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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Bank Of Cyprus Holdings Public Limited Company | LSE:BOCH | London | Ordinary Share | IE00BD5B1Y92 | ORD EUR0.10 (CDI) |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-3.50 | -1.10% | 313.50 | 310.00 | 317.00 | 317.00 | 311.00 | 315.00 | 28,945 | 16:35:16 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMBOCH
RNS Number : 6591U
Bank of Cyprus Holdings PLC
26 November 2019
Announcement
Group Financial Results for the nine months ended 30 September 2019
Nicosia, 26 November 2019
Key Highlights for the nine months ended 30 September 2019
Good Capital Position
-- Total Capital ratio of 17.9% pro forma for disposal of investment in CNP and Voluntary Staff Exit Plan (VEP) (18.2% as reported)
-- CET1 ratio of 14.9% pro forma for disposal of investment in CNP and VEP (15.2% as reported)
Balance Sheet Repair Continues at Pace
-- NPEs of EUR4.1 bn (EUR2.0 bn net); 73% reduction since 2014 -- Gross NPE ratio reduced to 31%, coverage increased to 51%
-- Organic NPE reduction continued ahead of guidance (EUR227 mn in 3Q2019; EUR684 mn in 9M2019)
-- REMU sales of EUR355 mn in 9M2019 -- Good momentum in efforts to accelerate de-risking with further portfolio sales
Active Liquidity Management
-- Deposits flat qoq at EUR16.5 bn -- Loan to deposit ratio at 66% -- Liquidity surplus reduced to EUR3.0 bn on TLTRO repayment -- Liquidity management strategy underway for specific customer groups
Positive Performance in 3Q2019
-- New lending of EUR491 mn for 3Q2019 and EUR1.6 bn for 9M2019 -- Total Income of EUR162 mn, Operating profit of EUR63 mn -- Recurring income from on-going insurance business (EUR12 mn in 3Q2019; EUR42 mn in 9M2019) -- Cost of risk at 0.90% -- Underlying profit of EUR18 mn for 3Q2019 and EUR35 mn for 9M2019 -- Profit after tax of EUR19 mn for 3Q2019 and EUR116 mn for 9M2019
Cost Management Actions in 4Q2019 Supported by Digital Transformation
-- Successful completion of VEP in 4Q2019 at one-off cost of EUR79 mn, supported by the on-going Digital Transformation Programme
-- Full time employees reduced by 11% -- Gross annual savings in staff costs of 13% (EUR28 mn)
-- Branch footprint rationalisation continues; further 8% reduction in number of branches by the year end
-- 75% of transactions (involving deposits, cash withdrawals and transfers) through digital channels; 54% increase in active mobile banking users since June 2017
Group Chief Executive Statement
"Our results this quarter reflect continuing progress against our core objective of balance sheet repair and normalisation of our Bank.
Following the completion of the sale of c.EUR2.7 bn non-performing loans in Project Helix in June, which added 140 bps of capital in the second quarter, the continued organic NPE reduction remains ahead of our organic target of c.EUR800 mn for 2019. The organic NPE reduction in the third quarter of the year amounted to EUR227 mn, bringing the total organic reduction in the nine months of 2019 to EUR684 mn. This represents the eighteenth consecutive quarter of organic NPE reductions.
Since the peak in 2014, we have now reduced the stock of NPEs by 73% to EUR4.1 bn. This stock of NPEs is now covered by 51% loan credit losses. Overall, since 2014 we have managed a reduction in NPEs of EUR10.9 bn, of which EUR8.2 bn has been through organic actions.
The Bank's capital position remains good and well in excess of our regulatory requirements. As at 30 September 2019, pro forma for the sale of our investment in CNP and the voluntary staff exit plan, our capital ratios (IFRS 9 transitional) were CET1 of 14.9% and Total Capital ratio of 17.9%.
During the quarter our deposits remained broadly flat at EUR16.5 bn and we reduced our cost of deposits by a further 5 bps. Overall, we reduced our cost of deposits by 57 bps since January 2018. In the third quarter of 2019, our new lending in Cyprus grew 20% from the prior year to EUR491 mn, helping support the continued growth in the Cypriot economy. Overall in the first nine months of 2019, we lent EUR1.6 bn to customers. Our loan to deposit ratio at the quarter-end stood at 66%.
During the third quarter of the year, the Group generated total income of EUR162 mn and a positive operating result of EUR63 mn. The underlying result was a profit after tax of EUR18 mn, whilst the reported profit after tax for the third quarter was EUR19 mn. After the net loss from the sale of our investment in CNP of EUR21 mn and the net impact from the reversal of impairments of EUR101 mn, the reported profit after tax for the first nine months of the year amounted to EUR116 mn.
Our on-going insurance business provides recurring income for the Group and, following the disposal of our investment in CNP, it remains well positioned for growth over the medium term.
The changed interest rate environment in Europe continues to present a challenge to our profitability levels. In response, we remain focused on actively managing our funding costs and reducing our cost base. We have made progress in these areas this quarter.
In September, we decided to early repay ECB funding in the form of TLTRO of EUR830 mn, given the comfortable liquidity position. The repayment is expected to result in savings as these funds were deposited at negative interest rates. The Bank continues to operate with a significant liquidity surplus, which at the end of the third quarter amounted to EUR3.0 bn.
In October, we completed a voluntary staff exit plan through which c.470 applicants were approved to leave at a total one-off cost of c.EUR79 mn to be recorded in the fourth quarter, reducing the number of our employees by c.11%, whilst gross annual savings are estimated at c.EUR28 mn or c.13% of staff costs. In addition, we continue our branch footprint rationalisation as we expect to reduce the number of our branches by a further 8% by the year end, further improving our operating model. We remain focused on further improvement in efficiency.
These actions have been supported by our on-going Digital Transformation Programme. The adoption of digital products and services continues to grow and gain momentum. Today, 75% of transactions involving deposits, cash withdrawals and transfers, are performed through digital channels, whilst the number of active users of mobile banking has increased by 54% since June 2017.
The Bank is returning to strength, through a disciplined approach to balance sheet repair, the disposal of non-core businesses and cost rationalisation through digital transformation. Good progress has been made throughout the year, however there remains more to do and we are focused on delivering balance sheet de-risking at pace and further efficiency gains across our cost base. Our strategy of making the Bank stronger, safer and future-focused is unchanged. This will enable us to continue to support the strengthening Cypriot economy, which expanded by 3.1% during the first nine months of the year.
I am looking forward to sharing my perspectives and vision for the future of our Bank with the release of the full year financial results."
Panicos Nicolaou
A. Group Financial Results - Underlying Basis Unaudited Interim Condensed Consolidated Income Statement -------------------------------------------------------------------------------------------------------- 9M2018(1) qoq EUR mn 9M2019(1) represented(2) 3Q2019(1) 2Q2019(1) +% yoy +% ----------------------- --------- -------------------- ------------- ----------- ------- --------- Net interest income 260 250 90 85 5% 4% Net fee and commission income 111 122 36 38 -5% -9% Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates 34 52 8 16 -49% -34% Insurance income net of claims and commissions 42 38 12 18 -34% 11% Net gains from revaluation and disposal of investment properties and on disposal of stock of properties 26 15 10 12 -25% 65% Other income 22 17 6 8 -22% 25% ----------------------- --------- -------------------- ------------- ----------- ------- --------- Total income 495 494 162 177 -9% 0% ----------------------- --------- -------------------- ------------- ----------- ------- --------- Staff costs (167) (154) (55) (56) -2% 8% Other operating expenses (122) (114) (38) (43) -12% 7% Special levy and contribution to Single Resolution Fund (18) (18) (6) (6) 2% 2% Total expenses (307) (286) (99) (105) -6% 7% --------- -------------------- ------------- ----------- ------- Operating profit 188 208 63 72 -13% -10% ----------------------- --------- -------------------- ------------- ----------- ------- --------- Loan credit losses (117) (104) (30) (40) -26% 12% (Impairments)/reversal of impairments of other financial and non-financial assets (9) (12) 1 (9) -109% -21% (Provisions)/reversal of provisions for litigation, regulatory and other matters (3) (9) (6) 3 - -62% ----------------------- --------- -------------------- ------------- ----------- ------- ---------
Total loan credit losses, impairments and provisions (129) (125) (35) (46) -27% 4% ----------------------- --------- -------------------- ------------- ----------- ------- --------- Profit before tax and non-recurring items 59 83 28 26 15% -29% ----------------------- --------- -------------------- ------------- ----------- ------- --------- Tax (1) (4) (1) 2 - -82% (Profit)/loss attributable to non-controlling interests (2) 3 0 (2) - - ----------------------- --------- -------------------- ------------- ----------- ------- --------- Profit after tax and before non-recurring items 56 82 27 26 6% -32% ----------------------- --------- -------------------- ------------- ----------- ------- --------- Advisory and other restructuring costs - excluding discontinued operations and NPE sale (Helix) (21) (26) (9) (5) 99% -18% ======================= ========= ==================== ============= =========== ======= ========= Profit after tax - Organic 35 56 18 21 -15% -38% ======================= ========= ==================== ============= =========== ======= ========= Profit from discontinued operations (UK) - 4 - - - - Profit/(loss) relating to NPE sale (Helix) 1 (105) 1 4 - - Loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates (21) 8 0 (23) - - Reversal of impairment of DTA and impairment of other tax receivables 101 - - - - - ----------------------- --------- -------------------- ------------- ----------- ------- --------- Profit/(loss) after tax - attributable to the owners of the Company 116 (37) 19 2 - - ----------------------- --------- -------------------- ------------- ----------- ------- --------- Key Performance qoq Ratios(2) 9M2019(1) 9M2018(1,2) 3Q2019(1) 2Q2019(1) + yoy + ----------------------- --------- -------------------- ------------- ----------- ------- --------- Net Interest Margin (annualised) 1.92% 1.84% 1.99% 1.89% +10 bps +8bps ----------------------- --------- -------------------- ------------- ----------- ------- --------- Cost to income ratio 62% 58% 61% 59% +2 p.p. +4 p.p. ----------------------- --------- -------------------- ------------- ----------- ------- --------- Cost to income ratio excluding special levy and contribution to Single Resolution Fund 58% 54% 57% 56% +1 p.p. +4 p.p. ----------------------- --------- -------------------- ------------- ----------- ------- --------- Operating profit return on average assets (annualised) 1.2% 1.3% 1.2% 1.3% -10 bps -10 bps ----------------------- --------- -------------------- ------------- ----------- ------- --------- Basic earnings per share attributable to the owners of the Company (EUR cent) - Organic 7.78 12.59 4.06 4.78 -0.72 -4.81 ----------------------- --------- -------------------- ------------- ----------- ------- --------- Basic earnings/(losses) per share attributable to the owners of the Company (EUR cent) 25.92 (8.28) 4.08 0.61 3.47 34.20 ----------------------- --------- -------------------- ------------- ----------- ------- --------- 1. The interest income, non-interest income, staff costs, other operating expenses and loan credit losses related to Project Helix are disclosed under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying basis. 2. Including the impact from IFRIC Presentation of unrecognised interest following the curing of a credit-impaired financial asset (IFRS 9)). This resulted in a reclassification between net interest income and loan credit losses, with no impact on the overall profitability. p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point Unaudited Interim Condensed Consolidated Balance Sheet ====================================================================================================== EUR mn 30.09.2019 31.12.2018 +% (restated) ================================== ================ ========================== ================ Cash and balances with central banks 4,413 4,610 -4% Loans and advances to banks 428 473 -9% Debt securities, treasury bills and equity investments 1,975 1,515 30% Net loans and advances to customers 10,971 10,922 0% Stock of property 1,399 1,427 -2% Investment properties 138 127 8% Other assets 1,601 1,531 5% Non-current assets and disposal groups held for sale 189 1,470 -87% ================================== ================ ========================== ================ Total assets 21,114 22,075 -4% ================================== ================ ========================== ================ Deposits by banks 451 432 4% Funding from central banks - 830 - Repurchase agreements 250 249 1% Customer deposits 16,473 16,844 -2% Subordinated loan stock 268 271 -1% Other liabilities 1,190 1,082 10% ================================== ================ ========================== ================ Total liabilities 18,632 19,708 -5% ================================== ================ ========================== ================ Shareholders' equity 2,234 2,121 5% ================================== ================ ========================== ================ Other equity instruments 220 220 - ================================== ================ ========================== ================ Total equity excluding non-controlling interests 2,454 2,341 5% ================================== ================ ========================== ================ Non-controlling interests 28 26 9% ================================== ================ ========================== ================ Total equity 2,482 2,367 5% ================================== ================ ========================== ================ Total liabilities and equity 21,114 22,075 -4% ================================== ================ ========================== ================ Key Balance Sheet figures and 31.12.2018 + ratios 30.09.2019 ================================== ==================== ============= =========== ================ Gross loans (EUR mn) 13,035 13,148 -1% ================================== ==================== ============= =========== ================ Allowance for expected loan credit losses (EUR mn) 2,086 2,254 -7% ================================== ==================== ============= =========== ================ Customer deposits (EUR mn) 16,473 16,844 -2% ================================== ==================== ============= =========== ================ Loans to deposits ratio (net) 66% 65% +1 p.p.
================================== ==================== ============= =========== ================ NPE ratio 31% 36% -5 p.p. ================================== ==================== ============= =========== ================ NPE coverage ratio 51% 47% +4 p.p. ================================== ==================== ============= =========== ================ Leverage ratio 10.9% 10.0% 0.9 p.p. ================================== ==================== ============= =========== ================ Capital ratios and risk weighted 30.09.2019 30.09.2019 31.12.2018 + assets Pro forma for CNP and VEP ================================== ==================== ============= =========== ================ Common Equity Tier 1 (CET1) ratio (transitional for IFRS 9)(1) 14.9% 15.2% 11.9%(2) +330 bps ================================== ==================== ============= =========== ================ Total capital ratio 17.9% 18.2% 14.9% +330 bps ================================== ==================== ============= =========== ================ Risk weighted assets (EUR mn) 13,520 13,758 15,373 -11% ================================== ==================== ============= =========== ================ 1. The CET1 FL ratio as at 30 September 2019 (including the full impact of IFRS 9) amounts to 13.6% and 13.3% pro forma for CNP and VEP (compared to 13.3% and 13.5% pro forma for CNP as at 30 June 2019, 11.9% and 13.3% pro forma for Helix as at 31 March 2019, and 10.1% and 13.5% pro forma for DTC and Helix as at 31 December 2018). 2. The CET1 ratio transitional also for DTA as at 31 December 2018 stood at 12.1%. p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 p.p.
Commentary and Comparative Information
The Group adopted the accounting standard IFRS 16 'Leases' on 1 January 2019. The impact on adoption was an increase in assets of EUR37 mn and an increase in liabilities of EUR37 mn with no impact on retained earnings or equity of the Group. The effect of the adoption of IFRS 16 remains subject to change until the Group finalises its financial statements for the year ended 31 December 2019, the year of initial application.
Comparative information was restated following the change in the classification of properties which are leased out under operating leases as investment properties. In relation to these properties, an amount of EUR103 mn was reclassified from 'Stock of property' to 'Investment Properties'.
Reclassifications to comparative information were also made for unrecognised interest on previously credit impaired loans which have cured during the period amounting to EUR24 mn. This was reclassified from 'Net interest income' to 'Credit losses to cover credit risk on loans and advances to customers' in line with an IFRIC discussion, which has taken place in November 2018 (Presentation of unrecognised interest following the curing of a credit impaired financial asset (IFRS 9)). The corresponding amount for the nine months ended 30 September 2019 stood at EUR12 mn.
A.1. Balance Sheet Analysis
A.1.1 Capital Base
Total equity excluding non-controlling interests totalled EUR2,454 mn at 30 September 2019, compared to EUR2,442 mn at 30 June 2019 and EUR2,341 mn at 31 December 2018. Shareholders' equity totalled EUR2,234 mn at 30 September 2019, compared to EUR2,222 mn at 30 June 2019 and EUR2,121 mn at 31 December 2018.
The Common Equity Tier 1 capital (CET1) ratio on an IFRS 9 transitional basis stood at 15.2% at 30 September 2019 (and 14.9% pro forma for the sale of investment in CNP Cyprus Insurance Holdings Ltd (CNP) (referred to as "pro forma for CNP") and for the voluntary staff exit plan (VEP), collectively referred to as "pro forma for CNP and VEP"), compared to 14.9% at 30 June 2019 (and 15.2% pro forma for CNP) and to 11.9% at 31 December 2018 (adjusted to take into account the deferred tax assets (DTAs) which were fully phased in as of 1 January 2019). During 3Q2019 the CET1 ratio was positively affected mainly by the decrease in risk weighted assets (RWAs). The CET1 ratio as at 30 September 2019 includes unreviewed profits for the nine months ended 30 September 2019.
The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU Regulation 2017/2395) where the impact on the impairment amount from the initial application of IFRS 9 on the capital ratios is phased-in gradually. The amount added each year decreases based on a weighting factor until the impact of IFRS 9 is fully absorbed back to CET1 at the end of the five years. The impact on the capital ratios for the year 2018 was 5% of the impact on the impairment amounts from the initial application of IFRS 9, increasing to 15% (cumulative) for the year 2019. The CET1 ratio on a fully-loaded basis amounts to 13.6% at 30 September 2019 and 13.3% pro forma for CNP and VEP, compared to 13.3% at 30 June 2019 (and 13.5% pro forma for CNP) and to 10.1% at 31 December 2018 (and 13.5% pro forma for DTC and Helix). 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 September 2019, the Total Capital ratio stood at 18.2% (and 17.9% pro forma for CNP and VEP), compared to 17.8% at 30 June 2019 (and 18.1% pro forma for CNP) and to 14.9% at 31 December 2018.
The Group's capital ratios are above the minimum CET1 regulatory capital requirement of 10.5% (comprising a 4.5% Pillar I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 0.5%) and the overall Total Capital requirement of 14.0%, comprising an 8.0% Pillar I requirement (of which up to 1.5% can be in the form of Additional Tier 1 capital and up to 2.0% in the form of Tier 2 capital), a 3.0% Pillar II requirement (in the form of CET1), the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 0.5%. The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer.
Pillar II add-on capital requirements derive from the context of the Supervisory Review and Evaluation Process (SREP), which is a point in time assessment, and are therefore subject to change over time.
In accordance with the provisions of the Macroprudential Oversight of Institutions Law of 2015, the Central Bank of Cyprus (CBC) is the responsible authority for the designation of banks that are Other Systemically Important Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for these systemically important banks. The Group has been designated as an O-SII and the O-SII buffer currently set by the CBC for the Group is 2%. This buffer is being phased-in gradually, having started from 1 January 2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%) on 1 January 2022.
Following the annual SREP performed by the ECB in 2019 and based on the pre-notification received in September 2019, the Group's minimum phased-in CET1 capital ratio and Total Capital ratio remain unchanged, when ignoring the phasing-in of the Other Systemically Important Institution Buffer. The Group's phased-in CET1 capital ratio is expected to be 11.0%, comprising a 4.5% Pillar I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% (fully phased-in as of 1 January 2019) and the Other Systemically Important Institution Buffer of 1.0%. The Group's Total Capital requirement is expected to be 14.5%, comprising an 8.0% Pillar I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 1.0%. The new SREP requirements are expected to be effective from January 2020 and remain subject to ECB final confirmation.
The EBA final guidelines on SREP and supervisory stress testing and the Single Supervisory Mechanism's (SSM) 2018 SREP methodology provide that own funds held for the purposes of Pillar II Guidance cannot be used to meet any other capital requirements (Pillar 1, Pillar II requirement or the combined buffer requirements), and therefore cannot be used twice. Following the Annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2019 and based on the pre-notification received in September 2019, the new provisions are expected to be effective from January 2020 and remain subject to ECB final confirmation.
The Group capital ratios remain above the SREP requirements.
Based on the SREP decisions of prior years, the Company and the Bank were under a regulatory prohibition for equity dividend distribution and therefore no dividends were declared or paid during years 2018 and 2017. Following the 2018 SREP decision, the Company and the Bank are still under equity dividend distribution prohibition. This prohibition does not apply if the distribution is made via the issuance of new ordinary shares to the shareholders, which are eligible as CET1 capital. No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company or the Bank.
Additional Tier 1
In December 2018, the Company proceeded with the issuance of EUR220 mn of Additional Tier 1 Capital Securities (AT1). AT1 constitutes an unsecured and subordinated obligation of the Company. The coupon is at 12.50% and is payable semi-annually. The first coupon payment to AT1 holders was made in June 2019 and was recognised in retained earnings.
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific deferred tax assets (DTA) into deferred tax credits (DTC) were adopted by the Cyprus Parliament on 1 March 2019 and published in the Official Gazette of the Republic on 15 March 2019. The law amendments cover the income tax losses transferred from Laiki Bank to the Bank in March 2013. The introduction of CRD IV in January 2014 and its subsequent phasing-in led to a more capital intensive treatment of this DTA for the Bank. The law amendments have resulted in improved regulatory capital treatment, under Capital Requirements Regulation (EU) No. 575/2013 ("CRR"), of the DTA amounting to c.EUR285 mn or a CET1 uplift of c.190 bps.
Project Helix
In June 2019, Project Helix was completed resulting in a positive impact of c.140 bps on both the Group's CET1 and Total Capital ratios, mainly from the release of risk weighted assets. Project Helix had an overall net positive impact on the Group capital ratios of c.60 bps.
