed assets the Group also assesses assets collectively. The collectively assessed portfolio includes all loans which are not individually assessed. The Group groups the exposures into sufficiently granular portfolios segments with shared risk characteristics. The granularity is based on different levels of segmentation. In determining the level of granularity of such portfolios, as well as assessing that these share similar risk characteristics, management judgment is required.

Further details on impairment allowances and related credit information are set out in Note 28.

6. Significant judgements, estimates and assumptions (continued)

6.3 Tax

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

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

6.4 Stock of property - estimation of net realisable value

Stock of property is measured at the lower of cost and net realisable value. The net realisable value is determined with reference to the fair value of properties adjusted for any impact of specific circumstances on the sale process of each property. Depending on the value of the underlying asset and available market information, the determination of costs to sell may require professional judgement which involves a large degree of uncertainty due to the relatively low level of market activity.

More details on the stock of property are presented in Note 18.

6.5 Provisions

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

For a detailed description of the nature of uncertainties and assumptions and the effect on the amount and timing of pending litigation and claims refer to Note 24.

7. Transition disclosures

7.1 Transitional Consolidated Balance Sheet on adoption of IFRS 9

	31 December 2017 (IAS 39 presentation)	Reclassifications and re-measurements	1 January 2018 (revised for IFRS 9 adoption)
Assets	€000	€000	€000
Cash and balances with central banks	3,393,934	(5,872)	3,388,062
Loans and advances to banks	1,192,633	(20)	1,192,613
Derivative financial assets	18,027	-	18,027
Investments	830,483	(1,861)	828,622
Investments pledged as collateral	290,129	-	290,129
Loans and advances to customers	14,602,454	(318,211)	14,284,243
Life insurance business assets attributable to policyholders	429,890	-	429,890
Prepayments, accrued income and other assets	226,105	(576)	225,529
Stock of property	1,641,422	-	1,641,422
Investment properties	19,646	-	19,646
Property and equipment	279,814	-	279,814
Intangible assets	165,952	-	165,952
Investments in associates and joint ventures	118,113	-	118,113
Deferred tax assets	383,498	-	383,498
Non-current assets held for sale	6,500	-	6,500
Total assets	23,598,600	(326,540)	23,272,060
Liabilities
Deposits by banks	495,308	-	495,308
Funding from central banks	930,000	-	930,000
Repurchase agreements	257,322	-	257,322
Derivative financial liabilities	50,892	-	50,892
Customer deposits	17,849,919	-	17,849,919
Insurance liabilities	605,448	-	605,448
Accruals, deferred income and other liabilities	444,602	(18,920)	425,682
Subordinated loan stock	302,288	-	302,288
Deferred tax liabilities	46,113	-	46,113
Total liabilities	20,981,892	(18,920)	20,962,972
Equity
Share capital	44,620	-	44,620
Share premium	2,794,358	-	2,794,358
Revaluation and other reserves	273,708	(8,470)	265,238
Accumulated losses	(527,128)	(299,150)	(826,278)
Equity attributable to the owners of the Company	2,585,558	(307,620)	2,277,938
Non-controlling interests	31,150	-	31,150
Total equity	2,616,708	(307,620)	2,309,088
Total liabilities and equity	23,598,600	(326,540)	23,272,060

7. Transition disclosures (continued)

7.1 Transitional Consolidated Balance Sheet on adoption of IFRS 9 (continued)

The classification and measurement and impairment requirements of IFRS 9 were applied retrospectively by adjusting the opening balance sheet at the date of the initial adoption. The Group elected, as a policy choice permitted by IFRS 9, to continue to apply hedge accounting in accordance with IAS 39. As permitted by IFRS 9 the Group has not restated comparative periods. The impact on the adoption date, 1 January 2018, was therefore recognised through the consolidated statement of changes in equity. The effect of the adoption of IFRS 9 remains subject to change until the Group finalises its financial statements for the year ending 31 December 2018.

7.2 Classification and measurement of financial instruments

The measurement category and the carrying amount of financial assets and liabilities in accordance with IAS 39 and IFRS 9 at 1 January 2018 are compared as follows:

	IAS 39		IFRS 9
	Measurement category	Carrying amount	Measurement category	Carrying amount
Financial assets		€000		€000
Cash and balances with central banks	Loans and receivables (amortised cost)	3,393,934	Amortised cost	3,388,062
Loans and advances to banks	Loans and receivables (amortised cost)	1,192,633	Amortised cost	1,192,613
Derivative financial assets	FVPL	18,027	FVPL (mandatory)	18,027
Investments (including investments pledged as collateral)	Available-for-sale	929,297	FVOCI	932,105
	Loans and receivables (amortised cost)	48,658	Amortised cost	46,815
	FVPL	142,657	FVPL	139,831
Loans and advances to customers	Loans and receivables (amortised cost)	14,602,454	Amortised cost	13,894,381
Loans and advances to customers	Loans and receivables (amortised cost)	14,602,454	FVPL (mandatory)	389,862
Life insurance business assets attributable to policyholders	FVPL (designated)	416,060	FVPL (designated)	416,060
Other financial assets (included in 'Prepayments, accrued income and other assets' in balance sheet)	Loans and receivables (amortised cost)	105,474	Amortised cost	98,473
	Loans and receivables (amortised cost)	105,474	FVPL (mandatory)	6,425

Financial liabilities

Other financial liabilities - Provisions for financial guarantees and commitments (included in 'Accruals, deferred income and other liabilities' in balance sheet)

Amortised

cost

228,633

Amortised cost

209,713

There were no other changes to the classification and measurement of financial liabilities, namely deposits by banks, repurchase agreements, derivative financial liabilities, customer deposits, subordinated loan stock and other financial liabilities included in 'Accruals, deferred income and other liabilities' as described in Note 3.3.1 of these Financial Statements. The carrying amount of these financial liabilities under IAS 39 and IFRS 9 is the same.

7. Transition disclosures (continued)

7.3 Reconciliation of balance sheet amounts from IAS 39 to IFRS 9

For the adoption of IFRS 9 on 1 January 2018, the Group performed an assessment of its business models for managing financial assets and analysis of their cash flow characteristics, to determine their classification and measurement category. On the basis of the result of their classification and measurement category the Group has proceeded with the measurement of those financial assets under the new measurement requirements of IFRS 9.

Please refer to Note 3.3.1 for more detailed information regarding the new classification requirements of
IFRS 9.

The following table reconciles the carrying amounts of financial assets, from their previous measurement category in accordance with IAS 39 to their new measurement categories upon transition to IFRS 9 on 1 January 2018:

7. Transition disclosures (continued)

7.3 Reconciliation of balance sheet amounts from IAS 39 to IFRS 9 (continued)

	Ref	IAS 39 carrying amount 31 December 2017	Re- classifications	Re-measurements		IFRS 9 carrying amount 1 January 2018
	Ref	IAS 39 carrying amount 31 December 2017	Re- classifications	ECL	Other	IFRS 9 carrying amount 1 January 2018
Financial assets		€000	€000	€000	€000	€000
Amortised cost under IFRS 9
Cash and balances with central banks
Carrying amount under IAS 39		3,393,934
Re-measurement: ECL allowance				(5,872)
Carrying amount under IFRS 9						3,388,062
Loans and advances to banks
Carrying amount under IAS 39		1,192,633
Re-measurement: ECL allowance				(20)
Carrying amount under IFRS 9						1,192,613
Investments (debt instruments)
Carrying amount under IAS 39		48,658
Re-measurement: ECL allowance				(1,843)
Carrying amount under IFRS 9						46,815
Loans and advances to customers
Carrying amount under IAS 39		14,602,454
Reclassification: To FVPL (mandatory)	A		(388,971)
Re-measurement: ECL allowance				(319,102)
Carrying amount under IFRS 9						13,894,381
Other assets
Carrying amount under IAS 39		105,474
Reclassification: To FVPL (mandatory)			(6,425)
Re-measurement: ECL allowance				(576)
Carrying amount under IFRS 9						98,473
Total financial assets measured at amortised cost		19,343,153	(395,396)	(327,413)	-	18,620,344
Fair value through profit or loss (FVPL) under IFRS 9
Derivative financial assets
Carrying amount under IAS 39 and under IFRS 9 (FVPL mandatory)		18,027				18,027
Investments - FVPL (debt instruments) (mandatory)
Carrying amount under IAS 39		135,472
Reclassification: From available-for-sale	B		12,115
Reclassification: To FVOCI (debt instruments)	D		(14,041)
Carrying amount under IFRS 9						133,546
Investments - FVPL (equity instruments)
Carrying amount under IAS 39		7,185
Reclassification: From available-for-sale	C		324
Reclassification: To FVOCI (equity instruments)	C		(1,224)
Carrying amount under IFRS 9						6,285
Total investments at FVPL		142,657	(2,826)	-	-	139,831
Loans and advances to customers (mandatory FVPL)
Carrying amount under IAS 39		-
Reclassification: From loans and receivables (amortised cost)	A		388,971
Re-measurement: Fair value					891
Carrying amount under IFRS 9						389,862
Life insurance business assets attributable to policyholders
Carrying amount under IAS 39 and under IFRS 9 (FVPL designated)	G	416,060				416,060
Other assets (mandatory FVPL)
Carrying amount under IAS 39		-
Reclassification: From amortised cost			6,425
Carrying amount under IFRS 9						6,425
Total financial assets measured at FVPL		576,744	392,570	-	891	970,205
Fair value through other comprehensive income (FVOCI) under IFRS 9
Investments - FVOCI (debt instruments)
Carrying amount under IAS 39		N/a
Reclassification: From available for sale	E		901,234
Reclassification: From FVPL	D		14,041
Re-measurement: ECL allowance				(18)
Carrying amount under IFRS 9						915,257
Investments - FVOCI (equity instruments)
Carrying amount under IAS 39		N/a
Reclassification: From available for sale	C		15,624
Reclassification: From FVPL	C		1,224
Carrying amount under IFRS 9						16,848
Total financial assets measured at FVOCI		-	932,123	(18)	-	932,105

7. Transition disclosures (continued)

7.3 Reconciliation of balance sheet amounts from IAS 39 to IFRS 9 (continued)

	Ref	IAS 39 carrying amount 31 December 2017	Re- classifications	Re-measurements		IFRS 9 carrying amount 1 January 2018
	Ref	IAS 39 carrying amount 31 December 2017	Re- classifications	ECL	Other
Investments - Available-for-sale financial assets		€000	€000	€000	€000	€000
Carrying amount under IAS 39		929,297
Reclassification: To FVPL - debt instruments (mandatory)	B		(12,115)
Reclassification: To FVPL - equity instruments	C		(324)
Reclassification: To FVOCI - equity instruments	C		(15,624)
Reclassification: To FVOCI - debt instruments	E		(901,234)
Carrying amount under IFRS 9						N/a
		929,297	(929,297)	-	-	-

Financial liabilities
Amortised cost under IFRS 9
Other liabilities
Carrying amount under IAS 39	228,633
Re-measurement: ECL allowance			(18,920)
Carrying amount under IFRS 9					209,713
	228,633	-	(18,920)	-	209,713

A. Loans and advances to customers carried at amortised cost under IAS 39 of a carrying amount of €388,971 thousand as at 31 December 2017, failed to meet the SPPI criteria and, as a result, have been classified at FVPL on 1 January 2018 and re-measured then at fair value with an initial application impact of €891 thousand. The Group did not voluntarily designate any loans previously measured at amortised cost as financial assets at FVPL.

B. The Group has classified certain debt and non-equity instruments of a carrying value of €12,115 thousand that were previously classified as available-for-sale under IAS 39 as investments at FVPL as these instruments failed to meet the SPPI criteria.

C. The Group has made an irrevocable election to classify the majority of its equity investments of a carrying value of €15,624 thousand that were classified as available-for-sale under IAS 39 as equity instruments at FVOCI on transition to IFRS 9. The Group has also elected to classify at FVOCI under IFRS 9, equity investments which were classified at FVPL under IAS 39 of an amount of €1,224 thousand, as they were not held for trading on 1 January 2018. Equity investments of a carrying amount €1,420 thousand that were held for trading e.g. acquired principally for the purpose of selling or repurchasing in the near term will continue to be measured at FVPL under IFRS 9.

D. The Group holds debt instruments of €14,041 thousand which were classified at FVPL as they were held for trading under IAS 39. As of 1 January 2018, these instruments are managed within a business model of collecting contractual cash flows and selling the financial assets. Accordingly, since these instruments pass the SPPI criteria, the Group classified these investments as debt instruments measured at FVOCI.

E. Debt instruments that were classified as available-for-sale under IAS 39 will be measured at FVOCI under IFRS 9 since they meet the SPPI criteria and the Group concluded that apart from a small portion (refer to B above) these instruments are managed within a business model of collecting contractual cash flows and selling the financial assets and have therefore been classified at FVOCI.

F. There is no impact on deferred tax on adoption of IFRS 9.

G. The Life insurance business assets attributable to policyholders are designated at FVPL because they eliminate inconsistent treatment that would otherwise arise from measuring such assets on a different basis to the liabilities such assets fund.

7. Transition disclosures (continued)

7.3 Reconciliation of balance sheet amounts from IAS 39 to IFRS 9 (continued)

Reclassifications to FVOCI

For financial assets that have been reclassified out of fair value through profit or loss so that they are measured at FVOCI, the following table shows their fair value as at 30 June 2018 and the fair value gain or loss that would have been recognised in the income statement if these financial assets had not been reclassified as part of the transition to IFRS 9:

	30 June 2018
From FVPL (items C and D above)	€000
Fair value as at 30 June 2018	15,177
Fair value loss that would have been recognised in the income statement during the period if the financial asset had not been reclassified	(87)

The effective interest rate of these instruments is 3.07% per annum and €212 thousand of interest income has been recognised during the period.

7.4 Impact on transition to IFRS: 9 financial instruments fair value reserve and accumulated losses

The impact on transition to IFRS 9 on financial instruments fair value reserve and accumulated losses is as follows:

	Accumulated losses	Financial instruments fair value reserve
	€000	€000
Balance under IAS 39 (31 December 2017)	(527,128)	54,485
Recognition of IFRS 9 ECL including those measured of FVOCI (Note 7.5)	(308,511)	-
Re-measurement impact of reclassifying financial assets held at amortised cost to FVPL	891	-
Debt instruments from FVPL to FVOCI	(807)	807
Debt instruments from available-for-sale to FVOCI	(854)	854
Debt instruments from available-for-sale to FVPL	3,419	(3,419)
Equity securities from available-for-sale to FVOCI	6,487	(6,487)
Equity securities from FVPL to FVOCI	225	(225)
Restated balance at 1 January 2018	(826,278)	46,015

7. Transition disclosures (continued)

7.5 Reconciliation of impairment allowance balance from IAS 39 to ECL allowance balance of IFRS 9

The following table reconciles the opening loss provision allowances under IAS 39 and provisions for financial guarantees and commitments in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets to the ECL allowances under IFRS 9. Further details are disclosed in Note 28.

	Provision under IAS 39/Provision under IAS 37	Re-classification	Re-measurement	ECLs under IFRS 9 at 1 January 2018
Loans and receivables (IAS 39)/Financial assets at amortised cost (IFRS 9)	€000	€000	€000	€000
Cash and balances with central banks	-	-	5,872	5,872
Loans and advances to banks	24,998	-	20	25,018
Investments (debt securities) - amortised cost	-	-	1,843	1,843
Loans and advances to customers	3,483,776	(30,926)	319,102	3,771,952
Other assets	1,198	-	576	1,774
	3,509,972	(30,926)	327,413	3,806,459
Available for sale (IAS 39)/Financial asset at FVOCI (IFRS 9)
Investments (debt securities)	-	-	18	18
Provisions for financial guarantees and commitments
Financial guarantees	48,300	-	(15,233)	33,067
Other commitments	3,687	-	(3,687)	-
	51,987	-	(18,920)	33,067
Total	3,561,959	(30,926)	308,511	3,839,544

Reclassification of an amount €30,926 thousand from loans and advances to customers relates to loan loss provisions under IAS 39 as at 31 December 2017 on loans and advances to customers which failed the SPPI criteria and, as a result, have been classified at FVPL.

As at 1 January 2018 the expected credit loss allowance on the other commitments is presented together with the loss allowance for expected credit losses on the associated loans and advances to customers since the expected credit losses related to the on and off balance sheet components cannot be separately identified.

8. Segmental analysis

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

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

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

8. Segmental analysis (continued)

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

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

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

	Cyprus	United Kingdom	Other countries	Total
Six months ended 30 June 2018	€000	€000	€000	€000
Net interest income/(expense)	231,927	22,672	(5,200)	249,399
Net fee and commission income	80,208	3,076	129	83,413
Net foreign exchange gains/(losses)	17,457	(505)	1,250	18,202
Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates	37,353	-	25	37,378
Insurance income net of claims and commissions	23,971	-	1,123	25,094
Net gains/(losses) from revaluation and disposal of investment properties	1,405	-	(983)	422
Net gains on disposal of stock of property	20,950	-	59	21,009
Other income	9,986	-	1,290	11,276
	423,257	25,243	(2,307)	446,193
Staff costs (Note 10)	(104,062)	(11,820)	(502)	(116,384)
Special levy on deposits on credit institutions in Cyprus	(12,073)	-	-	(12,073)
Other operating expenses (excluding advisory and other restructuring costs) (Note 10)	(70,443)	(9,390)	(4,265)	(84,098)
Other operating expenses - advisory and other restructuring costs (Note 10)	(27,215)	-	(115)	(27,330)
	209,464	4,033	(7,189)	206,308
Net gains on derecognition of financial assets measured at amortised cost	19,343	38	-	19,381
Credit (losses)/gains to cover credit risk on loans and advances to customers	(282,175)	1,536	12,915	(267,724)
Credit (losses)/gains of other financial instruments	(3,334)	-	3	(3,331)
Impairment of non-financial instruments	(7,909)	-	(2,208)	(10,117)
Share of profit from associates and joint ventures	4,520	-	-	4,520
(Loss)/profit before tax	(60,091)	5,607	3,521	(50,963)
Income tax	(3,497)	(922)	(395)	(4,814)
(Loss)/profit for the period	(63,588)	4,685	3,126	(55,777)
Non-controlling interests - loss	1,729	-	-	1,729
(Loss)/profit after tax attributable to the owners of the Company	(61,859)	4,685	3,126	(54,048)

8. Segmental analysis (continued)

	Cyprus	United Kingdom	Other countries	Total
Six months ended 30 June 2017	€000	€000	€000	€000
Net interest income	297,146	17,870	1,269	316,285
Net fee and commission income	84,743	3,262	210	88,215
Net foreign exchange gains	20,380	171	19	20,570
Net gains/(losses) on financial instrument transactions and disposal/dissolution of subsidiaries and associates	2,499	(48)	(12)	2,439
Insurance income net of claims and commissions	23,744	-	678	24,422
Net losses from revaluation and disposal of investment properties	(1,925)	-	-	(1,925)
Net gains on disposal of stock of property	12,214	-	21	12,235
Other income	7,206	-	655	7,861
	446,007	21,255	2,840	470,102
Staff costs (Note 10)	(100,247)	(10,398)	(830)	(111,475)
Special levy on deposits on credit institutions in Cyprus	(17,700)	-	-	(17,700)
Other operating expenses (excluding advisory and other restructuring costs) (Note 10)	(103,720)	(12,274)	(4,218)	(120,212)
Other operating expenses - advisory and other restructuring costs (Note 10)	(13,451)	-	(327)	(13,778)
	210,889	(1,417)	(2,535)	206,937
Net gains on derecognition of financial assets measured at amortised cost	94,885	15	-	94,900
Credit losses to cover credit risk on loans and advances to customers	(733,100)	(1,206)	(16,614)	(750,920)
Credit (losses)/gains of other financial instruments	(24,585)	-	2,088	(22,497)
Impairment of non-financial instruments	(379)	-	(13,105)	(13,484)
Share of profit from associates and joint ventures	3,949	-	-	3,949
Loss before tax	(448,341)	(2,608)	(30,166)	(481,115)
Income tax	(70,370)	(881)	(1,031)	(72,282)
Loss for the period	(518,711)	(3,489)	(31,197)	(553,397)
Non-controlling interests - profit	(562)	-	-	(562)
Loss after tax attributable to the owners of the Company	(519,273)	(3,489)	(31,197)	(553,959)

8. Segmental analysis (continued)

Analysis of total revenue

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

	Cyprus	United Kingdom	Other countries	Total
Six months ended 30 June 2018	€000	€000	€000	€000
Total revenue from third parties	418,613	25,248	2,332	446,193
Inter-segment revenue/(expense)	4,644	(5)	(4,639)	-
Total revenue	423,257	25,243	(2,307)	446,193

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

The revenue for the Cyprus operating segment is further analysed in analysis by business line in this note.
The revenue for other countries segment mainly relates to banking and financial services for both the six months ended 30 June 2018 and 2017.

Analysis of assets

	Cyprus	United Kingdom	Other countries	Cyprus- held for sale	Other countries- held for sale	Total
30 June 2018	€000	€000	€000	€000	€000	€000
Assets	20,279,785	2,217,980	368,124	1,439,675	11,483	24,317,047
Inter-segment assets						(636,047)
Total assets						23,681,000

31 December 2017
Assets	21,712,481	2,153,672	399,847	-	-	24,266,000
Inter-segment assets						(667,400)
Total assets						23,598,600

8. Segmental analysis (continued)

Analysis of liabilities

	Cyprus	United Kingdom	Other countries	Total
30 June 2018	€000	€000	€000	€000
Liabilities	19,346,963	2,116,854	612,231	22,076,048
Inter-segment liabilities				(638,302)
Total liabilities				21,437,746

31 December 2017
Liabilities	18,935,166	2,060,484	656,183	21,651,833
Inter-segment liabilities				(669,941)
Total liabilities				20,981,892

Segmental analysis of customer deposits and loans and advances to customers is presented in Notes 22 and 28, respectively.

Analysis by business line

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

Income and expenses directly associated with each business line are included in determining the line's performance. Transfer pricing methodologies are applied between the business lines to present their results on an arm's length basis. Total other operating income includes net foreign exchange gains, net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates, insurance income net of claims and commissions, net gains/(losses) from revaluation and disposal of investment properties, net gains on disposal of stock of property and other income. Total other operating income, staff costs and other operating expenses incurred directly by the business lines are allocated to the business lines as incurred. As from the six months ended 30 June 2018 indirect other operating income and indirect other operating expenses are reallocated from the head office function to the business lines. For the six months ended 30 June 2017, these items were allocated to the head office function. Comparatives were not represented since the necessary information is not available and any attempt to develop it could lead to inaccurate results with high development costs and delays. Management monitors the profit/(loss) before tax of each business line. Additionally, for the purposes of the Cyprus analysis by business line, notional tax at the 12.5% Cyprus tax rate is charged/credited on profit or loss before tax of each business line and therefore any taxable and non-taxable items are excluded from this notional charge/credit.

The 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 28).

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 situations through innovative solutions.

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

Wealth management oversees the provision of institutional wealth private banking, global markets, brokerage, asset management, investment banking and depository services.

8. Segmental analysis (continued)

Analysis by business line (continued)

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. As from the period ended 30 June 2018, Treasury represents a separate business line. Previously Treasury was disclosed within the Other business line. Comparatives are not represented since the necessary information is not readily available and can only be obtained through a cumbersome manual process which could lead to inaccurate results with high development cost.

The Insurance business line is involved in both life and general 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.

8. Segmental analysis (continued)

Analysis by business line (continued)

	Corporate	Small and medium-sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total Cyprus
Six months ended 30 June 2018	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Net interest income/(expense)	49,343	20,154	94,943	41,731	26,754	3,931	(7,994)	92	6,964	(3,991)	231,927
Net fee and commission income/(expense)	7,864	5,047	22,896	4,791	31,795	1,153	-	(2,853)	956	8,559	80,208
Total other operating income	657	323	1,941	13,826	3,747	1,608	24,783	24,257	30,921	9,059	111,122
	57,864	25,524	119,780	60,348	62,296	6,692	16,789	21,496	38,841	13,627	423,257
Staff costs and other operating expenses (excluding advisory and other restructuring costs)	(13,839)	(9,535)	(89,720)	(30,580)	(22,190)	(3,803)	(3,799)	(8,620)	(5,273)	781	(186,578)
Advisory and other restructuring costs - other operating expenses	(17)	(3)	(40)	(21,331)	(8)	(6)	(2,641)	-	-	(3,169)	(27,215)
	44,008	15,986	30,020	8,437	40,098	2,883	10,349	12,876	33,568	11,239	209,464
Net gains on derecognition of financial assets measured at amortised cost	5,377	1,289	6,804	5,052	796	25	-	-	-	-	19,343
Credit losses to cover credit risk on loans and advances to customers	(18,730)	(10,496)	(23,582)	(216,392)	(7,343)	(3,408)	-	-	-	(2,224)	(282,175)
Credit losses of other financial instruments	-	-	-	-	-	-	-	-	(670)	(2,664)	(3,334)
Impairment of non-financial instruments	-	-	-	-	-	-	(7,898)	-	-	(11)	(7,909)
Share of profit from associates and joint ventures	-	-	-	-	-	-	-	-	-	4,520	4,520
Profit/(loss) before tax	30,655	6,779	13,242	(202,903)	33,551	(500)	2,451	12,876	32,898	10,860	(60,091)
Income tax	(3,832)	(847)	(1,655)	19,738	(4,194)	63	(306)	(1,390)	(4,028)	(7,046)	(3,497)
Profit/(loss) for the period	26,823	5,932	11,587	(183,165)	29,357	(437)	2,145	11,486	28,870	3,814	(63,588)
Non-controlling interests -loss	-	-	-	-	-	-	-	-	-	1,729	1,729
Profit/(loss) after tax attributable to the owners of the Company	26,823	5,932	11,587	(183,165)	29,357	(437)	2,145	11,486	28,870	5,543	(61,859)

8. Segmental analysis (continued)

Analysis by business line (continued)

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

In addition, loans and advances to customers and deposits of the above business lines are reported to the Group Executive Committee. Such an analysis is disclosed in Notes 28 and 22 respectively.

