Annual Financial Report 2019
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report
for the year ended 31 December 2019
Annual Financial Report 2019
Contents
Board of Directors and Executives
Forward Looking Statements and Notes
Directors' Report of Bank of Cyprus Holdings Public Limited Company
Consolidated Financial Statements of Bank of Cyprus Holdings Group
Independent Auditor’s Report to the Members of Bank of Cyprus Holdings Public Limited
Company on the Consolidated Financial Statements and the Company Financial Statements
Financial Statements of the Bank of Cyprus Holdings Public Limited Company
Annual Corporate Governance Report
Additional Risk and Capital Management Disclosures
Definitions and explanations on Alternative Performance Measures Disclosures
Page
1
2
3
51
289
300
316
370
391
BANK OF CYPRUS HOLDINGS GROUP
Board of Directors and Executives
as at 28 April 2020
Annual Financial Report 2019
Board of Directors of Bank of Cyprus
Holdings Public Limited Company
Efstratios-Georgios Arapoglou (elected as Chairman on 14 May 2019)
CHAIRMAN
Executive Committee
Maksim Goldman
VICE CHAIRMAN
Arne Berggren
Lyn Grobler
Dr. Michael Heger
Panicos Nicolaou (appointed 1 September 2019)
Dr. Christodoulos Patsalides
Ioannis Zographakis
Anat Bar-Gera
Maria Philippou
Paula Hadjisotiriou
Panicos Nicolaou
CHIEF EXECUTIVE OFFICER
Dr. Christodoulos Patsalides
FIRST DEPUTY CHIEF EXECUTIVE OFFICER
Dr. Charis Pouangare
DEPUTY CHIEF EXECUTIVE OFFICER
Eliza Livadiotou
EXECUTIVE DIRECTOR FINANCE
Demetris Demetriou
CHIEF RISK OFFICER
George Tziortzis
ACTING CHIEF INFORMATION OFFICER
Michalis Athanasiou
EXECUTIVE DIRECTOR GLOBAL CORPORATE BANKING & MARKETS
Louis Pochanis
EXECUTIVE DIRECTOR INSURANCE BUSINESS
Panicos Mouzouris
EXECUTIVE DIRECTOR RESTRUCTURING AND RECOVERIES DIVISION
Anna Sofroniou
EXECUTIVE DIRECTOR REAL ESTATE MANAGEMENT UNIT
Nicolas Scott Smith
EXECUTIVE DIRECTOR CORPORATE FINANCE SOLUTIONS
Company Secretary
Legal Advisers as to matters of Irish
Law
Legal Advisers as to matters of
English and US Law
Legal Advisers as to matters of
Cypriot Law
Statutory Auditors
Registered Office
Katia Santis
Arthur Cox
Sidley Austin LLP
Chryssafinis & Polyviou LLC
PricewaterhouseCoopers,
One Spencer Dock,
North Wall Quay,
Dublin 1,
Ireland,
D01 X9R7
10 Earlsfort Terrace
Dublin 2
D02 T380
Ireland
1
BANK OF CYPRUS HOLDINGS GROUP
Forward Looking Statements and Notes
Annual Financial Report 2019
This document contains certain forward-looking statements which can usually be identified by terms used
such as 'expect', 'should be', 'will be' and similar expressions or variations thereof or their negative
variations, but their absence does not mean that a statement is not forward-looking. Examples of forward-
looking statements include, but are not limited to, statements relating to the Bank of Cyprus Holdings
Group's (the Group) near term and longer term future capital requirements and ratios, intentions, beliefs or
current expectations and projections about the Group’s future results of operations, financial condition,
expected impairment charges, the level of the Group’s assets, liquidity, performance, prospects, anticipated
growth, provisions, impairments, business strategies and opportunities. By their nature, forward-looking
statements involve risk and uncertainty because they relate to events, and depend upon circumstances,
that will or may occur in the future. Factors that could cause actual business, strategy and/or results to
differ materially from the plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements made by the Group include, but are not limited to: general economic and
political conditions in Cyprus and other European Union (EU) Member States, interest rate and foreign
exchange fluctuations, legislative, fiscal and regulatory developments and information technology, litigation
and other operational risks. Should any one or more of these or other factors materialise, or should any
underlying assumptions prove to be incorrect, the actual results or events could differ materially from those
currently being anticipated as reflected in such forward looking statements. The forward-looking statements
made in this document are only applicable as from the date of publication of this document. Except as
required by any applicable law or regulation, the Group expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward looking statement contained in this document to
reflect any change in the Group’s expectations or any change in events, conditions or circumstances on
which any statement is based.
Non-IFRS performance measures
Bank of Cyprus Holdings Public Limited Company (the 'Company') management believes that the non-IFRS
performance measures included in this document provide valuable information to the readers of the Annual
Financial Report as they enable the readers to identify a more consistent basis for comparing the Group’s
performance between financial periods and provide more detail concerning the elements of performance
which management is most directly able to influence or are relevant for an assessment of the Group. They
also reflect an important aspect of the way in which the operating targets are defined and performance is
monitored by the Group’s management. However, any non-IFRS performance measures in this document
are not a substitute for IFRS measures and readers should consider the IFRS measures as the key measures
of the 31 December position. Refer to ‘Definitions and explanations on Alternative Performance Measures
Disclosures’ on pages 391 to 401 of the Annual Financial Report for the year ended 31 December 2019 for
further information, reconciliations with Consolidated Financial Statements and calculations of non-IFRS
performance measures included throughout this document and the most directly comparable IFRS
measures.
The Annual Financial Report for the year ended 31 December 2019 is available on the Group’s website
www.bankofcyprus.com (Investor Relations/Annual Reports).
2
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
The Board of Directors submits to the shareholders of Bank of Cyprus Holdings Public Limited Company (the
Company) their Directors' Report together with the audited Consolidated Financial Statements
(Consolidated Financial Statements) and Financial Statements of the Company for the year ended 31
December 2019.
The Annual Financial Report relates to the Company and together with its subsidiaries the Group, which was
listed on the London Stock Exchange (LSE) and the Cyprus Stock Exchange (CSE) as at 31 December 2019.
Activities
The Company is the holding company of the Group and the sole shareholder of Bank of Cyprus Public
Company Ltd (BOC PCL). The principal activities of BOC PCL and its subsidiary companies involve the
provision of banking, financial services, insurance services and management and disposal of property
predominately acquired in exchange of debt.
All Group companies and branches are set out in Note 52 of the Consolidated Financial Statements. The
Group has established branches in Greece. Acquisitions and disposals made during the year 2019 are
detailed in Notes 52, 53 and 54 of the Consolidated Financial Statements.
Group financial results on the underlying basis
Commentary on underlying basis
The financial information presented below provides an overview of the Group financial results for the year
ended 31 December 2019 on the ‘underlying basis’ which the management believes it best fits the true
measurement of the performance and position of the Group. Reconciliations are included in section
‘Unaudited reconciliation of the Income Statement for the year ended 31 December 2019 between statutory
basis and underlying basis’ below and in ‘Definitions and explanations on Alternative Performance Measures
Disclosures’ of this Annual Financial Report for the year ended 31 December 2019 to allow for the
comparability of the underlying basis to statutory information.
3
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Group financial results on the underlying basis (continued)
The main financial highlights for 2019 are set out below:
Unaudited Consolidated Income Statement on the underlying basis
€ million
Net interest income
Net fee and commission income
Net foreign exchange gains and net gains on financial instruments
transactions and disposal/dissolution of subsidiaries and associates
Insurance income net of insurance claims and commissions
Net gains from revaluation and disposal of investment properties and
on disposal of stock of properties
Other income
Total income
Staff costs
Other operating expenses
Special levy on deposits on credit institutions in Cyprus and
contribution to Single Resolution Fund (SRF)
Total expenses
Operating profit
Loan credit losses
Impairments of other financial and non-financial assets
Provisions for litigation, claims, regulatory and other matters
Total loan credit losses, impairments and provisions
Profit before tax and non-recurring items
Tax
Profit attributable to non-controlling interests
Profit after tax and before non-recurring items (attributable
to the owners of the Company)
Advisory and other restructuring costs-organic
Profit after tax - organic (attributable to the owners of the
Company)
Restructuring costs - Voluntary Staff Exit Plan (VEP)
Provisions/net loss relating to NPE sales3
(Loss)/profit on remeasurement of investment in associate upon
classification as held for sale (CNP) net of share of profit from
associates
Reversal of impairment/(impairment) of deferred tax assets (DTA)
and impairment of other tax receivables
Profit from discontinued operations (UK)
Loss after tax (attributable to the owners of the Company)
20191,4
344
150
38
58
32
29
651
(220)
(165)
(25)
(410)
241
(146)
(22)
(10)
(178)
63
(3)
(2)
58
(22)
36
(81)
(92)
(21)
88
-
(70)
2018
(represented)1,2,4
331
162
67
53
18
26
657
(212)
(156)
(25)
(393)
264
(135)
(20)
(23)
(178)
86
3
(1)
88
(42)
46
-
(83)
9
(79)
3
(104)
4
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Group financial results on the underlying basis (continued)
Unaudited Consolidated Income Statement on the underlying basis (continued)
Key Performance Ratios
Net interest margin
Cost to income ratio
Cost to income ratio excluding special levy and contribution to SRF
Operating profit return on average assets
Basic loss per share attributable to the owners of the Company
(€ cent)
20191
20181,2
%1.90
%63
%59
%1.1
%1.82
%60
%56
%1.2
(15.75)
(23.21)
1The interest income, non-interest income, staff costs, other operating expenses and loan credit losses
related to Project Helix are disclosed under 'Provisions/net loss relating to NPE sales' in the underlying basis
in order to separate out the impact of this non-recurring transaction.
2Reclassifications to comparative information were made for unrecognised interest on previously credit
impaired loans which cured during the year ended 31 December 2018, amounting to €33 million. 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 took place in November 2018 (Presentation of
unrecognised interest following the curing of a credit impaired financial asset (IFRS 9)).
3'Provisions/net loss relating to NPE sales' refer to the net loss on transactions completed during 2019, net
loan credit losses on transactions under consideration at 31 December 2019, as well as the restructuring
costs relating to these trades. For further details refer to section Income Statement Analysis/Loss after tax
(attributable to the owners of the Company).
4The financial information is extracted from the published accounts. This information should be read with
the information included in the accompanied Consolidated Financial Statements.
The following changes were made in the underlying basis, when compared with the prior year disclosures
for the year end 2018.
Project Helix (from Unaudited Consolidated Income Statement, footnote 1)
Reclassifications effected to comparative information were made so that items relating to the NPE sale
(Project Helix) are disclosed under non-recurring items within 'Provisions/net (loss)/profit relating to NPE
sales' under the underlying basis. Specifically, net interest income of €89 million, fee and commission
income of €4 million, total expenses of €26 million (comprising staff costs of €5 million, operating expenses
of €2 million and restructuring costs of €19 million), as well as loan credit losses of €150 million, relating to
the year ended 31 December 2018, are disclosed under non-recurring items within 'Provisions/net loss
relating to NPE sales' under the underlying basis.
Reclassifications to current year information for items relating to the NPE sale (Project Helix) are disclosed
under non-recurring items within 'Provisions/net (loss)/profit relating to NPE sales' under the underlying
basis. These are disclosed in Section ‘Unaudited reconciliation of the Income Statement for the year ended
31 December 2019 between statutory basis and underlying basis’.
IFRIC (from Unaudited Consolidated Income Statement, footnote 2)
Reclassifications to comparative information were also made for unrecognised interest on previously credit
impaired loans which cured during the year ended 31 December 2018, amounting to €33 million. 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 took place in November 2018 (Presentation of
unrecognised interest following the curing of a credit impaired financial asset (IFRS 9)).
5
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Group financial results on the underlying basis (continued)
Unaudited Consolidated Balance Sheet underlying basis
€ million
Cash and balances with central banks
Loans and advances to banks
Debt securities, treasury bills and equity investments
Net loans and advances to customers
Stock of property
Investment properties
Other assets
Non-current assets and disposal groups held for sale
Total assets
Deposits by banks
Funding from central banks
Repurchase agreements
Customer deposits
Subordinated loan stock
Other liabilities
Total liabilities
Shareholders’ equity
Other equity instruments (AT1)
Total equity excluding non-controlling interests
Non-controlling interests
Total equity
Total liabilities and equity
20196
2018
(restated)5,6
5,060
321
1,906
10,722
1,378
136
1,574
26
21,123
533
-
168
16,692
272
1,169
18,834
2,040
220
2,260
29
2,289
21,123
4,610
473
1,515
10,922
1,427
127
1,531
1,470
22,075
432
830
249
16,844
271
1,082
19,708
2,121
220
2,341
26
2,367
22,075
6
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Group financial results on the underlying basis (continued)
Unaudited Consolidated Balance Sheet underlying basis (continued)
Key Balance Sheet figures and ratios
2019
2018
Pro-forma3
20184
Gross loans (€ million)
Allowance for expected credit losses (€ million)
Customer deposits (€ million)
Loans to deposits ratio (net)
NPE ratio
Expected credit losses coverage ratio for NPEs
Leverage ratio
Capital ratios and risk weighted assets
Common Equity Tier 1 capital ratio
(CET 1)1 ratio (transitional for IFRS 9)
Total capital ratio
Risk weighted assets (€ million)
12,822
2,096
16,692
%64
%30
%54
13,148
2,254
16,844
%65
%36
%47
%10.0
%10.0
14.8%
18.0%
12,890
%15.4
%18.3
14,016
15,900
3,852
16,844
%72
%47
%52
%10.0
11.9%2
%14.9
15,373
1The CET FL ratio as at 31 December 2019 (including the full impact of IFRS 9) amounts to 13.1%,
compared to 10.1% and 13.5% pro forma for DTC and Helix as at 31 December 2018.
2The CET 1 ratio transitional also for DTA as at 31 December 2018 stood at 12.1%.
3Pro forma for DTA and Helix (see footnote 4) as at 31 December 2018.
4Ignoring the classification of the following portfolios as non-current assets held for sale as at 31 December
2018: Helix of €1,148 million (NBV) and Velocity 1 of €6 million (NBV).
5Comparative information was restated following the change in the classification of stock of properties which
are leased out under operating leases as investment properties. Refer to Note 2.38 of the Consolidated
Financial Statements for the year ended 31 December 2019 for details on the restatements on comparative
information. The changes did not have an impact on the results for the year or the equity of the Group.
6The financial information above is extracted from the published accounts. This information should be read
together with the information included in the accompanying consolidated financial statements.
7
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Group financial results on the underlying basis (continued)
Unaudited Reconciliation of the Income Statement for year ended 31 December 2019 between
statutory and underlying basis
Underlying
basis
Helix
portfolio
NPE
sales
-
Investment in
associate
-
€ million
Net interest income
Net fee and commission income
Net foreign exchange gains and net gains
on financial instruments transactions and
disposal/
dissolution of subsidiaries and associates
Insurance income net of insurance claims
and commissions
Net gains from revaluation and disposal
of investment properties and on disposal
of stock of properties
Other income
Total income
Total expenses
Operating profit
Loan credit losses
Impairments of other financial and non-
financial assets
Provisions for litigation, claims,
regulatory and other matters
Remeasurement of investment in
associate upon classification as held for
sale
Share of profit from associates
Profit/(loss) before tax and non-
recurring items
Tax
Profit attributable to non-controlling
interests
Profit/(loss) after tax and before
non-recurring items (attributable to
the owners of the Company)
Advisory and other restructuring costs -
organic
Profit/(loss) after tax -
organic*(attributable to the owners
of the Company)
Restructuring costs - Voluntary staff exit
plan (VEP)
Provisions/net loss relating to NPE Sales
Loss on remeasurement of investment in
associate upon classification as held for
sale (CNP) net of share of profit from
associates
Reversal of impairment of deferred tax
assets (DTA) and impairment of other
tax receivables
Loss after tax (attributable to the
owners of the Company)
344
150
38
58
32
29
651
(410)
241
(146)
(22)
(10)
-
-
63
(3)
(2)
58
(22)
36
(81)
(92)
(21)
88
(70)
34
12
-
-
-
-
46
(36)
10
(16)
-
-
-
-
-
-
-
-
-
-
(15)
(15)
(71)
-
-
-
-
(6)
(86)
-
-
(6)
-
-
-
(86)
-
(6)
(86)
(21)
6
-
-
-
-
-
86
-
-
-
-
-
21
-
-
-
-
-
-
-
-
-
-
-
-
-
(26)
5
(21)
-
-
(21)
-
Tax related
items
Other
Statutory
basis
-
-
-
-
-
-
-
(19)
(19)
-
(8)
-
-
-
(27)
115
-
88
-
88
-
-
-
(88)
-
(12)
-
-
7
(4)
-
(9)
(113)
(122)
9
-
10
-
-
366
162
45
58
28
29
688
(593)
95
(224)
(30)
-
(26)
5
(103)
(180)
-
-
(103)
22
(81)
81
-
-
-
-
112
(2)
(70)
-
(70)
-
-
-
-
(70)
*This is the profit/(loss) after tax (attributable to the owners of Company), before restructuring costs
relating to the voluntary staff exit plan (VEP), the provisions/net loss relating to NPE sales (for further
details refer to Section Income Statement Analysis/Loss after tax attributable to the owner of the
Company), the net loss on remeasurement of investment in associate upon classification as held for sale
(CNP) and the reversal of impairment of DTA and impairment of other tax receivables.
8
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Group financial results on the underlying basis (continued)
Unaudited Reconciliation of the Income Statement for year ended 31 December 2019 between
statutory and underlying basis (continued)
The reclassification differences between the statutory basis and underlying basis mainly relate to the impact
from 'non-recurring items' and are explained as follows:
Helix Portfolio
Net interest income of €34 million and fee and commission income of €12 million relating to the
NPE sales is disclosed under non-recurring items within 'Provisions/net loss relating to NPE sales'
under the underlying basis.
Total expenses include staff costs of €6 million, restructuring costs of €10 million and operating
expenses of €20 million relating to NPE sales, and are presented within 'Provisions/net loss
relating to NPE sales' under the underlying basis.
Net loan credit losses of €16 million are disclosed under non-recurring items within
'Provisions/net loss relating to NPE sales' under the underlying basis.
NPE sales
Total expenses include restructuring costs of €15 million mainly relating to the sale of portfolio of
NPEs and are presented within 'Provisions/net loss relating to NPE sales' under the underlying
basis.
Net loan credit losses of €71 million within the context of IFRS 9 were recorded as a result of the
anticipated balance sheet de-risking through further NPE sales in the future and are disclosed
under non-recurring items within 'Provisions/net loss relating to NPE sales' under the underlying
basis.
Investment in associate
Loss on remeasurement of investment in associate upon classification held for sale (CNP) net of
share of profit from associates of €21 million comprises the share of profit from associate of €5
million which is reported in the 'Share of profit from associates' under the statutory basis and the
loss on remeasurement of €26 million which is classified as 'Remeasurement of investment in
associate upon classification as held for sale' under the statutory basis.
Tax related items
Reversal of impairment of the deferred tax asset amounting to €115 million included within
'Income Tax' under the statutory basis is classified as a non-recurring item and disclosed within
'Reversal of impairment of deferred tax assets (DTA) and impairment of other tax receivables'
under the underlying basis. Similarly levy in the form of a guarantee fee relating to the revised
income tax legislation of €19 million, which has been disclosed within 'Reversal of impairment of
deferred tax asset (DTA) and impairment of other tax receivables' under the underlying basis, is
disclosed within 'Special levy on deposits on credit institutions in Cyprus, contribution to Single
Resolution Fund and other levies' under the statutory basis.
Impairment of other financial assets of €8 million, which are included in 'Credit losses 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 €22 million included in 'Other operating
expenses' under the statutory basis, are separately presented under the underlying basis since
they represent one-off items.
Provisions for litigation, claims, regulatory and other matters amounting to €10 million included
in 'Other operating expenses' under the statutory basis, are separately presented under the
underlying basis, since they mainly relate to cases that arose outside the normal activities of the
Group.
Restructuring costs relating to voluntary staff exit plan amounting to €81 million and included
within 'Staff costs' under the statutory basis, are separately presented under the underlying basis
since they represent one-off items.
9
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Group financial results on the underlying basis (continued)
Unaudited Reconciliation of the Income Statement for year ended 31 December 2019 between
statutory and underlying basis (continued)
Net gains on loans and advances to customers at FVPL of €3 million included in 'Loan credit
losses' under the underlying basis are included in 'Net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates' under the statutory basis. Their
classification under the underlying basis is consistent to the net losses on loans and advances to
customers at amortised cost.
Profit from the disposal of subsidiaries of approximately €4 million included in 'Net gains from
revaluation and disposal of investment properties and on disposal of stock of properties' under
the underlying basis, is included in 'Net gains on financial instrument transactions and
disposal/dissolution of subsidiaries and associates' under the statutory basis since it is considered
as one-off item.
An amount of approximately €12 million relating to one-off charge included in ‘Net interest
income’ under the statutory basis is presented within ‘Loan credit losses’ under the underlying
basis given that this was a non-recurring item which is related to a change in the method of
amortising arrangement fees.
Balance Sheet Analysis
Capital Base
Total equity excluding non-controlling interests totalled €2,260 million at 31 December 2019, compared to
€2,341 million at 31 December 2018. Shareholders’ equity totalled €2,040 million at 31 December 2019,
compared to €2,121 million at 31 December 2018.
The Common Equity Tier 1 capital (CET1) ratio on an IFRS 9 transitional basis stood at 14.8% at 31
December 2019, compared 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 2019 the CET1 ratio was positively
affected mainly by the decrease in risk weighted assets (RWAs) and the completion of the sale of
investment in CNP, and negatively affected mainly by the one-off cost of €81 million for the completion of
the Voluntary Staff Exit Plan and the additional loan credit losses within the context of IFRS 9 of €75 million
as a result of the anticipated balance sheet de-risking through further NPE sales in the future.
The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU
Regulation 2017/2395) where the impact on the impairment amount from the initial application of IFRS 9
on the capital ratios is phased-in gradually. The amount added each year decreases based on a weighting
factor until the impact of IFRS 9 is fully absorbed back to CET1 at the end of the five years. The impact on
the capital position for the year 2018 was 5% of the impact on the impairment amounts from the initial
application of IFRS 9, increasing to 15% (cumulative) for the year 2019 and to 30% (cumulative) for the
year 2020. At 1 January 2020, the CET1 ratio on an IFRS 9 transitional basis stood at 14.5% resulting
mainly from the phasing-in of the transitional arrangements for IFRS 9.
The CET1 ratio on a fully loaded basis (including the full impact of IFRS 9) amounted to 13.1% as at 31
December 2019 compared 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.
The Total Capital ratio stood at 18.0% as at 31 December 2019, compared to 14.9% at 31 December 2018
(and 18.3% pro forma for DTC and Helix). At 1 January 2020, the Total Capital ratio stood at 17.7%
resulting mainly from the phasing-in of the transitional arrangements for IFRS 9.
10
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
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 European Central Bank (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 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 final 2019 SREP decision
received in December 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 will 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 will 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 final 2019 SREP decision is
effective from 1 January 2020.
The recent developments on the regulatory capital ratios due to the COVID-19 outbreak are set out below:
The European Banking Authority (EBA) final guidelines on SREP and supervisory stress testing and the
Single Supervisory Mechanism’s (SSM) 2018 SREP methodology provide that own funds held for the
purposes of Pillar II Guidance cannot be used to meet any other capital requirements (Pillar 1, Pillar II
requirements or the combined buffer requirement), and therefore cannot be used twice. Following the
annual SREP performed by the ECB in 2019 and based on the final 2019 ECB decision received in December
2019, the new provisions are effective from 1 January 2020.
The Group capital ratios remain above the SREP requirements.
Based on the SREP decisions of prior years, the Company and BOC PCL were under a regulatory prohibition
for equity dividend distribution and therefore no dividends were declared or paid during years 2019 and
2018. Following the 2019 SREP decision, the Company and BOC PCL are still under equity dividend
distribution prohibition. This prohibition does not apply if the distribution is made via the issuance of new
ordinary shares to the shareholders, which are eligible as CET1 capital. No prohibition applies to the
payment of coupons on any AT1 capital instruments issued by the Company or BOC PCL.
Share Premium reduction
BOC PCL
BOC PCL will proceed (subject to approvals mainly by the ECB and the Court of Cyprus) with a capital
reduction process which will result in the reclassification of approximately €619 million of the BOC PCL’s
share premium balance as distributable reserves, which shall be available for distribution to the
shareholders of BOC PCL, resulting in total net distributable reserves of approximately €800 million on a pro
forma basis (31 December 2019). The reduction of capital will not have any impact on regulatory capital or
the total equity position of BOC PCL or the Group.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
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.
Company
The Company will proceed (subject to approval by the shareholders, the ECB and the Irish High Court) with
a capital reduction process which will result in the reclassification of €700 million of the Company’s share
premium as distributable reserves. This will increase the distributable reserves of the Company to
approximately €1 billion on a pro forma basis (31 December 2019). The capital reduction has been
proposed as a special resolution for approval by shareholders at the Company’s Annual General Meeting
scheduled on 26 May 2020. The capital reduction will not have any impact on regulatory capital or the total
equity position of the Company, 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.
Additional Tier 1
In December 2018, the Company proceeded with the issuance of €220 million 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 on a discretionary basis, semi-annually. The coupon payments to AT1 holders
were made in June and December 2019 and were 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 on the Official Gazette
of the Republic on 15 March 2019. The law amendments cover the utilisation of income tax losses
transferred from Laiki Bank to BOC PCL in March 2013. The introduction of CRD IV in January 2014 and its
subsequent phasing-in led to a more capital intensive treatment of this DTA for BOC PCL. The law
amendments have resulted in an improved regulatory capital treatment, under Capital Requirements
Regulation (EU) No. 575/2013 ('CRR'), of the DTA amounting to approximately €285 million or a CET1 uplift
of approximately 190 bps.
The Group understands that, in response to concerns raised by the European Commission with regard to the
provision of state aid arising out of the treatment of such tax losses, the Cyprus Government is considering
the adoption of modifications to the Law, potentially including requirements for an additional annual fee
over and above the 1.5% annual guarantee fee already acknowledged to maintain the conversion of such
DTAs into tax credits. In anticipation of such modifications the Group has recorded an additional amount of
€13 million by way of an estimated additional fee (for the years 2018 and 2019), bringing the total
guarantee fee recognised for the year 2019 to €19 million.
Project Helix
In June 2019, Project Helix was completed resulting in a positive impact of approximately 140 bps on both
the Group’s CET1 and Total Capital ratios, mainly from the release of risk weighted assets. Project Helix had
an overall net positive impact on the Group capital ratios of approximately 60 bps.
Sale of investment in CNP Cyprus Insurance Holdings Ltd
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 approximately 30 bps on both the Group’s CET1 and
Total Capital ratios, mainly from the release of risk weighted assets. The shareholding had been acquired as
part of the acquisition of certain operations of Laiki Bank in 2013 and was sold to CNP Assurances S.A. for a
cash consideration of €97.5 million.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
Voluntary Staff Exit Plan
In October 2019, the Group completed a voluntary staff exit plan (‘VEP’) at a total cost of €81 million,
recorded in the consolidated income statement in fourth quarter of 2019, resulting in a negative impact of
approximately 60 bps on both the Group’s CET1 and Total Capital ratios.
Further NPE sales in the future
Against the backdrop of market volatility arising out of the COVID-19 pandemic, the Group continues to
work with its advisers towards the sale of a portfolio of NPEs in the future. Due to prevailing market and
operational conditions, this process is likely to take longer than originally anticipated. In the context of IFRS
9, BOC PCL recognised additional loan credit losses of €75 million in the fourth quarter of 2019, with a
negative capital impact of 46 bps, as a result of the anticipated balance sheet de-risking through further
NPE sales in the future. On completion of an NPE trade, the Group’s capital ratios would benefit from an
RWA reduction, subject to regulatory approval.
Implications on capital from the Outbreak of COVID-19
The Group is closely monitoring developments in, and the effects of COVID-19 on both the global and
Cypriot economy. The ECB has announced a package of positive measures that should help to support the
capital position of BOC PCL in order to secure favourable conditions of financing for the economy with the
aim to mitigate the effects of the crisis. Specifically the measures increase the Group's capital base
available to absorb potential losses due to the crisis. In addition, the early adoption of CRD V for the
composition of the Pillar II Requirement provides flexibility regarding the Group's compliance with the
minimum capital requirement of Pillar II.
The ECB’s capital easing measures for COVID-19 will increase the Group’s CET1 buffer by approximately
131 bps following the frontloading of the new rules on the Pillar II Requirement composition, to allow banks
to use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to meet Pillar II Requirement and not only by
CET 1, initially scheduled to come into effect in January 2021. The Total SREP capital requirement remains
unchanged. In addition, the ECB allows banks to operate temporarily below the level of Pillar II Guidance,
the capital conservation buffer (CCB) and the countercyclical buffer. It is noted that the countercyclical
buffer is 0% for Cypriot banks.
In addition in April 2020, the CBC decided to delay the phasing-in of the 1 January 2021 of the O-SII buffer
(0.5% for BOC PCL) by 12 months. Consequently the O-SII buffer will be fully phased-in on 1 January 2023,
instead of 1 January 2022 as originally set.
Following the COVID-19 outbreak and the resultant volatile market and economic environment, the Fair
Value Reserve of the Fair Value through Other Comprehensive Income (FVOCI) debt security portfolio of the
Group held as at 31 December 2019 has decreased by €39 million on 24 April 2020. This change is
recognised directly in equity i.e. through Other Comprehensive Income (OCI). Furthermore, on 24 April
2020, the Group held Cyprus sovereign debt securities of a nominal amount of €772 million, compared to
€477 million on 31 December 2019, of which €350 million is held at FVOCI portfolio and €422 million is held
at amortised cost. The increase since the year end is mainly due to the Group’s participation on the
issuance of 52-week treasury bills of the Cyprus Government in April 2020.
For further information please refer to Note 56 'Events after the reporting date' of the Financial Statements
for the year ended 31 December 2019.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
Regulations and Directives
Revised rules on capital and liquidity (CRR II and CRD V)
On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V) came into force. As an
amending regulation, the existing provisions of CRR apply, unless they are amended by CRR II. Member
states are required to transpose the CRD V into national law. Certain provisions took immediate effect
(primarily relating to Minimum Requirement for Own Funds and Eligible Liabilities, MREL), but most changes
will start to apply from mid-2021. Certain aspects of CRR II are dependent on final technical standards to be
issued by the EBA and adopted by the European Commission. The key changes introduced consist of among
others changes to qualifying criteria for CET1, AT1 and Tier 2 instruments, introduction of requirements for
MREL and a binding Leverage Ratio requirement and a Net Stable Funding Ratio (NSFR).
Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January 2016 EU member states
shall apply the BRRD’s provisions requiring EU credit institutions and certain investment firms to maintain a
minimum requirement for own funds and eligible liabilities (MREL), subject to the provisions of the
Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part of the reform package for
strengthening the resilience and resolvability of European banks, the BRRD 2 came into effect and must be
transposed into national law. In addition, certain provisions on MREL have been introduced in CRR II which
also came into force on 27 June 2019 as part of the reform package and took immediate effect.
BOC PCL has received formal notification from the Single Resolution Board (SRB), of its draft decision for
the binding minimum requirement for own funds and eligible liabilities (MREL) for BOC PCL, determined as
the preferred resolution point of entry. The MREL requirement has been set at 28.36% of risk weighted
assets as of 30 June 2019 and must be met by 31 December 2025. This MREL requirement would be
equivalent to 18.54% of total liabilities and own funds (TLOF) as at 30 June 2019. The MREL requirement is
in line with BOC PCL's expectations, and largely in line with its funding plans.
The MREL requirements remain subject to final confirmation by the SRB. This decision is based on the
current legislation; it is expected to be updated annually and could be subject to subsequent changes by the
resolution authorities, especially considering the developments of the BRRD and its transposition into the
local legislation.
The MREL ratio of BOC PCL as at 31 December 2019, calculated according to SRB’s eligibility criteria
currently in effect, and based on BOC PCL's internal estimate stood at 18.54% of RWAs.
Funding and liquidity
Funding
Funding from Central Banks
At 31 December 2019, BOC PCL had no funding from central banks. At 31 December 2018, BOC PCL's
funding from central banks which amounted to €830 million, which related to ECB funding, comprising solely
of funding through the Targeted Longer-Term Refinancing Operations (TLTRO II). During 2019 BOC PCL
decided to early repay the ECB funding, of €830 million given its comfortable liquidity position.
Deposits
Customer deposits totalled €16,692 million at 31 December 2019, compared to €16,844 million at 31
December 2018, remaining broadly flat.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Funding (continued)
The deposit market share in Cyprus for BOC PCL reached 35.1% as at 31 December 2019. Customer
deposits accounted for 79% of total assets and 89% of total liabilities at 31 December 2019.
The net Loans to Deposit ratio (L/D) stood at 64% as at 31 December 2019 compared to 65% at 31
December 2018 pro forma for Helix. The L/D ratio had reached a peak of 151% as at 31 March 2014.
Subordinated Loan Stock
At 31 December 2019 BOC PCL's subordinated loan stock (including accrued interest) amounted to €272
million, compared to €271 million as at 31 December 2018 and relates to unsecured subordinated Tier 2
Capital Notes of nominal value €250 million, issued by BOC PCL in January 2017.
Liquidity
At 31 December 2019 the Group Liquidity Coverage Ratio (LCR) stood at 208%, compared to 231% at 31
December 2018 and was in compliance with the minimum regulatory requirement of 100%.
The liquidity surplus of 31 December 2019 amounted to €3,2 billion, compared to €3,1 billion at 31
December 2018.
The Net Stable Funding Ratio (NSFR) has not yet been introduced. It will become a regulatory indicator
when CRR II is enforced, with the limit set at 100%. At 31 December 2019, the Group’s NSFR, on the basis
of Basel ΙΙΙ standards, stood at 127%, compared to 119% at 31 December 2018.
Implications on liquidity from the Outbreak of COVID-19
Resulting from the outbreak of COVID-19, the ECB has announced a positive package of measures including
that the ECB will allow banks to temporarily operate below the LCR minimum requirements. In addition, the
ECB decided on additional longer-term refinancing operations (LTROs) through a full-spread fixed-rate
auction equal to the average deposit facility interest rate. Similarly, the ECB announced that for the TLTRO
III operation in June 2020, considerably more favourable terms will be applied during the period from June
2020 to June 2021 to all TLTRO III operations outstanding during that same time.
The Governing Council of the ECB on 18 March 2020 decided to launch a new Pandemic Emergency
Purchase Programme (PEPP) for an amount of €750 billion and purchases will be conducted until the end of
2020. Furthermore, it was decided to expand the range of eligible assets under the Corporate Sector
Purchase Programme (CSPP) to non-financial commercial paper and to ease the collateral standards by
adjusting the main risk parameters of the collateral framework.
For further information please refer to Note 56 ‘Events after the reporting date’ of the Financial Statements
for the year ended 31 December 2019.
Loans
Group gross loans totalled €12,822 million at 31 December 2019, compared to €15,900 million at 31
December 2018 (when ignoring the classification of the Helix loan portfolio as a disposal group held for
sale). Pro forma for Helix, gross loans totalled €13,148 million at 31 December 2018. Gross loans in Cyprus
totalled €12,736 million at 31 December 2019 on the same basis, accounting for 99% of Group gross loans,
compared to €15,702 million at 31 December 2018 (when ignoring the classification of the Helix loan
portfolio as a disposal group held for sale), accounting for 99% of Group gross loans.
The reduction in gross loans by 19% since 31 December 2018 is attributed mainly to the completion of
Project Helix ((sale of €2.8 billion of gross loans of which €2.7 billion related to non-performing loans) and
to a lesser extent to the completion of Project Velocity (sale of €30 million gross loans as at the date of
disposal, relating wholly to non-performing loans) during the second quarter of 2019.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loans (continued)
New loans granted in Cyprus reached €2,045 million during 2019 compared to €1,870 million for 2018 (up
by 9%), and reached the highest level of new lending in Cyprus since 2015.
At 31 December 2019, the Group net loans and advances to customers totalled €10,722 million, compared
to 10,922 million at 31 December 2018.
At 31 December 2018 net loans and advances to customers of €1,154 million were classified as a disposal
group held for sale in line with IFRS 5 relating to Project Helix of €1,148 million and Velocity 1 of €6 million.
BOC PCL is the single largest credit provider in Cyprus with a market share of 41.1% at 31 December 2019,
compared to 45.4% at 31 December 2018, with the reduction reflecting the derecognition of the Helix
portfolio on completion.
Loan portfolio quality
Tackling the Group’s loan portfolio quality remains the top priority for management. The Group has
continued to make steady progress across all asset quality metrics and the loan restructuring activity has
continued. The Group has been successful in engineering restructuring solutions across the spectrum of its
loan portfolio.
Non-performing exposures (NPEs) as defined by the EBA were reduced (organic reduction) to €889 million
during 2019, ahead of the target for organic NPE reduction of approximately €800 million for 2019.
The NPEs at 31 December 2019 amounted to €3,880 million, compared to €7,419 million at 31 December
2018, reflecting a reduction of 48% compared to last year, driven mainly by the completion of Project Helix.
The NPEs account for 30% of gross loans as at 31 December 2019 compared to 47% at 31 December 2018
(when ignoring the classification of Helix and Velocity 1 portfolios as disposal groups held for sale), an
improvement of 17 p.p. compared to previous year. Pro forma for Helix and Velocity 1 the NPEs
accumulated for 36% of gross loans at 31 December 2018.
The NPE coverage ratio improved to 54% at 31 December 2019 compared to 52% at 31 December 2018
compared to prior year (when ignoring the classification of the Helix and Velocity 1 portfolios as disposal
groups held for sale), an improvement of 2 p.p. compared to last year. Pro forma for Helix and Velocity 1,
the NPE coverage ratio stood at 47% at 31 December 2018.
When taking into account tangible collateral at fair value, NPEs are fully covered.
2019
2018
€ million
% gross
loans
€ million
% gross
loans
3,880
%30.3
7,419
%46.7
428
%3.3
1,211
%7.6
NPEs as per EBA definition
Of which:
- NPEs with forbearance measures, no
arrears*
*The analysis is performed on a customer basis.
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 €2.8 billion (of which €2.7 billion related to non-performing loans) (the
'Portfolio') secured by real estate collateral to certain funds affiliated with Apollo Global Management LLC,
the agreement for which was announced on 28 August 2018.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loan portfolio quality (continued)
Upon completion of Project Helix, the Group’s gross NPEs are approximately 70% lower than its peak in
2014. Project Helix reduced the NPE ratio by approximately 11 p.p. to 33% as at 30 June 2019.
Cash consideration of approximately €1.2 billion was received on completion, reflecting adjustments
resulting from, inter alia, loan repayments received on the Helix portfolio since the reference date of 31
March 2018.
The participation of BOC PCL in the senior debt in relation to financing the transaction has been syndicated
down from the initial level of €450 million to approximately €45 million, representing approximately 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 approximately €0.8 billion of retail core NPEs
as at 31 December 2019, referred to the potentially eligible portfolio following on-going detailed
assessment based on the available data of BOC PCL on Open Market Value (OMV) and NPE status. Eligibility
criteria related primarily to the OMV of the residence, total income and net wealth of the household. These
act as a clear definition of socially protected borrowers, acting as an enabler against strategic defaulters. In
accordance with the Scheme, the eligible loans are to be restructured to the lower of the contractual
balance and the OMV. The Government subsidises one third of the instalment of the restructured loan,
subject to the borrowers servicing their restructured loans.
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 continued until the end of
the year. The participating institutions evaluate the applications and offer restructuring solutions whilst at
the same time, the applications are being reviewed and approved by the Government.
The Scheme is expected to resolve part of the ESTIA-eligible portfolio (€41 million as at 10 April 2020), to
identify non-viable customers for which alternative restructuring solutions are being considered, including
by the Government (€30 million as at 10 April 2020), and to facilitate the resolution of the remaining
customers (€745 million as at 10 April 2020), mainly by focusing on realising collateral through consensual
and non-consensual foreclosures.
Over 80% of the applications submitted by 31 December 2019 currently remain incomplete. Following the
outbreak of COVID-19, the deadline for borrowers to complete their application has been extended by three
months to June 2020.
Project Velocity 1
In June 2019, BOC PCL completed the sale of a non-performing loan portfolio of primarily retail unsecured
exposures, with a contractual balance of €245 million and a gross book value of €34 million as at the
reference date of 30 September 2018 (known as 'Project Velocity 1') to APS Delta s.r.o. This portfolio
comprised 9,700 heavily delinquent borrowers, including 8,800 private individuals and 900 small-to-
medium-sized enterprises. The gross book value of this portfolio as at the date of disposal was €30 million.
The sale was broadly neutral to both, the profit and loss and to capital.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loan portfolio quality (continued)
Project Velocity 2
In January 2020, BOC PCL entered into an agreement with B2Kapital Cyprus Ltd, to sell a non-performing
loan portfolio of primarily retail unsecured exposures, with a contractual balance of €398 million and gross
book value of €144 million as at the reference date of 31 August 2019, known as Project Velocity 2. This
portfolio comprises of approximately 10,000 borrowers, including approximately 8,400 private individuals
and approximately 1,600 small-to-medium-sized enterprises. As at 31 December 2019, the portfolio is
classified as a disposal group held for sale as at 31 December 2019 with gross book value of €139 million.
The transaction resulted in a reversal of impairment of €6 million recorded in the fourth quarter of 2019,
under ‘Provisions/net loss relating to NPE sales’ in the underlying basis income statement and is expected to
be capital neutral on completion. The sale is subject to the necessary approvals and is expected to be
completed within the second quarter of 2020.
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 in the future. To that extent the Group continues 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
continuing to engage in discussions 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 is possible, including outright sales (including BOC PCL retaining a portion of the related
financing). The Group is not committed to any outcome arising from these third party discussions.
Against the backdrop of market volatility arising out of the COVID-19 pandemic, the Group continues to
work with its advisers towards the sale of a portfolio of NPEs in the future. Due to prevailing market and
operational conditions, this process is likely to take longer than originally anticipated. In the context of IFRS
9, BOC PCL recognised additional loan credit losses of €75 million in the fourth quarter of 2019, with a
negative capital impact of 46 bps, as a result of the anticipated balance sheet de-risking through further
NPE sales in the future. On completion of an NPE trade, the Group’s capital ratios would benefit from the
RWA reduction, subject to regulatory approval.
As at 31 December 2019, a portfolio of credit facilities related to Helix with a gross book value of €46
million of mainly secured non-performing exposures (known as 'Helix Tail') was classified as a disposal
group held for sale.
Following the outbreak of COVID-19, the Group is now focused on arresting any potential asset quality
deterioration. Once economic conditions normalise, the Group expects to resume its efforts to improve its
asset quality position by seeking solutions, both organic and inorganic, to make BOC PCL a stronger and
safer institution, capable of continuing to support the local economy.
For further information regarding the regulatory forbearance as allowed by the Guidelines issued in April
2020 by the EBA, refer to Note 56 ‘Events after the reporting date’ of the Financial Statements for the year
ended 31 December 2019.
Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) on-boarded €196 million of assets in 2019 (down by 54%
compared to 2018) 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 €207 million during 2019 (compared to
€196 million during 2018), resulting in a profit on disposal of €32 million during 2019.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Real Estate Management Unit (REMU) (continued)
During 2019, the Group executed sale-purchase agreements (SPAs) with contract value of €345 million
(558 properties), in addition to the sale of the Cyreit, see below. In addition, the Group had signed SPAs for
disposals of assets with contract value of €36 million at 31 December 2019, compared to €106 million as at
31 December 2018.
Completion of sale of Cyreit
In November 2018, BOC PCL signed an agreement for the disposal of its entire holding in the investment
shares of the Cyreit Variable Capital Investment Company PLC (Cyreit). During the second half of 2019, the
Group completed the sale of the Cyreit (21 properties) recognising a loss on disposal of approximate €1
million. The total proceeds, from the disposal of Cyreit were €160 million.
Completion of Project Helix
With the completion of Project Helix, in the second quarter of 2019 properties with carrying value of €109
million, which were included in the portfolio for the NPE sale (Helix), were derecognised as at 30 June 2019.
As at 31 December 2018 properties with carrying value of €74 million were included in the portfolio for the
NPE sale (Helix) due to adjustments made to the portfolio of assets.
Change in classification of properties which are leased out under operating leases
In the second quarter of 2019 the Group has decided to classify certain leased properties acquired in
exchange of debt and leased out under operating leases as ‘Investment Properties’ instead of ‘Stock of
property’. This change has been applied retrospectively resulting in the restatement of comparatives.
As a result of the above change in classification, properties with carrying value of €103 million 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.
This change in classification had no material impact on the Group’s comparative retained earnings and a
cumulative impact of €1 million gain has been recognised under ‘Net gains from revaluation and disposal of
investment properties and on disposal of stock of properties’ in the income Group's statement for the year
ended 31 December 2019.
Assets held by REMU
As at 31 December 2019, assets held by REMU had a carrying value of €1,490 million (comprising
properties of €1,378 million classified as ‘Stock of property’ and €112 million as ‘Investment Properties’),
compared to €1,530 million as at 31 December 2018 (comprising properties of €1,427 million classified as
‘Stock of property’ and €103 million as ‘Investment Properties’).
In addition to assets held by REMU, properties classified as ‘Investment properties’ with carrying value of
€24 million as at 31 December 2019 and as at 31 December 2018, relate to legacy properties held by BOC
PCL before the set-up of REMU in January 2016.
Overseas exposure
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 the third quarter of 2019 the disposal of the overseas exposure in Serbia, comprising loans and
properties, with a carrying value of €8 million was completed.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
At 31 December 2019 there were overseas exposures of €265 million in Greece relating to both loans and
properties (compared to €144 million as 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.
Income Statement Analysis
Total income
Net interest income (NII) and net interest margin (NIM) for 2019 amounted to €344 million (up by 4%
compared to previous year) and 1.90% respectively up by 8 bps compared to prior year. NII and NIM
amounted to €331 million and 1.82% respectively for 2018.
An amount of approximately €12 million relating to a one-off charge included in 'Net interest income' under
the statutory basis, is presented within 'Loan credit losses' under the underlying basis, which is related to a
change in the method of amortising arrangement fees given that this was a non-recurring item.
Reclassifications to comparative information were made for unrecognised interest on previously credit
impaired loans which cured during the year ended 31 December 2018, amounting to €33 million. 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 took place in November 2018 (Presentation of
unrecognised interest following the curing of a credit impaired financial asset (IFRS 9)).
Average interest earning assets for 2019 amounted to €18,051 million compared to €18,190 million for
2018 down by 1% compared to last year.
Non-interest income for 2019 amounted to €307 million down by 6% compared to 2018, mainly comprising
net fee and commission income of €150 million, net foreign exchange gains and net gains on financial
instrument transactions and disposal/dissolution of subsidiaries of €38 million, net insurance income of €58
million, net gains from revaluation and disposal of investment properties and on disposal of stock of
properties of €32 million and other income of €29 million.
Net fee and commission income for 2019 amounted to €150 million, down by 8% compared to 2018 fee and
commission income of €162 million mainly due to 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 €38 million for 2019, comprising net foreign exchange gains of €27 million
and net gains on revaluation of financial instruments of €11 million, decreased by 43% compared to 2018
mainly due to one-off gain on disposal of bonds during 2018 amounting to €19 million.
Net insurance income amounted to €58 million for 2019, compared to €53 million for 2018, up by 9%,
reflecting increased income and positive investment returns in 2019.
Net gains from revaluation and disposal of investment properties and on disposal of stock of properties for
2019 amounted to €32 million compared to net gains of €18 million for 2018, comprising a net profit from
the disposal of stock properties of €30 million (REMU gains), and a profit from disposal of investment
property of €2 million.
Total income for 2019 amounted to €651 million, remaining at similar levels to previous year.
Total expenses
Total expenses for 2019 were €410 million compared to €393 million for 2018, 54% of which related to staff
costs (€220 million), 40% to other operating expenses (€165 million) and 6% (€25 million) to special levy
and contribution to SRF.
Total operating expenses for 2019 were €385 million compared to €368 million for 2018, (increased by
5%).
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Group financial results on the underlying basis (continued)
Income Statement Analysis (continued)
Total expenses (continued)
Staff costs of €220 million for 2019 increased by 4% compared to €212 million for 2018 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, as well as the effect
of the renewal of the annual collective agreement for 2019 within the employees' union.
In October 2019, the Group completed a voluntary staff exit plan ('VEP' or 'the plan') through which
approximately 11% of the Group's full time employees were approved to leave at a total cost of €81 million,
recorded in the consolidated income statement during the fourth quarter of 2019. Following the completion
of the voluntary staff exit plan, the gross annual savings are estimated at approximately €28 million or
approximately 13% of staff costs (excluding the approximately 100 persons relating to the Helix
transaction). The annual savings net of the impact from the renewal of the collective agreement for 2019
and 2020, are estimated at €23 million or 11% of staff costs.
The Group employed 3,672 persons as at 31 December 2019 (compared to 4,146 persons as at 31
December 2018) including approximately 100 persons relating to the Helix transaction, who were
transferred to the buyer upon full migration in January 2020. The staff costs related to these persons are
included under ‘Provisions/net (loss)/profit relating to NPE sales’ in the underlying basis.
Other operating expenses for 2019 were €165 million, increased by 6% from 2018, mainly due to higher
property related costs and higher depreciation/amortisation resulting from increased capital expenditure
following the Digital Transformation Programme.
Special levy and contribution to SRF for 2019 were €25 million (at the same level as the previous year) and
comprise the special levy on deposits of credit institutions in Cyprus and the contribution made to the SRF.
As from 1 January 2020 and until 3 July 2024 BOC PCL is subject to contribution to the Deposit Guarantee
Fund (DGF) on a semi-annual basis. The contributions are calculated based on the Risk Based Methodology
(RBM) as approved by the management committee of the Deposit Guarantee and Resolution of Credit and
Other Institutions Schemes (DGS) and is publicly available on the CBC’s website. In line with the RBM, the
contributions are broadly calculated on the covered deposits of all authorised institutions and the target
level is to reach at 0.8% of these deposits by 3 July 2024. The contribution of BOC PCL has been set at €2.9
million for the first half of 2020 and in line with IFRSs, it will be charged in the first quarter of 2020.