Sale of investment in CNP Cyprus Insurance Holdings Ltd
In October 2019, the sale of the Group's investment in its associate CNP Cyprus Insurance Holdings Limited ("CNP") was completed, resulting in a positive impact of c.30 bps on both the Group's CET1 and Total Capital ratios, mainly from the release of risk weighted assets. The shareholding had been acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and was sold to CNP Assurances S.A. for a cash consideration of EUR97.5 mn.
Voluntary Staff Exit Plan
In October 2019, the Group completed a voluntary staff exit plan with an estimated cost of EUR79 mn which will be recognised in the consolidated income statement in the fourth quarter, resulting in a negative impact of c.60 bps on both the Group's CET1 and Total Capital ratios.
Pro forma capital ratios
With the completion of the sale of the Group's investment in its associate CNP and the voluntary staff exit plan (VEP), both of which took place in 4Q2019, the CET1 ratio (IFRS 9 transitional basis) of 15.2% as at 30 September 2019 changes to 14.9% pro forma for CNP and VEP. The Total Capital ratio of 18.2% as at 30 September 2019 changes to 17.9% pro forma for CNP and VEP.
Share premium reduction of the Bank
The Bank will proceed (subject to approvals mainly by the Court of Cyprus and the ECB) with a capital reduction process which will result in the reclassification of c.EUR551 mn of the Bank's share premium account balance as distributable reserves which shall be available for distribution to the shareholders of the Bank, resulting in total net distributable reserves of c.EUR1 bn on a pro forma basis (30 September 2019). The reduction of capital will not have any impact on regulatory capital or the total equity position of the Bank or the Group.
The distributable reserves provide the basis for the calculation of distributable items under the CRR, which provides that coupons on AT1 capital instruments may only be funded from distributable items.
A.1.2 Funding and Liquidity
Funding
Funding from Central Banks
At 30 September 2019, the Bank had no funding from central banks. At 30 June 2019, the Bank's funding from central banks amounted to EUR830 mn, which related to ECB funding (at the same level as at 31 March 2019 and 31 December 2018), comprising solely of funding through the Targeted Longer-Term Refinancing Operations (TLTRO II).
In September 2019, the Bank decided to early repay the ECB funding, given its comfortable liquidity position. The repayment is expected to result in savings for the Bank as these funds were deposited at negative interest rates.
Deposits
Customer deposits totalled EUR16,473 mn at 30 September 2019, compared to EUR16,377 mn at 30 June 2019 and EUR16,844 mn at 31 December 2018.
The Bank's deposit market share in Cyprus reached 34.6% as at 30 September 2019, compared to 34.7% as at 30 June 2019. Customer deposits accounted for 78% of total assets at 30 September 2019.
The Loan to Deposit ratio (L/D) stood at 66% as at 30 September 2019, compared to 67% as at 30 June 2019 and to a peak of 151% as at 31 March 2014. The L/D ratio was reduced by 7 p.p. upon completion of Project Helix in 2Q2019, compared to 74% as at 31 March 2019 when ignoring the classification of the Helix portfolio as a disposal group held for sale (and to 72% at 31 December 2018 on the same basis).
Subordinated Loan Stock
At 30 September 2019 the Bank's subordinated loan stock (including accrued interest) amounted to EUR268 mn (compared to EUR261 mn at 30 June 2019 and EUR271 mn as at 31 December 2018) and relates to unsecured subordinated Tier 2 Capital Notes of nominal value EUR250 mn, issued by the Bank in January 2017.
Liquidity
At 30 September 2019 the Group Liquidity Coverage Ratio (LCR) stood at 218% (compared to 253% at 30 June 2019 and 231% at 31 December 2018) and was in compliance with the minimum regulatory requirement of 100%.
The liquidity surplus at 30 September 2019 decreased to EUR3.0 bn, from EUR3.8 bn at 30 June 2019, following the repayment of ECB funding amounting to EUR830 mn. At 30 June 2019, the liquidity surplus had increased to EUR3.8 bn, from EUR2.7 bn at 31 March 2019, reflecting a EUR1.2 bn increase in liquidity on Helix completion.
The Net Stable Funding Ratio (NSFR) has not yet been introduced. It will become a regulatory indicator when CRR2 is enforced, currently expected in 2021, with the limit set at 100%. At 30 September 2019, the Group's NSFR, on the basis of Basel standards, stood at 122% (compared to 128% at 30 June 2019 and 119% at 31 December 2018).
A.1.3 Loans
Group gross loans totalled EUR13,035 mn at 30 September 2019, compared to EUR13,072 mn at 30 June 2019, EUR15,882 mn at 31 March 2019 and EUR15,900 mn at 31 December 2018. Gross loans in Cyprus totalled EUR12,942 mn at 30 September 2019. The reduction in gross loans by 18% since the beginning of the year is attributed mainly to the completion of Project Helix (sale of EUR2.8 bn of gross loans of which EUR2.7 bn related to non-performing loans) and to a lesser extent to the completion of Project Velocity (sale of EUR30 mn gross loans as at the date of disposal, relating wholly to non-performing loans) in 2Q2019. New loans granted in 3Q2019 reached EUR491 mn, bringing the new loans granted in 9M2019 to EUR1,602 mn, exceeding new lending in Cyprus in 9M2018.
At 30 September 2019, the Group net loans and advances to customers totalled EUR10,971 mn (compared to EUR10,949 mn at 30 June 2019, EUR10,955 mn at 31 March 2019 pro forma for Helix (and Velocity) and EUR10,922 mn at 31 December 2018 on the same basis).
The Bank is the single largest credit provider in Cyprus with a market share of 40.8% at 30 September 2019, compared to 41.3% at 30 June 2019 and 46.7% at 31 March 2019, with the reduction in 2Q2019 reflecting the derecognition of the Helix portfolio on completion.
A.1.4 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.
Non-performing exposures (NPEs) as defined by the European Banking Authority (EBA) were reduced by EUR227 mn or 5% during 3Q2019, bringing the total organic reduction in NPEs in 9M2019 to EUR684 mn, ahead of the target for organic NPE reduction of c.EUR800 mn for 2019. NPEs at 30 September 2019 amounted to EUR4,085 mn, compared to EUR4,312 mn at 30 June 2019 and EUR7,419 mn at 31 December 2018.
The NPEs account for 31% of gross loans as at 30 September 2019, compared to 33% as at 30 June 2019, 46% as at 31 March 2019, ignoring the classification of the Helix (and Velocity) portfolio as disposal groups held for sale, and 47% at 31 December 2018 (on the same basis).
The NPE coverage ratio improved to 51% at 30 September 2019, compared to 50% at 30 June 2019, 48% at 31 March 2019 pro forma for Helix and 47% at 31 December 2018 on the same basis. Ignoring the classification of the Helix (and Velocity) portfolios as disposal groups held for sale, the NPE coverage ratio as at 31 March 2019 stood at 53% and at 31 December 2018 stood at 52%.
When taking into account tangible collateral at fair value, NPEs are fully covered.
30.09.2019 30.06.2019 % gross % gross EUR loans EUR mn loans mn =============================== ======== ========== ========= ========== NPEs as per EBA definition 4,085 31.3% 4,312 33.0% Of which, in pipeline to exit: 530 4.1% 657 5.0% -NPEs with forbearance measures, no arrears(1) =============================== ======== ========== ========= ========== 1. The analysis is performed on a customer basis.
Overall, the Group has recorded organic NPE reductions for eighteen consecutive quarters and expects the organic reduction of NPEs to continue in the next quarter, in line with the target of c.EUR800 mn for 2019.
The Group remains focused on continuing to improve its asset quality position and to seek solutions, both organic and inorganic, to make the Bank a stronger and safer institution, capable of supporting the local economy.
Project Helix
In June 2019, the Group announced the completion of Project Helix, that refers to the sale of a portfolio of loans with a gross book value of EUR2.8 bn (of which EUR2.7 bn related to non-performing loans) (the "Portfolio") secured by real estate collateral to certain funds affiliated with Apollo Global Management LLC, the agreement for which was announced on 28 August 2018.
Upon completion of Project Helix, the Group's gross NPEs were c.70% lower than its peak in 2014. Project Helix reduced the NPE ratio by c.11 p.p. to 33% as at 30 June 2019.
Cash consideration of c.EUR1.2 bn was received on completion, reflecting adjustments resulting from, inter alia, loan repayments received on the Portfolio since the reference date of 31 March 2018.
The participation of the Bank in the senior debt in relation to financing the Transaction was syndicated down from the initial level of EUR450 mn to c.EUR45 mn, representing c.4% of the total acquisition funding.
ESTIA
In July 2018 the Government announced a scheme aimed at addressing NPEs backed by primary residence, known as ESTIA (the 'Scheme'). The ESTIA eligible portfolio of c.EUR0.83 bn of retail core NPEs, refers to the potentially eligible portfolio following on-going detailed assessment based on the Bank's available data on Open Market Value (OMV) and NPE status. Eligibility criteria relate primarily to the 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 the contractual balance and the OMV. The Government will subsidise one third of the instalment of the restructured loan, subject to the borrowers servicing their restructured loans.
In July 2019 the Memorandum of Understanding was signed by the institutions and the Government for participation in the Scheme, which was officially launched in September 2019. According to the updated timeline provided by the Government in November 2019, application submissions will continue until the end of the year, with evaluation by the institutions running concurrently until mid-January 2020. The participating institutions will offer restructuring solutions to the applicants until the end of January 2020 and simultaneously the applications will be reviewed and approved by the Government, with the process expected to finish by mid-May 2020. The 1(st) payment of the state subsidy instalment is expected to occur between December 2019 and June 2020 (please refer to slide 7 of the Results Presentation for the nine months ended 30 September 2019).
The Scheme is expected to resolve part of the ESTIA-eligible portfolio (487 applications (c.EUR120 mn) have been received by the Bank until 22 November 2019), to identify non-viable customers for which alternative restructuring solutions are being considered and to facilitate the resolution of the remaining customers mainly by focusing on realising collateral through consensual and non-consensual foreclosures.
Project Velocity
In June 2019, the Bank completed the sale of a non-performing loan portfolio of primarily retail unsecured exposures, with a contractual balance of EUR245 mn and a gross book value of EUR34 mn as at 30 September 2018 (known as "Project Velocity" or the "Sale") to APS Delta s.r.o. This portfolio comprised 9,700 heavily delinquent borrowers, including 8,800 private individuals and 900 small-to-medium-sized enterprises. The gross book value of this portfolio as at the date of disposal was EUR30 mn. The Sale was broadly neutral to both the profit and loss account and to capital.
Additional strategies to accelerate de-risking
The Group continues to assess the potential to accelerate the decrease in NPEs on its balance sheet through additional sales of NPEs. To that extent the Group has, during the second half of 2019, embarked on a preparation phase to review the feasibility of NPE reduction structures with the aim of identifying the option that best meets the Group's strategic objectives. The preparation phase involves defining the relevant NPE portfolio, evaluation of real estate collaterals, data remediation and enhancement of data tapes, borrower information memorandums, legal due diligence and transaction structuring options. For the purposes of completing the workstreams outlined above and in order to conclude on the best possible structure, the Group has engaged international advisors, and is proceeding to engage in high level discussions via the signing of confidentiality agreements with various third parties, including financial investors and investment banks, that may be interested in pursuing a possible collaboration with the Group. A range of potential outcomes of this preparation phase is possible, including outright sales (including the Bank retaining a portion of the related financing). Any potential transactions are expected to involve in total a portfolio of NPEs in excess of EUR2 bn by gross book value. The Group is not committed to any outcome arising from this preparation phase, which is currently expected to be finalised in the first half of 2020.
A.1.5 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) on-boarded EUR159 mn of assets in 9M2019 (down by 49% yoy), via the execution of debt for asset swaps and repossessed properties. 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 organic disposals of EUR159 mn in 9M2019 (compared to EUR154 mn in 9M2018), resulting in a profit on disposal of EUR26 mn for 9M2019. During the nine months ended 30 September 2019, the Group executed sale-purchase agreements (SPAs) with contract value of EUR195 mn (433 properties), excluding the sale of the Cyreit. In addition, the Group signed SPAs for disposals of assets with contract value of EUR65 mn.
Completion of sale of Cyreit
In November 2018, the Bank signed an agreement for the disposal of its entire holding in the investment shares of the Cyreit Variable Capital Investment Company PLC (Cyreit). During 2Q2019, the Group completed the sale of the Cyreit (21 properties), recognising a loss on disposal of c.EUR1 mn. The total proceeds from the disposal of Cyreit were EUR160 mn.
Completion of Project Helix
With the completion of Project Helix in 2Q2019, properties with carrying value of EUR109 mn, which were included in the portfolio for the NPE sale (Helix), were derecognised as of 30 June 2019. As at 31 March 2019, properties with carrying value of EUR98 mn were included in the portfolio for the NPE sale (Helix), compared to EUR74 mn as at 31 December 2018.
Change in classification of properties which are leased out under operating leases
In 2Q2019, the Group decided to classify the leased properties acquired in exchange of debt and leased out under operating leases as 'Investment Properties' instead of 'Stock of property'. This change was applied retrospectively, resulting in the restatement of comparatives.
As a result of the above change in classification, properties with carrying value of EUR103 mn as at 31 December 2018 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 continue to be managed by REMU. The carrying value of such properties as at 30 June 2019 was EUR118 mn.
This change in classification had no material impact on the Group's comparative retained earnings and a cumulative impact of EUR1 mn gain was recognised under 'Net gains from revaluation and disposal of investment properties and on disposal of stock of properties' in 2Q2019.
Assets held by REMU
As at 30 September 2019, assets held by REMU had a carrying value of EUR1,513 mn (comprising properties of EUR1,399 mn classified as 'Stock of property' and EUR114 mn as 'Investment Properties'), compared to EUR1,548 mn as at 30 June 2019 (comprising properties of EUR1,430 mn classified as 'Stock of property' and EUR118 mn as 'Investment Properties') and to EUR1,530 mn as at 31 December 2018 (comprising properties of EUR1,427 mn classified as 'Stock of property' and EUR103 mn as 'Investment Properties').
In addition to assets held by REMU, properties classified as 'Investment properties' with carrying value of EUR24 mn as at 30 September 2019, 30 June 2019 and as at 31 December 2018, relate to legacy properties held by the Bank before the set-up of REMU in January 2016.
Assets held by REMU (Group) qoq EUR mn 9M2019 9M2018 3Q2019 2Q2019 +% yoy +% ------ ------ ------ ------ ---- Opening balance 1,530 1,641 1,548 1,542 0% -7% ----------------------------------------------------------------- ------ ------ ------ ------ ---- ------ On-boarded assets (including construction cost) 159 311 33 81 -59% -49% ----------------------------------------------------------------- ------ ------ ------ ------ ---- ------ Sales (159) (154) (67) (62) 8% 4% ----------------------------------------------------------------- ------ ------ ------ ------ ---- ------ Transfer to investment properties (Cyreit) - (166) - - - - ----------------------------------------------------------------- ------ ------ ------ ------ ---- ------ Impairment loss (12) (17) (2) (8) -82% -30% ----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Transfer to non-current assets and disposal groups held for sale (5) (60) 1 (5) - -91% ----------------------------------------------------------------- ------ ------ ------ ------ ---- ------ Foreign exchange and other movements - 3 - - - - ----------------------------------------------------------------- ------ ------ ------ ------ ---- ------ Closing balance 1,513 1,558 1,513 1,548 -2% -3% ----------------------------------------------------------------- ------ ------ ------ ------ ---- ------ Analysis by type and country Cyprus Greece Romania Total 30 September 2019 (EUR mn) ------------------------------ ------- ------- -------- ------ Residential properties 182 27 0 209 Offices and other commercial properties 218 30 9 257 Manufacturing and industrial properties 79 37 0 116 Hotels 28 0 - 28 Land (fields and plots) 893 7 3 903 Total 1,400 101 12 1,513 ------- ------- -------- Cyprus Greece Romania Total 31 December 2018 (EUR mn) ------------------------------- ------- ------- -------- ------ Residential properties 164 25 0 189 Offices and other commercial properties 228 44 7 279 Manufacturing and industrial properties 80 38 0 118 Hotels 35 0 - 35 Land (fields and plots) 896 8 4 908 Properties under construction 1 - - 1 ------------------------------- ------- ------- -------- ------ Total 1,404 115 11 1,530 ------------------------------- ------- ------- -------- ------
A.1.6 Non-core overseas exposures
The remaining non-core overseas net exposures (including both on-balance sheet and off-balance sheet exposures) at 30 September 2019 are as follows:
EUR mn 30 September 2019 31 December 2018 ------------------ Greece 138 164 Romania 32 35 Serbia 0 7 Russia 18 23 UK 0 11 --------- ------------------ ----------------- Total 188 240 --------- ------------------ -----------------
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 were terminated in January 2019, following the completion of deregistration formalities with respective authorities.
During 3Q2019 the disposal of the overseas exposure in Serbia, comprising loans and properties, with a carrying value of EUR8 mn was completed.
In addition to the above, as at 30 September 2019, there were overseas exposures of EUR279 mn in Greece, relating to both loans and properties (compared to EUR311 mn at 30 June 2019 and EUR144 mn at 31 December 2018), not identified as non-core exposures, since they are considered by management as exposures arising in the normal course of business.
A.2. Income Statement Analysis
A.2.1 Total income
9M2018(1) qoq EUR mn 9M2019(1) represented(2) 3Q2019(1) 2Q2019(1) +% yoy +% --------- --------------- --------- --------- ------- Net interest income 260 250 90 85 5% 4% ---------------------------------------- --------- --------------- --------- --------- ------- ------ Net fee and commission income 111 122 36 38 -5% -9% Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates 34 52 8 16 -49% -34% Insurance income net of claims and commissions 42 38 12 18 -34% 11% Net gains from revaluation and disposal of investment properties and on disposal of stock of properties 26 15 10 12 -25% 65% Other income 22 17 6 8 -22% 25% ---------------------------------------- --------- --------------- --------- --------- ------- ------ Non-interest income 235 244 72 92 -22% -4% ---------------------------------------- --------- --------------- --------- --------- ------- ------ Total income 495 494 162 177 -9% 0% ---------------------------------------- --------- --------------- --------- --------- ------- ------ Net Interest Margin (annualised) 1.92% 1.84% 1.99% 1.89% +10 bps +8 bps ---------------------------------------- --------- --------------- --------- --------- ------- ------ Average interest earning assets(1) (EUR mn) 18,103 18,109 17,962 18,149 -1% 0% ---------------------------------------- --------- --------------- --------- --------- ------- ------ 1. The interest income, non-interest income, staff costs, other operating expenses and loan credit losses related to Project Helix are disclosed under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying basis. 2. Including the impact from IFRIC Presentation of unrecognised interest following the curing of a credit-impaired financial asset (IFRS 9)). This resulted in a reclassification between net interest income and loan credit losses, with no impact on the overall profitability. p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point
Net interest income (NII) and net interest margin (NIM) for 9M2019 amounted to EUR260 mn (up 4% yoy) and 1.92% respectively (up by 8 bps yoy). NII for 3Q2019 amounted to EUR90 mn (compared to EUR85 mn for 2Q2019) and increased by 5% qoq, mainly due to increased interest cash collections not previously recognised. In addition, the NII was negatively affected by the continued pressure on lending rates and positively affected by the reduction of cost of deposits. The NIM for 3Q2019 stood at 1.99% increased by 10 bps qoq, resulting mainly from the increase in net interest income.
Average interest earning assets for 9M2019 amounted to EUR18,103 mn, flat yoy. Quarterly average interest earning assets for 3Q2019 amounted to EUR17,962 mn compared to EUR18,149 mn for 2Q2019, down by 1%, primarily driven by the repayment of ECB funding.
Non-interest income for 9M2019 amounted to EUR235 mn, comprising net fee and commission income of EUR111 mn, net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of EUR34 mn, net insurance income of EUR42 mn, net gains from revaluation and disposal of investment properties and on disposal of stock of properties of EUR26 mn and other income of EUR22 mn. Net fee and commission income for 9M2019 amounted to EUR111 mn, decreased by 9% yoy (EUR122 mn for 9M2018), mainly due to the decreased volume of business from the International Business Units (IBUs) in 2019.
Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of EUR34 mn for 9M2019, comprising mainly net foreign exchange gains of EUR21 mn and net gains on revaluation of financial instruments of EUR13 mn, decreased by 34% yoy mainly due to one-off gain on disposal of bonds during 1Q2018 amounting to EUR19 mn. Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates totalled EUR8 mn for 3Q2019, compared to EUR16 mn for 2Q2019, down by 49% qoq. The decrease qoq is driven mainly by one-off revaluation gains on financial instruments in 2Q2019.
Net insurance income amounted to EUR42 mn for 9M2019, compared to EUR38 mn for 9M2018, up by 11% yoy, reflecting increased income and positive investment returns in 2Q2019. Net insurance income amounted to EUR12 mn for 3Q2019, compared to EUR18 mn for 2Q2019, down by 34% qoq mainly due to a one-off amount of c.EUR2.5 mn arising from the reduction of the discount rate, following an improvement in the yield of assets, other revaluation gains and lower insurance claims during 2Q2019.