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

	Six months ended 30 June
	2018	2017
Trading portfolio:	€000	€000
- equity securities	-	157
- debt securities	-	48
- derivative financial instruments	177	209
Other investments at FVPL:
- debt securities	1,973	(57)
- equity securities	662	289
Net gains on disposal of FVOCI debt securities	19,787	-
Net gains on disposal of available-for-sale investments:
- equity securities	-	1,520
- debt securities	-	179
Net gains on loans and advances to customers at FVPL	13,867	-
Realised losses on disposal of loans	-	(12)
Revaluation of financial instruments designated as fair value hedges:
- hedging instruments	10,856	6,631
- hedged items	(9,799)	(6,525)
Loss on disposal of associate	(191)	-
Profit on dissolution of subsidiaries	46	-
	37,378	2,439

10. Staff costs and other operating expenses

Staff costs

	Six months ended 30 June
	2018	2017
	€000	€000
Salaries	96,195	92,921
Employer's contributions to state social insurance	12,136	11,237
Retirement benefit plan costs	8,053	7,317
	116,384	111,475

10. Staff costs and other operating expenses (continued)

Staff costs (continued)

The number of persons employed by the Group as at 30 June 2018 was 4,402 (31 December 2017: 4,355,
30 June 2017: 4,311).

Other operating expenses

	Six months ended 30 June
	2018	2017
	€000	€000
Repairs and maintenance of property and equipment	15,813	13,627
Other property-related costs	6,831	8,595
Operating lease rentals for property and equipment	5,225	5,159
Consultancy and other professional services fees	11,655	8,578
Insurance	3,876	4,336
Advertising and marketing	8,791	8,751
Depreciation of property and equipment	5,975	5,809
Amortisation of intangible assets	6,038	4,324
Communication expenses	4,769	4,507
(Reversal of provisions)/provisions and settlements of litigations, claims and provisions for regulatory matters (Note 24.1)	(5,813)	34,929
Printing and stationery	1,259	1,586
Local cash transfer expenses	1,478	1,282
Contribution to depositor protection scheme	-	120
Other operating expenses	18,201	18,609
	84,098	120,212
Advisory and other restructuring costs	27,330	13,778
	111,428	133,990

Advisory and other restructuring costs comprise mainly fees of external advisors in relation to: (i) customer loan restructuring activities which are not part of the effective interest rate, (ii) the listing on the London Stock Exchange (relevant to the six months ended 30 June 2017) and (iii) disposal of operations and non-core assets.

11. Credit losses of financial instruments and impairment of non-financial instruments

	Six months ended 30 June
	2018	2017
Credit losses to cover credit risk on loans and advances to customers	€000	€000
Impairment loss net of reversals on loans and advances to customers (Note 28)	409,943	741,327
Recoveries of loans and advances to customers previously written off	(109,962)	-
Changes in expected cash flows	(26,735)	-
Financial guarantees and commitments	(5,522)	9,593
	267,724	750,920

11. Credit losses of financial instruments and impairment of non-financial instruments (continued)

	Six months ended 30 June
	2018	2017
Credit losses of other financial instruments	€000	€000
Amortised cost debt securities	(1,201)	-
FVOCI debt securities	(462)	-
Loans and advances to banks	518	21,684
Loans and advances to central banks	2,396	-
Other financial assets	2,080	911
Available-for-sale equity securities	-	(98)
	3,331	22,497

Impairment of non-financial instruments
Equipment	11	-
Stock of property (Note 18)	10,106	13,484
	10,117	13,484

12. Income tax

	Six months ended 30 June
	2018	2017
Current tax:	€000	€000
- Cyprus	2,719	2,219
- overseas	1,205	1,118
Cyprus special defence contribution	139	50
Deferred tax	1,663	66,927
Prior year tax adjustments	1,376	968
Other tax (credits)/charges	(2,288)	1,000
	4,814	72,282

In the comparative period, the increase in the deferred tax charge was primarily due to the reduction of the level of the deferred tax asset by €67 million following the increase in provision for impairment of loans and advances to customers and evaluation of the recoverability assessment of the deferred tax asset balance.

13. Earnings per share

	Six months ended 30 June
Basic and diluted losses per share attributable to the owners of the Company	2018	2017
Loss for the period attributable to the owners of the Company (€ thousand)	(54,048)	(553,959)
Weighted average number of shares in issue during the period, excluding treasury shares (thousand)	446,058	446,056
Basic and diluted losses per share (€ cent)	(12.1)	(124.2)

14. Investments

	30 June 2018	31 December 2017
Investments	€000	€000
Investments mandatorily measured at fair value through profit or loss	161,693	103,165
Other investments at fair value through profit or loss	-	39,492
Investments at FVOCI	470,045	-
Investments at amortised cost	195,643	-
Investments available-for-sale	-	639,168
Investments classified as loans and receivables	-	48,658
	827,381	830,483

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

	30 June 2018	31 December 2017
Investments pledged as collateral	€000	€000
Investments at FVOCI	276,082	-
Investments available-for-sale	-	290,129
	276,082	290,129

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

There were no reclassifications of investments between categories in the current period or in 2017.

At 1 January 2018 the Group irrevocably made the election to classify its equity investments previously classified as available-for-sale as equity investments at FVOCI on the basis that these are not held for trading. Their carrying value included in the table above amounts to €12,700 thousand at 30 June 2018 and is equal to their fair value. The dividend income received amounts to €122 thousand.

During the period ended 30 June 2018 €5,023 thousand of equity investments measured at FVOCI have been disposed of as part of the Group's strategy to dispose non-core assets. The cumulative loss transferred to accumulated losses amounts to €67 thousand.

The ECL on investments at FVOCI for which gains/losses on derecognition are reclassified to the consolidated income statement is disclosed in Note 28.

15. Derivative financial instruments

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

	30 June 2018			31 December 2017
	Contract amount	Fair value		Contract amount	Fair value
	Contract amount	Assets	Liabilities	Contract amount	Assets	Liabilities
Trading derivatives	€000	€000	€000	€000	€000	€000
Forward exchange rate contracts	27,405	289	172	33,259	99	114
Currency swaps	1,152,041	3,712	1,687	1,419,915	1,103	14,082
Interest rate swaps	94,721	441	646	69,022	216	873
Currency options	8,130	6	352	396	18	402
Interest rate options	1,000,000	391	-	-	-	-
	2,282,297	4,839	2,857	1,522,592	1,436	15,471
Derivatives qualifying for hedge accounting
Fair value hedges - interest rate swaps	926,463	10,601	30,963	1,171,424	16,315	35,420
Net investments - forward exchange rate contracts	70,720	677	-	61,012	276	1
	997,183	11,278	30,963	1,232,436	16,591	35,421
Total	3,279,480	16,117	33,820	2,755,028	18,027	50,892

Hedge accounting

Hedges of net investments

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

As at 30 June 2018, deposits and forward exchange rate contracts amounting to €145,184 thousand and €70,720 thousand respectively (31 December 2017: €142,273 thousand and €61,012 thousand respectively) have been designated as hedging instruments and have given rise to a loss of €3,859 thousand (corresponding period of 2017: gain of €125 thousand; year ended 31 December 2017: gain of €1,166 thousand) which was recognised in the 'Foreign currency translation reserve' in the consolidated statement of comprehensive income, against the profit or loss from the retranslation of the net assets of the overseas subsidiaries and branches.

16. Fair value measurement

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

	30 June 2018		31 December 2017
	Carrying value	Fair value	Carrying value	Fair value
Financial assets	€000	€000	€000	€000
Cash and balances with central banks	4,162,858	4,162,858	3,393,934	3,393,934
Loans and advances to banks	804,369	803,467	1,192,633	1,191,617
Investments mandatorily measured at fair value through profit or loss	161,693	161,693	103,165	103,165
Other investments measured at fair value through profit or loss	-	-	39,492	39,492
Investments at FVOCI	746,127	746,127	-	-
Investments at amortised cost	195,643	200,884	-	-
Investments available-for-sale	-	-	929,297	929,297
Investments classified as loans and receivables	-	-	48,658	55,104
Derivative financial assets	16,117	16,117	18,027	18,027
Loans and advances to customers	13,001,182	12,930,538	14,602,454	15,385,385
Life insurance business assets attributable to policyholders	402,874	402,874	416,060	416,060
Financial assets classified as held for sale	1,238,619	1,238,619	-	-
Other financial assets	113,268	113,268	105,473	105,473
	20,842,750	20,776,445	20,849,193	21,637,554
Financial liabilities
Obligations to central banks and deposits by banks	1,342,371	1,342,371	1,425,308	1,425,308
Repurchase agreements	247,803	267,681	257,322	281,951
Derivative financial liabilities	33,820	33,820	50,892	50,892
Customer deposits	18,431,449	18,438,573	17,849,919	17,875,239
Subordinated loan stock	291,454	284,414	302,288	334,783
Other financial liabilities	349,771	349,771	300,978	300,978
	20,696,668	20,716,630	20,186,707	20,269,151

16. Fair value measurement (continued)

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

The Group uses the following hierarchy for determining and disclosing fair value:

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

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

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

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

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 options. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves.

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

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

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

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

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

Investments at fair value through profit or loss, 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.

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

Repurchase agreements

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

Loans and advances to banks

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

Deposits by banks

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

Subordinated loan stock

The current issue of BOC PCL is liquid with observable quoted prices in an active market. The fair value of the capital loan stock issued by Bank of Cyprus UK Ltd is determined using market observable models (Level 2).

Model inputs for valuation

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

The following table presents the fair value measurement hierarchy of the Group's assets and liabilities recorded at fair value, by level of the fair value hierarchy:

30 June 2018	Level 1	Level 2	Level 3	Total
Financial assets	€000	€000	€000	€000
Loans and advances to customers measured at FVPL	-	-	403,691	403,691
Trading derivatives
Forward exchange rate contracts	-	289	-	289
Currency swaps	-	3,712	-	3,712
Interest rate swaps	-	441	-	441
Currency options	-	6	-	6
Interest rate options	-	391	-	391
	-	4,839	-	4,839
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps	-	10,601	-	10,601
Net investments-forward exchange rate contracts	-	677	-	677
	-	11,278	-	11,278

Investments mandatorily measured at FVPL	146,363	435	14,895	161,693
Investments at FVOCI	736,528	1,094	8,505	746,127
	882,891	17,646	427,091	1,327,628

16. Fair value measurement (continued)

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 €8,553 thousand in their fair value and a decrease in the discount factor by 10% would result in an increase of €579 thousand in their value.

For investments mandatorily measured at fair value through profit or loss categorised as Level 3, for one investment with a carrying amount of €13,406 thousand, a change in the conversion factor by 10% would result in a change in the value of the debt securities by €1,341 thousand.

30 June 2018		Level 1	Level 2		Level 3	Total
Financial liabilities
Trading derivatives		€000	€000		€000	€000
Forward exchange rate contracts		-	172		-	172
Currency swaps		-	1,687		-	1,687
Interest rate swaps		-	646		-	646
Currency options		-	352		-	352
		-	2,857		-	2,857
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps		-	30,963		-	30,963
	-		33,820	-		33,820

31 December 2017
Financial assets
Trading derivatives
Forward exchange rate contracts	-		99	-		99
Currency swaps	-		1,103	-		1,103
Interest rate swaps	-		216	-		216
Currency options	-		18	-		18
	-		1,436	-		1,436
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps	-		16,315	-		16,315
Net investments-forward exchange rate contracts	-		276	-		276
	-		16,591	-		16,591
Investments at fair value through profit or loss
Trading investments	102,535		-	630		103,165
Other investments at fair value through profit or loss	37,823		1,573	96		39,492
	140,358		1,573	726		142,657
Investments available-for-sale	907,360		42	21,895		929,297
	1,047,718		19,642	22,621		1,089,981

16. Fair value measurement (continued)

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

31 December 2017	Level 1	Level 2	Level 3	Total
Financial liabilities	Level 1	Level 2	Level 3	Total
Trading derivatives	€000	€000	€000	€000
Forward exchange rate contracts	-	114	-	114
Currency swaps	-	14,082	-	14,082
Interest rate swaps	-	873	-	873
Currency options	-	402	-	402
	-	15,471	-	15,471
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps	-	35,420		35,420
Net investments-forward exchange rate contracts	-	1	-	1
	-	35,421	-	35,421
	-	50,892	-	50,892

During the six months ended 30 June 2018 and during the year 2017 there were no significant transfers between Level 1 and Level 2.

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

	2018	2017
	€000	€000
1 January	22,621	17,479
Loans and advances to customers measured at FVPL on 1 January 2018 (Note 7.3)	389,862	-
Net gains on loans and advances to customers measured at FVPL (Note 9)	13,867	-
Additions	5,600	724
Repayments of loans	(14,510)	-
Interest on loans	8,872	-
Disposals and write offs	-	(689)
Net gains from fair value changes recognised in the consolidated statement of comprehensive income and other adjustment	779	5,738
Foreign exchange adjustments	-	(631)
30 June/31 December	427,091	22,621

17. Loans and advances to customers

	30 June 2018	31 December 2017
Loans and advances to customers measured at amortised cost	€000	€000
Gross loans and advances to customers at amortised cost	14,726,437	18,086,230
Allowance for ECL/provisions for impairment of loans and advances to customers (Note 28)	(2,128,946)	(3,483,776)
	12,597,491	14,602,454
Loans and advances to customers measured at fair value through profit and loss	403,691	-
	13,001,182	14,602,454

Additional analysis and information regarding credit risk and analysis of the provisions for impairment of loans and advances to customers at amortised cost are set out in Note 28.

18. Stock of property

The carrying value of stock is determined as the lower of cost and net realisable value. During the six months ended 30 June 2018 an impairment loss of €10,106 thousand was recognised in 'Impairment of non-financial instruments' in the consolidated income statement arising from measuring items at lower of cost and net realisable value. At 30 June 2018, stock of €348,889 thousand (31 December 2017: €418,559 thousand) is carried at net realisable value which is approximately its fair value less costs to sell.

The stock of property includes residential properties, offices and other commercial properties, manufacturing and industrial properties, hotels, land (fields and plots) and properties under construction. As at 30 June 2018 and 31 December 2017 no stock of property was pledged as collateral for central bank funding facilities under Eurosystem monetary policy operations.

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

	2018	2017
	€000	€000
1 January	1,641,422	1,427,272
Additions	220,336	523,061
Disposals	(125,539)	(257,662)
Transfer to investment properties	(166,572)	-
Transfer from/(to) own use properties	2,947	(129)
Transfer to non-current assets and disposal groups held for sale (Note 20)	(38,604)	-
Impairment (Note 11)	(10,106)	(50,502)
Foreign exchange adjustments	(11)	(618)
30 June/31 December	1,523,873	1,641,422

18. Stock of property (continued)

Additions during the six months ended 30 June 2018 include costs of construction of €10,095 thousand (31 December 2017: €3,404 thousand).

Analysis by type and country	Cyprus	Greece	Romania	Total
30 June 2018	€000	€000	€000	€000
Residential properties	159,084	26,378	421	185,883
Offices and other commercial properties	224,610	37,609	12,196	274,415
Manufacturing and industrial properties	96,230	33,435	498	130,163
Hotels	36,607	493	-	37,100
Land (fields and plots)	818,741	6,215	4,269	829,225
Properties under construction	67,087	-	-	67,087
Total	1,402,359	104,130	17,384	1,523,873

31 December 2017
Residential properties	146,214	29,057	189	175,460
Offices and other commercial properties	288,282	38,882	9,138	336,302
Manufacturing and industrial properties	112,890	33,427	498	146,815
Hotels	77,820	493	-	78,313
Land (fields and plots)	836,543	6,402	4,595	847,540
Properties under construction	56,992	-	-	56,992
Total	1,518,741	108,261	14,420	1,641,422

19. Prepayments, accrued income and other assets

	30 June 2018	31 December 2017
	€000	€000
Receivables relating to disposal of operations	34,529	36,282
Reinsurers' share of insurance contract liabilities	48,132	48,000
Taxes refundable	25,320	25,647
Debtors	30,886	24,121
Prepaid expenses	1,442	1,391
Other assets	98,812	90,664
	239,121	226,105

As at 30 June 2018 and 31 December 2017, the receivables relating to disposal of operations related to the disposal of the Ukrainian operations during 2014. In 2017 the settlement terms of the deferred consideration, the related interest rate and the collaterals were amended. The deferred consideration is due to be paid to the Group under a repayment programme which has been extended from June 2019 to December 2022.

During the six months ended 30 June 2018, a credit loss of €2,080 thousand was recognised in relation to other assets (corresponding period of 2017: credit loss of €911 thousand) (Note 11).

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

	30 June 2018	31 December 2017
	€000	€000
Gross loans and advances to customers at amortised cost (Note 28)	2,775,426	-
Allowance for ECL	(1,536,807)	-
	1,238,619	-
Stock of property	38,604	-
Disposal group 1	1,277,223	-
Disposal group 2	172,233	-
Investment properties held for sale	1,050	6,500
	1,450,506	6,500

The following non-current assets and disposal groups were classified as held for sale as at 30 June 2018 and 31 December 2017:

Disposal group 1

Disposal group 1 comprises loans and advances to customers and stock of property. The disposal group has been classified as held for sale as management is committed to sell it and has proceeded with an active programme to complete this plan. The plan is expected to be completed within 12 months from the classification date. Further analysis of the loans and advances to customers portfolio which is included in this disposal group is disclosed in Note 28 and information regarding agreement for the sale is disclosed in Note 37.2.

Disposal group 2

As at 30 June 2018, the disposal group 2 relates to the subsidiary Cyreit Variable Capital Investment Company PLC (Cyreit) which is the holding company of a group of companies which hold and manage investment properties. Management is committed to sell Cyreit and has proceeded with an active programme to complete this plan. The disposal is expected to take place within 12 months from the date of classification.

The major classes of assets of the disposal group classified as held for sale at 30 June 2018 are investment properties of €167,977 thousand and other assets of €4,256 thousand. The investment properties held within the disposal group are measured at fair value. The results of the fair value changes are presented within 'Net gains/(losses) from revaluation and disposal of investment properties' in the consolidated income statement and are within the Cyprus operating segment since the investment properties are in Cyprus.

Investment properties

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

21. 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 2018	31 December 2017
	€000	€000
Main Refinancing Operations (MRO)	-	100,000
Targeted Longer-Term Refinancing Operations (TLTRO)	830,000	830,000
	830,000	930,000

As at 30 June 2018, ECB funding was at €830 million that was borrowed from the 4-year TLTRO II.

21. Funding from central banks (continued)

The interest rate applied to TLTRO II will be fixed for each operation at the rate applied in the MRO prevailing at the time of allotment and is subject to a lower rate for counterparties whose eligible net lending in the pre-specified period exceeds their benchmark. The interest rate applicable to the amount borrowed by BOC PCL under the TLTRO II transactions will be 0% as eligible net lending in the pre-specified period did not exceed the benchmark.

Funding from central banks as at December 2017 included an amount of €830 million borrowed through the new series of TLTRO (TLTRO II) announced by the ECB in March 2016 and an amount of €100 million borrowed through the MRO. From the TLTRO II funding, €600 million was borrowed through the December 2016 and the €230 million through the March 2017 TLTRO II operations. In January 2018, BOC PCL raised an additional €10 million through the MRO bringing the funding from the MRO to €110 million. The total amount borrowed from the MRO was fully repaid during April 2018. From the end of April 2018 and until the end of June 2018, no further funding was obtained from the ECB.

Details on encumbered assets related to the above funding facilities are disclosed in Note 30.

22. Customer deposits

	30 June 2018	31 December 2017
By type of deposit	€000	€000
Demand	6,761,798	6,313,244
Savings	1,866,948	1,536,576
Time or notice	9,802,703	10,000,099
	18,431,449	17,849,919
By geographical area
Cyprus	16,485,883	15,982,905
United Kingdom	1,945,566	1,867,014
	18,431,449	17,849,919
By currency
Euro	14,528,075	13,829,991
US Dollar	1,579,505	1,743,513
British Pound	2,169,100	2,110,265
Russian Rouble	59,860	49,788
Romanian Lei	105	42
Swiss Franc	8,196	14,943
Other currencies	86,608	101,377
	18,431,449	17,849,919

22. Customer deposits (continued)

By customer sector	Cyprus	United Kingdom	Total
30 June 2018	€000	€000	€000
Corporate	1,602,417	38,294	1,640,711
SMEs	740,286	201,478	941,764
Retail	9,554,927	1,705,794	11,260,721
Restructuring
- Corporate	123,134	-	123,134
- SMEs	30,399	-	30,399
- Retail other	8,861	-	8,861
Recoveries	6,382	-	6,382
International banking services	4,000,536	-	4,000,536
Wealth management	418,941	-	418,941
	16,485,883	1,945,566	18,431,449
31 December 2017
Corporate	1,529,521	29,742	1,559,263
SMEs	665,940	201,536	867,476
Retail	8,670,625	1,635,736	10,306,361
Restructuring
- Corporate	145,084	-	145,084
- SMEs	40,743	-	40,743
Recoveries	6,615	-	6,615
International banking services	4,163,384	-	4,163,384
Wealth management	760,993	-	760,993
	15,982,905	1,867,014	17,849,919

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

23. Subordinated loan stock

	Contractual interest rate	30 June 2018	31 December 2017
	Contractual interest rate	€000	€000
Subordinated Tier 2 Capital Note	9.25% up to 19 January 2022	258,167	268,485
Subordinated Tier 2 Capital Loan	8.00% up to 21 December 2022	33,287	33,803
		291,454	302,288

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

In January 2017, BOC PCL issued a €250 million unsecured and subordinated Tier 2 Capital Note (Note) under BOC PCL's EMTN Programme. The Note was priced at par with a coupon of 9.25% per annum payable annually up to 19 January 2022 and then a rate at the then prevailing 5-year swap rate plus a margin of 9.176% per annum up to 19 January 2027, payable annually. The Note matures on 19 January 2027. BOC PCL has the option to redeem the Note early on 19 January 2022, subject to applicable regulatory consents. The Note is listed on the Luxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF) market.

In December 2017, Bank of Cyprus UK Ltd, a 100% subsidiary of BOC PCL issued a £30 million unsecured and subordinated Tier 2 Capital Loan (Loan), priced at par. The Loan has a coupon of 8.00% up to 21 December 2022 and then a rate at the then prevailing 5-year swap rate plus a margin of 6.99% per annum, up to 21 December 2027, payable semi-annually, in June and December. The Loan matures on 21 December 2027. Bank of Cyprus UK Ltd has the option to redeem the Loan early on 21 December 2022, subject to meeting the notice conditions.

24. Accruals, deferred income and other liabilities

Other liabilities at 30 June 2018 include retirement benefit plan liabilities of €6,043 thousand (31 December 2017: €10,037 thousand) and provisions for pending litigations, claims and regulatory matters of
€108,659 thousand (31 December 2017: €133,318 thousand) for which the movement is presented below.

24.1 Provisions for pending litigation, claims and regulatory matters

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

	2018	2017
	€000	€000
1 January	133,318	48,882
Increase of provisions during the period (Note 10)	3,187	36,149
Utilisation of provisions	(19,040)	(2,008)
Release of provisions during the period (Note 10)	(9,000)	(1,220)
Foreign exchange adjustments	194	(490)
30 June	108,659	81,313

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

	2018	2017
	€000	€000
Pending litigation or claims	62,888	62,646
Regulatory matters	45,771	70,672
30 June/31 December	108,659	133,318

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

24.1 Provisions for pending litigation, claims and regulatory matters

The recognition of provisions for pending litigation, claims and regulatory matters is determined in accordance with the accounting policies set out in Note 2.31.1 of the Annual Consolidated Financial Statements of the Group for the year ended 31 December 2017, as detailed in Note 3.3.

24.2 Pending litigation, claims and regulatory matters

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

Apart from what is described below, the Group considers that none of these matters is material, either individually or in aggregate. The Group has not disclosed an estimate of the potential financial effect on its contingent liabilities arising from these matters where it is not practicable to do so because it is too early or the outcome is too uncertain or, in cases where it is practicable, where disclosure could prejudice conduct of the matters. Provisions have been recognised for those cases where the Group is able to estimate probable losses. Where an individual provision is material, the fact that a provision has been made is stated. Any provision recognised does not constitute an admission of wrongdoing or legal liability. While the outcome of these matters is inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of legal proceedings and regulatory matters as at 30 June 2018 and hence it is not believed that such matters, when concluded, will have a material impact upon the financial position of the Group.