The cost to income ratio excluding special levy and contribution to SRF for 2019 was 59% compared to 56%
for 2018, mainly due to the increase in total operating expenses which increased by 5% compared to last
year. Cost management remains a key focus going forward.
Profit before tax and non-recurring items
Operating profit for 2019 was €241 million compared to €264 million for 2018, down by 9%, mainly due to
increase in total operating expenses.
The loan credit losses for 2019 totalled €146 million compared to €135 million for 2018, up by 8%
compared to 2018, reflecting further balance sheet de-risking. An amount of approximate €12 million
relating to a one-off charge included in 'Net interest income' under the statutory basis, is presented within
'Loan credit losses' under the underlying basis, which is related to a change in the method of amortising
arrangement fees given that this was a non-recurring item.
The loan credit losses charge (cost of risk) for 2019 accounted for 1.12% of gross loans, compared to a loan
credit losses charge of 0.99% for 2018 on the same basis, reflecting further de-risking and IFRS 9 model
volatility.
At 31 December 2019, the allowance for expected loan credit losses, including residual fair value
adjustment on initial recognition and credit losses on off-balance sheet exposures totalled €2,096 million,
(compared to €2,254 million at 31 December 2018 pro forma for Helix) and accounted for 16.3% of gross
loans, (compared to 17.1% at 31 December 2018 pro forma for Helix).
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Group financial results on the underlying basis (continued)
Income Statement Analysis (continued)
Total expenses (continued)
Impairments of other financial and non-financial assets for 2019 amounted to €22 million, compared to €20
million for 2018 (up by 12%).
Provisions for litigation, claims, regulatory and other matters for 2019 totalled €10 million, compared to €23
million for 2018.
Loss after tax (attributable to the owners of the Company)
The tax charge for 2019 is €3 million, compared to a tax credit of €3 million a year earlier (which comprised
mainly of reversals of provisions relating to prior years).
Profit after tax and before non-recurring items (attributable to the owners of the Company) for 2019 was
€58 million, compared to €88 million for 2018, down by 35%.
Advisory and other restructuring costs - organic for 2019 amounted to €22 million, compared to €42 million
for 2018, down by 49% compared to 2018, due to elevated costs in 2018 mainly due to an amount of €11
million relating to fee and commission expense on the amounts deposited in regards to the AT1 issue and
also due to lower advisory costs in 2019.
Profit after tax arising from the organic operations (attributable to the owners of the Company) for 2019
amounted to €36 million, compared to €46 million for 2018, down by 22% compared to previous year.
Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) amounted to €81 million for 2019.
Provisions/net loss relating to NPE sales for 2019 amounts to €92 million, compared to €83 million for 2018
and includes the net result of the sale of the Helix portfolio (including the interest income, non-interest
income, staff costs, other operating expenses and loan credit losses) of a profit of €4 million, as well as the
reversal of impairment of €6 million resulting from the sale of the Velocity 2 portfolio. Also, additional loan
credit losses of €75 million as a result of the anticipated balance sheet de-risking through further NPE sales
in the future were also recorded, as well as restructuring cost related to these projects totalled €25 million
for 2019 (2018: €18 million).
Loss on remeasurement of investment in associate upon classification as held for sale (CNP) net of share of
profit from associates totalled €21 million for 2019, comprising a loss on remeasurement of investment in
associate upon classification as held for sale of €26 million and a share of profit from associates of €5
million (compared to a share of profit from associates of €9 million in 2018. In October 2019 the Group
completed the sale of its entire shareholding of 49.9% in its associate CNP Cyprus Insurance Holdings
Limited (CNP) that had been acquired as part of the acquisition of certain operations of Laiki Bank in 2013,
for a cash consideration of €97.5 million.
The reversal of impairment of DTA and impairment of other tax receivables totalled €88 million for 2019,
comprising the net positive impact of €109 million following amendments to the Income Tax legislation in
Cyprus adopted in March 2019, and an impairment of €8 million relating to Greek tax receivables adversely
impacted from legislative changes. The carrying value of the remaining receivable as at 31 December 2019
was approximately €5 million. The impairment of DTA for 2018 was €79 million resulting from the on-going
review of the recoverability of the DTA. This amount together with related impairment recorded in prior
periods totalled €115 million and were subsequently reversed in 2019. In addition levy in the form of a
guarantee fee of €19 million was recorded in 2019, in relation to the right to convert tax losses into a tax
credit. For further information please refer to Capital Base/Legislative amendments for the conversion of
DTA to DTC.
Profit from discontinued operations for 2018 amounted to €3 million and relate to the UK operations sold
during 2018.
Loss after tax attributable to the owners of the Company for 2019 was €70 million, compared to a loss of
€104 million for 2018.
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Operating environment
Impact of COVID-19
While Cyprus has had a five-year track record of strong economic recovery in 2015-2019, the COVID-19
pandemic is expected to lead to a deep recession in 2020 before recovery and take shape in 2021. The
pandemic has also altered the global economic outlook where earlier favourable forecasts are now being
replaced by the prospect of a global recession which may be relatively deep for some countries. The
recovery will depend on the speed and effectiveness of policy responses by the fiscal and monetary
authorities at both the national and international levels, and on success in containing the virus.
What started as a massive supply shock in China is now morphing into a global demand shock after
governments around the world, have imposed quarantines and social distancing to contain the spread of the
virus. Governments and central banks are acting proactively and decisively to support consumers and
businesses and to limit financial disruptions. The pandemic is having and will continue to have an impact on
consumer spending, which is the primary driver of economic growth in most parts of the world. The
pandemic is also expected to affect corporate profits causing businesses to cut back further on investment
and ultimately to affect the ability of companies to repay their debts. Primary credit markets are essentially
frozen, which means that some companies will not be able to roll-over liabilities without increasing their
refinancing costs.
The Cypriot economy is also expected to be affected by a protracted lockdown. The economy is heavily
export-oriented and thus highly exposed to developments in the European and global economies. Tourism,
trade, transport and construction that are most severely being affected by the lockdowns account for about
one third of GDP. The prevalence of small and medium-sized enterprises makes the Cypriot economy even
more vulnerable to supply disruptions and demand shocks.
Central banks around the world, including the US Federal Reserve and the ECB, are focusing their efforts on
providing liquidity and reducing pressures on corporate balance sheets amid declining profitability. Also
changes to national fiscal policies are even more critical in the short term at least, to offset falling demand
and losses of income. Countries are also offering lending and credit guarantees for businesses along with
temporary tax relief and payments to consumers to prevent or mitigate layoffs.
In the US the Federal Reserve has already cut its interest rate to zero and announced it was providing an
additional $700 billion in asset purchases, expanding repurchase operations and extending US dollar swap
lines with foreign banks. The US Senate has agreed to an emergency fiscal package of $2 trillion or just
under 10% of GDP to support companies, consumers and state and local governments.
In the European Union, the European Commission announced a suspension of fiscal and state aid rules
paving the way for member states to incur deficits without repercussions. The ECB has launched a new
wave of net asset purchases with an initial envelope of €120 billion, followed by a €750 billion Pandemic
Emergency Purchase Programme (PEPP). It also provided more favourable terms under its refinancing
operations and relaxed collateral standards for accessing central bank liquidity. The ECB’s supervisory
authority eased capital requirements, providing relief to banks and relaxed its rules around non-performing
loans. The PEPP is in addition to the €20 billion-per month-programme launched in November 2019, as well
as the €120 billion-package bringing the total to more than €1 trillion for at least the rest of 2020. This
means that monthly purchases will exceed the €80 billion spent at the height of the Eurozone debt crisis.
The PEPP, with its flexible framework, paves the way for extensive bond-buying this year ensuring funding
conditions will remain very favourable for countries facing deterioration in their public finances.
At their meeting on 9 April 2020, the Eurogroup emerged with a deal on a €540 billion rescue package. This
included the use of the European Stability Mechanism (ESM) for €240 billion, which is approximately 2% of
Eurozone GDP. The only conditionality is that this is required to fund the direct and indirect health care,
cure and prevention costs of the COVID-19 crisis. The Eurogroup endorsed the European Commission’s
€100 billion SURE initiative to support national short-term work schemes. Support will also be provided
through the European Investment Bank (EIB) for €200 billion of loan guarantees with a focus on small and
medium-sized enterprises. This fiscal stimulus adds to the enormous amount of stimulus in place to fight
the COVID-19 outbreak and its consequences.
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Operating environment (continued)
In response to the outbreak of COVID-19, the Cyprus Government swiftly implemented restrictions, partially
or fully freezing the operations of entire business sectors to contain the spread of the virus. To mitigate the
disruption and the costs of the outbreak of COVID-19 and of the measures to contain it, the Government
has introduced several measures and policies. The measures are intended to provide liquidity to companies
and households and prevent a sharp rise in unemployment. The Government is promoting a government
guarantee programme of €2 billion for the provision of low-priced loans to companies and the self-
employed. Parliament voted for the suspension of loan repayments for interest and principal for the nine
months remaining to the end of the year, for all eligible borrowers with no arrears for more than 30 days as
at the end of February 2020. Based on a decision of the Association of Cyprus Banks, whilst interest will
continue to accrue for this nine-month period, it will not be compounded. Banks suspended foreclosure
procedures for a period of three months until 18 June 2020. The Government also introduced income
support schemes for companies to avoid employee layoffs. The Government introduced other liquidity
supporting measures such as the temporary suspension of VAT and delayed additional increases of
contributions for the national health system.
In an effort to strengthen the liquidity of its finances at a time of uncertainty surrounding the pandemic
crisis, and help fund a large expected budget deficit in 2020, the Government proceeded and successfully
completed in April 2020, a double issuance of a 7-year bond for €1.25 billion and a 30-year bond for €0.5
billion. The issuance was oversubscribed, and the final yields were 1.55% and 2.34% respectively.
Furthermore, the Government proceeded and successfully completed in April 2020 the issuance of 52-week
treasury bills for €1.25 billion, bringing the total amount of finance raised from the international and local
markets to €3.0 billion.
2019 Macroeconomic performance
In 2019 real GDP increased by 3.2%, following an increase of 4.1% in 2018. From the supply side all
sectors made positive contributions in overall growth in the year except for financial services. Construction,
manufacturing, trade and tourism from the traditional economy made significant contributions. Information
and communications together with the professional services from the higher value-added growth sectors
also added significantly to total growth. At the same time, there were positive contributions from public
services, education, health and real estate.
Total employment increased by 3.9% on average in 2019 compared with an increase of 5.9% in 2018. The
unemployment rate dropped to 7.1% from a yearly average of 8.4% the year before. Consumer price
inflation moderated in 2019 to 0.3% following an increase of 1.4% in 2018 (Labour Force survey, Cyprus
Statistical Service). This was driven by weaker global energy prices, continued economic slack in the
domestic economy and a one-off adjustment to fuel retail prices after a cut in taxes. The current account
deficit deteriorated sharply in 2019 rising to 6.6% of GDP from 3.4% of GDP in 2018 excluding special
purpose entities (Central Bank of Cyprus). This was due to strong domestic demand driving imports higher,
and weaker export growth.
In the banking sector, funding conditions remained favourable and the stock of NPEs continued to decline in
2019, albeit marginally, following the sharp declines of 2018 associated with the resolution of the Cyprus
Cooperative Bank and the sale of a package of loans by BOC PCL (Project Helix). Total loans at the end of
2019 were €33.7 billion or 153% of GDP compared to €39.2 billion at the end of 2018. Loans to residents
excluding the government were €26.3 billion as at end 2019. The stock of NPEs declined from €20.9 billion
at the end of December 2017 to €10.4 billion at the end of December 2018 and to €9.5 billion at the end of
November 2019. The ratio to gross loans was 28.6% and the coverage ratio was 54.6% also at end
November 2019.
In the public sector, the process of fiscal consolidation that started under the economic adjustment
programme reversed the large budget deficits of the period 2009-2013 to sizeable surpluses. The budget
surplus was 1.7% of GDP in 2017 and 3.0% of GDP in 2018, excluding the fiscal burden associated with the
orderly resolution of the Cyprus Cooperative Bank. Total public debt rose from 93.9% of GDP at the end of
2017 to 100.6% of GDP at the end of 2018. This increase was attributable to the fiscal burden from the
resolution of the Cyprus Cooperative Bank. In 2019 the budget surplus was 2.7% of GDP and the total
public debt was down to 95.5% of GDP (Cyprus Statistical Service).
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Operating environment (continued)
Cyprus macroeconomic outlook
Looking forward to 2020, the outlook is severely affected by the COVID-19 outbreak. According to the IMF’s
April 2020 World Economic Outlook, the Cypriot economy is expected to contract by 6.5% in the year and
to rebound by 5.6% in 2021. In comparison, the IMF forecasts a 7.5% contraction in the Euro Area in 2020
to be followed by a rebound of 4.7% in 2021. Fiscal support measures are expected to limit the contraction
of the Cypriot economy, but to lead to a deterioration of the Government’s fiscal position. The fiscal balance
is expected to turn from a surplus into a sizeable deficit in 2020 and public debt to rise significantly.
The sovereign risk ratings of the Cyprus Government improved considerably in recent years reflecting
expectations of a sustained decline in public debt as a ratio to GDP, 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. S&P
Global Ratings maintains an investment grade rating (BBB-) with a stable outlook since September 2018,
which was affirmed in March 2020.
In April 2020, Fitch affirmed its rating and revised its outlook to stable, reflecting the significant impact the
COVID-19 pandemic might have on the Cypriot economy and fiscal position. Also, in April 2020, Moody’s
issued an update on their credit opinion for the Cyprus Sovereign and revised their forecasts for the Cypriot
economy in view of the COVID-19 outbreak. According to the update, the outbreak will weigh on near term
growth and fiscal prospects, but the impact on the credit profile is expected to be temporary.
Business Overview
As the Cypriot operations account for 99% of gross loans and 100% of customer deposits, the Group’s
financial performance is highly correlated to the economic and operating conditions in Cyprus. In June 2019,
Moody’s Investors Service affirmed BOC PCL’s long-term deposit rating of B3 (positive outlook) and in July
2019, Standard and Poor’s affirmed their long-term issuer credit rating on BOC PCL of ‘B+’ (stable outlook).
In November 2019, Fitch Ratings affirmed their long-term issuer default rating of B- (positive outlook). In
April 2020, Fitch Ratings revised their outlook to negative, reflecting the significant impact the outbreak of
COVID-19 might have on the Cyprus economy and consequently BOC PCL.
The Group is closely monitoring developments in, and the effects of COVID-19 on both the global and local
Cypriot economy. On the basis of currently available information, the Group is not in a position to accurately
assess the magnitude of the future impact of COVID-19 on the Group’s operations and financial results, as
this will principally depend on the rate and extent of the spread of the virus, its direct and indirect impact
on customers and the effectiveness of the regulatory and fiscal measures taken to support the economy and
mitigate the impact of the virus.
In common with other European banks, the persistently low interest rate environment continues to present
a challenge to the Group’s profitability. As a consequence of the current challenging economic conditions
resulting from the COVID-19 outbreak, the Group will update its macroeconomic assumptions underlying
the IFRS 9 calculation of loan credit losses for the first quarter of 2020 as per EBA guidelines, and
anticipates that this may result in increased organic provisions in the first quarter of 2020, although the
exact quantum of any such increase is as yet unknown. Despite the lower transactional income and lower
demand for loans currently observed, the on-going economic uncertainty means that the Group does not
have sufficient visibility about the likely future impact of COVID-19 on its operations or financial results, and
therefore is currently not in a position to provide guidance for the current financial year. However, the
Group’s good capital base and strong liquidity, position it to be able to support its customers through this
period of extreme volatility.
The Group’s medium-term strategic priorities remain clear, with a sustained focus on strengthening its
balance sheet, and improving asset quality and efficiency in order to continue to play a vital role in
supporting the Cypriot economy.
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Business Overview (continued)
In light of the recent outbreak of COVID-19, the Group is taking all appropriate measures, in line with
guidelines and recommendations issued by the Ministry of Health, to protect the health of both staff and
customers while ensuring the operational resilience of BOC PCL.
Upon the outbreak of COVID-19, the Pandemic Incident Management Plan (PIMP) of the Group was invoked
and a dedicated team is monitoring the situation domestically and globally and provide guidance on health
and safety measures, travel advice and business continuity for our Group. Local government guidelines are
being followed in response to the virus. Also, the potential economic implications for the sectors where the
Group is active in are being assessed in order to identify possible mitigating actions.
In accordance with the Pandemic Plan, the Group has adopted a set of measures to ensure minimum
disruption to its operations. The measures comprise rules for quarantine for employees who are vulnerable
due to health conditions and for those who have returned from epicentres of the infection. The Group has
replaced face-to-face meetings with telecommunications, adjusting the customary etiquette of personal
contact, including those with customers. Staff for critical functions has been split into separate locations. In
addition, to ensure continuity of business, many employees are working from home and the remote access
capability has been updated significantly. Additionally, the Group follows strict rules of hygiene, increased
intensity of cleaning and disinfection of spaces, and other measures to protect the health and safety of staff
and customers.
As the leading financial institution in the country, the Group has a good capital position and a significant
liquidity surplus of over €3 billion, as it heads into uncertain times, to support its customers and the
economy to recover from this shock. BOC PCL has considerable experience in managing challenging
circumstances. The Management maintains its relentless focus on asset quality, funding, capital and
efficiency to ensure BOC PCL maintains its financial strength, but remains equally flexible to adjust its short
term priorities as needed to react to the emerging conditions of these unprecedented times. The
Management’s investment in the digital transformation programme has strengthened the Group’s
operational resilience and enabled the full deployment of digital service channels to customers. For further
information, please refer to the section ‘Digital Transformation’ below.
In addition, the package of policy measures announced by the ECB, and the European Commission as well
as the unprecedented fiscal and other measures of the Cyprus Government should help reduce the negative
impact and support the recovery of the Cypriot economy. For further information please refer to Note 56
'Events after the reporting date' of the Financial Statements for the year ended 31 December 2019.
Tackling the BOC PCL 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. Following the
outbreak of COVID-19 the Group is now focused on arresting any potential asset quality deterioration. Once
economic conditions normalise, the Group expects to resume its efforts to improve its asset quality position
by seeking solutions, both organic and inorganic, to make BOC PCL a stronger and safer institution, capable
of continuing to support the local economy.
The July 2018 foreclosure law amendments have expedited the process and limited options to frustrate
execution. In July 2019, the Cyprus Parliament voted through certain changes to the 2018 law which, in the
most part, seek to (a) provide additional checks and balances where banks are seeking to foreclose small
loans (<€350 thousand) secured by a principal private residence, and (b) extend the foreclosure timetable
by extending various notice periods. 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. Following the outbreak of COVID-19,
the foreclosure process has been suspended until 18 June 2020, in line with the decision of the Association
of Cyprus Banks.
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Business Overview (continued)
The strategic focus of the Group on asset quality, funding, capital and efficiency aims to ensure that it
maintains its financial strength. During the year ended 31 December 2019, new lending exceeded €2.0
billion, the highest since 2015. To date, growth in new lending in Cyprus has been focused on selected
industries more in line with BOC PCL’s target risk profile, such as tourism, trade, real estate, professional
services, information/communication technologies, energy, education and green projects. The Group has
also been exploring ways to grow its new lending, including careful, modest new lending in shipping,
syndicated loans, as well as other initiatives.
Following the outbreak of COVID-19, the sectors most adversely affected initially are expected to be
tourism, trade, transport and construction. It is expected that tourism will be the most affected sector in
Cyprus. The Group has a well-diversified performing loan portfolio. As at 31 December 2019, the Group’s
performing loan book exposure to tourism was limited to €1.0 billion, out of a total performing loan book of
€9.2 billion. Respectively, the Group’s performing loan book exposure to trade was also €1.0 billion, whilst
construction was limited to €0.5 billion. At the same time, the Group had only a small exposure to the oil
and gas industry of less than €45 million.
Aiming at supporting investments by SMEs and mid-caps to boost the Cypriot economy, and create new
jobs for young people, BOC PCL continues to provide joint financed schemes. To this end, BOC PCL
continues its partnership with the European Investment Bank (EIB), the European Investment Fund (EIF),
the European Bank for Reconstruction and Development (EBRD) and the Cyprus Government.
Management is also placing emphasis on diversifying income streams by optimising fee income from
international transaction services, wealth management and insurance. The Group’s insurance companies,
EuroLife Ltd and General Insurance of Cyprus Ltd operating in the sectors of life and general insurance
respectively, are leading players in the insurance business in Cyprus, as such business have been providing
a stable, recurring fee income, further diversifying the Group’s income streams. The insurance income net
of claims and commissions for FY2019 amounted to €58 million, up by 9% compared to 2018 contributing
to 19% of non-interest income.
In order to further optimise its funding structure, BOC PCL continues to focus on the shape and cost of
deposit franchise, taking advantage of the increased customer confidence towards BOC PCL. The cost of
deposits has been reduced by 60 bps to 16 bps over the last 24 months. In addition liquidity fees for
specific customer groups have been introduced in March 2020.
A key focus of the Group remains the active management of funding costs and on-going running expenses.
The Digital Transformation Programme that started in 2017 has begun to deliver an improved customer
experience (see section below), whilst the branch footprint rationalisation continued throughout 2019,
further improving the operating model of BPC PCL. The number of branches was reduced by 18% in 2019
and the branch network is now less than half the size it was in 2013. The management remains focused on
further improvement in efficiency.
Digital Transformation
As part of its vision to be the leading financial hub in Cyprus, BOC PCL continues its Digital Transformation
Programme, which focuses on three strategic pillars: developing digital services and products that enhance
the customer experience, streamlining internal processes, and introducing new ways of working to improve
the workplace environment.
In recent months, various new features were introduced on the new mobile app, such as managing standing
orders and direct debits, login through biometric authentication and viewing own accounts with UK and
Cypriot banks. Also, financial management tools have been introduced that allow our customers to use the
1Bank service to better manage their finances. Moreover, Mastercard holders are now able to make secure
and fast payments through Apple Pay (iOS) and soon they will also be able to do this through BoC Wallet
(Android).
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Business Overview (continued)
Digital Transformation (continued)
Moreover, the launch of the new Cards and Payments systems has been completed. This expected to offer
customised solutions and improve the customer banking experience. For example, it is expected to offer
new features through mobile banking in 2020, such as the ability for the customer to freeze their credit or
debit card in the event of a loss (freeze and unfreeze), and the ability to determine a maximum limit for
specific transactions.
The adoption of digital products and services continued to grow and gain momentum in 2019. As at the end
of 2019, 77% of the number of transactions involving deposits, cash withdrawals and internal/external
transfers were performed through digital channels (compared to 67% two years earlier). Regarding the use
of mobile banking, the number of active users increased by 20% in 2019. In 2020, as a result of the
COVID-19 restrictive measures, a reduction in cash withdrawals and deposits performed through the branch
network has been observed. An increase in the adoption of digital products and services and in digital
subscriber penetration has also been observed as more customers have gained access to digital channels
and more cards have been issued. As at the end of March 2020, 70% of customers were digitally engaged
(up by 10 p.p. from 60% since the digital transformation programme was initiated in September 2017). A
further increase is expected in 2Q2020 driven by the increase in the number of subscribers and the number
of cards that have been issued. Within this context, the Bank has launched various initiatives aiming to
provide better, faster and safer services. Such initiatives include amongst others the issuance of debit cards
free of charge until the end of May 2020, as well as the provision of SMS Digipass devices free of charge.
Additionally, new customers can open an account via the Bank’s website and receive a debit card free of
charge, and new customers can receive free subscription to internet banking.
Furthermore, changes in the workplace, with the introduction of new technologies and tools that will
drastically change the employee experience, improving collaboration and knowledge sharing across the
organisation, are expected to be seen in 2020.
Within 2020 the Group expects to see 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.
BOC PCL has been awarded the 'Best Consumer Digital Bank in Cyprus' award for 2019 by Global Finance.
Strategy and Outlook
The strategic objectives for the Group are 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:
Arrest any asset quality deterioration resulting from the outbreak of COVID-19 and further reduce
the level of delinquent loans upon normalisation of market and operational conditions.
Achieve a lean operating model
Maintain an appropriate capital position by internally generating capital
Further optimise the funding structure
Focus on the core Cyprus market
Deliver value to shareholders and other stakeholders
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
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Annual Financial Report 2019
Strategy and Outlook (continued)
KEY PILLARS
ACTION TAKEN IN 2019
1. Arrest any asset quality
deterioration resulting from the
outbreak of COVID-19 and further
reduce the level of delinquent
loans upon normalisation of
market and operational
conditions
2. Achieve a lean operating
model
3. Maintain an appropriate capital
position
4. Further optimise the funding
structure
5. Focus on core Cyprus market
6. Deliver value
Please refer to Sections
‘Loan Portfolio Quality’
and ‘Real Estate
Management Unit’
Please refer to Section
‘(Loss)/profit after tax
(attributable to the
owners of the Company)’
and 'Total expenses' for
further details in relation
to the voluntary staff exit
plan and Section ‘Business
Overview’
Please refer to Section
‘Capital Base’
Please refer to Section
‘Funding and Liquidity’
Please refer to Sections
‘Loans’, ‘Total income’ and
‘Business Overview’
Please refer to Key
Balance Sheet figures and
ratios, as well as the
Capital ratios and risk
weighted assets
PLAN OF ACTION
Focus on realising
collateral via consensual
and non-consensual
foreclosures
Real estate management
via REMU
Continue to explore
alternative measures for
accelerating NPE
reduction, such as NPE
sales, securitisations etc.
Implementation of Digital
Transformation
Programme underway,
aimed at enhancing
productivity through
alternative distribution
channels and reducing
operating costs over time
Management remains
focused on further
improvement in efficiency
Internally generating
capital
Focus on shape and cost
of deposit franchise
Introduction of liquidity
fees
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
stable, recurring income
Deliver appropriate
medium-term risk-
adjusted returns
The Group is closely monitoring developments in, and the effects of COVID-19 on both the global and
Cypriot economy. On the basis of currently available information, the Group is not in a position to accurately
assess the magnitude of the future impact of COVID-19 on the Group’s operations and financial results, as
this will principally depend on the rate and extent of the spread of the virus, its direct and indirect impact
on customers and the effectiveness of the regulatory and fiscal measures taken to support the economy and
mitigate the impact of the virus.
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Strategy and Outlook (continued)
In common with other European banks, the persistently low interest rate environment continues to present
a challenge to the Group’s profitability. As a consequence of the current challenging economic conditions
resulting from the COVID-19 outbreak, the Group will update its macroeconomic assumptions underlying
the IFRS 9 calculation of loan credit losses for the first quarter of 2020 as per EBA guidelines, and
anticipates that this may result in increased organic provisions in the first quarter of 2020, in line with the
relevant regulatory guidance although the exact quantum of any such increase is as yet unknown. Despite
the lower transactional income and lower demand for loans currently observed, the on-going economic
uncertainty means that the Group does not have sufficient visibility about the likely future impact of COVID-
19 on its operations or financial results, and therefore is currently not in a position to provide guidance for
the current financial year. However, the Group’s good capital base and strong liquidity, position it to be able
to support its customers through this period of extreme volatility.
The Group’s medium-term strategic priorities remain clear, with a sustained focus on strengthening its
balance sheet, and improving asset quality and efficiency in order to continue to play a vital role in
supporting the Cypriot economy.
Going concern
The Directors have made an assessment of the Group’s ability to continue as a going concern for a period of
12 months from the date of approval of these Consolidated Financial Statements. The Directors believe that
the Group is taking all necessary measures to maintain its viability and the development of its business in
the current economic environment.
In making this assessment, the Directors considered the significant transactions completed during 2019
which had a positive impact on the capital position of the Group, primarily the sale of non-performing loans
(the Helix transaction) and the sale of BOC PCL’s 49.9% holding in CNP Cyprus Insurance Holdings Ltd. The
Directors have also considered the legislative amendments on the Income Tax Law Amendment 28 (I) of
2019, enacted on 1 March 2019, which allow for the conversion of specific deferred tax assets (DTA) into
deferred tax credits (DTC), and the developments in the operating environment in Cyprus.
The Group has developed a Financial and Capital Plan which was approved by the Board in February 2019
and was updated and approved by the Board in December 2019 (the ‘Plan’). The Plan ensures that the
Group has sufficient resources to continue the balance sheet de-risking and deal with the remaining NPEs.
Given the COVID-19 outbreak in early 2020, the going concern assessment included consideration of the
impact of the COVID-19 outbreak on the Plan and particularly the Group’s capital and liquidity position in
the context of the emerging developments in the economy, the Cyprus government economic relief
measures and the amended regulatory requirements, including the measures taken by the regulators and
other authorities following the COVID-19 outbreak, as described below. The Directors have concluded that
the Group, the Company and BOC PCL have the ability to continue to operate as a going concern for a
period of 12 months from the date of approval of these Financial Statements.
COVID-19 outbreak
The Directors have considered the COVID-19 outbreak and the uncertainties and disruption created. COVID-
19 has affected a large number of countries, infecting millions of people worldwide. Given the trend and
pace of developments globally, and particularly in the Eurozone, the severity and longevity of the outbreak
are still unknown and therefore no reliable estimate of the impact that could materialise can be made at this
stage. However, international and multilateral organisations, as well as rating agencies, have revised down
their projections for the growth of the European and World economies in 2020/2021. Depending on the
length and severity of this disruption, the Group’s activity and financial performance and position will be
impacted to greater or a lesser extent.
As the situation has arisen after the Group completed its planning process, additional work has been
undertaken to examine the potential impact. This included the development of macroeconomic scenarios,
base and adverse, which are severe yet plausible scenarios. The current situation is uncertain and while
response to COVID-19 involves announced government intervention which is expected to support
repayment ability, it is reasonably expected that this will have a negative impact on the credit quality and
collateral values. The COVID-19 scenarios developed take into consideration the following drivers and
implications:
30
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
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Annual Financial Report 2019
Going concern (continued)
Government guidance and policy response to the crisis
Capital and liquidity relief measures as well as other supervisory actions
Lost output and productivity as a consequence of travel restrictions and social distancing
Impact on employment levels and relevant unemployment rates
Impact on relevant economic variables, the most significant of which include residential and
commercial property prices, national output and lending volumes
Among the COVID-19 scenarios considered, there are severe scenarios designed to be extreme but
plausible based on the assumption that the impact on the economy is immediate and feeds through rising
unemployment levels, declining residential and commercial property prices and slowdown of lending
volumes with signs of recovery later than the base scenario.
The assumptions and estimates were based on the latest developments and information available at the
time of approval of these financial statements. The scenarios considered the guidance provided by the EBA,
ECB, International Accounting Standards Board (IASB) and European Securities & Markets Authority (ESMA)
in this respect. The scenarios also considered the response measures taken in order to support the
European banking system, including the capital and liquidity requirement relaxations, as well as the
measures taken by the Cyprus Government and CBC. These measures are described in Note 56 ‘Events
after the reporting date’.
The potential impact of COVID-19 pandemic on the economy and Group’s operations and financial
performance is subject to continuous monitoring through the Group’s management committees, business
continuity team, with appropriate escalation to the Board of Directors and supervisory authorities. Given the
evolving nature of the COVID-19 pandemic crisis, the Group will continue to update its macroeconomic
scenarios and assess the potential impact on the Group’s financial performance and position as well as
capital and liquidity position.
Capital
The following items have been considered in relation to the Group’s capital adequacy throughout the period
of going concern assessment:
The Common Equity Tier 1 (CET1) ratio and the Total Capital ratio on a transitional basis at 31
December 2019 are higher than the SREP requirements (Note 4.1).
The Group’s capital position which allows further risk reduction and recalibration of the cost base.
The Group remains focused to implement the actions contemplated in the Plan submitted to the
ECB, albeit over a longer timeframe as a result of the COVID-19 outbreak.
The capital relief measures announced by the ECB, the EBA, the CBC, the Cyprus Government
and the Eurogroup in order to allow the banks to absorb the impact of the COVID-19 outbreak
and support the real economy as well as the regulatory forbearance as allowed by the Guidelines
issued in April 2020 by the EBA (Note 56).
The measures taken by the Group to protect its employees and the activation of the Group's
Business Continuity Plan ensuring that critical operations are not interrupted.
The completion of the Helix transaction in June 2019 which, along with organic reduction over the
last years, led to a significant decrease of NPEs. The reduction of NPEs has been a regulatory
focus for a number of years. The Group has prepared an updated NPE strategy plan for the years
2019-2021 which was submitted to the ECB in June 2019. The Directors believe that the
reduction of NPEs is a significant factor with regards to the future viability of the Group as a pillar
bank in Cyprus.
The Group has elected to apply the phasing-in of the total impact on adoption of IFRS 9 of
€308,511 thousand and any subsequent increase allowed for phasing in (i.e. increase in Stage 1
and Stage 2 allowance), which will impact the capital ratios over a period of five years.
Funding and liquidity
The following items have been considered in relation to the Group’s liquidity position throughout the period
of the going concern assessment:
The Group is monitoring its liquidity position and is considering ways to further reduce the
deposits cost.
The various measures of regulators which aim to mitigate the impact of the COVID-19 outbreak.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
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Annual Financial Report 2019
Going concern (continued)
The Group is in compliance with the Liquidity Coverage Ratio (LCR) and is significantly above the
minimum requirements (Note 48).
Economic environment
As the Cypriot operations account for 99% of gross loans and 100% of customer deposits, the
Group’s financial performance is highly correlated to the economic and operating conditions in
Cyprus. The sovereign risk ratings of the Cyprus Government improved considerably in recent
years reflecting expectations of a sustained decline in public debt as a ratio to GDP, further
declines in non-performing exposures and a more stable price environment following a protracted
period of deflation and low inflation. In October 2019, Fitch affirmed its rating (BBB-) and
upgraded its outlook from stable to positive. In September 2019 Moody’s affirmed its rating Ba2
and upgraded its outlook to positive. S&P Global Ratings maintains an investment grade rating
(BBB-) with a stable outlook since September 2018, which was affirmed in March 2020.
In April 2020, Fitch affirmed its rating and revised its outlook to stable, reflecting the significant
impact the COVID-19 pandemic might have on the Cyprus economy and fiscal position. Also, in
April 2020, Moody’s issued an update on their credit opinion for the Cyprus Sovereign and revised
their forecasts for the Cyprus economy in view of the COVID-19 outbreak. According to the
update, the outbreak will weigh on near term growth and fiscal prospects, but the impact on the
credit profile is expected to be temporary.
With respect to the BOC PCL’s ratings, in June 2019, Moody’s Investors Service affirmed the BOC
PCL’S long-term deposit rating of B3 (positive outlook) and in July 2019, Standard and Poor’s
affirmed their long-term issuer credit rating on BOC PCL of ‘B+’ (stable outlook). In November
2019, Fitch Ratings affirmed their long-term issuer default rating of B- (positive outlook). In April
2020, Fitch Ratings revised their outlook to negative, reflecting the significant impact the
outbreak of COVID-19 might have on the Cyprus economy and consequently BOC PCL.
The global and domestic macroeconomic conditions as a result of the COVID-19 crisis are the
primary risk factors for the Cyprus economy and the banking sector in Cyprus. Adverse
developments regarding growth, fiscal policy, unemployment and real estate prices, could have a
negative impact on the BOC PCL’s capital adequacy and liquidity position. The financial
implications depend to a large extent on how long this crisis will last and vary on a case-by-case
basis as each sector of the economy is affected differently. In the context of efforts to relieve
individuals and businesses most affected by the coronavirus and its associated restrictive
measures, the Cyprus government has announced a package of tax and other relief measures. At
the same time, the ECB and the CBC are taking a number of measures to enhance the liquidity of
the credit institutions and also facilitate the gradual absorption of the effects on the capital
adequacy ratios, as described in Note 56 ‘Events after the reporting date’ of the Consolidated
Financial Statements.
Viability statement
In accordance with the requirements of Provision 31 of the UK Corporate Governance Code 2018 (UK Code),
the Directors have assessed the viability of the Group, taking account of the Group’s current position and
the potential impact of the main risks that the Group is facing.
Time horizon
The Directors have selected a three year period for this assessment in arriving at the viability statement,
which is also within the usual planning process of the Group.
Planning process and assessment
The Directors have assessed the prospects of the Group through a number of sources, including the latest
Financial plan of the Group, the NPE strategy, the Internal Capital Adequacy Assessment Process (ICAAP)
and the Internal Liquidity Assessment Process (ILAAP) reports. In addition, the Directors have assessed
emerging risks as a result of the COVID-19 outbreak.
The Group’s financial plan takes account the Group’s strategy, risk appetite and objectives in the context of
its operating environment including actual and reasonably expected changes in the Cyprus macroeconomic
environment, competitive landscape, margin pressures and capital requirements.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
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Viability statement (continued)
The Group prepared a detailed NPE Strategy Plan for the 3-year period 2019-2021 as requested by the
Single Supervisory Mechanism (SSM). The plan was approved by the Board of Directors of the Company and
submitted to the SSM in June 2019. The annual update of the strategy for years 2020-2022 was planned to
be submitted to the ECB by the end of June 2020. Due to the COVID-19 developments, the submission of
the NPE strategy has been postponed by the ECB to 30 September 2020.
The ICAAP is an annual process that demonstrates whether the Group has all the necessary procedures in
place in adequately identifying, measuring and monitoring the Group’s risks and ensures that the Group
holds adequate capital to support its risk profile, under both a base case and a stress case. The Group also
undertakes a quarterly review of its ICAAP results considering the latest actual and forecasted information.
During the quarterly review, the Group’s risk profile and risk management policies and processes are
reviewed and any changes since the annual ICAAP exercise are taken into consideration.
The ICAAP process demonstrates that the Group has sufficient capital, under both the base and stress case
scenarios, to support its business and achieve its objectives having regard to its Board approved Risk
Appetite and Strategy, and to meet its regulatory capital, leverage and liquidity requirements.
The Group’s ILAAP analysis demonstrates that the volume and capacity of liquidity resources available to
the Group are adequate to support its business model, to achieve its strategic objectives under both the
business as usual and severe stress scenarios and to meet regulatory requirements including the LCR and
NSFR.
The Group prepares the ICAAP and ILAAP reports annually. Both reports for year 2018 were approved by
the Board of Directors and submitted to the SSM in April 2019. Given completion of the full ICAAP report in
April 2019, two quarterly reviews have taken place in the third and fourth quarter of 2019 covering the
period up to end of June 2019 and the period up to end of September 2019, respectively.
The current year ICAAP and ILAAP reports are in advanced stages of completion and have been submitted
for approval to the Board of Directors through the Assets and Liabilities Committee (ALCO) and will be
submitted to the SSM by the end of April 2020. The base case of the ICAAP report is the latest Plan of the
Group approved by the Board in December 2019. Due to the timing of the two reports, the business plans
and ICAAP and ILAAP stress scenarios have not been updated to reflect the impact of the COVID-19 in line
with relevant supervisory communication on this issue; however the COVID-19 preliminary estimated
impact on capital and liquidity (as per the scenarios discussed below) have been referenced commented in
the ICAAP and ILAAP reports under a separate section. Given the evolving nature of the COVID-19
pandemic crisis, the Group will continue to update its macroeconomic scenarios and assess the potential
impact on the Group’s capital and liquidity position.
Risk management
The Group identifies, assesses, manages and monitors its risk profile based on the disciplines outlines within
the Risk Management Framework. The Group is exposed to a number of risks, the most significant of which
are credit risk, liquidity risk, litigation risk, market risk (arising from adverse movements in exchange rates,
interest rates and security prices) and risk on changes in the fair value of property. Those risks are
monitored, managed and mitigated through various control mechanisms and processes set out in the
Principal risks and uncertainties Risk management and mitigation section below.
Further, stress testing is an integral risk management principle used to assess the financial and operational
resilience of the Group. Stresses are applied to capital requirements and liquidity and funding mix. The
Group carries out the stress testing process through a combination of bottom up and top-down approaches.
Scenario and sensitivity analysis follow a bottom up approach, whereas reverse stress testing follows
through a top-down approach.
The Group has identified a suite of management actions which can be implemented to manage and mitigate
the impact of stress scenarios. Management actions are used to inform capital, liquidity and recovery
planning under stress conditions. This enables us to understand, monitor and control the risks identified.
Management believes that the stress testing process considers a range of severe but plausible scenarios.
However, stress test should not be assumed to be an exhaustive assessment of all possible hypothetical
extreme or remote scenarios.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
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Viability statement (continued)
Emerging risks-COVID-19
In reaching their assessment of viability the Directors have also considered the impact of the current and
rapidly evolving situation of the COVID-19 pandemic as well as the associated government and regulatory
fiscal, monetary and other actions taken, on the Group’s viability.
The Directors have considered the COVID-19 outbreak and the uncertainties and disruption created. COVID-
19 has affected a large number of countries, infecting millions of people worldwide. Given the trend and
pace of developments globally, and particularly in the Eurozone, the severity and longevity of the outbreak
are still unknown and therefore no reliable estimate of the impact that could materialise can be made at this
stage. However, international and multilateral organisations, as well as rating agencies, have revised down
their projections for the growth of the European and World economies in 2020/2021. Depending on the
length and severity of this disruption, the Group’s activity and financial performance and position will be
impacted to greater or a lesser extent.
As the situation has arisen after the Group completed its planning process, additional work has been
undertaken to examine the potential impact. This included the development of macroeconomic scenarios,
base and adverse, which are severe yet plausible scenarios. The current situation is uncertain and while
response to COVID-19 involves announced government intervention which is expected to support
repayment ability, it is reasonably expected that this will have a negative impact on the credit quality,
collateral values and revenue. The COVID-19 scenarios developed take into consideration the following
drivers and implications:
Government guidance and policy response to the crisis.
Capital and liquidity relief measures as well as other supervisory actions.
Lost output and productivity as a consequence of travel restrictions and social distancing.
Impact on employment levels and relevant unemployment rates.
Impact on relevant economic variables, the most significant of which include residential and
commercial property prices, national output and lending volumes.
Among the COVID-19 scenarios considered, there are severe scenarios designed to be extreme but
plausible based on the assumption that the impact on the economy is immediate and feeds through rising
unemployment levels, declining residential and commercial property prices and slowdown of lending
volumes with signs of recovery later than the base scenario.
The assumptions and estimates were based on the latest developments and information available at the
time of approval of these financial statements. The scenarios considered the guidance provided by the EBA,
ECB, IASB and ESMA in this respect. The scenarios also considered the response measures taken in order
to support the European banking system, including the capital and liquidity requirement relaxations, as well
as the measures taken by the Cyprus Government and CBC. These measures are described in Note 56
‘Events after the reporting date’.
The potential impact of COVID-19 pandemic on the economy and Group’s operations and financial
performance is subject to continuous monitoring through the Group’s management committees, business
continuity team, with appropriate escalation to the Board of Directors and supervisory authorities. Given
the evolving nature of the COVID-19 pandemic crisis, the Group will continue to update its macroeconomic
scenarios and assess the potential impact on the Group’s financial performance and position as well as
capital and liquidity position.
Conclusion
In reaching their conclusion, in addition to the modelling outlined above, the Directors have also considered
a number of factors including but not limited to:
The Group’s capital position - TCR as at 31 December 2019 stands at 18%.
The Group’s strong liquidity position- LCR as at 31 December 2019 at 208%.
The declining NPE ratio.
The fact that the Group has continued to operate effectively to date and is well prepared to
continue to do so if the current situation with COVID-19 continues.
The capital and liquidity relief measures by the regulators as well as other supervisory actions.
34
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Viability statement (continued)
The Directors confirm that based on their assessment of the principal risks and the assessment of the
Group’s current position and prospects, the Directors have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as they fall due over the period to 31 December 2022.
Capital base
Εquity totalled €2,040 million at 31 December 2019, compared to €2,121 million at 31 December 2018. The
CET1 ratio (transitional) stood at 14.8% at 31 December 2019 compared to 12.1% at 31 December 2018.
The CET1 ratio was negatively affected by the voluntary staff exit plan, which was completed in October
2019, the phasing in of transitional adjustments, mainly the IFRS 9, the disposal of the associate CNP
Cyprus Insurance Holdings Ltd, which was completed in October 2019, the loss for the year and the
agreement for the sale of NPEs (Velocity 2 and Helix tail) and was positively affected by the tax legislation
amendments relating to the conversion of deferred tax assets into deferred tax credits (DTC) adopted by
the Cyprus Parliament on 1 March 2019 and published on the Official Gazette of the Republic on 15 March
2019. The Total Capital ratio (transitional) at 31 December 2019 stood at 18.0% (2018: 14.9%).
Additional information on the regulatory capital is disclosed in the Additional Risk and Capital Management
Disclosures which form part of this Annual Report and in the Pillar III Disclosures Report, which is available
on the Group’s website www.bankofcyprus.com (Investor Relations).
Share capital
As at 31 December 2019, there were 446,199,933 issued ordinary shares with a nominal value of €0.10
each. Information about the changes on the authorised and issued share capital during 2019 and 2018 is
disclosed in Note 36 of the Consolidated Financial Statements.
Share-based payments - share options
Following the incorporation of the Company and its introduction as the new holding company of the Group in
January 2017, the Long-Term Incentive Plan (as approved on 24 November 2015 by the Annual General
Meeting of BOC PCL) was replaced by the Share Option Plan which operates at the level of the Company.
The Share Option Plan is identical to the Long-Term Incentive Plan except that the number of shares in the
Company to be issued pursuant to an exercise of options under the Share Option Plan should not exceed
8,922,945 ordinary shares of a nominal value of €0.10 each and the exercise price was set at €5.00 per
share. The term of the options was also extended to between 4-10 years after the grant date.
No share options were granted since the date of replacement of the Long-Term Incentive Plan by the Share
Option Plan at the level of the Company. Any shares related to the Share Option Plan carry rights with
regards to control of the Company that are only exercisable directly by the employee.
Treasury shares of the Company
Shares of the Company held by entities controlled by the Group are deducted from equity on the purchase,
sale, issue or cancellation of such shares. No gain or loss is recognised in the consolidated income
statement.
The life insurance subsidiary of the Group, as at 31 December 2019, held a total of 142 thousand ordinary
shares of the Company of a nominal value of €0.10 each (2018: 142 thousand ordinary shares of a nominal
value of €0.10 each), as part of its financial assets which are invested for the benefit of insurance
policyholders (Note 25 of the Consolidated Financial Statements). The cost of acquisition of these shares
was €21,463 thousand (2018: €21,463 thousand).
For additional disclosures refer to Note 36 of the Consolidated Financial Statements, which is incorporated
by reference in this Directors' Report.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
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Annual Financial Report 2019
Change of control
There are no significant agreements to which the Company is a party and which take effect following a
change of control of the Company, but the Company is party to a number of agreements that may allow the
counterparties to alter or terminate the agreements following a change of control. These agreements are
not deemed to be significant in terms of their potential effect on the Group as a whole.
The Group also has agreements which provide for termination if, upon a change of control of the Company,
the Company’s creditworthiness is materially worsened.
Other information
During 2019 and 2018 there were no restrictions on the transfer of the Company’s ordinary shares or
securities and no restrictions on voting rights other than the provisions of the Banking Law of Cyprus which
requires the CBC approval prior to acquiring shares of the Company in excess of certain thresholds, and the
generally applicable provisions of the Market Abuse Regulation and the European community (Takeover Bids
(Directive 2004/25/EC)) Regulations 2006. From time to time, specific shareholders may have their rights in
shares restricted in accordance with sanctions, anti-corruption, anti-money laundering and/or anti-terrorism
compliance.
Shares of the Company held by the life insurance subsidiary of the Group as part of its financial assets
which are invested for the benefit of insurance policyholders carry no voting rights, pursuant to the
insurance law. The Company does not have any shares in issue which carry special control rights.
There are no agreements between shareholders, known to the Company, which may result in restrictions on
the transfer of securities or voting rights.
Rights and obligations of ordinary shares
In accordance with the Company’s Constitution, the rights and restrictions attaching to the ordinary shares
are as follows:
subject to the right of the Company to set the record dates for the purposes of determining the
identity of members entitled to notice of and/or to vote at a general meeting, the right to attend
and speak at any general meeting of the Company and to exercise one vote per ordinary share at
any general meeting of the Company;
the right to participate pro rata in all dividends declared by the Company; and
the right, in the event of the Company’s winding up, to participate pro rata in the total assets of
the Company.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Major holders of shares and financial instruments
As at 31 December 2019 and 31 March 2020, the Company has been advised of the following notifiable
interests in the share capital of the Company:
Number of
ordinary shares
or Depositary
Interests
representing
Company
ordinary shares
% held
Financial
instruments with
similar economic
effect (Regulation
17(1)(b) of the
Transparency
(Directive
2004/109/EC)
Regulations 2007 of
Ireland as
amended)
% held
41,383,699
2,650,878
22,401,744
21,467,719
16,383,514
15,975,880
15,645,983
9.27
0.59
5.02
4.81
3.67
3.58
3.51
-
-
25,196,557
5.65
-
-
-
-
-
-
-
-
-
-
Number of
ordinary shares
or Depositary
Interests
representing
Company
ordinary shares
% held
41,383,699
10,007,877
23,596,844
22,401,744
21,467,719
16,383,514
15,433,817
14,891,907
9.27
2.24
5.29
5.02
4.81
3.67
3.46
3.34
Financial
instruments with
similar economic
effect (Regulation
17(1)(b) of the
Transparency
(Directive
2004/109/EC)
Regulations 2007 of
Ireland as
amended)
% held
-
-
25,196,557
5.65
-
-
-
-
-
-
-
-
-
-
-
-
31 December 2019
Lamesa Investments Ltd
Caius Capital LLP
European Bank for Reconstruction and Development
Cyprus Popular Bank Public Co Ltd
Senvest Management LLC
Eaton Vance Management
TD Asset Management
31 March 2020
Lamesa Investments Ltd
Caius Capital LLP
Morgan Stanley & Co International plc
European Bank for Reconstruction and Development
Cyprus Popular Bank Public Co Ltd
Senvest Management LLC
Eaton Vance Management
TD Asset Management
Dividends
Based on the SREP decisions of prior years, the Company and BOC PCL were under a regulatory prohibition
for equity dividend distribution and therefore no dividends were declared or paid during years 2019 and
2018.