Net gains from revaluation and disposal of investment properties and on disposal of stock of properties for 9M2019 amounted to EUR26 mn, comprising a net profit from the disposal of stock properties of EUR24 mn (REMU gains) and a net gain from revaluation of EUR2 mn (compared to net gains of EUR15 mn for 9M2018). Net gains from revaluation and disposal of investment properties and on disposal of stock of properties for 3Q2019 amounted to EUR10 mn compared to EUR12 mn in the previous quarter. REMU profit remains volatile.
Total income for 9M2019 amounted to EUR495 mn, at similar levels to the previous year. Total income for 3Q2019 amounted to EUR162 mn, compared to EUR177 mn in 2Q2019, down by 9% qoq.
A.2.2 Total expenses
9M2018(1) qoq EUR mn 9M2019(1) represented(2) 3Q2019(1) 2Q2019(1) +% yoy +% --------- --------------- --------- --------- ------- Staff costs (167) (154) (55) (56) -2% 8% Other operating expenses (122) (114) (38) (43) -12% 7% ------------------------------- --------- --------------- --------- --------- ------- ------- Total operating expenses (289) (268) (93) (99) -7% 8% ------------------------------- --------- --------------- --------- --------- ------- ------- Special levy and contribution to Single Resolution Fund (SRF) (18) (18) (6) (6) 2% 2% Total expenses (307) (286) (99) (105) -6% 7% --------- --------------- --------- --------- ------- Cost to income ratio 62% 58% 61% 59% +2 p.p. +4 p.p. ------------------------------- --------- --------------- --------- --------- ------- ------- Cost to income ratio excluding special levy and contribution to SRF 58% 54% 57% 56% +1 p.p. +4 p.p. ------------------------------- --------- --------------- --------- --------- ------- ------- 1. The interest income, non-interest income, staff costs, other operating expenses and loan credit losses related to Project Helix are disclosed under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying basis. 2. Including the impact from IFRIC Presentation of unrecognised interest following the curing of a credit-impaired financial asset (IFRS 9)). This resulted in a reclassification between net interest income and loan credit losses, with no impact on the overall profitability. p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point
Total expenses for 9M2019 were EUR307 mn (compared to EUR286 mn for 9M2018), 54% of which related to staff costs
(EUR167 mn), 40% to other operating expenses (EUR122 mn) and 6% (EUR18 mn) to special levy and contribution to Single Resolution Fund (SRF).
Total operating expenses for 9M2019 were EUR289 mn, increased by 8% yoy, compared to EUR268 mn for 9M2018. Total operating expenses for 3Q2019 were EUR93 mn, decreased by 7% qoq, compared to EUR99 mn in 2Q2019.
Staff costs of EUR167 mn for 9M2019 increased by 8% yoy (compared to EUR154 mn in 9M2018) mainly driven by the increase in employer's social insurance contributions from the beginning of the year and the additional contributions to the new general healthcare system which commenced in March 2019. Staff costs for 3Q2019 amounted to EUR55 mn, at similar levels as the previous quarter.
The Group employed 4,134 persons as at 30 September 2019 (compared to 4,155 persons as at 30 June 2019 and 4,146 persons as at 31 December 2018), including 108 persons relating to the Helix transaction, whilst full migration and transfer to the buyer is expected to conclude soon after the year end. The staff costs related to these persons are included under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying basis.
In October 2019, the Group completed a voluntary staff exit plan ("VEP" or "the Plan"), through which c.470 applicants (including six persons relating to the Helix transaction) were approved to leave at a total cost of c.EUR79 mn, expected to be recorded in the consolidated income statement in the fourth quarter. Following the completion of the Plan, the overall number of employees is reduced by c.11%, whilst the gross annual savings are estimated at c.EUR28 mn or c.13% of staff costs (excluding the 108 persons relating to the Helix transaction). These gross annual savings do not include any impact from the renewal of the collective agreement for 2019, which remains under discussion.
Other operating expenses for 9M2019 were EUR122 mn, increased by 7% yoy, mainly due to higher property related costs and higher depreciation / amortization, resulting from increased capital expenditure, following the Digital Transformation Programme. Other operating expenses for 3Q2019 were EUR38 mn, compared to EUR43 mn for 2Q2019 (down by 12% qoq), mainly due to seasonality and lower marketing expenses.
The cost to income ratio excluding special levy and contribution to Single Resolution Fund for 3Q2019 was 57%, compared to 56% for 2Q2019, principally reflecting the increase in non-interest income in 2Q2019. Cost management, including containment of staff costs, remains a key focus going forward.
A.2.3 Profit before tax and non-recurring items
9M2018(1) qoq EUR mn 9M2019(1) represented(2) 3Q2019(1) 2Q2019(1) +% yoy +% --------- --------------- --------- --------- ----- Operating profit 188 208 63 72 -13% -10% -------------------------------------- --------- --------------- --------- --------- ----- ------ Loan credit losses (117) (104) (30) (40) -26% 12% (Impairments)/reversal of impairments of other financial and non-financial assets (9) (12) 1 (9) -109% -21% (Provisions)/reversal of provisions for litigation, regulatory and other matters (3) (9) (6) 3 - -62% -------------------------------------- --------- --------------- --------- --------- ----- ------ Total loan credit losses, impairments and provisions (129) (125) (35) (46) -27% 4% -------------------------------------- --------- --------------- --------- --------- ----- ------ Profit before tax and non-recurring items 59 83 28 26 15% -29% -------------------------------------- --------- --------------- --------- --------- ----- ------ 1. The interest income, non-interest income, staff costs, other operating expenses and loan credit losses related to Project Helix are disclosed under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying basis. 2. Including the impact from IFRIC Presentation of unrecognised interest following the curing of a credit-impaired financial asset (IFRS 9)). This resulted in a reclassification between net interest income and loan credit losses, with no impact on the overall profitability.
Operating profit for 9M2019 was EUR188 mn, compared to EUR208 mn for 9M2018, down by 10% yoy, mainly due to the increase in total operating expenses.
The loan credit losses for 9M2019 totalled EUR117 mn (compared to EUR104 mn for 9M2018 up by 12% yoy), reflecting further balance sheet de-risking. The loan credit losses for 3Q2019 amounted to EUR30 mn, compared to EUR40 mn for 2Q2019, down by 26% qoq, due to the IFRS 9 model recalibration in 2Q2019.
The annualised loan credit losses charge (cost of risk) for 9M2019, following the completion of NPE sales which led to the reduction of gross loans by EUR2.8 bn, accounted for 1.19% of gross loans, compared to an annualised loan credit losses charge of 1.00% for 9M2018, on the same basis, reflecting further de-risking and IFRS 9 model volatility. The annualised loan credit losses charge (cost of risk) for 3Q2019, accounted for 0.90% of gross loans, compared to an annualised loan credit losses charge of 1.23% for 2Q2019, on the same basis, due to the IFRS 9 model recalibration in 2Q2019.
At 30 September 2019, the allowance for expected loan credit losses, including fair value adjustment on initial recognition and credit losses on off-balance sheet exposures totalled EUR2,086 mn (compared to EUR2,145 mn at 30 June 2019, EUR2,227 mn at 31 March 2019 pro forma for Helix and EUR2,254 mn at 31 December 2018 on the same basis) and accounted for 16.0% of gross loans (at similar levels with 30 June 2019, and also with 31 March 2019 and 31 December 2018 on the same basis).
Impairments of other financial and non-financial assets for 9M2019 amounted to EUR9 mn, compared to EUR12 mn for 9M2018. Reversal of impairments of other financial and non-financial assets for 3Q2019 amounted to EUR1 mn (compared to impairments of EUR9 mn for 2Q2019) mainly relating to a reversal of ECL (expected credit losses) charge on financial instruments driven by reduction of certain exposures.
Provisions for litigation, regulatory and other matters for 9M2019 totalled EUR3 mn, compared to EUR9 mn for 9M2018. Provisions for litigation, regulatory and other matters for 3Q2019 totalled EUR6 mn, compared to a reversal of EUR3 mn for 2Q2019, which related to the reversal of provisions of previously provided cases with a favourable outcome.
A.2.4 Profit/(loss) after tax
9M2018(1) qoq EUR mn 9M2019(1) represented(2) 3Q2019(1) 2Q2019(1) +% yoy +% --------- --------------- --------- --------- ---- Profit before tax and non-recurring items 59 83 28 26 15% -29% ---------------------------------------------- --------- --------------- --------- --------- ---- ------ Tax (1) (4) (1) 2 - -82% (Profit)/loss attributable to non-controlling interests (2) 3 0 (2) - - ---------------------------------------------- --------- --------------- --------- --------- ---- ------ Profit after tax and before non-recurring items 56 82 27 26 6% -32% ---------------------------------------------- --------- --------------- --------- --------- ---- ------ Advisory and other restructuring costs - excluding discontinued operations and NPE sale (Helix) (21) (26) (9) (5) 99% -18% Profit after tax - Organic 35 56 18 21 -15% -38% --------- --------------- --------- --------- ---- Profit from discontinued operations (UK) - 4 - - - - Profit/(loss) relating to NPE sale (Helix) 1 (105) 1 4 - - Loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates (21) 8 0 (23) - - Reversal of impairment of DTA and impairment of other tax receivables 101 - - - - - ---------------------------------------------- --------- --------------- --------- --------- ---- ------ Profit/(loss) after tax - attributable to the owners of the Company 116 (37) 19 2 - - ---------------------------------------------- --------- --------------- --------- --------- ---- ------ 1. The interest income, non-interest income, staff costs, other operating expenses and loan credit losses related to Project Helix are disclosed under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying basis. 2. Including the impact from IFRIC Presentation of unrecognised interest following the curing of a credit-impaired financial asset (IFRS 9)). This resulted in a reclassification between net interest income and loan credit losses, with no impact on the overall profitability.
The tax charge for 9M2019 is EUR1 mn, compared to a tax charge of EUR4 mn a year earlier, primarily due to lower taxable profit in the current period. The tax charge for 3Q2019 amounted to EUR1 mn compared to a tax credit of EUR2 mn in 2Q2019.
Profit after tax and before non-recurring items for 9M2019 was EUR56 mn, compared to a profit of EUR82 mn for 9M2018, down by 32% yoy. Profit after tax and before non-recurring items for 3Q2019 was EUR27 mn, at similar levels to the previous quarter.
Advisory and other restructuring costs - excluding discontinued operations and NPE sale (Helix) for 9M2019 amounted to EUR21 mn, compared to EUR26 mn for 9M2018, down by 18% yoy.
Profit after tax arising from the organic operations of the Group for 9M2019 amounted to EUR35 mn, compared to EUR56 mn for 9M2018, down by 38% yoy. Profit after tax arising from the organic operations of the Group for 3Q2019 amounted to EUR18 mn, compared to a EUR21 mn for the 2Q2019.
The net result of the sale of the Helix portfolio, comprising the interest income, non-interest income, staff costs, other operating expenses and loan credit losses related to Project Helix for 3Q2019 was a profit of EUR1 mn, compared to a profit of EUR4 mn for the previous quarter, bringing the net result from the Project for 9M2019 to EUR1 mn, compared to a net loss of EUR105 mn for 9M2018.
Loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates totalled EUR21 mn for 9M2019, comprising a loss on remeasurement of investment in associate classified as held for sale of EUR26 mn and a share of profit from associates of EUR5 mn (compared to a share of profit from associates of EUR8 mn in 9M2018). In early October 2019, the Group completed the sale of its entire shareholding of 49.9% in its associate CNP Cyprus Insurance Holdings Limited (CNP) that had been acquired as part of the acquisition of certain operations of Laiki Bank in 2013, for a cash consideration of EUR97.5 mn.
Reversal of impairment of DTA and impairment of other tax receivables totalled EUR101 mn for 9M2019, comprising the positive impact of EUR109 mn following amendments to the Income Tax legislation in Cyprus adopted in March 2019, and an impairment of EUR8 mn relating to Greek tax receivables adversely impacted from legislative changes. The carrying value of the remaining receivable at the quarter end was c.EUR5 mn.
Profit after tax attributable to the owners of the Company for 9M2019 was EUR116 mn, compared to a loss of EUR37 mn for 9M2018. Profit after tax attributable to the owners of the Company for 3Q2019 was EUR19 mn, compared to a profit of EUR2 mn in 2Q2019.
B. Operating Environment
Following robust growth in 2016-2018 averaging about 5% annually, economic expansion in Cyprus continued into 2019 at a slowing pace with real Gross Domestic Product (GDP) increasing by 3.1% on average in the first three quarters of the year seasonally adjusted (3.3% in the first quarter, 3.1% in the second and by 3.0% in the third quarter - Cyprus Statistical Service). The deceleration was driven by slowing activity in the traditional sectors including tourism and construction. From the demand side the slowdown was driven by a deteriorating external imbalance. Excluding registrations of ships, net exports have been contributing negatively to real GDP growth in 2018 and the first half of 2019. Exports of goods declined in the first half of the year. Government consumption surged in the first half and fixed investment other than transport equipment which fluctuates with ship registrations, increased significantly driven by construction related activities.
Frequency indicators point to sustained economic activity. In the labour market total employment increased by 5% in the first half of the year (Labour Force Survey), driven by full-time hirings, and the unemployment rate dropped to 6.8% in the third quarter when seasonally adjusted (Eurostat). Consumer inflation decelerated in the ten months to October rising by 0.3% compared with 1.4% in 2018, mainly due to lower transport costs, but also due to the limited pricing power in most categories of goods and services with the exception of housing. Tourist arrivals increased marginally by 0.6% in the year to October despite declines from traditional source countries like Russia, Germany and Greece. There was a significant increase in arrivals from non-European sources. Tourist receipts had dropped by 1.7% in the year to August, which marks a recovery from a steeper drop earlier in the year. In the construction sector, building permits remained strong in the year to July increasing 42% in terms of volume which mainly reflects developments in the hotel sector. The production index in construction was up 15% in the first half of the year driven by building activity that recorded a corresponding increase of 23%. On the demand side, the volume of retail sales decelerated in the year to August, rising by 3.2%, compared to a 6.6% in the same period the year before.
Fiscal performance has been strengthening driven by rising public revenues and constrained expenditures. The general government budget surplus rose to 3.0% of GDP in 2018 excluding the fiscal burden associated with the orderly resolution of the Cyprus Cooperative Bank. The budget surplus continued to increase in the first three quarters of 2019. Public debt remains high and rose further in 2018 to EUR21.3 bn or 100.6% of GDP, as a result of the fiscal burden noted above. However, a combination of a sustained budget surplus, rising expected inflation and low debt service costs, will be supporting an accelerated decline in the public debt to GDP ratio in the medium term.
In the banking sector, funding conditions remained favourable and the stock of NPEs continued to decline. Specifically, the stock of NPEs declined from EUR20.9 bn at the end of December 2017 to EUR10.4 bn at the end of December 2018 after Bank of Cyprus' loans sale and the resolution of the Cyprus Cooperative Bank. The stock of NPEs was EUR9.8 bn at the end of June 2019 and the ratio to gross loans was 30%, marginally lower than 30.5% at the end of December 2018, despite a further drop in loans outstanding.
Going forward, downside risks derive from the external environment and the structure of the domestic economy which is characterised by a large foreign balance relative to the GDP. The slowing of global trade, uncertainties over Brexit and fragilities in the EU are having an impact. Brexit presents downside risks to the Cyprus economy given close trade and investment links. Economic growth is expected to remain positive, but to soften. Growth is expected to average 3.1% in 2019 and slow down further in 2020 and 2021 to 2.6% and 2.3% respectively, according to the European Commission (Autumn 2019 Forecasts). Employment is expected to continue to rise, but at a slower pace than in recent years, and the unemployment rate is expected to continue to drop to slightly below 6% in 2021 (Autumn 2019 Forecasts). Investment is expected to be strengthening, but high imports are expected to limit the contribution to growth from the external sector. Exports growth is expected to decelerate relative to 2014 - 2018 against a less favourable international environment. Price inflation will be about 0.2% in 2019 and will remain low in the medium term, expected to rise in later years as capacity utilisation will be tightening.
The economy will continue to be challenged by legacy problems to some degree, but the real challenge will be the transformation of the economy towards higher value added activities that will support higher productivity growth and improved competitiveness. The primary challenges therefore will be, to further de-risk the economy by reducing public debt and the remaining stock of non-performing loans; to safeguard fiscal space so as to be able to respond to unforeseen circumstances; and to pursue additional structural reforms especially in the judiciary and public administration domains that will improve the investment environment and in the process induce productivity boosting investments.
The sovereign risk ratings of the Cyprus Government improved considerably in the recent period reflecting expectations of a sustained decline in public debt as a ratio to GDP, expected further declines in non-performing exposures and a more stable price environment following a protracted period of deflation and low inflation. In November 2018 Fitch Ratings upgraded its Long-Term Issuer Default ratings for Cyprus to investment grade (BBB-) with stable outlook. In October 2019, Fitch affirmed its rating and upgraded its outlook to positive. In July 2018 Moody's Investors Service upgraded Cyprus' sovereign rating to Ba2 from Ba3 with a stable outlook. In September 2019 Moody's affirmed its rating and upgraded its outlook to positive citing improvements in bank asset quality and fiscal strength. S&P Global Ratings maintains an investment grade rating (BBB-) with a stable outlook since September 2018.
C. Business Overview
As the Cypriot operations account for 99% of gross loans and 100% of customer deposits (after the disposal of the UK operations in 2018), the Group's financial performance is highly correlated to the economic and operating conditions in Cyprus and is expected to consequently benefit from the country's recovery. Most recently, at the end of July 2019, Standard and Poor's affirmed their long-term issuer credit rating on the Bank of 'B+' (stable outlook). In June 2019, Moody's Investors Service affirmed the Bank's long-term deposit rating of B3 (positive outlook). In March 2019, Fitch Ratings affirmed their long-term issuer default rating of B- (positive outlook). The positive outlook reflects expectations of further improvements in the Bank's financial fundamentals, mainly asset quality over the next 12-18 months, in the context of an improved operating environment in Cyprus. The key drivers for the rating actions were the improvement in the Bank's financial fundamentals, mainly in asset quality, and its funding position.
Tackling the Bank'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 organic reduction of residual NPEs to continue ahead of the target of c.EUR800 mn for 2019, as portfolio size and business line mix has changed radically upon completion of the Project Helix. In parallel, the Group continues to actively explore strategies to further accelerate de-risking, including further portfolio sales. To that extent, the Group is in an advanced stage of a preparation phase of reviewing NPE reduction structures. A range of potential outcomes of this preparation phase is possible, including outright sales (including the Bank retaining a portion of the related financing). Any potential transactions are expected to involve in total a portfolio of NPEs in excess of EUR2 bn by gross book value. The Group is not committed to any outcome arising from this preparation phase, which is currently expected to be finalised in the first half of 2020.
The July 2018 foreclosure law amendments have expedited the process and limited options to frustrate execution. In July 2019, the Cyprus Parliament voted through certain changes to the 2018 law which, in the most part, seek to (a) provide additional checks and balances where banks are seeking to foreclose small loans (<EUR350 thousand) secured by a principal private residence, and (b) extend the foreclosure timetable by extending various notice periods. These amendments have not yet passed into law, as the President of the Republic has referred these to the Supreme Court, based on legal advice from the Attorney General that elements thereof are unconstitutional. Discussions are on-going, including, inter alia, with the Ministry of Finance, the CBC and the Financial Ombudsman, aiming to introduce amendments to the foreclosure and loan restructuring framework that are acceptable to all stakeholders.
The strategic focus of the Group is to reshape its business model to grow in the core Cypriot market through prudent new lending. As at 30 September 2019, the Bank's capital position remains good. 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 the Bank's target risk profile, such as tourism, trade, real estate, professional services, information/communication technologies, energy, education and green projects. The Group is currently exploring ways to grow its new lending, including careful, modest new lending in shipping, syndicated loans, as well as other initiatives. New lending in the nine months to 30 September 2019 reached EUR1.6 bn.
Aiming at supporting investments by SMEs and mid-caps to boost the Cypriot economy, and create new jobs for young people, the Bank continues to provide joint financed schemes. To this end, the Bank continues its partnership with the European Investment Bank (EIB), the European Investment Fund (EIF), the European Bank for Reconstruction and Development (EBRD) and the Cyprus Government.
Management is also placing emphasis on diversifying income streams by optimising fee income from international transaction services, wealth management and insurance. The Group's insurance companies, EuroLife Ltd and General Insurance of Cyprus Ltd 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 claims and commissions for 9M2019 amounted to EUR42 mn, up by 11% yoy, contributing to 18% of non-interest income.
In order to further optimise its funding structure, the Bank continues to focus on the shape and cost of deposit franchise, taking advantage of the increased customer confidence towards the Bank, as well as improving macroeconomic conditions. The cost of deposits has been reduced by 57 bps to 19 bps over the last 21 months. Consideration of a liquidity management strategy for specific customer groups is underway.
In common with other European banks, the changed interest rate environment presents a challenge to the Group's profitability. A key focus for management this year and going forward is the active management of funding costs and on-going running expenses, including the containment of staff costs. The Digital Transformation Programme that started in 2017 is beginning to deliver an improved customer experience (see section below) and the branch network is half the size it was in 2013. Furthermore, the branch footprint rationalisation continues and it is expected that the number of branches will be further reduced by 8% by the year end, further improving the Bank's operating model. The management remains focused on further improvement in efficiency.
Digital Transformation
As part of its vision to be the leading financial hub in Cyprus, the Bank continues its Digital Transformation Programme, which focuses on three strategic pillars: developing digital services and products that enhance the customer experience, streamlining internal processes, and introducing new ways of working to improve the workplace environment.