24.2.1 Pending litigation and claims

Investigations and litigation relating to securities issued by BOC PCL

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

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

BOC PCL is defending these claims, particularly with respect to institutional investors and retail purchasers who received investment advice from independent investment advisors. In the case of retail investors, if it can be documented that the relevant BOC PCL officers 'persuaded' them to proceed with the purchase and/or purported to offer 'investment advice', BOC PCL may face significant difficulties. To date, a 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. In July 2018 the Nicosia district court ruled in favour of BOC PCL in an action against BOC PCL by a capital securities holder and rejected the claim to reimburse the plaintiff for alleged damages sustained from investing in the capital securities of BOC PCL. Provision has been made based on management's best estimate of probable outflows and based on advice of legal counsel.

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

24.2 Pending litigation, claims and regulatory matters (continued)

24.2.1 Pending litigation and claims (continued)

Bail-in related litigation

Depositors

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

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.

Claims based on set-off

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

Laiki Bank depositors and shareholders

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

Implementation of Decrees

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

Legal position of the Group

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

Provident fund case

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

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

24.2 Pending litigation, claims and regulatory matters (continued)

24.2.1 Pending litigation and claims (continued)

Employment litigation

Former senior officers of BOC PCL have instituted a total of three claims for unfair dismissal and for Provident Fund entitlements against BOC PCL and Trustees of the Provident Fund. As at the present date one case had been dismissed as filed out of time, but the plaintiff has 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 upon its financial position.

Swiss Francs loans litigation in Cyprus and UK

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

UK property lending claims

BOC PCL is the defendant in certain proceedings alleging that BOC PCL is legally responsible for allegedly, inter alia, advancing and misselling loans for the purchase by UK nationals of property in Cyprus. The proceedings in the United Kingdom are currently stayed in order for the parties to have time to negotiate possible settlements.

General criminal investigations and proceedings

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

The Attorney General had filed a criminal case against BOC PCL and five former members of the Board of Directors for alleged market manipulation offences referring to the non-publication in a timely manner of the increased capital shortfall of BOC PCL in 2012. On 14 December 2017, the Court found BOC PCL and its former Chief Executive Officer guilty only in relation to the one charge regarding market manipulation and acquitted all accused of all remaining charges. On 5 January 2018 the Court imposed a fine of €120,000 on BOC PCL and a prison sentence of two and a half years on Mr. Andreas Eliades. BOC PCL has filed an appeal against both the decision and the fine imposed on it.

The Attorney General had also filed a separate criminal case against BOC PCL and six former members of the Board of Directors of BOC PCL for alleged market manipulation offences referring to the non-disclosure of the purchase of the Greek Government Bonds during a specified period. On 18 December 2017, the Criminal Court dismissed the proceedings against the accused following a ruling by the Supreme Court (first instance jurisdiction) which rendered the charges void ab initio. The Attorney General has filed an appeal against the first instance ruling of the Supreme Court. In April 2018 the Supreme Court rejected the appeal and thus this is the end of this criminal case.

In January 2017 the Attorney General has filed a criminal case against a number of current and former officers of BOC PCL relating to the reclassification of Greek Government Bonds in April 2010. No charges were instituted against BOC PCL in this case. The hearing of this case has not yet commenced.

24.2.2 Provisions for regulatory matters

The Hellenic Capital Market Commission (HCMC) Investigation

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

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

24.2 Pending litigation, claims and regulatory matters (continued)

24.2.2 Provisions for regulatory matters (continued)

The Hellenic Capital Market Commission (HCMC) Investigation (continued)

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.

The Cyprus Securities and Exchange Commission (CySEC) Investigations

The only pending CySEC investigation against BOC PCL concerns possible price manipulation attributable to BOC PCL for the period from 1 November 2009 to 30 June 2010 post the investment in Banca Transylvania. This is now pending for decision by the CySEC's Board. It is not expected that any resulting liability or fine will have a material impact on the financial position of the Group.

Commission for the Protection of Competition Investigation

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

There was also an allegation concerning BOC PCL's arrangements with American Express, namely that such exclusive arrangements violated Cypriot and EU competition law. On both matters, the CPC has concluded that BOC PCL (in common with other banks and JCC) has breached the relevant provisions of the applicable law for the protection of competition. In May 2017 the CPC imposed a fine of €18 million upon BOC PCL and BOC PCL filed a recourse against the decision and the fine. The payment of the fine has been 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.

UK regulatory matters

During 2016 and 2017 the BOC group recognised losses of €57,540 thousand on a conduct principle issue. The provision outstanding as at 30 June 2018 is €31,834 thousand (31 December 2017: €46,962 thousand). As part of the agreement for the sale of Bank of Cyprus UK Ltd (Note 37.1), any liability in regards to UK regulatory matters will remain 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.

24.3 Other contingent liabilities

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

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

25. Share capital

	30 June 2018		31 December 2017
	Shares (thousand)	€000	Shares (thousand)	€000
Authorised	Shares (thousand)	€000	Shares (thousand)	€000
Ordinary shares of €0.10 each	10,000,000	1,000,000	10,000,000	1,000,000
Issued
1 January	446,200	44,620	8,922,945	892,294
Cancellation of shares due to reorganisation	-	-	(8,922,945)	(892,294)
Issue of shares	-	-	446,200	44,620
30 June 2018/31 December 2017	446,200	44,620	446,200	44,620

Authorised and issued share capital

There were no changes to the issued share capital during the six months ended 30 June 2018. The changes to the issued and authorised share capital during the year ended 31 December 2017 are disclosed in Note 35 of the Annual Financial Report 2017 of Bank of Cyprus Holdings Group.

All issued ordinary shares carry the same rights.

Share premium reserve

2018

There were no changes to the share premium reserve during the six months ended 30 June 2018.

Capital reduction

A Special Resolution has been proposed for approval by the shareholders at the Company's upcoming Annual General Meeting on 28 August 2018 that, subject to the Irish High Court approval, pursuant to sections 84 and 85 of the Companies Act, a reduction of up to €1.5 billion of the Company's share premium will be utilised to eliminate the Company's accumulated losses of €0,5 billion as at 31 December 2017.

2017

Following the reorganisation of the Group on 18 January 2017 the Company became the sole shareholder of BOC PCL and consequently the new parent of the Group. The share premium reserve was created in an amount equal to the difference between the nominal value of the shares issued following the reorganisation and pursuant to the terms of the scheme of arrangement and the net asset value of BOC PCL.

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. Following the restructuring of the Group and the introduction of the Company as the new holding company of the Group, the shares held by the life insurance subsidiary were cancelled and New Shares of the company were issued.

The life insurance subsidiary of the Group, as at 30 June 2018, held a total of 142 thousand shares of the Company (31 December 2017: 142 thousand shares), 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 2017: €21,463 thousand).

25. Share capital (continued)

Share-based payments-share options

Following the incorporation of the Company and its introduction as the new holding company of the Group in January 2017, the Long Term Incentive Plan (as approved on 24 November 2015 by the Annual General Meeting of BOC PCL) was replaced by the Share Option Plan which operates at the level of the Company. The Share Option Plan is identical to the Long Term Incentive Plan except that the number of shares in the Company to be issued pursuant to an exercise of options under the Share Option Plan should not exceed 8,922,945 ordinary shares of a nominal value of €0.10 each and the exercise price was set at €5.00 per share. The term of the options was also extended to between 4-10 years after the grant date.

No share options were granted until the date of replacement of the Long Term Incentive Plan by the Share Option Plan at the level of the Company. 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.

26. Cash and cash equivalents

Cash and cash equivalents comprise:

	30 June 2018	30 June 2017
	€000	€000
Cash and non-obligatory balances with central banks	4,001,987	2,169,718
Treasury bills repayable within three months	-	20,001
Loans and advances to banks with original maturity less than three months	675,419	538,832
	4,677,406	2,728,551

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

	30 June 2018	31 December 2017
	€000	€000
Cash and non-obligatory balances with central banks	4,001,987	3,240,201
Obligatory balances with central banks	160,871	153,733
Total cash and balances with central banks	4,162,858	3,393,934

Loans and advances to banks with original maturity less than three months	675,419	1,040,030
Restricted loans and advances to banks	94,762	117,273
Other loans and advances to banks	34,188	35,330
Total loans and advances to banks	804,369	1,192,633

Restricted loans and advances to banks relate to collateral under derivative transactions of €33,321 thousand (31 December 2017: €59,997 thousand) which is not immediately available for use by the Group, but is released once the transactions are terminated.

27. Analysis of assets and liabilities by expected maturity

	30 June 2018			31 December 2017
	Less than one year	Over one year	Total	Less than one year	Over one year	Total
Assets	€000	€000	€000	€000	€000	€000
Cash and balances with central banks	4,004,583	158,275	4,162,858	3,241,396	152,538	3,393,934
Loans and advances to banks	711,392	92,977	804,369	1,094,918	97,715	1,192,633
Derivative financial assets	4,684	11,433	16,117	1,495	16,532	18,027
Investments	40,649	1,062,814	1,103,463	39,050	1,081,562	1,120,612
Loans and advances to customers	3,770,235	9,230,947	13,001,182	3,642,968	10,959,486	14,602,454
Life insurance business assets attributable to policyholders	10,320	405,884	416,204	20,317	409,573	429,890
Prepayments, accrued income and other assets	94,757	144,364	239,121	98,196	127,909	226,105
Stock of property	585,866	938,007	1,523,873	441,800	1,199,622	1,641,422
Property, equipment and intangible assets	30,544	414,020	444,564	13	445,753	445,766
Investment properties	-	20,188	20,188	-	19,646	19,646
Investments in associates and joint ventures	-	117,777	117,777	-	118,113	118,113
Deferred tax assets	30,000	350,778	380,778	26,000	357,498	383,498
Non-current assets and disposal groups held for sale	1,450,506	-	1,450,506	6,500	-	6,500
	10,733,536	12,947,464	23,681,000	8,612,653	14,985,947	23,598,600
Liabilities
Deposits by banks	361,194	151,177	512,371	360,277	135,031	495,308
Funding from central banks	-	830,000	830,000	100,000	830,000	930,000
Repurchase agreements	-	247,803	247,803	-	257,322	257,322
Derivative financial liabilities	1,863	31,957	33,820	15,205	35,687	50,892
Customer deposits	5,179,075	13,252,374	18,431,449	4,786,907	13,063,012	17,849,919
Insurance liabilities	89,804	519,074	608,878	89,689	515,759	605,448
Accruals, deferred income and other liabilities	350,945	85,984	436,929	283,754	160,848	444,602
Subordinated loan stock	-	291,454	291,454	-	302,288	302,288
Deferred tax liabilities	3,655	41,387	45,042	-	46,113	46,113
	5,986,536	15,451,210	21,437,746	5,635,832	15,346,060	20,981,892

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

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

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

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

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

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

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

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

28. Risk management - Credit risk

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

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

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

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

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

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

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

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

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

28. Risk management - Credit risk (continued,)

Maximum exposure to credit risk and collateral and other credit enhancements

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

	30 June 2018	31 December 2017
	€000	€000
Balances with central banks	4,022,625	3,250,029
Loans and advances to banks (Note 26)	804,369	1,192,633
Debt securities measured at FVPL	-	14,577
Debt securities at amortised cost	195,643	-
Debt securities at FVOCI	733,427	-
Debt securities classified as available-for-sale and loans and receivables	-	950,392
Derivative financial instruments (Note 15)	16,117	18,027
Loans and advances to customers measured at amortised cost (Note 17)	12,597,491	14,602,454
Loans and advances to customers measured at FVPL (Note 17)	403,691	-
Loans and advances to customers held for sale (Note 20)	1,238,619	-
Debtors	32,086	24,121
Reinsurers' share of insurance contract liabilities	48,132	48,000
Other assets	81,182	81,352
On-balance sheet total	20,173,382	20,181,585
Contingent liabilities
Acceptances and endorsements	9,846	8,367
Guarantees	727,653	768,165
Commitments
Documentary credits	19,688	29,630
Undrawn formal stand-by facilities, credit lines and other commitments to lend	2,024,192	2,233,178
Off-balance sheet total	2,781,379	3,039,340
Total credit risk exposure	22,954,761	23,220,925

The contingent liabilities and commitments include exposures relating to loans and advances to customers classified as held for sale amounting to €109,362 thousand, which largely relate to the Cyprus geographical area.

28. Risk management - Credit risk (continued),

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

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

	30 June 2018	31 December 2017
On-balance sheet	€000	€000
Cyprus	17,928,241	17,986,526
Greece	46,202	46,754
Russia	22,913	27,819
United Kingdom	2,121,757	2,056,334
Romania	54,269	64,152
	20,173,382	20,181,585

Off-balance sheet
Cyprus	2,680,455	2,934,269
Greece	67,384	72,752
United Kingdom	33,186	31,471
Romania	354	848
	2,781,379	3,039,340

Total on and off-balance sheet
Cyprus	20,608,696	20,920,795
Greece	113,586	119,506
Russia	22,913	27,819
United Kingdom	2,154,943	2,087,805
Romania	54,623	65,000
	22,954,761	23,220,925

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

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

Loans and advances to customers

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

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

28. Risk management - Credit risk (continued)

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

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

Other financial instruments

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

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

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

Expected credit loss measurement

The table below discloses the values of the financial assets and off balance sheet instruments by staging before ECL.

30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Simplified method	Total
30 June 2018	€000	€000	€000	€000	€000	€000
Balances with central banks	4,030,893	-	-	-	-	4,030,893
Loans and advances to banks	771,909	-	57,998	-	-	829,907
Investments at amortised cost (debt instruments)	146,192	50,093	-	-	-	196,285
Loans and advances to customers	6,091,652	3,664,020	4,240,639	730,126	-	14,726,437
Loans and advances to customers classified as held for sale	13,485	91,039	2,229,956	440,946	-	2,775,426
Life insurance business assets attributable to policyholders	402,874	-	-	-	-	402,874
Other financial assets	76,544	-	25,029	-	15,129	116,702
Total financial assets measured at amortised cost	11,533,549	3,805,152	6,553,622	1,171,072	15,129	23,078,524
Investments measured at FVOCI (debt instruments)	733,837	-	-	-	-	733,837
Total financial assets in scope of ECL requirements	12,267,386	3,805,152	6,553,622	1,171,072	15,129	23,812,361

Acceptances and endorsements	3,668	5,221	957	-	-	9,846
Guarantees	224,236	307,580	195,837	-	-	727,653
Documentary credits	7,661	8,435	3,592	-	-	19,688
Undrawn formal stand-by facilities, credit lines and other commitments to lend	959,946	883,613	180,633	-	-	2,024,192
Total off-balance sheet instruments in scope of ECL requirements	1,195,511	1,204,849	381,019	-	-	2,781,379

28. Risk management - Credit risk (continued)

Expected credit loss measurement (continued)

The table below discloses the ECL allowance of the financial assets and off balance sheet instruments by staging.

	Stage 1	Stage 2	Stage 3	POCI	Simplified method	Total
	€000	€000	€000	€000	€000	€000
Balances with central banks	8,268	-	-	-	-	8,268
Loans and advances to banks	540	-	24,998	-	-	25,538
Investments at amortised cost	20	622	-	-	-	642
Loans and advances to customers	26,353	50,321	1,783,632	268,640	-	2,128,946
Loans and advances to customers classified as held for sale	6,473	40,896	1,310,718	178,720	-	1,536,807
Other financial assets	-	-	1,703	-	1,731	3,434
Total ECL allowance of financial assets measured at amortised cost	41,654	91,839	3,121,051	447,360	1,731	3,703,635
Investments measured at FVOCI	410	-	-	-	-	410
Total ECL allowance of financial assets	42,064	91,839	3,121,051	447,360	1,731	3,704,045

Acceptances and endorsements	3	4	-	-	-	7
Guarantees	376	4,508	19,260	-	-	24,144
Documentary credits	15	14	-	-	-	29
Undrawn formal stand-by facilities, credit lines and other commitments to lend	806	2,559	-	-	-	3,365
Total ECL allowance of off-balance sheet instruments	1,200	7,085	19,260	-	-	27,545

Credit risk concentration of loans and advances to customers

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

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

BOC PCL categorises its loans using the following customer sectors:

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

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

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

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

28. Risk management - Credit risk (continued)

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

Fair value adjustment on initial recognition

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

28. Risk management - Credit risk (continued)

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

Geographical and industry and business line concentrations of Group loans and advances to customers at amortised cost are presented below:

	Cyprus	Greece	United Kingdom	Romania	Russia	Total	Fair value adjustment on initial recognition	Gross loans at amortised cost after fair value adjustment on initial recognition
30 June 2018	€000	€000	€000	€000	€000	€000	€000	€000
By economic activity
Trade	1,530,179	-	11,908	9,249	47,001	1,598,337	(33,928)	1,564,409
Manufacturing	453,812	-	10,540	4,833	15,984	485,169	(7,195)	477,974
Hotels and catering	849,533	-	104,272	3,557	-	957,362	(13,049)	944,313
Construction	1,023,285	-	3,205	7,744	11,284	1,045,518	(23,221)	1,022,297
Real estate	1,118,713	22,413	1,459,389	26,550	1	2,627,066	(30,359)	2,596,707
Private individuals	6,336,112	-	174,304	138	-	6,510,554	(145,078)	6,365,476
Professional and other services	996,401	-	54,180	7,115	52,448	1,110,144	(43,975)	1,066,169
Other sectors	693,247	3,630	486	2,058	-	699,421	(10,329)	689,092
	13,001,282	26,043	1,818,284	61,244	126,718	15,033,571	(307,134)	14,726,437

28. Risk management - Credit risk (continued)

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

	Cyprus	Greece	United Kingdom	Romania	Russia	Total	Fair value adjustment on initial recognition	Gross loans at amortised after fair value adjustment on initial recognition
30 June 2018	€000	€000	€000	€000	€000	€000	€000	€000
By business line
Corporate	3,425,363	25,832	1,423,007	50,589	118,038	5,042,829	(60,346)	4,982,483
SMEs	1,202,408	-	232,023	6,499	8,680	1,449,610	(19,972)	1,429,638
Retail
- housing	3,003,448	-	150,071	-	-	3,153,519	(38,100)	3,115,419
- consumer, credit cards and other	1,086,476	211	13,183	80	-	1,099,950	(13,338)	1,086,612
Restructuring
- major corporate	380,401	-	-	57	-	380,458	(11,928)	368,530
- corporate	319,361	-	-	-	-	319,361	(822)	318,539
- SMEs	638,690	-	-	-	-	638,690	(10,343)	628,347
- retail housing	379,654	-	-	-	-	379,654	(3,670)	375,984
- retail other	232,101	-	-	-	-	232,101	(6,779)	225,322
Recoveries
- corporate	175,243	-	-	4,019	-	179,262	(12,931)	166,331
- SMEs	638,465	-	-	-	-	638,465	(27,955)	610,510
- retail housing	685,384	-	-	-	-	685,384	(44,449)	640,935
- retail other	514,345	-	-	-	-	514,345	(48,014)	466,331
International banking services	253,146	-	-	-	-	253,146	(2,795)	250,351
Wealth management	66,797	-	-	-	-	66,797	(5,692)	61,105
	13,001,282	26,043	1,818,284	61,244	126,718	15,033,571	(307,134)	14,726,437

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

28. Risk management - Credit risk (continued)

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

	Cyprus	Greece	United Kingdom	Romania	Russia	Total	Fair value adjustment on initial recognition	Gross loans after fair value adjustment on initial recognition
31 December 2017	€000	€000	€000	€000	€000	€000	€000	€000
By economic activity
Trade	1,969,360	-	13,859	8,925	49,322	2,041,466	(71,636)	1,969,830
Manufacturing	630,101	-	6,468	7,416	20,567	664,552	(19,968)	644,584
Hotels and catering	1,283,512	-	103,808	6,208	-	1,393,528	(47,257)	1,346,271
Construction	2,310,057	-	3,398	12,236	11,764	2,337,455	(144,899)	2,192,556
Real estate	1,760,498	15,003	1,339,680	80,930	1	3,196,112	(89,647)	3,106,465
Private individuals	6,677,670	214	97,992	87	-	6,775,963	(195,686)	6,580,277
Professional and other services	1,181,920	-	54,616	9,223	62,325	1,308,084	(61,954)	1,246,130
Other sectors	1,000,434	338	1,231	35,552	-	1,037,555	(37,438)	1,000,117
	16,813,552	15,555	1,621,052	160,577	143,979	18,754,715	(668,485)	18,086,230

28. Risk management - Credit risk (continued)

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

	Cyprus	Greece	United Kingdom	Romania	Russia	Total	Fair value adjustment on initial recognition	Gross loans after fair value adjustment on initial recognition
31 December 2017	€000	€000	€000	€000	€000	€000	€000	€000
By business line
Corporate	3,321,730	15,341	1,293,304	96,498	133,701	4,860,574	(83,251)	4,777,323
SMEs	1,219,350	-	238,509	6,801	10,278	1,474,938	(14,566)	1,460,372
Retail
- housing	3,007,487	-	72,856	-	-	3,080,343	(30,274)	3,050,069
- consumer, credit cards and other	1,085,146	214	13,977	82	-	1,099,419	(14,348)	1,085,071
Restructuring
- major corporate	1,292,607	-	-	33,860	-	1,326,467	(55,850)	1,270,617
- corporate	777,460	-	-	-	-	777,460	(15,303)	762,157
- SMEs	1,085,221	-	-	-	-	1,085,221	(37,096)	1,048,125
- retail housing	437,892	-	-	-	-	437,892	(6,319)	431,573
- retail other	226,623	-	-	-	-	226,623	(8,037)	218,586
Recoveries
- corporate	1,709,190	-	2,406	23,336	-	1,734,932	(179,336)	1,555,596
- SMEs	950,171	-	-	-	-	950,171	(69,852)	880,319
- retail housing	652,421	-	-	-	-	652,421	(52,206)	600,215
- retail other	737,566	-	-	-	-	737,566	(94,367)	643,199
International banking services	256,554	-	-	-	-	256,554	(3,005)	253,549
Wealth management	54,134	-	-	-	-	54,134	(4,675)	49,459
	16,813,552	15,555	1,621,052	160,577	143,979	18,754,715	(668,485)	18,086,230

The loans and advances to customers in Cyprus include lending exposures to Greek entities granted by BOC PCL in Cyprus in its normal course of business with a carrying value of €71,282 thousand (31 December 2017: €69,616 thousand) and lending exposures in Cyprus with collaterals in Greece with a carrying value of €83,035 thousand (31 December 2017: €98,660 thousand). Additionally as at 30 June 2018, the loans and advances to customers in Cyprus include lending exposures to Serbian entities or with collaterals in Serbia with a carrying value of €10,722 thousand (31 December 2017: €15,000 thousand).

28. Risk management - Credit risk (continued)

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

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

	Cyprus	United Kingdom	Romania	Total	Fair value adjustment on initial recognition	Gross loans at amortised cost after fair value adjustment on initial recognition
30 June 2018	€000	€000	€000	€000	€000	€000
By economic activity
Trade	378,712	-	-	378,712	(12,660)	366,052
Manufacturing	201,898	-	-	201,898	(6,850)	195,048
Hotels and catering	259,718	-	-	259,718	(11,826)	247,892
Construction	1,036,504	-	-	1,036,504	(77,122)	959,382
Real estate	448,857	-	51,338	500,195	(15,010)	485,185
Private individuals	206,704	-	-	206,704	(8,135)	198,569
Professional and other services	138,469	53	-	138,522	(5,650)	132,872
Other sectors	191,397	-	5,587	196,984	(6,558)	190,426
	2,862,259	53	56,925	2,919,237	(143,811)	2,775,426

28. Risk management - Credit risk (continued)

Credit risk concentration of loans and advances to customers classified as held for sale (continued)

	Cyprus	United Kingdom	Romania	Total	Fair value adjustment on initial recognition	Gross loans at amortised cost after fair value adjustment on initial recognition
30 June 2018	€000	€000	€000	€000	€000	€000
By business line
Corporate	15,946	-	-	15,946	(584)	15,362
SMEs	7,483	-	-	7,483	(118)	7,365
Retail
- consumer, credit cards and other	240	-	-	240	(1)	239
Restructuring
- major corporate	444,928	-	56,925	501,853	(14,192)	487,661
- corporate	397,000	-	-	397,000	(5,414)	391,586
- SMEs	343,072	-	-	343,072	(10,540)	332,532
- retail other	257	-	-	257	-	257
Recoveries
- corporate	1,072,239	53	-	1,072,292	(77,804)	994,488
- SMEs	459,813	-	-	459,813	(27,009)	432,804
- retail housing	6,783	-	-	6,783	(1,035)	5,748
- retail other	114,494	-	-	114,494	(7,114)	107,380
International banking services	4	-	-	4	-	4
	2,862,259	53	56,925	2,919,237	(143,811)	2,775,426

There were no loans and advances to customers classified as held for sale at 31 December 2017.