Following the 2019 SREP decision, the Company and BOC PCL are still under equity dividend distribution
prohibition. This prohibition does not apply if the distributions are made via the issuance of new ordinary
shares to the shareholders which are eligible as Common Equity Tier 1 capital.
No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company
and BOC PCL.
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Principal risks and uncertainties - Risk management and mitigation
Like other financial organisations, the Group is exposed to risks, the most significant of which are credit
risk, liquidity risk, market risk (arising from adverse movements in exchange rates, interest rates and
security prices) and insurance risk. The Group monitors, manages and mitigates these risks through
various control mechanisms. Detailed information relating to Group risk management is set out in Notes 46
to 49 of the Consolidated Financial Statements in the Additional Risk and Capital Management Disclosures
which form part of the Annual Report for the year ended 31 December and Pillar III Disclosures for the year
ended 31 December 2019.
The Group is also exposed to litigation risk, arising from claims, investigations, regulatory and other
matters. Further information is disclosed in Note 40 of the Consolidated Financial Statements.
Additionally, the Group is exposed to the risk on changes in the fair value of property which is held either
for own use or as stock of property or as investment property. Stock of property is predominately acquired
in exchange of debt and is intended to be disposed of in line with the Group’s strategy. Further information
is disclosed in Note 28 to these Consolidated Financial Statements.
The Group activities are mainly in Cyprus therefore the Group performance is impacted by changes in the
Cyprus operating environment as described in the 'Operating environment' section of this Directors' Report.
In addition, details of the significant judgements, estimates and assumptions which may have a material
impact on the Group’s financial performance and position are set out in Note 5 of these Consolidated
Financial statements.
Details of the financial instruments and hedging activities of the Group are set out in Note 22 of these
Consolidated Financial Statements.
The spread of COVID-19 is expected to have a significant impact on the global economy, at least in the first
half of 2020, and is likely to affect the Group’s financial performance. Specifically, COVID-19 could have an
adverse impact across risks including our credit portfolio, operational risk, people, capital, funding and
liquidity. The Group is closely monitoring the potential effects of COVID-19 and impact on its operations,
businesses and financial performance, including liquidity and capital usage.
Events after the reporting date
Development on the Coronavirus disease (COVID-19) outbreak
With the recent and rapid development of the Coronavirus disease (COVID-19) outbreak, the world
economy entered a period of unprecedented health care crisis that has already caused considerable global
disruption in business activities and everyday life. Many countries have adopted extraordinary and
economically costly containment measures. Governments around the world, including the Republic of
Cyprus, have required certain companies to limit or even suspend normal business operations and have
implemented restrictions on travelling as well as strict quarantine measures.
The Group is closely monitoring developments and the effects of the impact of COVID-19 on the global and
Cyprus economy as well as on the likely effect on the Group’s financial performance and financial position.
Specifically, COVID-19 could have an adverse impact across risks including the credit and investment
portfolios, operational risk, human resources, capital, funding and liquidity.
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Events after the reporting date (continued)
With respect to the Group’s credit portfolio, COVID-19 could negatively impact specific portfolios through
negative rating migrations, higher than expected loan losses, and through the sensitivity of the credit risk
models to macro-parameters. The impact on GDP and other key indicators will be considered when
determining the severity and likelihood of economic scenarios that will be used to estimate ECL under IFRS
9 in 2020. The property portfolio of the Group may incur losses due to market fluctuations and volatility in
case of significant drops in property prices and the speed of property asset reduction may decrease due to
reduced counterparty appetite due to the uncertainties. Following the COVID-19 outbreak and the resultant
volatile market and economic environment, the Fair Value Reserve of the FVOCI debt security portfolio of
the Group held as at 31 December 2019 has decreased by €39 million on 24 April 2020. This change is
recognised directly through OCI. Furthermore, on 24 April 2020, the Group held Cyprus sovereign debt
securities of a nominal amount of €772 million, compared to €477 million on 31 December 2019, of which
€350 million is held at FVOCI portfolio and €422 million is held at amortised cost portfolio. The increase
since year end is mainly due to the Group’s participation on the issuance of the Cyprus Government of 52-
week treasury bills in April 2020.
The extent of the adverse impact of the pandemic on the global and local economy and markets will
depend, in part, on the length and severity of the measures taken to limit the spread of the virus and, in
part, on the size and effectiveness of the compensating measures taken by governments (measures taken
by the Cyprus Government and various regulators are discussed below). The financial effect of the current
crisis on the global economy and overall business activities cannot be estimated with reasonable certainty
at this stage, due to the pace at which the outbreak expands and the high level of uncertainties arising from
the inability to reliably predict the outcome. As the situation is rapidly evolving the Group cannot at this
stage reliably estimate the potential financial impact of the outbreak on the Group.
The event is considered as a non-adjusting event and is therefore not reflected in the recognition and
measurement of the assets and liabilities in the financial statements as at 31 December 2019.
Measures announced by the Cyprus Government
In Cyprus, on 15 March 2020, the Council of Ministers in an extraordinary meeting, announced that it
considers that Cyprus is entering a state of emergency considering the uncertain situation as it unfolds
daily, the growing spread of COVID-19 outbreak and the World Health Organization's data on the situation.
To this end, certain measures have been taken with a view to safeguarding public health and ensuring the
economic survival of working people, businesses, vulnerable groups and the economy at large.
The Cyprus Government announced a ‘Support Programme’ valued at €700 million to address the financial
effects of COVID-19 and support labour population and business in Cyprus. The measures, amongst others
include extension of period and suspension of indirect tax payments and suspension of additional
contributions to the General Health Scheme for three months.
With respect to the measures for the protection of labour relationships for businesses that have suspended
their operations following the relevant decree or businesses that have suffered a more than 25% drop in
revenue, these involve the provision of partial subsidy for the compensation for employees, self-employed
and single-person enterprises affected by the crisis and at the same time ensuring redundancies are
avoided.
In addition, the CBC together with the Government announced the suspension of capital and interest
payments until 31 December 2020 for natural persons, self-employed persons and businesses for all eligible
borrowers with no arrears for more than 30 days as at the end of February 2020. Eligible borrowers can
apply for the suspension. This was passed through a bill in Parliament on 29 March 2020. Following the
Emergency Measures by Financial Institutions and Supervisory Authorities Decree of 2020, dated 30 March
2020, the Group proceeded to announce the procedure through which its clients may apply for the
suspension of instalments and interest on their credit facilities. In response to the moratorium the
Association of Cyprus Banks also announced the non-capitalisation of interest for the period during which
the moratorium is in effect.
39
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Events after the reporting date (continued)
The Cyprus Government has also announced that it intends to provide government guaranteed loans that
can be extended to customers impacted from COVID-19. In accordance with the draft government proposal,
the maximum amount of the guarantees will be €1.75 billion and the guarantee will cover 70% of the new
facilities. Participating banks will provide these loans at prescribed interest rates. The proposed scheme is
still being deliberated upon and no final scheme has been approved to date.
Additionally, the ESTIA Scheme period for submission of applications has been extended for 3 months, until
30 June 2020, aiming to allow qualifying applicants to provide the relevant information supporting the
application.
On 7 April 2020, Cyprus Government issued 7-year and 30-year bonds totalling €1.75 billion to safeguard
the liquidity buffers, to fund the government measures on the one hand and to strengthen state reserves in
accordance with the Medium-Term Public Debt Management Strategy.
Measures announced by regulators
The ECB announced on 12 March 2020 the implementation of a package of monetary policy measures in
order to secure favourable conditions of financing for the economy with the aim to mitigate the effects of
the crisis.
a) Capital Relief measures
On 12 March 2020, the ECB and the EBA announced the following relaxation measures for the minimum
capital requirements for banks:
Banks are temporarily allowed to operate below the level of capital defined by the Pillar II
Guidance, the Capital Conservation Buffer and the Countercyclical Buffer. The Countercyclical
Buffer is 0% for Cypriot Banks.
Banks are allowed to use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to meet Pillar II
Requirements and not only by CET 1; this brings forward a measure that was scheduled to come
in effect in January 2021 with the revision of CRD IV.
The CBC has also decided the postponement of the remaining phase-in of the Other Systemically Important
Institution (O-SII) buffer by one year.
The above measures increase the Group’s capital base available to absorb potential losses due to the crisis.
In addition, the early adoption of CRD V for the composition of Pillar II Requirements provides flexibility
regarding the Group’s compliance with the minimum capital requirement of Pillar II.
b) Liquidity relief measures
On 12 March 2020 together with the capital relief measures set out above, ECB announced that it will allow
banks to operate temporarily below the liquidity coverage ratio (LCR).
In addition, on 12 March 2020 the ECB decided on additional longer-term refinancing operations (LTROs)
through a full-spread fixed-rate auction equal to the average deposit facility interest rate and similarly it
was decided that for the TLTRO III operation in June 2020, considerably more favourable terms will be
applied during the period from June 2020 to June 2021 to all TLTRO III operations outstanding during that
same time.
The Governing Council of the ECB decided on 18 March 2020 to launch a new Pandemic Emergency
Purchase Programme (PEPP) for an amount of €750 billion and purchases will be conducted until the end of
2020. Furthermore, it was decided to expand the range of eligible assets under the Corporate Sector
Purchase Programme (CSPP) to non-financial commercial paper and to ease the collateral standards by
adjusting the main risk parameters of the collateral framework.
c) 2020 EBA EU-wide stress test postponement
Similarly, due to the outbreak of COVID-19 and its global spread, the EBA decided to postpone until 2021
the EU-wide Stress Test Exercise of 2020 to allow banks to focus on and ensure continuity of their core
operations. For 2020, the EBA will carry out an additional EU-wide transparency exercise in order to provide
updated information on banks’ exposures and asset quality to market participants. The ECB announced that
it supports the decision of EBA and will extend the postponement to all banks subject to the 2020 stress
test.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
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Annual Financial Report 2019
Events after the reporting date (continued)
d) Supervisory flexibility regarding prudential treatment of forborne and definition of default
and accounting considerations
In the same direction, the EBA in cooperation with the ESMA issued statements on 25 March 2020 to
provide guidance to banks for the estimation of the expected impact on their financial figures from COVID-
19. Specifically the EBA statement seeks to provide clarity to the EU banking sector on how to handle in a
consistent manner, aspects related to (i) the classification of loans in default, (ii) the identification of
forborne exposures and (iii) the accounting treatment and similarly ESMA’s statement is aiming in
promoting consistent application on the accounting implications of IFRS 9 Financial Instruments in the
specific context of the COVID-19 outbreak. In particular, the EBA clarified that generalised payment delays
due to legislative initiatives and addressed to all borrowers do not lead to any automatic classification in
default, forborne or unlikeness to pay. Individual assessments of the likeliness to pay should be prioritized.
On 2 April 2020, EBA issued detailed guidelines aiming to provide clarity on the treatment of legislative and
non-legislative moratoria applied before 30 June 2020.
The IASB issued on 27 March 2020 educational material encouraging entities whose regulators have issued
guidance on the application of IFRS 9 in the context of the COVID-19 pandemic to consider that guidance.
Other measures at European Union level
On 23 March 2020, the EU Ministers of Finance agreed with the Commission’s proposal to activate
the general escape clause of the Stability and Growth Pact (SGP). Member States will be allowed
to undertake measures to deal adequately with the crisis, while departing from the budgetary
requirements that would normally apply under the European fiscal framework.
The Commission has issued a specific temporary State-aid framework to expedite public support
to companies to mitigate the economic impact of the crisis, while ensuring the necessary level
playing field in the Single Market.
The Commission launched a Coronavirus Response Investment Initiative (CRII) to mobilise
cohesion policy to flexibly respond to the rapidly emerging needs in the most exposed sectors,
such as healthcare, SMEs and labour markets, and help the most affected territories in Member
States and their citizens. The first package adopted on 30 March 2020 involved about €8 billion of
immediate liquidity to accelerate up to €37 billion of European public investment, provide
flexibility in applying EU spending rules and extend the scope of the EU Solidarity Fund.
On 9 April 2020 the EU finance ministers reached a comprehensive economic policy response to
the COVID-19 pandemic which in addition to the measures announced earlier, the following crisis
response instruments were agreed:
The Eurogroup proposed to establish a Pandemic Crisis Support, based on the existing
Enhanced Conditions Credit Line (ECCL) precautionary credit line, adjusted to meet the
current needs and to safeguard the euro area financial stability. Access granted will be
2% of the respective Member’s GDP as of end-2019, as a benchmark.
Agreed the creation of a dedicated COVID-19 instrument to support the financing of
emergency aid, through the provision of grants. In this context the Commission’s
proposal to re-activate the Emergency Support Instrument in the context of the COVID-
19 outbreak which will be used to support the financing of emergency aid, through the
provision of grants for an amount of €2.7 billion was welcomed.
Agreed with the European Investment Bank’s proposal for the creation of a pan-European
guarantee fund of €25 billion, which could support €200 billion of financing for companies
with a focus on SMEs, throughout the EU, including through national promotional banks.
A temporary loan-based instrument labelled SURE (temporary Support to mitigate
Unemployment Risks in an Emergency) will be established as soon as possible. In this
context, the Commission's proposal of 2 April 2020 to set up a temporary instrument
supporting Member States
in the specific emergency
to protect employment
circumstances of the COVID-19 crisis was accepted. This instrument will be used to
provide financial assistance, in the form of loans granted on favourable terms from the EU
to member states, of up to €100 billion in total.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
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Events after the reporting date (continued)
Capital reduction through use of the Company’s share premium
The Company will proceed (subject to approval by the shareholders, the ECB and the Irish High Court) with
a capital reduction process which will result in the reclassification of €700 million of the Company’s share
premium as distributable reserves. This will increase the distributable reserves of the Company to
approximately €1 billion on a pro forma basis (31 December 2019). The capital reduction has been
proposed as a special resolution for approval by shareholders at the Company’s Annual General Meeting
scheduled on 26 May 2020. The capital reduction will not have any impact on regulatory capital or the total
equity position of the Company, BOC PCL or the Group.
The distributable reserves provide the basis for the calculation of distributable items under the CRR, which
provides that coupons on AT1 capital instruments may only be funded from distributable items.
Introduction of contribution to the Deposit Guarantee Fund
As from 1 January 2020 and until 3 July 2024 BOC PCL is subject to contribution to the Deposit Guarantee
Fund (DGF) on a semi-annual basis. The contributions are calculated based on the Risk Based Methodology
(RBM) as approved by the management committee of the Deposit Guarantee and Resolution of Credit and
Other Institutions Schemes (DGS) and is publicly available on the CBC’s website. In line with the RBM, the
contributions are broadly calculated on the covered deposits of all authorised institutions and the target
level is to reach at 0.8% of these deposits by 3 July 2024. The contribution of BOC PCL has been set at €2.9
million for the first half of 2020 and in line with IFRSs, it will be charged in the first quarter of 2020.
Books and significant records
The measures that the Directors have taken to secure compliance with the requirements of sections 281 to
285 of the Companies Act 2014 of Ireland (Companies Act 2014), with regard to the keeping of accounting
records, include the provision of appropriate resources to maintain adequate accounting records throughout
the Company and the Group, including the appointment of personnel with appropriate qualifications,
experience and expertise.
The accounting records are maintained at the Company’s registered office at 10 Earlsfort Terrace, Dublin 2,
D02 T380, Ireland and at 51 Stassinos Street, Ayia Paraskevi, Strovolos, P.O.Box 24884, 1398 Nicosia,
Cyprus.
Research and development
The Group did not incur any expenditure in research and development for the year ended 31 December
2019.
Political donations
Political donations are required to be disclosed under the Electoral Act 1997 of Ireland (as amended). The
Directors, on enquiry, have satisfied themselves that there were no political donations made during the year
ended 31 December 2019.
Relevant audit information
In the case of persons who are Directors at the time this report is approved in accordance with section 330
of the Companies Act 2014:
the Directors hereby individually and collectively acknowledge, that so far as each Director is
aware, there is no relevant audit information of which the Company’s statutory auditors are
unaware; and
that he/she has taken all the steps that he/she ought to have taken as a Director in order to make
himself/herself aware of any relevant audit information and to establish that the Company’s
statutory auditors are aware of that information.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
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Preparation of periodic reporting
The Board is responsible for ensuring that the management maintains an appropriate system of internal
controls which provides assurance of effective operations, internal financial controls and compliance with
rules and regulations. It has the overall responsibility for the Group and approves and oversees the
implementation of the Group’s strategic objectives, risk strategy and internal governance.
The Group has appropriate internal control mechanisms, including sound administrative and accounting
procedures, Information Technology (IT) systems and controls. The governance framework is subject to
review at least once a year.
Policies and procedures have been designed in accordance with the nature, scale and complexity of the
Group’s operations in order to provide reasonable but not absolute assurance against material
misstatements, errors, losses, fraud or breaches of laws and regulations.
The Board, through the Audit Committee, conducts reviews on a frequent basis, regarding the effectiveness
of the Group’s internal controls and information systems, as well as in relation to the procedures used to
ensure the accuracy, completeness and validity of the information provided to investors. The reviews cover
all systems of internal controls, including financial, operational and compliance controls, as well as risk
management systems. The role of the Audit Committee is inter alia to ensure the financial integrity and
accuracy of the Company’s financial reporting.
The Group’s financial reporting process is controlled using documented accounting policies and procedures
supported by instructions and guidance on reporting requirements, issued to all reporting entities within the
Group in advance of each reporting period. The submission of financial information from each reporting
entity is subject to sign off by the responsible financial officer.
Further analytical review procedures are performed at Group level. The internal control system also ensures
that the integrity of the accounting and financial reporting systems, including financial and operational
controls and compliance with legal and regulatory requirements and relevant standards, is adequate.
Where from time to time areas of improvement are identified these become the focus of management’s
attention in order to resolve them and thus strengthen the procedures that are in place. Areas of
improvement may include the formalisation of existing controls and the introduction of new information
technology controls, as dependency on information technology is ever increasing.
The Annual Report in advance of its submission to the Board, is reviewed and approved by the Executive
Committee. The Board, through the Audit Committee scrutinises and approves the financial statements,
results announcements and the Annual Report and ensures that appropriate disclosures have been made.
This governance process ensures that both management and the Board are given sufficient opportunity to
challenge the Group’s financial statements and other significant disclosures before their publication.
Corporate Governance Statement
In January 2019 the CSE issued the 5th Edition (Updated) of the Corporate Governance Code (the CSE
Code). Listed companies have an obligation to include in their Annual Financial Report, a Report by the
Board of Directors on Corporate Governance. In the first part of the Report, companies should report
whether they comply with the CSE Code and the extent to which they implement its principles. In the
second part of the Report, companies should confirm that they have complied with the CSE Code provisions
and in the event that they have not, they should give adequate explanation.
The Company has also chosen to comply with the UK Corporate Governance Code 2018 published by the
Financial Reporting Council in the UK (the UK Code) following the Listing on the London Stock Exchange.
The Directors further consider that the Company has complied with the provisions of the UK code, other
than as set out in the Introduction Part B of the Corporate Governance Report.
Regarding the first part of the Report, as a company listed on the CSE, the Company has adopted the CSE
Code and implements its principles.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Corporate Governance Statement (continued)
Regarding the second part of the Report, the Company complies with the provisions of the CSE Code.
Throughout the Corporate Governance Report for 2019 a narrative statement is provided on how the
principles of the CSE Code have been applied.
The narrative also covers principles of the UK Code and how these have been applied throughout the year.
The rules governing the composition of the Board of Directors and the appointment and replacement of its
members are set out in Section 1 of the Corporate Governance Report for 2019. The powers of the Board
of Directors and committees of the Board with administrative, management and supervisory functions,
including any powers of the Directors in relation to the issuing or buying back by the Company of its shares,
are also set out in the Corporate Governance Report.
Any amendment or addition to the Articles of Association of the Company is only valid if approved by a
special resolution at a shareholders’ meeting.
A description of the operation of the shareholder meeting, the key powers of the shareholder meeting,
shareholders’ rights and the exercise of such right is contained in Section 7 of the Corporate Governance
Report.
Details of restrictions in voting rights and special control rights in relation to the shares of the Company are
set out in the section ‘Other information’ above. Other information required to be disclosed for the
purposes of the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006 is
contained on page 36.
In accordance with section 167 of the Companies Act 2014, the Directors confirm that a Board Audit
Committee is established. Details of the Board Audit Committee’s membership and activities are included in
Corporate Governance Report for 2019.
The Corporate Governance Report for 2019 is included within this Annual Financial Report on pages 316 to
369 and contains the information required for the purposes of section 1373 of the Companies Act 2014.
The statements and information referred in this Corporate Governance Statement are deemed to be
incorporated herein.
Directors’ Compliance Statement
As required by section 225 of the Companies Act 2014, the Directors acknowledge that they are responsible
for securing the Company’s compliance with its relevant obligations (as defined in section 225(1)). The
Directors further confirm that a compliance policy statement has been drawn up setting out the Company’s
policies and that appropriate arrangements and structures have been put in place that are, in the Directors’
opinion, designed to secure material compliance with the relevant obligations. A review of those
arrangements and structures has been conducted in the financial year to which this report relates.
Service agreements termination
The service contract of one of the Executive Directors in office as at 31 December 2019 includes a clause for
termination, by service of six months’ notice to that effect by either the Executive Director or BOC PCL,
without cause and the BOC PCL also maintains the right to pay to the Executive Director six months’ salary
in lieu of notice for immediate termination. There is an initial locked-in period of three years i.e. until 31
August 2022, during which no such notice may be served either by BOC PCL or the Executive Director,
unless there is a change of control of BOC PCL as this is defined in the service agreement whereupon the
Executive Director may serve the notice and is further entitled to compensation as this is determined in the
service agreement. The terms of employment of the other Executive Director are mainly based on the
provisions of the collective agreement in place, which provides for notice or compensation by BOC PCL
based on years of service and for a four month prior written notice by the Executive Director in the event of
a voluntary resignation.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Board of Directors
The members of the Board of Directors of the Company as at the date of this Directors' Report are listed on
page 1. All Directors were members of the Board throughout the year and up to the date of this Directors’
Report except as disclosed below.
Mr Michael Spanos resigned on 21 January 2019.
On 30 August 2019 Mr John Patrick Hourican resigned as Executive Member of the Board of Directors of the
Company, following the termination of his employment as Group Chief Executive Officer on the same date.
On 26 August 2019 the ECB approved the appointment of Mr Panicos Nicolaou as the Group Chief Executive
Officer and Executive Member of the Board of Directors of the Company and Mr Nicolaou took up his duties
on 1 September 2019.
Dr Josef Ackermann stepped down from his position as Chairman of the Board on 14 May 2019.
On 26 February 2019 the Board of Directors decided to appoint Mr Efstratios-Georgios Arapoglou as
member of the Board of Directors and on 14 May 2019 he was elected as Chairperson to the Board subject
to ECB approval, which was granted on 12 June 2019.
On 14 April 2020 the Board of Directors decided to appoint Mr Nicos Sofianos as member of the Board of
Directors subject to ECB approval.
On 14 April 2020 the Board of Directors accepted the resignation of Mrs Anat Bar-Gera as a member of the
Board of Directors effective from the next Annual General Meeting date.
The Board would like to thank all Directors who have retired for their contribution to the Group.
In accordance with the Articles of Association at each annual general meeting of the Company every
Director who has been in office at the completion of the most recent annual general meeting since they
were last appointed or reappointed, shall retire from office and offer themselves for re-election if they wish.
The remuneration of the Board of Directors is disclosed in Note 51 of the Consolidated financial statements.
45
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Directors’ and Secretary’s interests
The interest in the share capital of the Company held by each member of the Board of Directors and the
Company Secretary at 31 December 2019 is presented in the table below:
Ordinary shares or
Depositary Interests
representing Company
ordinary shares of €0.10
each at 31 December 2019
Ordinary shares or
Depositary Interests
representing Company
ordinary shares of €0.10
each at 1 January 2019 or
at the date of appointment
Non-executive directors
Efstratios-Georgios Arapoglou (appointed on
12 June 2019)
Prof. Dr. Josef Ackermann (resigned on 14
May 2019)
Maksim Goldman
Arne Berggren
Ioannis Zographakis
Paula Hadjisotiriou
Executive directors
Panicos Nicolaou (appointed on 1 September
2019)
Dr. Christodoulos Patsalides
Company Secretary
Katia Santis
46,500
-
7,192
25,000
3,012
7
5,027
170
4
86,912
-
150,000
7,192
25,000
3,012
7
5,027
170
4
190,412
Apart from the interests set out above, the Board of Directors and the Company Secretary had no other
interests in the shares of the Company or its subsidiaries at 31 December 2019.
Auditors
During 2017 the Company undertook a competitive audit tender process in accordance with the EU
Regulation on audit reform of public interest entities and its implications relating to the mandatory rotation
of external auditors. On recommendation from the Audit Committee, the Board of Directors of the Company
approved the appointment of PricewaterhouseCoopers (PwC) as the external auditors of the Group for
accounting periods commencing on 1 January 2019. Shareholders of the Company approved the
continuation in office of PwC on an advisory non-binding basis at the 2019 Annual General Meeting.
Non-financial information statement
New regulations on non-financial information, which were transposed into Irish law by the European Union
(disclosure of non-financial and diversity information by certain large undertakings and groups) Regulations
2017 (Regulations), require reporting on specific topics such as environmental matters, social and employee
matters, respect for human rights, bribery and corruption. Reportable information includes policies, due
diligence in implementing these policies and the outcomes of these actions, the principal risks and
management of these risks and key performance indicators (KPIs). The Group aims to comply with the
Regulations.
The Group plays a key role and contributes to the growth of Cyprus economy with a long presence and
tradition. Sustainable development, social progress, and a viable economy are the Group’s goals for 2020
and the years that will follow.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
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Non-financial information statement (continued)
Corporate Responsibility Actions
The Group is strategically investing in corporate responsibility actions, demonstrating its important societal
impact. The Group operates with transparency and remains consistent and committed towards all its
stakeholders; customers, shareholders, employees and the whole Cypriot society. The Group divides its
responsibilities into four pillars; the society, its people, its services and the environment, as detailed in the
2019 Corporate Responsibility Report.
Society
The Group places special emphasis on the protection and support of social partners and society. It
undertakes sustainable support actions and shows particular concern for vulnerable social groups, and
accordingly participates in efforts to enhance services related to health, education, and social welfare. The
Group develops initiatives that aim to preserve local culture and history. The Group undertakes sustainable
support actions within the two pillars of Health and Education, as indicated below:
Health pillar main actions
More than 40,000 patients have been treated at the Bank of Cyprus Oncology Centre since its
establishment by BOC PCL and the Cyprus Government, in 1998, while the Group continued
offering its strong support, financial and otherwise, towards the centre.
The Group co-ordinated the 'Fight against Cancer' campaign with the Cyprus Anticancer Society
(Christodoula march) for the 21st continuous year, that resulted to fund raising of €530,000 for
2019, through the fundraising campaign.
The Group repeats its partnering to provide financial and other medical support to families in
need through the Nicosia Large Families Association, NGO Fund raising in Limassol and NGO
Alkyonides.
In 2019, approximately €340,000 was offered for the support and enhancement of more than
120 NGOs, charity organizations and associations acting within the Health pillar.
Education pillar main actions
Over 100,000 pupils have participated in educational programmes on subjects related to art,
literature and culture of Cyprus, offered by the Bank of Cyprus Cultural Foundation, since its
establishment by BOC PCL in 1985.
BOC PCL continued its support of start-ups through the IDEA Incubator and continued its
successful partnership with the European Youth Parliament (EYP) Cyprus.
BOC PCL organised with NGO Reaction, debates between students and high-profile personalities.
In 2019, more than 500 students participated in this series of debates.
In 2019, approximately €560,000 were offered for the support and enhancement of more than
180 NGOs, associations, municipalities, schools, sports federations and sports academies, while
offering refurbished computers and other office equipment to schools, associations and NGOs
from BOC PCL’s old stock.
Employees
The Group’s employees are its most valuable asset. Personal development, career options and employee
health, safety and wellness remain the focus of the Group’s efforts to strengthen the relationship between
staff and management. The Group aims to attract and retain appropriate number and calibre of staff. Failure
to do so would hinder Group’s performance and overall development in a challenging and ever changing
banking world. The Group maintains an Internal Transfer Policy through which positions are staffed with the
right talent and through its Employee Recognition Policy, outstanding performance is rewarded.
Under the Group's Learning and Development Policy, training programmes during 2019 covered Operating
Systems, Technical Aspects, Regulatory Compliance and Personal Development. In 2019 the eLearning
culture was further embedded, with eLearning accounting for 33% of total training, with emphasis given on
regulatory compliance topics. A total of 1,011 training days were allocated to financial crime issues for all
Bank employees.
47
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Non-financial information statement (continued)
The Group considers the health and safety of its employees as a primary concern. All members of staff were
trained on health and safety through e-learning sessions. In 2019, the Business Protection, Safety & Health
Department addressed 180 members of staff people on 'threat incident situations' through real-life
scenarios or through seminars on First Aid and Security in the workplace. The Group conducted evacuation
exercises nationwide on the actions to be taken in cases of emergency, including earthquake and fire, in
cooperation with the Police and the Fire Brigade.
The Group’s employees maintain a long history of volunteerism in the community and they are encouraged
to actively participate and engage with the Group’s various actions and initiatives. In 2019, approximately
1,000 volunteers/staff members engaged in social outreach activities organised and/or initiated by the
Group.
Services
Integrity, transparency, accountability, confidentiality and sustainability are the core principles of every
action of the Group and it continually strives to meet social and environmental challenges through:
Taking into account all factors which affect it, be it risk management or management strategies
for alternative investments.
Introducing new procedures and criteria for the supply chain, ensuring a smooth and transparent
process in the selection of suppliers.
Adopting and upgrading supplier assessment and selection procedures in all areas of cooperation.
The security, protection and privacy of personal data are important to the Group so as to conduct its
business fairly and lawfully. Failure to comply with General Data Protection Regulation (GDPR) and other
regulations may lead to reputational and conduct risk, including fines. To this respect the Group implements
a Group Data Protection Policy that outlines the principles for data privacy and these are fully supported
with relevant implementation and monitoring procedures.
Furthermore, the Group recognises the risk of financial crime and has developed processes in order to
prevent, identify, assess and monitor this risk. The Group maintains a zero tolerance policy for money
laundering and terrorism financial incidents and does not accept excuses for any breaches of the relevant
legislation or for breaches of the Group’s internal policies, procedures or its compliance framework. The
policies and procedures are in place to ensure that the Group fulfils its legal, regulatory and societal
obligations to protect the financial system including policies in relation to Antibribery and Corruption,
Prevention of money laundering and Terrorism Financing Policy, Group Customer acceptance Policy and
Group customer complaints Management Policy. The Group educates staff through Group wide e-training
sessions. Indicatively, during 2019 2,760 customer relationships were terminated/suspended, and 1,469
potential new customers were rejected exclusively for compliance reasons.
Environment
Environment related considerations are a developing topic for financial institutions globally. The Group’s
business could be affected by climate change and climate related risks. The Group is monitoring
environmental legislation, including transition to low carbon economy, which may impact customer
behaviour.
Being one of the largest organizations in Cyprus, the Group is fully aware of its responsibility to minimize
the negative impact of its operations on the environment and aims to conduct business in a responsible and
sustainable way. Failure to do so could lead to reputational risk.
To achieve energy saving and carbon emissions reduction, the Group proceeded, amongst others with the:
Drafting of policies and procedures based on the conclusions of the energy audit completed in
2019 which include energy and environmental & social Policy.
Installation and connection of 100KW photovoltaics to cover part of the electricity needs of IT
building.
In 2019, 7.4% estimated reduction in energy consumption.
The Group recognises the importance of waste resource management, and for that reason it has for several
years a paper recycling program in place. In 2019, 390 thousand kilograms of paper were recycled.
48
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Directors' Report
Annual Financial Report 2019
Non-financial information statement (continued)
Diversity Report
The Group's diversity report is contained in the ‘Diversity’ section of the Corporate Governance Report.
Business Model
The business model of the Group is described in the ‘Business Overview’ section of this Directors' Report.
Risk Management
A description of the principal risks, their impact on business activity, and the way they are managed is
disclosed in Section 'Principal risks and uncertainties-Risk management and mitigation' of this Directors'
Report.
The Group is continuing with its Digital Transformation Programme as described in section ‘Digital
Transformation’ of this Directors' Report 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.
The risks related to the Group’s corporate responsibility actions and the actions undertaken by the Group in
order to address them are covered within each pillar of responsibility.
Key Performance Indicators
An analysis of KPIs relevant to the Group is disclosed in the ‘Financial Results’ section of this Directors'
Report.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Financial Report and the financial statements in
accordance with International Financial Reporting Standards (IFRS) adopted by the EU and with those parts
of the Companies Act 2014 applicable to companies reporting under IFRSs and, in respect of the
consolidated financial statements, Article 4 of the International Accounting Standards (IAS) Regulation.
Under Irish law the Directors shall not approve the financial statements unless they are satisfied that they
give a true and fair view of the Group’s and Company’s assets, liabilities and financial position as at the end
of the financial year and of the profit or loss of the Group and the Company for the financial year.
In preparing these financial statements, the Directors are required to:
select suitable accounting policies and apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether the financial statements have been prepared in accordance with IFRSs as adopted
by the EU and ensure that they contain the additional information required by the Companies Act
2014; and
prepare the financial statements on a going concern basis unless it is inappropriate to presume
that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Company’s transactions, to disclose with reasonable accuracy at any time the assets, liabilities
and financial position of the Company and enable them to ensure that the financial statements comply with
the provisions of the Companies Act 2014 and Article 4 of IAS Regulation. The Directors, through the use of
appropriate procedures and systems, have also ensured that measures are in place to secure compliance
with the Company’s and the Group’s obligations to keep adequate accounting records. These accounting
records are kept at the Company’s registered office at 10 Earlsfort Terrace, Dublin 2, D02 T380, Ireland and
at 51 Stassinos Street, Ayia Paraskevi, Strovolos, P.O.Box 24884, 1398 Nicosia, Cyprus.
49
Consolidated Financial Statements
22. Derivative financial instruments
23.
24.
25.
Fair value measurement
Loans and advances to customers
Life insurance business assets attributable to
policyholders
26. Property and equipment
27.
Intangible assets
28. Stock of property
29. Prepayments, accrued income and other assets
30. Non-current assets and disposal groups held for sale
31.
32. Customer deposits
33.
Insurance liabilities
34. Subordinated loan stock
35. Accruals, deferred income, other liabilities and other
Funding from central banks
provisions
Leases
Fiduciary transactions
36. Share capital
37. Dividends
38. Retained earnings/(accumulated losses)
39.
40. Pending litigation, claims, regulatory and other matters
41. Contingent liabilities and commitments
42. Net cash flow from operating activities
43. Cash and cash equivalents
44.
45. Analysis of assets and liabilities by expected maturity
46. Risk management - Credit risk
47. Risk management - Market risk
48. Risk management - Liquidity risk and funding
49. Risk management - Insurance risk
50. Capital management
51. Related party transactions
52. Group companies
53. Acquisitions and disposals of subsidiaries
54.
55. Country by country reporting
56. Events after the reporting date
Investments in associates and joint venture
Page
145
152
165
165
167
169
170
171
173
174
175
176
178
178
179
180
181
181
181
187
188
190
191
192
193
251
257
265
267
267
275
278
281
284
285
BANK OF CYPRUS HOLDINGS GROUP
Consolidated Financial Statements - Contents
for the year ended 31 December 2019
Contents
Page
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
1.
2.
Corporate information
Summary of significant accounting policies
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
2.13
2.14
2.15
Basis of preparation
Accounting policies and changes in accounting
policies and disclosures
Standards and Interpretations that are issued but
not yet effective
Basis of consolidation
Business combinations
Investments in associates and joint ventures
Foreign currency translation
Segment reporting
Turnover
Revenue from contracts with customers
Recognition of interest income/expense and
income/expense similar to interest
Retirement benefits
Tax
Financial instruments - initial recognition
Classification and measurement of financial assets
and liabilities
Reclassification of financial assets and liabilities
2.16
2.17 Derecognition of financial assets and financial
liabilities
Forborne and modified loans
Impairment of financial assets
2.18
2.19
2.20 Write-offs
2.21
Financial guarantees, letters of credits and
undrawn loan commitments
2.22 Offsetting financial instruments
2.23
2.24
2.25
2.26
2.27
2.28
2.29
2.30
2.31
2.32
Hedge accounting
Cash and cash equivalents
Insurance business
Repurchase and reverse repurchase agreements
Leases - The Group as lessee
Leases - The Group as lessor
Property and equipment
Investment properties
Stock of property
Non-current assets held for sale and discontinued
operations
Intangible assets
Share capital
2.33
2.34
2.35 Other equity instruments
Treasury shares
2.36
Provisions for pending litigation, claims, regulatory
2.37
and other matters
Comparative information
3.
4.
5.
2.38
Going concern
Operating environment
Significant and other judgements, estimates and
assumptions
Transition disclosures
Segmental analysis
Interest income and income similar to interest income
Interest expense and expense similar to interest expense
Fee and commission income and expense
6.
7.
8.
9.
10.
11. Net foreign exchange gains
12. Net gains on financial instrument transactions and
disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions
13.
14. Other income
15. Staff costs
16. Other operating expenses
17. Credit losses of financial instruments and impairment of
non-financial assets
18.
Income tax
19. Earnings per share
20. Cash, balances with central banks and loans and advances
to banks
Investments
21.
53
54
55
56
58
59
59
59
60
63
65
66
66
67
68
68
68
70
71
71
72
73
77
77
77
78
85
85
85
86
87
87
88
89
90
90
91
91
91
92
92
93
93
93
93
93
96
98
108
109
117
118
118
119
119
120
121
121
128
130
130
138
139
140
52
BANK OF CYPRUS HOLDINGS GROUP
Consolidated Income Statement
for the year ended 31 December 2019
Annual Financial Report 2019
Notes
2019
€000
2018
(restated)*
€000
Continuing operations
Turnover
Interest income
Income similar to interest income
Interest expense
Expense similar to interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net foreign exchange gains
Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and
associates
Insurance income net of claims and commissions
Net gains/(losses) from revaluation and disposal of investment properties
Net gains on disposal of stock of property
Other income
Staff costs
Special levy on deposits on credit institutions in Cyprus, contribution to Single Resolution
Fund and other levies
Other operating expenses
Net gains on derecognition of financial assets measured at amortised cost
Credit losses to cover credit risk on loans and advances to customers
Credit losses of other financial instruments
Impairment of non-financial assets
Loss before share of profit from associates and remeasurement
Remeasurement of investment in associate upon classification as held for sale
Share of profit from associates
Loss before tax from continuing operations
Income tax
Loss after tax from continuing operations
Discontinued operations
Profit after tax from discontinued operations
Loss for the year
Attributable to:
Owners of the Company-continuing operations loss
Owners of the Company-discontinued operations profit
Total loss attributable to the owners of the Company
Non-controlling interests-continuing operations profit
Total profit attributable to non-controlling interests
Loss for the year
Basic and diluted loss per share attributable to the owners of the Company
(€ cent)-continuing operations
Basic and diluted loss per share attributable to the owners of the Company
(€ cent)
7
8
8
9
9
10
10
11
12
13
28
14
15
16
16
17
17
17
54
54
18
7
19
19
* For information on restatement of comparatives refer to Notes 2.2.1 and 2.38.
53
910,576
1,012,947
454,997
53,180
(93,493)
(48,708)
365,976
171,715
(9,821)
26,596
18,675
57,660
2,249
25,952
28,938
687,940
(306,713)
(43,609)
(242,622)
94,996
8,187
557,065
52,054
(144,024)
(46,042)
419,053
175,583
(20,312)
37,688
46,670
52,912
(11,845)
30,437
25,604
755,790
(216,740)
(25,095)
(234,891)
279,064
27,825
(232,451)
(329,083)
(4,790)
(26,081)
(160,139)
(25,943)
5,513
(180,569)
112,831
(1,610)
(18,651)
(42,455)
-
9,095
(33,360)
(75,916)
(67,738)
(109,276)
-
7,243
(67,738)
(102,033)
(70,275)
(110,764)
-
7,243
(70,275)
(103,521)
2,537
2,537
1,488
1,488
(67,738)
(102,033)
(15.8)
(15.8)
(24.8)
(23.2)
BANK OF CYPRUS HOLDINGS GROUP
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2019
Annual Financial Report 2019
Loss for the year
Other comprehensive income (OCI)
OCI that may be reclassified 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)
Transfer to the consolidated income statement on disposal
Foreign currency translation reserve
(Loss)/profit on translation of net investments in foreign branches and
subsidiaries
Profit/(loss) on hedging of net investments in foreign branches and
subsidiaries
Transfer to the consolidated income statement on dissolution/disposal of
foreign branches and subsidiaries
Total OCI that may be reclassified in the consolidated income
statement in subsequent periods
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
Net (losses)/gains on investments in equity instruments designated at FVOCI
Property revaluation reserve
Share of net gain from fair value changes of associates
Deferred tax
Actuarial gains on the defined benefit plans
Remeasurement losses on defined benefit plans
Total OCI not to be reclassified in the consolidated income statement
in subsequent periods
Other comprehensive income/(loss) for the year net of taxation
Total comprehensive loss for the year
Attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive loss for the year
Notes
2019
€000
(67,738)
2018
€000
(102,033)
15,100
-
15,100
(9,968)
(19,484)
(29,452)
(9,743)
9,938
22
10,927
(9,760)
(403)
781
(20,125)
(19,947)
15,881
(49,399)
18
15
4,199
(670)
3,529
-
88
88
(3,835)
2,720
(1,115)
70
579
649
(3,353)
(912)
264
16,145
(1,378)
(50,777)
(51,593)
(152,810)
(54,160)
(154,284)
2,567
1,474
(51,593)
(152,810)
54
BANK OF CYPRUS HOLDINGS GROUP
Consolidated Statement of Changes in Equity
for the year ended 31 December 2019
Annual Financial Report 2019
Attributable to shareholders of the Company
Share
capital
(Note 36)
Share
premium
(Note 36)
Treasury
shares
(Note 36)
€000
44,620
€000
1,294,358
€000
(21,463)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Retained
earnings
(Note 38)
€000
591,941
(70,275)
(3,353)
(73,628)
(1,200)
150
228
-
(6)
(27,199)
-
Property
revaluation
reserve
Financial
instruments
fair value reserve
Life insurance
in-force
business
reserve
Foreign
currency
translation
reserve
Total
Other equity
instruments
(Note 36)
Non-
controlling
interests
Total
equity
€000
79,433
€000
€000
€000
€000
15,289
101,001
16,151 2,121,330
€000
220,000
€000
€000
25,998
2,367,328
-
81
81
-
-
(228)
-
-
-
-
-
18,611
18,611
-
-
-
-
-
-
-
-
-
-
1,200
(150)
-
-
-
-
-
-
(70,275)
776
16,115
776
(54,160)
-
-
-
-
-
-
-
-
-
-
-
(6)
(27,199)
-
-
-
-
-
-
-
-
-
-
-
2,537
(67,738)
30
16,145
2,567
(51,593)
-
-
-
-
-
-
847
847
-
-
(6)
(27,199)
(750)
(750)
1 January 2019
(Loss)/profit for the year
Other comprehensive (loss)/income after tax for
the year
Total comprehensive (loss)/income after tax for
the year
Increase in value of in-force life insurance
business
Tax on increase in value of in-force life
insurance business
Transfer of realised profits on disposal of
properties
Disposal of subsidiary (Note 53.2.2)
Change of legal status of subsidiary to
Undertakings for Collective Investments in
Transferable Securities (UCITS) Fund
Payment of coupon to AT1 holders (Note 36)
Dividends paid to non-controlling interests
31 December 2019
44,620
1,294,358
(21,463)
490,286
79,286
33,900
102,051
16,927 2,039,965
220,000
28,662
2,288,627
56
BANK OF CYPRUS HOLDINGS GROUP
Consolidated Statement of Changes in Equity
for the year ended 31 December 2019
Annual Financial Report 2019
Attributable to shareholders of the Company
Share
capital
(Note 36)
Share
premium
(Note 36)
Treasury
shares
(Note 36)
Retained
earnings/
Accumulated
losses
(Note 38)
€000
44,620
€000
2,794,358
€000
(21,463)
-
-
-
€000
(527,128)
(299,150)
Property
revaluation
reserve
Financial
instruments
fair value
reserve
Life insurance
in-force
business
reserve
Foreign
currency
translation
reserve
Other
reserves
€000
€000
€000
€000
€000
Total
€000
92,878
-
54,485
(8,470)
6,059
105,651
36,098 2,585,558
-
-
-
(307,620)
44,620 2,794,358 (21,463)
(826,278)
92,878
46,015
6,059
105,651
36,098 2,277,938
1 January 2018
Impact of adopting IFRS 9 at 1 January 2018
Restated balance at 1 January 2018
(Loss)/profit for the year
Other comprehensive (loss)/income after tax
for the year
Total comprehensive (loss)/income for the
year
Decrease in value of in-force life insurance
business
Tax on decrease in value of in-force life
insurance business
Transfer of realised profits on disposal of
properties
Transfer of property revaluation reserve and
other reserve of subsidiary to retained
earnings
Disposal of subsidiary (Note 53.4.1)
Change of legal status of subsidiary to
Undertakings for Collective Investments in
Transferable Securities (UCITS) Fund
Decrease in non-controlling interests due to
change in the shareholding of subsidiary
Issue of other equity instruments (Note 36)
Elimination of share premium (Note 36)
Transfer of gain on disposal of FVOCI equity
investments to retained earnings
Dividends paid to non-controlling interests
31 December 2018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,500,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(103,521)
(912)
(104,433)
5,314
(664)
4,143
14,014
1,996
298
(164)
(2,458)
1,500,000
173
-
-
649
649
-
-
(4,143)
(7,955)
(1,996)
-
-
-
-
-
-
-
(30,553)
(30,553)
-
-
-
-
-
-
-
-
-
(173)
-
44,620 1,294,358 (21,463)
591,941
79,433
15,289
-
-
-
-
-
-
(6,059)
-
-
-
-
-
-
-
-
57
-
(103,521)
(19,947)
(50,763)
(19,947)
(154,284)
Other
equity
instruments
(Note 36)
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
298
(164)
(2,458)
220,000
-
-
-
-
-
-
Non-
controlling
interests
€000
Total
equity
€000
31,150
2,616,708
-
(307,620)
31,150
2,309,088
1,488
(102,033)
(14)
(50,777)
1,474
(152,810)
-
-
-
-
-
-
-
-
-
-
(5,540)
(5,242)
164
-
-
-
-
217,542
-
-
(1,250)
(1,250)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(5,314)
664
-
-
-
-
-
-
-
-
-
101,001
16,151 2,121,330
220,000
25,998
2,367,328
BANK OF CYPRUS HOLDINGS GROUP
Consolidated Statement of Cash Flows
for the year ended 31 December 2019
Net cash flow from operating activities
Cash flows from investing activities
Purchases of debt securities and equity securities
Proceeds on disposal/redemption of investments:
- debt securities
- equity securities
Interest received from debt securities
Dividend income from equity securities
Dividend income from associates
Proceeds on disposal of subsidiaries and associates
Proceeds on disposal of Helix and Velocity portfolios
Net proceeds from disposal of UCITS Fund and investment fund
units
Purchases of property and equipment
Purchases of intangible assets
Proceeds on disposals of property and equipment and intangible
assets
Proceeds on disposals of investment properties and investment
properties held for sale
Net cash from/(used in) investing activities
Cash flow from financing activities
Payment of AT1 coupon
Net repayment of funding from central banks
Net proceeds from the issue of other equity instruments
Principle elements of lease payments
Interest on subordinated loan stock
Interest on funding from central banks
Dividend paid by subsidiaries to non-controlling interests
Net cash (used in)/from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents
1 January
Foreign exchange adjustments
Net increase in cash and cash equivalents
31 December
Annual Financial Report 2019
2019
€000
109,747
2018
(restated*)
€000
797,242
Notes
42
26
27
(428,233)
(709,101)
134,850
294,494
-
33,992
361
5,362
241,467
1,154,982
-
(8,660)
(23,684)
5,458
27,279
547
774
64,606
-
16,359
(13,592)
(27,006)
386
1,922
19,318
13,600
1,130,141
(324,660)
(27,199)
-
(830,000)
(100,000)
-
217,542
(8,679)
(23,325)
(17,448)
(750)
(907,401)
-
(24,476)
(14,142)
(1,250)
77,674
332,487
550,256
4,804,844
4,280,231
(6,468)
332,487
(25,643)
550,256
5,130,863
4,804,844
43
Details on the non-cash transactions are presented in Note 42.
* For information on restatement of comparatives refer to Notes 2.2.1 and 2.38.
58
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
1.
Corporate information
Bank of Cyprus Holdings Public Limited Company (the Company) was incorporated in Ireland on 11 July
2016, as a public limited company under company number 585903 in accordance with the provisions of the
Companies Act 2014 of Ireland (Companies Act 2014). Its registered office is 10 Earlsfort Terrace, Dublin 2,
D02 T380, Ireland.
The Company is the holding company of the Bank of Cyprus Public Company Limited (BOC PCL). The Bank
of Cyprus Holdings Group (the Group) comprises the Company, its subsidiary BOC PCL and the subsidiaries
of BOC PCL.
The Company is tax resident in Cyprus. The principal activities of BOC PCL and its subsidiary companies (the
BOC Group) involve the provision of banking, financial services, insurance services and management and
disposal of property predominately acquired in exchange of debt.
The shares of the Company are listed and trading on the London Stock Exchange (LSE) and the Cyprus
Stock Exchange (CSE).
The Consolidated Financial Statements are available at the registered office of Bank of Cyprus Holdings
Public Limited Company and on the Group’s website www.bankofcyprus.com (Investor Relations).