In the last few months, various new features were introduced on the new mobile app, such as managing standing orders and direct debits, the ability to transfer amounts over EUR150 through QuickPay via the use of Digipass, login through biometric authentication and viewing own accounts with UK banks. Soon customers will also be able to keep track of their accounts with Cypriot banks in the Bank's mobile app. Also, financial management tools have been introduced that allow clients to use the 1Bank service to better manage their finances. In addition, Mastercard holders will soon be able to make secure and fast payments through Apple Pay (iOS) and later through BoC Wallet (Android).
The launch of the new Cards and Payments systems that will allow the Group to offer customised solutions and improve the customer banking experience is being finalised. For example, in 2020 the Group will be able to offer new features through mobile banking, such as the ability for the customer to freeze their credit or debit card in the event of a loss (freeze and unfreeze), and the ability to determine a maximum limit for specific transactions (e.g. spend up to EUR500 in supermarkets).
The adoption of digital products and services continues to grow and gain momentum, compared to two years ago, when the Digital Transformation Programme began. Today, 75% of transactions involving deposits, cash withdrawals and internal/external transfers, are performed through digital channels (with the corresponding rate two years before reaching 65%). Regarding the use of mobile banking, the number of active users increased by 54% from June 2017.
In 2020 there will also be changes in the workplace with the introduction of new technologies and tools that will drastically change the employee experience, improving collaboration and knowledge sharing across the organisation.
D. Strategy and Outlook
The Group remains on track for implementing its strategic objectives aiming to become a stronger, safer and a more focused institution capable of supporting the recovery of the Cypriot economy and delivering appropriate shareholder returns in the medium term.
The key pillars of the Group's strategy are to:
-- Materially reduce the level of delinquent loans -- Further optimise 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 KEY PILLARS PLAN OF ACTION 1. Materially reduce the level of delinquent loans * Sustain momentum in restructuring and continue reduction of NPEs * 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 ---------------------------------------------------------------- 3. Maintain an appropriate capital position * Internally generating capital ---------------------------------------------------------------- 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 and commission income from international banking, wealth and insurance which provides recurring income ---------------------------------------------------------------- 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, including containment of staff costs and further branch footprint rationalisation * Management remains focused on further improvement in efficiency ---------------------------------------------------------------- 6. Deliver value * Deliver appropriate medium term risk-adjusted returns ---------------------------------------------------------------- E. Statutory Financial Results
Unaudited Interim Consolidated Income Statement
Nine months ended 30 September ------------------- 2019 2018 (represented) ------------------ ------------------- EUR000 EUR000 ------------------ ------------------- Continuing operations ------------------ ------------------- Turnover 718,358 724,931 ================== =================== Interest income 363,353 423,397 ------------------ ------------------- Income similar to interest income 40,178 38,446 ------------------ ------------------- Interest expense (73,082) (111,730) ------------------ ------------------- Expense similar to interest expense (36,440) (34,054) ------------------ ------------------- Net interest income 294,009 316,059 ------------------ ------------------- Fee and commission income 131,825 131,291 ------------------ ------------------- Fee and commission expense (17,660) (11,062) ------------------ ------------------- Net foreign exchange gains 21,151 28,768 ------------------ ------------------- Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates 14,540 41,618 ------------------ ------------------- Insurance income net of claims and commissions 41,731 37,631 ------------------ ------------------- Net gains/(losses) from revaluation and disposal of investment properties 1,473 (14,295) ------------------ ------------------- Net gains on disposal of stock of property 24,180 29,813 ------------------ ------------------- Other income 21,639 17,311 ------------------ ------------------- 532,888 577,134 ------------------ ------------------- Staff costs (169,982) (157,918) ------------------ ------------------- Special levy on deposits on credit institutions in Cyprus and contribution to Single Resolution Fund (18,715) (18,283) ------------------ ------------------- Other operating expenses (167,809) (168,050) ------------------ -------------------
176,382 232,883 ------------------ ------------------- Net gains on derecognition of financial assets measured at amortised cost 6,298 26,016 ------------------ ------------------- Credit losses to cover credit risk on loans and advances to customers (140,750) (294,388) ================== =================== Credit (losses)/gains of other financial instruments (5,032) 1,857 ================== =================== Impairment of non-financial instruments (12,993) (17,204) ================== =================== Profit/(loss) before share of profit from associates and remeasurement 23,905 (50,836) ------------------ ------------------- Remeasurement of investment in associate classified (25,943) - as held for sale ------------------ ------------------- Share of profit from associates 5,400 7,966 ------------------ ------------------- Profit/(loss) before tax from continuing operations 3,362 (42,870) ------------------ ------------------- Income tax 114,514 (3,887) ------------------ ------------------- Profit/(loss) after tax from continuing operations 117,876 (46,757) ------------------ ------------------- Discontinued operations ------------------ ------------------- Profit after tax from discontinued operations - 7,243 ------------------ ------------------- Profit/(loss) for the period 117,876 (39,514) ================== =================== Attributable to: Owners of the Company - continuing operations profit/(loss) 115,614 (44,179) -------- --------- Owners of the Company - discontinued operations profit - 7,243 -------- --------- Total profit/(loss) attributable to the owners of the Company 115,614 (36,936) -------- --------- Non-controlling interests - continuing operations profit/(loss) 2,262 (2,578) -------- --------- Profit/(loss) for the period 117,876 (39,514) ======== ========= Basic and diluted profit/(loss) per share attributable to the owners of the Company (EUR cent) - continuing operations 25.9 (9.9) ===== ====== Basic and diluted profit/(loss) per share attributable to the owners of the Company (EUR cent) 25.9 (8.3) ===== ======
Unaudited Interim Consolidated Statement of Comprehensive Income
Nine months ended 30 September 2019 2018 --------- --------- EUR000 EUR000 --------- --------- Profit/(loss) for the period 117,876 (39,514) --------- --------- Other comprehensive income (OCI) --------- --------- OCI that may be classified in the consolidated income statement in subsequent periods --------- --------- Fair value reserve (debt instruments) --------- --------- Net gains/(losses) on investments in debt instruments measured at fair value through OCI (FVOCI) 10,644 (1,497) --------- --------- Transfer to the consolidated income statement on disposal - (21,256) --------- --------- 10,644 (22,753) --------- --------- Foreign currency translation reserve --------- --------- (Loss)/profit on translation of net investment in foreign branches and subsidiaries (8,528) 6,665 --------- --------- Profit/(loss) on hedging of net investments in foreign branches and subsidiaries 9,668 (6,285) --------- --------- Transfer to the consolidated income statement on disposal/dissolution of foreign operations (422) (17,431) --------- --------- 718 (17,051) --------- --------- Total OCI that may be classified in the consolidated income statement in subsequent periods 11,362 (39,804) --------- --------- OCI not to be reclassified in the consolidated income statement in subsequent periods --------- --------- Fair value reserve (equity instruments) --------- --------- Share of net gains/(losses) from fair value changes of associates 4,200 (2,251) --------- --------- Net gains on investments in equity instruments designated at FVOCI 188 2,928 --------- --------- 4,388 677 --------- --------- Property revaluation --------- --------- Deferred Tax 29 16 --------- --------- Actuarial (losses)/gains on the defined benefit plans --------- --------- Remeasurement (losses)/gains on defined benefit plans (5,022) 4,098 --------- --------- Total OCI not to be classified in the consolidated income statement in subsequent periods (605) 4,791 --------- --------- Other comprehensive income/(loss) for the period net of taxation 10,757 (35,013) --------- --------- Total comprehensive income/(loss) for the period 128,633 (74,527) ========= ========= Attributable to: --------- --------- Owners of the Company 126,344 (71,947) --------- --------- Non-controlling interests 2,289 (2,580) --------- --------- Total comprehensive income/(loss) for the period 128,633 (74,527) ========= =========
Unaudited Interim Consolidated Balance Sheet
30 September 31 December 2019 2018 (restated) Assets EUR000 EUR000 ------------- ----------------- Cash and balances with central banks 4,412,542 4,610,491 ------------- ----------------- Loans and advances to banks 427,966 472,532 ------------- ----------------- Derivative financial assets 23,248 24,754 ------------- ----------------- Investments 1,683,124 777,104 ------------- ----------------- Investments pledged as collateral 291,724 737,587 ------------- ----------------- Loans and advances to customers 10,970,923 10,921,786 ------------- ----------------- Life insurance business assets attributable to policyholders 446,765 402,565 ------------- ----------------- Prepayments, accrued income and other assets 287,906 256,002 ------------- ----------------- Stock of property 1,399,288 1,426,857 ------------- ----------------- Deferred tax assets 379,126 301,778 ------------- ----------------- Investment properties 137,885 128,006 ------------- ----------------- Property and equipment 290,487 260,723 ------------- ----------------- Intangible assets 171,831 170,411 ------------- ----------------- Investments in associates and joint venture 2,281 114,637 ------------- ----------------- Non-current assets and disposal groups held for sale 189,244 1,470,038 ------------- ----------------- Total assets 21,114,340 22,075,271 ============= ================= Liabilities ------------- ----------------- Deposits by banks 451,276 431,942 ------------- ----------------- Funding from central banks - 830,000 ------------- ----------------- Repurchase agreements 250,353 248,945 ------------- ----------------- Derivative financial liabilities 63,054 38,983 ------------- ----------------- Customer deposits 16,472,689 16,843,558 ------------- ----------------- Insurance liabilities 634,368 591,057 ------------- ----------------- Accruals, deferred income, other liabilities and other provisions 339,452 285,483 ------------- ----------------- Pending litigation, claims, regulatory and other matters 102,154 116,951 ------------- ----------------- Subordinated loan stock 267,502 270,930 ------------- ----------------- Deferred tax liabilities 44,554 44,282 ------------- ----------------- Non--current liabilities and disposal group held for sale 6,435 5,812 ------------- ----------------- Total liabilities 18,631,837 19,707,943 ------------- ----------------- Equity ------------- ----------------- Share capital 44,620 44,620 ------------- ----------------- Share premium 1,294,358 1,294,358 ------------- ----------------- Revaluation and other reserves 207,913 190,411 ------------- ----------------- Retained earnings 687,325 591,941 ------------- ----------------- Equity attributable to the owners of the Company 2,234,216 2,121,330 ------------- ----------------- Other equity instruments 220,000 220,000 ------------- ----------------- Total equity excluding non--controlling interests 2,454,216 2,341,330 ------------- ----------------- Non--controlling interests 28,287 25,998 ------------- ----------------- Total equity 2,482,503 2,367,328 ------------- ----------------- Total liabilities and equity 21,114,340 22,075,271 ============= =================
The Group adopted the accounting standard IFRS 16 Leases on 1 January 2019. The impact on adoption was an increase in assets of EUR37,474 thousand and an increase in liabilities of EUR37,474 thousand with no impact on retained earnings or equity of the Group. The effect of the adoption of IFRS 16 remains subject to change until the Group finalises its financial statements for the year ended 31 December 2019, the year of initial application.
Comparative information was restated following the change in the classification of properties which are leased out under operating leases as investment properties. In relation to these properties, an amount of EUR103,531 thousand was reclassified from 'Stock of property' to 'Investment properties' relating to balances as at 31 December 2018. The disclosures on the change in accounting policy are presented in the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2019 within the Interim Financial Report.
Reclassifications to comparative information were also made for unrecognised interest on previously credit impaired loans which have cured during the period amounting to EUR24,346 thousand. This was reclassified from 'Net interest income' to 'Credit losses to cover credit risk on loans and advances to customers' in line with an IFRIC discussion, which did not take place until November 2018 (Presentation of unrecognised interest following the curing of a credit impaired financial asset (IFRS 9)). The corresponding amount for the nine months ended 30 September 2019 stood at EUR12,337 thousand.
Unaudited Interim Consolidated Statement of Changes in Equity
Attributable to the owners of the Company Other Non- Total equity controlling equity instruments interests Share Share Treasury Retained Property Financial Life Foreign Total capital premium shares earnings revaluation instruments insurance currency reserve fair value in-force translation reserve business reserve reserve
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 -------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ---------- 1 January 2019 44,620 1,294,358 (21,463) 591,941 79,433 15,289 101,001 16,151 2,121,330 220,000 25,998 2,367,328 -------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ---------- Profit for the period - - - 115,614 - - - - 115,614 - 2,262 117,876 -------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ---------- Other comprehensive (loss)/income after tax for the period - - - (5,022) 22 15,012 - 718 10,730 - 27 10,757 -------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ---------- Total comprehensive income after tax for the period - - - 110,592 22 15,012 - 718 126,344 - 2,289 128,633 -------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ---------- Increase in value of in-force life insurance business - - - (2,000) - - 2,000 - - - - - -------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ---------- Tax on increase in value of in-force life insurance business - - - 250 - - (250) - - - - - -------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ---------- Payment of coupon to AT1 holders - - - (13,447) - - - - (13,447) - - (13,447) -------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ---------- Change in the holding of Undertakings for Collective Investments in Transferable Securities (UCITS) Fund - - - (11) - - - - (11) - - (11) -------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ---------- 30 September 2019 44,620 1,294,358 (21,463) 687,325 79,455 30,301 102,751 16,869 2,234,216 220,000 28,287 2,482,503 ======== ========== ========= ========= ============ ============ ========== ============ ========== ============ ============ ========== Attributable to the owners of the Company Non- Total controlling equity interests Share Share Treasury Accumulated Property Financial Other Life Foreign Total capital premium shares losses revaluation instruments reserves insurance currency reserve fair value in-force translation reserve business reserve reserve -------- ---------- --------- ------------ ------------ ------------ --------- ---------- ------------ ---------- EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 -------- ---------- --------- ------------ ------------ ------------ --------- ---------- ------------ ---------- ------------ ---------- 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 - - - (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 - - - (36,936) - - - - - (36,936) (2,578) (39,514) -------- ---------- --------- ------------ ------------ ------------ --------- ---------- ------------ ---------- ------------ ---------- Other comprehensive income/(loss) after tax for the period - - - 4,098 16 (22,074) - - (17,051) (35,011) (2) (35,013) -------- ---------- --------- ------------ ------------ ------------ --------- ---------- ------------ ---------- ------------ ---------- Total comprehensive (loss)/ income after tax for the period - - - (32,838) 16 (22,074) - - (17,051) (71,947) (2,580) (74,527) -------- ---------- --------- ------------ ------------ ------------ --------- ---------- ------------ ---------- ------------ ---------- Decrease in value of in-force life insurance business - - - 5,794 - - - (5,794) - - - - -------- ---------- --------- ------------ ------------ ------------ --------- ---------- ------------ ---------- ------------ ---------- Tax on decrease in value of in-force life insurance business - - - (724) - - - 724 - - - - -------- ---------- --------- ------------ ------------ ------------ --------- ---------- ------------ ---------- ------------ ---------- Transfer of realised profits on disposal of properties - - - 4,143 (4,143) - - - - - - - -------- ---------- --------- ------------ ------------ ------------ --------- ---------- ------------ ---------- ------------ ---------- Transfer of property revaluation reserve and other reserve of subsidiary to accumulated losses - - - 14,014 (7,955) - (6,059) - - - - - -------- ---------- --------- ------------ ------------ ------------ --------- ---------- ------------ ---------- ------------ ---------- Loss of control of subsidiary - - - 1,996 (1,996) - - - - - - - -------- ---------- --------- ------------ ------------ ------------ --------- ---------- ------------ ---------- ------------ ---------- Decrease in share capital of subsidiary - - - (722) - - - - - (722) (489) (1,211) -------- ---------- --------- ------------ ------------ ------------ --------- ---------- ------------ ---------- ------------ ---------- 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 - - - 865 - - - - - 865 18,956 19,821 -------- ---------- --------- ------------ ------------ ------------ --------- ---------- ------------ ---------- ------------ ---------- 30 September 2018 44,620 2,794,358 (21,463) (833,817) 78,800 24,008 - 100,581 19,047 2,206,134 47,037 2,253,171 ======== ========== ========= ============ ============ ============ ========= ========== ============ ========== ============ ========== F. Notes F.1 Reconciliation of income statement between statutory and underlying basis EUR million Underlying Helix Investment Tax Other Statutory basis portfolio in associate related basis classified items as held for sale Net interest income 260 34 - - - 294 =========== =========== ============== ========= ====== ========== Net fee and commission income 111 9 - (6) - 114 =========== =========== ============== ========= ====== ========== Net foreign exchange gains and net gains on financial instrument transactions 34 - - - 1 35 =========== =========== ============== ========= ====== ========== Insurance income net of claims and commissions 42 - - - - 42 =========== =========== ============== ========= ====== ========== Net gains from revaluation and disposal of investment properties and on disposal of stock of property 26 - - - - 26 =========== =========== ============== ========= ====== ========== Other income 22 - - - - 22 ----------- ----------- -------------- --------- ------ ---------- Total income 495 43 - (6) 1 533 =========== =========== ============== ========= ====== ========== Total expenses (307) (25) - - (24) (356) ----------- ----------- -------------- --------- ------ ---------- Operating profit 188 18 - (6) (23) 177 =========== =========== ============== ========= ====== ========== Loan credit losses (117) (17) - - (1) (135) =========== =========== ============== ========= ====== ========== Impairments of other financial and non-financial instruments (9) - - (8) - (17) =========== =========== ============== ========= ====== ========== Provisions for litigation, claims, regulatory and other matters (3) - - - 3 - =========== =========== ============== ========= ====== ========== Remeasurement of investment in associate classified as held for sale - - (26) - - (26) =========== =========== ============== ========= ====== ========== Share of profit from associates - - 5 - - 5 ----------- ----------- -------------- --------- ------ ---------- Profit/(loss) before tax, and non-recurring items 59 1 (21) (14) (21) 4 =========== =========== ============== ========= ====== ========== Tax (1) - - 115 - 114 =========== =========== ============== ========= ====== ========== Profit attributable to non-controlling interests (2) - - - - (2) ----------- ----------- -------------- --------- ------ ---------- Profit after tax and before non-recurring items 56 1 (21) 101 (21) 116 =========== =========== ============== ========= ====== ========== Advisory and other restructuring costs-excluding NPE sale (Helix) (21) - - - 21 - ----------- ----------- -------------- --------- ------ ---------- Profit after tax organic* 35 1 (21) 101 - 116 =========== =========== ============== ========= ====== ========== Profit/(loss) relating to NPE sale (Helix) 1 (1) - - - - =========== =========== ============== ========= ====== ========== Loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates (21) - 21 - - - =========== =========== ============== ========= ====== ========== Reversal of impairment of deferred tax assets (DTA) and impairment of other tax receivables 101 - - (101) - - ----------- ----------- -------------- --------- ------ ---------- Profit after tax (attributable to the owners of the Company) 116 - - - - 116 =========== =========== ============== ========= ====== ==========
*This is the profit after tax, before the loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates, and the reversal of impairment of DTA and impairment of other tax receivables.
The reclassification differences between the statutory basis and underlying basis mainly relate to the impact from 'non-recurring items' and are explained below:
Helix portfolio * Net interest income of EUR34 million and fee and commission income of EUR9 million relating to the NPE sale (Helix) is disclosed under non--recurring items within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis. * Total expenses include staff costs of EUR4 million, operating expenses of EUR12 million and restructuring costs of EUR9 million relating to NPE sale (Helix), and are presented within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis. * Loan credit losses of EUR17 million are disclosed under non--recurring items within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis. Investment in associate classified as held for sale * Loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associate of EUR21 million comprises the share of profit of associate of EUR5 million, which is reported in the 'Share of profit from associates' under the statutory basis, and the loss on remeasurement of EUR26 million, which is classified as 'Remeasurement of investment in associate classified as held for sale' under the statutory basis. Tax related items * Reversal of impairment of the deferred tax asset amounting to EUR115 million included within 'Tax' under the statutory basis is classified as a non--recurring item and disclosed within 'Reversal of impairment of DTA and impairment of other tax receivables' under the underlying basis. Fee and
commission expense relating to the revised income tax legislation of EUR6 million, which has been disclosed within 'Reversal of impairment of DTA and impairment of other tax receivables' under the underlying basis, is disclosed within the 'Net fee and commission income' under the statutory basis. * Impairment of other financial assets of EUR8 million, which are included in 'Credit (losses)/gains of other financial instruments' under the statutory basis, relate to the impairment of Greek tax receivables and are classified as a non--recurring item and disclosed within 'Reversal of impairment of DTA and impairment of other tax receivables' under the underlying basis. Other reclassifications * Advisory and other restructuring costs of approximately EUR21 million included in 'Other operating expenses' under the statutory basis are separately presented under the underlying basis. * Provisions for litigation, claims, regulatory and other matters amounting to EUR3 million included in 'Other operating expenses' under the statutory basis, are separately presented under the underlying basis. * Net gains on loans and advances to customers at FVPL of EUR1 million are included in 'Net gains on financial instrument transaction and disposal/dissolution of subsidiaries and associates' under the statutory basis and within 'Loan credit losses' under the underlying basis. F.2 Customer deposits
The analysis of customer deposits is presented below:
30 September 31 December 2019 2018 By type of deposit EUR000 EUR000 ------------- ------------ Demand 7,066,341 6,708,852 ------------- ------------ Savings 1,465,224 1,352,452 ------------- ------------ Time or notice 7,941,124 8,782,254 ------------- ------------ 16,472,689 16,843,558 ============= ============ By currency ------------- ------------ Euro 14,750,373 14,961,025 ------------- ------------ US Dollar 1,341,875 1,482,867 ------------- ------------ British Pound 283,276 292,640 ------------- ------------ Russian Rouble 18,123 25,529 ------------- ------------ Swiss Franc 6,714 7,994 ------------- ------------ Other currencies 72,328 73,503 ------------- ------------ 16,472,689 16,843,558 By customer sector ------------- ------------ Corporate 1,875,343 1,750,517 ------------- ------------ SMEs 764,260 800,671 ------------- ------------ Retail 9,869,567 10,032,047 ------------- ------------ Restructuring ------------- ------------ - corporate 73,481 69,180 ------------- ------------ - SMEs 23,211 29,299 ------------- ------------ - retail other 16,157 16,773 ------------- ------------ Recoveries ------------- ------------ - corporate 3,946 6,492 ------------- ------------ International banking services 3,487,465 3,707,713 ------------- ------------ Wealth management 359,259 430,866 ------------- ------------ 16,472,689 16,843,558 ============= ============
All deposits are in Cyprus.