28. Risk management - Credit risk (continued)

Currency concentration of loans and advances to customers

	Cyprus	Greece	United Kingdom	Romania	Russia	Total	Fair value adjustment on initial recognition	Gross loans at amortised cost after fair value adjustment on initial recognition
30 June 2018	€000	€000	€000	€000	€000	€000	€000	€000
Euro	12,383,329	26,043	15,987	60,188	20,745	12,506,292	(301,000)	12,205,292
US Dollar	250,340	-	438	-	32,444	283,222	(348)	282,874
British Pound	68,881	-	1,797,019	89	-	1,865,989	(335)	1,865,654
Russian Rouble	285	-	-	-	73,529	73,814	(1)	73,813
Romanian Lei	-	-	-	967	-	967	-	967
Swiss Franc	277,441	-	2,119	-	-	279,560	(3,508)	276,052
Other currencies	21,006	-	2,721	-	-	23,727	(1,942)	21,785
	13,001,282	26,043	1,818,284	61,244	126,718	15,033,571	(307,134)	14,726,437
31 December 2017
Euro	16,000,016	15,555	16,050	159,518	16,053	16,207,192	(649,671)	15,557,521
US Dollar	228,660	-	424	-	42,550	271,634	(525)	271,109
British Pound	74,707	-	1,599,844	92	-	1,674,643	(423)	1,674,220
Russian Rouble	229	-	-	-	85,376	85,605	(1)	85,604
Romanian Lei	-	-	-	967	-	967	-	967
Swiss Franc	451,883	-	2,128	-	-	454,011	(14,525)	439,486
Other currencies	58,057	-	2,606	-	-	60,663	(3,340)	57,323
	16,813,552	15,555	1,621,052	160,577	143,979	18,754,715	(668,485)	18,086,230

28. Risk management - Credit risk (continued)

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

	Cyprus	United Kingdom	Romania	Total	Fair value adjustment on initial recognition	Gross loans at amortised cost after fair value adjustment on initial recognition
30 June 2018	€000	€000	€000	€000	€000	€000
Euro	2,717,231	-	56,925	2,774,156	(134,523)	2,639,633
US Dollar	15,147	-	-	15,147	(121)	15,026
British Pound	2,619	53	-	2,672	(50)	2,622
Swiss Franc	88,233	-	-	88,233	(8,061)	80,172
Other currencies	39,029	-	-	39,029	(1,056)	37,973
	2,862,259	53	56,925	2,919,237	(143,811)	2,775,426

Credit quality of loans and advances to customers

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

	Stage 1	Stage 2	Stage 3	POCI	Total
	€000	€000	€000	€000	€000
Gross loans before fair value adjustment on initial recognition	6,151,902	3,707,232	4,297,990	876,447	15,033,571
Fair value adjustment on initial recognition	(60,250)	(43,212)	(57,351)	(146,321)	(307,134)
Gross loans after fair value adjustment on initial recognition	6,091,652	3,664,020	4,240,639	730,126	14,726,437

Gross loans at amortised cost before fair value adjustment on initial recognition	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	3,039,712	1,311,193	613,763	78,161	5,042,829
SMEs	713,641	585,002	138,002	12,965	1,449,610
Retail
- housing	1,610,160	1,098,382	431,972	13,005	3,153,519
- consumer, credit cards and other	609,047	212,355	252,443	26,105	1,099,950
Restructuring
- major corporate	37,670	201,055	62,831	78,902	380,458
- corporate	26,286	67,149	216,252	9,674	319,361
- SMEs	46,704	81,391	457,381	53,214	638,690
- retail housing	3,383	5,177	358,505	12,589	379,654
- retail other	3,905	771	214,562	12,863	232,101
Recoveries
- corporate	-	-	119,300	59,962	179,262
- SMEs	-	-	518,598	119,867	638,465
- retail housing	-	-	489,926	195,458	685,384
- retail other	113	-	327,067	187,165	514,345
International banking services	49,108	106,580	84,828	12,630	253,146
Wealth management	12,173	38,177	12,560	3,887	66,797
	6,151,902	3,707,232	4,297,990	876,447	15,033,571

28. Risk management - Credit risk (continued)

Credit quality of loans and advances to customers (continued)

Fair value adjustment on initial recognition	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	(5,986)	(27,900)	(25,478)	(982)	(60,346)
SMEs	(9,179)	(9,212)	(948)	(633)	(19,972)
Retail
- housing	(35,374)	109	(2,474)	(361)	(38,100)
- consumer, credit cards and other	(8,060)	(349)	(2,718)	(2,211)	(13,338)
Restructuring
- major corporate	(157)	(9,394)	(1,362)	(1,015)	(11,928)
- corporate	(119)	2,630	(1,139)	(2,194)	(822)
- SMEs	(152)	3,249	(5,254)	(8,186)	(10,343)
- retail housing	(12)	299	(2,250)	(1,707)	(3,670)
- retail other	(6)	154	(3,522)	(3,405)	(6,779)
Recoveries
- corporate	-	-	(548)	(12,383)	(12,931)
- SMEs	-	-	(1,905)	(26,050)	(27,955)
- retail housing	-	-	(2,999)	(41,450)	(44,449)
- retail other	-	-	(5,047)	(42,967)	(48,014)
International banking services	(201)	(1,276)	(391)	(927)	(2,795)
Wealth management	(1,004)	(1,522)	(1,316)	(1,850)	(5,692)
	(60,250)	(43,212)	(57,351)	(146,321)	(307,134)

Gross loans at amortised cost after fair value adjustment on initial recognition	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	3,033,726	1,283,293	588,285	77,179	4,982,483
SMEs	704,462	575,790	137,054	12,332	1,429,638
Retail
- housing	1,574,786	1,098,491	429,498	12,644	3,115,419
- consumer, credit cards and other	600,987	212,006	249,725	23,894	1,086,612
Restructuring
- major corporate	37,513	191,661	61,469	77,887	368,530
- corporate	26,167	69,779	215,113	7,480	318,539
- SMEs	46,552	84,640	452,127	45,028	628,347
- retail housing	3,371	5,476	356,255	10,882	375,984
- retail other	3,899	925	211,040	9,458	225,322
Recoveries
- corporate	-	-	118,752	47,579	166,331
- SMEs	-	-	516,693	93,817	610,510
- retail housing	-	-	486,927	154,008	640,935
- retail other	113	-	322,020	144,198	466,331
International banking services	48,907	105,304	84,437	11,703	250,351
Wealth management	11,169	36,655	11,244	2,037	61,105
	6,091,652	3,664,020	4,240,639	730,126	14,726,437

28. Risk management - Credit risk (continued)

Credit quality of loans and advances to customers (continued)

The following table presents the credit quality of the Group's loans and advances to customers at amortised cost by geographical concentration:

30 June 2018	Cyprus	Greece	United Kingdom	Romania	Russia	Total	Fair value adjustment on initial recognition	Gross loans at amortised cost after fair value adjustment on initial recognition
By staging	€000	€000	€000	€000	€000	€000	€000	€000
Stage 1	4,453,935	-	1,696,982	985	-	6,151,902	(60,250)	6,091,652
Stage 2	3,612,118	-	93,914	1,200	-	3,707,232	(43,212)	3,664,020
Stage 3	4,061,615	26,043	27,388	56,226	126,718	4,297,990	(57,351)	4,240,639
POCI	873,614	-	-	2,833	-	876,447	(146,321)	730,126
	13,001,282	26,043	1,818,284	61,244	126,718	15,033,571	(307,134)	14,726,437

	31 December 2017
	Gross loans before fair value adjustment on initial recognition	Fair value adjustment on initial recognition	Gross loans after fair value adjustment on initial recognition
	€000	€000	€000
Neither past due nor impaired	11,149,969	(140,405)	11,009,564
Past due but not impaired	2,084,694	(29,554)	2,055,140
Impaired	5,520,052	(498,526)	5,021,526
	18,754,715	(668,485)	18,086,230

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

	31 December 2017
	Impaired	Past due but not impaired
	€000	€000
- no arrears	401,933	-
- up to 30 days	141,329	438,538
- 31 to 90 days	20,880	261,453
- 91 to 180 days	26,340	124,484
- 181 to 365 days	73,073	252,034
- over one year	4,856,497	1,008,185
	5,520,052	2,084,694

28. Risk management - Credit risk (continued)

Credit quality of loans and advances to customers (continued)

	31 December 2017
	Gross loans and advances	Fair value of collateral
	€000	€000
Cyprus	5,213,278	3,297,980
Greece	15,555	7,041
Russia	143,979	34,847
United Kingdom	6,447	19,932
Romania	140,793	20,385
	5,520,052	3,380,185

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

Credit quality of loans and advances to customers classified as held for sale

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

	Stage 1	Stage 2	Stage 3	POCI	Total
	€000	€000	€000	€000	€000
Gross loans at amortised cost before fair value adjustment on initial recognition	13,583	92,576	2,257,149	555,929	2,919,237
Fair value adjustment on initial recognition	(98)	(1,537)	(27,193)	(114,983)	(143,811)
Gross loans at amortised cost after fair value adjustment on initial recognition ECL	13,485	91,039	2,229,956	440,946	2,775,426

28. Risk management - Credit risk (continued)

Credit quality of loans and advances to customers classified as held for sale (continued)

Gross loans at amortised cost before fair value adjustment on initial recognition	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	1	662	14,683	600	15,946
SMEs	446	7,031	6	-	7,483
Retail
- consumer, credit cards and other	-	99	138	3	240
Restructuring
- major corporate	-	23,406	459,683	18,764	501,853
- corporate	7,291	43,757	327,223	18,729	397,000
- SMEs	5,845	17,621	285,551	34,055	343,072
- retail other	-	-	257	-	257
Recoveries
- corporate	-	-	749,120	323,172	1,072,292
- SMEs	-	-	346,242	113,571	459,813
- retail housing	-	-	662	6,121	6,783
- retail other	-	-	73,580	40,914	114,494
International banking services	-	-	4	-	4
	13,583	92,576	2,257,149	555,929	2,919,237
Fair value adjustment on initial recognition	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	-	-	(584)	-	(584)
SMEs	-	(118)	-	-	(118)
Retail
- consumer, credit cards and other	-	-	-	(1)	(1)
Restructuring
- major corporate	-	(73)	(9,901)	(4,218)	(14,192)
- corporate	-	(1,080)	(3,756)	(578)	(5,414)
- SMEs	(98)	(266)	(3,951)	(6,225)	(10,540)
Recoveries
- corporate	-	-	(4,633)	(73,171)	(77,804)
- SMEs	-	-	(3,919)	(23,090)	(27,009)
- retail housing	-	-	-	(1,035)	(1,035)
- retail other	-	-	(449)	(6,665)	(7,114)
	(98)	(1,537)	(27,193)	(114,983)	(143,811)

28. Risk management - Credit risk (continued)

Credit quality of loans and advances to customers classified as held for sale (continued)

Gross loans at amortised cost after fair value adjustment on initial recognition	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	1	662	14,099	600	15,362
SMEs	446	6,913	6	-	7,365
Retail
- consumer, credit cards and other	-	99	138	2	239
Restructuring
- major corporate	-	23,333	449,782	14,546	487,661
- corporate	7,291	42,677	323,467	18,151	391,586
- SMEs	5,747	17,355	281,600	27,830	332,532
- retail other	-	-	257	-	257
Recoveries
- corporate	-	-	744,487	250,001	994,488
- SMEs	-	-	342,323	90,481	432,804
- retail housing	-	-	662	5,086	5,748
- retail other	-	-	73,131	34,249	107,380
International banking services	-	-	4	-	4
	13,485	91,039	2,229,956	440,946	2,775,426

The following table presents the credit quality of the Group's loans and advances to customers at amortised cost classified as held for sale by geographical concentration:

30 June 2018	Cyprus	United Kingdom	Romania	Total	Fair value adjustment on initial recognition	Gross loans after fair value adjustment on initial recognition
By staging	€000	€000	€000	€000	€000	€000
Stage 1	13,583	-	-	13,583	(98)	13,485
Stage 2	92,576	-	-	92,576	(1,537)	91,039
Stage 3	2,200,171	53	56,925	2,257,149	(27,193)	2,229,956
POCI	555,929	-	-	555,929	(114,983)	440,946
	2,862,259	53	56,925	2,919,237	(143,811)	2,775,426

28. Risk management - Credit risk (continued)

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

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

30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
Cyprus	€000	€000	€000	€000	€000
1 January	20,817	29,625	2,706,307	479,354	3,236,103
Change in the basis of calculation of gross carrying value (IFRS 9 Grossing up adjustment)	5,068	6,578	1,296,164	324,512	1,632,322
Impact of adopting IFRS 9 at 1 January 2018	(6,660)	32,744	211,423	45,495	283,002
Restated balance at 1 January 2018	19,225	68,947	4,213,894	849,361	5,151,427
Transfer from Romania branch	-	-	-	19,258	19,258
Transfers to stage 1	35,649	(20,882)	(14,767)	-	-
Transfers to stage 2	(731)	25,830	(25,099)	-	-
Transfers to stage 3	(1,026)	(3,989)	5,015	-	-
Foreign exchange and other adjustments	-	-	923	168	1,091
Write offs	(15,000)	(26,361)	(1,709,431)	(473,023)	(2,223,815)
Interest (provided) not recognised in the income statement	-	-	68,475	9,501	77,976
New assets originated or purchased*	5,759	-	-	13	5,772
Assets derecognised or repaid (excluding write offs)*	588	(2,015)	(61,691)	-	(63,118)
Write offs*	735	2,345	43,025	801	46,906
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	15,530	54,757	325,908	38,230	434,425
Changes to contractual cash flows due to modifications not resulting in derecognition*	-	-	394	-	394
Impact on transfer between stages during the period*	(29,348)	(10,590)	43,015	236	3,313
30 June	31,381	88,042	2,889,661	444,545	3,453,629
Individually assessed	9,018	28,680	750,596	68,719	857,013
Collectively assessed	22,363	59,362	2,139,065	375,826	2,596,616
	31,381	88,042	2,889,661	444,545	3,453,629

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

28. Risk management - Credit risk (continued)

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

30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
United Kingdom	€000	€000	€000	€000	€000
1 January	1,381	365	5,776	-	7,522
Change in the basis of calculation of gross carrying value (IFRS 9 Grossing up adjustment)	-	16	110	-	126
Impact of adopting IFRS 9 at 1 January 2018	(7)	4,212	22	-	4,227
Restated balance at 1 January 2018	1,374	4,593	5,908	-	11,875
Foreign exchange and other adjustments	(4)	1	10	-	7
Write offs	(1)	-	(2,507)	-	(2,508)
Interest (provided) not recognized in the income statement	-	-	17	-	17
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	154	(1,350)	(125)	-	(1,321)
Write offs*	(106)	(109)	-	-	(215)
30 June	1,417	3,135	3,303	-	7,855
Individually assessed	791	3,135	3,260	-	7,186
Collectively assessed	626	-	43	-	669
	1,417	3,135	3,303	-	7,855

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

28. Risk management - Credit risk (continued)

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

30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
Other countries	€000	€000	€000	€000	€000
1 January	-	-	220,893	19,258	240,151
Change in the basis of calculation of gross carrying value (IFRS 9 Grossing up adjustment)	-	-	53,769	3,280	57,049
Impact of adopting IFRS 9 at 1 January 2018	-	3	976	(32)	947
Restated balance at 1 January 2018	-	3	275,638	22,506	298,147
Transfer to Cyprus operations	-	-	-	(19,258)	(19,258)
Assets derecognised or repaid (excluding write offs)	-	-	(1)	-	(1)
Transfers to stage 2	-	25	(25)	-	-
Foreign exchange and other adjustments	2	-	(566)	-	(564)
Write offs	1	-	(59,818)	(4)	(59,821)
Interest (provided) not recognised in the income statement	-	-	1,979	-	1,979
Assets derecognised or repaid (excluding write-offs)*	-	-	(45)	-	(45)
Write offs*	-	-	(274)	-	(274)
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	(133)	36	(13,870)	(429)	(14,396)
Impact on transfer between stages during the period*	158	(24)	(1,632)	-	(1,498)
30 June	28	40	201,386	2,815	204,269
Individually assessed	2	15	192,451	-	192,468
Collectively assessed	26	25	8,935	2,815	11,801
	28	40	201,386	2,815	204,269

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

28. Risk management - Credit risk (continued)

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

30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
Total	€000	€000	€000	€000	€000
1 January	22,198	29,990	2,932,976	498,612	3,483,776
Change in the basis of calculation of gross carrying value (IFRS 9 Grossing up adjustment)	5,068	6,594	1,350,043	327,792	1,689,497
Impact of adopting IFRS 9 at 1 January 2018	(6,667)	36,959	212,421	45,463	288,176
Restated balance at 1 January 2018	20,599	73,543	4,495,440	871,867	5,461,449
Assets derecognised or repaid (excluding write offs)	-	-	(1)	-	(1)
Transfers to stage 1	35,649	(20,882)	(14,767)	-	-
Transfers to stage 2	(731)	25,855	(25,124)	-	-
Transfers to stage 3	(1,026)	(3,989)	5,015	-	-
Foreign exchange and other adjustments	(2)	1	367	168	534
Write offs	(15,000)	(26,361)	(1,771,756)	(473,027)	(2,286,144)
Interest (provided) not recognised in the income statement	-	-	70,471	9,501	79,972
New assets originated or purchased*	5,759	-	-	13	5,772
Assets derecognised or repaid (excluding write-offs) *	588	(2,015)	(61,736)	-	(63,163)
Write offs*	629	2,236	42,751	801	46,417
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	15,551	53,443	311,913	37,801	418,708
Changes to contractual cash flows due to modifications not resulting in derecognition*	-	-	394	-	394
Impact on transfer between stages during the period*	(29,190)	(10,614)	41,383	236	1,815
30 June	32,826	91,217	3,094,350	447,360	3,665,753
Individually assessed	9,811	31,830	946,307	68,719	1,056,667
Collectively assessed	23,015	59,387	2,148,043	378,641	2,609,086
	32,826	91,217	3,094,350	447,360	3,665,753

* Individual components of the 'Impairment loss net of reversals on loans and advances to customers' as disclosed in Note 11.

28. Risk management - Credit risk (continued)

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

The credit losses of loans and advances to customers include credit losses relating to loans and advances to customers classified as held for sale. Their balance at 30 June 2018 by staging and geographical area is presented in the table below:

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2018	€000	€000	€000	€000	€000
Cyprus	6,473	40,896	1,265,223	178,720	1,491,312
United Kingdom	-	-	38	-	38
Other countries	-	-	45,457	-	45,457
Total	6,473	40,896	1,310,718	178,720	1,536,807
Individually assessed	-	8,320	639,680	43,920	691,920
Collectively assessed	6,473	32,576	671,038	134,800	844,887
	6,473	40,896	1,310,718	178,720	1,536,807

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

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

As from 1 January 2018, to comply with the requirements of IFRS 9, relating to the measurement and presentation of the gross carrying amount and accumulated allowance for impairment as impacted from interest income on impaired loans, the gross carrying amounts of the loans have been increased by an amount of €1,689,497 thousand and an equivalent adjustment was effected on the accumulated allowance for impairment. There was no impact on the net carrying amount of the customer loans and advances from this charge in the presentation.

During the six months ended 30 June 2018 the total non-contractual write-offs recorded by the Group amounted to €2,119,419 thousand (year 2017: €466,248 thousand).

Assumptions have been made about the future changes in property values, as well as the timing for the realisation of the collateral, taxes and expenses on the repossession and subsequent sale of the collateral as well as any other applicable haircuts. Indexation has been used to estimate updated market values of properties, while assumptions were made on the basis of a macroeconomic scenario for future changes in property values.

28. Risk management - Credit risk (continued)

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

At 30 June 2018 the weighted average haircut (including liquidity haircut and selling expenses) used in the collectively assessed provisions calculation for loans and advances to customers other than those classified as held for sale is c.32% (31 December 2017: c.34%).

The timing of recovery from real estate collaterals used in the collectively assessed provision calculation for loans and advances to customers other than those classified as held for sale has been estimated to be on average 6 years (2017: average of 6 years).

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 stage 3 customers, the calculation of individually assessed provisions is the weighted average of three scenarios; base, adverse and favourable with 50%, 30% and 20% probability respectively. 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, whereas under the favourable scenario applied haircuts are decreased by 5%, with no change in the recovery period.

Collectively assessed

For the calculation of collectively assessed provisions three scenarios were used; base, adverse and favourable with 50%, 30% and 20% probability respectively.

Any positive cumulative average future change in property values forecasted was capped to zero both for the period during the six months ended 30 June 2018 and the corresponding period of 2017. This applies to all scenarios.

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

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

Sensitivity analysis

The Group has performed sensitivity analyses relating to the loan portfolio in Cyprus (excluding the loans and advances to customers classified as held for sale) with reference date 30 June 2018.

The Group uses 3 different economic scenarios in the ECL calculation: a base, an adverse and a favourable scenario with weights 50%, 30% and 20% respectively. The same scenarios determined at 30 June 2018 were used for the scenarios determined on 1 January 2018 (the transition date to IFRS 9).

28. Risk management - Credit risk (continued)

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

Sensitivity analysis (continued)

The Group has altered the weights of the economic scenarios and changed the collateral realisation periods and the impact on the ECL for both individually and collectively assessed provisions as at 30 June 2018 is presented in the table below:

	Increase/(decrease) on ECL for loans and advances to customers at amortised cost
	€000
Increase the adverse weight by 5% and decrease the favourable weight by 5%	8,292
Decrease the adverse weight by 5% and increase the favourable weight by 5%	(8,289)
Increase the expected recovery period by 1 year	52,769
Decrease the expected recovery period by 1 year	(52,947)
Increase the collateral realisation haircut by 5%	89,745
Decrease the collateral realisation haircut by 5%	(83,710)

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

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

The comparative information is not comparable to current period information since the assumptions used differed under IAS 39 compared to IFRS 9.

28. Risk management - Credit risk (continued)

Forbearance

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

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

Modifications of loans and advances that do not affect payment arrangements, such as restructuring of collateral or security arrangements are not regarded as sufficient to indicate impairment as by themselves they do not necessarily indicate credit distress affecting payment ability.

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

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

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

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

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

Short-term restructuring solutions can include the following:

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

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

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

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

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

Long-term restructuring solutions can include the following:

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

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

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

28. Risk management - Credit risk (continued)

Forbearance (continued)

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

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

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

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

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

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

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

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

28. Risk management - Credit risk (continued)

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 amounts to €1,479,578 thousand.

	Cyprus	Greece	Russia	United Kingdom	Romania	Total
2018	€000	€000	€000	€000	€000	€000
1 January	6,272,946	338	70,595	9,886	18,249	6,372,014
Rescheduled loans measured at FVPL on adoption of IFRS 9	(341,765)	-	-	-	-	(341,765)
Change in the basis of calculation of gross carrying value (IFRS 9 Grossing up adjustment)	416,093	2,984	-	-	694	419,771
Restated balance at 1 January 2018	6,347,274	3,322	70,595	9,886	18,943	6,450,020
Transfer between geographical areas	4,465	-	-	-	(4,465)	-
New loans and advances rescheduled in the period	147,624	-	-	522	-	148,146
Assets no longer classified as rescheduled (including repayments)	(703,140)	97	(2,803)	(32)	-	(705,878)
Applied in writing off rescheduled loans and advances	(599,686)	-	-	-	(504)	(600,190)
Interest accrued on rescheduled loans and advances	88,378	-	-	7	14	88,399
Foreign exchange adjustments	2,313	-	(3,573)	17	-	(1,243)
30 June	5,287,228	3,419	64,219	10,400	13,988	5,379,254
2017
1 January	7,401,870	337	83,893	90,323	78,881	7,655,304
New loans and advances rescheduled in the period	270,153	-	-	48,376	4,127	322,656
Assets no longer classified as rescheduled (including repayments)	(658,408)	(1)	(2,218)	(36,142)	(13,926)	(710,695)
Applied in writing off rescheduled loans and advances	(222,091)	-	-	-	(13,000)	(235,091)
Interest accrued on rescheduled loans and advances	154,977	-	-	8	745	155,730
Foreign exchange adjustments	(6,699)	-	(3,441)	(2,394)	(97)	(12,631)
30 June	6,939,802	336	78,234	100,171	56,730	7,175,273

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.

28. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

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

Credit quality

	Cyprus	Greece	Russia	United Kingdom	Romania	Total
30 June 2018	€000	€000	€000	€000	€000	€000
Stage 1	601,264	-	-	-	-	601,264
Stage 2	744,619	-	-	3,995	57	748,671
Stage 3	2,163,591	3,419	64,219	6,405	12,833	2,250,467
POCI	298,176	-	-	-	1,098	299,274
	3,807,650	3,419	64,219	10,400	13,988	3,899,676
31 December 2017
Neither past due nor impaired	3,158,894	-	-	5,383	79	3,164,356
Past due but not impaired	1,218,160	-	-	2,354	-	1,220,514
Impaired	1,895,892	338	70,595	2,149	18,170	1,987,144
	6,272,946	338	70,595	9,886	18,249	6,372,014

Fair value of collateral

	Cyprus	Russia	United Kingdom	Romania	Total
30 June 2018	€000	€000	€000	€000	€000
Stage 1	557,930	-	167	-	558,097
Stage 2	680,522	-	3,995	57	684,574
Stage 3	1,781,955	12,115	6,162	10,986	1,811,218
POCI	277,488	-	-	827	278,315
	3,297,895	12,115	10,324	11,870	3,332,204
31 December 2017
Neither past due nor impaired	2,818,937	-	5,345	93	2,824,375
Past due but not impaired	1,020,063	-	2,353	-	1,022,416
Impaired	1,437,734	14,500	1,131	9,948	1,463,313
	5,276,734	14,500	8,829	10,041	5,310,104

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

28. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

Credit risk concentration

30 June 2018	Cyprus	Greece	Russia	United Kingdom	Romania	Total
By economic activity	€000	€000	€000	€000	€000	€000
Trade	313,458	-	30,591	320	613	344,982
Manufacturing	93,879	-	11,813	42	186	105,920
Hotels and catering	167,492	-	-	2,487	-	169,979
Construction	509,339	-	7,789	-	-	517,128
Real estate	380,167	-	-	4,618	13,189	397,974
Private individuals	1,945,258	-	-	1,422	-	1,946,680
Professional and other services	290,880	-	14,026	1,511	-	306,417
Other sectors	107,177	3,419	-	-	-	110,596
	3,807,650	3,419	64,219	10,400	13,988	3,899,676

30 June 2018
By business line
Corporate	551,796	3,419	59,836	4,656	12,829	632,536
SMEs	264,740	-	4,383	4,430	-	273,553
Retail
- housing	831,747	-	-	919	-	832,666
- consumer, credit cards and other	271,188	-	-	395	-	271,583
Restructuring
- major corporate	269,535	-	-	-	57	269,592
- corporate	227,402	-	-	-	-	227,402
- SMEs	422,338	-	-	-	-	422,338
- retail housing	276,635	-	-	-	-	276,635
- retail other	125,948	-	-	-	-	125,948
Recoveries
- corporate	77,252	-	-	-	1,102	78,354
- SMEs	128,019	-	-	-	-	128,019
- retail housing	195,735	-	-	-	-	195,735
- retail other	110,003	-	-	-	-	110,003
International banking services	51,694	-	-	-	-	51,694
Wealth management	3,618	-	-	-	-	3,618
	3,807,650	3,419	64,219	10,400	13,988	3,899,676

28. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

Credit risk concentration (continued)

30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	180,798	177,796	265,033	8,909	632,536
SMEs	65,484	101,529	99,344	7,196	273,553
Retail
- housing	221,044	216,401	386,984	8,237	832,666
- consumer, credit cards and other	69,392	22,276	177,208	2,707	271,583
Restructuring
- major corporate	23,155	138,146	47,135	61,156	269,592
- corporate	10,391	20,819	190,591	5,601	227,402
- SMEs	26,608	45,456	322,049	28,225	422,338
- retail housing	981	2,240	267,183	6,231	276,635
- retail other	352	139	122,708	2,749	125,948
Recoveries
- corporate	-	-	53,564	24,790	78,354
- SMEs	-	-	88,957	39,062	128,019
- retail housing	-	-	138,960	56,775	195,735
- retail other	-	-	65,322	44,681	110,003
International banking services	2,659	23,869	23,176	1,990	51,694
Wealth management	400	-	2,253	965	3,618
	601,264	748,671	2,250,467	299,274	3,899,676

28. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

Credit risk concentration (continued)

31 December 2017	Cyprus	Greece	Russia	United Kingdom	Romania	Total
By economic activity	€000	€000	€000	€000	€000	€000
Trade	607,700	-	31,237	445	713	640,095
Manufacturing	201,377	-	12,314	44	122	213,857
Hotels and catering	429,520	-	-	2,242	-	431,762
Construction	1,222,591	-	8,212	-	11,933	1,242,736
Real estate	862,508	-	-	4,837	5,401	872,746
Private individuals	2,221,465	-	-	1,593	-	2,223,058
Professional and other services	359,970	-	18,832	725	80	379,607
Other sectors	367,815	338	-	-	-	368,153
	6,272,946	338	70,595	9,886	18,249	6,372,014

31 December 2017
By business line
Corporate	795,714	338	65,925	3,867	14,637	880,481
SMEs	344,957	-	4,670	4,549	-	354,176
Retail
- housing	958,415	-	-	-	-	958,415
- consumer, credit cards and other	290,308	-	-	1,470	-	291,778
Restructuring
- major corporate	934,096	-	-	-	79	934,175
- corporate	624,602	-	-	-	-	624,602
- SMEs	739,537	-	-	-	-	739,537
- retail housing	301,111	-	-	-	-	301,111
- retail other	122,749	-	-	-	-	122,749
Recoveries
- corporate	569,287	-	-	-	3,533	572,820
- SMEs	226,158	-	-	-	-	226,158
- retail housing	171,234	-	-	-	-	171,234
- retail other	139,851	-	-	-	-	139,851
International banking services	53,103	-	-	-	-	53,103
Wealth management	1,824	-	-	-	-	1,824
	6,272,946	338	70,595	9,886	18,249	6,372,014

28. Risk management - Credit risk (continued)

Rescheduled loans and advances to customers (continued)

ECL allowances

	Cyprus	Greece	Russia	United Kingdom	Romania	Total
30 June 2018	€000	€000	€000	€000	€000	€000
Stage 1	4,413	-	-	-	-	4,413
Stage 2	12,113	-	-	1	-	12,114
Stage 3	667,548	3,419	52,070	1,219	7,285	731,541
POCI	102,274	-	-	-	1,097	103,371
	786,348	3,419	52,070	1,220	8,382	851,439
31 December 2017
Individual impairment	797,975	338	56,094	1,054	10,078	865,539
Collective impairment	594,075	-	-	242	-	594,317
	1,392,050	338	56,094	1,296	10,078	1,459,856

29. Risk management - Market risk

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

Interest rate risk

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

Currency risk

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

Price risk

Equity securities price risk

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

Debt securities price risk

Debt securities price risk is the risk of loss as a result of adverse changes in the prices of debt securities held by the Group. Debt security prices change as the credit risk of the issuer changes and/or as the interest rate changes for fixed rate securities. The Group invests a significant part of its liquid assets in debt securities issued mostly by governments.

The Group considers that the profile of its market risk has remained similar to the one prevailing at 31 December 2017 as presented in Note 45 of the Αnnual Consolidated Financial Statements of the Group for the year 2017.

30. Risk management - Liquidity risk and funding

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

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

In order to limit this risk, management aims to achieve diversified funding sources in addition to the Group's core deposit base, and has adopted a policy of managing assets with liquidity in mind and monitoring cash flows and liquidity on a daily basis. The Group has developed internal control processes and contingency plans for managing liquidity risk.

Management and structure

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

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

The ALCO is responsible for setting the policies for the effective management and monitoring of liquidity across the Group. Bank of Cyprus UK Ltd ALCO is responsible for monitoring the liquidity position of the unit and ensuring compliance with the approved policies and regulatory requirements.

Group Treasury is responsible for liquidity management at Group level and for overseeing the operations of Bank of Cyprus UK Ltd, to ensure compliance with internal and regulatory liquidity policies and provide direction as to the actions to be taken regarding liquidity needs. Group Treasury assesses on a continuous basis, and informs ALCO at regular time intervals, the adequacy of the liquid assets and takes the necessary actions to ensure a comfortable liquidity position.

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

Liquidity is monitored and managed on an ongoing basis through:

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

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

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

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

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

(vi) Recovery Plan: the Group has developed a Recovery Plan (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.

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

Monitoring process

Daily

The daily monitoring of customer cash flows and the stock of highly liquid assets is important to safeguard and ensure the uninterrupted operations of the Group's activities. Market Risk prepared a report for submission to the CBC and ECB/Single Supervisory Mechanism (SSM), indicating the opening and closing liquidity position, net customer movements and other movements analysed by the main currencies. This report was abolished on 15 June 2018. However, for better monitoring of the liquidity buffer, a new daily report was introduced analysing the internal liquidity buffer and comparing it to the previous day's buffer. This report is made available to Group Treasury and Group Finance. In addition, Group 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 two-week stress period, and adequate capacity to raise funding under a three month period, under all scenarios.

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

The designing of the stress tests followed best practice guidance and was based on the liquidity risk drivers which are recognised internationally by both the Prudential Regulation Authority (PRA) and EBA SREP. The stress tests assumptions are included in the Group Liquidity Policy which is reviewed on an annual basis and approved by the Board. However, whenever it is considered appropriate to amend the assumptions during the year, approval is requested by ALCO and the Board Risk Committee. The main items shocked in the different scenarios are: deposit outflows, wholesale funding, loan repayments, off-balance sheet commitments, marketable securities and cash collateral for derivatives and repos.

Weekly

Market Risk prepared weekly reports of Euro and foreign currency liquidity mismatch, which also disclosed the level of the liquidity ratios which were submitted to the CBC. Given these ratios were abolished on the
1 January 2018, CBC abolished these reports on the 15 June 2018 and replaced them with a new one indicating the level of Liquid Assets including Credit Institutions Money Market Placements as per LCR definitions.

Monthly

Market Risk prepares reports monitoring compliance with internal and regulatory liquidity ratios, for all banking units and for the Group and submits them to the ALCO, the Executive Committee and the Board Risk Committee. It also calculates the expected flows under a stress scenario and compares them with the projected available liquidity buffer in order to calculate the survival days. The fixed deposit renewal rates and the percentage of instant access deposits are also presented to the ALCO.

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

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

Quarterly

The results of the stress testing scenarios prepared daily are reported to ALCO and Board Risk Committee quarterly. Market Risk reports the Net Stable Funding Ratio (NSFR) and Leverage Ratio 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.

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

Monitoring process (continued)

Annually

The Group prepares on an annual basis its report on Internal Liquidity Adequacy Assessment Process (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. This LCP, as well as 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 presented in the table below, is calculated based on the Delegated Regulation (EU) 2015/61. It is designed to establish a minimum level of high-quality liquid assets sufficient to meet an acute stress lasting for 30 calendar days. As from 1 January 2018, the minimum requirement is 100%.

The Group's LCR ratio was as follows:

	30 June 2018	31 December 2017
	%	%
End of reporting period	199	190
Average monthly ratio	207	120
Highest monthly ratio	229	190
Lowest monthly ratio	197	58

As at 30 June 2018 the Group was in compliance with its regulatory liquidity requirements with respect to the LCR.

On 1 January 2018, the local liquidity regulatory requirements set by the CBC were abolished as per Article 412(5) of EU Regulation No 575/2013.

In December 2017, the CBC introduced a macroprudential measure in the form of a liquidity add-on that was imposed on top of the LCR of BOC PCL and which became effective on 1 January 2018. The objective of the measure is to ensure that there will be a gradual release of the excess liquidity in the Cyprus banking system arising from the lower liquidity requirements under the LCR compared to the ones under the local regulatory liquidity requirements previously in place. The add-on applies stricter outflow and inflow rates on some of the parameters used in the calculation of the LCR, as well as additional liquidity requirements in the form of outflow rates on items that are not subject to any outflow rates under the LCR. The measure is implemented in two stages. The first stage requires stricter outflow and inflow rates which are applicable from 1 January 2018 until 30 June 2018. The second stage requires more relaxed outflow and inflow rates compared to the initial ones, and are applicable from 1 July 2018 until 31 December 2018. Specifically, there is a reduction of 50% of the LCR add-on rates as from 1 July 2018. The additional liquidity requirement is expected to be implemented up to 31 December 2018. The CBC may propose to modify or extend the period of application of this macroprudential measure depending on the results of the follow-up of the banks' actions on how the excess liquidity is utilised. As at 30 June 2018, the Group and BOC PCL were in compliance with the LCR add-on implemented on 1 January 2018.

As at 30 June 2018 and 31 December 2017 Bank of Cyprus UK Ltd was in compliance with its regulatory liquidity requirements.

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

Main sources of funding

During the six months ended 30 June 2018, the Group's main sources of funding were its deposit base and central bank funding, through the Eurosystem monetary policy operations.

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

As at 30 June 2018, ECB funding was at €830 million in the form of 4-year TLTRO II.

In January 2017, BOC PCL issued a €250 million unsecured and subordinated Tier 2 Capital Note under BOC PCL's EMTN Programme. Further information is disclosed in Note 23.

Funding to subsidiaries

The funding provided by BOC PCL to its subsidiaries for liquidity purposes is repayable as per the terms of the respective agreements. BOC PCL's subsidiary Bank of Cyprus UK Ltd cannot place funds with the Group in excess of maximum limits set by the local regulator.

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

The subsidiaries may proceed with dividend distributions in the form of cash to BOC PCL, provided that they are not in breach of their regulatory capital and liquidity requirements. Certain subsidiaries have a recommendation from their regulator to avoid any dividend distribution at this point in time.

Collateral requirements

The carrying values of the Group's encumbered assets as at 30 June 2018 and 31 December 2017 are summarised below:

	30 June 2018	31 December 2017
	€000	€000
Cash and other liquid assets	98,289	120,525
Investments	301,775	317,167
Loans and advances	2,831,468	3,137,586
	3,231,532	3,575,278

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

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

Loans and advances indicated as encumbered as at 30 June 2018 and 31 December 2017 are mainly used as collateral for funding from the Central Banks (ECB and Bank of England) and the covered bond.

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

Collateral requirements (continued)

At 30 June 2018 BOC PCL's subsidiary Bank of Cyprus UK Ltd has pledged €338 million (31 December 2017: €161 million) of loans and advances to customers with the Funding for Lending Scheme (FLS) of the Bank of England. As at 30 June 2018 the subsidiary had drawn down Treasury bills of €171 million (31 December 2017: €82 million) under the FLS out of which €4 million are pledged as at 30 June 2018 (31 December 2017: nil) and €167 million remain available to be pledged. These Treasury bills are not recorded on the consolidated balance sheet as ownership remains with the Bank of England.

BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the Covered Bonds Directive of the CBC. Under the Covered Bond Programme, BOC PCL has in issue covered bonds of €650 million secured by residential mortgages originated in Cyprus. 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 have traded on the Luxemburg Bourse. The covered bonds have a conditional Pass-Through structure. All the bonds are held by BOC PCL. The credit rating of the covered bonds was upgraded to an investment grade rating and the covered bond has become eligible collateral for the Eurosystem credit operations. As from 2 October 2015, it has been placed as collateral for accessing funding from the ECB.

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

31. 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 and any other decisions or circulars issued by the regulators, ECB and CBC with respect to the capital adequacy calculations.

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

The overseas banking subsidiary Bank of Cyprus UK Ltd, complies with the minimum regulatory capital requirements, including those set by the local regulator in the UK. The insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance including the minimum solvency ratio. The regulated investment firms of the Group comply with the regulatory capital requirements of the CySEC laws and regulations.

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

32. Related party transactions

	30 June 2018	31 December 2017
Loans and advances	€000	€000
- members of the Board of Directors and other key management personnel	2,722	2,736
- connected persons	393	414
	3,115	3,150

Deposits
- members of the Board of Directors and other key management personnel	2,005	2,737
- connected persons	2,969	3,088
	4,974	5,825

Accruals and other liabilities

- balances with entity providing key

management personnel services

12,617

6,217

The above table does not include period/year-end balances i.e. 30 June 2018 and 31 December 2017 respectively, for members of the Board of Directors and their connected persons who resigned during the period/year.

Interest income and expense, from members of the Board of Directors and connected persons and other key management personnel and connected persons, from loans and advances and deposits for the six months ended 30 June 2018 amounted to €40 thousand and €26 thousand respectively (corresponding period of 2017: €43 thousand and €30 thousand respectively). The interest income and expense are disclosed from the date of their appointment.

In addition to loans and advances, there were contingent liabilities and commitments in respect of members of the Board of Directors and their connected persons, mainly in the form of documentary credits, guarantees and commitments to lend, amounting to €53 thousand (31 December 2017: €76 thousand). There were also contingent liabilities and commitments to other key management personnel and their connected persons amounting to €420 thousand (31 December 2017: €431 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 2018 amounted to €645 thousand (31 December 2017: €663 thousand).

Staff costs, consultancy fees and restructuring expenses for the six months ended 30 June 2018 arising with the entity providing key management personnel services amounted to €10,481 thousand (corresponding period of 2017: €6,061 thousand).

At 30 June 2018 the Group has a deposit of €3,815 thousand (31 December 2017: €5,419 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 six months ended 30 June 2018 premiums of €19 thousand and claims of €1 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 (corresponding period of 2017: €16 thousand and €17 thousand respectively) and commissions amounting to €7 thousand (corresponding period of 2017: €4 thousand) were received by the Group for the provision of investment services.

32. Related party transactions (continued)

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

There were no other transactions during the six months ended 30 June 2018 and 2017 with connected persons of the current members of the Board of Directors nor with any members who resigned during the period.

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

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

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

In the opinion of the Board of Directors, there have been no related party transactions or changes therein, since the year ended 31 December 2017, that have materially affected the Group's financial position or performance during the six months ended 30 June 2018.

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

	Six months ended 30 June
Director emoluments	2018	2017
Executives	€000	€000
Salaries and other short term benefits	1,225	1,075
Employer's contributions	49	42
Retirement benefit plan costs	108	94
	1,382	1,211
Non-executives
Fees	452	428
Total directors' emoluments	1,834	1,639
Other key management personnel emoluments
Salaries and other short term benefits	1,606	1,602
Employer's contributions	104	119
Retirement benefit plan costs	65	100
Total other key management personnel emoluments	1,775	1,821
Total	3,609	3,460

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.

32. Related party transactions (continued)

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

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

33. 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 2018 are:

Company	Country	Activities	Percentage holding (%)
Bank of Cyprus Holdings Public Limited Company	Ireland	Holding company	N/A
Bank of Cyprus Public Company Ltd	Cyprus	Commercial bank	100
The Cyprus Investment and Securities Corporation Ltd (CISCO)	Cyprus	Investment banking, asset management and brokerage	100
General Insurance of Cyprus Ltd	Cyprus	General insurance	100
EuroLife Ltd	Cyprus	Life insurance	100
Kermia Ltd	Cyprus	Property trading and development	100
Kermia Properties & Investments Ltd	Cyprus	Property trading and development	100
Global Balanced Fund of Funds Salamis Variable Capital Investment Company PLC (formerly Cytrustees Investment Public Company Ltd)	Cyprus	Closed-end investment company	59
LCP Holdings and Investments Public Ltd	Cyprus	Holding company	67
JCC Payment Systems Ltd	Cyprus	Card processing transaction services	75
CLR Investment Fund Public Ltd	Cyprus	Investment company	20
Auction Yard Ltd	Cyprus	Auction company	100
BOC Secretarial Company Ltd	Cyprus	Secretarial services	100
S.Z. Eliades Leisure Ltd	Cyprus	Land development and operation of a golf resort	70
BOC Asset Management Ltd	Cyprus	Managements administration and safekeeping of UCITS units	100
Cyreit Variable Capital Investment Company PLC (Cyreit)	Cyprus	Real estate investment fund	90
Bank of Cyprus Public Company Ltd (branch of BOC PCL)	Greece	Administration of guarantees and holding of real estate properties	N/A
Bank of Cyprus UK Ltd	United Kingdom	Commercial bank	100
Bank of Cyprus Financial Services Ltd	United Kingdom	Financial advisory services	100
BOC Asset Management Romania S.A.	Romania	Collection of the existing portfolio of receivables, including third party collections	100
MC Investment Assets Management LLC	Russia	Problem asset management company	100
Kyprou Finance (NL) B.V.	Netherlands	Financing services	100
Fortuna Astrum Ltd	Serbia	Problem asset management company	100

33. Group companies (continued)

In addition to the above companies, at 30 June 2018 BOC PCL had 100% shareholding in the companies listed below whose activity is the ownership and management of immovable property:

Cyprus: Timeland Properties Ltd, Cobhan Properties Ltd, Bramwell Properties Ltd, Birkdale Properties Ltd, Newington Properties Ltd, Innerwick Properties Ltd, Ramendi Properties Ltd, Ligisimo Properties Ltd, Nalmosa Properties Ltd, Emovera Properties Ltd, Estaga Properties Ltd, Skellom Properties Ltd, Blodar Properties Ltd, Spaceglowing Properties Ltd, Tebane Properties Ltd, Cranmer Properties Ltd, Vieman Ltd, Les Coraux Estates Ltd, Natakon Company Ltd, Oceania Ltd, Dominion Industries Ltd, Ledra Estate Ltd, EuroLife Properties Ltd, Laiki Lefkothea Center Ltd, Labancor Ltd, Steparco Ltd, Joberco Ltd, Zecomex Ltd, Domita Estates Ltd, Memdes Estates Ltd, Pamaco Platres Complex Ltd, Thryan Properties Ltd, Otoba Properties Ltd, Edoric Properties Ltd, Canosa Properties Ltd, Kernland Properties Ltd, Jobelis Properties Ltd, Melsolia Properties Ltd, Lozzaria Properties Ltd, Koralmon Properties Ltd, Kedonian Properties Ltd, Lasteno Properties Ltd, Armozio Properties Ltd, Spacous Properties Ltd, Calinora Properties Ltd, Marcozaco Properties Ltd, Soluto Properties Ltd, Solomaco Properties Ltd, Linaland Properties Ltd, Andaz Properties Ltd, Unital Properties Ltd, Neraland Properties Ltd, 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, Belaland Properties Ltd, Citlali Properties Ltd, Astromeria Properties Ltd, Orzo Properties Ltd, Basiga Properties Ltd, Regetona Properties Ltd, Arcandello Properties Ltd, Camela Properties Ltd, Subworld Properties Ltd, Jongeling Properties Ltd, Introserve Properties Ltd, Alomco Properties Ltd, Cereas Properties Ltd, Fareland Properties Ltd, Sindelaco Properties Ltd, Barosca Properties Ltd, Fogland Properties Ltd, Tebasco Properties Ltd, Dolapo Properties Ltd, Homirova Properties Ltd, Valecross Properties Ltd, Altco Properties Ltd, Marisaco Properties Ltd, Olivero Properties Ltd, Jaselo Properties Ltd, Elosa Properties Ltd, Garveno Properties Ltd, Flona Properties Ltd, Toreva Properties Ltd, Resoma Properties Ltd, Mostero Properties Ltd, Helal Properties Ltd, Yossi Properties Ltd, Gozala Properties Ltd, Pendalo Properties Ltd, Frontyard Properties Ltd, Bonsova Properties Ltd, Nasebia Properties Ltd, Garmozy Properties Ltd, Palmco Properties Ltd, Thermano Properties Ltd, Indene Properties Ltd, Ingane 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, Carnota Properties Ltd, Diafor Properties Ltd, Kartama Properties Ltd, Paradexia Properties Ltd, Paramina Properties Ltd, Prosilia Properties Ltd, Nouralia Properties Ltd, Resocot Properties Ltd, Soblano Properties Ltd, Talamon Properties Ltd, Weinar Properties Ltd, Zemialand Properties Ltd, Asianco Properties Ltd, Barway Properties Ltd, Cimonia Properties Ltd, Coeval Properties Ltd, Comenal Properties Ltd, Fastflow Properties Ltd, Finacap Properties Ltd, Finevo Properties Ltd, Ganina Properties Ltd, Intelamon Properties Ltd, Kenelyne Properties Ltd, Mazima Properties Ltd, Nesia Properties Ltd, Nigora Properties Ltd, Nivoco Properties Ltd, Pariza Properties Ltd, Riveland Properties Ltd, Rosalica Properties Ltd, Secretsky Properties Ltd, Senadaco Properties Ltd, Tasabo Properties Ltd, Venetolio Properties Ltd, Zandexo Properties Ltd, Bokeno Properties Ltd, Flymoon Properties Ltd, Meriaco Properties Ltd, Valecast Properties Ltd, Teresan Properties Ltd, Odolo Properties Ltd, Prodino Properties Ltd, Racotino Properties Ltd, Rondemio Properties Ltd, Rylico Properties Ltd, Vatino Properties Ltd, Virero Properties Ltd, Volparo Properties Ltd and Zedoma Properties Ltd.

Romania: Otherland Properties Dorobanti SRL, Battersee Real Estate SRL, Trecoda Real Estate SRL, Green Hills Properties SRL, Bocaland Properties SRL, Romaland Properties SRL, Imoreth Properties SRL, Inroda Properties SRL, Tantora Properties SRL, Zunimar Properties SRL, Allioma Properties SRL and Nikaba Properties SRL.

Further, at 30 June 2018 BOC PCL had 100% shareholding in Obafemi Holdings Ltd, Stamoland Properties Ltd and Gosman Properties Ltd. During the six months ended 30 June 2018 BOC PCL acquired 90% shareholding in Cyreit Variable Capital Investment Company PLC (Cyreit) therefore the indirect holding in Cyreit's subsidiaries Smooland Properties Ltd, Threefield Properties Ltd, Vameron Properties Ltd, Bascot Properties Ltd, Vanemar Properties Ltd, Consoly Properties Ltd, Alomnia Properties Ltd, Artozaco Properties Ltd, Elizano Properties Ltd, Letimo Properties Ltd, Allodica Properties Ltd, Wiceco Properties Ltd, Primaco Properties Ltd, Arleta Properties Ltd, Kuvena Properties Ltd, Nuca Properties Ltd, Orleania Properties Ltd, Ravenica Properties Ltd, Rouena Properties Ltd, Lancast Properties Ltd at 30 June 2018 is 90%.

33. Group companies (continued)

Additionally, BOC PCL increased its controlling interest from 51% to 64% in Nicosia Mall Management (NMM) Limited, Nicosia Mall Finance (NMF) Limited, Nicosia Mall Holdings (NMH) Limited and Nicosia Mall Property (NMP) Ltd. The main activities of the above companies are the holding of shares and other investments and the provision of services except for Nicosia Mall Property (NMP) Ltd whose activity is the ownership and management of immovable property.