Consolidated Financial Statements
The Consolidated Financial Statements of the Company for the year ended 31 December 2019 (the
Consolidated Financial Statements) were authorised for issue by a resolution of the Board of Directors on 28
April 2020.
The Consolidated Financial Statements have been prepared in both the English and the Greek language. In
case of a difference or inconsistency between the two, the English version prevails.
2.
2.1
Summary of significant accounting policies
Basis of preparation
The Consolidated Financial Statements have been prepared on a historical cost basis, except for properties
held for own use and investment properties, investments at fair value through other comprehensive income
(FVOCI), financial assets (including loans and advances to customers and investments) at fair value through
profit or loss (FVPL) and derivative financial assets and derivative financial liabilities that have been
measured at fair value, non-current assets held for sale measured at fair value less costs to sell and stock of
property measured at net realisable value where this is lower than cost. The carrying values of recognised
assets and liabilities that are hedged items in fair value hedges, and otherwise carried at cost, are adjusted
to record changes in fair value attributable to the risks that are being hedged.
The Group elected as a policy choice permitted under IFRS 9 to continue to apply hedge accounting in
accordance with IAS 39.
Presentation of the Consolidated Financial Statements
The Consolidated Financial Statements are presented in Euro (€) and all amounts are rounded to the
nearest thousand, except where otherwise indicated. A comma is used to separate thousands and a dot is
used to separate decimals.
The Group presents its balance sheet broadly in order of liquidity. An analysis regarding expected recovery
or settlement of financial assets and liabilities within twelve months after the balance sheet date and more
than twelve months after the balance sheet date is presented in Note 45.
Statement of compliance
The Consolidated Financial Statements have been prepared in accordance with the International Financial
Reporting Standards (IFRSs) as adopted by the European Union (EU) and with those parts of the Companies
Act 2014 applicable to companies reporting under IFRSs.
59
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
2.2
Summary of significant accounting policies (continued)
Accounting policies and changes in accounting policies and disclosures
The Consolidated Financial Statements contain a summary of the accounting policies adopted in the
preparation of the Consolidated Financial Statements. The accounting policies adopted are consistent with
those of the previous year, except for the adoption of new and amended standards and interpretations as
explained in Note 2.2.2 and the accounting of deferred tax credits arising from deferred tax assets as
explained in Note 2.13 and Note 18. In addition, there were changes in the classification of properties which
are leased out under operating leases as investment properties as explained in Note 2.2.1 below.
2.2.1
Change in classification of properties which are leased out under operating leases
The Group has decided to classify the long term leased properties with rental yield at market level which are
acquired in exchange of debt and are leased out under operating leases as ‘Investment Properties’ instead
of ‘Stock of Properties’. The Group previously classified these properties as inventory under IAS 2 and
measured them upon on-boarding at cost and subsequently at the lower of cost and net realisable value.
The aforementioned change in classification has been applied retrospectively in accordance with IAS 8
‘Accounting Policies, Changes in Accounting Estimates and Errors’, resulting in the restatement of financial
information for prior periods.
There was no material impact on the Group’s retained earnings as of 1 January 2018 and 31 December
2018 as a result of the above described change in classification. The cumulative impact amounted to €1,189
thousand (gain) and has been recognised in the Consolidated Income Statement of the Group for the year
ended 31 December 2019. This impact led to a decrease in basic and diluted loss per share of €0.30 for the
year ended 31 December 2019.
As a result of the change in classification, the following adjustments were made on the consolidated balance
sheet as indicated below:
Consolidated balance sheet
Stock of property
Before the change in classification
2018
€000
2017
€000
1,530,388
1,641,422
Impact of the recognition of leased out property as investment properties
(103,531)
(154,443)
After the change in classification
Investment properties
Before the change in classification
Impact of the recognition of leased out property as investment properties
After the change in classification
1,426,857
1,486,979
24,475
103,531
128,006
19,646
154,443
174,089
The gains on disposal of properties for the year 2018 classified as Investment Properties instead of Stock of
property amounting to €1,430 thousand are reclassified out of 'Net gains on disposal of stock of property' to
'Net gains/(losses) from revaluation and disposal of investment properties' in the consolidated income
statement.
The proceeds on disposal of properties classified as Investment Properties instead of Stock of property
amounting to €7,100 thousand are reclassified from 'Net Cash Flow from Operating activities/Proceeds on
disposal of stock of property' (Note 42). 'Cash flows from investing activities/Proceeds on disposals of
investment properties and investment properties held for sale' in the Consolidated Statement of Cash Flows.
60
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
2.2
Summary of significant accounting policies (continued)
Accounting policies and changes in accounting policies and disclosures (continued)
2.2.2
New and amended standards and interpretations
The Group applied for the first time certain standards and amendments, which are effective for annual
periods beginning on or after 1 January 2019. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet effective except for the Amendments to
IFRS 9, IAS 39 and IFRS 7 related to Interest Rate benchmark Reform (the Amendments).
IFRS 16: Leases
IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for
both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 replaced existing
leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Agreement contains a Lease, SIC
15 Operating Leases Incentives and SIC 27 Evaluating the Substance of Transactions Involving the Legal
Form of a Lease.
IFRS 16 requires lessees to recognise most leases on their financial statements. Under IFRS 16, a contract
is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period
of time in exchange for consideration. Lessees have a single accounting model for all leases (with certain
exemptions) and there is no distinction between operating and finance leases.
On initial recognition, a lessee recognises a right of use asset (RoU asset) representing its right to use the
underlying asset measured at the amount equal to the lease liabilities and the provision for restoration
costs, adjusted for any related prepaid or accrued lease payments previously recognised. Lease liability is
recognised based on the present value of remaining lease payments, discounted using the interest rate
implicit in the lease. If that rate cannot be readily determined, an incremental borrowing rate ('IBR') is
used.
Subsequent to the initial recognition, the lessee measures the RoU asset by applying the cost model and
depreciation is computed on a straight line basis up to the end of the lease term. RoU assets are subject to
impairment under IAS 36 ‘Impairment of Assets’. The lease liability increases with the accrual of interest
throughout the life of the lease and is reduced when payments are made.
Lease liability is remeasured if there is a change in future lease payments or a change in the lease term.
When the lease liability is remeasured a corresponding adjustment is made to the RoU asset and / or profit
or loss, as appropriate.
The lease term is calculated as the non-cancellable term of the lease, together with any periods covered by
an option to extend the lease (if reasonably certain to be exercised), or any periods covered by an option to
terminate the lease (if reasonably certain not to be exercised). The assessment of whether the Group is
reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of
lease liabilities and RoU assets recognised. Judgement is used in calculating the lease term, which is further
disclosed in Note 5.13.
There are recognition exemptions for short term leases and leases of low value items, for which the lease
payments are recognised as operating expenses on a straight line basis over the lease term.
Lessor accounting remains similar to IAS 17 Leases – i.e. lessors continue to classify leases as finance or
operating leases.
The impact on adoption of IFRS16 is disclosed in Note 6 of the Consolidated Financial Statements. The new
accounting policy is described in Note 2.27 below and the Group’s significant judgement, estimates and
assumptions are described in Note 5.13.
61
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
2.2
Summary of significant accounting policies (continued)
Accounting policies and changes in accounting policies and disclosures (continued)
2.2.2
New and amended standards and interpretations (continued)
IFRS 9: Prepayment features with negative compensation (amendment)
The amendment allows financial assets with prepayment features that permit or require a party to a
contract either to pay or receive reasonable compensation for the early termination of the contract (so that,
from the perspective of the holder of the asset there may be ‘negative compensation’), to be measured at
amortised cost or at FVOCI. The amendment did not have an impact on the results and financial position of
the Group.
IAS 28: Long-term Interests in Associates and Joint Ventures (amendments)
The amendments relate to whether the measurement, in particular impairment requirements, of long term
interests in associates and joint ventures that, in substance, form part of the ‘net investment’ in the
associate or joint venture should be governed by IFRS 9, IAS 28 or a combination of both. The amendments
clarify that an entity applies IFRS 9 Financial Instruments, before it applies IAS 28, to such long-term
interests for which the equity method is not applied. In applying IFRS 9, the entity does not take account of
any adjustments to the carrying amount of long-term interests that arise from applying IAS 28. The
amendment did not have an impact on the results and financial position of the Group.
IFRIC Interpretation 23: Uncertainty over Income Tax Treatments
This interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that
affects the application of IAS 12. It provides guidance on considering uncertain tax treatments separately or
together, examination by tax authorities, the appropriate method to reflect uncertainty and accounting for
changes in facts and circumstances. The interpretation did not have an impact on the results and financial
position of the Group.
IAS 19: Plan Amendment, Curtailment or Settlement (amendments)
The amendments require entities to use updated actuarial assumptions to determine current service cost
and net interest for the remainder of the annual reporting period after a plan amendment, curtailment or
settlement has occurred. The amendments also clarify how the accounting for a plan amendment,
curtailment or settlement affects applying the asset ceiling requirements. The amendment did not have an
impact on the results and financial position of the Group.
Annual Improvements to IFRSs 2015-2017 Cycle
The IASB has issued the Annual Improvements to IFRSs 2015-2017 Cycle, which is a collection of
amendments to IFRSs. The improvements did not have an impact on the results and financial position of the
Group.
IFRS 3 Business Combinations and IFRS 11 Joint Arrangements: the amendments to IFRS 3 clarify
that when an entity obtains control of a business that is a joint operation, it remeasures previously
held interests in that business. The amendments to IFRS 11 clarify that when an entity obtains joint
control of a business that is a joint operation, the entity does not remeasure previously held
interests in that business.
IAS 12 Income Taxes: the amendments clarify that the income tax consequences of payments on
financial instruments classified as equity should be recognised according to where the past
transactions or events that generated distributable profits has been recognised.
IAS 23 Borrowing Costs: the amendments clarify that, when a qualifying asset is ready for its
intended use or sale, and some of the specific borrowing related to that qualifying asset remains
outstanding at that point, that borrowing is to be included in the funds that an entity borrows
generally.
62
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
2.2
Summary of significant accounting policies (continued)
Accounting policies and changes in accounting policies and disclosures (continued)
2.2.2
New and amended standards and interpretations (continued)
Amendments to IFRS 9, IAS 39 and IFRS 7 related to Interest Rate benchmark Reform (the Amendments)
The Amendments include a number of temporary reliefs, which apply to all hedging relationships that are
directly affected by interest rate benchmark reform. The temporary reliefs relate to issues affecting financial
reporting in the period before the replacement of an existing IBOR with an alternative interest rate (pre-
replacement issues) and have the effect that IBOR reform should not generally cause hedge accounting
relationships to terminate. A hedging relationship is affected if the reform gives rise to uncertainties about
the timing and or amount of benchmark based cash flows of the hedged item or the hedging instrument
during the period before the replacement of an existing interest rate benchmark with an alternative nearly
risk free interest rate (an RFR). This may lead to uncertainty whether a forecast transaction is highly
probable and whether prospectively the hedging relationship is expected to be highly effective.
The Group elected, as a policy choice permitted under IFRS 9, to continue to apply hedge accounting in
accordance with IAS 39.
IAS 39 requires that a hedging relationship only qualifies for hedge accounting if the hedging relationship is
highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk.
The assessment of hedge effectiveness is made prospectively and retrospectively. IBOR reform might cause
a hedge to fall outside the required 80–125% range. IAS 39 has therefore been amended to provide an
exception to the retrospective effectiveness test such that a hedge is not discontinued during the period of
IBOR-related uncertainty solely because the retrospective effectiveness falls outside this required 80–125%
range. However, the other requirements for hedge accounting, including the prospective assessment, would
still need to be met. The Group will not discontinue hedge accounting during the period of LIBOR-related
uncertainty solely because the retrospective effectiveness falls outside the required 80–125% range. Under
the IAS 39 amendments for the prospective effectiveness test, the Group also assumes that the cash flows
of the hedged items, hedging instruments or hedged risks are not altered by the IBOR reform.
The Amendments mandatorily take effect from 1 January 2020 but early application is permitted. The
amendments were endorsed by the EU in January 2020. The Group has elected to early adopt the interest
rate benchmark reform amendments for the year ended 31 December 2019. The adoption did not result in
any adjustments to the amounts presented in the financial statements. Required disclosures are provided in
(Note 22).
2.3
Standards and Interpretations that are issued but not yet effective
2.3.1
Standards and Interpretations issued by the IASB and adopted by the EU
Conceptual Framework in IFRS standards
The Conceptual Framework sets out a comprehensive set of concepts for financial reporting, standard
setting, guidance for preparers in developing consistent accounting policies and assistance to others in their
efforts to understand and interpret the standards. IASB also issued a separate accompanying document,
Amendments to References to the Conceptual Framework in IFRS Standards, which sets out the
amendments to affected standards in order to update references to the revised Conceptual Framework. Its
objective is to support transition to the revised Conceptual Framework for companies that develop
accounting policies using the Conceptual Framework when no IFRS Standard applies to a particular
transaction. For preparers who develop accounting policies based on the Conceptual Framework, it is
effective for annual periods beginning on or after 1 January 2020. The Group does not expect this
framework to have a material impact on its results and financial position.
63
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
2.3
Summary of significant accounting policies (continued)
Standards and Interpretations that are issued but not yet effective (continued)
2.3.1
Standards and Interpretations issued by the IASB and adopted by the EU (continued)
IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors: Definition of ‘material’ (amendments)
The amendments are effective for annual periods beginning on or after 1 January 2020 with earlier
application permitted. They clarify the definition of material and how it should be applied. The new definition
states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to
influence decisions that the primary users of general purpose financial statements make on the basis of
those financial statements, which provide financial information about a specific reporting entity’. In addition,
the explanations accompanying the definition have been improved. The amendments also ensure that the
definition of material is consistent across all IFRS Standards. The Group does not expect these amendments
to have a material impact on its results and financial position.
2.3.2
Standards and Interpretations issued by the IASB but not yet adopted by the EU
IFRS 17: Insurance Contracts
The standard is effective for annual periods beginning on or after 1 January 2023 with earlier application
permitted if both IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments have
also been applied. In June 2019, the IASB issued an Exposure Draft which proposes some amendments to
IFRS 17, including a proposal to defer the mandatory effective date of IFRS 17 by one year so that entities
would be required to apply IFRS 17 for annual periods beginning on or after 1 January 2022. In March 2020
the IASB discussed and voted in favour of the amendment to IFRS 17 to defer its effective date
(incorporating the amendments) to annual reporting periods beginning on or after 1 January 2023. IFRS 17
replaces IFRS 4 and it establishes principles for the recognition, measurement, presentation and disclosure
of insurance contracts issued. It also requires similar principles to be applied to reinsurance contracts held
and investment contracts with discretionary participation features issued. The objective is to ensure that
entities provide relevant information in a way that faithfully represents those contracts. This information
gives a basis for users of financial statements to assess the effect that contracts within the scope of IFRS 17
have on the financial position, financial performance and cash flows of an entity. IFRS 17 divides insurance
contracts into groups it will recognise and measure at a risk-adjusted present value of the future cash flows
plus an amount representing the unearned profit in the group of contracts (the contractual service margin).
It also recognises profit from a group of insurance contracts over the period the entity provides insurance
coverage and as the entity is released from risk. If a group of contracts is expected to be onerous over the
remaining coverage period, an entity recognises the loss immediately. The standard contains a core
measurement approach, the 'general model', as well as an adaptation of the general model, the 'variable
fee approach' that should be applied to certain types of contracts with direct participation features. If
certain criteria are met, an entity may apply a simplified measurement approach, the 'premium allocation
approach', which allows an entity to measure the amount of remaining coverage by allocating the premium
over the coverage period (mainly applicable for non-life contracts with up to one-year coverage). The Group
is in the process of implementing IFRS 17, has completed the relevant gap analysis and is assessing the
impact of the standard on its results and financial position.
IFRS 3: Business Combinations (amendments)
The IASB issued amendments in Definition of a Business (amendments to IFRS 3) aimed at resolving the
difficulties that arise when an entity determines whether it has acquired a business or a group of assets.
These amendments are effective for business combinations for which the acquisition date is in the first
annual reporting period beginning on or after 1 January 2020 and to asset acquisitions that occur on or
after the beginning of that period, with earlier application permitted. The Group does not expect these
amendments to have a material impact on its results and financial position.
64
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
2.3
Summary of significant accounting policies (continued)
Standards and Interpretations that are issued but not yet effective (continued)
2.3.2
(continued)
Standards and Interpretations issued by the IASB but not yet adopted by the EU
Amendments to IAS 1 Presentation of Financial Statements: classification of Liabilities as Current or Non-
current
The IASB issued amendments to IAS 1 Presentation of Financial Statements (the amendments) to specify
the requirements for classifying liabilities as current or non-current. The amendments clarify: (a) what is
meant by a right to defer settlement (b) that a right to defer must exist at the end of the reporting period
(c) that classification is unaffected by the likelihood that an entity will exercise its deferral right. Terms of a
liability that could, at the option of the counterparty, result in its settlement by the transfer of the entity’s
own equity instruments do not affect its classification as current or non-current if, the entity classifies the
option as an equity instrument, recognising it separately from the liability as an equity component of a
compound financial instrument. The amendments are effective for or annual periods beginning on or after 1
January 2022, with earlier application permitted. The Group does not expect these amendments to have a
material impact on its results and financial position.
Amendment in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint
Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those
in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint
venture. The main consequence of the amendments is that a full gain or loss is recognised when a
transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is
recognised when a transaction involves assets that do not constitute a business, even if these assets are
housed in a subsidiary. In December 2015 the IASB postponed the effective date of this amendment
indefinitely, pending the outcome of its research project on the equity method of accounting. The Group
does not expect this amendment to have a material impact on its results and financial position.
2.4
Basis of consolidation
The Consolidated Financial Statements comprise the Consolidated Financial Statements of the Group as at
and for the year ended 31 December 2019. The financial statements of the subsidiaries are prepared as of
the same reporting date as that of the Company, using consistent accounting policies.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control is
achieved when the Group is exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over the investee. Specifically, the
Group controls an investee if, and only if, the Group has:
power over an investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee)
exposure, or rights, to variable returns from its involvement with the investee
the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights results in control. To support this
presumption and when the Group has less than a majority of the voting rights of an investee, the Group
considers all relevant facts and circumstances in assessing whether it has power over an investee including
any contractual arrangements with the other vote holders, rights arising from other contractual
arrangements, and the Group’s voting and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts indicate that there are changes to any
of the three elements of control.
65
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
2.4
Summary of significant accounting policies (continued)
Basis of consolidation (continued)
Assets, liabilities, income and expenses of subsidiaries acquired or disposed of during the year are included
in the Consolidated Financial Statements from the date of acquisition or up to the date of disposal,
respectively. Profit or loss and each component of other comprehensive income (OCI) are attributed to the
equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-
controlling interests having a deficit balance. Non-controlling interests represent the portion of profit or loss
and net assets not held by the Group, directly or indirectly. The non-controlling interests are presented
separately in the consolidated income statement and within equity from the Company owners’ equity.
All intra-group balances and transactions are eliminated on consolidation.
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as a transaction
between the owners, which affects equity. As a result, no goodwill arises nor any gain/loss is recognised in
the consolidated income statement from such transactions. The foreign exchange differences which relate to
the share of non-controlling interests being sold/acquired are reclassified between the foreign currency
reserve and non-controlling interests.
2.5
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at the acquisition date fair value and
the amount of any non-controlling interests in the acquiree. For each business combination the Group
elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate
share of the acquiree’s identifiable net assets. Any excess of the cost of acquisition over the Group’s share
of the fair values of the identifiable net assets acquired, is recognised as goodwill on the consolidated
balance sheet. Where the Group’s share of the fair values of the identifiable net assets is greater than the
cost of acquisition (i.e. negative goodwill), the difference is recognised directly in the consolidated income
statement in the year of acquisition. Acquisition related costs are expensed as incurred and included in
other operating expenses.
If the business combination is achieved in stages, the previously held equity interest is remeasured at fair
value and any resulting gain or loss is recognised in the consolidated income statement.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with contractual terms, economic circumstances and pertinent
conditions as at the acquisition date.
2.6
Investments in associates and joint ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power
to participate in the financial and operating policy decisions of the investee, but is not control or joint
control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed
sharing of control of an arrangement, which exists only when decisions about the relevant activities require
unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint control are similar to those necessary
to determine control over subsidiaries.
In the Consolidated Financial Statements, the Group’s investments in associates and joint ventures are
accounted for using the equity method of accounting.
66
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
2.6
Summary of significant accounting policies (continued)
Investments in associates and joint ventures (continued)
Under the equity method, the investment in an associate or a joint venture is carried in the consolidated
balance sheet at cost plus post-acquisition changes in the Group’s share of the net assets of the associate
or joint venture. The Group’s share of the results of the associate or joint venture is included in the
consolidated income statement. Losses of the associate or joint venture in excess of the Group’s cost of the
investment are recognised as a liability only when the Group has incurred obligations on behalf of the
associate or joint venture. Goodwill relating to an associate or joint venture is included in the carrying
amount of the investment and is not tested for impairment separately.
Any excess of the Group’s share of the net fair value of the associate’s or joint venture’s identifiable assets
over the cost of the investment (i.e. negative goodwill) is included as income in the determination of the
Group’s share of the associate’s or joint venture’s profit or loss in the period in which the investment is
acquired. The aggregate of the Group’s share of profit or loss of an associate or a joint venture is shown on
the face of the consolidated income statement outside operating profit and represents profit or loss before
tax. The associated tax charge is disclosed in income tax.
The Group recognises its share of any changes in the equity of the associate or the joint venture through
the consolidated statement of changes in equity. Profits and losses resulting from transactions between the
Group and the associate or the joint venture are eliminated to the extent of the Group’s interest in the
associate or the joint venture.
The Group applies equity accounting only up to the date an investment in associates or joint ventures meets
the criteria for classification as held for sale. From then onwards, the investment in associates or joint
venture is measured at the lower of its carrying amount and fair value less costs to sell.
The financial statements of the associates or joint ventures are prepared as of the same reporting date as
that of the Company, using consistent accounting policies.
2.7
Foreign currency translation
The Consolidated Financial Statements are presented in Euro (€), which is the functional and presentation
currency of the Company and its subsidiaries in Cyprus. Each overseas branch or subsidiary of the Group
determines its own functional currency and items included in the financial statements of each entity are
measured using that functional currency. The Group uses the direct method of consolidation and on disposal
of a foreign operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises
from using this method.
2.7.1
Transactions and balances
Transactions in foreign currencies are recorded using the functional currency rate of exchange ruling at the
date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency
rate of exchange ruling at the reporting date. All differences are taken to ‘Net foreign exchange gains’ in the
consolidated income statement, with the exception of differences on foreign currency liabilities that provide
a hedge against the net investments in subsidiaries and overseas branches. These differences are
recognised in other comprehensive income in the ‘Foreign currency translation reserve’ until the disposal or
liquidation of the net investment, at which time the cumulative amount is reclassified to the consolidated
income statement.
Non-monetary items that are measured at historic cost in a foreign currency are translated using the
exchange rates ruling as at the dates of the initial transactions. Non-monetary items measured at fair value
in a foreign currency are translated using the exchange rates ruling at the date when the fair value is
determined.
67
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
2.7
Summary of significant accounting policies (continued)
Foreign currency translation (continued)
2.7.2
Subsidiary companies and branches
At the reporting date, the assets and liabilities of subsidiaries (including special purpose entities that the
Group consolidates) and branches whose functional currency is other than the Group’s presentation
currency are translated into the Group’s presentation currency at the rate of exchange ruling at the
reporting date, and their income statements are translated using the average exchange rates for the year.
Foreign exchange differences arising on translation are recognised in other comprehensive income in the
‘Foreign currency translation reserve’. On disposal or liquidation of a subsidiary or branch, the cumulative
amount of the foreign exchange differences relating to that particular overseas operation, is reclassified to
the consolidated income statement as part of the profit/loss on disposal/dissolution of subsidiaries.
2.8
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker is the person or group of persons that
allocate resources to and assess the performance of the operating segments.
The chief operating decision-maker is the Group Executive Committee.
2.9
Turnover
Group turnover as presented in the Consolidated Income Statement is analysed in Note 7.
2.10
Revenue from contracts with customers
The Group recognises revenue when control of the promised goods or services is transferred to customers
in an amount that reflects the consideration to which the Group expects to be entitled in exchange for those
goods or services. The revenue recognition model applies the following five steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the Group satisfies a performance obligation.
The performance obligation notion in effect represents a promise in a contract with a customer to transfer
to the customer either: (a) a good or service (or a bundle of goods or services) that is distinct; or (b) a
series of distinct goods or services that are substantially the same and that have the same pattern of
transfer to the customer.
Contract balances
A contract asset is the right to consideration in exchange for services transferred to the customer. If the
Group performs by transferring services to a customer before the customer pays consideration or before
payment is due, a contract asset is recognised for the earned consideration that is conditional.
Receivables are recorded where the Group provides services to clients, consideration is due immediately
upon satisfaction of a point in time service or at the end of a prespecified period for an over time service. It
is the Group’s right to an amount of consideration that is unconditional (i.e. only the passage of time is
required before payment of the consideration is due). The initial recognition and subsequent measurement
of such receivables is disclosed in Notes 2.15 to 2.19.
Contract liabilities relate to payments received from customers where the Group is yet to satisfy its
performance obligation. Contract liabilities are recognised as revenue when the Group performs under the
contract.
68
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.10
Revenue from contracts with customers (continued)
Contract assets and receivables are recorded within ‘Prepayments, accrued income and other assets’ and
contract liabilities within ‘Accruals, deferred income, other liabilities and other provisions’ in the
consolidated balance sheet.
2.10.1 Fee and commission income
The Group earns fee income from a diverse range of services it provides to its clients. Fee income can be
divided into two broad categories:
fees earned from services that are provided over a certain period of time, such as asset or
portfolio management, custody services and certain advisory services and
fees earned from point in time services such as executing transactions and brokerage fees (e.g.
securities and derivative execution and clearing).
Over time services
Fees earned from services that are provided over a certain period of time are recognised pro-rata over the
service period provided the fees are not contingent on successfully meeting specified performance criteria
that are beyond the control of the Group. Costs to fulfil over time services are recorded in the consolidated
income statement immediately because such services are considered to be a series of services that are
substantially the same from day to day and have the same pattern of transfer.
Point in time services
Fees earned from providing transaction-type services are recognised when the service has been completed
provided such fees are not subject to refund or another contingency beyond the control of the Group.
Incremental costs to fulfil services provided at a point in time are typically incurred and recorded at the
same time as the performance obligation is satisfied and revenue is earned, and are therefore not
recognised as an asset, e.g. brokerage commissions.
Fee and commission income is measured based on consideration specified in a legally enforceable contract
with a customer, excluding amounts such as taxes collected on behalf of third parties. Consideration can
include both fixed and variable amounts. Variable consideration includes refunds, discounts and other
amounts that are contingent on the occurrence or non-occurrence of a future event. Variable consideration
that is contingent on an uncertain event can only be recognised to the extent that it is highly probable that
a significant reversal in the amount of cumulative revenue for a contract will not occur.
2.10.2 Rental income
Rental income from investment properties and stock of property is accounted for on a straight-line basis
over the period of the lease and is recognised in the consolidated income statement in ‘Other income’.
2.10.3 Gains from the disposal of investment property
Gains on disposal of investment property are recognised in the consolidated income statement in ‘Net
gains/(losses) from revaluation and disposal of investment properties’ when the buyer accepts delivery and
the control of the property is transferred to the buyer.
2.10.4 Gains on the disposal of stock of property
Net gains on disposal of stock of property are recognised in the consolidated income statement when the
buyer accepts delivery and the control of the property is transferred to the buyer.
69
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.11
Recognition of interest income/expense and income/expense similar to interest
The Group calculates interest income by applying the effective interest rate (EIR) to the gross carrying
amount of financial assets, unless the asset is credit-impaired. For financial assets and financial liabilities
measured at FVPL which accrue interest, the Group follows the principles of the effective interest method
with the only difference being the treatment of fees that are integral to the financial asset/financial
liabilities. That is, for financial assets and financial liabilities classified at FVPL the fees are recognised as
revenue or expense when the instrument is initially recognised and not as part of the EIR calculation.
When a financial asset becomes credit-impaired and is therefore classified as Stage 3, interest income is
calculated by applying the EIR to the amortised cost of the financial asset, being the gross carrying amount
of the financial asset less any loss allowance. If the financial asset cures and is no longer credit-impaired,
the Group reverts to calculating interest income on the gross carrying amount. In such cases, the Group
unwinds the discount on the expected credit losses (ECL) through the 'Credit losses to cover credit risk on
loans and advances to customers' line in the Consolidated Income Statement.
Interest income on purchased or originated credit-impaired (POCI) financial assets is recognised using the
Credit Adjusted Effective Interest Rate (CAEIR) calculated at initial recognition. The CAEIR is applied on the
amortised cost of the financial asset, being the gross carrying amount of the financial asset less any loss
allowance.
Interest income from financial assets at amortised cost and financial assets at FVOCI are presented within
the caption ‘Interest income’, with interest income on financial instruments at FVPL presented within the
caption ‘Income similar to interest income’ in the consolidated income statement. Interest expense on
financial liabilities at amortised cost is presented within the caption ‘Interest expense’, with interest expense
on financial instruments at FVPL presented within the caption ‘Expense similar to interest expense’ in the
consolidated income statement. All form part of the ‘Net interest income’.
The Group holds loans and advances to banks and central banks with negative interest rates. The Group
classifies the interest on these assets within interest expense. Negative interest is disclosed in Note 9.
The effective interest rate method
Interest income and expense are recognised in the consolidated income statement by applying the effective
interest rate (EIR) for all financial instruments measured at amortised cost and debt instruments at FVOCI.
The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected
life of the financial instrument to the gross carrying amount of the financial asset or the amortised cost of
the financial liability.
The EIR, and therefore the amortised cost of the asset, is calculated by taking into account any discount or
premium on acquisition, fees and costs that are an integral part of the EIR. Fees and incremental costs that
are directly attributable to loans and advances to customers are also deferred and amortised as part of
interest income using the effective interest method.
For floating-rate financial instruments, periodic re-estimation of cash flows to reflect the movements in the
market rates of interest also alters the EIR, but when instruments were initially recognised at an amount
equal to the principal, re-estimating the future interest payments does not significantly affect the carrying
amount of the asset or the liability.
70
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.12
Retirement benefits
The Group operates both defined contribution and defined benefit retirement plans.
Defined contribution plans
The Group recognises obligations, in respect of the accounting period in the consolidated income statement.
Any unpaid contributions at the reporting date are included as a liability.
Defined benefit plans
The cost of providing benefits for defined benefit plans is estimated separately for each plan using the
Projected Unit Credit Method of actuarial valuation.
The defined benefit asset or liability comprises the present value of the defined benefit obligations (using a
discount rate based on high quality corporate bonds), reduced by the fair value of plan assets out of which
the obligations are to be settled. Plan assets are assets that are held by a funded plan or qualifying
insurance policies. Any net defined benefit surplus is limited to the present value of available refunds and
reductions in future contributions to the plan. Fair value is based on market price information and in the
case of quoted securities it is the published bid price.
The net charge to the consolidated income statement mainly comprises the service costs and the net
interest on the net defined benefit asset or liability, and is presented in staff costs. Service costs comprise
current service costs, past-service costs, gains and losses or curtailments and non-routine settlements. Re-
measurements, comprising actuarial gains and losses, the effect of the asset ceiling (excluding net interest),
and the return on plan assets (excluding net interest), are recognised immediately on the consolidated
balance sheet with a corresponding debit or credit in other comprehensive income. Re-measurements are
not reclassified to profit or loss in subsequent periods.
Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous
actuarial assumptions and what has actually occurred), as well as the effects of changes in actuarial
assumptions.
2.13
Tax
Current income tax and deferred tax
Tax on income is provided in accordance with the fiscal regulations and rates which apply in the countries
where the Group operates and is recognised as an expense in the period in which the income arises.
Deferred tax is provided using the liability method. Current income tax assets and liabilities are measured
at the amount expected to be recovered from or paid to the tax authorities. Current income tax and
deferred tax relating to items recognised directly in equity is recognised directly in equity.
Deferred tax liabilities are recognised for all taxable temporary differences between the tax basis of assets
and liabilities and their carrying amounts at the reporting date, which will give rise to taxable amounts in
future periods. Deferred tax liabilities are recognised for all taxable temporary differences associated with
investments in subsidiary and associate companies and branches except where the timing of the reversal of
the temporary differences can be controlled and it is probable that the temporary differences will not
reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences and carry-forward of unutilised
tax losses to the extent that it is probable that taxable profit will be available, against which the deductible
temporary differences and carry-forward of unutilised tax losses can be utilised. The carrying amount of
deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to utilise all or part of the deductible temporary
differences or tax losses. Unrecognised deferred tax assets are reassessed at each reporting date and are
recognised to the extent that it has become probable that future taxable profit will allow the deferred tax
asset to be recovered.
71
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.13
Tax (continued)
Deferred tax assets and liabilities are measured at the amount that is expected to be paid to or recovered
from the tax authorities, after taking into account the tax rates and legislation that have been enacted or
substantially enacted by the reporting date.
The deferred tax assets arising from specific tax losses and are subject to the Income Tax Law Amendment
28 (I) of 2019, and are accounted for on the same basis as other deferred tax assets and can be converted
into tax credits. These tax losses are converted into 11 equal annual instalments and each instalment can
be claimed as a deductible expense in the determination of the taxable income for the relevant year. Any
amount of the annual instalment not utilised is converted into a tax credit and can be utilised in the tax year
following the tax year to which this tax credit relates to. Any unutilised tax credit in the relevant year is
converted into a receivable from the Cyprus Government. Further details are disclosed in Note 18.
Current and deferred tax assets and liabilities are offset when they arise from the same tax reporting entity
and relate to the same tax authority and when the legal right to offset exists.
Indirect Tax Value Added Tax (VAT)
Expenses and assets are recognised net of the amount of VAT, except:
when the VAT incurred on a purchase of assets or services is not recoverable from the tax
authorities, in which case, the VAT suffered is recognised as part of the cost of acquisition of the
asset or as part of the expense item, as applicable.
when receivables and payables are stated with the amount of VAT charged. The amount of VAT
recoverable from, or payable to the tax authorities, is included as part of receivables or payables
in the consolidated balance sheet.
2.14
Financial instruments - initial recognition
2.14.1 Date of recognition
‘Balances with central banks’, ‘Funding from central banks’, ‘Deposits by banks’, ‘Customer deposits’, ‘Loans
and advances to banks’ and ‘Loans and advances to customers’ are recognised when cash is received by the
Group or advanced to the borrowers. All other financial assets and liabilities are initially recognised on the
trade date. Purchases or sales of financial assets, where delivery is required within a time frame established
by regulations or by market convention, are also recognised on the trade date, i.e. the date that the Group
commits to purchase or sell the asset. Derivatives are also recognised on a trade date basis.
2.14.2 Initial recognition and measurement of financial instruments
The classification of financial assets on initial recognition depends on their contractual terms and the
business model for managing the instruments, as described in Note 2.15.
All financial instruments are measured initially at their fair value plus, in the case of financial assets and
liabilities not measured at FVPL, any directly attributable incremental costs of acquisition or issue.
When the fair value of financial instruments at initial recognition differs from the transaction price, the
Group accounts for the Day 1 profit or loss, as described in Note 2.14.3 below.
2.14.3 Day 1 profit or loss
When the transaction price of the instrument differs from the fair value at origination and the fair value is
based on a valuation technique using only inputs observable in market transactions, the Group recognises
the difference between the transaction price and fair value in 'Net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates' caption. In the cases, where the fair value is based
on models for which some of the inputs are not observable, the difference between the transaction price
and the fair value is deferred and is only recognised in profit or loss when the inputs become observable, or
when the instrument is derecognised.
72
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.14
Financial instruments - initial recognition (continued)
2.14.4 Measurement categories of financial assets and liabilities
Financial assets are measured either at amortised cost, FVOCI or FVTPL.
The Group classifies and measures its derivatives and trading portfolios at FVPL. The Group may designate
financial instruments at FVPL, if doing so eliminates or significantly reduces measurement or recognition
inconsistencies.
Financial liabilities, other than loan commitments and financial guarantees are measured at amortised cost
or at FVPL when they are held for trading or relate to derivative instruments.
2.15
Classification and measurement of financial assets and liabilities
The classification and measurement of financial assets depends on how these are managed as part of the
Business Models the Group operates under and their contractual cash flow characteristics (whether the cash
flows represent solely payments of principle and interest (SPPI)).
Business model assessment
The Group assesses the business model at a portfolio level. The portfolio level is determined at the
aggregation level that reflects how the Group manages its financial assets and the business model is based
on observable factors which include:
How the performance of the business model and the financial assets held within that business
model are evaluated and reported to the Group's key management personnel;
The risks that affect the performance of the business model (and the financial assets held within
that business model) and, in particular, the way in which those risks are managed;
How managers of the business are compensated (for example, whether the compensation is
based on the fair value of the assets managed or on the contractual cash flows collected);
The expected frequency, value and timing of sales are also important aspects of the Group’s
assessment.
If cash flows after initial recognition are realised in a way that is different from the Group’s original
expectations, the Group does not change the classification of the remaining financial assets held in that
business model, but incorporates such information when assessing newly originated or newly purchased
financial assets going forward.
Contractual cash flows characteristics test (SPPI assessment)
The Group assesses whether the individual financial assets’ cash flows represent solely payments of
principal and interest on the principal amount outstanding at origination (SPPI test).
For the purposes of this assessment, principal is defined as the fair value of the financial asset on initial
recognition and may change over the life of the financial asset (for example, if there are repayments of
principal or amortisation of the premium/discount).
Interest is defined as consideration for the time value of money, for the credit risk associated with the
principal amount outstanding during a particular period of time and for other basic lending risks and costs
(e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether contractual cash flows are SPPI, the Group applies judgment and considers the terms
that could change the contractual cash flows so that they would not meet the condition for SPPI, and be
inconsistent to a basic lending arrangement, including: (i) contingent and leverage features, (ii) interest
rates which are beyond the control of the Group or variable interest rate consideration, (iii) features that
could modify the time value of money, (iv) prepayment and extension options, (v) non-recourse
arrangements and (vi) convertible features.
73
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.15
Classification and measurement of financial assets and liabilities (continued)
Where the contractual terms of a financial asset introduce a more than de-minimis exposure to risk or
volatility that are inconsistent with a basic lending arrangement, the related financial asset will be measured
at FVPL.
2.15.1 Derivative financial instruments
Derivatives are recorded at fair value and classified as assets when their fair value is positive and as
liabilities when their fair value is negative. Subsequently, derivatives are measured at fair value.
Revaluations of trading derivatives are included in the consolidated income statement in ‘Net foreign
exchange gains’ in the case of currency derivatives and in ‘Net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates’ in the case of all other derivatives. Interest income
and expense are included in the ‘Income similar to interest income’ and ‘Expense similar to interest
expense’ captions respectively in the consolidated income statement.
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host
contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a
stand-alone derivative.
For hybrid contracts where the host contract is a financial asset within the scope of IFRS 9, the classification
and measurement criteria are based on the business model and SPPI assessment as described in the
Classification of financial assets section of Note 2.15 and applied to the entire hybrid instrument.
Derivatives embedded in financial liabilities and non-financial host contracts, are treated as separate
derivatives and recorded at fair value if their economic characteristics and risks are not closely related to
those of the host contract, and the host contract is not itself measured at fair value with revaluation
recognised in the consolidated income statement. The embedded derivatives separated from the host are
carried at fair value, with revaluations recognised in ‘Net gains on financial instrument transactions and
disposal/dissolution of subsidiaries and associates’ in the consolidated income statement. The host contract
is accounted for in accordance with the relevant standards.
2.15.2 Financial assets measured at amortised cost
Financial assets are measured at amortised cost if they meet both of the following conditions:
The financial asset is held within a business model with the objective to hold financial assets in
order to collect contractual cash flows;
The contractual terms of the financial asset give rise on specified dates to cash flows that are
SPPI on the principal amount outstanding.
This classification relates to cash and balances with central banks, loans and advances to banks, loans and
advances to customers that pass the SPPI test, debt securities held under the ‘Hold to collect’ business
model and other financial assets.
After their initial recognition, financial instruments measured at amortised cost are measured at amortised
cost using the effective interest method, less allowances for expected credit losses (ECL). Amortised cost is
calculated by taking into account any discount or premium on acquisition and fees that are an integral part
of the effective interest rate. The amortisation is included in ‘Interest income’ in the consolidated income
statement. The losses arising from impairment are recognised in the consolidated income statement in
‘Credit losses to cover credit risk on loans and advances to customers’ in the case of loans and advances to
customers and in ‘Credit losses of other financial instruments’ for all other financial instruments.
74
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.15
Classification and measurement of financial assets and liabilities (continued)
2.15.3 Debt instruments measured at FVOCI
Debt instruments are measured at FVOCI if they meet both of the following conditions:
The financial asset is held within a business model the objective of which is achieved by both
collecting contractual cash flows and selling financial assets;
The contractual terms of the financial asset give rise on specified dates to cash flows that are
SPPI on the principal amount outstanding.
This classification relates to debt securities held under the ‘Hold to collect and sell’ business model that pass
the SPPI test.
FVOCI debt instruments are subsequently measured at fair value with gains and losses due to changes in
fair value recognised directly in other comprehensive income in the ‘Net gains/(losses) on investments in
debt instruments measured at FVOCI’ caption. Upon derecognition of debt instruments, any accumulated
balances in other comprehensive income are reclassified to the consolidated income statement and reported
within ‘Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates’
caption. The interest income, foreign exchange differences and ECL are recognised in the consolidated
income statement in the respective lines in the same manner as for financial assets at amortised cost.
2.15.4 Financial assets or financial liabilities held for trading
Financial assets or financial liabilities held for trading represent assets and liabilities acquired or incurred
principally for the purpose of selling or repurchasing them in the near term and are recognised in the
consolidated balance sheet at fair value. Changes in the fair value are recognised in ‘Net gains on financial
instrument transactions and disposal/dissolution of subsidiaries and associates’ in the consolidated income
statement. Interest income and expense are included in the captions ‘Income similar to interest income’
and ‘Expense similar to interest expense’ respectively in the consolidated income statement according to
the terms of the relevant contract, while dividend income is recognised in ‘Other income’ when the right to
receive payment has been established.
This classification relates to debt and equity instruments that have been acquired principally for the
purposes of selling or repurchase in the near term.
2.15.5 Financial assets or financial liabilities at FVPL
Financial assets and financial liabilities, other than those held for trading, classified in this category are
those that are designated by management on initial recognition or are mandatorily required to be measured
at fair value under IFRS 9.
Management only designates an instrument at FVPL at initial recognition when one of the following criteria
are met:
(a)
the designation eliminates or significantly reduces the inconsistency that would otherwise arise
from the measurement of the assets or liabilities or the recognition of gains or losses on them on a
different basis, or
the liabilities are part of a group of financial liabilities or financial assets and financial liabilities
which are managed and their performance is evaluated on a fair value basis, in accordance with a
documented risk management or investment strategy, or
the liabilities contain an embedded derivative, unless the embedded derivative does not
significantly modify the cash flows of the instrument or it is clear, with little or no analysis, that the
embedded derivative could not be separated.
(b)
(c)
Such designation is determined on an instrument-by-instrument basis.
75
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.15
Classification and measurement of financial assets and liabilities (continued)
2.15.5 Financial assets or financial liabilities at FVPL (continued)
Financial assets and financial liabilities at FVPL are recorded in the consolidated balance sheet at fair value.
Changes in the fair value are recognised in ‘Net gains on financial instrument transactions and loss on
disposal/dissolution of subsidiaries and associates’ in the consolidated income statement. Interest income
and expense are included in the captions ‘Income similar to interest income’ and ‘Expense similar to interest
expense’ respectively in the consolidated income statement according to the terms of the relevant contract.
Dividend income is recognised in ‘Other income’ in the consolidated income statement when the right to
receive payment has been established.
In addition assets held under unit-linked insurance contracts and certain non-linked insurance contracts
issued by insurance subsidiaries are designated at FVPL.
Financial assets mandatorily classified at FVPL include certain loans and advances to customers, certain
investment fund holdings and other securities for which the contractual cash flows do not meet the SPPI
test, or the financial assets are part of a portfolio held under a business model that is to manage and whose
performance is evaluated on a fair value basis.
2.15.6 Equity instruments measured at FVOCI
At initial recognition, the Group can make an irrevocable election to classify an investment in equity
instrument at FVOCI, when that meets the definition of Equity under IAS 32 Financial Instruments:
'Presentation', and is not held for trading. Such classification is determined on an instrument-by-instrument
basis.
Fair value gains and losses on these equity instruments are recognised in OCI and are not recycled to profit
or loss upon derecognition, but are transferred directly to retained earnings. Dividends on equity
investments are recognised in the consolidated income statement and reported within ‘Other Income’ when
the right to receive payment has been established. Equity instruments measured at FVOCI are not subject
to an impairment assessment.
2.15.7 Subordinated loan stock
Subordinated loan stock is initially measured at the fair value of the consideration received, net of any issue
costs. It is subsequently measured at amortised cost using the effective interest method, in order to
amortise the difference between the cost at inception and the redemption value, over the period to the
earliest date that the Group has the right to redeem the subordinated loan stock.
Interest on subordinated loan stock is included in ‘Interest expense’ in the consolidated income statement.
2.15.8 Other financial liabilities
Other financial liabilities include ‘Customer deposits’, ‘Deposits by banks’, ‘Funding from central banks’ and
other financial liabilities.
Financial liabilities are recognised when the Group enters into the contractual provisions of the
arrangements with counterparties, which is generally on trade date, and initially measured at fair value,
which is normally the consideration received, net of directly attributable transaction costs incurred.
Subsequent measurement of deposits by customers, funding from central banks and deposits by banks is at
amortised cost, using the effective interest method.
76
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.16
Reclassification of financial assets and liabilities
The Group does not reclassify its financial assets subsequent to their initial recognition apart from
exceptional circumstances in which the Group changes its business model for managing financial assets and
acquires, disposes of, or terminates a business line. Reclassification is applied prospectively from the
reclassification date, which is the first day of the first reporting period following the change in business
model that results in the reclassification. Any previously recognised gains, losses or interest are not
restated.
Financial liabilities are never reclassified.
2.17
Derecognition of financial assets and financial liabilities
2.17.1 Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial
assets) is derecognised when the contractual rights to the cash flows from the financial asset have expired.
The Group also derecognises the financial asset if it has both transferred the financial asset and the transfer
qualifies for derecognition.
The Group transfers a financial asset if, and only if, either:
The Group transfers its contractual rights to receive cash flows from the financial asset; or
The Group retains the rights to the cash flows, but assumes an obligation to pay the received
cash flows in full without material delay to a third party under a ‘pass-through’ arrangement.
A transfer only qualifies for derecognition if either:
The Group transfers substantially all the risks and rewards of the asset; or
The Group neither transfers nor retains substantially all the risks and rewards of the asset, but it
transfers control of the asset.
2.17.2 Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or
expired. Modifications to, and exchanges of, financial liabilities are treated as extinguishments and
derecognised, when the revised terms are substantially different to the original term. The difference
between the carrying amount of the original financial liability and the consideration paid is recognised in
profit or loss.
2.18
Forborne and modified loans
The contractual terms of a financial asset may be modified due to various reasons, either due to commercial
renegotiations or due to distressed restructurings with a view to maximise recovery.
In the event that the terms and conditions of a financial asset are renegotiated or otherwise modified, the
Group considers whether the modification results in derecognition of the existing financial asset and the
recognition of a new financial asset. A derecognition of a financial asset (or part of a financial asset) and a
recognition of a new financial asset would occur where there has been a substantial modification on the
revised terms to the original cash flows.
Judgement is required to assess whether a change in the contractual terms is substantial enough to lead to
derecognition. The Group considers a series of factors of both qualitative and quantitative nature when
making such judgements on a modification in the contractual cash flows, including change in the currency,
change in counterparty, introduction of substantial terms such as addition of equity conversion features,
changes in the legal framework and other.
77
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.18
Forborne and modified loans (continued)
Where the modification does not result in derecognition, the Group recognises a modification gain or loss,
based on the modified cash flows discounted at the original EIR and the existing gross carrying value of the
financial asset. The financial asset continues to be subject to the same assessments for significant increase
in credit risk relative to initial recognition and credit-impairment. A modified financial asset will transfer out
of Stage 3 if the conditions that led to it being identified as credit-impaired as defined in Note 2.19.2, are
no longer present. A modified financial asset will transfer out of Stage 2 when it no longer satisfies relative
thresholds set to identify significant increases in credit risk, which are based on changes in its lifetime PD,
days past due and other considerations. The financial asset continues to be monitored for significant
increases in credit risk and credit-impairment.
In the case of a new financial asset classified at amortised cost or FVOCI, an assessment is performed on
whether it should be classified as Stage 1 or POCI for ECL measurement. For the purposes of assessing for
significant increases in credit risk, the date of initial recognition for the new financial asset is the date of the
modification.
2.19
Impairment of financial assets
2.19.1 Overview of ECL principle
The Group uses a forward looking ECL model, requiring judgement, estimates and assumptions in
determining the level of ECLs. ECLs are recorded for all financial assets measured at amortised cost and
FVOCI, lease receivables, loan commitments and financial guarantee contracts. Equity instruments are not
subject to impairment under IFRS 9.
At initial recognition, impairment allowance (or provision in the case of commitments and guarantees) is
required for ECL resulting from default events that are possible within the next 12 months (12-month ECL),
unless assets are deemed as POCI. In the event of a significant increase in credit risk since initial
recognition, impairment allowance is required resulting from all possible default events over the expected
life of the financial instrument (lifetime ECL). The Group’s policies for determining if there has been a
significant increase in credit risk are set out in Note 2.19.3.
The Group groups its financial assets into Stage 1, Stage 2, Stage 3 and POCI for ECL measurement as
described below:
Stage 1: Financial assets which have not had a significant increase in credit risk since initial recognition are
considered to be Stage 1 and 12-month ECL is recognised.