F.3 Loans and advances to customers 30 September 31 December 2019 2018 EUR000 EUR000 ------------- ------------ Gross loans and advances to customers at amortised cost 12,386,404 12,430,367 ------------- ------------ Allowance for ECL for impairment of loans and advances to customers (1,785,991) (1,904,153) ------------- ------------ Loans and advances to customers measured at amortised cost 10,600,413 10,526,214 ------------- ------------ Loans and advances to customers measured at FVPL 370,510 395,572 ------------- ------------ 10,970,923 10,921,786 ============= ============ F.4 Credit risk concentration of gross loans and advances to customers
Industry and business lines concentrations and geographical analysis of Group gross loans and advances to customers at amortised cost are presented in the table below:
30 September 2019 Cyprus Other Total Residual Gross loans countries fair value at amortised adjustment cost after on initial residual recognition fair value adjustment on initial recognition By economic activity EUR000 EUR000 EUR000 EUR000 EUR000 ----------- ----------- ----------- ------------- -------------- Trade 1,389,823 14,238 1,404,061 (18,056) 1,386,005 ----------- ----------- ----------- ------------- -------------- Manufacturing 459,432 5,945 465,377 (5,154) 460,223 ----------- ----------- ----------- ------------- -------------- Hotels and catering 930,996 1,108 932,104 (18,055) 914,049 ----------- ----------- ----------- ------------- -------------- Construction 883,643 4,475 888,118 (11,693) 876,425 ----------- ----------- ----------- ------------- -------------- Real estate 1,135,575 23,940 1,159,515 (15,503) 1,144,012 ----------- ----------- ----------- ------------- -------------- Private individuals 6,092,359 960 6,093,319 (117,300) 5,976,019 ----------- ----------- ----------- ------------- -------------- Professional and other services 856,716 41,754 898,470 (27,719) 870,751 ----------- ----------- ----------- ------------- -------------- Other sectors 763,508 789 764,297 (5,377) 758,920 ----------- ----------- ----------- ------------- -------------- 12,512,052 93,209 12,605,261 (218,857) 12,386,404 =========== =========== =========== ============= ============== By business line ----------- ----------- ----------- ------------- -------------- Corporate 3,688,442 82,637 3,771,079 (34,425) 3,736,654 ----------- ----------- ----------- ------------- --------------
SMEs 1,136,289 9,739 1,146,028 (16,510) 1,129,518 ----------- ----------- ----------- ------------- -------------- Retail ----------- ----------- ----------- ------------- -------------- - housing 2,850,694 - 2,850,694 (42,177) 2,808,517 ----------- ----------- ----------- ------------- -------------- - consumer, credit cards and other 920,012 833 920,845 2,838 923,683 ----------- ----------- ----------- ------------- -------------- Restructuring ----------- ----------- ----------- ------------- -------------- - corporate 386,469 - 386,469 (6,476) 379,993 ----------- ----------- ----------- ------------- -------------- - SMEs 355,906 - 355,906 (5,627) 350,279 ----------- ----------- ----------- ------------- -------------- - retail housing 399,527 - 399,527 (2,672) 396,855 ----------- ----------- ----------- ------------- -------------- - retail other 232,387 - 232,387 (4,331) 228,056 ----------- ----------- ----------- ------------- -------------- Recoveries ----------- ----------- ----------- ------------- -------------- - corporate 117,061 - 117,061 (3,349) 113,712 ----------- ----------- ----------- ------------- -------------- - SMEs 554,595 - 554,595 (22,248) 532,347 ----------- ----------- ----------- ------------- -------------- - retail housing 817,033 - 817,033 (37,323) 779,710 ----------- ----------- ----------- ------------- -------------- - retail other 722,635 - 722,635 (42,619) 680,016 ----------- ----------- ----------- ------------- -------------- International banking services 162,545 - 162,545 (1,315) 161,230 ----------- ----------- ----------- ------------- -------------- Wealth management 168,457 - 168,457 (2,623) 165,834 ----------- ----------- ----------- ------------- -------------- 12,512,052 93,209 12,605,261 (218,857) 12,386,404 =========== =========== =========== ============= ============== 31 December 2018 Cyprus Other Total Residual Gross loans countries fair value at amortised adjustment cost after on initial residual recognition fair value adjustment on initial recognition By economic activity EUR000 EUR000 EUR000 EUR000 EUR000 ----------- ----------- ----------- ------------- -------------- Trade 1,447,623 39,682 1,487,305 (24,096) 1,463,209 ----------- ----------- ----------- ------------- -------------- Manufacturing 437,030 7,572 444,602 (6,439) 438,163 ----------- ----------- ----------- ------------- -------------- Hotels and catering 877,501 3,806 881,307 (20,354) 860,953 ----------- ----------- ----------- ------------- -------------- Construction 991,122 2,552 993,674 (14,661) 979,013 ----------- ----------- ----------- ------------- -------------- Real estate 980,152 21,644 1,001,796 (16,231) 985,565 ----------- ----------- ----------- ------------- -------------- Private individuals 6,234,765 11,536 6,246,301 (135,603) 6,110,698 ----------- ----------- ----------- ------------- -------------- Professional and other services 866,093 45,758 911,851 (36,551) 875,300 ----------- ----------- ----------- ------------- -------------- Other sectors 720,876 4,704 725,580 (8,114) 717,466 ----------- ----------- ----------- ------------- -------------- 12,555,162 137,254 12,692,416 (262,049) 12,430,367 =========== =========== =========== ============= ============== By business line ----------- ----------- ----------- ------------- -------------- Corporate 3,363,298 125,138 3,488,436 (49,982) 3,438,454 ----------- ----------- ----------- ------------- -------------- SMEs 1,188,456 11,188 1,199,644 (16,537) 1,183,107 ----------- ----------- ----------- ------------- -------------- Retail ----------- ----------- ----------- ------------- -------------- - housing 2,871,294 - 2,871,294 (45,016) 2,826,278 ----------- ----------- ----------- ------------- -------------- - consumer, credit cards and other 940,388 904 941,292 2,965 944,257 ----------- ----------- ----------- ------------- -------------- Restructuring ----------- ----------- ----------- ------------- -------------- - corporate 531,462 24 531,486 (7,907) 523,579 ----------- ----------- ----------- ------------- -------------- - SMEs 560,806 - 560,806 (11,637) 549,169 ----------- ----------- ----------- ------------- -------------- - retail housing 498,601 - 498,601 (4,481) 494,120 ----------- ----------- ----------- ------------- -------------- - retail other 328,952 - 328,952 (8,588) 320,364 ----------- ----------- ----------- ------------- -------------- Recoveries ----------- ----------- ----------- ------------- -------------- - corporate 164,821 - 164,821 (7,439) 157,382 ----------- ----------- ----------- ------------- -------------- - SMEs 630,968 - 630,968 (26,178) 604,790 ----------- ----------- ----------- ------------- -------------- - retail housing 697,212 - 697,212 (40,577) 656,635 ----------- ----------- ----------- ------------- -------------- - retail other 480,733 - 480,733 (39,923) 440,810 ----------- ----------- ----------- ------------- -------------- International banking services 192,646 - 192,646 (2,158) 190,488 ----------- ----------- ----------- ------------- -------------- Wealth management 105,525 - 105,525 (4,591) 100,934 ----------- ----------- ----------- ------------- -------------- 12,555,162 137,254 12,692,416 (262,049) 12,430,367 =========== =========== =========== ============= ==============
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 EUR197,765 thousand (31 December 2018: EUR55,789 thousand) and lending exposures in Cyprus with collaterals in Greece with a carrying value of EUR80,770 thousand (31 December 2018: EUR76,303 thousand).
Loans and advances to customers classified as held for sale
Industry and business lines concentrations and geographical analysis of Group loans and advances to customers at amortised cost classified as held for sale as at 31 December 2018 are presented in the table below:
31 December 2018 Cyprus Other Total Residual Gross loans countries fair value at amortised adjustment cost after on initial residual recognition fair value adjustment on initial recognition By economic activity EUR000 EUR000 EUR000 EUR000 EUR000 ---------- ----------- ---------- ------------- -------------- Trade 373,351 - 373,351 (12,213) 361,138 ---------- ----------- ---------- ------------- -------------- Manufacturing 202,193 - 202,193 (7,216) 194,977 ---------- ----------- ---------- ------------- -------------- Hotels and catering 258,529 - 258,529 (11,960) 246,569 ---------- ----------- ---------- ------------- -------------- Construction 995,430 - 995,430 (74,233) 921,197 ---------- ----------- ---------- ------------- -------------- Real estate 409,632 55,225 464,857 (11,765) 453,092 ---------- ----------- ---------- ------------- -------------- Private individuals 218,531 - 218,531 (9,098) 209,433 ---------- ----------- ---------- ------------- -------------- Professional and other services 140,748 - 140,748 (5,941) 134,807 ---------- ----------- ---------- ------------- -------------- Other sectors 191,463 6,011 197,474 (6,727) 190,747 ---------- ----------- ---------- ------------- -------------- 2,789,877 61,236 2,851,113 (139,153) 2,711,960 ========== =========== ========== ============= ============== By business line ---------- ----------- ---------- ------------- -------------- Corporate 15,249 - 15,249 (584) 14,665 ---------- ----------- ---------- ------------- -------------- SMEs 2,841 - 2,841 - 2,841 ---------- ----------- ---------- ------------- -------------- Retail ---------- ----------- ---------- ------------- -------------- - consumer, credit cards and other 128 - 128 (1) 127 ---------- ----------- ---------- ------------- -------------- Restructuring ---------- ----------- ---------- ------------- -------------- - corporate 859,214 - 859,214 (24,379) 834,835 ---------- ----------- ---------- ------------- -------------- - SMEs 216,866 - 216,866 (4,858) 212,008 ---------- ----------- ---------- ------------- -------------- - retail housing 272 - 272 - 272 ---------- ----------- ---------- ------------- -------------- - retail other 5,773 - 5,773 (210) 5,563 ---------- ----------- ---------- ------------- -------------- Recoveries ---------- ----------- ---------- ------------- -------------- - corporate 1,274,835 61,236 1,336,071 (86,644) 1,249,427 ---------- ----------- ---------- ------------- -------------- - SMEs 374,336 - 374,336 (17,991) 356,345 ---------- ----------- ---------- ------------- -------------- - retail housing 635 - 635 (115) 520 ---------- ----------- ---------- ------------- -------------- - retail other 39,720 - 39,720 (4,371) 35,349 ---------- ----------- ---------- ------------- -------------- International banking services 8 - 8 - 8 ---------- ----------- ---------- ------------- -------------- 2,789,877 61,236 2,851,113 (139,153) 2,711,960 ========== =========== ========== ============= ==============
There were no loans and advances to customers at amortised cost classified as held for sale as at 30 September 2019.
F.5 Analysis of loans and advances to customers by staging
The following tables present the Group's loans and advances to customers at amortised cost by staging and by business line concentration:
30 September 2019 Stage Stage Stage POCI Total 1 2 3 EUR000 EUR000 EUR000 EUR000 EUR000 ---------- ---------- ---------- ---------- ----------- Gross loans at amortised cost before residual fair value adjustment on initial recognition 6,112,798 2,435,184 3,372,040 685,239 12,605,261 ---------- ---------- ---------- ---------- ----------- Residual fair value adjustment on initial recognition (64,404) (31,084) (21,800) (101,569) (218,857) ---------- ---------- ---------- ---------- ----------- Gross loans at amortised cost after residual fair value adjustment on initial recognition 6,048,394 2,404,100 3,350,240 583,670 12,386,404 ========== ========== ========== ========== =========== Gross loans at amortised cost Stage Stage Stage POCI Total before residual fair value 1 2 3 adjustment on initial recognition 30 September 2019 By business line EUR000 EUR000 EUR000 EUR000 EUR000 ---------- ---------- ---------- -------- ----------- Corporate 2,534,813 922,313 234,172 79,781 3,771,079 ---------- ---------- ---------- -------- ----------- SMEs 689,079 388,277 57,676 10,996 1,146,028 ---------- ---------- ---------- -------- ----------- Retail ---------- ---------- ---------- -------- ----------- - housing 1,996,838 644,450 197,857 11,549 2,850,694 ---------- ---------- ---------- -------- ----------- - consumer, credit cards and other 616,682 202,431 81,941 19,791 920,845 ---------- ---------- ---------- -------- ----------- Restructuring ---------- ---------- ---------- -------- ----------- - corporate 20,921 112,532 219,022 33,994 386,469 ---------- ---------- ---------- -------- ----------- - SMEs 31,006 64,047 235,389 25,464 355,906 ---------- ---------- ---------- -------- ----------- - retail housing 4,722 5,911 377,032 11,862 399,527 ---------- ---------- ---------- -------- ----------- - retail other 2,893 1,010 216,030 12,454 232,387 ---------- ---------- ---------- -------- ----------- Recoveries ---------- ---------- ---------- -------- ----------- - corporate - - 94,939 22,122 117,061 ---------- ---------- ---------- -------- ----------- - SMEs - - 448,927 105,668 554,595 ---------- ---------- ---------- -------- ----------- - retail housing - - 644,565 172,468 817,033
---------- ---------- ---------- -------- ----------- - retail other 82 - 545,167 177,386 722,635 ---------- ---------- ---------- -------- ----------- International banking services 63,536 81,041 17,255 713 162,545 ---------- ---------- ---------- -------- ----------- Wealth management 152,226 13,172 2,068 991 168,457 ---------- ---------- ---------- -------- ----------- 6,112,798 2,435,184 3,372,040 685,239 12,605,261 ========== ========== ========== ======== =========== Residual fair value adjustment Stage Stage Stage POCI Total on initial recognition 1 2 3 30 September 2019 By business line EUR000 EUR000 EUR000 EUR000 EUR000 --------- --------- --------- ---------- ---------- Corporate (21,678) (12,237) 340 (850) (34,425) --------- --------- --------- ---------- ---------- SMEs (9,324) (6,123) (460) (603) (16,510) --------- --------- --------- ---------- ---------- Retail --------- --------- --------- ---------- ---------- - housing (34,360) (7,648) 91 (260) (42,177) --------- --------- --------- ---------- ---------- - consumer, credit cards and other 2,458 333 176 (129) 2,838 --------- --------- --------- ---------- ---------- Restructuring --------- --------- --------- ---------- ---------- - corporate (7) (2,068) (3,802) (599) (6,476) --------- --------- --------- ---------- ---------- - SMEs (4) (959) (1,494) (3,170) (5,627) --------- --------- --------- ---------- ---------- - retail housing (39) (35) (1,527) (1,071) (2,672) --------- --------- --------- ---------- ---------- - retail other 10 4 (1,801) (2,544) (4,331) --------- --------- --------- ---------- ---------- Recoveries --------- --------- --------- ---------- ---------- - corporate - - (478) (2,871) (3,349) --------- --------- --------- ---------- ---------- - SMEs - - (1,700) (20,548) (22,248) --------- --------- --------- ---------- ---------- - retail housing - - (3,667) (33,656) (37,323) --------- --------- --------- ---------- ---------- - retail other - - (7,357) (35,262) (42,619) --------- --------- --------- ---------- ---------- International banking services (310) (984) (15) (6) (1,315) --------- --------- --------- ---------- ---------- Wealth management (1,150) (1,367) (106) - (2,623) --------- --------- --------- ---------- ---------- (64,404) (31,084) (21,800) (101,569) (218,857) ========= ========= ========= ========== ========== Gross loans at amortised cost Stage Stage Stage POCI Total after residual fair value 1 2 3 adjustment on initial recognition 30 September 2019 By business line EUR000 EUR000 EUR000 EUR000 EUR000 ---------- ---------- ---------- -------- ----------- Corporate 2,513,135 910,076 234,512 78,931 3,736,654 ---------- ---------- ---------- -------- ----------- SMEs 679,755 382,154 57,216 10,393 1,129,518 ---------- ---------- ---------- -------- ----------- Retail ---------- ---------- ---------- -------- ----------- - housing 1,962,478 636,802 197,948 11,289 2,808,517 ---------- ---------- ---------- -------- ----------- - consumer, credit cards and other 619,140 202,764 82,117 19,662 923,683 ---------- ---------- ---------- -------- ----------- Restructuring ---------- ---------- ---------- -------- ----------- - corporate 20,914 110,464 215,220 33,395 379,993 ---------- ---------- ---------- -------- ----------- - SMEs 31,002 63,088 233,895 22,294 350,279 ---------- ---------- ---------- -------- ----------- - retail housing 4,683 5,876 375,505 10,791 396,855 ---------- ---------- ---------- -------- ----------- - retail other 2,903 1,014 214,229 9,910 228,056 ---------- ---------- ---------- -------- ----------- Recoveries ---------- ---------- ---------- -------- ----------- - corporate - - 94,461 19,251 113,712 ---------- ---------- ---------- -------- ----------- - SMEs - - 447,227 85,120 532,347 ---------- ---------- ---------- -------- ----------- - retail housing - - 640,898 138,812 779,710 ---------- ---------- ---------- -------- ----------- - retail other 82 - 537,810 142,124 680,016 ---------- ---------- ---------- -------- ----------- International banking services 63,226 80,057 17,240 707 161,230 ---------- ---------- ---------- -------- ----------- Wealth management 151,076 11,805 1,962 991 165,834 ---------- ---------- ---------- -------- ----------- 6,048,394 2,404,100 3,350,240 583,670 12,386,404 ========== ========== ========== ======== =========== 31 December 2018 Stage Stage Stage POCI Total 1 2 3 EUR000 EUR000 EUR000 EUR000 EUR000 ---------- ---------- ---------- ---------- ----------- Gross loans at amortised cost before residual fair value adjustment on initial recognition 6,035,781 1,921,255 3,915,591 819,789 12,692,416 ---------- ---------- ---------- ---------- ----------- Residual fair value adjustment on initial recognition (77,738) (20,673) (40,432) (123,206) (262,049) ---------- ---------- ---------- ---------- ----------- Gross loans at amortised cost after residual fair value adjustment on initial recognition 5,958,043 1,900,582 3,875,159 696,583 12,430,367 ========== ========== ========== ========== =========== Gross loans at amortised cost Stage Stage Stage POCI Total before residual fair value 1 2 3 adjustment on initial recognition 31 December 2018 By business line EUR000 EUR000 EUR000 EUR000 EUR000 ---------- ---------- ---------- -------- ----------- Corporate 2,215,264 793,249 387,093 92,830 3,488,436 ---------- ---------- ---------- -------- ----------- SMEs 739,166 346,148 103,384 10,946 1,199,644 ---------- ---------- ---------- -------- ----------- Retail ---------- ---------- ---------- -------- ----------- - housing 2,259,976 300,101 300,584 10,633 2,871,294
---------- ---------- ---------- -------- ----------- - consumer, credit cards and other 591,242 199,099 130,816 20,135 941,292 ---------- ---------- ---------- -------- ----------- Restructuring ---------- ---------- ---------- -------- ----------- - corporate 48,943 92,537 303,955 86,051 531,486 ---------- ---------- ---------- -------- ----------- - SMEs 55,295 52,573 406,369 46,569 560,806 ---------- ---------- ---------- -------- ----------- - retail housing 6,883 3,745 473,444 14,529 498,601 ---------- ---------- ---------- -------- ----------- - retail other 5,140 1,226 304,076 18,510 328,952 ---------- ---------- ---------- -------- ----------- Recoveries ---------- ---------- ---------- -------- ----------- - corporate - - 120,234 44,587 164,821 ---------- ---------- ---------- -------- ----------- - SMEs - - 515,542 115,426 630,968 ---------- ---------- ---------- -------- ----------- - retail housing - - 512,175 185,037 697,212 ---------- ---------- ---------- -------- ----------- - retail other 89 - 313,529 167,115 480,733 ---------- ---------- ---------- -------- ----------- International banking services 69,620 78,109 41,352 3,565 192,646 ---------- ---------- ---------- -------- ----------- Wealth management 44,163 54,468 3,038 3,856 105,525 ---------- ---------- ---------- -------- ----------- 6,035,781 1,921,255 3,915,591 819,789 12,692,416 ========== ========== ========== ======== =========== Residual fair value adjustment Stage Stage Stage POCI Total on initial recognition 1 2 3 31 December 2018 By business line EUR000 EUR000 EUR000 EUR000 EUR000 --------- --------- --------- ---------- ---------- Corporate (25,159) (11,564) (12,282) (977) (49,982) --------- --------- --------- ---------- ---------- SMEs (10,652) (4,150) (1,113) (622) (16,537) --------- --------- --------- ---------- ---------- Retail --------- --------- --------- ---------- ---------- - housing (43,528) (97) (1,246) (145) (45,016) --------- --------- --------- ---------- ---------- - consumer, credit cards and other 3,248 352 (375) (260) 2,965 --------- --------- --------- ---------- ---------- Restructuring --------- --------- --------- ---------- ---------- - corporate (199) (1,988) (2,687) (3,033) (7,907) --------- --------- --------- ---------- ---------- - SMEs 28 (580) (3,931) (7,154) (11,637) --------- --------- --------- ---------- ---------- - retail housing (119) (3) (2,796) (1,563) (4,481) --------- --------- --------- ---------- ---------- - retail other 34 (40) (3,971) (4,611) (8,588) --------- --------- --------- ---------- ---------- Recoveries --------- --------- --------- ---------- ---------- - corporate - - (1,654) (5,785) (7,439) --------- --------- --------- ---------- ---------- - SMEs - - (2,073) (24,105) (26,178) --------- --------- --------- ---------- ---------- - retail housing - - (3,200) (37,377) (40,577) --------- --------- --------- ---------- ---------- - retail other - - (4,695) (35,228) (39,923) --------- --------- --------- ---------- ---------- International banking services (303) (1,164) (195) (496) (2,158) --------- --------- --------- ---------- ---------- Wealth management (1,088) (1,439) (214) (1,850) (4,591) --------- --------- --------- ---------- ---------- (77,738) (20,673) (40,432) (123,206) (262,049) ========= ========= ========= ========== ========== Gross loans at amortised cost Stage Stage Stage POCI Total after residual fair value 1 2 3 adjustment on initial recognition 31 December 2018 By business line EUR000 EUR000 EUR000 EUR000 EUR000 ---------- ---------- ---------- -------- ----------- Corporate 2,190,105 781,685 374,811 91,853 3,438,454 ---------- ---------- ---------- -------- ----------- SMEs 728,514 341,998 102,271 10,324 1,183,107 ---------- ---------- ---------- -------- ----------- Retail ---------- ---------- ---------- -------- ----------- - housing 2,216,448 300,004 299,338 10,488 2,826,278 ---------- ---------- ---------- -------- ----------- - consumer, credit cards and other 594,490 199,451 130,441 19,875 944,257 ---------- ---------- ---------- -------- ----------- Restructuring ---------- ---------- ---------- -------- ----------- - corporate 48,744 90,549 301,268 83,018 523,579 ---------- ---------- ---------- -------- ----------- - SMEs 55,323 51,993 402,438 39,415 549,169 ---------- ---------- ---------- -------- ----------- - retail housing 6,764 3,742 470,648 12,966 494,120 ---------- ---------- ---------- -------- ----------- - retail other 5,174 1,186 300,105 13,899 320,364 ---------- ---------- ---------- -------- ----------- Recoveries ---------- ---------- ---------- -------- ----------- - corporate - - 118,580 38,802 157,382 ---------- ---------- ---------- -------- ----------- - SMEs - - 513,469 91,321 604,790 ---------- ---------- ---------- -------- ----------- - retail housing - - 508,975 147,660 656,635 ---------- ---------- ---------- -------- ----------- - retail other 89 - 308,834 131,887 440,810 ---------- ---------- ---------- -------- ----------- International banking services 69,317 76,945 41,157 3,069 190,488 ---------- ---------- ---------- -------- ----------- Wealth management 43,075 53,029 2,824 2,006 100,934 ---------- ---------- ---------- -------- ----------- 5,958,043 1,900,582 3,875,159 696,583 12,430,367 ========== ========== ========== ======== ===========
The following table presents the Group's loans and advances to customers at amortised cost before residual fair value adjustment on initial recognition by staging and geographical concentration.