At 30 June 2018 BOC PCL had 100% shareholding in the companies listed below which are reserved to accept property:

Cyprus: Belvesi Properties Ltd, Tavoni Properties Ltd, Amary Properties Ltd, Hamura Properties Ltd, Holstone Properties Ltd, Alepar Properties Ltd, Calandomo Properties Ltd, Cramonco Properties Ltd, Monata Properties Ltd, Legamon Properties Ltd, Aktilo Properties Ltd, Alezia Properties Ltd, Aparno Properties Ltd, Asendo Properties Ltd, Domilas Properties Ltd, Dorfilo Properties Ltd, Enelo Properties Ltd, Gylito Properties Ltd, Lamezoco Properties Ltd, Mikosa Properties Ltd, Noleta Properties Ltd, Sailoma Properties Ltd, Stormino Properties Ltd, Tolmeco Properties Ltd, Arlona Properties Ltd, Dilero Properties Ltd, Ensolo Properties Ltd, Fodilo Properties Ltd, Folimo Properties Ltd, Jalimo Properties Ltd, Livena Properties Ltd, Molemo Properties Ltd, Nivamo Properties Ltd, Pelika Properties Ltd, Petrassimo Properties Ltd, Sendilo Properties Ltd, Stevolo Properties Ltd and Unoplan Properties Ltd.

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

Cyprus: Otherland Properties Ltd, Pittsburg Properties Ltd, Battersee Properties Ltd, Trecoda Properties Ltd, Bonayia Properties Ltd, Bocaland Properties Ltd, Buchuland Properties Ltd, Commonland Properties Ltd, Romaland Properties Ltd, BC Romanoland Properties Ltd, Blindingqueen Properties Ltd, Fledgego Properties Ltd, Janoland Properties Ltd, Loneland Properties Ltd, Unknownplan Properties Ltd, Frozenport Properties Ltd, Imoreth Properties Ltd, Inroda Properties Ltd, Melgred Properties Ltd, Tantora Properties Ltd, Zunimar Properties Ltd, Selilar Properties Ltd, Mirodi Properties Ltd, Nallora Properties Ltd, Nikaba Properties Ltd, Allioma Properties Ltd, Landanafield Properties Ltd and Hydrobius 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, Ilera Properties Ltd, Weinco Properties Ltd, Renalandia Properties Ltd, Sylvesta Properties Ltd, Crolandia Properties Ltd, Iperi Properties Ltd, Finerose Properties Ltd, Fantasio Properties Ltd, Demoro Properties Ltd, Elosis Properties Ltd and Polkima Properties Ltd.

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

Romania: Frozenport Properties SRL, Loneland Properties SRL, Melgred Properties SRL and Selilar Properties SRL.

All Group companies are accounted for as subsidiaries using the full consolidation method.

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

The Group considers that it exercises control over CLR and its subsidiaries (Europrofit Capital Investors Public 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.

33. Group companies (continued)

Dissolution and disposal of subsidiaries

As at 30 June 2018, the following subsidiaries were in the process of dissolution or in the process of being struck off: Samarinda Navigation Co Ltd, BOC Ventures Ltd, Salecom Ltd, Diners Club (Cyprus) Ltd, Leasing Finance LLC, Corner LLC, Omiks Finance LLC, Bank of Cyprus (Channel Islands) Ltd, Calomland Properties Ltd, Fairford Properties Ltd and Lameland Properties Ltd.

Unknownplan Properties SRL, Buchuland Properties SRL, Janoland Properties SRL, Mirodi Properties SRL, Nallora Properties SRL, Pittsburg Properties SRL and Blindingqueen Properties SRL were dissolved during the six months ended 30 June 2018. Nelipo Properties Ltd, Zarveto Properties Ltd, Bigwaive Properties Ltd, Jungax Properties Ltd, Bracando Properties Ltd, Kimrar Properties Ltd, Cadomia Properties Ltd, Desogus Properties Ltd, Ecunaland Properties Ltd, Losmane Properties Ltd, Forsban Properties Ltd and Jomento Properties Ltd were disposed of during the six months ended 30 June 2018 as part of the Group's strategy to dispose of repossessed properties.

Capitalisation of property revaluation reserve

During the six months ended 30 June 2018 Bank of Cyprus UK Ltd proceeded with the capitalisation of its property revaluation reserve of €7,955 thousand through the issue of shares to BOC PCL and subsequent reduction of share capital as permitted by the relevant legislation. Similarly, other reserves of €6,059 thousand which is of similar nature has been reclassified to accumulated losses.

34. Acquisitions and disposals

There were no acquisitions and disposals during the six months ended 30 June 2018 and 2017.

35. Investments in associates and joint ventures

Carrying value of the investments in associates and joint ventures

	Percentage holding (%)	30 June 2018	31 December 2017
	Percentage holding (%)	€000	€000
CNP Cyprus Insurance Holdings Ltd	49.9	117,777	115,770
Interfund Investments Plc	-	-	2,343
Aris Capital Management LLC	30.0	-	-
Rosequeens Properties Limited	33.3	-	-
Rosequeens Properties SRL	33.3	-	-
Tsiros (Agios Tychon) Ltd	50.0	-	-
M.S. (Skyra) Vassas Ltd	15.0	-	-
D.J. Karapatakis & Sons Limited	7.5	-	-
Rodhagate Entertainment Ltd	7.5	-	-
Fairways Automotive Holdings Ltd	45.0	-	-
		117,777	118,113

35. Investments in associates and joint ventures (continued)

Investments in associates

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

Interfund Investments Plc

In May 2018, BOC PCL sold its holding of 23.1% in its associate Interfund Investments Plc. The loss on disposal amounts to €191 thousand (Note 9).

M.S. (Skyra) Vassas Ltd

Ιn the context of its loan restructuring activities, the Group acquired a 15.00% interest in the share capital of M.S. Skyra Vassas Ltd. M.S. (Skyra) Vassas Ltd is the parent company of a group of companies (Skyra Vassas group) with operations in the production, processing and distribution of aggregates (crushed stone and sand) and provision of other construction materials, and services based on core products such as ready-mix concrete, asphalt and packing of aggregates. The Group considers that it exercises significant influence over the Skyra Vassas group as the Group has the power to have representation to the Board of Directors and to vote for matters relating to the relevant activities of the business. The investment is considered to be fully impaired and its value is restricted to zero.

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

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

Investment in joint ventures

Tsiros (Agios Tychon) Ltd

The Group holds a 50% shareholding in Tsiros (Agios Tychon) Ltd. The shareholder agreement with the other shareholder of Tsiros (Agios Tychon) Ltd stipulates a number of matters which require consent by both shareholders, therefore the Group considers that it jointly controls the company. The carrying value of Tsiros (Ayios Tychon) Ltd is restricted to zero.

36. Capital commitments

Capital commitments for the acquisition of property, equipment and intangible assets as at 30 June 2018 amount to €35,521 thousand (31 December 2017: €38,306 thousand).

37. Events after the reporting period

37.1 Agreement for the sale of Bank of Cyprus UK Ltd

In July 2018 the Group signed a binding agreement to sell its wholly owned subsidiary bank in the UK, Bank of Cyprus UK Limited and its subsidiary Bank of Cyprus Financial Services Ltd. The sale is expected to be completed by the end of 2018 and is subject to approval by the regulators of both the Group and Bank of Cyprus UK Limited.

37. Events after the reporting period (continued)

37.2 Project Helix

The Portfolio has a net book value of €1.3 billion. At completion, BOC PCL will receive a gross cash consideration of c.€1.4 billion.

Independent review report to the Bank of Cyprus Holdings plc

Introduction

We have been engaged by the Bank of Cyprus Holdings plc (the "Company" or the "Group") to review the interim condensed consolidated financial statements in the mid-year financial report for the six months ended 30 June 2018 which comprises the interim consolidated income statement, the interim consolidated statement of comprehensive income, the interim consolidated balance sheet, the interim consolidated statement of changes in equity, the interim consolidated statement of cash flows and the related Notes 1 to 37. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

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

Directors' Responsibilities

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

As disclosed in note 3.2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this mid-year financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

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

Scope of Review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the mid-year financial report for the six months ended 30 June 2018 are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.

Ernst & Young

Chartered Accountants

Dublin

28 August 2018

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

30 June

2018

This report includes additional risk and capital management disclosures.

In addition, this report includes information prepared in accordance with the Capital Requirements Regulation (CRR) and amended Capital Requirements Directive IV (CRD IV). The disclosures have been prepared in accordance with the European Banking Authority (EBA) Guidelines on materiality, proprietary and confidentiality and on disclosure frequency under Articles 432(1), 432(2) and 433 of Regulation (EU) No 575/2013 (EBA/2014/14) and EBA Guidelines on disclosure requirements under Part Eight of Regulation (EU) No 575/2013.

1. Credit risk

According to the EBA standards and ECB's Guidance to Banks on Non-Performing loans (which was published in March 2017), Non-Performing Exposures (NPEs) are defined as those exposures that satisfy one of the following conditions:

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

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

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

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

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

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

The following materiality criteria are applied:

· When the problematic exposures of a customer that fulfil the NPE criteria set out above are greater than 20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total customer exposure is classified as non-performing; otherwise only the problematic part of the exposure is classified as non-performing.

· Material arrears/excesses are defined as follows:

- Retail exposures:

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

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

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

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

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

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

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

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

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

1. Credit risk (continued)

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

	Gross loans and advances to customers				Accumulated impairment, accumulated negative changes in fair value and fair value adjustment on initial recognition
	Group gross customer loans and advances^1,2	Of which NPEs	Of which exposures with forbearance measures		Total	Of which NPEs	Of which exposures with forbearance measures
	Group gross customer loans and advances^1,2	Of which NPEs	Total exposures with forbearance measures	Of which on NPEs	Total	Of which NPEs	Total exposures with forbearance measures	Of which on NPEs
30 June 2018	€000	€000	€000	€000	€000	€000	€000	€000
General governments	88,574	64	1,608	-	3,771	-	248	-
Other financial corporations	170,676	25,791	32,009	7,573	21,273	14,477	6,228	5,264
Non-financial corporations	7,855,388	2,261,133	2,212,526	1,256,286	1,126,448	1,029,563	526,170	503,530
Of which: Small and Medium sized Enterprises (SMEs)³	5,047,939	1,682,666	1,423,374	882,467	865,828	773,338	314,174	296,619
Of which: Commercial real estate³	5,129,581	1,510,180	1,571,213	918,097	693,501	621,808	362,421	344,522
Non-financial corporations by sector
Construction	1,012,088	426,596			195,544
Wholesale and retail trade	1,539,207	593,930			265,188
Accommodation and food service activities	1,049,612	108,173			52,984
Real estate activities	2,336,381	448,588			289,899
Manufacturing	468,271	236,691			90,792
Other sectors	1,449,829	447,155			232,041
Households	7,385,763	2,921,738	2,144,881	1,523,331	1,347,725	1,280,411	507,283	492,821
Of which: Residential mortgage loans³	5,228,199	2,154,996	1,722,508	1,198,245	845,305	797,403	350,759	339,918
Of which: Credit for consumption³	931,314	422,061	256,035	201,204	249,002	235,963	79,679	76,390
Total on-balance sheet	15,500,401	5,208,726	4,391,024	2,787,190	2,499,217	2,324,451	1,039,929	1,001,615

Note: The above table does not include loans and advances to customers classified as held for sale (Note 28 of the Interim Condensed Consolidated Financial Statements for the six months ended 30 June 2018).

__________________________

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

2 Including the accumulated changes in fair value of the performing loans and advances at FVPL.

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

1. Credit risk (continued)

	Gross loans and advances to customers				Provision for impairment, and fair value adjustment on initial recognition
	Group gross customer loans and advances⁴	Of which NPEs	Of which exposures with forbearance measures		Total provision for impairment, and fair value adjustment on initial recognition	Of which NPEs	Of which exposures with forbearance measures
	Group gross customer loans and advances⁴	Of which NPEs	Total exposures with forbearance measures	Of which on NPEs		Of which NPEs	Total exposures with forbearance measures	Of which on NPEs
31 December 2017	€000	€000	€000	€000	€000	€000	€000	€000
General governments	88,780	2,618	4,263	2,358	2,098	1,128	1,367	1,061
Other financial corporations	387,169	264,809	202,501	180,836	97,237	95,696	41,254	40,532
Non-financial corporations	10,586,922	5,187,722	4,025,293	2,851,028	2,702,685	2,604,430	1,228,304	1,181,589
Of which: Small and Medium sized Enterprises (SMEs)⁵	8,695,078	4,843,832	3,630,398	2,661,059	2,464,383	2,378,953	1,089,330	1,049,587
Of which: Commercial real estate⁵	8,002,352	4,153,585	3,497,693	2,431,002	2,037,490	1,952,487	1,013,916	973,244
Non-financial corporations by sector
Construction	2,303,375	1,743,627			893,938
Wholesale and retail trade	1,973,382	876,763			495,099
Accommodation and food service activities	1,314,939	420,392			222,789
Real estate activities	2,768,637	1,028,638			518,261
Manufacturing	648,131	342,666			172,232
Other sectors	1,578,458	775,636			400,366
Households	7,691,844	3,348,567	2,452,419	1,700,494	1,350,241	1,287,442	500,603	480,676
Of which: Residential mortgage loans⁵	5,254,483	2,294,294	1,918,345	1,277,136	732,039	684,818	307,742	292,726
Of which: Credit for consumption⁵	1,000,327	504,304	285,386	221,049	275,873	266,760	84,288	80,526
Total on-balance sheet	18,754,715	8,803,716	6,684,476	4,734,716	4,152,261	3,988,696	1,771,528	1,703,858

________________________

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

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

2. Liquidity risk and funding

2.1 Encumbered and unencumbered assets

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

An asset is classified as encumbered if it has been pledged as collateral against secured funding and other collateralised obligations and, as a result, is no longer available to the Group for further collateral or liquidity requirements. The total encumbered assets of the Group amounted to €3,231,532 thousand as at 30 June 2018 (31 December 2017: €3,575,278 thousand).

An asset is classified as unencumbered if it has not been pledged as collateral against secured funding and other collateralised obligations. Unencumbered assets are further analysed into those that are available and can be potentially pledged and those that are not readily available to be pledged. As at 30 June 2018, the Group held €14,319,562 thousand (31 December 2017: €14,909,010 thousand) of unencumbered assets that can be potentially pledged and can be used to support potential liquidity funding needs and €4,766,977 thousand (31 December 2017: €3,748,804 thousand) of unencumbered assets that are not readily available to be pledged for funding requirements in their current form.

Loans and advances indicated as encumbered as at 30 June 2018 and 31 December 2017 are mainly used as collateral for funding from the Central Banks (ECB and Bank of England) and the covered bond.

Loans and advances to customers include mortgage loans of a nominal amount €1,001 million (31 December 2017: €1,001 million) in Cyprus, pledged as collateral for the covered bond issued by Bank of Cyprus Public Company Ltd (BOC PCL) in 2011 under the Covered Bond Programme. Furthermore, housing loans of a nominal amount €1,506 million (31 December 2017: €1,237 million) in Cyprus are pledged as collateral for the funding from the ECB (Note 21 of the interim condensed consolidated financial statements for the period ended 30 June 2018). As at 30 June 2018, no loans and advances to customers were pledged as collateral for deposits of the Republic of Cyprus (31 December 2017: €715 million). At 30 June 2018 BOC PCL's subsidiary, Bank of Cyprus UK Ltd has pledged €338 million (31 December 2017: €161 million) of loans and advances to customers with the Funding for Lending Scheme (FLS) of the Bank of England. As at 30 June 2018 the subsidiary had drawn down Treasury bills of €171 million (31 December 2017: €82 million) under the FLS out of which €4 million are pledged as at 30 June 2018 (31 December 2017: nil) and €167 million remain available to be pledged. These Treasury bills are not recorded on the consolidated balance sheet as ownership remains with the Bank of England.

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

	Encumbered	Unencumbered		Total
	Pledged as collateral	Which can be pledged	Which are not readily available to be pledged	Total
30 June 2018	€000	€000	€000	€000
Cash and bank placements	98,289	4,535,489	333,449	4,967,227
Investments	301,775	785,141	16,547	1,103,463
Loans and advances to customers	2,831,468	7,321,144	2,848,570	13,001,182
Non-current assets held for sale	-	-	1,450,506	1,450,506
Property	-	1,677,788	117,905	1,795,693
Total on-balance sheet	3,231,532	14,319,562	4,766,977	22,318,071

2. Liquidity risk and funding (continued)

2.1 Encumbered and unencumbered assets (continued)

	Encumbered	Unencumbered		Total
	Pledged as collateral	Which can be pledged	Which are not readily available to be pledged	Total
31 December 2017	€000	€000	€000	€000
Cash and bank placements	120,525	4,135,621	330,421	4,586,567
Investments	317,167	726,963	76,482	1,120,612
Loans and advances to customers	3,137,586	8,278,614	3,186,254	14,602,454
Non-current assets held for sale	-	-	6,500	6,500
Property	-	1,767,812	149,147	1,916,959
Total on-balance sheet	3,575,278	14,909,010	3,748,804	22,233,092

Encumbered assets primarily consist of loans and advances to customers, investments in debt securities and property. These are mainly pledged for the funding facilities of the Central Banks (ECB, CBC and Bank of England) (Note 21 of the interim condensed consolidated financial statements for the six months ended 30 June 2018), for the covered bond and for deposits of the Republic of Cyprus. Investments are mainly used as collateral for repurchase transactions with commercial banks as well as supplementary assets for the covered bond (Note 30 of the interim condensed consolidated financial statements for the six months ended 30 June 2018). Encumbered assets include cash and other liquid assets placed with banks as collateral under ISDA/GMRA agreements which are not immediately available for use by the Group but are released once the transactions are terminated. Cash is mainly used to cover collateral required for (i) derivatives and repurchase transactions and (ii) trade finance transactions and guarantees issued. It is also used as part of the supplementary assets for the covered bond.

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 bond 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 credit rating of the covered bonds was upgraded to an investment grade rating and the covered bond has become eligible collateral for the Eurosystem credit operations. As from 2 October 2015, it has been placed as collateral for accessing funding from the ECB.

Unencumbered assets which can potentially be pledged include Cyprus loans and advances which are less than 90 days past due and are expected to be eligible for ELA funding, as well as loans of overseas subsidiaries and branches which are available to be pledged. Customer loans of overseas subsidiaries and branches cannot be pledged with the CBC as collateral for ELA. Moreover, for some of the overseas subsidiaries and branches, these assets are only available to be pledged for other purposes for the needs of the particular subsidiary/branch and not to provide liquidity to any other entity of the Group. Balances with central banks are reported as unencumbered and can be pledged, to the extent that there is excess available over the minimum reserve requirement. The minimum reserve requirement is reported as unencumbered and not readily available to be pledged.

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

2. Liquidity risk and funding (continued)

2.1 Encumbered and unencumbered assets (continued)

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

The carrying and fair value of the encumbered and unencumbered investments of the Group as at 30 June 2018 and 31 December 2017 are as follows:

	Carrying value of encumbered investments	Fair value of encumbered investments	Carrying value of unencumbered investments	Fair value of unencumbered investments
30 June 2018	€000	€000	€000	€000
Equity securities	394	394	159,327	159,327
Debt securities	301,381	301,381	642,361	647,602
Total investments	301,775	301,775	801,688	806,929

31 December 2017
Equity securities	1,740	1,740	153,903	153,903
Debt securities	315,427	315,425	649,542	655,990
Total investments	317,167	317,165	803,445	809,893

2.2 Liquidity regulation

The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR) under CRD IV/CRR (as supplemented by the Commission Delegated Regulation (EU) No 2015/61 which prescribes the criteria for liquid assets and methods of calculation as from 1 October 2015 and the Commission Implementing Regulation (EU) No 2016/322 which prescribes supervisory reporting requirements and applied from 10 September 2016). It also monitors its position against the Net Stable Funding Ratio (NSFR) as proposed under Basel III. The LCR is designed to promote short-term resilience of a Group's liquidity risk profile by ensuring that it has sufficient high quality liquid resources to survive an acute stress scenario lasting for 30 days. The NSFR has been developed to promote a sustainable maturity structure of assets and liabilities.

In October 2014, the Basel Committee on Banking Supervision proposed the methodology for calculating the NSFR. It is noted that the NSFR did not become effective on 1 January 2018 as opposed to what was expected.

As at 30 June 2018 the Group was in compliance with its regulatory liquidity requirements with respect to the LCR. On the basis of the Commission Delegated Regulation (EU) 2015/61 the Group's LCR as at 30 June 2018 was 199% (31 December 2017: 190%); on the basis of Basel standards the Group's NSFR was 115% (31 December 2017: 111%).

In addition to the above, each banking unit must also comply with any liquidity requirements applicable in the country where it operates.

On 1 January 2018, the local regulatory liquidity requirements with which the BOC PCL was not in full compliance (with respect to its operations in Cyprus), were abolished, in accordance with the CRR. In December 2017, the CBC introduced a macroprudential measure in the form of a liquidity add-on that was imposed on top of the LCR of BOC PCL with effect on 1 January 2018. The objective of the measure is to ensure that there will be a gradual release of the excess liquidity in the Cyprus banking system arising from the lower liquidity requirements under the LCR compared to the ones under the local regulatory liquidity requirements previously in place.

2. Liquidity risk and funding (continued)

2.2 Liquidity regulation (continued)

The LCR add-on applies stricter outflow and inflow rates on some of the parameters used in the calculation of the LCR than those defined in the Commission Delegated Regulation (EU) 2015/61 as well as additional liquidity requirements in the form of outflow rates on items that are not subject to outflow rates as per the aforementioned regulation. The measure is implemented in two stages. The first stage requires stricter outflow and inflow rates which are applicable from 1 January 2018 until 30 June 2018. The second stage requires more relaxed outflow and inflow rates compared to the initial ones, and are applicable from 1 July 2018 until 31 December 2018. Specifically, there is a reduction of 50% of the add-on rates as from 1 July 2018. The additional liquidity requirement is expected to be implemented up to 31 December 2018. The CBC may propose to modify or extend the period of application of this macroprudential measure depending on the results of the follow-up of the banks' actions on how the excess liquidity is utilised. As at 30 June 2018, BOC PCL was in compliance with the liquidity requirements including the add-on.

As at 30 June 2018, Bank of Cyprus UK Ltd was in compliance with the local regulatory liquidity ratios.

2.3 Liquidity reserves

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

Composition of the liquidity reserves	30 June 2018			31 December 2017
	Liquidity reserves	Liquidity reserves as per LCR Delegated Reg (EU) 2015/61 LCR eligible Level 1		Liquidity reserves	Liquidity reserves as per LCR Delegated Reg (EU) 2015/61 LCR eligible Level 1
	Liquidity reserves	Level 1	Level 2A	Liquidity reserves	Level 1	Level 2A
	€000	€000	€000	€000	€000	€000
Cash and balances with central banks	3,999,411	3,810,824	-	3,239,985	2,896,935	-
Nostro and overnight placements with banks	441,440	-	-	676,431	-	-
Other placements with banks	129,941	-	-	283,735	-	-
Liquid investments	642,512	501,349	90,932	591,565	548,706	69,782
Available ECB Buffer	84,391	-	-	2,151	-	-
Total	5,297,695	4,312,173	90,932	4,793,867	3,445,641	69,782

Investments under Liquidity Reserve are shown at market value net of haircut (as prescribed by regulators) in order to reflect the actual liquidity value that can be obtained. The Liquidity Reserves exclude Local Law Government of Cyprus Issues. Liquid investments include off balance sheet Bank of England Treasury Bills acquired by Bank of Cyprus UK Ltd through the encumbrance of customer loans with the Bank of England.

Under LCR Liquidity Reserves, all Cyprus Government Bonds remain eligible for inclusion as Level 1 assets given that they are issued by a Member State. LCR does not require liquid assets to be eligible as collateral for central bank operations and are included at market value. Under LCR, only €37 million of Bank of Cyprus UK Ltd liquid assets are included since this is the amount required to bring the Bank of Cyprus UK Ltd's LCR ratio to 100% as per Article 8(2) of the Commission Delegated Regulation (EU) 2015/61 which requires that in case there is no free transferability of liquid assets from a third country, the institution can only use those assets that meet the liquidity outflows of that country.

The Liquidity Reserves are managed by Group Treasury.

2. Liquidity risk and funding (continued)

2.3 Liquidity reserves (continued)

As at 30 June 2018, ECB funding was at €830 million in the form of 4-year TLTRO II. The interest rate applied to TLTRO II will be fixed for each operation at the rate applied in the MRO prevailing at the time of allotment and is subject to a lower rate for counterparties whose eligible net lending in the pre-specified period exceeds their benchmark. The interest rate applicable to the amount borrowed by BOC PCL under the TLTRO II transactions, in total €830 million, will be 0% as eligible net lending in the pre-specified period did not exceed the benchmark.

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

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

The Group's capital projections are developed with the objective of maintaining capital that is adequate in quantity and quality to support the Group's risk profile, regulatory and business needs. These are frequently monitored against relevant internal target capital ratios to ensure they remain appropriate and consider risks to the plan, including possible future regulatory changes.

The Group remains on track for implementing its strategic objectives aiming to become a stronger, safer and a more focused institution capable of supporting the recovery of the Cypriot economy and delivering appropriate shareholder returns in the medium term.