Stage 2: Financial assets that are considered to have experienced a significant increase in credit risk since
initial recognition are considered to be Stage 2 and lifetime losses are recognised.
Stage 3: Financial assets which are considered to be credit-impaired (refer to following section of the note
on how the Group defines credit-impaired and default) and lifetime losses are recognised.
POCI: Purchased or originated financial assets are financial assets that are credit-impaired on initial
recognition. POCI assets include loans purchased or originated at a deep discount that reflect incurred credit
losses. Changes in lifetime ECLs since initial recognition are recognised.
78
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.1 Overview of ECL principle (continued)
ECL is recognised in profit or loss with a corresponding ECL allowance reported as a decrease in the carrying
value of financial assets measured at amortised cost on the balance sheet. For financial assets measured at
FVOCI the carrying value is not reduced, but the accumulated amount of impairment allowance is
recognised in OCI. For off-balance sheet instruments, accumulated provisions for ECL are reported in
‘Accruals, deferred income, other liabilities and other provisions’, except in the case of loan commitments
where ECL on the loan commitment is recognised together with the loss allowance of the relevant on
balance-sheet exposure, as the Group cannot separately identify the ECL on the loan commitment from
those on the on-balance sheet exposure component. ECL for the period is recognised within the
consolidated income statement in ‘Credit losses to cover credit risk on loans and advances to customers’ for
loans and advances to customers and loan commitments and financial guarantees and in ‘Credit losses of
other financial instruments’ for all other financial instruments.
2.19.2 Credit impaired and definition of default
Loans and advances to customers, loan commitments and financial guarantees
The Group considers loans and advances to customers that meet the non-performing exposure (NPE)
definition as per the European Banking Authority (EBA) standards to be in default and hence Stage 3
(credit-impaired). Therefore such loans have ECL calculated on a lifetime basis and are considered to be in
default for credit risk management purposes.
As per the EBA standards and European Central Bank’s (ECB) Guidance to Banks on Non-Performing Loans
(which was published in March 2017), NPEs are defined as those exposures that satisfy one of the following
conditions:
(i) The borrower is assessed as unlikely to pay its credit obligations in full without the realisation of the
collateral, regardless of the existence of any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the Capital Requirement
Regulation (CRR), which would also trigger a default under specific credit adjustment, distress
restructuring and obligor bankruptcy.
(iii) Material exposures as set by the Central Bank of Cyprus (CBC), which are more than 90 days past
due.
(iv) Performing forborne exposures under probation for which additional forbearance measures are
extended.
(v) Performing forborne exposures under probation that present more than 30 days past due within the
probation period.
When a specific part of the exposures of a customer that fulfils the NPE criteria set out above is greater than
20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total
customer exposure is classified as non-performing; otherwise only the specific part of the exposure is
classified as non-performing.
If unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 90 days
past due, even where regulatory rules permit default to be defined based on 180 days past due.
The definitions of credit-impaired and default are aligned so that stage 3 represents all loans which are
considered defaulted or otherwise credit-impaired.
When a financial asset has been identified as credit-impaired, expected credit losses are measured as the
difference between the asset’s gross carrying amount and the present value of estimated future cash flows
discounted at the instrument’s original effective interest rate.
79
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.2 Credit impaired and definition of default (continued)
Exposures cease to be considered as NPEs and in such case are transferred out of Stage 3, only when all of
the following conditions are met:
The extension of forbearance measures does not lead to the recognition of impairment or default.
i.
ii. One year has passed since the forbearance measures were extended.
iii. Following the forbearance measures and according to the post-forbearance conditions, there is no
past due amount or concerns regarding the full repayment of the exposure.
iv. No Unlikely-to-Pay criteria exist for the debtor.
v.
The debtor has made post-forbearance payments of a not-insignificant amount of capital (different
capital thresholds exist according to the facility type).
At the time an account exits Stage 3, the rating at origination is compared to the rating at the reporting
date. If the rating at the reporting date is higher than or equal to the rating at the origination date then the
loan is transferred to Stage 1, otherwise it is transferred to Stage 2. The reversal of previous unrecognised
interest on loans and advances to customers that no longer meet Stage 3 criteria is presented in 'Credit
losses to cover credit risk on loans and advances to customers'.
Debt securities, loans and advances to banks and balances with central banks
Debt securities, loans and advances to banks and balances with central banks are considered defaulted and
transferred to Stage 3 if the issuers have failed to pay either interest or principal. Moody’s ratings indicate
these exposures with a grade C which is the lowest Moody’s rating category. In addition, a number of other
criteria are considered such as adverse changes in business, financial and economic conditions as well as
external market indicators (credit spreads, credit default swap (CDS) prices) in determining whether there
has been a significant deterioration in the financial position that could lead to unlikeliness to pay.
2.19.3 Significant increase in credit risk
IFRS 9 requires that in the event of a significant increase in credit risk since initial recognition, the
calculation basis of the loss allowance would change from 12 month ECLs to lifetime ECLs.
The assessment of whether credit risk has increased significantly since initial recognition, is performed at
each reporting period, by considering the change in the risk of default occurring over the remaining life of
the financial instrument since initial recognition.
Significant credit risk increase for loans and advances to customers
Primarily, the Group uses the lifetime probability of default (PDs) as the quantitative metric in order to
assess transition from Stage 1 to Stage 2 for all portfolios, by considering whether the lifetime PD at the
reporting date exceeds the lifetime PD at origination by using an established relative threshold. The Group
considers an exposure to have significant increase in credit risk (SICR) by comparing the PD at the
reporting date with the PD at initial recognition to compute the relative increase in regards to the
corresponding threshold. The threshold has been determined by using statistical analysis on historical
information of credit migration exposures on the basis of days past due, for the different segments. The
Group applies the thresholds presented in the table below to each portfolio/segment, based on the following
characteristics: customer type, product type and rating at origination. The threshold is then assigned to
each facility according to the facilities portfolio/segment.
For Retail, SME and Corporate portfolios, the threshold applied varies depending on the original credit
quality of the borrower. For instruments with lower default probabilities at inception due to good credit
quality of the counterparty, the SICR threshold is set at a higher level than for instruments with higher
default probabilities at inception.
80
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.3 Significant increase in credit risk (continued)
The SICR trigger is activated based on the comparison of the ratio of Current Lifetime PD to the remaining
Lifetime PD at origination (PD@O) to the pre-established threshold. If the resulting ratio is higher than the
pre-established threshold then deterioration is assumed to have occurred and the exposure is transferred to
Stage 2. The thresholds calibration is driven by changes in the PD models which are assessed semi-
annually.
The table below summarises the quantitative measure of the SICR trigger which varies depending on the
credit quality at origination as follows, applied on 31 December 2019 and 2018:
Segment
Rating at
origination
Retail
SME
Corporate
1-3
4-5
6-7
1-3
4-5
6-7
1-7
PD Deterioration
thresholds applied at
31 December 2019
2-9 X PD@O
1-6 X PD@O
1-3 X PD@O
4-6 X PD@O
2-4 X PD@O
1-2 X PD@O
2 X PD@O
PD Deterioration
threshold applied at
31 December 2018
1-29 X PD@O
1-5 X PD@O
1-5 X PD@O
3-8 X PD@O
4 X PD@O
4 X PD@O
2 X PD@O
The IFRS 9 components, including the thresholds were calibrated during the second quarter of 2019 in order
to include additional recent historical observations.
For exposures which are subject to individual impairment assessment, the following qualitative factors in
addition to the ones incorporated in the PD calculation, are considered:
in collateral value or guarantee or
significant change
shareholders/directors,
significant adverse changes in business, financial and/or economic conditions in which the
borrower operates.
financial support provided by
The Group also considers, as a backstop criterion, that a significant increase in the credit risk occurs when
contractual payments are more than 30 days past due (past due materiality is applied). Loans that meet
this condition are classified in Stage 2. In cases where certain exposures are past due for more than 30
days if certain materiality limits are not met (such as arrears equal to €100 and funded balances equal to
1% in the case of retail exposures and arrears equal to €500 and funded balances equal to 1% on all
exposures other than retail), then the transfer to Stage 2 does not take place. The materiality levels are
set in accordance with the ECB Regulation (EU) 2018/1845.
The thresholds for movement between Stage 1 and Stage 2 are symmetrical. After a financial asset has
transferred to Stage 2, if its credit risk is no longer considered to have significantly increased relative to its
initial recognition, the financial asset will move back to Stage 1.
Significant credit risk increase for financial instruments other than loans and advances to customers
Low credit risk simplification is adopted for debt security instruments, loans and advances to banks and
balances with central banks with external credit ratings that are rated as investment grade. The assessment
of low credit risk is based on both the external credit rating and the internal scoring (which considers latest
available information on the instrument and issuer). The combination of the two provides an adjusted credit
rating. An adjusted rating which remains investment grade is considered as having low credit risk.
81
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.3 Significant increase in credit risk (continued)
For debt securities, loans and advances to banks and balances with central banks which are below
investment grade, the low credit risk exemption does not apply and therefore an assessment of significant
credit deterioration takes place, by comparing their credit rating at origination with the credit rating on the
reporting date. Significant deterioration in credit risk is considered to have occurred when the adjusted
rating of the exposures drops to such an extent that the new rating relates to a riskier category (i.e. from a
non-investments grade to speculative and then to highly speculative or when the PD of the exposure at the
origination date compared to the PD at the reporting date has increased by a level greater than the pre-set
threshold).
2.19.4 Measurement of ECLs
IFRS 9 ECL reflects an unbiased, probability-weighted estimate based on either loss expectations resulting
from default events over a maximum 12-month period from the reporting date or over the remaining life of
a financial instrument. The Group calculates lifetime ECLs and 12-month ECLs either on an individual basis
or a collective basis, depending on the nature of the underlying portfolio of financial instruments.
The Group calculates ECLs based on three-weighted scenarios to measure the expected cash flows
shortfalls, discounted at an approximation to the EIR as calculated at initial recognition. A cash shortfall is
the difference between the cash flows that are due in accordance with the contract and the cash flows
expected to be received.
The Group calculates ECL using the following three components:
exposure at default (EAD),
probability of default (PD), and
loss given default (LGD).
EAD
EAD represents the expected exposure in the event of a default during the life of a financial instrument,
considering expected repayments, interest payments and accruals. EAD definition is differentiated for the
following categories: revolving and non-revolving exposures.
For non-revolving exposures the term is based on the contractual term of the exposure and both on-balance
sheet and off-balance sheet exposures are amortised in accordance with the principal contractual payment
schedule of each exposure. In case of revolving exposures, the projected EAD is the carrying value plus the
credit conversion factor applied on the undrawn amount. The credit conversion factor model is derived
based on empirical data from 2014 onwards.
In regards to the credit-impaired exposures, the EAD is equal to the on balance sheet amount as at the
reporting date.
Probability of default (PD)
PD represents the probability an exposure defaults and is calculated based on statistical rating models,
calculated per segment and taking into consideration each individual’s exposure rating as well as forward
looking information based on macroeconomic inputs.
82
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.4 Measurement of ECLs (continued)
For each exposure, lifetime PD represents the probability of default within the lifetime horizon and is based
on the underlying models of marginal probability of default through the cycle (MPD TTC), MPD individual,
MPD point in time, Marginal Probability of Paid-off (MPP) and the NPE overlay. In particular, the first
element, MPD TTC is constructed per segment, illustrating the probability of default status depending on
number of months since the origination date. The PD for each month since the originated date is calculated
under the condition that exposures survived until the prior month. The MPD individual is allocated to linked
individual exposures through a scaling factor constructed based on the current individual risk assessment,
which is represented by the Group’s PD per rating grade. MPD is adjusted to reflect the current and forward
looking information based on the macroeconomic inputs. The MPP Component is the curve that shows the
probability of full payment of a particular exposure based on specific period in months since the open date
of the exposure. MPP is estimated for each particular segment and depends on the contractual terms of the
exposure. Finally, the NPE overlay is an add-on factor that adjusts the definition of default of the underlying
models, such that it is aligned with the NPE definition. For revolving facilities where there is no contractual
survival maturity, one curve per segment is developed. The combination of these models gives rise to a PD
value for each month for the lifetime of the exposure.
BOC PCL's internal rating process is summarised in Note 46.
Loss given default (LGD)
LGD represents an estimate of the loss if default occurs at a given time. It is usually expressed as a
percentage of the EAD. Two distinct paths are taken into consideration for the LGD parameter. The first one
is that of a cured facility where there is a full recovery thus no losses occur. In the second scenario, the
facility remains non-performing resulting into BOC PCL proceeding with collateral liquidation actions. To this
end, the LGD model considers parameters such as historical loss and/or recovery rates as well as the
collateral value which is discounted to the present value determining the amount of the expected shortfall.
LGD rates are estimated for the Stage 1, Stage 2, Stage 3 and POCI segment of each asset class.
The structure of the LGD model considers the following:
Curing where the probability of cure model was derived based on historical observations.
Non-curing including cash recovery or realisation of collaterals either voluntarily i.e. debt for
asset swap or through forced sale, auctions and foreclosure and receivership.
A model monitoring process is followed for PD, EAD and LGD models, where model outputs are back-tested
against recent data points.
Individually assessed loans
The individual assessment is performed not only for individually significant assets but also for other
exposures meeting specific criteria determined by Credit Risk Management. A risk based approach is used
on the selection criteria of the individually assessed population such as NPE or forborne exposures above a
certain amount, decrease of a certain percentage on the yearly credit turnover and decrease of a certain
percentage on assigned collaterals.
The ECL is calculated on an individually assessed basis and all relevant considerations of the expected
future cash flows are taken into account (for example, the business prospects for the customer, the
realisable value of collateral, the Group’s position relative to other claimants, the reliability of customer
information and the likely cost and duration of the work-out process).
Collectively assessed loans
All customer exposures that are not individually assessed, are assessed on a collective basis. For the
purposes of calculating ECL, exposures are grouped into granular portfolios/segments with shared risk
characteristics. The granularity is based on different levels of segmentation which, among other factors
include customer type, exposure class and portfolio type.
83
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.5 Scenarios and scenarios weights
The Group uses reasonable and supportable information, including forward-looking information, in the
calculation of ECLs. ECLs are the unbiased probability-weighted credit losses determined by evaluating a
range of possible outcomes and considering future economic conditions. ECLs are calculated for three
macroeconomic scenarios, baseline, downside and upside and the output is the weighted average ECL based
on the assigned probability of each scenario (Note 46).
Macroeconomic scenarios impact both the probability of default (PD) and the loss given default (LGD).
Specifically, forward looking information is embedded in the PDs based on regression equations derived on
the basis of historical data. Using statistical analysis, the most significant macro-variables have been
selected in order to predict accurately the expected default rates. In regards to the LGD, the forward
looking information is incorporated via the property indices for the types of properties (housing,
commercial, industrial). In particular, for each collateral a forward looking projection of the realisable value
is calculated before discounting back to reporting date to quantify the expected cash shortfall.
Each macroeconomic scenario used in the expected credit loss calculation includes a projection of all
relevant macroeconomic variables used in the models for a five year period, subsequently reverting to long-
run averages. As the forecast horizon increases, the availability of information decreases and judgement
increases.
In regards to the weights, these are determined/computed for each scenario by using the Cumulative
Density Function (CDF) derived from past historical data (1980-2019) and severity analysis. All possible
scenarios are depicted on the CDF with the 0th percentile scenario being the worst case and the 100th
percentile scenario being the best case. The favourable scenario is defined as the 80th percentile and 20%
probability. The baseline scenario is defined as the 50th percentile and 60% probability. The adverse
scenario is defined as the 20th percentile and 20% probability. The final weights constitute the probabilities
that the respective set of macroeconomic conditions will occur and represent best estimate of the relative
likelihood of the range of outcomes that each scenario represents. Scenario weights are determined by the
Economic Research Department of BOC PCL and take into account historical frequency, are updated on a
quarterly basis, are proposed by the CRO and are endorsed by the Provisions Committee.
This process involves consideration of a variety of external actual and forecast information (International
Monetary Fund (IMF), European Commission, Economist Intelligence Unit (EIU), Moody’s Analytics) which is
complemented by economic expert judgement.
Qualitative adjustments or overlays are occasionally made when inputs calculated do not capture all the
characteristics of the market at the reporting date. Overlays performed are set out in Note 5.2.
2.19.6 ECL measurement period
The period for which expected credit losses are determined (either for 12-month or lifetime ECL) is based
on the stage classification of the facility and its contractual life. For non-revolving exposures the expected
lifetime is the period from the reporting date to the termination date of the facility. For irrevocable loan
commitments and financial guarantee contracts, the measurement period is determined similar to the
period of the revolving facilities.
For revolving facilities, credit cards and corporate and retail overdrafts BOC PCL has the right to cancel
and/or reduce the facilities with two months’ notice. BOC PCL does not limit its exposure to credit losses to
the contractual notice period, but instead the next review date is used for determining the expected
lifetime, which is annual for corporate exposures and every two to three years for retail exposures.
84
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.7 Purchased or originated credit impaired financial assets (POCI)
POCI financial assets are recorded at fair value on initial recognition. ECLs are only recognised or released
to the extent that there is a subsequent change in the expected credit losses. For POCI financial assets, the
Group only recognises the cumulative changes in lifetime ECL since initial recognition in the loss allowance.
POCI remain a separate category until derecognition.
2.20 Write-offs
The Group reduces the gross carrying amount of a financial asset when there is no reasonable expectation
of recovering it. In such case, financial assets are written off either partially or in full. Write off refers to
both contractual and non-contractual write offs. Write-offs and partial write-offs
represent
derecognition/partial derecognition events.
If the amount of write-offs is greater than the amount of accumulated loss allowance, the difference is first
treated as an addition to the allowance that is then applied against the gross carrying amount. Recoveries,
in part or in full, of amounts previously written-off are credited to the consolidated income statement in
‘Credit losses to cover credit risk on loans and advances to customers’.
2.21
Financial guarantees, letters of credits and undrawn loan commitments
The Group issues financial guarantees to its customers, consisting of letters of credit, letters of guarantee
and acceptances. Financial guarantees are initially recognised at fair value, and presented on the
consolidated balance sheet within ‘Accruals, deferred income, other liabilities and other provisions’.
Subsequently, the Group’s liability under each guarantee is measured at the higher of: (a) the amount
initially recognised reduced by the cumulative amortised premium which is periodically recognised in the
consolidated income statement in ‘Fee and commission income’ in accordance with the terms of the
guarantee, and (b) the amount of ECL provision.
ECL resulting from financial guarantees is recorded in ‘Credit losses to cover credit risk on loans and
advances to customers’. The balance of the liability for financial guarantees that remains is recognised in
‘Fee and commission income’ in the consolidated income statement when the guarantee is fulfilled,
cancelled or expired.
Undrawn loan commitments and letters of credits are commitments under which, over the duration of the
commitment the Group is required to provide a loan with pre-specified terms to the customer.
Corresponding ECL are presented within ‘Accruals, deferred income, other liabilities and other provisions’ on
the Group’s balance sheet except in the case of loan commitments where ECL on the loan commitment is
recognised together with the loss allowance of the relevant on balance-sheet exposure as the Group cannot
separately identify the ECL on the loan commitment from those on the on-balance sheet exposure
component. ECL relating to these other loan commitments is recorded in ‘Credit losses to cover credit risk
on loans and advances to customers’ in the consolidated income statement.
When a customer draws on a commitment, the resulting loan is presented within (i) financial assets at fair
value held for trading, consistent with the associated derivative loan commitment, (ii) financial assets at fair
value not held for trading, following loan commitments designated at FVPL or (iii) loans and advances to
customers, when the associated loan commitment is not fair valued through profit or loss.
2.22
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance
sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an
intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future events and must be enforceable in the normal course of
business and in the event of default, insolvency or bankruptcy of either party.
85
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.23
Hedge accounting
The Group elected, as a policy choice permitted by IFRS 9, to continue to apply hedge accounting in
accordance with IAS 39. The Group implements the amended IFRS 7 hedge disclosure requirements.
The Group uses derivative financial instruments to hedge exposures to interest rate and foreign exchange
risks and in the case of the hedge of net investments, the Group uses also non-derivative financial liabilities.
The Group applies hedge accounting for transactions which meet the specified criteria.
At inception of the hedging relationship, the Group formally documents the relationship between the hedged
item and the hedging instrument, including the nature of the risk and the objective and strategy for
undertaking the hedge. The method that will be used to assess the effectiveness both at the inception and
at ongoing basis, of the hedging relationship also forms part of the Group’s documentation.
At inception of the hedging relationship and at each hedge effectiveness assessment date, a formal
assessment is undertaken to ensure that the hedging relationship is highly effective regarding the offsetting
of the changes in fair value or the cash flows attributable to the hedged risk. A hedge is regarded as highly
effective if the changes in fair value or cash flows attributable to the hedged risk of the hedging instrument
and the hedged item during the period for which the hedge is designated, are expected to offset in a range
of 80% to 125%. In the case of cash flow hedges where the hedged item is a forecast transaction, the
Group assesses whether the transaction is highly probable and presents an exposure to variations in cash
flows that could ultimately affect the consolidated income statement.
The Group has early adopted the Amendments to IFRS 9, IAS 39 and IFRS 7 related to Interest Rate
benchmark Reform. Further information is disclosed in Notes 2.2.2 and 22.
2.23.1 Fair value hedges
In the case of fair value hedges that meet the criteria for hedge accounting, the change in the fair value of a
hedging instrument is recognised in the consolidated income statement in ‘Net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and associates’. The change in the fair value of the
hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and
is also recognised in the consolidated income statement in ‘Net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates’.
If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets
the criteria for hedge accounting, the hedging relationship is discontinued prospectively. For hedged items
recorded at amortised cost, the difference between the carrying value of the hedged item on termination
and the face value is amortised to the consolidated income statement, over the remaining term of the
original hedge. If the hedged item is derecognised, the unamortised fair value adjustment is recognised
immediately in the consolidated income statement.
2.23.2 Cash flow hedges
In the case of cash flow hedges that meet the criteria for hedge accounting, the effective portion of the gain
or loss on the hedging instrument is recognised directly in other comprehensive income in the ‘Cash flow
hedge reserve’. The ineffective portion of the gain or loss on the hedging instrument is recognised in ‘Net
gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates’ in the
consolidated income statement.
When the hedged cash flows affect the consolidated income statement, the gain or loss previously
recognised in the ‘Cash flow hedge reserve’ is transferred to the consolidated income statement.
86
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.23
Hedge accounting (continued)
2.23.3 Hedges of net investments in foreign operations
Hedges of net investments in overseas branches or subsidiaries are accounted for in a way similar to cash
flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are
recognised in other comprehensive income while gains or losses relating to the ineffective portion are
recognised in ‘Net foreign exchange gains’ in the consolidated income statement.
On disposal or liquidation of an overseas branch or subsidiary, the cumulative gains or losses recognised in
other comprehensive income are transferred in the consolidated income statement within the 'Net gains on
financial instrument transactions and disposal/dissolution of subsidiaries and associates.
2.24
Cash and cash equivalents
Cash and cash equivalents for the purposes of the consolidated statement of cash flows consist of cash,
non-obligatory balances with central banks, loans and advances to banks and other securities that are
readily convertible into known amounts of cash and are repayable within three months of the date of their
acquisition.
2.25
Insurance business
The Group undertakes both life insurance and non-life insurance business and issues insurance and
investment contracts. An insurance contract is a contract under which one party (the insurer) accepts
significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder
if a specified uncertain future event (the insured event) adversely affects the policyholder. Investment
contracts are those contracts that transfer financial risk.
Investment contracts can, however, be reclassified as insurance contracts after inception if insurance risk
becomes significant.
Once a contract has been classified as an insurance contract, it remains an insurance contract until expiry or
until all of the rights and obligations under the contract have been fulfilled, even if the insurance risk has
been significantly reduced during its term.
2.25.1 Life insurance business
Premium income from unit-linked insurance contracts is recognised when received and when the units have
been allocated to policyholders. Premium income from non-linked insurance contracts is recognised when
due, in accordance with the terms of the relevant insurance contracts.
Fees and other expenses chargeable to the long-term assurance funds in accordance with the terms of the
relevant insurance contracts, as well as the cost of death cover, are recognised in a manner consistent with
the recognition of the relevant insurance premiums.
Claims are recorded as an expense when they are incurred. Life insurance contract liabilities are determined
on the basis of an actuarial valuation and for unit-linked insurance contracts they include the fair value of
units allocated to policyholders on a contract by contract basis.
2.25.2 Life insurance in-force business
The Group recognises as an intangible asset the value of in-force business in respect of life insurance
contracts. The asset represents the present value of the shareholders’ interest in the profits expected to
emerge from those contracts written at the reporting date, using appropriate economic and actuarial
assumptions, similar to the calculation of the respective life insurance contract liabilities. The change in the
present value is determined on a post-tax basis. For presentation purposes, the change in value is grossed
up at the underlying rate of tax.
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BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.25
Insurance business (continued)
2.25.3 Non-life insurance business
Premiums are recognised in the consolidated income statement in the period in which insurance cover is
provided. Unearned premiums relating to the period of risk after the reporting date are deferred to
subsequent reporting periods.
An increase in liabilities arising from claims is made for the estimated cost of claims notified but not settled
and claims incurred but not notified at the reporting date. The increase in liabilities for the cost of claims
notified but not settled is made on a case by case basis after taking into consideration all known facts, the
cost of claims that have recently been settled and assumptions regarding the future development of
outstanding cases. Similar statistical techniques are used to determine the increase in liabilities for claims
incurred but not notified at the reporting date.
2.25.4 Investment contracts
The Group offers deposit administration funds which provide a guaranteed investment return on members’
contributions. Policies are written to employees of companies, which define the benefits to be received.
Any shortfalls are covered by the companies which employ the staff being insured. The Group has no
liability for any actuarial deficit.
2.25.5 Liability adequacy test
At each reporting date, liability adequacy tests are performed to ensure the adequacy of insurance contract
liabilities. In performing these tests, current best estimates of discounted future contractual cash flows and
claims, expenses and investment returns are used. Any deficiency is charged to the consolidated income
statement.
2.26
Repurchase and reverse repurchase agreements
Securities sold under agreements to repurchase (repos) at a specific future date are not derecognised from
the consolidated balance sheet. The corresponding cash received, including accrued interest, is recognised
on the consolidated balance sheet as ‘Repurchase agreements’, reflecting its economic substance as a loan
to the Group. The difference between the sale price and repurchase price is treated as interest expense and
is accrued over the life of the agreement using the effective interest method. Repos outstanding at the
reporting date relate to agreements with financial institutions. The investments pledged as security for the
repurchase agreements can be sold or repledged by the counterparty. When the counterparty has the right
to sell or repledge the securities, the Group reclassifies those securities in its consolidated balance sheet to
‘Investments pledged as collateral’.
Securities purchased under agreements to resell (reverse repos) at a specific future date, are recorded as
reverse repo transactions. The difference between the purchase and the resale price is treated as interest
income and is accrued over the life of the agreement using the effective interest method.
88
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.27
Leases - The Group as lessee
The Group recognises RoU assets and lease liabilities for contracts that convey the right to control the use
of an identified asset for a period of time in exchange for consideration.
The Group has the right to direct the use of an identified asset throughout the period of use when it has the
right to direct how and for what purpose the asset is used and has the right to change the purpose,
throughout the period of use (i.e. the decision-making rights that most significantly affect the economic
benefits that can be derived from the use of the underlying asset). Essentially, this right permits the Group
to change its decisions throughout the contract term without approval from the lessor.
The lease liabilities are initially measured at the present value of the future lease payments discounted at
the lessee’s incremental borrowing rate (IBR) given that the interest rate implicit in the lease cannot be
readily determined. Subsequently the lease liability is adjusted for interest and lease payments, as well as
the impact of lease modifications. Interest is computed by unwinding the present value of the lease liability
and charged to the consolidated income statement within 'Interest expense'.
The cost of the RoU asset comprises the amount of the initial measurement of the lease liability, initial
direct costs and the provision for restoration costs, adjusted for any related prepaid or accrued lease
payments previously recognised. Depreciation is computed on a straight line basis up to the end of the
lease term, and recorded to the consolidated income statement within 'Other operating expenses'.
The Group accounts for the lease and non-lease components (such as cleaning costs, maintenance costs) of
a contract as a single lease component, after electing the relevant practical expedient.
The Group elected to use the recognition exemption for lease contracts that, at the commencement date,
have a lease term of 12 months or less and do not contain a purchase option (‘short term leases’), and
lease contracts for which the underlying asset is of low value (‘low value assets’). Payments associated with
short term leases and leases of low value assets are recognised on a straight line basis as an expense in the
consolidated income statement.
Leases are monitored for significant changes that could trigger a change in the lease term and at the end of
each reporting period and the impact on the lease liability and the RoU asset is reassessed.
The lease term is calculated as the non-cancellable term of the lease, together with any periods covered by
an option to extend the lease (if reasonably certain to be exercised), or any periods covered by an option to
terminate the lease (if reasonably certain not to be exercised). The assessment of whether the Group is
reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of
lease liabilities and RoU assets recognised. Judgement is used in calculating the lease term, which is further
disclosed in Note 5.13.
Lease payments generally include fixed payments and variable payments that depend on an index (such as
an inflation index).
Variable lease payments that are determined by reference to an index or a rate are taken into account in
the lease liability only when there is a change in the cash flows resulting from a change in the reference
index or rate. In cases where the lease contract includes a term relating to increase in the lease payment
based on variable lease payments, this increase is applied on the lease when it becomes effective (when the
actual cash outflow occurs). The assessment is performed at each reporting date. In cases where the lease
contract includes a term with fixed increments in the lease payments, the increase is accounted for in the
initial recognition of lease liability.
When a lease contains an extension or termination option that the Group considers reasonably certain to be
exercised, the expected lease payments or costs of termination are included within the lease payments in
determining the lease liability.
89
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.27.1 Operating leases (policy applicable before 1 January 2019)
Leases that do not transfer to the Group substantially all the risks and benefits incidental to ownership of
the leased items are operating leases. Operating lease payments are recognised as an expense in the
consolidated income statement on a straight line basis over the lease term in ‘Other operating expenses’.
2.28
Leases - The Group as lessor
2.28.1 Finance leases
Finance leases, where the Group transfers substantially all the risks and rewards incidental to ownership of
the leased item to the lessee, are included in the consolidated balance sheet in 'Loans and advances to
customers'. A receivable is recognised over the lease period of an amount equal to the present value of the
lease payments using the implicit rate of interest and including any guaranteed residual value. Finance
income is recognised in 'Interest income' in the consolidated income statement.
2.28.2 Operating leases
Leases in which the Group does not transfer substantially all the risks and rewards of ownership of an asset
are classified as operating leases.
2.29
Property and equipment
Owner-occupied property is property held by the Group for use in the supply of services or for
administrative purposes. Investment property is property held by the Group to earn rentals and/or for
capital appreciation. If a property of the Group includes a portion that is owner-occupied and another
portion that is held to earn rentals or for capital appreciation, the classification is based on whether or not
these portions can be sold separately. Otherwise, the whole property is classified as owner-occupied
property unless the owner-occupied portion is insignificant. The classification of property is reviewed on a
regular basis to account for major changes in its use.
Owner-occupied property is initially measured at cost and subsequently measured at fair value less
accumulated depreciation and impairment. Valuations are carried out periodically between 3 to 5 years,
depending on the property (but more frequent revaluations may be performed where there are significant
and volatile movement in values), by independent, qualified valuers or by the internal qualified valuers of
the Group applying a valuation model recommended by the International Valuation Standards Council.
Depreciation is calculated on the revalued amount less the estimated residual value of each building on a
straight line basis over its estimated useful life. Gain or losses from revaluations are recognised in other
comprehensive income in ‘Property revaluation reserve'.
The ‘Property revaluation reserve’ includes revaluation of property initially used by the Group for its
operations which was subsequently transferred to ‘Investment properties’. Useful life is in the range of 30
to 67 years. Freehold land is not depreciated. On disposal of freehold land and buildings, the relevant
revaluation reserve balance is transferred to ‘Retained earnings’.
The cost of adapting/improving leasehold property is amortised over 5 years.
Equipment is measured at cost less accumulated depreciation. Depreciation of equipment is calculated on a
straight line basis over its estimated useful life of 5 to 10 years.
RoU assets recognised as property are measured at cost less accumulated depreciation and adjusted for
certain re measurements of lease liabilities. Depreciation of the recognised RoU assets is calculated on a
straight line basis over the lease term.
At the reporting date, when events or changes in circumstances indicate that the carrying value may not be
recovered, property and equipment is assessed for impairment. Where the recoverable amount is less than
the carrying amount, equipment is written down to its recoverable amount.
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BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.30
Investment properties
Investment properties comprise land and buildings that are not occupied for use by, or in the operations of
the Group, nor for sale in the ordinary course of business, but are held primarily to earn rental income and
capital appreciation. These buildings are substantially rented to tenants and not intended to be sold in the
ordinary course of business. Additionally, leased properties which are acquired in exchange for debt and are
leased out under operating leases are also usually classified as 'Investment properties'. Further information
is disclosed in Note 23.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial
recognition, investment properties are measured at fair value, as at the reporting date. Gains or losses
arising from changes in the fair values of investment properties are included in ‘Net gains/(losses) from
revaluation and disposal of investment properties’ in the consolidated income statement. Valuations are
carried out by independent, qualified valuers.
Transfers are made to (or from) investment property only when there is a change in use. For a transfer
from owner-occupied property to investment property, the Group accounts for such property in accordance
with the policy described in Note 2.29 ‘Property and equipment’ up to the date of change in use. For a
transfer from investment property to stock of property, the property’s deemed cost for subsequent
accounting is its fair value at the date of change in use.
2.31
Stock of property
The Group in its normal course of business acquires properties in exchange of debt, which are held either
directly by BOC PCL or by entities set up and controlled by the Group for the sole purpose of managing
these properties with an intention to be disposed of. These properties are recognised in the Consolidated
Financial Statements as ‘Stock of property’, reflecting the substance of these transactions.
Stock of property is initially measured at cost and subsequently measured at the lower of cost and net
realisable value. Net realisable value is the estimated selling price, less the estimated costs necessary to
make the sale.
If net realisable value is below the cost of the stock of property, impairment is recognised in ‘Impairment of
non-financial assets’ in the consolidated income statement.
2.32
Non-current assets held for sale and discontinued operations
The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be
recovered principally through a sale or distribution rather than through continuing use.
The condition is regarded as met only when the sale is highly probable and the asset or disposal group is
available for immediate sale in its present condition. Actions required to complete the sale should indicate
that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Management must be committed to the sale, which should be expected to qualify for recognition as a
completed sale within one year from the date of classification.
Such non-current assets and disposal groups held for sale are measured at the lower of their carrying
amount and fair value less costs to sell, except for those assets and liabilities that are not within the scope
of the measurement requirements of IFRS 5 ‘Non-current assets held for sale and discontinued operations’
such as deferred taxes, financial instruments, investment properties measured at fair value, insurance
contracts and assets and liabilities arising from employee benefits. These are measured in accordance with
the Group’s relevant accounting policies described elsewhere in this note.
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BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.32
Non-current assets held for sale and discontinued operations (continued)
Immediately before the initial classification as held for sale, the carrying amount of the asset (or assets and
liabilities in the disposal group) is measured in accordance with applicable IFRSs. On subsequent
remeasurement of a disposal group, the carrying amounts of the assets and liabilities noted above that are
not within the scope of the measurement requirements of IFRS 5 are remeasured in accordance with
applicable IFRSs before the fair value less costs to sell of the disposal group is determined.
If fair value less costs to sell of the disposal group is below the aggregate carrying amount of all of the
assets and liabilities included in the disposal group, the disposal group is written down. The impairment
loss is recognised in the consolidated income statement for the year. Where an impairment loss is
recognised (or reversed) for a disposal group, it is allocated between the scoped-in non–current assets
using the order of allocation set out in IAS 36 and no element of the adjustment is allocated to the other
assets and liabilities of the disposal group. In case that the carrying amount of scoped-in non-current
assets is less than the amount by which a disposal group’s carrying amount exceeds its fair value less costs
to sell, the excess is not recognised.
Property and equipment and intangible assets are not depreciated or amortised once classified as held for
sale.
Assets and liabilities classified as held for sale are presented separately in the consolidated balance sheet.
A disposal group qualifies as discontinued operation if an entity or a component of an entity has been
disposed of or is classified as held for sale and a) represents a separate major line of business or
geographical area of operations, b) is part of a single co-ordinated plan to dispose of a separate major line
of business or geographical area of operations, or c) is a subsidiary acquired exclusively with a view to
resale. Net loss/profit from discontinued operations includes the net total of operating profit and loss before
tax from discontinued operations (including net gain or loss on sale before tax and gain or loss on
measurement to fair value less cost to sell of a disposal group constituting a discontinued operation) and
discontinued operations tax expense.
Discontinued operations are excluded from the results of continuing operations and are presented as a
single amount, as profit or loss after tax from discontinued operations in the consolidated income
statement.
2.33
Intangible assets
Intangible assets include among others computer software and acquired insurance portfolio customer lists.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible
assets acquired in a business combination is their fair value as at the date of acquisition. Following initial
recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated
impairment losses.
Amortisation is calculated on a straight line basis over the estimated useful life of the assets which is 3 to 8
years for computer software. For the accounting policy of in-force life insurance business, refer to Note
2.25.2.
Intangible assets are reviewed for impairment when events relating to changes to circumstances indicate
that the carrying value may not be recoverable. If the carrying amount exceeds the recoverable amount
then the intangible assets are written down to their recoverable amount.
2.34
Share capital
Ordinary shares are classified as equity.
Any difference between the issue price of share capital and the nominal value is recognised as share
premium. The costs incurred attributable to the issue of share capital are deducted from equity.
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BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
2.
Summary of significant accounting policies (continued)
2.35
Other equity instruments
An instrument is an equity instrument if the instrument includes no contractual obligation to deliver cash or
another financial asset to another entity, or to exchange financial assets or financial liabilities with another
entity under conditions that are potentially unfavourable to the issuer.
Other equity instruments are recorded at their residual amount and are not subject to any re-measurement
after initial recognition. The cost incurred attributable to the issue of other equity instruments is deducted
from retained earnings. Any subsequent write-down or write-up results to a credit or debit in retained
earnings respectively. Coupon payments are recorded directly in retained earnings.
2.36
Treasury shares
Own equity instruments which are acquired by the Company or by any of its subsidiaries are presented as
treasury shares at their acquisition cost. Treasury shares are deducted from equity until they are cancelled
or reissued. No gain or loss is recognised in the consolidated income statement on the purchase, sale, issue
or cancellation of the Company’s own equity shares.
2.37
Provisions for pending litigation, claims, regulatory and other matters
Provisions for pending litigation, claims and regulatory matters against the Group are made when: (a) there
is a present obligation (legal or constructive) arising from past events, (b) the settlement of the obligation
is expected to result in an outflow of resources embodying economic benefits, and (c) a reliable estimate of
the amount of the obligation can be made.
2.38
Comparative information
Comparative information was restated as follows:
Certain properties which are leased out under operating leases are reclassified from ‘Stock of
property’ to ‘Investment properties’ as disclosed in Note 2.2.1.
Segmental analysis (Note 7) customer deposits (Note 32), and credit risk disclosures (Note 46)
were restated due to the reorganizational and reporting change in BOC PCL and the set-up of
Global corporate as a new business line, as from October 2019, except where otherwise stated,
specifically Notes 46.6 and 46.9 due to impracticability of extracting the information in the
manner required for disclosure in the relevant note.
Turnover was restated due to changes in the definition of turnover as disclosed in Note 7.
Fair value hierarchy information was restated as detailed in Notes 23 and 25.
Expected maturities and remaining contractual maturities were restated as detailed in Notes 45
and 48.
Credit quality information on investment in debt securities was restated as disclosed in Note
46.13.
Fee and commission income and expense is restated as detailed in Note 10.
The changes did not have an impact on the results for the year or the equity of the Group.
The Group has not restated comparative information for 2018 for lease arrangements within the scope of
IFRS 16 where the Group acts as a lessee, as the Group has used the modified retrospective approach as
explained in Note 6.1.
3.
Going concern
The Directors have made an assessment of the Group’s ability to continue as a going concern for a period of
12 months from the date of approval of these Consolidated Financial Statements. The Directors believe that
the Group is taking all necessary measures to maintain its viability and the development of its business in
the current economic environment.
93
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
3.
Going concern (continued)
In making this assessment, the Directors considered the significant transactions completed during 2019
which had a positive impact on the capital position of the Group, primarily the sale of non-performing loans
(the Helix transaction) and the sale of BOC PCL’s 49.9% holding in CNP Cyprus Insurance Holdings Ltd. The
Directors have also considered the legislative amendments on the Income Tax Law Amendment 28 (I) of
2019, enacted on 1 March 2019, which allow for the conversion of specific deferred tax assets (DTA) into
deferred tax credits (DTC), and the developments in the operating environment in Cyprus.
The Group has developed a Financial and Capital Plan which was approved by the Board in February 2019
and was updated and approved by the Board in December 2019 (the ‘Plan’). The Plan ensures that the
Group has sufficient resources to continue the balance sheet de-risking and deal with the remaining NPEs.
Given the COVID-19 outbreak in early 2020, the going concern assessment included consideration of the
impact of the COVID-19 outbreak on the Plan and particularly the Group’s capital and liquidity position in
the context of the emerging developments in the economy, the Cyprus government economic relief
measures and the amended regulatory requirements, including the measures taken by the regulators and
other authorities following the COVID-19 outbreak, as described below. The Directors have concluded that
the Group, the Company and BOC PCL have the ability to continue to operate as a going concern for a
period of 12 months from the date of approval of these Financial Statements.
COVID-19 outbreak
The Directors have considered the COVID-19 outbreak and the uncertainties and disruption created. COVID-
19 has affected a large number of countries, infecting millions of people worldwide. Given the trend and
pace of developments globally, and particularly in the Eurozone, the severity and longevity of the outbreak
are still unknown and therefore no reliable estimate of the impact that could materialise can be made at this
stage. However, international and multilateral organisations, as well as rating agencies, have revised down
their projections for the growth of the European and World economies in 2020/2021. Depending on the
length and severity of this disruption, the Group’s activity and financial performance and position will be
impacted to greater or a lesser extent.
As the situation has arisen after the Group completed its planning process, additional work has been
undertaken to examine the potential impact. This included the development of macroeconomic scenarios,
base and adverse, which are severe yet plausible scenarios. The current situation is uncertain and while
response to COVID-19 involves announced government intervention which is expected to support
repayment ability, it is reasonably expected that this will have a negative impact on the credit quality and
collateral values. The COVID-19 scenarios developed take into consideration the following drivers and
implications:
Government guidance and policy response to the crisis
Capital and liquidity relief measures as well as other supervisory actions
Lost output and productivity as a consequence of travel restrictions and social distancing
Impact on employment levels and relevant unemployment rates
Impact on relevant economic variables, the most significant of which include residential and
commercial property prices, national output and lending volumes
Among the COVID-19 scenarios considered, there are severe scenarios designed to be extreme but
plausible based on the assumption that the impact on the economy is immediate and feeds through rising
unemployment levels, declining residential and commercial property prices and slowdown of lending
volumes with signs of recovery later than the base scenario.
The assumptions and estimates were based on the latest developments and information available at the
time of approval of these financial statements. The scenarios considered the guidance provided by the EBA,
ECB, International Accounting Standards Board (IASB) and European Securities & Markets Authority (ESMA)
in this respect. The scenarios also considered the response measures taken in order to support the
European banking system, including the capital and liquidity requirement relaxations, as well as the
measures taken by the Cyprus Government and CBC. These measures are described in Note 56 ‘Events
after the reporting date’.
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BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
3.
Going concern (continued)
The potential impact of COVID-19 pandemic on the economy and Group’s operations and financial
performance is subject to continuous monitoring through the Group’s management committees, business
continuity team, with appropriate escalation to the Board of Directors and supervisory authorities. Given the
evolving nature of the COVID-19 pandemic crisis, the Group will continue to update its macroeconomic
scenarios and assess the potential impact on the Group’s financial performance and position as well as
capital and liquidity position.
Capital
The following items have been considered in relation to the Group’s capital adequacy throughout the period
of going concern assessment:
The Common Equity Tier 1 (CET1) ratio and the Total Capital ratio on a transitional basis at 31
December 2019 are higher than the SREP requirements (Note 4.1).
The Group’s capital position which allows further risk reduction and recalibration of the cost base.
The Group remains focused to implement the actions contemplated in the Plan submitted to the
ECB, albeit over a longer timeframe as a result of the COVID-19 outbreak.
The capital relief measures announced by the ECB, the EBA, the CBC, the Cyprus Government
and the Eurogroup in order to allow the banks to absorb the impact of the COVID-19 outbreak
and support the real economy as well as the regulatory forbearance as allowed by the Guidelines
issued in April 2020 by the EBA (Note 56).
The measures taken by the Group to protect its employees and the activation of the Group's
Business Continuity Plan ensuring that critical operations are not interrupted.
The completion of the Helix transaction in June 2019 which, along with organic reduction over the
last years, led to a significant decrease of NPEs. The reduction of NPEs has been a regulatory
focus for a number of years. The Group has prepared an updated NPE strategy plan for the years
2019-2021 which was submitted to the ECB in June 2019. The Directors believe that the
reduction of NPEs is a significant factor with regards to the future viability of the Group as a pillar
bank in Cyprus.
The Group has elected to apply the phasing-in of the total impact on adoption of IFRS 9 of
€308,511 thousand and any subsequent increase allowed for phasing in (i.e. increase in Stage 1
and Stage 2 allowance), which will impact the capital ratios over a period of five years.
Funding and liquidity
The following items have been considered in relation to the Group’s liquidity position throughout the period
of the going concern assessment:
The Group is monitoring its liquidity position and is considering ways to further reduce the
deposits cost.
The various measures of regulators which aim to mitigate the impact of the COVID-19 outbreak.
The Group is in compliance with the Liquidity Coverage Ratio (LCR) and is significantly above the
minimum requirements (Note 48).
Economic environment
As the Cypriot operations account for 99% of gross loans and 100% of customer deposits, the
Group’s financial performance is highly correlated to the economic and operating conditions in
Cyprus. The sovereign risk ratings of the Cyprus Government improved considerably in recent
years reflecting expectations of a sustained decline in public debt as a ratio to GDP, further
declines in non-performing exposures and a more stable price environment following a protracted
period of deflation and low inflation. In October 2019, Fitch affirmed its rating (BBB-) and
upgraded its outlook from stable to positive. In September 2019 Moody’s affirmed its rating Ba2
and upgraded its outlook to positive. S&P Global Ratings maintains an investment grade rating
(BBB-) with a stable outlook since September 2018, which was affirmed in March 2020.
In April 2020, Fitch affirmed its rating and revised its outlook to stable, reflecting the significant
impact the COVID-19 pandemic might have on the Cyprus economy and fiscal position. Also, in
April 2020, Moody’s issued an update on their credit opinion for the Cyprus Sovereign and revised
their forecasts for the Cyprus economy in view of the COVID-19 outbreak. According to the
update, the outbreak will weigh on near term growth and fiscal prospects, but the impact on the
credit profile is expected to be temporary.
95
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
3.
Going concern (continued)
With respect to the BOC PCL’s ratings, in June 2019, Moody’s Investors Service affirmed the BOC
PCL’S long-term deposit rating of B3 (positive outlook) and in July 2019, Standard and Poor’s
affirmed their long-term issuer credit rating on BOC PCL of ‘B+’ (stable outlook). In November
2019, Fitch Ratings affirmed their long-term issuer default rating of B- (positive outlook). In April
2020, Fitch Ratings revised their outlook to negative, reflecting the significant impact the
outbreak of COVID-19 might have on the Cyprus economy and consequently BOC PCL.
The global and domestic macroeconomic conditions as a result of the COVID-19 crisis are the
primary risk factors for the Cyprus economy and the banking sector in Cyprus. Adverse
developments regarding growth, fiscal policy, unemployment and real estate prices, could have a
negative impact on the BOC PCL’s capital adequacy and liquidity position. The financial
implications depend to a large extent on how long this crisis will last and vary on a case-by-case
basis as each sector of the economy is affected differently. In the context of efforts to relieve
individuals and businesses most affected by the coronavirus and its associated restrictive
measures, the Cyprus government has announced a package of tax and other relief measures. At
the same time, the ECB and the CBC are taking a number of measures to enhance the liquidity of
the credit institutions and also facilitate the gradual absorption of the effects on the capital
adequacy ratios, as described in Note 56 ‘Events after the reporting date’.
4.
4.1
Operating environment
Regulatory capital ratios
The Group’s minimum phased in CET1 capital ratio requirement for 2019 was 10.5% (2018: 9.375%),
comprising of a 4.5% Pillar I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer
(CCB) of 2.5% (2018: (1.875%) and the Other Systemically Important Institution O-SII Buffer of 0.5%
(2018: Nil). The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer. The
Group’s Total capital ratio requirement for 2019 was 14.0% (2018: 12.875%), comprising of an 8.0% Pillar
I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% (2018: 1.875%) and
the O-SII Buffer of 0.5% (2018: Nil).
The minimum Pillar I total capital ratio requirement is 8.0% and may be met, in addition to the 4.5% CET1
requirement, with up to 1.5% of Additional Tier 1 capital and with up to 2.0% of 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). However, the Pillar II add on capital requirements are a point in time
assessment and therefore are subject to change over time.
Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2019 and
based on the final 2019 ECB decision received on 4 December 2019, effective as of 1 January 2020, the
Group’s minimum phased in CET1 capital ratio and Total Capital ratio remain unchanged, when ignoring the
phasing in of the O-SII Buffer. In addition, the EBA final guidelines on SREP and supervisory stress testing
and the Single Supervisory Mechanism’s (SSM) 2018 SREP methodology provide that own funds held for the
purposes of Pillar II Guidance cannot be used to meet any other capital requirements (Pillar I, Pillar II
requirements or the combined buffer requirement), and therefore cannot be used twice. In line with the
final 2019 SREP decision, these new provisions are effective from 1 January 2020.