30 September 2019 Stage Stage Stage POCI Total 1 2 3 EUR000 EUR000 EUR000 EUR000 EUR000 ---------- ---------- ---------- -------- ----------- Cyprus 6,111,535 2,435,184 3,280,094 685,239 12,512,052 ---------- ---------- ---------- -------- ----------- Other countries 1,263 - 91,946 - 93,209 ---------- ---------- ---------- -------- ----------- 6,112,798 2,435,184 3,372,040 685,239 12,605,261 ========== ========== ========== ======== =========== 31 December 2018 Stage Stage Stage POCI Total 1 2 3 EUR000 EUR000 EUR000 EUR000 EUR000 ---------- ---------- ---------- -------- ----------- Cyprus 6,023,870 1,921,234 3,790,269 819,789 12,555,162 ---------- ---------- ---------- -------- ----------- Other countries 11,911 21 125,322 - 137,254 ---------- ---------- ---------- -------- ----------- 6,035,781 1,921,255 3,915,591 819,789 12,692,416 ========== ========== ========== ======== ===========
Loans and advances to customers classified as held for sale
The following tables present the staging of the Group's loans and advances at amortised cost classified as held for sale as at 31 December 2018 by business line concentration.
31 December 2018 Stage Stage Stage POCI Total 1 2 3 EUR000 EUR000 EUR000 EUR000 EUR000 ------- -------- ---------- ---------- ---------- Gross loans at amortised cost before residual fair value adjustment on initial recognition 7,148 94,600 2,222,931 526,434 2,851,113 ------- -------- ---------- ---------- ---------- Residual fair value adjustment on initial recognition (195) (3,261) (24,571) (111,126) (139,153) ------- -------- ---------- ---------- ---------- Gross loans at amortised cost after residual fair value adjustment on initial recognition 6,953 91,339 2,198,360 415,308 2,711,960 ======= ======== ========== ========== ========== Gross loans at amortised cost Stage Stage Stage POCI Total before residual fair value 1 2 3 adjustment on initial recognition 31 December 2018 By business line EUR000 EUR000 EUR000 EUR000 EUR000 ------- ------- ---------- -------- ---------- Corporate 165 - 14,343 741 15,249 ------- ------- ---------- -------- ---------- SMEs 2,835 - 6 - 2,841 ------- ------- ---------- -------- ---------- Retail ------- ------- ---------- -------- ---------- - consumer, credit cards and other - - 125 3 128 ------- ------- ---------- -------- ---------- Restructuring ------- ------- ---------- -------- ---------- - corporate 2,110 85,783 722,631 48,690 859,214 ------- ------- ---------- -------- ---------- - SMEs 2,038 8,817 187,831 18,180 216,866 ------- ------- ---------- -------- ---------- - retail housing - - 231 41 272 ------- ------- ---------- -------- ---------- - retail other - - 5,575 198 5,773 ------- ------- ---------- -------- ---------- Recoveries ------- ------- ---------- -------- ---------- - corporate - - 967,761 368,310 1,336,071 ------- ------- ---------- -------- ---------- - SMEs - - 300,509 73,827 374,336 ------- ------- ---------- -------- ---------- - retail housing - - 484 151 635 ------- ------- ---------- -------- ---------- - retail other - - 23,427 16,293 39,720 ------- ------- ---------- -------- ---------- International banking services - - 8 - 8 ------- ------- ---------- -------- ---------- 7,148 94,600 2,222,931 526,434 2,851,113 ======= ======= ========== ======== ==========
Loans and advances to customers classified as held for sale (continued)
Residual fair value adjustment Stage Stage Stage POCI Total on initial recognition 1 2 3 31 December 2018 By business line EUR000 EUR000 EUR000 EUR000 EUR000 ------- -------- --------- ---------- ---------- Corporate - - (584) - (584) ------- -------- --------- ---------- ---------- Retail ------- -------- --------- ---------- ---------- - consumer, credit cards and other - - - (1) (1) ------- -------- --------- ---------- ---------- Restructuring ------- -------- --------- ---------- ---------- - corporate - (2,722) (13,730) (7,927) (24,379) ------- -------- --------- ---------- ---------- - SMEs (195) (539) (1,470) (2,654) (4,858) ------- -------- --------- ---------- ---------- - retail other - - (132) (78) (210) ------- -------- --------- ---------- ---------- Recoveries ------- -------- --------- ---------- ---------- - corporate - - (4,900) (81,744) (86,644) ------- -------- --------- ---------- ---------- - SMEs - - (3,473) (14,518) (17,991) ------- -------- --------- ---------- ---------- - retail housing - - - (115) (115) ------- -------- --------- ---------- ---------- - retail other - - (282) (4,089) (4,371) ------- -------- --------- ---------- ---------- (195) (3,261) (24,571) (111,126) (139,153) ======= ======== ========= ========== ========== Gross loans at amortised cost Stage Stage Stage POCI Total after residual fair value 1 2 3 adjustment on initial recognition 31 December 2018 By business line EUR000 EUR000 EUR000 EUR000 EUR000 ------- ------- ---------- -------- ---------- Corporate 165 - 13,759 741 14,665 ------- ------- ---------- -------- ---------- SMEs 2,835 - 6 - 2,841 ------- ------- ---------- -------- ---------- Retail ------- ------- ---------- -------- ---------- - consumer, credit cards and other - - 125 2 127 ------- ------- ---------- -------- ---------- Restructuring ------- ------- ---------- -------- ---------- - corporate 2,110 83,061 708,901 40,763 834,835 ------- ------- ---------- -------- ---------- - SMEs 1,843 8,278 186,361 15,526 212,008
------- ------- ---------- -------- ---------- - retail housing - - 231 41 272 ------- ------- ---------- -------- ---------- - retail other - - 5,443 120 5,563 ------- ------- ---------- -------- ---------- Recoveries ------- ------- ---------- -------- ---------- - corporate - - 962,861 286,566 1,249,427 ------- ------- ---------- -------- ---------- - SMEs - - 297,036 59,309 356,345 ------- ------- ---------- -------- ---------- - retail housing - - 484 36 520 ------- ------- ---------- -------- ---------- - retail other - - 23,145 12,204 35,349 ------- ------- ---------- -------- ---------- International banking services - - 8 - 8 ------- ------- ---------- -------- ---------- 6,953 91,339 2,198,360 415,308 2,711,960 ======= ======= ========== ======== ==========
There were no loans and advances to customers at amortised cost classified as held for sale as at 30 September 2019.
Loans and advances to customers classified as held for sale (continued)
The following table presents the Group's gross loans and advances before residual fair value adjustment on initial recognition at amortised cost classified as held for sale as at 31 December 2018 by staging and geographical concentration.
31 December 2018 Stage Stage Stage POCI Total 1 2 3 EUR000 EUR000 EUR000 EUR000 EUR000 ------- ------- ---------- -------- ---------- Cyprus 7,148 94,600 2,161,695 526,434 2,789,877 ------- ------- ---------- -------- ---------- Other countries - - 61,236 - 61,236 ------- ------- ---------- -------- ---------- 7,148 94,600 2,222,931 526,434 2,851,113 ======= ======= ========== ======== ========== F.6 Credit losses to cover credit risk on loans and advances to customers Nine months ended 30 September 2019 2018 (represented) --------- ------------------- EUR000 EUR000 --------- ------------------- Impairment loss net of reversals on loans and advances to customers 164,952 459,303 --------- ------------------- Recoveries of loans and advances to customers previously written off (18,096) (125,329) --------- ------------------- Changes in expected cash flows (798) (32,882) --------- ------------------- Financial guarantees and commitments (5,308) (6,704) --------- ------------------- Credit losses to cover credit risk on loans and advances to customers 140,750 294,388 ========= ===================
The movement in ECL of loans and advances, including the loans and advances to customers held for sale, and the closing balance analysis by staging, is as follows:
30 September 2019 Cyprus Other countries Total EUR000 EUR000 EUR000 ------------ ---------------- ------------ 1 January 3,315,259 146,746 3,462,005 ------------ ---------------- ------------ Foreign exchange and other adjustments 6,624 3,732 10,356 ------------ ---------------- ------------ Write offs (314,988) (34,978) (349,966) ------------ ---------------- ------------ Interest provided not recognised in the income statement 96,513 4,956 101,469 ------------ ---------------- ------------ Disposal of Helix and Velocity portfolios (1,548,060) (54,765) (1,602,825) ------------ ---------------- ------------ Charge for the period 165,069 (117) 164,952 ------------ ---------------- ------------ 30 September 1,720,417 65,574 1,785,991 ============ ================ ============ Stage 1 20,561 3 20,564 ------------ ---------------- ------------ Stage 2 40,500 - 40,500 ------------ ---------------- ------------ Stage 3 1,449,622 65,571 1,515,193 ------------ ---------------- ------------ POCI 209,734 - 209,734 ------------ ---------------- ------------ Total 1,720,417 65,574 1,785,991 ============ ================ ============
The allowance for ECL of loans and advances to customers classified as held for sale as at 31 December 2018 included in the table above, amounts to EUR1,557,852 thousand.
There were no loans and advances to customers held for sale as at 30 September 2019.
30 September 2018 Cyprus Other Total countries EUR000 EUR000 EUR000 ------------ ----------- ------------ 1 January 3,205,177 247,673 3,452,850 ------------ ----------- ------------ Change in the basis of calculation of gross carrying values (IFRS 9 grossing up adjustment) 1,632,322 57,175 1,689,497 ------------ ----------- ------------ Impact of adopting IFRS 9 at 1 January 2018 313,928 5,174 319,102 ------------ ----------- ------------ Restated balance at 1 January 2018 5,151,427 310,022 5,461,449 ------------ ----------- ------------ Transfer from Romanian branch 19,258 (19,258) - ------------ ----------- ------------ Foreign exchange and other adjustments 5,779 (6,915) (1,136) ------------ ----------- ------------ Write offs (2,371,936) (82,904) (2,454,840) Interest provided not recognised in the income statement 121,817 (4,667) 117,150 Charge/(credit) for the period - continuing operations 473,881 (14,578) 459,303 ------------ ----------- ------------ Credit for the period - discontinued operations - (624) (624) ------------ ----------- ------------ Loss of control of UK operations - (3,594) (3,594) ------------ ----------- ------------ 30 September 3,400,226 177,482 3,577,708 ============ =========== ============ Stage 1 20,912 138 21,050 ------------ ----------- ------------
Stage 2 101,583 3,736 105,319 ------------ ----------- ------------ Stage 3 2,836,405 170,845 3,007,250 ------------ ----------- ------------ POCI 441,326 2,763 444,089 ------------ ----------- ------------ Total 3,400,226 177,482 3,577,708 ============ =========== ============
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 September 2018 by staging and geographical area is presented in the table below:
30 September 2018 Stage Stage Stage POCI Total 1 2 3 EUR000 EUR000 EUR000 EUR000 EUR000 ------- ------- ---------- -------- ---------- Cyprus 853 53,487 1,228,062 188,662 1,471,064 ------- ------- ---------- -------- ---------- Other countries - - 48,254 - 48,254 ------- ------- ---------- -------- ---------- 853 53,487 1,276,316 188,662 1,519,318 ======= ======= ========== ======== ========== Collectively assessed 853 53,487 1,276,316 188,662 1,519,318 ======= ======= ========== ======== ==========
The above tables do not include the residual fair value adjustments on initial recognition of loans acquired from Laiki Bank and ECL on financial guarantees which are part of other liabilities on the balance sheet.
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 and advances to customers, the gross carrying amounts of the loans have been increased by an amount of EUR1,689,497 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 to customers from this change in the presentation.
During the nine months ended 30 September 2019 the total non--contractual write--offs recorded by the Group amounted to EUR185,700 thousand (nine months ended 30 September 2018: EUR2,229,691 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.
At 30 September 2019 the weighted average haircut (including liquidity haircut and selling expenses) used in the collectively assessed provision calculation for loans and advances to customers is c.32% under the baseline scenario (31 December 2018: c.32%, other than those classified as held for sale).
The timing of recovery from real estate collaterals used in the collectively assessed provision calculation for loans and advances to customers has been estimated to be on average seven years under the baseline scenario (31 December 2018: average seven years, other than those classified as held for sale).
For the calculation of individually assessed allowances for ECL, 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 allowances for ECL, is the weighted average of three scenarios; base, adverse and favourable. The base scenario focuses on the following variables, which are based on the specific facts and circumstances of each customer: the operational cash flows, the timing of recovery of collaterals and the haircuts from the realisation of collateral. The base scenario is used to derive additional scenarios for either better or worse cases. Under the adverse scenario operational cash flows are decreased by 50%, applied haircuts on real estate collateral are increased by 50% and the timing of recovery of collaterals is increased by one year with reference to the baseline scenario. Under the favourable scenario, applied haircuts are decreased by 5%, with no change in the recovery period with reference to the baseline scenario. Assumptions used in estimating expected future cash flows (including cash flows that may result from the realisation of collateral) reflect current and expected future economic conditions and are generally consistent with those used in the Stage 3 collectively assessed exposures. In the case of loans and advances to customers held for sale at 31 December 2018, the Group has taken into consideration the timing of expected sale and the estimated sale proceeds in determining the ECL. Amounts previously written off which are expected to be recovered through sale are presented in 'Recoveries of loans and advances to customers previously written off'.
For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with 50%, 30% and 20% probability respectively.
Any positive cumulative average future change in forecasted property values was capped to zero for the nine months ended 30 September 2019 and the year 2018. This applies to all scenarios.
The above assumptions are also influenced by the ongoing regulatory dialogue BOC PCL maintains with its lead regulator, the ECB, and other regulatory guidance and interpretations issued by various regulatory and industry bodies such as the ECB and the EBA, which provide guidance and expectations as to relevant definitions and the treatment/classification of certain parameters/assumptions used in the estimation of allowance for ECL.
Any changes in these assumptions or differences between assumptions made and actual results could result in significant changes in the amount of required allowance for credit losses of loans and advances to customers.
F.7 Rescheduled loans and advances to customers Cyprus Other Total countries 30 September 2019 EUR000 EUR000 EUR000 ---------- ----------- ---------- Stage 1 268,761 114 268,875 ---------- ----------- ---------- Stage 2 489,556 - 489,556 ---------- ----------- ---------- Stage 3 1,716,474 37,279 1,753,753 ---------- ----------- ---------- POCI 215,411 - 215,411 ---------- ----------- ---------- 2,690,202 37,393 2,727,595 ========== =========== ========== 31 December 2018 ---------- ------- ---------- Stage 1 508,664 120 508,784 ---------- ------- ---------- Stage 2 376,794 24 376,818 ---------- ------- ---------- Stage 3 2,001,947 48,662 2,050,609 ---------- ------- ---------- POCI 266,263 - 266,263 ---------- ------- ---------- 3,153,668 48,806 3,202,474 ========== ======= ========== F.8 Credit risk disclosures
According to the EBA standards and European Central Bank's (ECB) 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:
(i) The debtor is assessed as unlikely to pay its credit obligations in full without the realisation of the collateral, regardless of the existence of any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the Capital Requirements Regulation (CRR) (Article 178).
(iii) Material exposures (as defined below) which are more than 90 days past due.
(iv) Performing forborne exposures under probation for which additional forbearance measures are extended.
(v) Performing forborne exposures under probation that present more than 30 days past due within the probation period.
Exposures include all on and off balance sheet exposures, except those held for trading, and are categorised as such for their entire amount without taking into account the existence of collateral.
The following materiality criteria are applied:
-- When the problematic exposures of a customer that fulfil the NPE criteria set out above are greater than 20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total customer exposure is classified as non-performing; otherwise only the problematic part of the exposure is classified as non-performing.
-- Material arrears/excesses are defined as follows: - Retail exposures:
- Loans: Arrears amount greater than EUR500 or number of instalments in arrears is greater than one.
- Overdrafts: Excess amount is greater than EUR500 or greater than 10% of the approved limit.
- Exposures other than retail: Total customer arrears/excesses are greater than EUR1,000 or greater than 10% of the total customer funded balances.
NPEs may cease to be considered as non-performing only when all of the following conditions are met:
(i) The extension of forbearance measures does not lead to the recognition of impairment or default.
(ii) One year has passed since the forbearance measures were extended.
(iii) Following the forbearance measures and according to the post-forbearance conditions, there is no past due amount or concerns regarding the full repayment of the exposure.
(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).
The tables below present the analysis of loans and advances to customers in accordance with the EBA standards.
30 September Gross loans and advances to customers Provision for impairment and fair value 2019 adjustment on initial recognition Group gross Of which Of which exposures Total Of which Of which exposures customer NPEs with forbearance provision NPEs with loans measures for forbearance measures and impairment advances(1) and fair value adjustment on initial recognition ------------ ---------- ------------------------ ------------ ---------- ----------------------- Total Of which Total Of which exposures on NPEs exposures on NPEs with with forbearance forbearance measures measures ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Loans and advances to customers ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- General governments 64,831 1 1,232 - 3,582 - 459 - ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Other financial corporations 136,523 29,279 5,979 2,518 18,281 15,068 892 849 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Non-financial corporations 6,424,495 1,527,145 1,385,406 803,315 851,458 762,317 366,048 349,675 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Of which: Small and Medium sized Enterprises(2) (SMEs) 4,834,350 1,199,854 900,616 609,257 714,880 639,270 273,193 261,323 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Of which: Commercial real estate(2) 4,333,316 948,912 889,440 537,308 498,141 429,374 223,618 213,675 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Non-financial corporations by sector ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Construction 853,776 298,473 152,163 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Wholesale and retail trade 1,348,463 405,569 210,918 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Accommodation and food service activities 1,053,409 63,378 54,568 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Real estate activities 1,284,041 305,526 162,801 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Professional, scientific and technical activities 435,585 97,026 59,493 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Other sectors 1,449,221 357,173 211,515 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Households 6,418,054 2,528,492 1,697,775 1,351,375 1,199,659 1,135,261 499,609 488,672 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Of which: Residential mortgage loans(2) 4,871,501 1,912,090 1,363,925 1,081,850 782,707 726,589 349,607 341,464 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Of which: Credit for consumption(2) 860,536 357,173 205,604 177,597 207,628 206,327 82,072 80,641 ------------ ---------- ------------ ---------- ------------ ---------- ------------ --------- Total on-balance sheet 13,043,903 4,084,917 3,090,392 2,157,208 2,072,980 1,912,646 867,008 839,196 ============ ========== ============ ========== ============ ========== ============ ========= 1. Excluding loans and advances to central banks and credit institutions.