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

· Materially reduce the level of delinquent loans

· Further improve the funding structure

· Maintain an appropriate capital position by internally generating capital

· Focus on the core Cyprus market

· Achieve a lean operating model

· Deliver value to shareholders and other stakeholders

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

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

Overview of RWA

		RWA		Minimum capital requirements
		30 June 2018	31 March 2018	30 June 2018
		€000	€000	€000
1	Credit risk (excluding counterparty credit risk (CCR))	14,788,723	15,361,305	1,183,098
2	Of which the standardised approach	14,788,723	15,361,305	1,183,098
6	CCR	35,165	34,520	2,813
7	Of which mark to market	20,277	18,520	1,622
11	Of which risk exposure amount for contributions to the default fund of a Central Counterparty (CCP)	-	-	-
12	Of which Credit Valuation Adjustment (CVA)	14,888	16,000	1,191
13	Settlement risk	-	-	-
19	Market risk	2,195	2,190	176
20	Of which the standardised approach	2,195	2,190	176
22	Large Exposures	-	-	-
23	Operational risk	1,717,125	1,717,125	137,370
25	Of which standardised approach	1,717,125	1,717,125	137,370
27	Amounts below the thresholds for deduction (subject to 250% risk weight)	825,132	845,433	66,011
29	Total	17,368,340	17,960,573	1,389,468

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

The main drivers behind the changes in RWAs observed in line 2 are a significant decrease in defaulted exposures amounts and their redistribution to lower risk exposure classes due to customer loan restructurings and debt-for-property and debt-for-equity swaps deleveraging actions. Furthermore, risk weight efficiency has been achieved in defaulted exposures from increased provisioning coverage on unsecured defaulted exposures which results in the 100% risk weight rather than the 150% risk weight being applied to a higher proportion of the exposures in default population.

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

3.1 Credit Risk

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

Exposure Portfolio	30 June 2018	31 December 2017
Exposure Portfolio	€000	€000
Central governments or central banks	42,254	44,173
Regional governments or local authorities	139	61
Public sector entities	-	-
Multilateral development banks	-	-
International organisations	-	-
Institutions	19,261	26,481
Corporates	277,943	294,992
Retail	96,361	117,603
Secured by mortgages on immovable property	112,110	113,813
Exposures in default	316,785	255,564
Items associated with particular high risk	190,967	202,381
Covered bonds	1,172	801
Collective Investments Undertakings (CIU)	19	4
Equity	25,832	26,087
Other items	167,889	159,593
Total Capital Requirement for Credit Risk	1,250,732	1,241,553

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

Capital requirements in the 'Exposures in default' class have increased due to the alignment of the CRR default definition with the NPE definition as of 1 January 2018 which negates the impact in customer loan restructurings, debt-for-asset swaps and general repayment of defaulted exposures during the period.

Reclassification to comparative information from 'Other items' to 'Central governments or central banks' relates to the reallocation of the deferred tax asset capital requirements under RWA between the two classes.

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

3.2 Market risk under the standardised approach

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

		30 June 2018		31 December 2017
		RWAs	Capital requirements	RWAs	Capital requirements
		€000	€000	€000	€000
	Outright products
2	Equity risk (general and specific)	2,195	176	4,731	378
3	Foreign exchange risk	-	-	-	-
9	Total	2,195	176	4,731	378

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

Equity risk includes both equities and Collective Investment Undertakings (CIUs) held for trading purposes. The decrease observed in the period is the product of a number of securities previously held for trading purposes transferred to the banking book.

3.3 Operational Risk

The Group uses the Standardised Approach for the operational risk capital calculation.

As at 30 June 2018, the minimum capital requirement in relation to operational risk calculated in accordance with the Standardised Approach amounts to €137,370 thousand (31 December 2017: €137,370 thousand).

30 June 2018/31 December 2017	Standardised approach
30 June 2018/31 December 2017	€000
Corporate Finance (CF)	113
Trading and Sales (TS)	5,672
Retail Brokerage (RBr)	82
Commercial Banking (CB)	97,295
Retail Banking (RB)	20,201
Payment and Settlement (PS)	12,008
Agency Services (AS)	316
Asset Management (AM)	1,683
Total capital requirement for operational risk	137,370

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

3.4 Credit Valuation Adjustment (CVA) Risk

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

30 June

2018

31 December

2017

€000

CVA (Credit Valuation Adjustment) Capital Requirement

1,191

1,538

3.5 Non-deducted participations in insurance undertakings

	30 June 2018	31 December 2017
	€000	€000
Holdings of own funds instruments of a financial sector entity where the institution has a significant investment not deducted from own funds (carrying value)	113,114	117,871
Total RWAs	282,785	294,678

4. Other risks

Political risk

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

Cyprus is a small open economy with a large and expanding export sector. Exports of goods and services have been about 66% of Gross Domestic Product (GDP) in 2017. As a result the Cyprus economy is exposed to developments outside its borders, particularly in Russia, the UK and Greece. Cyprus is also exposed to developments in the European Union and the Eurozone as well as to developments in the global economy at large, including trade.

Cyprus has close trade and investment links with the UK making its economy vulnerable to the impact of the exit of UK from the EU (Brexit) on the UK economy. According to the European Commission (European Economic Forecast, summer 2018), investment growth is expected to remain weak while uncertainty over the UK's future trading relationship with the EU prevails and modest growth of 1.3% for 2018 is forecast. Weaker demand in the UK and the depreciation of sterling against the euro following the referendum in 2016 affected the competitiveness of Cypriot exports to the UK. Exports of goods to the UK were about 8% of total exports of goods on average in the three years to 2016. Tourist arrivals from the UK accounted for 34.3% of total arrivals in 2017. A decline in tourist arrivals from the UK and a drop in their spending will need to be mitigated by increasing arrivals and revenues from other countries.

The exit of Greece from the EU (Grexit) is now a very low probability event but not entirely improbable. Greece exited its third bailout in August and has already achieved modest economic growth for five successive quarters to Q1 2018. The outlook appears positive and the European Commission projects growth of 1.9% and 2.3% in 2018 and 2019 respectively (European Economic Forecast, summer 2018). However, the country remains challenged, and continues to face structural problems and export competitiveness. Whilst certainly the risk of a Grexit has greatly reduced, if Greece leaves the euro it will have an impact in the Eurozone at large to a lesser or larger degree.

The risk of Eurozone fragmentation whilst remote is not entirely improbable. Economic activity in the Eurozone picked up in 2015-2017 after disappointing performance in previous years. Average real GDP growth in 2015-2017 was 2.2% compared with average growth of 0.2% in the period 2009-2014. But whilst there has been considerable progress in improving the co-ordination of fiscal and banking rules, the stability of the Eurozone is conditioned on further integration. This will be challenging.

4. Other risks (continued)

Political risk (continued)

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

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

Further restrictions on Russia may seriously affect business and professional services in Cyprus linked with Russia. The economic situation in Russia has been gradually improving driven by the stabilisation in oil prices, the return of foreign direct investment and booms in certain sectors, for example agriculture. After dropping by 2.8% in 2015 and by 0.2% in 2016, real GDP recovered by 1.5% in 2017 and expected to increase by 1.7% in 2018 according to the IMF.

The unresolved Cyprus problem and disputes with Turkey over matters such as claims over exclusive economic zones and exploration programmes for hydrocarbons development and Turkey's relations with the EU pose risks that might lead to escalating tensions. However, given that economic relations between Cyprus and Turkey are not significant the impact of such tensions may be expected to be low provided that these tensions do not lead to prolonged political instability in Cyprus.

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

5. Capital management

With the exception of certain specified provisions, the CRR and Capital Requirements Directive (CRD IV) came into effect on 1 January 2014. The CRR and CRD IV transposed the new capital, liquidity and leverage standards of Basel III into the EU's legal framework. CRR establishes the prudential requirements for capital, liquidity and leverage for credit institutions and investment firms. It is directly applicable in all EU member states. CRD IV governs access to deposit-taking activities and internal governance arrangements including remuneration, board composition and transparency. Unlike the CRR, member states were required to transpose the CRD IV into national laws and it allowed national regulators to impose additional capital buffer requirements. CRR introduced significant changes in the prudential regulatory regime applicable to banks including amended minimum capital adequacy ratios, changes to the definition of capital and the calculation of risk weighted assets and the introduction of new measures relating to leverage, liquidity and funding. CRR permits a transitional period for certain of the enhanced capital requirements and certain other measures, which will be largely fully effective by 2019. In addition, the Regulation (EU) 2016/445 of the ECB on the exercise of options and discretions available in Union law (ECB/2016/4) provides certain transitional arrangements which supersede the national discretions unless they are stricter than the EU Regulation 2016/445.

The CET1 ratio of the Group at 30 June 2018 stands at 11.9% and the total capital ratio at 13.4% on a transitional basis.

The minimum Pillar I total capital requirement is 8.0% and may be met, in addition to the 4.5% CET1 requirement, with up to 1.5% by Additional Tier 1 capital and with up to 2.0% by Tier 2 capital.

The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital requirements (Pillar II add-ons).

5. Capital management (continued)

Following the Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2017 and based on the confirmation received in December 2017, the Pillar II requirement applicable from 1 January 2018, has been reduced to 3.00% from 3.75%. As a result, the Group's minimum phased-in CET1 capital ratio has been reduced to 9.375% from 9.50%, comprising of a 4.50% Pillar I requirement, a 3.00% Pillar II requirement and the CCB of 1.875% applicable as from 1 January 2018. The ECB has also provided revised lower non-public guidance for an additional Pillar II CET1 buffer.

The overall Total Capital Ratio Requirement for 2017 was 13.00%, comprising of a Pillar I requirement of 8.00% (of which up to 1.50% can be in the form of Additional Tier 1 capital and up to 2.00% in the form of Tier 2 capital), a Pillar II requirement of 3.75% (in the form of CET1), and the CCB of 1.25%. Following the 2017 SREP, the overall Total Capital Ratio Requirement has been reduced to 12.875% from 13.00%, comprising of 8.00% Pillar I requirement, a 3.00% Pillar II requirement and the CCB of 1.875% applicable as from 1 January 2018.

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 and management and disposal of property predominately acquired in exchange of debt.

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

In accordance with the provisions of the above law, the CBC sets, on a quarterly basis, the Countercyclical Capital buffer (CCyB) level in accordance with the methodology described in this law. The CCyB is effective as from 1 January 2016 and is determined for all the countries in the European Economic Area (EEA) by their local competent authorities ahead of the beginning of each quarter. The CBC has set the level of the CCyB for Cyprus at 0% for the year 2018 and the year 2017. The CCyB for the Group has been calculated at 0.04% as at 30 June 2018 and at 0% for the year 2017.

In accordance with the provisions of this law, the CBC is also the responsible authority for the designation of banks that are Other Systemically Important Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for these systemically important banks. The Group has been designated as an O-SII and the CBC set the O-SII buffer for the Group at 2.0%. This buffer will be phased-in gradually, starting from 1 January 2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%) on 1 January 2022.

The Capital Conservation Buffer (CCB) is gradually phased-in at 0.625% in 2016, 1.25% in 2017, 1.875% in 2018 and is fully implemented on 1 January 2019 at 2.5%.

The Bank Recovery and Resolution Directive (BRRD) requires that from January 2016 EU member states shall apply the BRRD's provisions requiring EU credit institutions and certain investment firms to maintain a minimum requirement for own funds and eligible liabilities (MREL), subject to the provisions of the Commission Delegated Regulation (EU) 2016/1450. Although the precise calibration and ultimate designation of the Group's MREL has not yet been finalised, BOC PCL is monitoring developments in this area very closely.

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

5. Capital management (continued)

5.1 Capital position

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

Regulatory capital	Group		BOC PCL
	30 June 2018	31 December 2017	30 June 2018	31 December 2017
	€000	€000	€000	€000
Transitional Common Equity Tier 1 (CET1)⁶^,⁷	2,059,665	2,184,152	1,867,294	2,022,949
Transitional Additional Tier 1 capital (AT1)	-	-	-	-
Tier 2 capital (T2)	264,923	266,174	250,000	255,026
Transitional total regulatory capital⁷	2,324,588	2,450,326	2,117,294	2,277,975
Risk weighted assets - credit risk⁸	15,649,020	15,538,637	14,611,183	14,491,974
Risk weighted assets - market risk	2,195	4,731	-	2,448
Risk weighted assets - operational risk	1,717,125	1,717,125	1,613,463	1,613,463
Total risk weighted assets	17,368,340	17,260,493	16,224,646	16,107,885

Transitional Common Equity Tier 1 ratio (%)	11.9	12.7	11.5	12.6
Transitional total capital ratio (%)	13.4	14.2	13.0	14.1

IFRS 9 and Deferred Tax Asset fully loaded	Group		BOC PCL
IFRS 9 and Deferred Tax Asset fully loaded	30 June 2018	31 December 2017	30 June 2018	31 December 2017
Common Equity Tier 1 ratio (%)	10.0	n/a	9.3	n/a
Total capital ratio (%)	11.6	n/a	10.9	n/a

During the six months ended 30 June 2018, the CET1 was negatively affected by the phased-in of transitional adjustments, mainly deferred tax asset and the adoption of IFRS 9 and the loss from Helix recognised during the period.

The RWAs were negatively affected by the change in the default definition. According to the EBA guidelines that govern the CRR default definition, issued in January 2017, the default definition will gradually evolve to align with the NPE definition by 1 January 2021. The Group, in line with regulatory discussions, early adopted changes that almost aligned the EBA CRR definition with the NPE definition as from 1 January 2018. The RWAs were positively affected by the Group's ongoing efforts for risk weighted assets optimization.

As a result of the above, the CET1 ratio decreased by 80 bps during the period.

____________________

6 CET1 includes regulatory deductions, primarily comprising deferred tax assets and intangible assets amounting to €171,104 thousand and €164,668 thousand as at 30 June 2018 and 31 March 2018 respectively.

7Following the Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), the deferred tax asset phased-in period reduced from 10 to 5 years, with effect as from the reporting of 31 December 2016.

8 Includes Credit Valuation Adjustments (CVA)

6. Leverage ratio

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

The leverage ratio of the Group is presented below:

	30 June 2018	31 December 2017
Transitional basis	€000	€000
Capital measure (CET1)	2,059,665	2,184,152
Total exposure measure	23,737,429	23,547,545
Leverage ratio (%)	8.7%	9.3%

IFRS 9 fully loaded
Capital measure (CET1)	1,686,320	n/a
Total exposure measure	23,541,224	n/a
Leverage ratio (%)	7.2%	n/a

7. Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Assessment Process (ILAAP), Pillar II and SREP and ECB 2018 Stress Test

The Group prepares the ICAAP and ILAAP reports annually. Both reports for 2017 were approved by the Board of Directors and have been submitted to the ECB in April 2018.

The Group also undertakes a quarterly review of its ICAAP results considering the latest actual and forecasted information. During the quarterly review, the Group's risk profile and risk management policies and processes are reviewed and any changes since the annual ICAAP exercise are taken into consideration. The ICAAP process demonstrates that the Group has sufficient capital under both the base case and stress scenarios.

A quarterly review is also performed for the ILAAP through quarterly stress tests submitted to the Assets and Liabilities Committee (ALCO) and Board Risk Committee. During the quarterly review, the liquidity risk drivers are assessed and, if needed, the stress test assumptions are amended accordingly. The quarterly review identifies whether the Group has an adequate liquidity buffer to cover the stress outflows. The Group's ILAAP analysis demonstrates that the volume and capacity of liquidity resources available to the Group are adequate.

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

ECB 2018 Stress Test

The EBA in cooperation with the European Systemic Risk Board (ESRB) initiated the 2018 EU-wide stress tests to assess the resilience of financial institutions to adverse market developments and is expected to be completed in the fourth quarter of 2018. The Group participates in the bi-annual ECB 2018 Stress test, as in 2016.

8. Other Pillar 3 disclosures

8.1 Ageing of past-due exposures

	Gross carrying values
	< 30 days	>30 days < 60 days	>60 days < 90 days	>90 days < 180 days	>180 days < 1 year	> 1 year
30 June 2018	€000	€000	€000	€000	€000	€000
Loans⁹	322,531	107,864	109,407	136,735	184,679	3,193,585
Debt securities	-	-	-	-	-	-
Total exposures	322,531	107,864	109,407	136,735	184,679	3,193,585

31 December 2017	€000	€000	€000	€000	€000	€000
Loans⁹	579,867	167,199	115,133	150,824	325,107	5,864,683
Debt securities	-	-	-	-	-	-
Total exposures	579,867	167,199	115,133	150,824	325,107	5,864,683

_________________

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

8. Other Pillar 3 disclosures (continued)

8.2 Non-performing and forborne exposures

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

	Gross carrying amount of performing and non-performing exposures							Accumulated impairment, accumulated negative changes in fair value and fair value adjustment on initial recognition				Collaterals and financial guarantees received
		Of which performing but past due > 30 days and <= 90 days	Of which performing forborne	Of which non-performing				On performing exposures		On non-performing exposures		On non-performing exposures	On forborne exposures
		Of which performing but past due > 30 days and <= 90 days	Of which performing forborne		Of which defaulted	Of which impaired	Of which forborne		Of which forborne		Of which forborne	On non-performing exposures	On forborne exposures
30 June 2018	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Debt securities	930,110	-	-	-	-	-	-	1,040	-	-	-	-	-
Loans and advances
Central Banks	4,030,893	-	-	-	-	-	-	8,268	-	-	-	-	-
Credit Institutions	829,907	-	-	57,998	57,998	57,998	-	540	-	24,998	-	-	-
Loans and advances to customers¹⁰	15,500,401	64,580	1,603,834	5,208,726	5,027,951	5,042,740	2,787,190	174,766	38,314	2,324,451	1,001,615	2,595,396	3,017,267
Off-balance-sheet exposures	2,787,058	n/a¹¹	10,930	381,019	336,190	n/a¹¹	9,861	8,285	-	26,860	-	44,457	11,005

Note: The above table excludes loans and advances classified as held for sale (Note 28 of the Interim Condensed Consolidated Financial Statements for the six months ended 30 June 2018).

____________________

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

1¹Per EBA guidelines no disclosure is required.

8. Other Pillar 3 disclosures (continued)

8.2 Non-performing and forborne exposures (continued)

	Gross carrying amount of performing and non-performing exposures							Accumulated impairment and provisions and negative fair value adjustments due to credit risk				Collaterals and financial guarantees received
		Of which performing but past due > 30 days and <= 90 days	Of which performing forborne	Of which non-performing				On performing exposures		On non-performing exposures		On non-performing exposures	Of which forborne exposures
		Of which performing but past due > 30 days and <= 90 days	Of which performing forborne		Of which defaulted	Of which impaired	Of which forborne		Of which forborne		Of which forborne	On non-performing exposures	Of which forborne exposures
31 December 2017	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Debt securities	950,928	-	-	-	-	-	-	-	-	-	-	-	-
Loans and advances
Central Banks	3,250,029	-	-	-	-	-	-	-	-	-	-	-	-
Credit Institutions	1,192,633	-	-	-	-	-	-	-	-	-	-	-	-
Loans and advances to customers¹²	18,754,715	69,967	1,949,760	8,803,716	7,223,764	5,519,836	4,734,716	163,565¹²	67,670	3,988,696¹²	1,703,858	4,373,050	4,513,476
Off-balance-sheet exposures	3,077,646	n/a¹³	19,910	429,267	310,298	n/a¹³	17,090	3,121	15	48,866	772	57,322	14,465

_________________________

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

1³ Per EBA guidelines no disclosure is required.

8. Other Pillar 3 disclosures (continued)

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

The table below shows the analysis of CCR per approach. The approach followed by the Group is the mark to market method for derivatives and the financial collateral comprehensive method for securities financing transactions (SFTs).

The rows and columns not applicable to the Group are not presented in the table below.

		Replacement cost/current market value	Potential future credit exposure	Exposure at Default (EAD) post Credit Risk Mitigation (CRM)	RWA
	30 June 2018	€000	€000	€000	€000
1	Mark to market	1,461	13,912	13,397	4,676
9	Financial collateral comprehensive method (for SFTs)			32,183	15,601
11	Total				20,277

	31 December 2017	€000	€000	€000	€000
1	Mark to market	13,345	10,491	11,227	5,045
9	Financial collateral comprehensive method (for SFTs)			37,257	16,743
11	Total				21,788

Exposures to Qualifying Central Counterparties (QCCPs)

The below table aims to provide a comprehensive picture of the Group's exposures to central counterparties (CCPs) in regards to exposures and their associated RWAs.

The Group does not hold any initial margins or prefunded default fund contributions. The Group started clearing derivatives through a CCP in 2018.

All rows not applicable to the Group are not presented in the table below.

		a	b
		EAD post CRM	RWA
1	Exposures to QCCPs (total)		41
2	Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which	2,027
3	(i) Over-The-Counter (OTC) derivatives	2,027

8. Other Pillar 3 disclosures (continued)

8.4 CVA capital charge

The Group applies the standardised approach in the calculation of CVA capital requirements.

All rows not applicable to the Group are not presented in the table below.

		30 June 2018		31 December 2017
		Exposure value	RWA	Exposure value	RWA
		€000	€000	€000	€000
4	All portfolios subject to the standardised method	45,580	14,888	48,484	19,220
5	Total subject to the CVA capital charge	45,580	14,888	48,484	19,220

8.5 Standardised approach - CCR exposures by regulatory portfolio and risk

The table below presents the breakdown of all CCR exposures under the standardised approach by asset class and risk weight (corresponding to the riskiness attributed to the exposures according to the standardised approach).

All rows and columns that are not relevant to the Group's activities are not included in the table below.

30 June 2018 Exposure classes		Risk Weights				Total	Of which unrated¹⁴
		2%	20%	50%	100%	Total	Of which unrated¹⁴
		€000	€000	€000	€000	€000	€000
6	Institutions	2,027	5,697	37,210	-	44,934	2,027
7	Corporates	-	-	-	646	646	646
11	Total	2,027	5,697	37,210	646	45,580	2,673

31 December 2017 Exposure classes		€000	€000	€000	€000	€000	€000
6	Institutions	-	8,461	39,702	-	48,163	7,628
7	Corporates	-	-	-	321	321	321
11	Total	-	8,461	39,702	321	48,484	7,949

During the period, a number of derivatives have been cleared through a Qualifying Central Counterparty (QCCP), hence the introduction of the 2% risk weight in the exposures allocation.

________________________

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

8. Other Pillar 3 disclosures (continued)

8.6 Impact of netting and collateral held on exposure values

	Gross positive fair value or net carrying amount	Netting benefits	Netted current credit exposure	Collateral held	Net credit exposure
30 June 2018	€000	€000	€000	€000	€000
Derivatives	15,703	14,242	1,461	172	1,289
SFTs	32,183	-	32,183	-	32,183
Cross-product netting	-	-	-	-	-
Total	47,886	14,242	33,644	172	33,472

31 December 2017
Derivatives	18,012	4,667	13,345	13,170	175
SFTs	37,257	-	37,257	-	37,257
Cross-product netting	-	-	-	-	-
Total	55,269	4,667	50,602	13,170	37,432

8.7 Composition of collateral for exposures to CCR

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

30 June 2018	Collateral used in derivative transactions				Collateral used in SFTs
	Fair value of collateral received		Fair value of posted collateral		Fair value of collateral received	Fair value of posted collateral
	Segregated	Unsegregated	Segregated	Unsegregated	Fair value of collateral received	Fair value of posted collateral
	€000	€000	€000	€000	€000	€000
Cash	-	3,366	-	18,734	-	14,308
Total	-	3,366	-	18,734	-	14,308

31 December 2017
Cash	-	13,170	-	44,824	-	15,021
Total	-	13,170	-	44,824	-	15,021

8. Other Pillar 3 disclosures (continued)

8.8 Credit quality of exposures by exposure class and instrument

Defaulted exposures have increased for the period due to the alignment of the CRR default definition with the NPE definition as of 1 January 2018, negating the impact in customer loan restructurings, debt-for-asset swaps and general repayment of defaulted exposures during the period.

The movement in the non-defaulted exposures resulted mainly from the decrease in exposures to 'Institutions', from a decrease in 'Balances with banks' and the increase in exposures to 'Central governments or central banks', from an increase in 'Balances with central banks' and the transfer of the DTA amounts under the scope of RWA from 'Other Exposures'.

The below table analyses the on-balance sheet and off-balance sheet exposures by credit quality and by exposure class and it has been completed in accordance with the regulatory requirements. Column (c) represents the value adjustment used in the calculation of the RWA, while column (e) is a subset of column (c) and represents the partial and total amount of principal and past-due interest of any on-balance sheet instrument that is derecognised because the institution has no reasonable expectations of recovering the contractual cash-flows. Column (f) include changes in column (c) between the current and the previous year calculated at exposure class level. The amounts included in column (a) represent all defaulted exposures in accordance with Article 178 of the CRR. Row 'Exposures in default' is an informative row which is not included in the rows 'Total standardised approach' and 'Total'. Column (a) summarises the defaulted exposures that have been reported in exposure class 'Exposures in default' according to Article 112(j) of the CRR and it includes the defaulted exposures in all other exposure classes except for 'Items associated with particularly high risk' and 'Equity Exposures' which is included in row 'Other'.