On 1 January 2020 the Group’s minimum phased-in CET1 requirement increased to 11.0%, comprising a
4.5% Pillar I requirement, a 3.0% Pillar II requirement, the CCB of 2.5% (fully phased in as of 1 January
2019) and the O-SII of 1.0%. The Group’s Total Capital requirement increased to 14.5%, comprising an
8.0% Pillar I requirement, a 3.0% Pillar II requirement, the CCB of 2.5% and the O-SII of 1.0%. The ECB
has also provided non-public guidance for an additional Pillar II CET1 buffer. The final 2019 SREP decision is
effective from 1 January 2020.
96
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
4.
4.1
Operating environment (continued)
Regulatory capital ratios (continued)
In March 2020, as part of the measures announced by the ECB in order to mitigate the COVID-19 impact,
banks are allowed to operate temporarily below the capital level defined by the Pillar II Guidance and the
Capital Conservation Buffer. In addition, the ECB frontloaded the rules on the composition of Pillar II
Requirements (P2R), originally scheduled to come into force in January 2021 with CRD V, which allow banks
to use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to meet the Pillar II Requirements. In April
2020 the CBC announced that the phasing-in of the O-SII buffer of 1 January 2021 will delay by one year.
The O-SII buffer will fully phased-in on 1 January 2023, instead of 1 January 2022 as originally set. In April
2020 the ECB has temporarily reduced banks capital requirements for market risk. This measure will be
reviewed by the ECB after six months.
In April 2020, BOC PCL received a decision from the ECB amending the composition of the Pillar II
additional own funds requirement, compared to the 2019 final SREP decision received in December 2019
(Note 56) which requested Pillar II Requirements to be met in full with CET1. This decision is effective as
from 12 March 2020. As a result the minimum phased-in CET1 requirement decreased to 9.7%, comprising
a 4.5% Pillar I requirement, a 1.7% Pillar II requirement, the CCB of 2.5% (fully phased in as of 1 January
2019) and the O-SII buffer of 1.0%. There is no change on the Total Capital requirement.
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.
4.2
Asset quality
The Group addresses the asset quality challenge through the operation of the Restructuring and Recoveries
Division which is actively seeking to find innovative solutions to manage distressed exposures. The Group
has been successful in engineering restructuring solutions across the spectrum of its loan portfolio.
The Group has prepared an updated NPE strategy plan for the years 2019-2021 which was submitted to the
ECB in June 2019.
4.3
Liquidity
Group customer deposits totalled €16,692 million at 31 December 2019, compared to €16,844 million at 31
December 2018. At 31 December 2019 and 2018 all deposits were in Cyprus. As at 31 December 2019
Group customer deposits accounted for 79% of total assets (2018: 76%) and 89% of total liabilities (2018:
85%).
As at 31 December 2019 and 2018, the Group was in compliance with all regulatory liquidity requirements.
As at 31 December 2019 the LCR was in compliance with the minimum regulatory requirements of 100%
applicable as from 1 January 2018. In addition the Group monitor the NSFR which will become a regulatory
indicator when CRR II is enforced with the limit set at 100%.
4.4
Pending litigation, claims, regulatory and other matters
The management has considered the potential impact of pending litigation and claims, investigations,
regulatory and other matters against the Group which include the bail-in of depositors and the absorption of
losses by the holders of equity and debt instrument of BOC PCL. The Group has obtained legal advice in
respect of these claims.
Despite the fact that the Group has not dealt with claims of such nature in the past, on the basis of
information available at present and on the basis of the law as it currently stands, management does not
expect these to have a material adverse impact on the financial position and capital adequacy of the Group.
For additional information on pending litigation, claims, regulatory and other matters as well as the
judgement exercised in concluding on the impact of these matters refer to Notes 5.4 and 40.
97
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
5.
Significant and other judgements, estimates and assumptions
The preparation of the Consolidated Financial Statements requires the Company’s Board of Directors and
management to make judgements, estimates and assumptions that can have a material impact on the
amounts recognised in the Consolidated Financial Statements and the accompanying disclosures, as well as
the disclosures of contingent liabilities. Uncertainty about these assumptions and estimates could result in
outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future
periods.
The key assumptions concerning the future and other key sources of estimation of uncertainty at the
reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities are described below. The Group based its assumptions and estimates on parameters
available when the Consolidated Financial Statements were prepared. Existing circumstances and
assumptions about future developments may, however, change due to market changes or circumstances
beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
The most significant judgements, estimates and assumptions relate to classification of financial instruments
and calculation of expected credit losses (ECL), estimation of the net realisable value of stock of property
and provisions which are presented in Notes 5.1 to 5.4 below. Other judgements, estimates and
assumptions are disclosed further below in Notes 5.5 to 5.13.
5.1
Classification of financial assets
The Group exercises judgement upon determining the classification of its financial assets, which relate to
business models and future cash flows.
Judgement is also required to determine the appropriate level at which the assessment of business models
needs to be performed. In general, the assessment for the classification of financial assets into the business
models is performed at the level of each business line. Further, the Group exercises judgement in
determining the effect of sales of financial instruments on its business model assessment.
The Group also applies judgement upon considering whether contractual features including interest rate
could significantly affect future cash flows. Furthermore, judgement is required when assessing whether
compensation paid or received on early termination of lending arrangements results in cash flows that are
not SPPI.
5.2
Calculation of expected credit losses
The calculation of ECL requires management to apply significant judgement and make estimates and
assumptions, involving significant uncertainty at the time these are made. Changes to these estimates and
assumptions can result in significant changes to the timing and amount of ECL to be recognised. The
Group’s calculations are outputs of models, of underlying assumptions on the choice of variable inputs and
their interdependencies.
Elements of ECL models that are considered accounting judgements and estimates include:
Assessment of significant increase of credit risk
IFRS 9 does not include a definition of significant increase in credit risk. The Group assesses whether
significant increase in credit risk has occurred since initial recognition using predominantly quantitative and
in certain cases qualitative information. The determination of the relevant thresholds to determine whether
the significant increase in credit risk has occurred, is based on statistical metrics and could be subject to
management judgement. The relevant thresholds are set, monitored and updated on a yearly basis by the
Risk Management division and endorsed by the Group Provisions Committee.
Determining the probability of default (PD) at initial recognition requires management estimates. In the
case of exposures existing prior to the adoption of IFRS 9, a retrospective calculation of the PD is made in
order to quantify the risk of each exposure at the time of the initial recognition. In certain cases estimates
about the date of initial recognition might be required.
98
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
For the retail portfolio, the Group uses a PD at origination incorporating behavioural information (score
cards) whereas, for the corporate portfolio, the Group uses the internal credit rating information. In
determining the relevant PDs, management estimates are required with respect to the life-time of revolving
facilities. For revolving facilities, the origination date is the date when a credit review has taken place
instead of the contractual date.
Scenarios and macroeconomic factors
The Group determines the ECL, which is a probability-weighted amount, by evaluating a range of possible
outcomes. Management uses forward-looking scenarios and assesses the suitability of weights used. These
are based on management’s assumptions taking into account macroeconomic, market and other factors.
Changes in these assumptions and in the external factors could significantly impact ECL. Macroeconomic
inputs and weights per scenario are monitored by the Economic Research Unit and are based on external
market data supplemented by expert judgement.
Qualitative adjustments or overlays are occasionally made when inputs calculated do not capture all the
characteristics of the market. These are reviewed and adjusted, if considered necessary, by the Risk
Management Division and endorsed by the Group Provisions Committee. Qualitative adjustments or
overlays made as at the reporting date relate to the positive future property value cap to 0% for all
scenarios.
Economic and credit conditions within geographical areas are influenced by many factors with a high degree
of interdependency so that there is no one single factor to which the Group’s ECL as a whole are particularly
sensitive. Different factors are applied in each country to reflect the local economic conditions, laws and
regulations and the assumptions underlying this judgement are highly subjective.
The Group uses three different economic scenarios.
The table below indicates the most significant macroeconomic variables as well as the scenarios used by the
Group as at 31 December 2019 and 2018 respectively. The Group has used the 30-50-20 probability
structure for the adverse, base and favourable scenarios respectively compared to the 20-60-20 structure
derived using the method described in Note 2.19.5. This reflects the management's view of specific
characteristics of the Cyprus economy that render it more vulnerable to external and internal shocks. The
data set used to calculate scenario weights (GDP growth over 1980-2019) is heterogeneous, involving
significant breaks deriving from the changing nature of the Cyprus economy and responses to shocks. The
economy continues to face high public and private indebtedness and a high level of NPEs that together raise
the degree of vulnerability of the economy and limit its reaction space thus sustaining conditions; which can
lead to deeper recession in response to shocks than under normal times. Furthermore, the economy
presents a significant structure risk given a very large external sector, making it especially vulnerable to the
external environment. The heightened uncertainties in 2020 and beyond relating to Brexit, trade disputes
between the US and the China and between the US and the EU, and economic fragility in southern Europe,
entail a higher risk of a global recession and financial instability. These factors, render the economy more
susceptible to external shocks and weaken its resilience, and may, in management's view not be fully
captured in the weights as calculated using the method described in Note 2.19.5. Hence the management
has decided to increase the weight of the adverse scenario to 30%, and correspondingly reduce the weight
of the base scenario to 50%.
99
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
31 December 2019
Year
Scenario
Weight
%
Real GDP
(% change)
Unemployment
rate (% of
labour force)
2020
2021
2022
2023
2024
Adverse
Baseline
Favourable
Adverse
Baseline
Favourable
Adverse
Baseline
Favourable
Adverse
Baseline
Favourable
Adverse
Baseline
Favourable
30.0
50.0
20.0
30.0
50.0
20.0
30.0
50.0
20.0
30.0
50.0
20.0
30.0
50.0
20.0
-0.9
3.0
4.4
-3.1
2.5
4.0
0.9
2.2
2.8
4.0
2.2
2.3
4.2
2.0
1.9
31 December 2018
8.2
5.8
5.4
10.3
5.4
4.9
10.7
5.2
4.7
9.6
5.1
4.6
9.8
5.1
4.6
Year
Scenario
Weight
%
Real GDP
(% change)
Unemployment
rate (% of
labour force)
2019
2020
2021
2022
2023
Adverse
Baseline
Favourable
Adverse
Baseline
Favourable
Adverse
Baseline
Favourable
Adverse
Baseline
Favourable
Adverse
Baseline
Favourable
30.0
50.0
20.0
30.0
50.0
20.0
30.0
50.0
20.0
30.0
50.0
20.0
30.0
50.0
20.0
-1.3
3.1
4.3
-1.3
2.6
3.4
3.0
2.4
2.6
4.1
2.5
2.6
3.9
2.3
2.3
10.0
7.6
7.2
12.2
7.3
6.8
12.4
6.9
6.5
11.1
6.5
6.1
10.0
6.3
5.8
Consumer
Price Index
(average
% change)
-0.9
1.1
1.8
0.3
1.7
2.5
2.2
2.0
2.1
2.5
2.1
2.1
2.6
2.2
2.2
RICS House
Price Index
(average
% change)
1.9
4.1
4.7
-0.7
3.1
5.1
2.3
3.3
4.3
3.2
3.2
3.2
3.1
3.1
3.1
Consumer
Price Index
(average
% change)
-0.2
1.7
2.5
0.3
1.7
2.6
2.1
2.0
2.4
2.4
2.0
2.6
2.5
2.1
2.6
RICS House
Price Index
(average
% change)
1.4
4.4
5.5
-1.7
2.7
4.1
0.7
2.9
3.6
3.1
3.1
3.7
4.7
3.8
4.0
The adverse scenarios may outpace the base and favourable scenarios after the initial shock has been
adjusted to and the economy starts to expand from a lower base. Thus in the adverse scenario GDP will
follow a growth trajectory that will ultimately equal and surpass the baseline before converging. Property
prices are primarily determined by GDP growth but with a lag. Thus property prices will initially adjust less
steeply than GDP, and will start to accelerate after the recovery in GDP has been entrenched. After this
point, property prices will accelerate and will match and surpass the pace in the baseline scenario, before
finally converging.
100
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
Since 1 January 2018, the Group has reassessed the key economic indicators used in the ECL models and
using actual performance ratios of the economy as occasionally revised by the Cyprus statistical service (the
latest revision of October 2019 for the period 2010-2017) and the latest forecasts by the International
Monetary Fund (IMF) and the European Commission.
The RICS indices, which are considered for the purposes of determining the real estate collateral value on
realisation date are capped at the reporting date value, in case of any projected increase, whereas any
projected decrease is taken into account. As a result the indexed value for all collaterals is less or equal to
their corresponding open market value as of the reporting date.
For Stage 3 customers, the calculation of individually assessed provisions is the weighted average of three
scenarios: base, adverse and favourable. The base scenario focuses on the following variables, which are
based on the specific facts and circumstances of each customer: the operational cash flows, the timing of
recovery of collaterals and the haircuts from the realisation of collateral. The base scenario is used to derive
additional scenarios for either better or worse cases. Under the adverse scenario operational cash flows are
decreased by 50%, applied haircuts on real estate collateral are increased by 50% and the timing of
recovery of collaterals is increased by 1 year with reference to the baseline scenario, whereas under the
favourable scenario applied haircuts are decreased by 5%, with no change in the recovery period with
reference to the baseline scenario. Assumptions used in estimating expected future cash flows (including
cash flows that may result from the realisation of collateral) reflect current and expected future economic
conditions and are generally consistent with those used in the Stage 3 collectively assessed exposures.
For collectively assessed customers the calculation is the weighted average of three scenarios: base,
adverse and favourable.
Expected lifetime of revolving facilities
Judgement is exercised on the measurement period of expected lifetime for revolving facilities. The
determination of the expected life for the revolving portfolio is sensitive to changes in contractual maturities
resulting from business decisions. The Group exercises judgement in determining the period over which ECL
should be computed.
Assessment of loss given default
A factor for the estimation of loss given default (LGD) is the timing and net recoverable amount from
repossession or realisation of collaterals which mainly comprise real estate assets.
Assumptions have been made about the future changes in property values, as well as the timing for the
realisation of collateral, taxes and expenses on the repossession and subsequent sale of the collateral as
well as any other applicable haircuts. Indexation has been used 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 31 December 2019 the weighted average haircut (including liquidity haircut and selling expenses) used in
the collectively assessed provisions calculation for loans and advances to customers excluding those
classified as held for sale is c.32% under the baseline scenario (2018: c.32%).
The timing of recovery from real estate collaterals used in the collectively assessed provisions calculation for
loans and advances to customers has been estimated to be on average seven years under the baseline
scenario (2018: average of seven years), excluding those classified as held for sale.
For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the
haircuts used are based on the specific facts and circumstances of each case. For specific cases judgement
may also be exercised over staging during the individual assessment including cases where no specific
model has been developed.
101
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
Any positive cumulative average future change in property values forecasted was capped to zero for the
year ended 31 December 2019 and 2018. This applies to all scenarios.
The above assumptions are also influenced by the ongoing regulatory dialogue the Group maintains with its
lead regulator, the ECB, and other regulatory guidance and interpretations issued by various regulatory and
industry bodies such as the ECB and the EBA, which provide guidance and expectations as to relevant
definitions and the treatment/classification of certain parameters/assumptions used in the estimation of
provisions.
Any changes in these assumptions or difference between assumptions made and actual results could result
in significant changes in the amount of required credit losses of loans and advances.
Modelling adjustments
Forward looking models have been developed for ECL parameters PD, EAD, LGD for all portfolios and
segments sharing similar characteristics. Model validation is performed by the independent validation unit
within the Risk Management Division on an annual basis and involves several statistical tests that assess the
stability and performance of the models. In certain cases, judgement could be exercised in the form of
management overlay by applying adjustments on the modelled parameters. Governance of these models
lies with the Risk Management Division. Any management overlays are approved by the Risk Management
Division and endorsed by the Provisions Committee.
ECL allowances also include off-balance sheet credit exposures represented by guarantees given and by
irrevocable commitments to disburse funds. Off-balance sheet credit exposures of the individually assessed
assets require assumptions on the probability, timing and amount of cash outflows. For the collectively
assessed off-balance sheet credit exposures, the allowance for provisions is calculated using the Credit
Conversion Factor (CCF) model.
Portfolio segmentation
The individual assessment is performed not only for individually significant assets but also for other
exposures meeting specific criteria determined by management. The selection criteria for the individually
assessed exposures are based on management judgement and are reviewed on a quarterly basis by the
Risk Management Division and are adjusted or enhanced, if deemed necessary.
In addition to individually assessed assets the Group also assesses assets collectively. The collectively
assessed portfolio includes all loans which are not individually assessed. The Group categorises the
exposures into sufficiently granular portfolios segments with shared risk characteristics. The granularity for
the IFRS 9 segments is aligned with the Internal Rating Based (IRB) segmentation.
Further details on impairment allowances and related credit information are set out in Note 46.
5.3
Stock of property - estimation of net realisable value
Stock of property is measured at the lower of cost and net realisable value. The net realisable value is
determined through valuation techniques, requiring significant judgement, which take into account all
available reference points such as, expert valuation reports, current market conditions, the holding period of
the asset applying an appropriate illiquidity discount and any other relevant parameters. Selling expenses
are always considered and deducted from the realisable value. Depending on the value of the underlying
asset and available market information, the determination of costs to sell may require professional
judgement which involves a large degree of uncertainty due to the relatively low level of market activity.
More details on the stock of property are presented in Note 28.
102
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
5.
5.4
Significant and other judgements, estimates and assumptions (continued)
Provisions
Judgement is involved in determining whether a present obligation exists and in estimating the probability,
timing and amount of any outflows. Provisions for pending litigations, claims, regulatory and other matters
usually require a higher degree of judgement than other types of provisions. It is expected that the Group
will continue to have a material exposure to litigation and regulatory proceedings and investigations relating
to legacy issues in the medium term. The matters for which the Group determines that the probability of a
future loss is more than remote will change from time to time, as will the matters as to which a reliable
estimate can be made and the estimated possible loss for such matters. Actual results may prove to be
significantly higher or lower than the estimate of possible loss in those matters, where an estimate was
made. In addition, loss may be incurred in matters with respect to which the Group believed the probability
of loss was remote.
For a detailed description of the nature of uncertainties and assumptions and the effect on the amount and
timing of pending litigation, claims, regulatory and other matters refer to Note 40.
5.5
Tax
The Group, other than Cyprus, is subject to tax in the countries that it has run-down operations mainly in
Greece, Russia and Romania. Estimates are required in determining the provision for taxes at the reporting
date. The Group recognises income tax liabilities for transactions and assessments whose tax treatment is
uncertain. Where the final tax is different from the amounts initially recognised in the consolidated income
statement, such differences will impact the income tax expense, the tax liabilities and deferred tax assets or
liabilities of the period in which the final tax is agreed with the relevant tax authorities.
Deferred tax assets
In the absence of a specific accounting standard dedicated to the accounting of the asset that arose upon
the reversal of deferred tax asset impairment recognised in previous years (Note 18), BOC PCL had
exercised judgement in applying the guidance of IAS 12 in accounting for this asset item as the most
relevant available standard. On the basis of this guidance, BOC PCL had determined that this asset should
be accounted for on the basis of IAS 12 principles relating to deferred tax assets.
For changes during 2019 relating to the deferred tax credit legislation refer to Note 18.
5.6
Fair value of investments and derivatives
The best evidence of fair value is a quoted price in an actively traded market. If the market for a financial
instrument is not active, a valuation technique is used. The majority of valuation techniques employed by
the Group use only observable market data and so the reliability of the fair value measurement is relatively
high.
However, certain financial instruments are valued on the basis of valuation techniques that feature one or
more significant inputs that are not observable. Valuation techniques that rely on non-observable inputs
require a higher level of management judgement to calculate a fair value than those based wholly on
observable inputs.
Valuation techniques used to calculate fair values include comparisons with similar financial instruments for
which market observable prices exist, discounted cash flow analysis and other valuation techniques
commonly used by market participants. Valuation techniques incorporate assumptions that other market
participants would use in their valuations, including assumptions about interest rate yield curves, exchange
rates, volatilities and default rates. When valuing instruments by reference to comparable instruments,
management takes into account the maturity, structure and rating of the instrument with which the position
held is being compared.
103
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
5.
5.6
Significant and other judgements, estimates and assumptions (continued)
Fair value of investments and derivatives (continued)
The Group only uses models with unobservable inputs for the valuation of certain unquoted equity
investments. In these cases, estimates are made to reflect uncertainties in fair values resulting from a lack
of market data inputs, for example, as a result of illiquidity in the market. Inputs into valuations based on
unobservable data are inherently uncertain because there is little or no current market data available from
which to determine the level at which an arm’s length transaction would occur under normal business
conditions. Unobservable inputs are determined based on the best information available.
Further details on the fair value of assets and liabilities are disclosed in Note 23.
5.7
Retirement benefits
The cost of defined benefit pension plans is determined using actuarial valuations. The actuarial valuations
involve making assumptions about discount rates, the expected rate of return on plan assets, future salary
increases, mortality rates as well as future pension increases where necessary. The Group’s management
sets these assumptions based on market expectations at the reporting date using its best estimates for
each parameter covering the period over which the obligations are to be settled. In determining the
appropriate discount rate, management considers the yield curve of high quality corporate bonds. In
determining other assumptions, a certain degree of judgement is required. Future salary increases are
based on expected future inflation rates for the specific country plus a margin to reflect the best possible
estimate relating to parameters such as productivity, workforce maturity and promotions. The expected
return on plan assets is based on the composition of each fund’s plan assets, estimating a different rate of
return for each asset class. Estimates of future inflation rates on salaries and expected rates of return of
plan assets represent management’s best estimates for these variables. These estimates are derived after
consultation with the Group’s advisors, and involve a degree of judgement. Due to the long-term nature of
these plans, such estimates are inherently uncertain.
Further details on retirement benefits are disclosed in Note 15.
5.8
Non-life insurance business
The Group is engaged in the provision of non-life insurance services. Risks under these policies usually
cover a period of 12 months.
The liabilities for outstanding claims arising from insurance contracts issued by the Group are calculated
based on case estimates by loss adjusters and facts known at the reporting date. With time, these
estimates are reconsidered and any adjustments are recognised in the financial statements of the period in
which they arise.
The principal assumptions underlying the estimates for each claim are based on past experience and market
trends, and take into consideration claim handling costs. Other external factors that may affect the estimate
of claims, such as recent court rulings and the introduction of new legislation are also taken into
consideration.
Provision is also made for claims incurred but not reported (IBNR) by the reporting date. Past experience as
to the number and amount of claims reported after the reporting date is taken into consideration in
estimating the IBNR provision.
Insurance contract liabilities are sensitive to changes in the above key assumptions. The sensitivity of
certain assumptions, such as the introduction of new legislation and the rulings of certain court cases, are
very difficult to quantify. Furthermore, the delays that arise between the occurrence of a claim and its
subsequent notification and eventual settlement increase the uncertainty existing at the reporting date.
Further information on non-life insurance business is disclosed in Note 13.
104
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
5.
5.9
Significant and other judgements, estimates and assumptions (continued)
Life insurance business
The Group is engaged in the provision of life insurance services. Whole life insurance plans (life plans) are
unit-linked contracts associated with assets where the amount payable in the case of death is the greater of
the sum insured and the value of investment units. Simple insurance or temporary term plans (term plans)
relate to fixed term duration plans for protection against death. In case of death within the coverage
period, the insured sum will be paid. Endowment insurance (investment plans/mortgage plans/horizon
plans) refer to specific duration plans linked to investments, to create capital through systematic investment
in association with death insurance coverage whereby the higher of the sum insured and the value of
investment units is payable on death within the contract term.
Further information on life insurance business is disclosed in Note 13.
5.9.1
Value of in-force business
The value of the in-force business asset represents the present value of future profits expected to arise
from the portfolio of in-force life insurance. The valuation of this asset requires assumptions to be made
about future economic and operating conditions which are inherently uncertain and changes could
significantly affect the value attributed to these assets.
The methodology used and the key assumptions that have been made in determining the carrying value of
the in-force business asset at 31 December 2019, are set out in Note 25.
5.9.2
Insurance liabilities
The calculation of liabilities and the choice of assumptions regarding insurance contracts require the
management of the Group to make significant estimates.
The assumptions underlying the estimates for each claim are based on past experience, internal factors and
conditions, as well as external factors which reflect current market prices and other published information.
The assumptions and judgements are determined at the date of valuation of liabilities and are assessed
systematically so that the reliability and realistic position can be ensured.
Estimates for insurance contracts are made in two stages. Initially, at the start of the contract, the Group
determines the assumptions regarding future deaths, voluntary terminations, investment returns and
administration expenses. Subsequently, at each reporting date, an actuarial valuation is performed which
assesses whether liabilities are adequate according to the most recent estimates.
The assumptions with the greatest influence on the valuation of insurance liabilities are presented below:
Mortality and morbidity rates
Assumptions are based on standard international tables of mortality and morbidity, according to the type of
contract. In addition, a study is performed based on the actual experience (actual deaths) of the insurance
company for comparison purposes and if sufficient evidence exists which is statistically reliable, the results
are incorporated in these tables. An increase in mortality rates will lead to a larger expected number of
claims (or claims could occur sooner than anticipated), which will increase the expenditure and reduce
profits for shareholders.
Investment return and discount rate
The weighted average rate of return is derived based on assets that are assumed to back liabilities,
consistent with the long-term investment strategy of the Group. These estimates are based on current
market returns as well as expectations about future economic and financial developments. An increase in
investment returns would lead to an increase in profits for shareholders.
105
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
5.
5.9
Significant and other judgements, estimates and assumptions (continued)
Life insurance business (continued)
5.9.2
Insurance liabilities (continued)
Management expenses
Assumptions are made for management fees and contract maintenance as well as for general expenses, and
are based on the actual costs of the Group. An assumption is also made for the rate of increase in expenses
in relation to the annual inflation rate. An increase in the level of expenses would reduce profits for
shareholders.
Lapses
Each year an analysis of contract termination rates is performed, using actual data from the insurance
company incorporation until the immediate preceding year. Rates vary according to the type and duration
of the plan. According to the insurance legislation of Cyprus, no assumption is made for policy termination
rates in the actuarial valuation.
Further details on insurance liabilities are disclosed in Note 33.
5.10
Exercise of significant influence
The Group determines whether it exercises significant influence on companies in which it has shareholdings
of less than 20% if other factors exist that demonstrate significant influence. In performing this assessment
it considers its representation in the Board of Directors which gives rise to voting rights of more than 20%
and participation in policy-making processes, including participation in decisions about dividends and other
distributions.
5.11
Classification of properties
The Group determines whether a property is classified as investment property or stock of property as
follows:
Investment properties comprise land and buildings that are not occupied for use by, or in the
operations of the Group, nor for sale in the ordinary course of business, but are held primarily to
earn rental income and capital appreciation. These buildings are substantially rented to tenants
and not intended to be sold in the ordinary course of business. Additionally they comprise leased
properties which are acquired in exchange of debt and are leased out under operating leases.
Stock of property comprises real estate assets held with an intention to be disposed of. This
principally relates to properties acquired through debt-for-property swaps and properties acquired
through the acquisition of certain operations of Laiki Bank in 2013 (except from those that are
leased out and are classified as investment properties).
5.12
Fair value of properties held for own use and investment properties
The Group’s accounting policy for property held for own use, as well as for investment property requires
that it is measured at fair value. In the case of property held for own use, valuations are carried out
periodically so that the carrying value is not materially different from the fair value, whereas in the case of
investment properties, the fair value is established at each reporting date. Valuations are carried out by
qualified valuers by applying valuation models recommended by the Royal Institution of Chartered
Surveyors and the International Valuation Standards Council.
In arriving at their estimates of the fair values of properties, the valuers used their market knowledge and
professional judgement and did not rely solely on historical transactional comparable, taking into
consideration that there is a greater degree of uncertainty than that which exists in a more active market.
Depending on the nature of the underlying asset and available market information, the determination of the
fair value of property may require the use of estimates such as future cash flows from assets and discount
rates applicable to those assets. All these estimates are based on local market conditions existing at the
reporting date.
106
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
5.
Significant and other judgements, estimates and assumptions (continued)
5.12
Fair value of properties held for own use and investment properties (continued)
Further information on inputs used is disclosed in Note 23.
5.13
Leases
Incremental Borrowing Rate (IBR)
The determination of an IBR term structure which is used in the measurement of the present value of the
future lease payments as described in Note 2.27, inherently involves significant judgements. The IBR used
as of 1 January 2019 was based on the Cyprus Government yield curve, with no further adjustment, as a
fair proxy for the Group’s secured borrowing cost, for a time horizon in accordance to the lease term. The
sensitivity analysis on the yield curve performed by BOC PCL showed that the value of the lease liability and
corresponding RoU assets is relatively insensitive to changes in the IBR.
Lease term
In determining the lease term, management considers all facts and circumstances that could make a
contract enforceable, such as the economics of the contract. The following assumptions were made for the
duration of lease term depending on the contract terms:
For cancellable leases, an assessment was made at the initial application of the standard based on
the horizon used in the Group’s business plan. The medium term business plan assessment is for a
duration of 3 years. The lease term was therefore based on an assessment of either 3 years (being
the medium time horizon) or 6 years (being an assessment of longer time horizon).
For non-cancellable leases, the lease term has been assessed to be the non-cancellable period.
For leases with an option for renewal, the Group’s past practice regarding the period over which it
has typically used properties (whether leased or owned), and its economic reasons for doing so,
provide information that is helpful in assessing whether the lessee is reasonably certain to exercise,
or not to exercise, an option.
Low value assets
The Group has exercised judgement in determining the threshold of low value asset which was set at
€5,000.
Further details on the leases are disclosed in Note 44.
107
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
6.
6.1
Transition disclosures
Transition to IFRS 16: Transition method adopted and Use of practical expedients
The Group adopted IFRS 16 'Leases' on a retrospective basis, but took advantage of the option not to
restate comparative periods (and the cumulative effect of initially applying the standard was recognised at
the date of initial application), by applying the modified retrospective approach. The IFRS 16
implementation project was led by Finance with representations from relevant departments. The Group
established its accounting policy and applied the following transition options available under the modified
retrospective approach:
Application of a single discount rate to each portfolio of leases with reasonably similar
characteristics (such as leases with similar remaining lease term for similar class of underlying
assets in a similar economic environment).
Application of the accounting for short-term leases with a term not exceeding 12 months of the
date of initial application. Hence, RoU assets and lease liabilities do not include the impact of
such short term leases.
Use of hindsight in determining the lease term if the contract contains options to extend or
terminate the lease.
Exclusion of the initial direct costs from the measurement of the RoU asset.
Election to use the transition practical expedient allowing the standard to be applied only to
contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of
initial application of 1 January 2019.
To initially measure the RoU asset of an amount equal to lease liabilities.
6.2
Impact on adoption of IFRS 16
The implementation of IFRS 16 led to the recognition of the RoU assets at an equal amount as lease
liabilities and restoration liability with no effect on equity or retained earnings of the Group as at 1 January
2019.
The table below shows the impact on initial implementation of IFRS 16:
Assets
RoU assets (disclosed within 'Property, plant and equipment') (Note 44)
Liabilities
Lease liabilities (disclosed separately within ‘Accruals, deferred income, other liabilities and
other provisions)
Restoration liabilities (disclosed within other liabilities within ‘Accruals, deferred income,
other liabilities and other provisions')
1 January
2019
€000
37,474
36,164
1,310
37,474
108
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
6.
Transition disclosures (continued)
6.3
Reconciliation of balance sheet amounts from IAS 17 to IFRS 16
The lease liabilities as at 1 January 2019 are reconciled to the operating lease commitments as disclosed in
the consolidated financial statements for the year ended 31 December 2018 as follows:
Operating lease commitments as at 31 December 2018 (non-cancellable) (Note 44)
Weighted average incremental borrowing rate as at 1 January 2019
Discounted operating lease commitment as at 1 January 2019
Add:
Payments in optional extension periods for cancellable leases not recognised as at 31
December 2018 (Note 5.13)
Lease liabilities as at 1 January 2019
7.
Segmental analysis
1 January
2019
€000
4,453
1.05%
4,226
31,938
36,164
Following the sale in 2018 of its 100% subsidiaries, Bank of Cyprus UK Limited and Bank of Cyprus Financial
Services Ltd, the Group’s activities are mainly concentrated in Cyprus. Cyprus operations are organised into
operating segments based on the line of business. As from October 2019 and following the reorganisation of
BOC PCL, a new operating segment was formed, namely Global corporate. Certain identified areas and
business products have been classified out of the previously existing reporting lines corporate and Wealth
management and included under the umbrella of the newly established Global corporate, targeting to
further diversify the loan portfolio and to pursue revenue streams both locally and abroad. Comparative
information in analysis by business lines, analysis of total revenue, analysis of assets and liabilities, and
analysis of turnover were restated to account for this change (Note 2.38).
The operating segments are analysed below:
The Corporate, Small and medium-sized enterprises and Retail business lines are managing loans
and advances to customers as detailed in ‘Credit risk concentration of loans and advances to
customers’ (Note 46).
The newly set up Global corporate is managing loans and advances to customers within the large
corporate section, the Shipping centre, the International Corporate Lending, the International
Syndicate and Project Finance.
Restructuring and recoveries is the specialised unit which was set up to tackle the Group’s loan
portfolio quality and manages exposures to borrowers in distress situation through innovative
solutions.
International banking services specialises in the offering of banking services to the international
corporate and non-resident individuals, particularly international business companies whose
ownership and business activities lie outside Cyprus.
Wealth management oversees the provision of private banking and wealth management, Market
execution and Custody along with Asset Management and Investment Banking.
The Real Estate Management Unit manages properties acquired through debt-for-property swaps
and properties acquired through the acquisition of certain operations of Laiki Bank in 2013, and
executes exit strategies in order to monetise these assets.
Treasury is responsible for liquidity management and for overseeing operations to ensure
compliance with internal and regulatory liquidity policies and provide direction as to the actions
to be taken regarding liquidity availability.
The Insurance business line is involved in both life and non-life insurance business.
The business line 'Other' includes head office functions such as finance, risk management,
compliance, legal, corporate affairs and human resources. Head office functions provide services
to the operating segments.
109
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
7.
Segmental analysis (continued)
Overseas activities include Greece, Romania and Russia which are separate operating segments
for which information is provided to management but, due to their size, have been grouped for
disclosure purposes into one segment, namely ‘Overseas'.
Current year and comparative information is presented in order to reflect the performance after the
reorganisation.
Management monitors the operating results of each business segment separately for the purposes of
performance assessment and resource allocation. Segment performance is evaluated based on profit after
tax and non-controlling interests. Inter-segment transactions and balances are eliminated on consolidation
and are made on an arm’s length basis.
Operating segment disclosures are provided as presented to the Group Executive Committee.
Income and expenses directly associated with each business line are included in determining the line’s
performance. Transfer pricing methodologies are applied between the business lines to present their results
on an arm’s length basis. Total other operating income, staff costs and other operating expenses incurred
directly by the business lines are allocated to the business lines as incurred. Indirect other operating income
and indirect other operating expenses are re-allocated from the head office function to the business lines.
Management monitors the profit/(loss) before tax of each business line. Additionally, for the purposes of the
Cyprus analysis by business line, notional tax at the 12.5% Cyprus tax rate is charged/credited on profit or
loss before tax of each business line.
The loans and advances to customers, the customer deposits and the related income and expense are
generally included in the segment where the business is originated, instead of the segment where the
transaction is recorded. Loans and advances to customers which are originated in countries where the
Group does not have operating entities are included in the country where they are managed.
110
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
7.
Segmental analysis (continued)
Analysis by business line
Corporate
Global
corporate
€000
€000
Small and
medium-
sized
enterprises
€000
Retail
Restructuring
and recoveries
International
banking
services
Wealth
management
REMU
Insurance
Treasury
Other
Total
Cyprus
Overseas
Total
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
2019
Net interest income/(expense)
Net fee and commission income/(expense)
Net foreign exchange gains/(losses)
Net (losses)/gains on financial instrument transactions
and on disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions
Net gains/(losses) from revaluation and disposal of
investment properties
Net gains on disposal of stock of property
63,294
10,759
580
-
-
-
-
54,317
36,385
144,480
6,083
347
(466)
-
-
-
9,374
44,602
658
2,775
-
-
-
-
-
-
-
-
52,896
21,281
204
3,357
-
-
-
33,541
49,540
7,382
-
-
-
-
2,129
3,291
-
-
-
-
-
-
-
3,019
24,383
Total other income
8
2
12
120
196
2
1
6,242
3,709
(12,823)
57
(8)
(6,486)
1,299
1,934
(2,428)
374,727
(8,751)
365,976
22,519
161,727
167
161,894
-
14,667
(1,787)
28,117
(1,521)
26,596
1,237
5,653
8,730
56,257
(39)
-
27
-
-
-
-
443
894
72
20,119
18,511
56,257
164
1,403
3,423
(1,174)
25,277
26,801
675
2,137
18,675
57,660
2,249
25,952
28,938
Staff costs
Staff costs–voluntary exit plan and other termination
benefits
Special levy on deposits on credit institutions,
contribution to SRF and other levies
Other operating (expenses)/income (excluding advisory
and other restructuring costs)
Other operating (expenses)/income - advisory and other
restructuring costs
Net gains on derecognition of financial assets measured
at amortised cost
Credit gains/(losses) to cover credit risk on loans and
advances to customers
Credit (losses)/gains of other financial instruments
Impairment of non-financial assets
Remeasurement of investment in associate upon
classification as held for sale
Share of profit from associates
Profit/(loss) before tax
Income tax
Profit/(loss) after tax
Non-controlling interests-profit
74,641
60,283
46,429
191,977
77,934
90,465
9,130
20,813
51,053
23,625
48,490
694,840
(6,900)
687,940
(5,985)
(2,906)
(5,771)
(73,591)
(25,285)
(15,467)
(3,386)
(2,795)
(13,495)
(1,654)
(74,399)
(224,734)
(813)
(225,547)
(2,970)
(1,406)
(2,317)
(42,842)
(15,398)
(7,351)
(1,943)
(1,752)
(3,490)
(663)
(1,034)
(81,166)
-
-
-
-
-
-
-
-
-
-
(43,609)
(43,609)
-
-
(81,166)
(43,609)
(16,120)
(9,701)
(17,228)
(97,891)
(35,571)
(21,504)
(3,865)
(5,871)
(10,223)
(8,066)
38,528
(187,512)
(8,453)
(195,965)
(312)
(130)
(311)
(2,762)
(38,782)
(633)
(134)
(3,864)
-
(102)
373
(46,657)
-
(46,657)
49,254
46,140
20,802
(25,109)
(37,102)
45,510
(198)
6,531
23,845
13,140
(31,651)
111,162
(16,166)
94,996
3,423
1,086
368
251
897
326
12,473
20,291
9,418
(4,860)
(272,592)
1,213
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
117
328
-
-
-
-
-
-
-
-
-
-
1,667
8,135
52
8,187
119
(233,610)
1,159
(232,451)
(911)
(63)
4,411
(31)
3,406
(8,196)
(4,790)
(18,530)
-
-
-
-
-
-
-
-
-
(18,530)
(7,551)
(26,081)
(25,943)
(25,943)
5,513
5,513
-
-
(25,943)
5,513
65,150
67,517
30,588
(29,718)
(308,797)
(8,144)
(8,440)
(3,824)
3,715
38,600
47,049
(5,881)
247
(12,910)
23,782
17,551
(50,326)
(149,867)
(30,702)
(180,569)
(31)
1,614
(2,983)
(2,194)
101,090
113,522
(691)
112,831
57,006
59,077
26,764
(26,003)
(270,197)
41,168
216
(11,296)
20,799
15,357
50,764
(36,345)
(31,393)
(67,738)
-
-
-
-
-
-
-
-
-
-
(2,537)
(2,537)
-
(2,537)
Profit/(loss) after tax attributable to the owners of
the Company
57,006
59,077
26,764 (26,003)
(270,197)
41,168
216 (11,296)
20,799
15,357
48,227
(38,882)
(31,393)
(70,275)
111
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
7.
Segmental analysis (continued)
Continuing operations
2018 (restated)
Net interest income/(expense)
Net fee and commission income/(expense)
Net foreign exchange gains
Net gains/(losses) on financial instrument
transactions and disposal/dissolution of
subsidiaries and associates
Insurance income net of claims and commissions
Net (losses)/gains from revaluation and disposal
of investment properties
Net gains on disposal of stock of property
Other income
Staff costs
Special levy on deposits on credit institutions and
contribution to Single Resolution Fund and other
levies
Other operating (expenses)/income (excluding
advisory and other restructuring costs)
Other operating expenses - advisory and other
restructuring costs
Net gains on derecognition of financial assets
measured at amortised cost
Credit (losses)/gains to cover credit risk on loans
and advances to customers
Credit (losses)/gains of other financial
instruments
Impairment of non-financial assets
Share of profit from associates
Profit/(loss) before tax
Income tax
Profit/(loss) after tax
Non-controlling interests-profit
Profit/(loss) after tax attributable to the
owners of the Company
Corporate
Global
corporate
€000
€000
Small and
medium-
sized
enterprises
€000
Retail
Restructuring
and recoveries
International
banking
services
Wealth
management
REMU
Insurance
Treasury
Other
Total
Cyprus
Overseas
Total continuing
operations
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
40,368
38,932
181,335
6,144
(16,741)
208
19,514
(11,602)
427,737
(8,684)
61,237
10,060
591
-
-
-
-
67
71,955
(6,372)
4,957
301
2,380
-
-
-
-
48,006
(1,962)
9,833
46,102
649
3,427
-
-
-
-
-
-
-
-
57,708
13,309
274
13,745
-
-
-
50,634
62,982
7,515
-
-
-
-
2,311
3,250
70
-
-
-
-
-
-
-
(14,122)
29,605
12
117
19
4
64
16,418
(6,134)
1,763
-
17,353
9,731
3,192
154,914
36,552
357
1,136
(469)
21,755
41,000
78,481
(31,811)
-
51,101
1,811
51,101
35
-
718
-
-
-
-
3,875
(10,212)
(1,633)
(11,845)
62
6,503
29,667
23,922
770
1,682
30,437
25,604
419,053
155,271
37,688
46,670
52,912
49,426
230,981
85,055
121,135
11,839
15,160
45,459
60,385
52,761
792,162
(36,372)
755,790
(5,641)
(69,949)
(23,857)
(15,501)
(3,329)
(2,033)
(9,709)
(1,581)
(75,821)
(215,755)
(985)
(216,740)
-
-
-
-
-
-
-
-
-
-
(25,095)
(25,095)
-
(25,095)
(14,920)
(9,059)
(14,161)
(104,749)
(41,134)
(27,709)
(2,924)
(4,149)
(9,058)
(7,677)
67,975
(167,565)
(16,273)
(183,838)
(4)
(28)
(6)
(59)
(39,192)
(13)
(6)
(3,792)
-
-
(7,389)
(50,489)
(564)
(51,053)
50,659
36,957
29,618
56,224
(19,128)
77,912
5,580
5,186
26,692
51,127
12,431
333,258
(54,194)
279,064
2,923
4,778
2,305
9,835
6,913
901
26
(1,874)
(2,401)
436
(12,498)
(308,856)
(22,350)
(395)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
90
-
-
27,771
54
27,825
2,896
(345,042)
15,959
(329,083)
(330)
4,988
(2,139)
2,519
(4,129)
(11,457)
-
-
-
-
-
(1,379)
(12,836)
(5,815)
9,095
9,095
-
51,708
(6,464)
39,334
(4,917)
32,359
53,561
(321,071)
(4,045)
(6,695)
40,134
56,463
(7,058)
5,211
(6,271)
26,362
56,205
20,904
14,765
(48,125)
(651)
782
(3,295)
(7,026)
(80,578)
(79,813)
3,897
45,244
34,417
28,314
46,866
(280,937)
49,405
4,560
(5,489)
23,067
49,179
(59,674)
(65,048)
(44,228)
(109,276)
-
-
-
-
-
-
-
-
-
-
(1,488)
(1,488)
-
(1,488)
45,244
34,417
28,314
46,866
(280,937)
49,405
4,560
(5,489)
23,067
49,179 (61,162)
(66,536) (44,228)
(110,764)
112
(1,610)
(18,651)
9,095
(33,360)
(75,916)
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
7.
Segmental analysis (continued)
Profit before tax under the business line 'Global corporate' as restated includes €38,370 thousand profit
before tax from 'Corporate' and €964 thousand profit before tax from 'Wealth Management'.
Within the REMU business line, the gains on disposal of properties classified as Investment Properties
instead of Stock of property amounting to €1,430 thousand are restated out of 'Net gains on disposal of
stock of property' to 'Net gains/(losses) from revaluation and disposal of investment properties'. Further
information is disclosed in Notes 2.2.1 and 2.38.
Discontinued operations
Net interest income
Net fee and commission income
Net foreign exchange gains
Net losses on financial instrument transactions
Staff costs
Other operating expenses
Credit gains to cover credit risk on loans and advances to customers
Profit before tax
Income tax
Profit after tax
2018
€000
34,764
5,063
250
(57)
40,020
(17,624)
(14,094)
8,302
624
8,926
(1,683)
7,243
The above information on discontinued operations relates to the disposal of the Group's subsidiary bank in
the UK, Bank of Cyprus UK Limited and its subsidiary Bank of Cyprus Financial Services Limited, details of
which are disclosed in Note 53.4.1.
113
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
7.
Segmental analysis (continued)
Analysis of total revenue
Total revenue includes net interest income, net fee and commission income, net foreign exchange gains, net gains on financial instrument transactions,
insurance income net of claims and commissions, net gains/(losses) from revaluation and disposal of investment properties, net gains/(losses) on disposal of
stock of property and other income. There were no revenues deriving from transactions with a single external customer that amounted to 10% or more of
Group revenue.
Continuing operations
2019
Revenue from third parties
Inter-segment
(expense)/revenue
Revenue between Cyprus and
other countries
Total revenue
2018 (restated)
Total revenue from third parties
Inter-segment
(expense)/revenue
Revenue between Cyprus and
other countries
Total revenue
Corporate
Global
corporate
€000
€000
Small and
medium-sized
enterprises
€000
Retail
€000
Restructuring
and recoveries
€000
International
banking
services
€000
Wealth
management
REMU
Insurance
Treasury
Other
Total
Cyprus
Overseas
Total
€000
€000
€000
€000
€000
€000
€000
€000
79,926
69,971
47,047
127,837
163,351
57,262
4,410
33,636
56,562
1,718
42,239
683,959
3,981
687,940
(5,285)
(9,688)
(618)
64,140
(85,417)
33,203
4,720
(12,823)
(5,509)
21,907
(4,630)
-
-
-
-
-
-
-
-
-
-
-
-
10,881
10,881
(10,881)
-
-
74,641
60,283
46,429
191,977
77,934
90,465
9,130
20,813
51,053
23,625
48,490
694,840
(6,900)
687,940
79,300
61,259
53,669
116,012
233,260
68,574
2,031
31,901
50,561
39,760
47,233
783,560
(27,770)
755,790
(7,345)
(13,253)
(4,243)
114,969
(148,205)
52,561
9,808
(16,741)
(5,102)
20,625
(3,074)
-
-
-
-
-
-
-
-
-
-
-
-
8,602
8,602
(8,602)
-
-
71,955
48,006
49,426
230,981
85,055
121,135
11,839
15,160
45,459
60,385
52,761
792,162
(36,372)
755,790
Total revenue under the business line 'Global corporate' as restated includes €46,025 thousand total revenue from 'Corporate' and €1,981 thousand total
revenue from 'Wealth management'.
The revenue from 'Overseas segment' mainly relates to banking and financial services for 2019 and 2018.
114
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
7.
Segmental analysis (continued)
Analysis of assets and liabilities
2019
Assets
Assets
Corporate
Global
corporate
€000
€000
Small and
medium-sized
enterprises
€000
Retail
€000
Restructuring
and recoveries
€000
International
banking
services
€000
Wealth
management
REMU
Insurance
Treasury
Other
Total
Cyprus
Overseas
Total
€000
€000
€000
€000
€000
€000
€000
€000
1,937,813
2,107,543
1,092,937
3,638,880
1,786,170
130,720
29,516 1,382,907
880,721
7,097,866
1,398,349 21,483,422
161,378
21,644,800
Inter-segment assets
-
-
-
-
-
-
-
-
(32,448)
-
(57,862)
(90,310)
-
(90,310)
Assets between Cyprus and
overseas operations
Total assets
2018 (restated)
Assets
Assets
Inter-segment assets
Assets between Cyprus and
overseas operations
Total assets
1,937,813 2,107,543
1,092,937
3,638,880
1,786,170
130,720
29,516 1,382,907
848,273 7,097,866 1,340,487 21,393,112
161,378
21,554,490
(431,668)
21,122,822
2,197,406
1,446,824
1,150,604
3,699,394
2,176,917
178,627
31,301 1,658,982
816,336
6,396,620
2,581,386 22,334,397
254,988
22,589,385
-
-
-
-
-
-
-
-
(39,642)
-
(59,133)
(98,775)
-
(98,775)
2,197,406 1,446,824
1,150,604
3,699,394
2,176,917
178,627
31,301 1,658,982
776,694 6,396,620 2,522,253 22,235,622
254,988
22,490,610
(415,339)
22,075,271
Total assets under the business line 'Global corporate' as restated includes €1,327,006 thousand total assets from 'Corporate', €52,229 thousand assets from
‘Restructuring and recoveries’, €67,550 thousand assets from ‘Wealth Management’, €36 thousand assets from Small and medium- sized enterprises and €3
thousand assets from Retail Note 46.
115
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
7.