2. The analysis shown in lines 'non-financial corporations' and 'households' is non-additive across categories as certain customers could be in both categories.
Gross loans and advances to customers Provision for impairment and fair value adjustment on initial recognition Group gross Of which Of which exposures Total Of which Of which exposures customer NPEs with forbearance provision NPEs with forbearance loans measures for measures and impairment advances(3) and fair value adjustment on initial recognition ------------ ---------- ------------------------ ------------ ---------- ------------------------ Total Of which Total Of which exposures on NPEs exposures on NPEs with with 31 December forbearance forbearance 2018 measures measures ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Loans and advances to customers ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- General governments 70,638 3 1,595 - 3,681 - 468 - ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Other financial
corporations 167,910 21,338 28,028 5,621 13,378 8,471 3,374 2,076 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Non-financial corporations 6,331,381 1,941,479 1,682,997 1,042,164 947,857 864,983 367,235 347,924 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Of which: Small and Medium sized Enterprises(4) 4,573,824 1,488,289 1,108,153 793,579 759,484 692,343 280,675 266,736 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Of which: Commercial real estate(4) 4,473,159 1,284,145 1,124,078 742,839 569,351 501,842 231,694 216,486 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Non-financial corporations by sector ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Construction 972,059 382,697 184,282 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Wholesale and retail trade 1,431,706 522,151 254,823 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Accommodation and food service activities 1,005,691 96,702 58,563 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Real estate activities 1,140,596 406,226 174,269 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Manufacturing 428,828 134,950 74,884 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Other sectors 1,352,501 398,753 201,036 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Households 6,588,202 2,805,496 1,924,928 1,486,583 1,271,429 1,208,624 481,701 471,184 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Of which: Residential mortgage loans(4) 5,022,617 2,112,152 1,552,445 1,180,705 828,205 774,656 336,651 327,956 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Of which: Credit for consumption(4) 891,964 397,747 234,572 195,422 225,505 221,996 79,417 77,930 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- 13,158,131 4,768,316 3,637,548 2,534,368 2,236,345 2,082,078 852,778 821,184 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Loans and advances to customers classified as held for sale 2,851,113 2,749,301 1,492,083 1,437,851 1,697,005 1,646,091 825,977 797,692 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------- Total on-balance sheet 16,009,244 7,517,617 5,129,631 3,972,219 3,933,350 3,728,169 1,678,755 1,618,876 ============ ========== ============ ========== ============ ========== ============ ========== 3. Excluding loans and advances to central banks and credit institutions.
4. The analysis shown in lines 'non-financial corporations' and 'households' is non-additive across categories as certain customers could be in both categories.
F.9 Pending litigation, claims regulatory and other matters
The Group in the ordinary course of business, is subject to enquiries and examinations, requests for information, audits, investigations 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. 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.
F.10 Liquidity regulation
The Group has to comply with requirements 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 is applicable since 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 will become a regulatory indicator when Capital Requirements Regulation 2 (CRR2) is enforced with the limit set at 100%.
As at 30 September 2019 the Group was in compliance with all regulatory liquidity requirements. As at 30 September 2019 the LCR stood at 218% for the Group (compared to 231% at 31 December 2018) and was in compliance with the minimum regulatory requirement of 100% applicable as from 1 January 2018. The main reason for the reduction in the LCR ratio from 31 December 2018 to 30 September 2019 is the change in the tenor and mix of deposits. As at 30 September 2019 the Group's NSFR, on the basis of the Basel standards, was 122% (compared to 119% at 31 December 2018).
F.11 Liquidity reserves
The below table sets out the Group's liquidity reserves:
Composition of 30 September 2019 31 December 2018 the liquidity reserves Internal Liquidity reserves Internal Liquidity reserves Liquidity as per LCR Delegated Liquidity as per LCR Delegated reserves Reg (EU) reserves Reg (EU) 2015/61 LCR eligible 2015/61 LCR eligible ----------- ------------------------ ----------- ------------------------ Level 1 Level Level Level 2A 1 2A ----------- ------------- --------- ----------- ------------- --------- EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 ----------- ------------- --------- ----------- ------------- --------- Cash and balances with central banks 4,253,608 4,253,608 - 4,447,511 4,447,511 - ----------- ------------- --------- ----------- ------------- --------- Nostro and overnight placements with banks 60,645 - - 281,383 - - ----------- ------------- --------- ----------- ------------- --------- Other placements 144,644 - - - - - with banks ----------- ------------- --------- ----------- ------------- --------- Liquid investments 1,233,604 1,146,394 128,312 881,091 929,380 93,165 ----------- ------------- --------- ----------- ------------- --------- Available ECB Buffer 1,184,708 - - 108,374 - - ----------- ------------- --------- ----------- ------------- --------- Total 6,877,209 5,400,002 128,312 5,718,359 5,376,891 93,165
=========== ============= ========= =========== ============= =========
Internal Liquidity Reserves show the total liquid assets as defined in BOC PCL's Liquidity Policy. Liquidity reserves as per LCR Delegated Regulation (EU) 2015/61 show the liquid assets as per the definition of the aforementioned regulation i.e. High Quality Liquid Assets (HQLA).
Under Liquidity reserves as per LCR, Nostro and placements with banks are not included, as they are not considered HQLA (they are part of the LCR Inflows).
Liquid investments under the Liquidity reserves as per LCR are shown at market values reduced by standard weights as prescribed by the LCR regulation. Liquid investments under Internal Liquidity reserves include all LCR and/or ECB eligible investments and are shown at market values net of haircut based on ECB haircuts and methodology.
Finally, available ECB buffer is not part of the Liquidity reserves as per LCR, since the collateralised assets in the ECB pool are not LCR eligible but only ECB eligible.
F.12 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.
With the exception of certain specified provisions, the CRR and Capital Requirements Directive IV (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 European Union's legal framework. CRR establishes the prudential requirements for capital, liquidity and leverage for credit institutions and investment firms. It is directly applicable in all EU member states. CRD IV governs access to deposit-taking activities and internal governance arrangements including remuneration, board composition and transparency. Unlike the CRR, member states were required to transpose the CRD IV into national 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 are largely fully effective in 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 September 2019 stands at 15.2% and the total capital ratio at 18.2% on a transitional basis. The ratios as at 30 September 2019 includes unreviewed profits for the nine months ended 30 September 2019.
The minimum Pillar I total capital requirement is 8.0% and may be met, in addition to the 4.5% CET1 requirement, with up to 1.5% by Additional Tier 1 capital and with up to 2.0% by Tier 2 capital.
The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital requirements (Pillar II add-ons).
Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2019 and based on the pre-notification received in September 2019, the Group's minimum phased-in CET1 capital ratio and Total Capital ratio remain unchanged, when ignoring the phasing-in of the Other Systemically Important Institution Buffer. The Group's phased-in CET1 capital ratio is expected to be 11.0%, comprising a 4.5% Pillar I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% (fully phased-in as of 1 January 2019) and the Other Systemically Important Institution Buffer of 1.0%. The Group's Total Capital requirement is expected to be 14.5%, comprising an 8.0% Pillar I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 1.0%. The new SREP requirements are expected to be effective from January 2020 and remain subject to ECB final confirmation.
The EBA final guidelines on SREP and supervisory stress testing and the Single Supervisory Mechanism's (SSM) 2018 SREP methodology provide that own funds held for the purposes of Pillar II Guidance cannot be used to meet any other capital requirements (Pillar 1, Pillar II requirement or the combined buffer requirements), and therefore cannot be used twice. Following the Annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2019 and based on the pre-notification received in September 2019, the new provisions are expected to be effective from January 2020 and remain subject to ECB final confirmation.
Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2018 and based on the final 2018 SREP decision received on 27 March 2019, the Group's minimum phased-in CET1 capital ratio and Total capital ratio for 2019 remained unchanged when ignoring the phasing-in of the Capital Conservation Buffer (CCB) and the Other Systemically Important Institution Buffer. The Group's phased-in CET1 capital ratio requirement is 10.5%, comprising of a 4.5% Pillar I requirement, a 3.0% Pillar II requirement, the CCB of 2.5% and the Other Systemically Important Institution Buffer of 0.5%. The Group's Total capital ratio requirement is 14.0%, comprising of a 8.0% Pillar I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 0.5%. The final 2018 SREP decision applies from 1 April 2019. The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer.
The Group's minimum phased-in CET1 capital ratio for 2018 was 9.375%, comprising of a 4.50% Pillar I requirement, a 3.00% Pillar II requirement and the CCB of 1.875%. The ECB had also provided non-public guidance for an additional Pillar II CET1 buffer. The overall Total Capital Ratio Requirement for 2018 was 12.875% comprising of 8.00% Pillar I requirement (of which up to 1.50% could be in the form of Additional Tier 1 capital and up to 2.00% in the form of Tier 2 capital), a 3.00% Pillar II requirement (in the form of CET1) and the CCB of 1.875% applicable for 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.
The capital position of the Group and BOC PCL at 30 September 2019 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.
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 years 2018 and 2019.
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 is being phased-in gradually, having started from 1 January 2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%) on 1 January 2022.
The Capital Conservation Buffer (CCB) was gradually phased-in at 0.625% in 2016, 1.25% in 2017, 1.875% in 2018 and has been 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 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.
F.12.1 Capital position
The capital position of the Group and the BOC PCL under CRD IV/CRR basis (after applying the transitional arrangements) is presented below:
Regulatory capital Group BOC PCL 30 September 31 December 30 September 31 December 2019 2018(5) 2019 2018 ------------- ------------ ------------- ------------ EUR000 EUR000 EUR000 EUR000 ------------- ------------ ------------- ------------ Transitional Common Equity Tier 1 (CET1)(6&7) 2,097,985 1,864,000 2,120,751 1,861,098 ------------- ------------ ------------- ------------ Transitional Additional Tier 1 capital (AT1) 220,000 220,000 220,000 220,000 ------------- ------------ ------------- ------------ Tier 2 capital (T2) 187,780 212,000 250,000 250,000 ------------- ------------ ------------- ------------ Transitional total regulatory capital(7) 2,505,765 2,296,000 2,590,751 2,331,098 ============= ============ ============= ============ Risk weighted assets - credit risk(8) 12,219,112 13,832,589 12,247,267 13,820,385 ------------- ------------ ------------- ------------ Risk weighted assets - - 2,182 - - market risk ------------- ------------ ------------- ------------ Risk weighted assets - operational risk 1,538,588 1,538,588 1,411,788 1,411,788 ------------- ------------ ------------- ------------ Total risk weighted assets 13,757,700 15,373,359 13,659,055 15,232,173 ============= ============ ============= ============ % % % % ------------- ------------ ------------- ------------ Transitional Common Equity Tier 1 ratio 15.2 12.1 15.5 12.2 ------------- ------------ ------------- ------------ Transitional total capital ratio 18.2 14.9 19.0 15.3 ------------- ------------ ------------- ------------ Fully loaded Group BOC PCL 30 September 31 December 30 September 31 December 2019(9) 2018(10) 2019(9) 2018(10) ------------- ------------ ------------- ------------ EUR000 EUR000 EUR000 EUR000 ------------- ------------ ------------- ------------ Common Equity Tier 1 ratio (%) 13.6 10.1 13.9 10.2 ------------- ------------ ------------- ------------ Total capital ratio (%) 16.8 13.2 17.4 13.4 ------------- ------------ ------------- ------------
During the period ended 30 September 2019, the CET1 was negatively affected by the phasing-in of transitional adjustments, mainly the IFRS 9, and it was positively affected by the profit(11) for the period of EUR123,832 thousand, in line with the prudential consolidation, primarily driven by legislative changes. Moreover, on 1 March 2019 the Cyprus Parliament adopted legislative amendments allowing for the conversion of deferred tax assets into deferred tax credits for regulatory purposes, under the CRR. For more details refer to Note 11 of the Consolidated Condensed Interim Financial Statements for the period ended 30 June 2019.
The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU Regulation 2017/2395) where the impact on the impairment amount from the initial application of IFRS 9 on the capital ratios is phased-in gradually over a five year period. The Group has notified its regulator about its election to adopt the transitional arrangements. The amount added back over the transitional period decreases based on a weighting factor of 95% in 2018, 85% in 2019, 70% in 2020, 50% in 2021 and 25% in 2022. The impact of IFRS 9 is fully absorbed after the five year transitional period.
5. As per the Annual Report 2018 and Pillar 3 Disclosures 2018
6. CET1 includes regulatory deductions, comprising intangible assets amounting to EUR43,383 thousand as at 30 September 2019 (31 December 2018: EUR43,364 thousand). As at 31 December 2018 CET1 included regulatory deductions comprising deferred tax assets amounting to EUR163,082 thousand.
7. Following the Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), the deferred tax asset was phasing-in for 5 years, with effect as from the reporting of 31 December 2016, and fully phased-in on 1 January 2019.
8. Includes Credit Valuation Adjustments (CVA). 9. IFRS 9 fully loaded. 10. IFRS 9 & Deferred Tax Asset fully loaded.
11. No permission has been requested by the ECB for the inclusion of interim profits in capital regulatory submissions. The regulatory capital and the respective ratios as at 30 September 2019 include unreviewed profits for the nine months ended 30 September 2019.
F.12.2 Overview of RWA RWAs Minimum capital requirements 30 September 30 June 30 September 2019 2019 2019 ----- ------------------------------------ ------------- ---------------- EUR000 EUR000 EUR000 ---------------------------------------- ------------- ----------- ---------------- Credit risk (excluding counterparty 1 credit risk (CCR)) 11,837,609 11,974,850 947,009 ---------------------------------------- ------------- ----------- ---------------- Of which the Standardised 2 Approach 11,837,609 11,974,850 947,009 ---------------------------------------- ------------- ----------- ---------------- 6 CCR 16,583 19,194 1,327 ---------------------------------------- ------------- ----------- ---------------- 7 Of which mark to market 11,795 12,881 944 ---------------------------------------- ------------- ----------- ---------------- 11 Of which risk exposure amount - - - for contributions to the default fund of a CCP ---------------------------------------- ------------- ----------- ---------------- Of which Credit Valuation 12 Adjustment (CVA) 4,788 6,313 383 ---------------------------------------- ------------- ----------- ---------------- 13 Settlement risk - - - ---------------------------------------- ------------- ----------- ---------------- Securitisation exposures in the banking book (after 14 the cap) 49,700 52,504 3,976 ---------------------------------------- ------------- ----------- ---------------- 18 Of which Standardised Approach 49,700 52,504 3,976 ---------------------------------------- ------------- ----------- ---------------- 19 Market risk - 61,712 - ---------------------------------------- ------------- ----------- ---------------- Of which the Standardised 20 Approach - 61,712 - ---------------------------------------- ------------- ----------- ---------------- 22 Large exposures - - - ---------------------------------------- ------------- ----------- ---------------- 23 Operational risk 1,538,588 1,538,588 123,087 ---------------------------------------- ------------- ----------- ---------------- 25 Of which Standardised Approach 1,538,588 1,538,588 123,087 ---------------------------------------- ------------- ----------- ---------------- Amounts below the thresholds for deduction (subject to 27 250% risk weight) 315,220 315,220 25,218 ---------------------------------------- ------------- ----------- ---------------- 29 Total 13,757,700 13,962,068 1,100,617 ---------------------------------------- ============= =========== ================
The overall decrease in total RWA was mainly driven from 'Credit Risk ((excluding Counterparty Credit Risk (CCR))' observed in line 1 from the (a) the improved overall RW efficiency of customer advances mainly from curing and repayments/settlements in regulatory high risk and NPEs which attract higher RWs, and (b) the decreased balance sheet values of properties held for sale and other assets. Further analysis can be observed in table F.12.3 below. The decrease in CCR RWA observed in line 6 is the result of decreased derivative and securities financing transactions exposure values. The decrease in line 19 results from the reversal of the forex position created from the sale of Helix and Velocity portfolio of loans in June 2019. The decrease in RWA in line 14, Securitisation exposures in the banking book, is the result of the decreased balance sheet position held in the Helix transaction.
There were no large exposures for institutions that exceeded the relevant limits.
F.12.3 Standardised approach - Credit risk exposure and Credit Risk Mitigation (CRM) effects
The table below illustrates the analysis of RWA and RWA density of all exposure classes that comprise the RWA reported in lines 1 and 27 of table F.12.2.
30 September 2019 31 December 2018 RWAs and RWA density RWAs and RWA density ------------------------- ------------------------- Exposure classes RWAs RWA density RWAs RWA density ----------- ------------ ----------- ------------ EUR000 % EUR000 % ----------- ------------ ----------- ------------ Central governments or central banks 382,627 6.8% 333,243 6.1% ----------- ------------ ----------- ------------ Regional government or local authorities 1,395 2.0% 701 1.2% ----------- ------------ ----------- ------------ Public sector entities 8 0,0% 7 0.0% ----------- ------------ ----------- ------------ Multilateral development banks - 0.0% - 0.0% ----------- ------------ ----------- ------------ International organisations - 0.0% - 0.0% ----------- ------------ ----------- ------------ Institutions 197,146 28.9% 177,904 29.8% ----------- ------------ ----------- ------------ Corporates 3,294,637 99.4% 3,016,593 98.8% ----------- ------------ ----------- ------------ Retail 971,652 71.1% 987,312 71.1% ----------- ------------ ----------- ------------ Secured by mortgages on immovable property 1,160,936 37.5% 1,077,148 37.4% ----------- ------------ ----------- ------------ Exposures in default 2,293,058 108.9% 3,695,591 110.8% ----------- ------------ ----------- ------------ Higher-risk categories 1,452,932 150.0% 2,032,341 150.0% ----------- ------------ ----------- ------------ Covered bonds 16,776 10.0% 14,153 10.0% ----------- ------------ ----------- ------------ Collective investment undertakings (CIUs) 191 100.0% 172 100.0% ----------- ------------ ----------- ------------ Equity 330,164 234.1% 254,220 229.9% ----------- ------------ ----------- ------------ Other items 2,051,307 93.7% 2,220,345 92.4% ----------- ------------ ----------- ------------ Total 12,152,829 60.5% 13,809,730 65.6% =========== ============ =========== ============
The main driver behind the overall decrease in the RWA density is the sale of projects Helix and Velocity whereby the exposures in exposure classes 'Exposures in default', 'Higher-risk categories' and 'Other items' which carry high risk weights materially decreased. On 1 March 2019 the Cyprus Parliament adopted legislative amendments allowing for the conversion of deferred tax assets into deferred tax credits for regulatory capital purposes, under the CRR. The law amendment increased the RWA density in exposure classes 'Central governments or central banks' which include the deferred tax asset amounts converted to deferred tax credits carrying a Risk Weight of 100% and 'Equity' which include the FSE amounts carrying a Risk Weight of 250%. The law amendment and the increased exposure values from Balance Sheet line 'Other assets' that take a 100% Risk Weight included in exposure class 'Other items' resulted in the overall increased RWA density. The slight decrease in the RWA density at individual class level observed in 'Institutions' derives from improved ratings and decreases in residual maturities whilst the RWA increased from increased carrying amounts with 'Institutions'. New lending and curing, mainly to customers, which do not benefit from the SME supporting factor under article 501 of the CRR led to increased RWA and RWA density in exposure class 'Corporates'. The decrease observed in the RWA density in "Exposures in default' is the result of more eligible real estate collateral covering the NPE and increased credit adjustments ratio for their unsecured part.
The RWA density of all other exposure classes remained stable.
F.13 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 September 31 December 2019 2018 Transitional basis EUR000 EUR000 ------------- ------------ Capital measure (Tier 1) 2,317,985 2,084,000 ============= ============ Total exposure measure 21,088,020 22,052,298 ============= ============ Leverage ratio (%) 10.99% 9.45% ============= ============ IFRS 9 fully loaded ------------- ------------ Capital measure (Tier 1) 2,055,530 1,745,473 ============= ============ Total exposure measure 20,871,880 21,893,785 ============= ============ Leverage ratio (%) 9.85% 7.97% ============= ============
The decrease in the 'Total exposure measure' follows the movements in the Group's balance sheet assets.
For the 'Capital measure' the increase in Tier1 is primarily driven by the tax legislation amendments relating to the conversion of deferred tax assets into deferred tax credits.
The leverage ratio, including the profit (prudential consolidation) of EUR123,832 thousand for the nine month period ended 30 September 2019, is calculated at 10.99% on a transitional basis and 9.85% on IFRS 9 fully loaded basis.
F.14 Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Assessment Process (ILAAP), Pillar II and SREP
The Group prepares the ICAAP and ILAAP reports annually. Both reports for 2018 were approved by the Board of Directors and submitted to the ECB on 25 April 2019.