Materiality applied: All exposure classes that do not exceed 1% of total net exposures have been included in 'Other'.

	a	b	c	d	e	f	g
	Gross carrying values of		Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
	Defaulted exposures	Non-defaulted exposures	Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d)
30 June 2018	€000	€000	€000	€000	€000	€000	€000
Central governments or central banks	-	4,868,179	8,534	-	1	8,533	4,859,645
Institutions	152,604	856,506	117,138	-	89,784	(30,127)	891,972
Corporates	6,051,879	4,808,398	4,516,176	-	2,817,564	(135,026)	6,344,101
Of which: SMEs	4,535,963	3,030,527	3,370,524	-	2,145,798	(76,468)	4,195,966
Retail	2,677,604	2,879,583	1,974,496	-	1,063,580	37,971	3,582,691
Of which: SMEs	688,836	854,725	513,880	-	265,305	(42)	1,029,681
Secured by mortgages on immovable property	1,483,770	4,090,167	220,136	-	100,452	61,571	5,353,801
Of which: SMEs	423,841	1,689,015	74,416	-	35,436	17,612	2,038,440
Exposures in default	10,368,469	-	6,594,131	-	-	12,616	3,774,338
Items associated with particularly high risk	2,901,024	986,098	1,980,770	-	1,322,146	20,925	1,906,352
Other exposures	-	2,298,268	-	-	-	-	2,298,268
Other	2,722	485,421	5,983	-	3,058	2,824	482,160
Total standardised approach	13,269,603	21,272,620	8,823,233	-	5,396,585	(33,329)	25,718,990
Of which: Loans	12,974,123	16,874,585	8,796,976	-	5,396,585	(11,310)	21,051,732
Of which: Debt securities	-	916,818	953	-	-	953	915,865
Of which: Off-balance sheet exposures	295,370	888,216	25,304	-	-	(22,972)	1,158,282

8. Other Pillar 3 disclosures (continued)

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

	a	b	c	d	e	f	g
	Gross carrying values of		Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
	Defaulted exposures	Non-defaulted exposures	Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d)
31 December 2017	€000	€000	€000	€000	€000	€000	€000
Central governments or central banks	-	4,078,767	1	-	1	-	4,078,766
Institutions	184,927	1,220,431	147,265	-	132,512	(11,850)	1,258,093
Corporates	5,967,021	5,208,843	4,651,202	-	2,573,148	(16,958)	6,524,662
Of which: SMEs	4,530,058	3,800,446	3,446,992	-	1,925,201	118,917	4,883,512
Retail	2,465,523	3,335,624	1,936,525	-	933,893	225,296	3,864,622
Of which: SMEs	642,048	972,719	513,922	-	251,034	49,366	1,100,845
Secured by mortgages on immovable property	1,126,315	4,129,036	158,565	-	76,206	(28,257)	5,096,786
Of which: SMEs	328,932	1,697,162	56,804	-	27,709	(32,464)	1,969,290
Exposures in default	9,747,109	-	6,581,515	-	83,817	181,568	3,165,594
Items associated with particularly high risk	2,613,393	1,298,761	1,959,845	-	1,072,178	(128,868)	1,952,309
Other exposures	-	2,404,961	-	-	-	-	2,404,961
Other	3,393	368,033	3,159	-	2,505	(355)	368,267
Total standardised approach	12,360,572	22,044,456	8,856,562	-	4,790,443	39,008	25,548,466
Of which: Loans	12,060,853	17,689,259	8,808,286	-	4,790,443	25,029	20,941,826
Of which: Debt securities	-	950,350	-	-	-	-	950,350
Of which: Off-balance sheet exposures	299,649	887,070	48,276	-	-	13,979	1,138,443

8. Other Pillar 3 disclosures (continued)

8.9 Credit quality of exposures by industry

The below table analyses the on-balance sheet and off-balance sheet exposures by credit quality and by industry and it has been completed in accordance to the regulatory requirements. Column (c) represents the value adjustment used in for the calculation of the RWA, while column (e) is a subset of column (c) and represents the partial and total amount of principal and past-due interest of any on-balance sheet instrument that is derecognised because the institution has no reasonable expectations of recovering the contractual cash-flows. Column (f) includes changes in column (c) between the current and the previous year calculated at exposure class level.

Industry 'Other services' includes exposures to Private individuals, Activities of extraterritorial organizations and bodies, Other services activities and Financial and Insurance activities.

Materiality applied: All industry sectors that do not exceed 1% of total net exposures have been included in row 'Other'. 'Mining and quarrying' has been removed from 'Other' for the current period and it is shown separately as it has exceeded the 1% threshold.

	a	b	c	d	e	f	g
	Gross carrying values of		Specific risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
	Defaulted exposures	Non-defaulted exposures	Specific risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d)
30 June 2018	€000	€000	€000	€000	€000	€000	€000
Mining and quarrying	84,434	246,933	27,789	-	14,300	(12,804)	303,578
Manufacturing	590,508	499,805	412,551	-	223,310	29,202	677,762
Construction	2,812,680	1,221,527	1,890,600	-	1,238,557	(27,814)	2,143,607
Wholesale and retail trade	1,607,564	1,527,728	984,262	-	556,047	(44,529)	2,151,030
Accommo-dation and food service activities	174,407	272,443	144,688	-	98,944	9,100	302,162
Information and communication	763,178	1,179,900	549,436	-	397,315	5,263	1,393,642
Real estate activities	1,505,891	2,272,647	1,003,764	-	547,984	(6,267)	2,774,774
Professional, scientific and technical activities	505,074	326,315	407,607	-	286,262	23,746	423,782
Public administra-tion and defence, compulsory social security	3,087	5,005,781	14,145	-	3,006	11,070	4,994,723
Human health services and social work activities	123,827	251,694	76,096	-	36,735	7,362	299,425
Other services	4,554,093	7,784,427	2,934,290	-	1,795,867	(10,550)	9,404,230
Other	544,860	683,420	378,005	-	198,258	(17,108)	850,275
Total	13,269,603	21,272,620	8,823,233	-	5,396,585	(33,329)	25,718,990

8. PILLAR 3 Disclosures (continued)

8.9 Credit quality of exposures by industry (continued)

	a	b	c	d	e	f	g
	Gross carrying values of		Specific risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
	Defaulted exposures	Non-defaulted exposures	Specific risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d)
31 December 2017	€000	€000	€000	€000	€000	€000	€000
Manufacturing	520,126	526,932	383,349	-	194,763	43,341	663,709
Construction	2,736,397	1,367,263	1,918,414	-	997,611	(56,235)	2,185,246
Wholesale and retail trade	1,403,346	1,847,876	1,028,791	-	512,722	126,075	2,222,431
Accommodation and food service activities	156,765	264,081	135,588	-	98,055	11,139	285,258
Information and communication	725,880	1,233,705	544,173	-	307,303	16,980	1,415,412
Real estate activities	1,351,399	2,335,141	1,010,031	-	505,999	(53,159)	2,676,509
Professional, scientific and technical activities	475,566	390,796	383,861	-	266,702	(45,647)	482,501
Public administration and defence, compulsory social security	3,322	4,170,163	3,075	-	2,422	(440)	4,170,410
Human health services and social work activities	107,932	287,267	68,734	-	31,799	3,247	326,465
Other services	4,231,609	8,869,456	2,944,840	-	1,665,102	53,053	10,156,225
Other	648,230	751,776	435,706	-	207,965	(59,346)	964,300
Total	12,360,572	22,044,456	8,856,562	-	4,790,443	39,008	25,548,466

Material increases are observed in 'Public administration and defence, compulsory social security' from increased 'Balances with central banks' and the transfer of deferred tax asset (DTA) from 'Other services'. The decrease in 'Other services' resulted mainly from decreases in 'Balances with other banks' and the transfer of the DTA exposures to 'Public administration and defence, compulsory social security'.

8. Other Pillar 3 disclosures (continued)

8.10 Credit quality of exposures by geography

The below table analyses the on-balance sheet and off-balance sheet exposures by credit quality and by geography and it has been completed in accordance to the regulatory requirements. Column (c) represents the value adjustment used in the calculation of the RWA, while column (e) is a subset of column (c) and represents the partial and total amount of principal and past-due interest of any on-balance sheet instrument that is derecognised because the institution has no reasonable expectations of recovering the contractual cash-flows. Column (f) includes changes in column (c) between the current and the previous year calculated at exposure class level.

The country or geographical area in which the exposure is classified is driven by the country of residence/incorporation of the counterparty.

The materiality of geographical areas has been determined using the following threshold: All EU countries that do not exceed 1% of total net exposures have been included in 'Other countries' and all non-EU countries that do not exceed 1% of total net exposures have been included in 'Other geographical areas'. There are not non-EU countries that exceed the 1% threshold. 'Supranational' exposures are included in 'Other geographical areas'.

	a	b	c	d	e	f	g
	Gross carrying value of		Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
	Defaulted exposures	Non-defaulted exposures	Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d)
30 June 2018	€000	€000	€000	€000	€000	€000	€000
EU Countries	12,901,616	20,684,978	8,580,631	-	5,326,900	(9,643)	25,005,963
Cyprus	12,003,055	17,157,774	7,880,362	-	4,865,810	11,788	21,280,467
United Kingdom	365,003	2,309,632	252,499	-	181,986	170	2,422,136
France	149	304,175	384	-	340	(318)	303,940
Greece	181,075	258,841	177,666	-	127,757	8,539	262,250
Other countries	352,334	654,556	269,720	-	151,007	(29,822)	737,170
Other geographical areas	367,987	587,642	242,602	-	69,685	(23,686)	713,027
Total	13,269,603	21,272,620	8,823,233	-	5,396,585	(33,329)	25,718,990

8. Other Pillar 3 disclosures (continued)

8.10 Credit quality of exposures by geography (continued)

	a	b	c	d	e	f	g
	Gross carrying value of		Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
	Defaulted exposures	Non-defaulted exposures	Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d)
31 December 2017	€000	€000	€000	€000	€000	€000	€000
EU Countries	11,979,509	21,182,075	8,590,274	-	4,714,054	100,825	24,571,310
Cyprus	11,050,930	17,682,743	7,868,574	-	4,273,932	170,335	20,865,099
United Kingdom	355,754	2,277,069	252,329	-	133,627	8,813	2,380,494
France	115	297,646	702	-	671	3	297,059
Greece	207,744	225,135	169,127	-	138,343	(9,200)	263,752
Other countries	364,966	699,482	299,542	-	167,481	(69,126)	764,906
Other geographical areas	381,063	862,381	266,288	-	76,389	(61,817)	977,156
Total	12,360,572	22,044,456	8,856,562	-	4,790,443	39,008	25,548,466

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

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

		Gross carrying value defaulted exposures
		30 June 2018	31 December 2017
		€000	€000
1	Opening balance	12,360,502	13,412,707
2	Loans and debt securities that have defaulted or impaired since the last reporting period	1,681,625	1,150,874
3	Returned to non-defaulted status	(214,066)	(434,721)
4	Amounts written off	(528,284)	(970,509)
5	Other changes	(30,284)	(797,849)
6	Closing balance	13,269,493	12,360,502

The increase in row 2 'Loans and debt securities that have defaulted or impaired since the last reporting period' and decrease in row 5 'Other changes' resulted from the alignment of CRR default definition with the NPE definition as at 1 January 2018.

8. Other Pillar 3 disclosures (continued)

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

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

The RWA density overall remains at the same levels for the period. The material increase in 'Central Governments or central banks' and decrease in 'Other items' is due to the reallocation of the DTA exposures under RWA from the first to the latter. A decrease in the RWA intensity observed in 'Regional government or local authorities' results from improved credit mitigation.

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

	30 June 2018	a		b	c		d	e		f
		Exposures before Credit Conversion Factor (CCF) and CRM			Exposures post CCF and CRM			RWAs and RWA density
	Exposure classes	On-balance-sheet amount	Off-balance-sheet amount		On-balance-sheet amount	Off-balance-sheet amount		RWAs	RWA density
		€000	€000		€000	€000		€000	%
1	Central governments or central banks	4,859,572	73		4,901,173	-		528,173	10.8%
2	Regional government or local authorities	81,576	8,678		25,325	293		1,742	6.8%
3	Public sector entities	32,892	545		32,846	1		-	0.0%
4	Multilateral development banks	45,630	-		89,747	-		-	0.0%
5	International organisations	21,445	-		21,445	-		-	0.0%
6	Institutions	802,351	53,643		806,301	17,372		220,973	26.8%
7	Corporates	3,424,348	1,243,351		3,274,130	245,950		3,473,792	98.7%
8	Retail	1,896,304	921,676		1,643,947	54,146		1,204,509	70.9%
9	Secured by mortgages on immovable property	3,982,712	73,906		3,851,209	38,403		1,401,381	36.0%
10	Exposures in default	3,511,265	263,073		3,472,578	69,544		3,959,811	111.8%
11	Higher-risk categories	1,683,036	223,316		1,542,379	49,012		2,387,087	150.0%
12	Covered bonds	146,534	-		146,534	-		14,653	10.0%
13	Institutions and corporates with a short-term credit assessment	-	-		-	-		-	-
14	Collective investment undertakings	236	-		236	-		236	100.0%
15	Equity	144,560	-		144,560	-		322,906	223.4%
16	Other items	2,298,268	-		2,298,268	-		2,098,592	91.3%
17	Total	22,930,729	2,788,261		22,250,678	474,721		15,613,855	68.7%

8. Other Pillar 3 disclosures (continued)

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

	31 December 2017	a		b	c		d	e		f
		Exposures before CCF and CRM			Exposures post CCF and CRM			RWAs and RWA density
	Exposure classes	On-balance-sheet amount	Off-balance-sheet amount		On-balance-sheet amount	Off-balance-sheet amount		RWAs	RWA density
		€000	€000		€000	€000		€000	%
1	Central governments or central banks	4,078,677	89		4,162,575	-		-	0.0%
2	Regional government or local authorities	61,596	12,961		3,545	290		767	20.0%
3	Public sector entities	27,898	590		23,835	7		1	0.0%
4	Multilateral development banks	9,058	-		9,058	-		-	0.0%
5	International organisations	11,443	-		11,443	-		-	0.0%
6	Institutions	1,158,910	61,514		1,163,100	18,803		309,468	26.2%
7	Corporates	3,614,036	1,417,842		3,440,145	298,490		3,687,153	98.6%
8	Retail	2,267,261	963,319		2,018,338	55,607		1,470,032	70.9%
9	Secured by mortgages on immovable property	4,036,794	60,191		3,915,969	31,230		1,422,667	36.0%
10	Exposures in default	2,953,194	212,400		2,925,634	51,454		3,194,550	107.3%
11	Higher-risk categories	1,700,990	251,319		1,598,448	88,058		2,529,759	150.0%
12	Covered bonds	100,136	-		100,136	-		10,014	10.0%
13	Institutions and corporates with a short-term credit assessment	-	-		-	-		-	0.0%
14	Collective investment undertakings	47	-		47	-		47	100.0%
15	Equity	143,240	-		143,240	-		326,093	227.7%
16	Other items	2,404,961	-		2,404,961	-		2,547,073	105.9%
17	Total	22,568,241	2,980,225		21,920,474	543,939		15,497,624	69.0%

8. Other Pillar 3 disclosures (continued)

8.13 Standardised approach

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

All rows and columns that are not relevant to the Group's activities are not included in the table below.

30 June 2018	Risk weight											Total	Of which unrated¹⁵
30 June 2018	0%	2%	10%	20%	35%	50%	75%	100%	150%	250%	Deducted
Exposure classes	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Central governments or central banks	4,687,192	-	2,825	-	-	-	-	-	-	211,156	-	4,901,173	211,156
Regional government or local authorities	16,911	-	-	8,707	-	-	-	-	-	-	-	25,618	-
Public sector entities	32,846	-	-	1	-	-	-	-	-	-	-	32,847	-
Multilateral development banks	89,747	-	-	-	-	-	-	-	-	-	-	89,747	45,630
International organisations	21,445	-	-	-	-	-	-	-	-	-	-	21,445	21,445
Institutions	2,248	2,027	-	760,575	-	64,766	-	4,405	34,586	-	-	868,607	-
Corporates	-	-	-	-	-	-	-	3,520,081	645	-	-	3,520,726	3,520,726
Retail	-	-	-	-	-	-	1,698,093	-	-	-	-	1,698,093	1,698,093
Secured by mortgages on immovable property	-	-	-	-	3,197,458	692,035	-	119	-	-	-	3,889,612	3,889,612
Exposures in default	-	-	-	-	-	-	-	2,706,744	835,378	-	-	3,542,122	3,542,122
Higher-risk categories	-	-	-	-	-	-	-	-	1,591,391	-	-	1,591,391	1,591,391
Covered bonds	-	-	146,534	-	-	-	-	-	-	-	-	146,534	-
Collective investment undertakings	-	-	-	-	-	-	-	236	-	-	-	236	236
Equity	-	-	-	-	-	-	-	25,663	-	118,897	-	144,560	144,560
Other items	140,221	-	-	74,319	-	-	-	2,083,728	-	-	205,601	2,503,869	2,503,869
Total	4,990,610	2,027	149,359	843,602	3,197,458	756,801	1,698,093	8,340,976	2,462,000	330,053	205,601	22,976,580	17,168,840

__________________

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

8. Other Pillar 3 disclosures (continued)

8.13 Standardised approach (continued)

31 December 2017	Risk weight										Total	Of which unrated¹⁶
31 December 2017	0%	10%	20%	35%	50%	75%	100%	150%	250%	Deducted
Exposure classes	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Central governments or central banks	4,162,575	-	-	-	-	-	-	-	-	-	4,162,575	-
Regional government or local authorities	-	-	3,835	-	-	-	-	-	-	-	3,835	-
Public sector entities	23,836	-	6	-	-	-	-	-	-	-	23,842	-
Multilateral development banks	9,058	-	-	-	-	-	-	-	-	-	9,058	9,058
International organisations	11,443	-	-	-	-	-	-	-	-	-	11,443	11,443
Institutions	2,524	-	1,103,571	-	69,387	-	12,507	42,078	-	-	1,230,067	-
Corporates	-	-	-	-	-	-	3,738,286	670	-	-	3,738,956	3,738,956
Retail	-	-	-	-	-	2,073,945	-	-	-	-	2,073,945	2,073,945
Secured by mortgages on immovable property	-	-	-	3,209,947	737,131	-	121	-	-	-	3,947,199	3,947,199
Exposures in default	-	-	-	-	-	-	2,542,167	434,921	-	-	2,977,088	2,977,088
Higher-risk categories	-	-	-	-	-	-	-	1,686,506	-	-	1,686,506	1,686,506
Covered bonds	-	100,136	-	-	-	-	-	-	-	-	100,136	-
Collective investment undertakings	-	-	-	-	-	-	47	-	-	-	47	47
Equity	-	-	-	-	-	-	21,338	-	121,902	-	143,240	143,240
Other items	143,901	-	56,603	-	-	-	1,983,594	-	220,863	206,943	2,611,904	2,611,904
Total	4,353,337	100,136	1,164,015	3,209,947	806,518	2,073,945	8,298,060	2,164,175	342,765	206,943	22,719,841	17,199,386

_________________

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

Accumulated expected credit losses on loans and advances to customers	Expected credit losses to cover credit risk on loans and advances to customers comprise: (i) allowance for ECL of loans and advances to customers, (ii) the fair value adjustment on initial recognition of loans and advances to customers, (iii) provisions for off-balance sheet exposures (contingent liabilities and commitments) disclosed on the balance sheet within other liabilities and (iv) accumulated fair value adjustments on loans and advances to customers classified at FVPL.

Cost to income ratio	Cost-to-income ratio is calculated as the total staff costs, special levy on deposits on credit institutions in Cyprus and other operating expenses (excluding advisory and other restructuring costs and (reversals of provisions)/provisions for litigation and regulatory matters) divided by total income.

Expected credit losses (cost of risk)		Expected credit loss (cost of risk) is calculated as the loan provisions charge (as defined) divided by average gross loans and advances to customers (as defined) (the average balance calculated as the average of the opening and closing balance).

Expected credit losses coverage ratio for NPEs		Expected credit losses coverage ratio for NPEs is calculated as the accumulated expected credit losses (as defined) over NPEs (as defined).

Gross loans and advances to customers	Comprises: (i) gross loans and advances to customers measured at amortised cost before fair value adjustment on initial recognition (including loans and advances to customers classified as non-current assets held for sale) and (ii) loans and advances to customers measured at FVPL, including accumulated fair value adjustments.
Interest earning assets	Interest earning assets is the sum of: cash and balances with central banks, loans and advances to banks, net loans and advances to customers, investments (excluding equities and mutual funds) and derivatives.

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

Loan provisions charge	Loan provisions charge comprises of: (i) credit losses to cover credit risk on loans and advances to customers, (ii) net gains on derecognition of financial assets measured at amortised cost and (iii) net gains on loans and advances to customers at FVPL.

Net fee and commission income over total income	Fee and commission income less fee and commission expense divided by total income (as defined).

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

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

Non-performing exposures (NPEs)	The Group in line with the European Banking Authority (EBA) standards and European Central Bank's (ECB) Guidance to Banks on Non-Performing Loans (which was published in March 2017) considers that loans and advances to customers meet the NPE definition if they satisfy one of the following conditions: (xi) The borrower is assessed as unlikely to pay its credit obligations in full without the realisation of the collateral, regardless of the existence of any past due amount or of the number of days past due. (xii) Defaulted or impaired exposures as per the approach provided in the Capital Requirement Regulation (CRR), which would also trigger a default under specific credit adjustment, distress restructuring and obligor bankruptcy. (xiii) Material exposures as set by the Central Bank of Cyprus (CBC), which are more than 90 days past due. (xiv) Performing forborne exposures under probation for which additional forbearance measures are extended. (xv) Performing forborne exposures under probation that present more than 30 days past due within the probation period. When a specific part of the exposures of a customer that fulfil the NPE criteria set out above are greater than 20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total customer exposure is classified as non-performing; otherwise only the specific part of the exposure is classified as non-performing.
NPE ratio	NPE ratio is NPEs (as defined) divided by gross loans and advances to customers (as defined).

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

Total income		Comprises total of net interest income, net fee and commission income, net foreign exchange gains, net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates (excluding net gains on loans and advances to customers at FVPL), insurance income net of claims and commissions, net gains/(losses) from revaluation and disposal of investment properties, net gains on disposal of stock of property and other income.

Reconciliation of Gross loans	30 June 2018	31 December 2017
Reconciliation of Gross loans	€000	€000
Gross loans as per Interim Management Report	18,312,285	18,754,715
Adjustments:
Fair value adjustment on initial recognition (Note 28)*	(370,273)	(668,485)
Loans and advances to customers classified as non-current assets held for sale (Note 28)	(2,775,426)	-
Fair value adjustment on initial recognition on loans and advances to customers classified as non-current assets held for sale (Note 28)	(143,811)	-
Reclassification between gross loans and accumulated expected credit losses on loans and advances to customers classified as held for sale	107,353	-
Loans and advances to customers measured at fair value through profit and loss	(403,691)	-
Gross loans as per Interim Condensed Consolidated Financial Statements	14,726,437	18,086,230

* Including cumulative fair value adjustments of loans and advances to customers measured at fair value through profit and loss amounting to €63,139 thousand.

Reconciliation of accumulated expected credit losses on loans and advances to customers (ECL)	30 June 2018	31 December 2017
	€000	€000
ECL as per Interim Management Report	4,100,029	4,204,248
Adjustments:
Fair value adjustment on initial recognition (Note 28)*	(370,273)	(668,485)
Loans and advances to customers classified as non-current assets held for sale (Note 28)	(1,536,807)	-
Fair value adjustment on initial recognition on loans and advances to customers classified as non-current assets held for sale (Note 28)	(143,811)	-
Reclassification between gross loans and accumulated expected credit losses on loans and advances to customers classified as held for sale	107,353	-
Provisions for financial guarantees and commitments	(27,545)	(51,987)
Allowance for accumulated ECL as per Interim Condensed Consolidated Financial Statements	2,128,946	3,483,776

* Including fair value adjustment on initial recognition of loans and advances to customers measured at fair value through profit and loss amounting to €63,139 thousand.

Reconciliation of NPEs	30 June 2018
Reconciliation of NPEs	€000
NPEs as per Interim Management Report	7,914,281
Adjustments:
Loans and advances to customers classified as non-current assets held for sale	(2,812,908)
Reclassification between gross loans and accumulated expected credit losses on loans and advances to customers classified as held for sale	107,353
Loans and advances to customers measured at fair value through profit and loss (Stage 3)	(165,984)
POCI (Stage 3)	(744,752)
Stage 3 loans and advances to customers as per Interim Condensed Consolidated Financial Statements	4,297,990

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Half-year Report

Contents

Page

Notes to the Interim Condensed Consolidated Financial Statements

Insurance liabilities

Accruals, deferred income and other liabilities

Deferred tax liabilities

Total liabilities

Property revaluation reserve

Property revaluation reserve

4. Going concern

4. Going concern (continued)

5.2.1 Regulatory capital ratios

5.2.1 Regulatory capital ratios (continued)

5.2.3 Liquidity

5.2.3 Liquidity (continued)

5.2.4 Pending litigation, claims and regulatory matters

6. Significant judgements, estimates and assumptions

6. Significant judgements, estimates and assumptions (continued)

6. Significant judgements, estimates and assumptions (continued)

6. Significant judgements, estimates and assumptions (continued)

Financial assets

Financial assets

Contractual interest rate

Debt securities price risk

Non-executives

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

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

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