Segmental analysis (continued)
2019
Liabilities
Liabilities
Corporate
Global
corporate
€000
€000
Small and
medium-sized
enterprises
€000
Retail
€000
Restructuring
and recoveries
€000
International
banking
services
€000
Wealth
management
Insurance
Treasury
Other
Total
Cyprus
Overseas
Total
€000
€000
€000
€000
€000
€000
€000
1,117,222
691,550
770,655
10,140,920
97,290
3,543,315
330,579
696,033
1,062,156
457,414 18,907,134
450,164
19,357,298
Inter-segment liabilities
-
-
-
-
-
-
-
-
(90,310)
-
(90,310)
-
(90,310)
Liabilities between Cyprus and
overseas operations
Total liabilities
2018 (restated)
Liabilities
Liabilities
Inter-segment liabilities
Liabilities between Cyprus and
overseas operations
Total liabilities
1,117,222
691,550
770,655
10,140,920
97,290
3,543,315
330,579
696,033
971,846
457,414 18,816,824
450,164
19,266,988
(432,793)
18,834,195
1,122,465
628,052
800,671
10,032,047
121,744
3,707,713
430,866
632,308
1,877,549
452,708 19,806,123
417,159
20,223,282
-
-
-
-
-
-
-
-
(98,775)
-
(98,775)
-
(98,775)
1,122,465
628,052
800,671
10,032,047
121,744
3,707,713
430,866
632,308
1,778,774
452,708 19,707,348
417,159
20,124,507
(416,564)
19,707,943
Total liabilities under business line 'Global corporate' as restated include €628,052 thousand total liabilities from 'Corporate'.
Segmental analysis of customer deposits and loans and advances to customers is presented in Notes 32 and 46.2 and 46.6 respectively.
116
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
7.
Segmental analysis (continued)
Analysis of turnover
Interest income and income similar to interest income
Fees and commission income
Foreign exchange gains
Gross insurance premiums (Note 13)
Gains of investment properties and stock of properties
Other income
2019
€000
508,177
171,715
26,596
172,243
2,907
28,938
2018
(restated)
€000
609,119
175,583
37,688
163,633
1,320
25,604
910,576
1,012,947
The analysis of 'Gains of investment properties and stock of properties' is provided in the table below:
Net gains/(losses) from revaluation and disposal of investment properties
Net gains on disposal of stock of property
Impairment of stock of property (Note 17)
2019
€000
2,249
25,952
(25,294)
2,907
2018
(restated)
€000
(11,845)
30,437
(17,272)
1,320
Comparative information for turnover analysis was restated to include 'Net gains on disposal of stock of
property' in the turnover analysis, the effect of the change in the classification of properties which are
leased out under operating leases, as disclosed in Note 2.2.1 and the effect of change in the presentation of
fee and commission income as disclosed in Notes 2.38 and 10.
8.
Interest income and income similar to interest income
Interest income
Financial assets at amortised cost:
- Loans and advances to customers
- Loans and advances to banks and central banks
- Debt securities
Debt securities at FVOCI
Income similar to interest income
Loans and advances to customers at FVPL
Derivative financial instruments
Investments mandatorily classified at FVPL
117
2019
€000
2018
€000
416,410
526,468
5,412
12,120
21,055
454,997
5,179
5,445
19,973
557,065
2019
€000
2018
€000
15,690
37,490
-
53,180
16,562
35,478
14
52,054
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
9.
Interest expense and expense similar to interest expense
Interest expense
Financial liabilities at amortised cost:
Customer deposits
Funding from central banks and deposits by banks
Subordinated loan stock
Repurchase agreements
Negative interest on loans and advances to banks and central banks
Interest expense on lease liabilities
Expense similar to interest expense
Derivative financial instruments
10.
Fee and commission income and expense
Fee and commission income
Credit-related fees and commissions
Other banking commissions
Fees on servicing loans disposed of under Project Helix
Mutual funds and asset management fees
Brokerage commissions
Other commissions
2019
€000
2018
€000
40,395
2,542
23,325
9,397
17,448
386
93,457
2,902
23,325
10,198
14,142
-
93,493
144,024
2019
€000
2018
€000
48,708
46,042
2019
€000
50,647
81,706
11,933
3,111
926
23,392
171,715
2018
(restated)
€000
53,618
97,705
-
2,934
757
20,569
175,583
Mutual funds and asset management fees relate to fiduciary and other similar activities.
Credit related fees and commissions include commissions from credit card arrangements amounting to
€27,323 thousand (2018: €31,983 thousand). Other banking commissions include commissions from
payment orders amounting to €29,764 thousand (2018: €30,405 thousand) and account maintenance fees
of €21,144 thousand (2018: €32,276 thousand).
118
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
10.
Fee and commission income and expense (continued)
Fee and commission expense
Banking commissions
Fee in relation to AT1 issue (Note 36)
Mutual funds and asset management fees
Brokerage commissions
2019
€000
2018
(restated)
€000
9,277
-
314
230
8,675
11,215
283
139
9,821
20,312
‘Fee and commission income’ and ‘Fee and commission expense’ as restated, include elimination of
intragroup amounts between ‘Fee and commission income/ other commissions’ and ‘Fee and commission
expense/banking commissions’ amounting to €3,324 thousand. Additionally ‘Fee and commission income/
other commissions’ as restated includes €4,610 thousand fee and commission income previously classified
as ‘Fee and commission income/ credit related fees and commission’.
11.
Net foreign exchange gains
Net foreign exchange gains comprise the conversion of monetary assets and liabilities in foreign currency at
the reporting date, realised exchange gains/(losses) from transactions in foreign currency settled during the
year and the revaluation of foreign exchange derivatives.
12.
and associates
Net gains on financial instrument transactions and disposal/dissolution of subsidiaries
Trading portfolio:
- derivative financial instruments
Other investments at FVPL:
- debt securities
- equity securities
Net gains on disposal of FVOCI debt securities
Net gains on loans and advances to customers at FVPL
Revaluation of financial instruments designated as fair value hedges:
- hedging instruments (Note 22)
- hedged items (Note 22)
Net (losses)/gains on financial liabilities at FVPL
Gain on disposal/dissolution of subsidiaries and associates
2019
€000
2018
€000
215
115
11,418
1,652
-
2,891
(4,588)
3,696
(495)
3,886
18,675
359
1,872
19,484
16,125
(10,028)
11,103
1,435
6,205
46,670
The gain on disposal/dissolution of subsidiaries for 2019 relates to gain on disposal of Nicosia Mall Holdings
(NMH) Ltd Group (Note 53.2.2). The gain on disposal/dissolution of subsidiaries for 2018 primarily relates to
gain on disposal of Bank of Cyprus UK Limited (Note 53.4.1), gain on dissolution of the branch in Romania
and gain on disposal of subsidiaries whose activity is the ownership and management of immovable
property.
119
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
13.
Insurance income net of claims and commissions
Life insurance
business
Non-life
insurance
business
2019
2018
Income
Claims and
commissions
€000
€000
Insurance
income net of
claims and
commissions
€000
Income
Claims and
commissions
€000
€000
Insurance
income net of
claims and
commissions
€000
138,139
(105,509)
32,630
65,824
(37,404)
28,420
51,522
(26,492)
189,661
(132,001)
25,030
57,660
48,875
114,699
(24,383)
(61,787)
24,492
52,912
2019
2018
Income
Gross premiums
Reinsurance premiums
Net premiums
Change in provision for unearned premiums
Total net earned premiums
Investment income and other
income/(expense)
Commissions from reinsurers and other
income
Change in value of in-force business before
tax (Note 27)
Claims and commissions
Gross payments to policyholders
Reinsurers' share of payments to
policyholders
Gross change in insurance contract liabilities
Reinsurers’ share of gross change in
insurance contract liabilities
Commissions paid to agents and other direct
selling costs
Changes in equalisation reserve
Life
insurance
€000
Non-life
insurance
€000
96,168
76,075
(15,382)
(34,362)
Life insurance
€000
90,721
(14,917)
75,804
-
75,804
Non-life
insurance
€000
72,912
(32,128)
40,784
(1,215)
39,569
41,713
(441)
41,272
80,786
-
80,786
49,286
23
(11,302)
12
6,867
136,939
10,227
51,522
1,200
-
138,139
51,522
6,636
71,138
(5,314)
65,824
9,294
48,875
-
48,875
2019
2018
Life
insurance
€000
(53,269)
Non-life
insurance
€000
(33,922)
5,551
(47,464)
13,799
(774)
Life insurance
€000
(47,030)
5,158
15,221
Non-life
insurance
€000
(34,516)
14,735
935
1,023
984
(7)
(241)
(11,350)
(6,579)
(10,746)
(5,316)
-
-
-
20
(105,509)
(26,492)
(37,404)
(24,383)
120
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
13.
Insurance income net of claims and commissions (continued)
In addition to the above, the following income and expense items related to the insurance operations have
been recognised in the consolidated income statement:
Net expense from non-linked insurance
business assets
Net (losses)/profit on financial instrument
transactions and other non-linked insurance
business income
Staff costs
Staff costs – restructuring costs
Other operating expenses
14.
Other income
2019
2018
Life
insurance
€000
Non-life
insurance
€000
Life insurance
€000
Non-life
insurance
€000
(121)
(13)
(71)
(90)
(277)
(5,407)
(1,379)
(7,959)
1,695
(4,787)
(2,111)
(2,821)
(505)
(5,385)
-
(737)
(4,509)
-
(6,177)
(5,761)
Dividend income
(Loss)/profit on sale and write-off of property and equipment and intangible
assets
Rental income from investment properties
Rental income from stock of property
Income from hotel, golf and leisure activities
Other income
2019
€000
2018
€000
361
(99)
8,255
1,427
13,673
5,321
28,938
547
99
10,883
2,625
5,727
5,723
25,604
The income from hotel, golf and leisure activities primarily relates to activities of subsidiaries acquired in
debt satisfaction as part of loan restructuring activity.
15.
Staff costs
Staff costs
Salaries
Employer’s contributions to state social insurance
Retirement benefit plan costs
Restructuring costs - voluntary exit plans and other termination benefits
2019
€000
182,053
28,432
15,062
225,547
81,166
306,713
2018
€000
176,624
24,610
15,506
216,740
-
216,740
The number of persons employed by the Group as at 31 December 2019 was 3,672 and includes 100
persons relating to the Helix transaction, whose transfer to the buyer was concluded in January 2020
(2018: 4,146).
In October 2019 the Group proceeded with a voluntary exit plan for its employees in Cyprus, with a cost
amounting to €81,166 thousand. In total, 464 employees accepted the voluntary exit plan and left the
Group in 2019 and early 2020.
121
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
15.
Staff costs (continued)
The following table shows the average number of employees (full-time) during the year based on their
geographical location:
Cyprus
United Kingdom
Other countries
2019
2018
4,029
1
23
4,053
4,116
196
29
4,341
The following table shows the business line analysis of average employees in Cyprus for 2019 and 2018 and
the Group’s other geographical locations as follows:
Corporate
Global Corporate
Small and medium-sized enterprises
Retail
Restructuring and recoveries
International banking services
Wealth management
Treasury
REMU
Insurance
Other (primarily head office functions)
Total Cyprus
United Kingdom
Other countries
Retirement benefit plan costs
2019
2018
120
43
109
123
34
110
1,408
1,510
435
322
53
26
54
203
1,256
4,029
1
23
4,053
441
334
55
36
40
208
1,225
4,116
196
29
4,341
In addition to the employer's contributions to state social insurance, the Group operates plans for the
provision of additional retirement benefits as described below:
Defined benefit plans
Defined contribution plans
2019
€000
115
14,947
15,062
2018
€000
824
14,682
15,506
122
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
15.
Staff costs (continued)
Retirement benefit plan costs (continued)
Cyprus
The main retirement plan for the Group’s permanent employees in Cyprus (88% of total Group employees)
is a defined contribution plan. This plan provides for employer contributions of 9% (2018: 9%) and
employee contributions of 3%-10% of the employees’ gross salaries. This plan is managed by a Committee
appointed by the members.
A small number of employees who do not participate in the main retirement plan, are members of a pension
scheme that is closed to new entrants and may receive part or all of their retirement benefit entitlement by
way of a pension for life. This plan is managed by an Administrative Committee composed of
representatives of both the members and the employer.
A small number of employees of Group subsidiaries in Cyprus are also members of defined benefit plans.
These plans are funded with assets backing the obligations held in separate legal vehicles.
Greece
Following the disposal of the Greek operations in March 2013, a small number of employees of the Group’s
Greek Branch, who left the Group’s employment before March 2013, continued to be members of the
defined benefit plans until June 2019, where these employees were paid out. As at 31 December 2019 the
remaining retirement benefit obligation in Greece related to Group subsidiaries.
United Kingdom
The Company has assumed in prior years the obligation of the defined benefit plan of its employees in the
United Kingdom which was closed in December 2008 to future accrual of benefits for active members.
Other countries
The Group does not operate any retirement benefit plans in Romania and Russia.
Analysis of the results of the actuarial valuations for the defined benefit plans
Amounts recognised in the consolidated balance sheet
Liabilities (Note 35)
2019
€000
2018
9,212
8,777
One of the plans has a funded status surplus of €2,927 thousand (2018: €7,694 thousand) that is not
recognised as an asset on the basis that the Group has no unconditional right to future economic benefits
either via a refund or a reduction in future contributions.
The amounts recognised in the consolidated balance sheet and the movements in the net defined benefit
obligation over the years are presented below:
123
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
15.
Staff costs (continued)
Retirement benefit plan costs (continued)
1 January 2019
Current service cost
Gain on curtailment and settlement
Net interest expense/(income)
Total amount recognised in the consolidated income
statement
Remeasurements:
Return on plan assets, excluding amounts included in
net interest expense
Actuarial loss from changes in financial assumptions
Demographic assumptions
Experience adjustments
Change in asset ceiling
Asset adjustment
Total amount recognised in the consolidated OCI
Exchange differences
Contributions:
Employer
Plan participants
Benefits paid from the plans
Benefits paid directly by the employer
31 December 2019
Present value of
obligation
Fair value of
plan assets
Net amount
before impact of
asset ceiling
€000
€000
€000
76,449
(75,366)
1,083
467
(402)
50
115
(7,426)
10,837
(915)
624
-
5,000
8,120
333
Impact of
minimum
funding
requirement/
as set ceiling
€000
7,694
-
-
-
-
-
-
-
-
(4,767)
-
(4,767)
-
-
-
-
-
2,927
Net defined
benefit liability
€000
8,777
467
(402)
50
115
(7,426)
10,837
(915)
624
(4,767)
5,000
3,353
333
(2,962)
-
-
(404)
9,212
-
-
(2,018)
(2,018)
(7,426)
-
-
-
-
5,000
(2,426)
(3,017)
467
(402)
2,068
2,133
-
10,837
(915)
624
-
-
10,546
3,350
-
195
(2,543)
(404)
89,726
124
(2,962)
(2,962)
(195)
2,543
-
(83,441)
-
-
(404)
6,285
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
15.
Staff costs (continued)
Retirement benefit plan costs (continued)
1 January 2018
Current service cost
Loss on curtailment and settlement
Net interest expense/(income)
Past service cost arising over last year
Total amount recognised in the consolidated income
statement
Remeasurements:
Return on plan assets, excluding amounts included in
net interest expense
Actuarial gain from changes in financial assumptions
Demographic assumptions
Experience adjustments
Change in asset ceiling
Asset adjustment
Total amount recognised in the consolidated OCI
Exchange differences
Contributions:
Employer
Plan participants
Benefits paid from the plans
31 December 2018
Present value of
obligation
Fair value of
plan assets
Net amount
before impact of
asset ceiling
€000
€000
€000
Impact of
minimum
funding
requirement/as
set ceiling
€000
Net defined
benefit liability
€000
82,900
(86,677)
(3,777)
13,814
10,037
-
-
(1,948)
-
(1,948)
6,732
-
-
-
-
5,000
11,732
629
(2,912)
(185)
3,995
429
48
(7)
354
824
6,732
(4,523)
(560)
383
-
5,000
7,032
(84)
(2,912)
-
-
-
-
-
-
-
-
-
-
-
(6,120)
-
(6,120)
-
-
-
-
429
48
(7)
354
824
6,732
(4,523)
(560)
383
(6,120)
5,000
912
(84)
(2,912)
-
-
(75,366)
1,083
7,694
8,777
429
48
1,941
354
2,772
-
(4,523)
(560)
383
-
-
(4,700)
(713)
-
185
(3,995)
76,449
125
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
15.
Staff costs (continued)
Retirement benefit plan costs (continued)
The actual return on plan assets for year 2019 was a gain of €9,444 thousand (2018: loss of €4,784
thousand).
The assets of funded plans are generally held in separately administered entities, either as specific assets or
as a proportion of a general fund, or as insurance contracts and are governed by local regulations and
practice in each country.
Pension plan assets are invested in different asset classes in order to maintain a balance between risk and
return. Investments are well diversified to limit the financial effect of the failure of any individual
investment. Through its defined benefit plans, the Group is exposed to a number of risks as outlined below:
Interest rate risk
Changes in bond yields
Inflation risk
Asset volatility
The Group is exposed to interest rate risk due to the mismatch of the duration
of assets and liabilities.
A decrease in corporate bond yields will increase the liabilities, although this
will be partially offset by an increase in the value of bond holdings.
The Group faces inflation risk, since the liabilities are either directly (through
increases in pensions) or indirectly (through wage increases) exposed to
inflation risks. Investments to ensure inflation-linked returns (i.e. real returns
through investments such as equities, index-linked bonds and assets whose
return increase with increasing inflation) could be used for better match with
the expected increases in liabilities.
The liabilities are calculated using a discount rate set with reference to
corporate bond yields; if assets underperform this yield, a deficit will be
created.
The major categories of plan assets as a percentage of total plan assets are as follows:
Equity securities
Debt securities
Loans and advances to banks
2019
2018
%48
%45
%7
%100
%47
%43
%10
%100
The assets held by the funded plans include equity securities issued by the Company, the fair value of which
is as at 31 December 2019 €67 thousand (2018: €1,347 thousand).
The Group expects to make additional contributions to defined benefit plans of €3,191 thousand during
2020.
At the end of the reporting period, the average duration of the defined benefit obligation was 19.0 years
(2018: 17.4 years).
126
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
15.
Staff costs (continued)
Retirement benefit plan costs (continued)
Principal actuarial assumptions used in the actuarial valuations
The present value of the defined benefit obligations of the retirement plans is estimated annually using the
Projected Unit Credit Method of actuarial valuation, carried out by independent actuaries. The principal
actuarial assumptions used for the valuations of the retirement plans of the Group during 2019 and 2018 are
set out below:
2019
Discount rate
Inflation rate
Future salary increases
Rate of pension increase
Life expectancy for pensioners at age 60
Life expectancy for pensioners at age 65
2018
Discount rate
Inflation rate
Future salary increases
Rate of pension increase
Life expectancy for pensioners at age 60
Life expectancy for pensioners at age 65
Cyprus
0.93%-1.11%
1.75%
2.25%
2.00%
23.5 years M
29.6 years F
n/a
1.79%-1.98%
1.75%
2.25%
2.00%
23.5 years M
29.6 years F
n/a
Greece
UK
1.30%
1.75%
2.00%
n/a
n/a
n/a
2.05%
2.80%
n/a
2.70%
n/a
22.5 years M
24.9 years F
1.40%-2.10%
1.75%
2.00%
n/a
2.90%
3.20%
n/a
3.05%
n/a
n/a
n/a
22.7 years M
25.3 years F
The discount rate used in the actuarial valuations reflects the rate at which liabilities could effectively be
settled and is set by reference to market yields at the reporting date in high quality corporate bonds of
suitable maturity and currency. For the Group’s plans in the Eurozone (Cyprus and Greece) which comprise
18% of the defined benefit obligations, the Group adopted a full yield curve approach using AA- rated
corporate bond data from the iBoxx Euro Corporates AA10+ index. For the Group’s plan in the UK which
comprises 82% of the defined benefit obligations, the Group adopted a full yield curve approach using the
discount rate that has been set based on the yields on AA- rated corporate bonds with duration consistent
with the scheme’s liabilities. Under this approach, each future liability payment is discounted by a different
discount rate that reflects its exact timing.
To develop the assumptions relating to the expected rates of return on plan assets, the Group, in
consultation with its actuaries, uses forward-looking assumptions for each asset class reflecting market
conditions and future expectations at the reporting date. Adjustments are made annually to the expected
rate of return assumption based on revised expectations of future investment performance of asset classes,
changes to local legislation that may affect investment strategy, as well as changes to the target strategic
asset allocation.
127
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
15.
Staff costs (continued)
Retirement benefit plan costs (continued)
The impact of significant assumptions' fluctuations on the defined benefit obligation as at 31 December
2019 and 2018 is presented below:
Variable
Discount rate
Inflation growth rate
Salary growth rate
Pension growth rate
Life expectancy
2019
2018
Change
+0.5%
Change
-0.5%
Change
+0.5%
Change
-0.5%
%-9.2
%6.3
%1.2
%9.9
%-5.7
%-1.1
%0.1
%-0.1
Plus 1 year Minus 1 year
%-2.7
%2.7
%-8.2
%4.7
%1.2
%0.1
Plus 1 year
%4.3
%8.9
%-4.6
%-1.1
%-0.1
Minus 1 year
%-4.3
The above sensitivity analysis (with the exception of the inflation sensitivity) is based on a change in one
assumption while holding all other assumptions constant. In practice this is unlikely to occur and some
changes of the assumptions may be correlated. The inflation sensitivity above includes changes to any
inflation-linked benefit increases. When calculating the sensitivity of the defined benefit obligation to
significant assumptions, the same method has been applied as when calculating the pension liability
recognised on the consolidated balance sheet. The methods and types of assumptions used in preparing
the sensitivity analysis did not change compared to previous years.
16.
Other operating expenses
Repairs and maintenance of property and equipment
Other property-related costs
Operating lease rentals for property and equipment
Consultancy and other professional services fees
Insurance
Advertising and marketing
Depreciation of property and equipment (Note 26)
Amortisation of intangible assets (Note 27)
Communication expenses
Provisions for pending litigations, claims, regulatory and other matters (Note
40.3)
Printing and stationery
Local cash transfer expenses
Other operating expenses
Advisory and other restructuring costs
2019
€000
2018
€000
29,763
17,735
-
16,832
6,803
11,531
20,118
16,161
8,486
28,851
2,905
3,038
33,742
195,965
46,657
242,622
23,513
13,802
9,833
18,542
7,043
15,355
11,112
13,217
8,832
26,370
2,204
2,991
31,024
183,838
51,053
234,891
Advisory and other restructuring costs comprise mainly fees of external advisors in relation to: (i) customer
loan restructuring activities which are not part of the effective interest rate and (ii) disposal of operations
and non-core assets.
128
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
16.
Other operating expenses (continued)
Following the adoption of IFRS 16 as of 1 January 2019, the Group, during the year ended 31 December
2019, recognised €358 thousand relating to rent expense for short term leases, included within 'Other
property related costs' and €8,839 thousand relating to the depreciation of RoU assets, included within
'Depreciation of property and equipment' (Note 44). Furthermore, as a result of the adoption of IFRS 16 the
line item 'Operating lease rentals for property and equipment' is nil for the current period.
Within the total other operating expenses an amount of €1,152 thousand (2018: €1,803 thousand) relates
to investment property that generated rental income.
The special tax levy on credit institutions in Cyprus (the Special Levy) is imposed on the level of deposits as
at the end of the previous quarter, at the rate of 0.0375% per quarter. Following an amendment of the
Imposition of Special Credit Institution Tax Law in 2017, the Single Resolution Fund contribution, which is
charged annually by the Single Resolution Board, is offset by the Special Levy up to the level of the total
annual Special Levy charge. The Special levy on deposits on credit institutions in Cyprus and contribution to
Single Resolution Fund amounted to €24,854 thousand (2018: €25,095 thousand) and is presented on the
face of the consolidated income statement, together with the guaranteed fee on annual tax credit
amounting to €18,755 thousand (2018: nil) (Note 18).
Consultancy and other professional services fees and advisory and other restructuring costs include fees
(including taxes) to the independent auditors of the Group, for audit and other professional services
provided both in Cyprus and overseas, as follows:
Audit of the financial statements of the Group and its subsidiaries
1,745
1,766
2019
€000
2018
(restated)
€000
Other assurance services
Tax compliance and advisory services
Other non-audit services
Continuing operations
Discontinued operations
Other assurance services include fees related to the interim review.
732
225
338
3,040
3,040
-
3,040
930
474
647
3,817
3,780
37
3,817
129
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
17.
Credit losses of financial instruments and impairment of non-financial assets
Credit losses to cover credit risk on loans and advances to customers
Impairment loss net of reversals on loans and advances to customers (Note
46.9)
Recoveries of loans and advances to customers previously written off
Changes in expected cash flows
Financial guarantees and commitments (Notes 46.8.1 and 46.8.2)
Credit losses of other financial instruments
Amortised cost debt securities (Note 21)
FVOCI debt securities (Note 21)
Loans and advances to banks (Note 20)
Balances with central banks (Note 20)
Other financial assets (Note 29)
Impairment of non-financial assets
Stock of property (Note 28)
Equipment (Note 26)
Other non-financial assets
18.
Income tax
Current tax:
- Cyprus
- Overseas
Cyprus special defence contribution
Deferred tax (credit)/charge
Prior years’ tax adjustments
Other tax charges/(credits)
2019
€000
2018
€000
260,114
512,956
(25,627)
(140,735)
3,537
(5,573)
232,451
(37,756)
(5,382)
329,083
(36)
101
(659)
-
5,384
4,790
25,294
-
787
26,081
(1,011)
(274)
711
(5,872)
8,056
1,610
17,272
11
1,368
18,651
2019
€000
2018
€000
5,045
143
318
(113,436)
(4,909)
8
(112,831)
3,488
399
347
81,436
(7,076)
(2,678)
75,916
The Group's share of income tax from associates for 2019 amounts to €703 thousand (2018: €1,170
thousand).
130
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
18.
Income tax (continued)
The reconciliation between the income tax expense and the loss before tax as estimated using the current
income tax rates is set out below:
Loss before tax from continuing operations
Income tax at the normal tax rates in Cyprus
Income tax effect of:
- expenses not deductible for income tax purposes
- income not subject to income tax
- differences between overseas income tax rates and Cyprus income tax
rates
- reversal of previously recognised deferred tax
- losses on which deferred tax was not recognised
Prior years' tax adjustments
Other tax charges/(credit)
2019
€000
(180,569)
2018
€000
(33,360)
(22,253)
(3,822)
30,788
8,503
(25,759)
(15,343)
2,890
(113,610)
20,014
(107,930)
(4,909)
8
(112,831)
8,207
81,720
6,405
85,670
(7,076)
(2,678)
75,916
Income tax in Cyprus is calculated at the rate of 12.5% on taxable income (2018: 12.5%).
For life insurance business there is a minimum income tax charge of 1.5% on gross premiums. Special
defence contribution is payable on rental income at a rate of 3% (2018: 3%) and on interest income from
activities outside the ordinary course of business at a rate of 30% (2018: 30%).
The Group’s profits from overseas operations are taxed at the rates prevailing in the respective countries,
which for 2019 were: Greece 28% (2018: 29%), Romania 16% (2018: 16%), Russia 20% (2018: 20%)
and UK 19% (2018: 19%).
The Group is subject to income taxes in the various jurisdictions it operates and the calculation of the
Group’s income tax charge and provisions for income tax necessarily involves a degree of estimation and
judgement. There are transactions and calculations for which the ultimate income tax treatment is uncertain
and cannot be determined until resolution has been reached with the relevant tax authority. The Group has
a number of open income tax returns with various income tax authorities and liabilities relating to these
open and judgemental matters, which are based on estimates of whether additional income taxes will be
due. In case the final income tax outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the current and deferred income tax assets and liabilities in the
period in which such determination is made.
131
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
18.
Income tax (continued)
Deferred tax
The net deferred tax assets arise from:
Difference between capital allowances and depreciation
Property revaluation
Investment revaluation and stock of property
Unutilised income tax losses carried forward (guaranteed deferred tax asset)
Value of in-force life insurance business
Other temporary differences
Net deferred tax assets
The net deferred tax assets comprise of:
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
The deferred tax assets relate to Cyprus operations.
The movement of the net deferred tax assets is set out below:
1 January
Deferred tax recognised in the consolidated income statement - continuing
operations
Deferred tax recognised in the consolidated statement of comprehensive
income
Disposal of subsidiary
2019
€000
(10,371)
(15,975)
(2,847)
379,091
(14,579)
(2,208)
333,111
2018
€000
(8,728)
(16,063)
(2,847)
301,772
(14,429)
(2,209)
257,496
2019
€000
379,126
(46,015)
333,111
2018
€000
301,778
(44,282)
257,496
2019
€000
257,496
2018
€000
337,385
113,436
(81,436)
88
-
-
579
967
-
1
333,111
257,496
Tranfer to current tax receivables following conversion into tax credit
(37,909)
Foreign exchange adjustments
31 December
The Group offsets income tax assets and liabilities if and only if, it has a legally enforceable right to set off
current income tax assets and current income tax liabilities.
132
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
18.
Income tax (continued)
The analysis of the net deferred tax (credit)/charge recognised in the consolidated income statement is set
out below:
Difference between capital allowances and depreciation
Write-back of deferred tax assets
Reversal of previously recognised deferred tax assets
Value of in-force life insurance business
Investment revaluation and stock of property
Other temporary differences
2019
€000
1,643
(115,228)
-
150
-
(1)
2018
€000
855
-
81,720
(664)
(960)
485
(113,436)
81,436
The analysis of the net deferred tax recognised in other comprehensive income in the consolidated
statement of comprehensive income is set out below:
Timing differences on property revaluation - income
2019
€000
2018
€000
88
579
Income Tax Law Amendment 28 (I) of 2019
On 1 March 2019 the Cyprus Parliament adopted legislative amendments to the Income Tax Law (the 'Law')
which were published in the Official Gazette of the Republic on 15 March 2019 ('the amendments').
The main provisions of the legislation are set out below:
The amendments allow for the conversion of specific tax losses into tax credits.
The Law applies only to tax losses transferred following resolution of a credit institution within the
framework of ‘The Resolution of Credit and Other Institutions Law’.
The losses are capped to the amount of Deferred Tax Assets (DTA) recognised on the balance
sheet of the audited financial statements of the acquiring credit institution in the year of
acquisition. Tax losses in excess of the capped amount can only be utilised in cases involving
transfers of tax losses in relation to tax reorganisations, completed before 1 October 2019. Post 1
October 2019, any excess tax losses expire.
Acquired tax losses are converted into 15 equal annual instalments for credit institutions that will
enter into resolution in the future or into 11 equal annual instalments for credit institutions which
were in resolution pre 31 December 2017.
Each annual instalment can be claimed as a deductible expense in the determination of the
taxable income for the relevant year. Annual instalments are capped and cannot create additional
losses for the credit institution.
Any amount of annual instalment not utilised is converted into a tax credit (with reference to the
applicable tax rate enacted at the time of the conversion) and it can be utilised in the tax year
following the tax year to which this tax credit relates to. Any unutilised tax credit in the relevant
year is converted into a receivable from the Cyprus Government.
The tax credit can be used against a tax liability (Corporate Income Tax Law, VAT Law or Bank
levy Law) of the credit institution or any other eligible subsidiary for group relief. Any unutilised
tax credits in the relevant year are converted into a receivable from the Cyprus Government.
In financial years where a credit institution has accounting losses the amount of the annual
instalment is recalculated. Upon recalculation, the mechanics outlined above remain unchanged.
In case a credit institution in scope goes into liquidation the total amount of unused annual
instalments are converted to tax credits and immediately become a receivable from the
Government.
A guarantee fee of 1.5% on annual tax credit is payable annually by the credit institution to the
Government.
133
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
18.
Income tax (continued)
BOC PCL has DTA that meets the requirements of the Law relating to income tax losses transferred to BOC
PCL as a result of the acquisition of certain operations of Laiki Bank, on 29 March 2013, under ‘The
Resolution of Credit and Other Institutions Law’. The DTA recognised following the acquisition of certain
operations of Laiki in 2013 amounted to €417 million for which BOC PCL paid a consideration as part of the
respective acquisition. Under the Law, BOC PCL can convert up to an amount of €3.3 billion tax losses to tax
credits (which led to the creation of DTA amounting to €417 million), with the conversion being based on
the tax rate applicable at the time of conversion. Upon the adoption of the Law a reversal of previously
recognised DTA impairment of €115 million was recognised in the current year. Following the amendment of
the Law, the period of utilisation of the tax losses which may be converted into tax credits remains
unchanged (i.e. by end of 2028).
During the year ended 31 December 2019, an amount of €37,909 thousand has been reclassified from the
DTA to current tax receivables, being the first annual tax credit.
As a result of the above amendments in the Income Tax Law the Group had deferred tax assets amounting
to €379,091 thousand as at 31 December 2019 that meet the requirements under this Law. Accordingly the
recovery of this amount is guaranteed.
The DTA subject to the Law is accounted for on the same basis, as described in Note 2.13.
The Group understands that, in response to concerns raised by the European Commission with regard to the
provision of state aid arising out of the treatment of such tax losses, the Cyprus Government is considering
the adoption of modifications to the Law, potentially including requirements for an additional annual fee
over and above the 1.5% annual guarantee fee referred to above to maintain the conversion of such DTAs
into tax credits. In anticipation of such modifications the Group has recorded an additional amount of
€12,500 thousand by way of an estimated additional fee (for the years 2018 and 2019), bringing the total
guarantee fee recognised in these Consolidated Financial Statements to €18,755 thousand (Note 16).
134
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
18.
Income tax (continued)
Accumulated income tax losses
The accumulated income tax losses are presented in the table below:
2019
Expiring within 5 years
Total income
tax losses
€000
520,988
Income tax
losses for
which a
deferred tax
asset was
recognised
€000
Income tax
losses for
which no
deferred tax
asset was
recognised
€000
-
520,988
Utilisation in annual instalments up to 2028
3,032,727
3,032,727
-
3,553,715
3,032,727
520,988
2018
Expiring within 5 years
Expiring by the end of 2028
950,084
7,378,801
8,328,885
-
2,414,176
2,414,176
950,084
4,964,625
5,914,709
In relation to the tax losses that were transferred to BOC PCL in 2013, the income tax authorities in Cyprus
issued their tax assessments in March and April 2019. On the basis of these assessments the quantum of
Laiki Bank tax losses were c.€5 billion and lower than the initial amount of €7.4 billion estimated in 2013.
The tax losses in excess of the €3.3 billion transferred from Laiki Bank to BOC PCL in March 2013 cannot be
utilised by BOC PCL, in line with the March 2019 Law amendments, except in cases where there are
transfers arising due to reorganisations made prior to 1 October 2019.
Deferred tax assets prior to the Income Tax Law Amendment 28(I) of 2019
Prior to the Income Tax Law Amendment 28 (I) of 2019 as per the Resolution of Credit and Other
Institutions Law the accumulated tax losses of the transferring credit institutions at the time of the transfer,
were transferred to the required credit institution and might be used by it for a period of up to 15 years
from the end of the year during which the transfer took place. In the case of the BOC PCL’s acquisition of
certain operations of Laiki Bank, these tax losses could be utilised up to 2028. The deferred tax asset
recognised on these specific losses could be set off against the future profits of BOC PCL by 2028 at the
applicable income tax rate, at 12.5%.
Recognition of deferred tax assets on unutilised income tax losses was supported by management’s
business forecasts, taking into account available information and making various assumptions on future
growth rates of customer loans, deposits, funding evolution, loan impairment and pricing, and considering
the recoverability of the deferred tax assets within their expiry period.
The assessment of the recognition of a deferred tax asset in general was a critical judgement, given the
inherent uncertainties associated with projecting profitability over a long time period. The Group has been
using projections for various exercises run for a number of years and it has become an established and
robust process within the Group. The tools and techniques used by the Group make use of all available
information and data, both at macro and micro level, hence identifying and addressing sources of
uncertainty.
135
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
18.
Income tax (continued)
Τhe Group performed its assessment for the recoverability of its deferred tax asset as at 31 December 2018
taking into account a range of both positive and negative evidence, including the Group’s actual and historic
performance, the key objectives of the Group’s strategy as well as the macroeconomic environment in
Cyprus, the impact of tax legislations enacted as at the reporting date and the detailed financial business
and capital plan, approved by the Board, up to the end of 2022 and projections which had been prepared
beyond 2022 until the tax losses expiry date end of 2028. The projections were subject to similar significant
levels of review, consideration and governance as the procedure followed for the preparation of the financial
business and capital plan up to the end of 2022. Macro forecasts available from external resources were
also considered in determining the assumptions.
The positive evidence, among others, included:
BOC PCL's strong branch network in Cyprus.
The continuous improvement of the Cyprus economy and sovereign rating.
The negative evidence, among others, included:
The absolute level of the DTA compared to the Group’s equity (approximately 13%) and the level
of future profitability required for its utilisation.
The level of forecasting over the remaining 10 years of the tax losses expiry date.
Impact of Brexit and instability in the Eurozone.
Legislative changes and the likelihood of future developments and their impact on profitability.
The financial projections had taken into account the key objectives of the Group’s strategy which are set out
below:
Materially reduce the level of NPEs loans
Further improve the funding structure
Maintain an appropriate capital position by internally generating capital
Focus on the core Cyprus market
Achieve a lean operating model
Deliver value to shareholders and other stakeholders
The key assumptions and factors taken into consideration, amongst others, included the following:
Reduction of NPEs.
Increase in new loan originations and loan repayments.
Improvement in net interest income, mainly driven by the increase of loans to deposits ratio,
reduction in the deposits cost, management of liquidity surplus and evolution of interest rate
curves/forecasts.
Diversified income streams mainly due to increase in fee and commission income which is an
area that the Group is intensifying its efforts.
Reduction in the level of operating expenses mainly due to the implementation of digital
transformation program underway, aimed at enhancing productivity through alternative
distribution channels and reducing operating costs over time.
Decrease in the cost of risk, supported by the asset quality improvement and the recovery of the
economy.
The above assumptions were based on both internal and external information for attributing a value to each
key assumption in the deferred tax asset forecasts.
The internal key variables included, amongst others, BOC PCL’s strategy, plans and planned actions for (i)
expansion of certain business lines and other income streams, (ii) capital and liquidity management, (iii)
cost management, (iv) loan restructuring activity and NPE portfolio sales, (v) cost of funding and (vi) pricing
of deposits and loans.
136
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
18.
Income tax (continued)
External key variables mainly included the interest rate evolution which impacted the local and international
business activity of the Group, the Eurozone and Cypriot macroeconomic performance unemployment
levels, tourist industry and the changes in the regulatory framework. The Group took a view on long term
growth prospects for the Cyprus economy. Real GDP growth was linked to a variety of growth determinants
including demographics, economic policy, institutional quality, the external environment and ultimately the
quality of labour and capital inputs. Guidance on the Company’s understanding of long-term growth
dynamics was provided by third party forecast exercises, and specifically the IMF and the European
Commission for medium term forecasts for up to five years, and the time intervals provided by the
Economist Intelligence Unit for population growth, labour force, and productivity growth for a thirty-year
horizon. Long-term real GDP growth was the sum of employment growth and growth of real labour
productivity. Employment growth was calculated based on population growth using the available forecast
from Eurostat. Total population was distinguished from working age population to take into account the
factor of population aging. The labour force and the employment levels were calculated using declining
working age population in total population and increasing labour force participation and employment rates.
Productivity growth is linked to historical averages. Ultimately, assumptions were made about the future
evolution of productivity based on technological innovation.
The recoverability assessment performed at 31 December 2018 resulted in an impairment of €79,000
thousand. For the remaining amount of the deferred tax asset of €301,772 thousand as at 31 December
2018, management had concluded that it was probable that there would be sufficient taxable profits in the
future to recover the deferred tax asset by the end of 2028.
The Group’s financial and capital plan used for the purposes of the 2018 recoverability assessment had been
conservatively prepared and various assumptions and variables used had already been stressed. The use of
alternative assumptions/sensitivity analysis representing reasonably possible alternative outcomes, could
impact the recognition of the deferred tax asset of the Group and the recovery period.
The Group had performed sensitivity analysis on the following key assumptions of DTA recoverability
assessment for years 2019-2028 as at 31 December 2018. The table below shows the impact on DTA
carrying value:
Key assumption
Reduction of yield on customer loans and advances by 10 bps
Increase in cost of customer deposits by 10 bps
Increase of ECL cost by 10 bps on gross loans
Increase of yield on customer loans and advances by 10 bps
Lower new loan origination by 10% of the forecasted growth
Slower pace of NPE decrease by 5% of the forecasted drop
Higher net commission income by 5% on average than the forecasted growth
Higher average Cost/Income ratio by 100 bps than the forecasted ratio
Increase/
(decrease) of DTA
carrying value
2018
€million
(14)
(18)
(11)
13
(12)
(28)
10
(8)
Additionally, the Group had performed supplementary sensitivity analysis on the projections extrapolated
beyond 2022 until the tax losses expiry date end of 2028. The supplementary sensitivity analysis seeks to
align the new lending growth rates with the macroeconomic projections of the Group for GDP growth. This
analysis also incorporates the adoption of a market observable curve to validate the forward interest rate
assumptions and replaces the Company’s internally generated assumptions, which were more conservative.
The rate changes reflected in the supplementary sensitivity calculations, affected both the yields on
customer loans, as well as the cost of customer deposits.
The table below shows the impact on DTA carrying value:
137
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
18.
Income tax (continued)
Key assumption
Bloomberg forecasts for Euribor/ECB rates used for the interest rates changes
Bloomberg forecasts for Euribor/ECB rates used for the interest rates changes and
macroeconomic growth based on GDP projections used for the volume changes
Increase/
(decrease) of DTA
carrying value
2018
€million
6
(18)
For year-end 2018, the sensitivity results that indicated a decrease in the carrying value of the DTA would
not result in any increase in the recoverable period as the loss expiry date is 31 December 2028, which was
the considered recoverable period. At the same time, the sensitivity results that indicated an increase in the
carrying value of the DTA were not individually significant enough to either significantly increase the
recoverable amount or reduce the recoverable period.
The income tax losses relate to the same jurisdiction to which the deferred tax asset relates.
19.
Earnings per share
Basic and diluted loss per share attributable to the owners of the
Company
2019
2018
Loss for the year attributable to the owners of the Company (€ thousand)
(70,275)
(103,521)
Weighted average number of shares in issue during the year, excluding
treasury shares (thousand)
Basic and diluted loss per share (€ cent)
446,058
446,058
(15.8)
(23.2)
Basic and diluted loss per share attributable to the owners of the
Company-continuing operations
Loss for the year attributable to the owners of the Company-continuing
operations (€ thousand)
Weighted average number of shares in issue during the year, excluding
treasury shares (thousand)
Basic and diluted loss per share-continuing operations (€ cent)
Basic and diluted earnings per share attributable to the owners of
the Company-discontinued operations
Profit for the year attributable to the owners of the Company-discontinued
operations (€ thousand)
Weighted average number of shares in issue during the year, excluding
treasury shares (thousand)
Basic and diluted earnings per share-discontinued operations (€ cent)
(70,275)
(110,764)
446,058
446,058
(15.8)
(24.8)
n/a
7,243
446,058
446,058
n/a
1.6
138
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
20.
Cash, balances with central banks and loans and advances to banks
Cash
Balances with central banks
Loans and advances to banks
Allowance for expected credit losses
2019
€000
151,555
2018
€000
153,723
4,908,487
4,456,768
5,060,042
4,610,491
2019
€000
320,953
(72)
320,881
2018
€000
473,263
(731)
472,532
An analysis of the movement of the gross carrying amount and ECL of balances with central banks is
presented in the table below:
1 January
Net increase
Changes to models and inputs used for ECL
calculation (Note 17)
Disposal of subsidiary
Foreign exchange adjustments
31 December
2019
2018
Gross
carrying
amount
Stage 1
€000
4,456,768
451,719
-
-
-
4,908,487
ECL
Stage 1
€000
Gross
carrying
amount
Stage 1
€000
3,250,029
1,483,635
ECL
Stage 1
€000
(5,872)
-
-
5,872
(277,811)
915
4,456,768
-
-
-
-
-
-
-
-
-
There was no ECL allowance on balances with central banks for the year 2019.
An analysis of the movement of the gross carrying amount of loans and advances to banks is presented in
the table below:
1 January
Net decrease
2019
Total
Gross
carrying
amount
Stage 1
€000
473,263
Gross
carrying
amount
Stage 1
€000
€000
473,263 1,159,629
2018
Gross
carrying
amount
Stage 3
€000
Total
€000
58,002 1,217,631
(149,899) (149,899)
(642,995)
(58,002)
(700,997)
Disposal/dissolution of subsidiaries
(2,825)
(2,825)
(42,974)
Foreign exchange adjustments
31 December
414
414
(397)
320,953
320,953
473,263
-
-
-
(42,974)
(397)
473,263
139
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
20.
Cash, balances with central banks and loans and advances to banks (continued)
An analysis of the movement of the change on the ECL of the loans and advances to banks is presented in
the table below:
1 January
(731)
(731)
Impact of adopting IFRS 9 at 1 January 2018
-
-
(731)
(731)
Restated balance at 1 January
Changes to models and inputs used for ECL
calculation (Note 17)
Net decrease
31 December
2019
Stage 1
€000
Total
€000
Stage 1
€000
2018
Stage 3
€000
(24,998)
-
Total
€000
(24,998)
(20)
(24,998)
(25,018)
-
(20)
(20)
659
-
(72)
659
-
(72)
(711)
-
-
24,998
(731)
-
(711)
24,998
(731)
Balances with central banks include obligatory deposits for liquidity purposes as at 31 December 2019 which
amount to €160,048 thousand (2018: €162,675 thousand) (Note 43).
The credit rating analysis of balances with central banks and loans and advances to banks by independent
credit rating agencies is set out in Note 46.13.
Loans and advances to banks earn interest based on the interbank rate of the relevant term and currency.
21.
Investments
Investments
Investments mandatorily measured at FVPL
Investments at FVOCI
Investments at amortised cost
2019
€000
176,106
701,704
805,059
1,682,869
2018
€000
152,473
231,548
393,083
777,104
During 2019, the Group has proceeded to invest in debt securities, as part of its investing strategy.
140
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
21.
Investments (continued)
The amounts pledged as collateral are shown below:
Investments pledged as collateral
Investments at FVOCI
Investments at amortised cost
2019
€000
199,916
23,045
222,961
2018
€000
600,291
137,296
737,587
The decrease in investments pledged as collateral during 2019 related to the change in the type of collateral
pledged by the Group. Encumbered assets are disclosed in Note 48.
All investments pledged as collateral under repurchase agreements can be sold or repledged by the
counterparty.
The maximum exposure to credit risk for debt securities is disclosed in Note 46.1 and the debt securities
price risk sensitivity analysis is disclosed in Note 47.
There were no reclassifications of investments during the year.
The credit rating analysis of investments is disclosed in Note 46.13.
141
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
21.
Investments (continued)
Investments at fair value through profit or loss
Debt securities
Equity securities
Mutual funds
Debt securities
Cyprus government
Banks and other corporations
Listed on other stock exchanges
Unlisted
Equity securities
Listed on the Cyprus Stock Exchange
Listed on other stock exchanges
Unlisted
Mutual funds
Listed on other stock exchanges
Unlisted
Investments
mandatorily measured at
FVPL
2019
€000
24,093
2,484
149,529
176,106
2018
€000
14,616
3,775
134,082
152,473
-
24,093
24,093
-
24,093
24,093
1,607
777
100
2,484
547
14,069
14,616
547
14,069
14,616
2,294
972
509
3,775
108,760
40,769
94,679
39,403
149,529
134,082
The debt securities which are measured at FVPL are mandatorily classified, because they failed to meet the
SPPI criteria.
The majority of the unlisted mutual funds relate to investments whose underlying assets are listed on stock
exchanges and are therefore presented in Level 2 hierarchy in Note 23.
Investments at FVOCI
Debt securities
Equity securities (including preference shares)
Mutual funds
2019
€000
885,810
15,202
608
2018
€000
819,748
11,534
557
901,620
831,839
142
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
21.
Investments (continued)
Debt securities
Cyprus government
Other governments
Banks and other corporations
Listed on the Cyprus Stock Exchange
Listed on other stock exchanges
Geographic dispersion by country of issuer
Cyprus
France
Other European Union countries
Supranational organisations
Other countries
Equity securities
Listed on the Cyprus Stock Exchange
Listed on other stock exchanges
Unlisted
2019
€000
398,404
228,838
258,568
885,810
3,922
881,888
885,810
398,404
232,662
105,694
10,743
138,307
885,810
1,451
137
13,614
15,202
2018
€000
322,021
299,876
197,851
819,748
5,977
813,771
819,748
322,021
282,691
83,085
20,049
111,902
819,748
1,498
167
9,869
11,534
An analysis of the movement of debt instruments before ECL and the changes on the ECL are presented in
the table below:
2019
2018
Gross debt
securities
€000
820,346
135,042
(89,707)
(1,841)
3,250
-
19,419
886,509
ECL
€000
(598)
-
-
-
-
(101)
-
(699)
Gross debt
securities
€000
916,129
186,605
(251,498)
(4,428)
7,765
-
(34,227)
820,346
ECL
€000
(872)
-
-
-
-
274
-
(598)
1 January
New assets acquired in the year
Assets derecognised and redeemed in the
year
Interest accrued
Foreign exchange adjustments
Changes to models and input used for ECL
calculations (Note 17)
Change in fair value
31 December
All debt securities are classified as Stage 1.
143
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
21.
Investments (continued)
The Group irrevocably made the election to classify its equity investments as equity investments at FVOCI
on the basis that these are not held for trading. Their carrying value amounts to €15,202 thousand at 31
December 2019 and is equal to their fair value (2018: €11,534 thousand).
Equity investments at FVOCI comprise mainly investments in private Cyprus registered companies, acquired
through loan restructuring activity and specifically through debt for equity swaps.
Dividend income amounting to €306 thousand has been received and recognised for 2019 in other income
(2018: €197 thousand).
During 2019 no equity investments measured at FVOCI have been disposed of (2018: €5,458 thousand).
The cumulative gain transferred to retained earnings during the year 2018 amounted to €173 thousand.
There were no other transfers from OCI to retained earnings during the year.
The fair value of the financial assets that have been reclassified out of FVPL to FVOCI on transition to IFRS
9, amounts to €12,098 thousand at 31 December 2019 (2018: €14,934 thousand). The fair value gain that
would have been recognised in the consolidated income statement if these financial assets had not been
reclassified as part of the transition to IFRS 9, amounts to €158 thousand (2018: loss of €186 thousand).