The Group also undertakes a quarterly review of its ICAAP results (as at the end of June and as at the end of September) 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 under the Normative internal perspective. Under the Economic internal perspective there are shortfalls in the adverse scenario, which however can be largely neutralised by the available mitigants.
The Group also undertakes a quarterly review for the ILAAP through quarterly stress tests submitted to the ALCO and RC. 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-ons capital requirements are a point-in-time assessment and therefore subject to change over time. Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2019 , the Group received a pre-notification in September 2019 that the Group's minimum phased-in CET1 capital ratio and Total Capital ratio remain unchanged, when ignoring the phasing-in of the Other Systemically Important Institution Buffer.
The EBA final guidelines on SREP and supervisory stress testing and the Single Supervisory Mechanism's (SSM) 2018 SREP methodology provide that own funds held for the purposes of Pillar II Guidance cannot be used to meet any other capital requirements (Pillar 1, Pillar II requirement or the combined buffer requirements), and therefore cannot be used twice. Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2019 and based on the pre-notification received in September 2019, the new provisions are expected to be effective from January 2020 and remain subject to ECB final confirmation.
The Group has been informed that it has been selected to participate in the ECB SREP stress test of 2020 which is expected to be launched by end of January 2020 and be concluded by end of July 2020.
G. Definitions & Explanations
Reconciliations
1. Reconciliation of Gross loans and advances to customers 30 September 31 December 2019 2018 EUR000 EUR000 ============= ============ Gross loans and advances to customers (as defined below) 13,034,814 15,900,427 ============= ============ Reconciling items: ============= ============ Fair value adjustment on initial recognition (Section F.4)* (277,900) (322,375) ============= ============ Loans and advances to customers classified as non-current assets held for sale - (2,711,960) ============= ============ Fair value adjustment on initial recognition on loans and advances to customers classified as non-current assets held for sale - (139,153) ============= ============ Reclassification between gross loans and allowance for expected credit losses on loans and advances to customers classified as held for sale - 99,000 ============= ============ Loans and advances to customers measured at fair value through profit and loss (Section F.3) (370,510) (395,572) ------------- ------------ Gross loans and advances to customers at amortised cost as per section F.3 12,386,404 12,430,367 ============= ============
* Including fair value adjustment on initial recognition of loans and advances to customers measured at fair value through profit and loss amounting to EUR59,043 thousand (31 December 2018: EUR60,326 thousand).
2. Reconciliation of Allowance for expected credit losses on loans and advances to customers (ECL)
30 September 31 December 2019 2018 EUR000 EUR000 ============= ============ Allowance for expected credit losses on loans and advances to customers (as defined below) 2,086,268 3,852,218 ============= ============ Reconciling items: ============= ============ Fair value adjustment on initial recognition* (277,900) (322,375) ============= ============ Loans and advances to customers classified as non-current assets held for sale - (1,557,852) ============= ============ Fair value adjustment on initial recognition on loans and advances to customers classified as non-current assets held for sale - (139,153) ============= ============ Reclassification between gross loans and allowance for expected credit losses on loans and advances to customers classified as held for sale - 99,000 ============= ============ Provisions for financial guarantees and commitments (22,377) (27,685) ------------- ------------ Allowance for ECL of loans and advances to customers as per section F.3 1,785,991 1,904,153 ============= ============
* Including fair value adjustment on initial recognition of loans and advances to customers measured at fair value through profit and loss amounting to EUR59,043 thousand (31 December 2018: EUR60,326 thousand).
3. Reconciliation of NPEs 30 September 31 December 2019 2018 EUR000 EUR000 ============= ============ NPEs (as defined below and as per Section F.8) 4,084,917 7,418,613 ============= ============ Reconciling items: ============= ============ Loans and advances to customers classified as non-current assets held for sale - (2,613,603) ============= ============ Fair value adjustment on initial recognition on loans and advances to customers classified as non-current assets held for sale - (135,697) ============= ============ Reclassification between gross loans and allowance for expected credit losses on loans and advances to customers classified as held for sale - 99,000 ============= ============ Loans and advances to customers measured at fair value through profit and loss (NPE) (144,288) (160,907) ============= ============ POCI (NPE) (568,589) (691,815) ------------- ------------ Stage 3 loans and advances to customers as per section F.5 3,372,040 3,915,591 ============= ============ NPE ratio ============= ============ NPEs (as per table above) (EUR000) 4,084,918 7,418,613 ============= ============ Gross loans and advances to customers (as per table above) (EUR000) 13,034,814 15,900,427 ============= ============ Ratio of NPE/Gross loans (%) 31.3% 46.7% ============= ============
Ratios Information
1. Net Interest Margin
Reconciliation of the various components of net interest margin from the underlying basis to the statutory basis is provided below:
Nine months ended 30 September 2019 2018 (represented) ======== =============== 1.1. Reconciliation of Net interest income EUR000 EUR000 ======== =============== Net interest income as per the underlying basis 260,047 249,744 ======== =============== Reclassifications for: ======== =============== Net interest income relating to the NPE sale (Helix), disclosed under non-recurring items within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis 33,962 66,315 -------- --------------- Net interest income as per the Unaudited Interim Consolidated Income Statement 294,009 316,059 ======== =============== Net interest income (annualised) 347,682 333,907 ======== =============== 1.2. Interest earning assets 30 September 30 June 31 March 31 December 2019 2019 2019 2018 EUR000 EUR000 EUR000 EUR000 ============= =========== =========== ============ Cash and balances with central banks 4,412,542 5,261,896 3,913,391 4,610,491 ============= =========== =========== ============ Loans and advances to banks 427,966 403,041 448,043 472,532 ============= =========== =========== ============ Loans and advances to customers 10,970,923 10,949,002 10,954,529 10,921,786 ============= =========== =========== ============ Loans and advances to customers held for sale - 5,891 1,108,440 1,154,108 ============= =========== =========== ============ Investments ============= =========== =========== ============ Debt securities 1,808,891 1,720,231 1,556,668 1,364,743 ============= =========== =========== ============ Less: Investment which is not interest bearing (22,345) (13,563) (10,181) (8,606) ------------- ----------- ----------- ------------ Total interest earning assets 17,597,977 18,326,498 17,970,890 18,515,054 ============= =========== =========== ============ 1.3. Quarterly average interest earning assets (EUR000) ============= =========== =========== ============ * as at 30 September 2019 18,102,605 ============= =========== =========== ============ * as at 30 September 2018 18,109,088 ============= =========== =========== ============ 2. Operating profit return on average assets
The various components used in the determination of the operating profit return on average assets are provided below:
30 September 30 June 31 March 31 December 2019 2019 2019 2018 EUR000 EUR000 EUR000 EUR000 ============= =========== =========== ============ Total assets used in the computation of the operating profit return on average assets/per the Unaudited Interim Consolidated Balance Sheet 21,114,340 21,887,186 21,745,438 22,075,271 ============= =========== =========== ============ 30 September 30 September 2019 2018 (represented) EUR000 EUR000 ============= =============== Annualised operating profit 251,676 278,323 ============= =============== Quarterly average total assets 21,705,559 21,575,953 ============= =============== Accelerated Following the Regulation (EU) 2016/445 of the ECB phase-in period of 14 March 2016 on the exercise of options and discretions, the DTA was phasing-in by 60% for 2017, 80% for 2018 and 100% for 2019 (fully phased-in). Allowance for Comprise (i) allowance for expected credit losses expected loan (ECL) on loans and advances to customers, (ii) the credit losses fair value adjustment on initial recognition of loans (previously and advances to customers, (iii) allowance for expected 'Accumulated credit losses for off-balance sheet exposures (financial provisions') guarantees 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. Advisory and Comprise mainly: fees of external advisors in relation other restructuring to: (i) disposal of operations and non-core assets, costs and (ii) customer loan restructuring activities AT1 AT1 (Additional Tier 1) is defined in accordance with Articles 51 and 52 of the Capital Requirements Regulation (EU) No 575/2013. CET1 capital CET1 capital ratio (transitional basis) is defined ratio (transitional in accordance with the Capital Requirements Regulation basis) (EU) No 575/2013. CET1 fully loaded The CET1 fully loaded (FL) ratio is defined in accordance (FL) with the Capital Requirements Regulation (EU) No 575/2013. Contribution Relates to the contribution made to the Single Resolution to SRF Fund. Cost to Income Cost-to-income ratio comprises total expenses (as ratio defined) divided by total income (as defined). Data from the The latest data from the Statistical Service of the Statistical Republic of Cyprus, Cyprus Statistical Service, was Service published on 18 November 2019. ECB European Central Bank Gross loans Gross loans are reported before the fair value adjustment on initial recognition relating to loans acquired from Laiki Bank (calculated as the difference between the outstanding contractual amount and the fair value of loans acquired) amounting to EUR278 mn at 30 September 2019 (compared to EUR290 mn at 30 June 2019 and EUR462 mn at 31 December 2018). Additionally, gross loans (i) include loans and advances to customers measured at fair value through profit and loss of EUR430 mn at 30 September 2019 (compared to EUR454 mn at 30 June 2019 and EUR456 mn as at 31 December 2018), and (ii) are reported after the reclassification between gross loans and expected credit losses on loans and advances to customers classified as a disposal group held for sale of Nil as at 30 September 2019 and 30 June 2019 (compared to EUR99 mn at 31 December 2018). Group The Group consists f Bank of Cyprus Holdings Public Limited Company, "BOC Holdings" or the "Company", its subsidiary Bank of Cyprus Public Company Limited, the "Bank" and the Bank's subsidiaries. Leverage ratio The leverage ratio is the ratio of tangible total equity (including Other equity instruments) to total assets as presented on the balance sheet. Loan credit Loan credit losses comprise: (i) credit losses to losses (PL) cover credit risk on loans and advances to customers, (previously (ii) net gains on derecognition of financial assets 'Provision charge') measured at amortised cost and (iii) net gains on loans and advances to customers at FVPL. Loan credit Loan credit losses charge (cost of risk) (year to losses charge date) is calculated as the annualised 'loan credit (previously losses' (as defined) divided by average gross loans
'Provisioning (the average balance is calculated as the average charge') (cost of the opening balance and the closing balance). of risk) Market Shares Both deposit and loan market shares are based on data from the Central Bank of Cyprus. The Bank is the single largest credit provider in Cyprus with a market share of 40.8% at 30 September 2019, compared to 41.3% at 30 June 2019, 46.7% at 31 March 2019, 45.4% at 31 December 2018 and as at 30 September 2018, 38.6% at 30 June 2018 and 37.4% at 31 March 2018. The market share on loans was affected as at 30 June 2019 following the derecognition of the Helix portfolio upon the completion of Project Helix announced on 28 June 2019. The market share on loans was affected during the quarter ended 31 March 2019 following a decrease in total loans in the banking sector of EUR1 bn, mainly attributed to reclassification, revaluation, exchange rate and other adjustments (CBC). The market share on loans was affected as at 30 September 2018 following a decrease in total loans in the banking sector, mainly attributed to EUR6 bn non-performing loans of Cyprus Cooperative Bank (CyCB) which remained to SEDIPES as a result of the agreement between CyCB and Hellenic Bank. The market share on loans was affected as at 30 June 2018 following a decrease in total loans in the banking sector of EUR2.1 bn, due to loan reclassifications, revaluations, exchange rate or other adjustments (CBC). Net fee and Fee and commission income less fee and commission commission income expense divided by total income (as defined). over total income Net Interest Net interest margin is calculated as the net interest Margin income (annualised) divided by the quarterly average interest earning assets. Average interest earning assets exclude interest earning assets of any discontinued operations at each quarter end, if applicable. Interest earning assets include: cash and balances with central banks, plus loans and advances to banks, plus net loans and advances to customers, plus investments (excluding equities and mutual funds). Net loans and Comprise gross loans (as defined) net of allowance advances to for expected loan credit losses (as defined, but excluding customers credit losses on off-balance sheet exposures). Net loan to Net loan to deposit ratio is calculated as gross loans deposit ratio (as defined) net of allowance for expected loan credit losses (as defined) divided by customer deposits. Net Stable Funding The NSFR is calculated as the amount of "available Ratio (NSFR) stable funding" (ASF) relative to the amount of "required stable funding" (RSF), on the basis of Basel III standards. Its calculation is a SREP requirement. The European Banking Authority (EBA) is working on finalising the NSFR and enforcing it as a regulatory ratio under CRR2, currently expected in 2021. New lending New lending includes the average YTD change (if positive) for overdraft facilities. Non-interest Non-interest income comprises Net fee and commission income income, Net foreign exchange gains and 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 and on disposal of stock of properties, and Other income. Non-performing According to the EBA reporting standards on forbearance exposures (NPEs) and non-performing exposures (NPEs), published in 2014, ECB's Guidance to Banks on Non-Performing Loans published in March 2017 and EBA Guidelines on management of non-performing and forborne exposures published in October 2018 and applicable from June 2019, a loan is considered an NPE if: (i) the debtor is assessed as unlikely to pay its credit obligations in full without the realisation of the collateral, regardless of the existence of any past due amount or of the number of days past due, or (ii) the exposures are impaired, or (iii) there are material exposures which are more than 90 days past due, or (iv) there are performing forborne exposures under probation for which additional forbearance measures are extended, or (v) there are performing forborne exposures under probation that present more than 30 days past due within the probation period. The NPEs are reported before the deduction of allowance for expected loan credit losses (as defined). Non-recurring Non-recurring items as presented in the 'Interim Condensed items Consolidated Income Statement - Underlying basis' relate to: (i) advisory and other restructuring costs, (ii) discontinued operations (UK sale), (iii) profit/(loss) relating to NPE sale (Helix), (iv) loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates, and (v) reversal of impairment of DTA and impairment of other tax receivables. NPE coverage The NPE coverage ratio is calculated as the allowance ratio (previously for expected loan credit losses (as defined) over 'NPE Provisioning NPEs (as defined). coverage ratio') NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as defined) divided by gross loans (as defined). Operating profit Comprises profit before Total loan credit losses, impairments and provisions (as defined), tax, (profit)/loss attributable to non-controlling interests and non-recurring items (as defined). Operating profit Operating profit return on average assets is calculated return on average as the annualised operating profit (as defined) divided assets by the quarterly average of total assets for the relevant period. Average total assets exclude total assets of discontinued operations at each quarter end, if applicable. Phased-in Capital In accordance with the legislation in Cyprus which Conservation has been set for all credit institutions, the applicable Buffer (CCB) rate of the CCB is 1.25% for 2017, 1.875% for 2018 and 2.5% for 2019 (fully phased-in). Pro forma for Includes the impact from the completion of the sale CNP of the investment in CNP Pro forma for Includes the impact from the completion of the sale CNP and VEP of the investment in CNP and the Voluntary Staff Exit Plan (VEP) Pro forma for Includes the impact from the completion of Project Helix Helix, as well as the impact from the agreement for the sale of a portfolio of retail unsecured NPEs, with gross book value EUR33 mn as at 31 March 2019, known as Project Velocity. Profit/(loss) Excludes non-recurring items (as defined) after tax and before non-recurring items Profit/(loss) Profit/(loss) after tax and before 'non-recurring after tax - items' as defined, except for the "Advisory and other Organic restructuring costs - excluding discontinued operations and NPE sale (Helix)". Quarterly average Average of interest earning assets as at the beginning interest earning and end of the relevant quarter. Interest earning assets assets include: cash and balances with central banks, plus loans and advances to banks, plus net loans and advances to customers, plus investments (excluding equities and mutual funds). Qoq Quarter on quarter change Special levy Relates to the special levy on deposits of credit institutions in Cyprus.
Total Capital Total capital ratio is defined in accordance with ratio the Capital Requirements Regulation (EU) No 575/2013. Total expenses Total expenses comprise staff costs, other operating expenses and the special levy and contribution to the Single Resolution Fund. It does not include 'advisory and other restructuring costs-excluding discontinued operations and NPE sale (Helix)' or any restructuring costs relating to NPE sale (Helix). 'Advisory and other restructuring costs-excluding discontinued operations and NPE sale (Helix)' for 3Q2019 were EUR9 mn, compared to EUR5 mn for 2Q2019. 'Advisory and other restructuring costs-excluding discontinued operations and NPE sale (Helix)' for 9M2019 were EUR21 mn, compared to EUR26 mn for 9M2018. Restructuring costs relating to NPE sale (Helix) for 3Q2019 were EUR1 mn, compared to EUR7 mn for 2Q2019. Restructuring costs relating to NPE sale (Helix) for 9M2019 were EUR9 mn, compared to EUR17 mn for 9M2018. Total income Total income comprises net interest income and non-interest income (as defined). Total loan credit Total loan credit losses, impairments and provisions losses, impairments comprises loan credit losses (as defined), plus (provisions)/reversal and provisions of provisions for litigation, regulatory and other matters plus (impairments)/reversal of impairments of other financial and non-financial assets. Underlying basis Statutory basis adjusted for certain items as explained in the Basis of Presentation. Write offs Loans together with the associated loan credit losses are written off when there is no realistic prospect of future recovery. Partial write-offs, including non-contractual write-offs, may occur when it is considered that there is no realistic prospect for the recovery of the contractual cash flows. In addition, write-offs may reflect restructuring activity with customers and are part of the terms of the agreement and subject to satisfactory performance. Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings Public Limited Company, "BOC Holdings" or "the Company", its subsidiary Bank of Cyprus Public Company Limited, the "Bank" or "BOC PCL", and together with the Bank's subsidiaries, the "Group", for the nine months ended 30 September 2019.
At 31 December 2016, the Bank was listed on the Cyprus Stock Exchange (CSE) and the Athens Exchange. On 18 January 2017, BOC Holdings, incorporated in Ireland, was introduced in the Group structure as the new holding company of the Bank. On 19 January 2017, the total issued share capital of BOC Holdings was admitted to listing and trading on the LSE and the CSE.
Financial information presented in this announcement is being published for the purposes of providing an overview of the Group financial results for the nine months ended 30 September 2019. The financial information in this announcement does not constitute statutory financial statements of BOC Holdings within the meaning of section 340 of the Companies Act 2014. The Group statutory financial statements for the year ended 31 December 2018, upon which the auditors have given an unqualified report, were published on 28 March 2019 and have been annexed to the annual return and delivered to the Registrar of Companies of Ireland. The Board of Directors approved the Group financial results for the nine months ended 30 September 2019 on 25 November 2019.
Statutory basis: Statutory information is set out on pages 22-52. However, a number of factors have had a significant effect on the comparability of the Group's financial position and results. Accordingly, the results are also presented on an underlying basis.
Underlying basis: The statutory results are adjusted for certain items (as described on pages 28-29) to allow a comparison of the Group's underlying performance, as set out on pages 4-5.
The financial information included in this announcement is neither reviewed nor audited by the Group's external auditors.
This announcement and the presentation for the Group Financial Results for the nine months ended 30 September 2019 have been posted on the Group's website www.bankofcyprus.com (Investor Relations/Financial Results).
Definitions: The Group uses a number of definitions in the discussion of its business performance and financial position which are set out in section G.
The Group Financial Results for the nine months ended 30 September 2019 are presented in Euro (EUR) and all amounts are rounded as indicated. A comma is used to separate thousands and a dot is used to separate decimals.
Forward Looking Statements
This document contains certain forward-looking statements which can usually be identified by terms used such as "expect", "should be", "will be" and similar expressions or variations thereof or their negative variations, but their absence does not mean that a statement is not forward-looking. Examples of forward-looking statements include, but are not limited to, statements relating to the Group's near term and longer term future capital requirements and ratios, intentions, beliefs or current expectations and projections about the Group's future results of operations, financial condition, expected impairment charges, the level of the Group's assets, liquidity, performance, prospects, anticipated growth, provisions, impairments, business strategies and opportunities. By their nature, forward-looking statements involve risk and uncertainty because they relate to events, and depend upon circumstances, that will or may occur in the future. Factors that could cause actual business, strategy and/or results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements made by the Group include, but are not limited to: general economic and political conditions in Cyprus and other European Union (EU) Member States, interest rate and foreign exchange fluctuations, legislative, fiscal and regulatory developments and information technology, litigation and other operational risks. Should any one or more of these or other factors materialise, or should any underlying assumptions prove to be incorrect, the actual results or events could differ materially from those currently being anticipated as reflected in such forward looking statements. The forward-looking statements made in this document are only applicable as from the date of publication of this document. Except as required by any applicable law or regulation, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statement contained in this document to reflect any change in the Group's expectations or any change in events, conditions or circumstances on which any statement is based.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial services group in Cyprus, providing a wide range of financial products and services which include retail and commercial banking, finance, factoring, investment banking, brokerage, fund management, private banking, life and general insurance. The Bank of Cyprus Group operates through a total of 108 branches in Cyprus, of which 11 operate as cash offices. Bank of Cyprus also has representative offices in Russia, Ukraine and China. The Bank of Cyprus Group employs 4,134* staff worldwide. At 30 September 2019, the Group's Total Assets amounted to EUR21.1 bn and Total Equity was EUR2.5 bn. The Bank of Cyprus Group comprises Bank of Cyprus Holdings Public Limited Company, its subsidiary Bank of Cyprus Public Company Limited and its subsidiaries.
*The Bank of Cyprus Group employed 4,134 staff worldwide as at 30 September 2019. The number of staff has been reduced by c.470 employees following the completion of a voluntary staff exit plan in October 2019.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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