The effective interest rate of these instruments is 1.6%-5.0% per annum (2018: 1.6%-5.0%) and the
respective interest income during the year 2019 amounts to €346 thousand (2018: €398 thousand).
Investments at amortised cost
Debt securities
Cyprus government
Other governments
Banks and other corporations
European Financial Stability Facility and European Investment Fund
Listed on the Cyprus Stock Exchange
Listed on other stock exchanges
Geographic dispersion by country of issuer
Cyprus
Germany
UK
France
Other European Union countries
Other countries
Supranational organisations
2019
€000
828,104
143,644
161,090
333,313
190,057
828,104
48,654
779,450
828,104
2018
€000
530,379
119,189
123,799
103,457
183,934
530,379
48,292
482,087
530,379
143,644
119,189
51,846
38,349
30,082
271,587
107,012
185,584
828,104
64,184
13,068
-
69,814
80,190
183,934
530,379
144
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
21.
Investments (continued)
An analysis of changes in the gross carrying amount (before ECL) is presented in the table below:
1 January
New assets acquired in the year
Assets derecognised and
redeemed in the year
Fair value due to hedging
relationship
Accrued interest
Foreign exchange adjustments
Stage 1
€000
482,229
318,187
(25,143)
1,038
1,062
2,397
2019
Stage 2
€000
48,982
Total
€000
531,211
Stage 1
€000
2018
Stage 2
€000
Total
€000
-
48,658
48,658
-
-
182
(33)
(1)
318,187
522,398
(25,143)
(43,000)
-
-
522,398
(43,000)
1,220
1,029
2,396
58
2,773
-
530
(206)
-
588
2,567
-
31 December
779,770
49,130
828,900
482,229
48,982
531,211
An analysis of changes on the ECL is presented in the table below:
2019
1 January
Change to models and inputs
used for ECL calculation (Note
17)
31 December
Stage 1
€000
2019
Stage 2
€000
Total
€000
Stage 1
€000
(142)
(690)
(832)
-
2018
Stage 2
€000
(1,843)
Total
€000
(1,843)
(178)
(320)
214
36
(476)
(796)
(142)
(142)
1,153
(690)
1,011
(832)
22.
Derivative financial instruments
The contract amount and fair value of the derivative financial instruments is set out below:
2019
Fair value
2018
Fair value
Assets
Liabilities
€000
€000
Contract
amount
€000
Assets
Liabilities
€000
€000
165
775
315
10
772
111
17,114
5,897
1,219,749
551
296
57,652
12,704
-
1,650,000
240
3,405
471
8
462
192
6,342
422
382
-
Contract
amount
€000
21,939
1,170,915
263,159
1,800
1,684,871
3,142,684
2,037
6,855
2,957,219
4,586
7,338
1,068,926
19,542
43,727
1,016,083
20,137
29,029
96,821
1,165,747
4,308,431
1,481
21,023
23,060
11
74,973
43,738
1,091,056
50,593
4,048,275
31
20,168
24,754
2,616
31,645
38,983
Trading derivatives
Forward exchange rate contracts
Currency swaps
Interest rate swaps
Currency options
Interest rate caps/floors
Derivatives qualifying for hedge
accounting
Fair value hedges - interest rate
swaps
Net investments - forward
exchange rate contracts and
currency swaps
Total
145
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
22.
Derivative financial instruments (continued)
The use of derivatives is an integral part of the Group’s activities. Derivatives are used to manage the
Group’s own exposure to fluctuations in interest rates, exchange rates and equity price indices. Derivatives
are also sold to customers as risk management products.
Credit risk for derivatives arises from the possibility of the counterparty’s failure to meet the terms of any
contract. In the case of derivatives, credit losses are a small portion of the derivatives’ notional amount
(positive market value of the derivative contract) compared to the total notional amount of the derivative
contracts. In order to manage credit risk, the Group sets derivative limits based on the creditworthiness of
the involved counterparties and uses credit mitigation techniques such as netting and collateralisation.
Interest rate risk is explained in Note 47. The interest rate risk is managed through the use of own balance
sheet solutions plain vanilla interest rate swaps and interest rate options. In fair value hedges of interest
rate risk, the Group converts fixed rate assets/liabilities to floating. In cash flow hedging of interest rate
risk, the Group converts floating rate assets/liabilities to fixed.
Currency risk is explained in Note 47. In order to eliminate the risk, the Group hedges its open position by
entering into foreign exchange deals such as: foreign exchange spot, foreign exchange forwards, foreign
exchange swaps or foreign exchange options. The foreign currency risk mainly arises from customer-driven
transactions on deposits and loans and advances.
Forward exchange rate contracts are irrevocable agreements to buy or sell a specified quantity of foreign
currency on a specified future date at an agreed rate.
Currency swaps include simple currency swaps and cross-currency swaps. Simple currency swaps involve
the exchange of two currencies at the current market rate and the commitment to re-exchange them at a
specified rate upon maturity of the swap. Cross-currency swaps are interest rate swaps in which the cash
flows are in different currencies.
Interest rate swaps are contractual agreements between two parties to exchange fixed rate and floating
rate interest, by means of periodic payments, based upon a notional principal amount and the interest rates
defined in the contract.
Currency options are contracts that grant the holder the right, but not the obligation, to buy or sell currency
at a specified exchange rate during a specified period of time.
Currency and equity options provide the buyer with the right but not the obligation, to either buy or sell the
underlying values at a specified price or level on or before a specified date.
Interest rate caps/floors protect the holder from fluctuations of interest rates above or below a specified
interest rate for a specified period of time.
The credit exposure of derivative financial instruments represents the cost to replace these contracts at the
reporting date. The exposure arising from these transactions is managed as part of the Group’s credit risk
management process for credit facilities granted to customers and financial institutions.
The contract amount of certain types of derivative financial instruments provides a basis for comparison
with other instruments recognised on the consolidated balance sheet, but does not necessarily indicate the
amounts of future cash flows involved or the current fair value of the instruments and, consequently, does
not indicate the Group’s exposure to credit or market risk.
The fair value of the derivatives can be either positive (asset) or negative (liability) as a result of
fluctuations in market interest rates, foreign exchange rates or equity price indices, in accordance with the
terms of the relevant contract. The aggregate net fair value of derivatives may fluctuate significantly over
time.
146
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
22.
Derivative financial instruments (continued)
Hedge accounting
The Group elected, as a policy choice permitted by IFRS 9, to continue to apply hedge accounting in
accordance with IAS 39. The Group implements the amended IFRS 7 hedge disclosure requirements.
The Group applies fair value hedge accounting using derivatives when the required criteria for hedge
accounting are met. The Group also uses derivatives for economic hedging (hedging the changes in interest
rates, exchange rates or other risks) which do not meet the criteria for hedge accounting. As a result, these
derivatives are accounted for as trading derivatives and the gains or losses arising from revaluation are
recognised in the consolidated income statement.
Changes in the fair value of derivatives designated as fair value hedges and the fair value of the item in
relation to the risk being hedged are recognised in the consolidated income statement.
Fair value hedges
The Group uses interest rate swaps to hedge the interest rate risk arising as a result of the possible adverse
movement in the fair value of fixed rate debt securities measured at FVOCI and deposits.
Hedges of net investments
The Group’s consolidated balance sheet is affected by foreign exchange differences between the Euro and all
non-Euro functional currencies of overseas subsidiaries and other foreign operations. The Group hedges its
structural currency risk when it considers that the cost of such hedging is within an acceptable range (in
relation to the underlying risk). This hedging is effected by financing with borrowings in the same currency
as the functional currency of the overseas subsidiaries and forward exchange rate contracts.
As at 31 December 2019, deposits, and forward and swap exchange rate contracts amounting to €10,667
thousand and €96,821 thousand respectively (2018: €9,843 thousand and €74,973 thousand respectively)
have been designated as hedging instruments and have given rise to a gain of €10,927 thousand (2018:
loss of €9,760 thousand) which was recognised in the ‘Foreign currency translation reserve’ in the
consolidated statement of comprehensive income, against the profit or loss from the retranslation of the net
assets of the overseas subsidiaries and other foreign operations.
2019
Derivatives qualifying for hedge accounting
Fair value hedges
-interest rate swaps
Net investments
-forward exchange rate contracts
Total
2018
Derivatives qualifying for hedge accounting
Fair value hedges
-interest rate swaps
Net investments
-forward exchange rate contracts
Total
Gains/(losses) attributable to
hedged risk
Hedged in-
effectiveness
Hedged items
€000
Hedging
instrument
€000
€000
3,696
(4,588)
(11,462)
(7,766)
11,462
6,874
892
-
892
11,103
(10,028)
(1,075)
9,775
20,878
(9,775)
(19,803)
-
(1,075)
The accumulated fair value adjustment arising from the hedging relationships is presented in the table
below:
147
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
22.
Derivative financial instruments (continued)
Carrying amount of hedged
items
Accumulated amount of fair
value hedging adjustments
gains/(losses) on the
hedged item
Assets
Liabilities
Assets
Liabilities
€000
€000
€000
€000
909,868
-
16,331
-
-
272,170
-
(1,596)
2,472
94,349
(2)
912,340
366,519
16,329
1,472
(124)
2019
Derivatives qualifying for hedge
accounting
Fair value hedges - interest rate swaps
interest rate swaps
-debt securities
-subordinated loan stock
Net investments - forward and swap
exchange rate contracts
Net assets
Total
2018
Derivatives qualifying for hedge
accounting
Fair value hedges - interest rate swaps
-debt securities
770,768
-
11,657
-subordinated loan stock
Net investments - forward and swap
exchange rate contracts
Net assets
Total
-
270,930
5,630
69,343
-
-
776,398
340,273
11,657
-
(555)
2,585
2,030
For assets hedged using fair value hedges the fixed rate is 2.76% and the floating rate is 1.4% (2018:
3.08% and 1.65% respectively). For liabilities hedged using fair value hedges, the fixed rate is 9.25% and
the floating rate 8.95% (2018: 9.25% and 8.86% respectively).
The maturity of the Group's contract amount of the derivatives is presented in the table below:
148
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
22.
Derivative financial instruments (continued)
On demand
and up to one
month
€000
Between one
and three
months
€000
Between
three months
and one year
€000
Between one
and five
years
€000
Over five
years
€000
Total
contract
amount
€000
10,899
10,369
1,170,672
-
600
-
20
-
671
223
-
-
146,228
116,931
1,200
-
-
-
1,650,000
34,871
1,182,171
11,589
1,797,122
151,802
-
-
-
-
-
-
21,939
1,170,915
263,159
1,800
1,684,871
3,142,684
2019
Trading
derivatives
Forward
exchange rate
contracts
Currency swaps
Interest rate
swaps
Currency options
Interest rate
caps/floors
Derivatives
qualifying for
hedge
accounting
Fair value hedges
- interest rate
swaps
Net investments -
forward
exchange rate
contracts and
currency swaps
-
96,821
96,821
-
-
-
188,505
646,921
233,500
1,068,926
-
188,505
-
646,921
798,723
-
96,821
233,500
1,165,747
233,500
4,308,431
Total
1,278,992
11,589
1,985,627
149
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
22.
Derivative financial instruments (continued)
2018
Trading
derivatives
Forward
exchange rate
contracts
Currency swaps
Interest rate
swaps
Currency options
Interest rate
caps/floors
Derivatives
qualifying for
hedge
accounting
Fair value hedges
- interest rate
swaps
Net investments -
forward
exchange rate
contracts and
currency swaps
On demand
and up to one
month
€000
Between one
and three
months
€000
Between
three months
and one year
€000
Between one
and five
years
€000
Over five
years
€000
Total
contract
amount
€000
6,405
1,179,201
10,263
40,102
-
12,704
-
-
-
-
446
446
-
-
-
-
-
57,652
-
1,650,000
1,198,310
50,365
892
1,707,652
-
-
-
-
-
-
17,114
1,219,749
57,652
12,704
1,650,000
2,957,219
-
74,973
74,973
-
-
-
77,619
729,702
208,762
1,016,083
-
-
-
74,973
77,619
729,702
208,762
1,091,056
Total
1,273,283
50,365
78,511
2,437,354
208,762
4,048,275
150
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
22.
Derivative financial instruments (continued)
Interest rate benchmark reform
The London Interbank Offered Rate (LIBOR), the Euro Interbank Offered Rate (EURIBOR) and other rates
and indices which are deemed to be ‘benchmarks’ are the subject of recent international, national and other
regulatory guidance and proposals for reform. Some of these reforms are already effective while others are
still to be implemented. These reforms may cause such benchmarks to perform differently from the past or
cease to exist entirely or have other consequences that cannot be predicted. The Group will continue to
monitor and address matters arising from any transition to new reference rates.
BOC PCL has established a project to manage the transition to alternative interest rate benchmarks
whereby the Director Treasury is the project owner. The main divisions involved in the project at the
highest level are the Legal Department, Treasury, Risk Management, Finance, Information Technology (IT)
and Operations. Assets and Liabilities Committee (ALCO) monitors the project on a monthly basis.
As at 31 December 2019 the interest rate benchmarks to which BOC PCL's hedge relationships are exposed
to are Euribor and US Dollar Libor for the cash flows of the hedging instruments. As Euribor has been
reformed and complies with the EU Benchmarks Regulation under a new hybrid methodology, the Group
expects Euribor to continue as a benchmark interest rate for the foreseeable future and, therefore, does not
consider interest rate hedge relationships of Euribor to be directly affected by IBOR reform as at 31
December 2019. Regarding USD Libor reform, the ICE Benchmark Administration (IBA) announced that
there is no guarantee that Libor will continue to be published after year-end 2021 and that it will be
replaced by SOFR.
The Group has applied judgement in relation to market expectations regarding hedging instruments. The
key judgement is that the cash flows for contracts currently indexing IBOR are currently expected to be
broadly equivalent to the cash flows when those contracts transition to IBOR replacement rates.
The table below indicates the nominal amount of derivatives in hedging relationships that will be subject to
the IBOR reform, analysed by interest rate basis. The derivative hedging instruments provide a close
approximation to the extent of the risk exposure BOC PCL manages through hedging relationships.
Interest Rate Swaps
Euribor (3 months)
Libor USD (3 months)
Total
2019
€000
865,431
203,495
1,068,926
151
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement
The following table presents the carrying value and fair value of the Group's financial assets and liabilities.
Financial assets
Cash and balances with central banks
Loans and advances to banks
Investments mandatorily measured at FVPL
Investments at FVOCI
Investments at amortised cost
Derivative financial assets
Loans and advances to customers
Life insurance business assets attributable to
policyholders
Financial assets classified as held for sale
Other financial assets
Financial liabilities
Obligations to central banks and deposits by
banks
Repurchase agreements
Derivative financial liabilities
Customer deposits
Subordinated loan stock
Other financial liabilities
2019
2018
Fair value
Carrying value
Fair value
Carrying
value
€000
€000
5,060,042
5,060,042
320,881
176,106
901,620
828,104
23,060
319,852
176,106
901,620
844,795
23,060
€000
4,610,491
€000
4,610,491
472,532
152,473
831,839
530,379
24,754
467,026
152,473
831,839
538,631
24,754
10,721,841
10,720,292
10,921,786
10,788,446
447,172
25,929
146,596
447,172
388,745
388,745
25,929
1,154,108
1,154,108
146,596
144,381
144,381
18,651,351
18,665,464
19,231,488
19,100,894
533,404
168,129
50,593
475,792
170,816
50,593
1,261,942
1,261,942
248,945
38,983
263,511
38,983
16,691,531
16,692,463
16,843,558
16,849,222
272,170
255,210
293,623
255,210
270,930
188,512
276,527
188,512
17,971,037
17,938,497
18,852,870
18,878,697
The fair value of financial assets and liabilities in the above table is as at the reporting date and does not
represent any expectations about their future value.
The Group uses the following hierarchy for determining and disclosing fair value:
Level 1: investments valued using quoted prices in active markets.
Level 2: investments valued using models for which all inputs that have a significant effect on fair value are
market observable.
Level 3: investments valued using models for which inputs that have a significant effect on fair value are not
based on observable market data.
For assets and liabilities that are recognised in the Consolidated Financial Statements at fair value, the
Group determines whether transfers have occurred between levels in the hierarchy by re-assessing
categorisation at the end of each reporting period.
The following is a description of the determination of fair value for financial instruments and non-financial
assets which are recorded at fair value on a recurring and on a non-recurring basis and for financial
instruments which are not measured at fair value but for which fair value is disclosed, using valuation
techniques. These incorporate the Group’s estimate of assumptions that a market participant would make
when valuing the instruments.
152
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement (continued)
Derivative financial instruments
Derivative financial instruments valued using a valuation technique with market observable inputs are
mainly interest rate swaps, currency swaps, currency rate options, forward foreign exchange rate contracts,
equity options and interest rate collars. The most frequently applied valuation techniques include forward
pricing and swap models, using present value calculations. The models incorporate various inputs including
the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves.
Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA)
The CVA and DVA are incorporated into derivative valuations to reflect the impact on fair value of
counterparty risk and BOC PCL’s own credit quality respectively.
The Group calculates the CVA by applying the PD of the counterparty, conditional on the non-default of the
Group, to the Group’s expected positive exposure to the counterparty and multiplying the result by the loss
expected in the event of default. Conversely, the Group calculates the DVA by applying its own PD,
conditional on the non-default of the counterparty, to the expected positive exposure of the counterparty to
Group and multiplying the result by the loss expected in the event of default. Both calculations are
performed over the life of the potential exposure.
The expected exposure of derivatives is calculated as per the CRR and takes into account the netting
agreements where they exist. A standard LGD assumption in line with industry norms is adopted.
Alternative LGD assumptions may be adopted when both the nature of the exposure and the available data
support this.
The Group does not hold any significant derivative instruments which are valued using a valuation technique
with significant non-market observable inputs.
Investments at FVPL, investments at FVOCI and investments at amortised cost
Investments which are valued using a valuation technique or pricing models, primarily consist of unquoted
equity securities and debt securities. These assets are valued using valuation models which sometimes only
incorporate market observable data and at other times use both observable and non-observable data. The
rest of the investments are valued using quoted prices in active markets.
Loans and advances to customers
The fair value of loans and advances to customers is based on the present value of expected future cash
flows. Future cash flows have been based on the future expected loss rate per loan portfolio, taking into
account expectations for the credit quality of the borrowers. The discount rate includes components that
capture the risk free rate per currency, funding cost, servicing cost and the cost of capital, considering the
risk weight of each loan.
Customer deposits
The fair value of customer deposits is determined by calculating the present value of future cash flows. The
discount rate takes into account current market rates and the credit profile of BOC PCL. The fair value of
deposits repayable on demand and deposits protected by the Deposit Protection Guarantee Scheme are
approximated by their carrying values.
Repurchase agreements
Repurchase agreements are collateralised bank takings. Given that the collateral provided by the Group is
greater than the amount borrowed, the fair value calculation of these repurchase agreements takes into
account the time value of money.
Loans and advances to banks
Loans and advances to banks with maturity over one year are discounted using an appropriate risk free rate
plus the credit spread of each counterparty. For short-term lending, the fair value is approximated by the
carrying value.
153
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement (continued)
Deposits by banks
Deposits by banks with maturity over one year are discounted using an appropriate risk free rate plus the
credit spread of each counterparty. For short-term lending, the fair value is mainly approximated by the
carrying value.
Subordinated loan stock
The current issue of BOC PCL is liquid with quoted prices in an active market.
Investment properties
The fair value of investment properties is determined using valuations performed by external, accredited,
independent valuers. Further information on the techniques applied is disclosed in the remainder of this
note.
Property and equipment
The freehold land and buildings consist of offices and other commercial properties. The fair value of the
properties is determined using valuations performed by external, accredited, independent valuers. Further
information on the techniques applied is disclosed in the remainder of this note.
Model inputs for valuation
Observable inputs to the models for the valuation of unquoted equity and debt securities include, where
applicable, current and expected market interest rates, market expected default rates, market implied
country and counterparty credit risk and market liquidity discounts.
154
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement (continued)
The following table presents the fair value measurement hierarchy of the Group's assets and liabilities
recorded at fair value or for which fair value is disclosed, by level of the fair value hierarchy:
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
2019
Assets measured at fair value
Investment properties
Residential
Offices and other commercial properties
Manufacturing and industrial properties
Hotels
Land (fields and plots)
Freehold property
Offices and other commercial properties
Loans and advances to customers measured
at FVPL
Trading derivatives
Forward exchange rate contracts
Currency swaps
Interest rate swaps
Currency options
Interest rate caps/floors
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps
Net investments-forward exchange rate
contracts and currency swaps
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
165
775
315
10
772
2,037
19,542
1,481
21,023
51,243
1,026
19,841
59,052
36,894
1,701
18,709
19,841
59,052
36,894
1,701
18,709
136,197
136,197
235,277
235,277
369,293
369,293
-
-
-
-
-
-
-
-
-
24,593
13,914
165
775
315
10
772
2,037
19,542
1,481
21,023
176,106
901,620
Investments mandatorily measured at FVPL
Investments at FVOCI
100,270
886,680
Other financial assets not measured at
fair value
Loans and advances to banks
Investments at amortised cost
Loans and advances to customers
986,950
75,329
779,274
1,841,553
-
751,326
-
319,852
53,523
-
39,946
319,852
844,795
-
10,350,999
10,350,999
751,326
373,375
10,390,945
11,515,646
For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discount
factor by 10% would result in a decrease of €5,696 thousand in their fair value and a decrease in the
discount factor by 10% would result in an increase of €1,549 thousand in their fair value.
For one investment included in debt securities mandatorily measured at FVPL as a result of the SPPI
assessment and categorised as Level 3 (Note 21) with a carrying amount of €23,593 thousand as of 31
December 2019, a change in the conversion factor by 10% would result in a change in the value of the debt
securities by €2,359 thousand.
155
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement (continued)
For additional disclosures on sensitivity analysis of equity securities refer to Note 47.
The fair value measurement hierarchy for life insurance business assets attributable to policy holders is
disclosed in Note 25.
2019
Liabilities measured at fair value
Trading derivatives
Forward exchange rate contracts
Currency swaps
Interest rate swaps
Currency options
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps
Net investments-forward exchange rate
contracts and currency swaps
Other financial liabilities not measured
at fair value
Deposits by banks
Repurchase agreements
Customer deposits
Subordinated loan stock
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
293,623
111
5,897
551
296
6,855
43,727
11
43,738
50,593
475,792
170,816
-
-
-
-
-
-
-
-
-
-
-
-
-
111
5,897
551
296
6,855
43,727
11
43,738
50,593
475,792
170,816
16,692,463
16,692,463
-
293,623
293,623
646,608
16,692,463
17,632,694
156
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement (continued)
2018 (restated)
Assets measured at fair value
Investment properties
Residential
Offices and other commercial properties
Manufacturing and industrial properties
Hotels
Land (fields and plots)
Investment properties held for sale
Offices and other commercial properties
Freehold property
Offices and other commercial properties
Freehold property held for sale
Offices and other commercial properties
Loans and advances to customers measured
at FVPL
Trading derivatives
Forward exchange rate contracts
Currency swaps
Interest rate swaps
Currency options
Interest rate caps/floors
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps
Net investments-forward exchange rate
contracts and currency swaps
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
240
3,405
471
8
462
4,586
20,137
31
20,168
47,418
1,051
18,606
60,243
28,177
2,465
18,515
18,606
60,243
28,177
2,465
18,515
128,006
128,006
152,348
152,348
152,348
152,348
236,405
236,405
-
-
88,022
88,022
395,572
395,572
-
-
-
-
-
-
-
-
-
14,986
8,160
240
3,405
471
8
462
4,586
20,137
31
20,168
152,473
831,839
Investments mandatorily measured at FVPL
Investments at FVOCI
90,069
822,628
Other financial assets not measured at
fair value
Loans and advances to banks
Investments at amortised cost
Loans and advances to customers
912,697
73,223
1,023,499
2,009,419
-
484,417
-
467,026
54,214
-
-
467,026
538,631
-
10,392,874
10,392,874
484,417
521,240
10,392,874
11,398,531
Investment properties by type were restated following the classification of the long term leased properties
with rental yield at market level which were acquired in exchange of debt and are leased at under operating
leases as 'Investment properties' instead of 'Stock of property'.
157
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement (continued)
Investment mandatorily measured at FVPL amounting to €47,024 thousand were reclassified out of level 1
to level 2 since they are valued using models with inputs whose effect on fair value is market observable
(Note 2.38).
During the year 2019 and 2018 there were no other significant transfers between Level 1 and Level 2.
For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discount
factor by 10% would result in a decrease of €12,134 thousand in their fair value and a decrease in the
discount factor by 10% would result in an increase of €5,263 thousand in their fair value.
For one investment included in debt securities mandatorily measured at FVPL as a result of the SPPI
assessment and categorised as Level 3 (Note 21) with a carrying amount of €13,569 thousand as at 31
December 2018, a change in the conversion factor by 10% would result in a change in the value of the debt
securities by €1,357 thousand.
2018
Liabilities measured at fair value
Trading derivatives
Forward exchange rate contracts
Currency swaps
Interest rate swaps
Currency options
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps
Net investments-forward exchange rate contracts
and currency swaps
Other financial liabilities not measured at
fair value
Deposits by banks
Repurchase agreements
Customer deposits
Subordinated loan stock
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
276,527
276,527
192
6,342
422
382
7,338
29,029
2,616
31,645
38,983
431,942
263,511
-
-
-
-
-
-
-
-
-
-
-
-
-
192
6,342
422
382
7,338
29,029
2,616
31,645
38,983
431,942
263,511
16,849,222
16,849,222
-
276,527
695,453
16,849,222
17,821,202
The cash and balances with central banks and the funding from central banks are financial instruments
whose carrying value is a reasonable approximation of fair value, because they are mostly short-term in
nature or are repriced to current market rates frequently. The carrying value of other financial assets and
other financial liabilities and assets classified as held for sale is a close approximation of their fair value and
they are categorised as Level 3.
158
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement (continued)
Movements in Level 3 assets measured at fair value
Transfers from Level 3 to Level 2 occur when the market for some securities becomes more liquid, which eliminates the need for the previously required
significant unobservable valuation inputs. Following a transfer to Level 2 the instruments are valued using valuation models incorporating observable market
inputs. Transfers into Level 3 reflect changes in market conditions as a result of which instruments become less liquid. Therefore, the Group requires significant
unobservable inputs to calculate their fair value.
The movement in Level 3 assets which are measured at fair value is presented below:
Investment
properties
€000
Investment
properties
held for sale
€000
Own use
properties
€000
Own use
properties
held for sale
€000
Loans and
advances to
customers
€000
Financial
instruments
€000
Investment
properties
(restated)
€000
Investment
properties
held for sale
€000
Own use
properties
€000
Own use
properties
held for sale
€000
Loans and
advances to
customers
€000
2019
2018
128,006
152,348
236,405
88,022
395,572
23,146
174,089
6,500
239,559
1 January
Additions
Disposals
Transfers from/(to) stock of property
(Note 28)
Transfers (to)/from non-current assets
and disposal group held for sale
Transfers to Level 2
Net gains from fair value changes
recognised in the consolidated
statement of other comprehensive
income
Depreciation charge for the year
Fair value (losses)/gains
Net gains on loans and advances to
customers measured at FVPL
(Note 12)
Repayments of loans
Interest on loans
Foreign exchange adjustments
31 December
20,669
-
1,719
-
(13,909)
(152,348)
-
(88,022)
1,006
-
-
-
-
(302)
-
-
-
727
136,197
-
-
-
-
-
-
-
-
-
-
-
(234)
-
-
-
(2,613)
-
-
-
-
-
235,277
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,529
(473)
125,852
(5,670)
-
(6,500)
2,739
-
-
-
84,744
-
-
-
-
(152,298)
152,298
(88,022)
88,022
-
-
(22)
-
-
-
-
-
-
-
-
9,327
(13,325)
50
-
-
(2,614)
-
-
-
-
(1)
-
-
-
-
-
-
-
-
2,891
(44,860)
15,690
-
-
-
-
-
-
-
-
(642)
-
-
-
-
Financial
instruments
€000
22,621
-
-
-
-
-
525
-
-
-
-
-
-
389,862
35,601
-
-
-
-
-
-
-
16,125
(62,809)
16,793
-
369,293
38,507
128,006
152,348
236,405
88,022
395,572
23,146
Further details on investment properties restatement is presented in Note 2.2.1.
159
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement (continued)
Valuation policy and sensitivity analysis
Investment properties, investment properties held for sale and own use properties
The valuation technique mainly applied by the Group is the market comparable approach, adjusted for
market and property specific conditions. In certain cases, the Group also utilises the income capitalisation
approach. The key inputs used for the valuations of the investment properties, investment properties held
for sale and own use properties are presented in the tables below.
160
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of investment properties and investment properties held for sale
Type and country
Residential
Cyprus
Greece
Russia
Offices and other commercial
properties
Cyprus
Greece
Russia
Manufacturing and industrial
Cyprus
Greece
Russia
Hotels
Russia
Land (fields and plots)
Cyprus
Greece
Russia
Total
Estimated
rental value
per m2 per
annum
2019
€000
Rent growth
per annum
Estimated
building cost
per m2
Yield
Estimated fair
value per m2
Estimated
land value per
m2
14,375
€32-€104
n/a
€131-€1,370
5.5% €380-€1,925
€110-€1,110
€3-€84
0.9%-5.9% €134-€2,186
0%-15.6%
€45-€2,186
€3-€2,763
Land
Building area
m2
71-1,203
4-5,147
m2
8-1,356
44-825
4,835
631
19,841
53,086
4,885
1,081
59,052
26,646
9,736
512
36,894
1,701
18,155
56
498
18,709
136,197
n/a
n/a
€225-€633
n/a
€51-€297
€9-€38
800-1,573
198-1,186
€11-€500
€12-€239
n/a
€25-€67
€4-€39
n/a
n/a
n/a
€1
n/a
n/a
€250-€900
5%-9% €120-€8,921
€120-€2,000
140-35,413
25-9,423
0.7%-2.9% €151-€3,400
0%-9.3%
€71-€3,400
€25-€106
282-8,582
6-4,087
n/a
€26-€461
n/a
€23-€461
€3-€93
1,460-5,545
261-3,288
n/a
€278-€765
6%-6.5% €120-€1,484
€60-€550
2,202-15,965
744-7,180
0.9%-2.9%
€84-€1,318
0%-11%
€13-€416
€3-€10
57-34,495
349-5,858
n/a
€11-€475
n/a
€8-€247
€7-€115
2,162-29,538
304-8,874
n/a
€360
n/a
€360
n/a
n/a
7,436
n/a €1,000-€1,250
n/a
€538-€1,028
€538-€1,028
2,316-29,398
0.9%
n/a
n/a
n/a
5.4%
n/a
€14
€14
3,988
€1-€18
€1-€18
58,600-300,000
n/a
n/a
n/a
161
Age of
building
Years
5-104
11-65
n/a
6-85
15-61
n/a
12-35
10-81
11-32
14
n/a
n/a
n/a
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of own use properties
Type and country
2019
Offices and other commercial
properties
Cyprus
Total
€000
235,277
235,277
Estimated
rental value
per m2 per
annum
Rent growth
per annum
Estimated
building
cost per m2
Yield
Estimated
fair value
per m2
Estimated
land value
per m2
Land
Building
area
Age of
building
m2
m2
Years
€26-€277
n/a €821-€1,895
5%-6% €14-€6,557 €140-€3,381
390-598,767 122-11,233
12-77
162
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of investment properties and investment properties held for sale
Type and country
Residential
Cyprus
Greece
Russia
Estimated
rental value
per m2 per
annum
2018
(restated)
€000
13,882
€32-€104
3,683
1,041
18,606
€3-€84
n/a
Rent growth
per annum
Estimated
building
cost per m2
Yield
Estimated
fair value
per m2
Estimated
land value
per m2
Land
Building
area
Age of
building
n/a €131-€1,370
n/a €134-€2,186
n/a €380-€1,925 €110-€1,110
n/a €45-€2,186 €30-€2,763
m2
71-1,203
4-5,147
m2
8-1,356
44-825
n/a €196-€2,020
n/a €45-€2,020
€8-€114
800-6,087
102-719
Offices and other commercial properties
Cyprus
205,319
Greece
Russia
Manufacturing and industrial
Cyprus
Greece
Russia
Hotels
Russia
Land (fields and plots)
Cyprus
Russia
Total
6,589
683
212,591
21,030
6,695
452
28,177
2,465
17,780
735
18,515
280,354
€54-€353
€12-€239
n/a
n/a
5%-9% €120-€5,208
n/a
140-35,413
25-24,094
n/a €151-€3,400
n/a €71-€3,400
€25-€106
282-8,582
6-4,087
n/a
n/a
€175-€485
n/a
€47-€198
€26-€161
256-3,498
154-1,644
n/a
€4-€39
n/a
n/a
€278-€765
n/a €84-€1,318
n/a
€64-€153
n/a €120-€1,484
€60-€550
2,202-15,695
744-7,180
n/a
n/a
€13-€416
€3-€10
57-34,495
349-5,858
€12-€153
€3-€21
5,220-29,538
304-8,874
n/a
n/a
n/a
n/a
€318
n/a
€318
n/a
n/a
7,436
13
n/a
n/a
n/a €370-€1,028
2,316-21,053
€1-€33
€1-€33
300-58,600
n/a
n/a
n/a
n/a
n/a
n/a
€1,000-
€1,200
n/a
163
Years
4-103
10-64
n/a
14-34
14-60
n/a
11-34
9-80
9-30
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
23.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of own use properties and own use properties held for sale
Type and country
2018
Offices and other commercial
properties
Cyprus
Total
€000
324,427
324,427
Estimated
rental value
per m2 per
annum
Rent growth
per annum
Estimated
building
cost per m2
Yield
Estimated
fair value
per m2
Estimated
land value
per m2
Land
Building
area
Age of
building
m2
m2
Years
€26-€277
n/a €821-€1,895
5%-6% €19-€6,557 €70-€3,381
390-598,767 122-31,000
1-78
Sensitivity analysis
Most of the Group’s property valuations have been classified as Level 3. Significant increases/decreases in estimated values per square meter for properties
valued with the comparable approach or significant increases/decreases in estimated rental values or yields for properties valued with the income capitalisation
approach could result in a significantly higher/lower fair value of the properties.
164
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
24.
Loans and advances to customers
Gross loans and advances to customers at amortised cost
Allowance for ECL for impairment of loans and advances to customers
(Note 46.9)
Loans and advances to customers measured at FVPL
2019
€000
12,008,146
2018
€000
12,430,367
(1,655,598)
(1,904,153)
10,352,548
10,526,214
369,293
395,572
10,721,841
10,921,786
Loans and advances to customers pledged as collateral are disclosed in Note 48.
Additional analysis and information regarding credit risk and analysis of the allowance for ECL of loans and
advances to customers are set out in Note 46.
25.
Life insurance business assets attributable to policyholders
Equity securities
Debt securities
Mutual funds
Bank deposits and other receivables
Property
2019
€000
1,162
39,418
360,692
45,900
447,172
11,680
458,852
2018
€000
1,025
43,952
311,892
31,876
388,745
13,820
402,565
Financial assets of life insurance business attributable to policyholders are classified as investments at FVPL.
Bank deposits and other receivables include other financial receivable of €3,128 thousand (2018: €2,909
thousand).
In addition to the above assets, the life insurance subsidiary of the Group holds shares of the Company, as
part of the assets attributable to policyholders with a carrying value as at 31 December 2019 of €167
thousand (2018: €215 thousand). Such shares are presented in the Consolidated Financial Statements as
treasury shares (Note 36).
165
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
25.
Life insurance business assets attributable to policyholders (continued)
The analysis of the financial assets of life insurance business attributable to policyholders measured at fair
value by level, is presented below:
2019
Equity securities
Debt securities
Mutual funds
2018 (restated)
Equity securities
Debt securities
Mutual funds
Level 1
€000
Level 3
€000
1,162
17,157
357,307
375,626
1,025
19,065
308,290
328,380
-
22,261
3,385
25,646
-
24,887
3,602
28,489
Total
€000
1,162
39,418
360,692
401,272
1,025
43,952
311,892
356,869
Bank deposits are financial instruments whose carrying amount is a reasonable approximation of fair value,
because they are short-term in nature or are repriced to current market rates frequently.
The movement of financial assets classified as Level 3 is presented below:
1 January
Additions
Unrealised losses recognised in the consolidated income statement
31 December
2019
€000
28,489
-
(2,843)
25,646
2018
(restated)
€000
26,348
3,000
(859)
28,489
During years 2019 and 2018 there were no significant transfers between Level 1 and Level 2.
Debt securities of carrying value €24,887 and €3,329 thousand originally classified as level 2 and level 1
respectively as at 31 December 2018 were reclassified to level 3 due to the use of significant unobservable
inputs in their fair valuation (Note 2.38).
166
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
26.
Property and equipment
2019
Net book value at 1 January
Recognition of RoU asset upon adoption of IFRS 16 (Note 6)
Balance at 1 January following adoption of IFRS 16
Additions
Transfers to stock of property (Note 28)
Transfers from non-current assets and disposal group held
for sale
Disposals and write-offs
Property
€000
Equipment
€000
238,889
37,474
276,363
4,600
(234)
-
(723)
Total
€000
260,723
37,474
298,197
11,136
(234)
93
21,834
-
21,834
6,536
-
93
(296)
(1,019)
Depreciation charge for the year (Note 16)
(12,322)
(7,796)
(20,118)
Foreign exchange adjustments
Net book value at 31 December
-
(1)
(1)
267,684
20,370
288,054
1 January 2019
Cost or valuation
Accumulated depreciation
Net book value
31 December 2019
Cost or valuation
Accumulated depreciation
Net book value
277,206
(38,317)
238,889
138,767
415,973
(116,933)
(155,250)
21,834
260,723
317,994
(50,310)
267,684
140,681
458,675
(120,311)
(170,621)
20,370
288,054
167
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
26.
Property and equipment (continued)
2018
Net book value at 1 January
Additions
Transfers from stock of property (Note 28)
Transfer to non-current assets and disposal group held for
sale
Disposals and write-offs
Disposal of subsidiary (Note 53.4.1)
Depreciation charge for the year - continuing operations
(Note 16)
Depreciation charge for the year - discontinued operations
Impairment charge for the year (Note 17)
Foreign exchange adjustments
Net book value at 31 December
1 January 2018
Cost or valuation
Accumulated depreciation
Net book value
31 December 2018
Cost or valuation
Accumulated depreciation
Net book value
The net book value of the Group's property comprises:
Freehold property
Improvements on leasehold property
RoU asset (Note 44)
Total
Property
€000
Equipment
€000
257,360
4,460
84,744
(88,022)
-
22,454
9,132
-
(110)
(37)
Total
€000
279,814
13,592
84,744
(88,132)
(37)
(16,073)
(1,151)
(17,224)
(3,320)
(252)
-
(8)
(7,792)
(11,112)
(652)
(11)
1
(904)
(11)
(7)
238,889
21,834
260,723
293,664
(36,304)
257,360
149,263
442,927
(126,809)
(163,113)
22,454
279,814
277,206
(38,317)
238,889
138,767
415,973
(116,933)
(155,250)
21,834
260,723
2019
€000
235,277
2,019
30,388
2018
€000
236,405
2,484
n/a
267,684
238,889
Freehold property includes land amounting to €92,471 thousand (2018: €92,471 thousand) for which no
depreciation is charged.
The Group’s policy is to revalue its properties periodically (between 3 to 5 years) but more frequent
revaluations may be performed where there are significant and volatile movements in values. The Group
performed revaluations as at 31 December 2017. The valuations were carried out by independent qualified
valuers, on the basis of market value using observable prices and/or recent market transactions depending
on the location of the property. Details on valuation techniques and inputs are presented in Note 23.
As at 31 December 2019 there are charges against freehold property of the Group with carrying value
€20,879 thousand (2018: €20,711 thousand).
The net book value of freehold property, on a cost less accumulated depreciation basis, as at 31 December
2019 would have amounted to €179,501 thousand (2018: €180,340 thousand).
168
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
27.
Intangible assets
2019
Net book value at 1 January
Additions
Increase in value of in-force life insurance business
(Note 13)
Disposals and write-offs
Amortisation charge for the year (Note 16)
Computer
software
€000
In-force life
insurance
business
€000
54,978
23,684
-
(188)
(16,161)
115,433
-
1,200
-
-
Total
€000
170,411
23,684
1,200
(188)
(16,161)
Net book value at 31 December
62,313
116,633
178,946
1 January 2019
Cost
Accumulated amortisation and impairment
Net book value
31 December 2019
Cost
Accumulated amortisation and impairment
Net book value
2018
Net book value at 1 January
Additions
Transfers to non-current assets and disposal group held for
sale
Decrease in value of in-force life insurance business (Note
13)
Disposals and write-offs
Disposals of subsidiaries (Note 53.4.1)
Amortisation charge for the year - continuing operations
Amortisation charge for the year - discontinuing operations
Foreign exchange adjustments
Net book value at 31 December
1 January 2018
Cost
Accumulated amortisation and impairment
Net book value
31 December 2018
Cost
Accumulated amortisation and impairment
Net book value
169
186,196
(131,218)
115,433
301,629
-
(131,218)
54,978
115,433
170,411
209,692
(147,379)
116,633
326,325
-
(147,379)
62,313
116,633
178,946
Computer
software
€000
45,205
27,006
(20)
In-force life
insurance
business
€000
120,747
-
-
-
(5,314)
(1,784)
(1,883)
(13,217)
(325)
(4)
-
-
-
-
-
Total
€000
165,952
27,006
(20)
(5,314)
(1,784)
(1,883)
(13,217)
(325)
(4)
54,978
115,433
170,411
169,612
(124,407)
120,747
290,359
-
(124,407)
45,205
120,747
165,952
186,196
(131,218)
115,433
301,629
-
(131,218)
54,978
115,433
170,411
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
27.
Intangible assets (continued)
Valuation of in-force life insurance business
The actuarial assumptions made to determine the value of in-force life insurance business relate to future
mortality, redemptions, level of administration and selling expenses and investment returns. The main
assumptions used in determining the value of the in-force business are:
Discount rate (after tax)
Return on investments
Expense inflation
28.
Stock of property
2019
10.0%
5.0%
3.5%
2018
10.0%
5.0%
3.5%
The carrying amount of stock of property is determined as the lower of cost and net realisable value.
Impairment is recognised if the net realisable value is below the cost of the stock of property. During 2019
an impairment loss of €25,294 thousand (2018: €17,272 thousand) was recognised in 'Impairment of non-
financial assets' in the consolidated income statement. At 31 December 2019, stock of €310,573 thousand
(2018 restated: €362,794 thousand) is carried at net realisable value which is approximately the fair value
less costs to sell.
The stock of property includes residential properties, offices and other commercial properties,
manufacturing and industrial properties, hotels, land (fields and plots) and properties under construction.
There is no stock of property pledged as collateral for central bank funding facilities under Eurosystem
monetary policy operations.
During 2019, the Group changed the classification for properties which are leased out under operating
leases as detailed in Note 2.2.1. The comparative note below is restated in accordance with the new
classification policy.
The carrying amount of the stock of property is analysed in the tables below:
Net book value at 1 January
Additions
Disposals
Transfers (to)/from investment properties (Note 23)
Transfers of stock of property of Serbian entities to non-current assets held
for sale
Transfers from/(to) own use properties (Note 26)
Transfers to disposal group 1 (Note 30)
Impairment (Note 17)
Foreign exchange adjustments
Net book value at 31 December
2019
€000
1,426,857
2018
(restated)
€000
1,486,979
176,688
306,498
(193,526)
(190,688)
(1,006)
(2,427)
234
(3,816)
(25,294)
(257)
-
-
(84,744)
(73,899)
(17,272)
(17)
1,377,453
1,426,857
There were no costs of construction during the year ended 31 December 2019.
Additions during the year 2018 include costs of construction of €31,860 thousand.
170
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
28.
Stock of property (continued)
The table below shows the result on the disposal of stock of property in the year:
Net proceeds
Carrying value of stock of property disposed of (excluding stock of property
held by subsidiary disposed of)
Net gains on disposal of stock of property
2019
€000
219,478
2018
(restated)
€000
221,125
(193,526)
(190,688)
25,952
30,437
Analysis by type and country
2019
Residential properties
Offices and other commercial properties
Manufacturing and industrial properties
Hotels
Land (fields and plots)
Total
2018 (restated)
Residential properties
Offices and other commercial properties
Manufacturing and industrial properties
Hotels
Land (fields and plots)
Properties under construction
Total
Cyprus
€000
Greece
€000
Romania
€000
1,292,867
75,847
8,739
1,377,453
2,828
917,094
€000
€000
€000
167,330
147,568
46,703
24,286
906,980
21,300
24,013
22,754
494
7,286
150,106
179,822
54,188
34,840
897,020
678
20,855
33,283
36,212
484
7,546
-
Total
€000
188,746
177,326
69,507
24,780
€000
171,274
220,506
90,898
35,324
116
5,745
50
-
313
7,401
498
-
3,611
908,177
-
678
1,316,654
98,380
11,823
1,426,857
29.
Prepayments, accrued income and other assets
Financial assets
Receivables relating to disposal of operations, loan portfolios and other
assets
Debtors
Receivable relating to tax
Other assets
Non financial assets
Reinsurers’ share of insurance contract liabilities (Note 33)
Current tax receivable
Prepaid expenses
Other assets
171
2019
€000
2018
€000
53,354
39,663
5,102
48,477
85,606
30,671
12,329
15,775
146,596
144,381
50,609
10,335
1,256
35,134
97,334
243,930
48,348
2,308
8,658
52,307
111,621
256,002
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
29.
Prepayments, accrued income and other assets (continued)
An analysis of changes in the gross carrying amount of the financial assets included in prepayments,
accrued income and other assets is presented in the table below:
2019
1 January
Net increase/(decrease)
31 December
2018
1 January
New assets acquired
Net increase/(decrease)
31 December
Stage 1
Stage 2
Stage 3
€000
€000
€000
80,865
21,233
102,098
30,846
(7,067)
23,779
31,323
2,401
33,724
Simplified
method
€000
14,856
(659)
Total
€000
157,890
15,908
14,197
173,798
36,282
38,173
14,485
25,032
54,760
1,073
80,865
-
(5,436)
30,846
-
(6,850)
31,323
-
371
113,972
54,760
(10,842)
14,856
157,890
An analysis of the changes on the ECL of the above financial assets is presented in the table below:
2019
1 January
Changes to models and inputs
used for ECL calculations
31 December
2018
1 January
Impact of adopting IFRS 9 at
1 January 2018
Restated balance at 1 January
Changes to models and inputs
used for ECL calculations
31 December
Stage 1
Stage 2
Stage 3
€000
€000
€000
Simplified
method
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,022
9,442
28,464
14,923
-
14,923
4,099
19,022
912
68
980
-
576
576
336
912
Total
€000
19,934
9,510
29,444
14,923
576
15,499
4,435
19,934
Financial assets include €2,242 thousand (2018: €6,425 thousand) measured at FVPL.
As at 31 December 2019, the remaining receivable relating to the disposal of operations in the UK amounts
to €29,575 thousand (2018: €54,760 thousand). Half of the consideration was received upon completion of
the transaction, an amount was repaid in November 2019 and the remaining is receivable in November
2020, without any performance conditions attached. The receivable relating to the disposal of the Ukrainian
operations in 2014, amounted to €23,779 thousand (2018: €30,846 thousand) and the deferred
consideration was due to be paid to BOC PCL under a repayment programme which had been extended from
June 2019 to December 2022. The receivable was fully secured. The receivable was repaid in February
2020.
During 2019, credit losses of €5,384 thousand were recognised in relation to prepayments, accrued income
and other assets. This includes ECL losses of €9,510 thousand and net reversal of impairments amounting
to €4,126 thousand. During 2018 credit losses amounted to €8,056 thousand, which includes ECL of €4,435
thousand and €3,621 thousand write-offs (Note 17).
172
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
30.
Non-current assets and disposal groups held for sale
Non-current assets and disposal groups held for sale
The following non-current assets and disposal groups were classified as held for sale as at 31 December
2019 and 2018:
Disposal group 1
Disposal group 2
Disposal group 3
Disposal group 4
Other exposures held by Serbian subsidiary
Investment properties held for sale
Gross loans and advances to customers
Allowance for ECL for impairment of loans and advances to customers
(Note 46.9)
Stock of property
31 December
2019
€000
-
-
-
25,929
288
-
2018
€000
1,228,007
151,248
89,683
-
-
1,100
26,217
1,470,038
2019
Disposal
Group 4
€000
173,881
2018
Disposal
Group 1
€000
2,711,960
(147,952)
(1,557,852)
25,929
1,154,108
-
73,899
25,929
1,228,007
Non-current labilities and disposal groups held for sale
The liabilities amounting to €5,812 thousand relate to disposal group 3 and represent other liabilities.
Disposal group 1
As at 31 December 2018 Disposal group 1 comprised of a portfolio of loans and advances to customers (the
Portfolio) and stock of property (known as 'Project Helix' or the 'Transaction') and a portfolio of loans and
advances to customers known as 'Velocity'. During 2019, the Group disposed of the Portfolio through the
transfer of the Portfolio by BOC PCL to a licensed Cypriot Credit Acquiring Company (the ‘CyCAC’). The
shares of the CyCAC were subsequently acquired by certain funds affiliated with Apollo Global Management
LLC (together with its consolidated subsidiaries 'Apollo', the purchaser of the Portfolio). Funds managed by
Apollo provided equity capital in relation to the financing of the purchase of the Portfolio.
BOC PCL received consideration of c.€1,186 million on completion, reflecting adjustments resulting from,
inter alia, loan repayments received on the Portfolio since the reference date of 31 March 2018, of which
€45 million concern the BOC PCL participation in the senior debt issued to finance the transaction. As at the
date of the completion of the sale, the Portfolio included loans and advances to customers of gross book
value amounting to €2,631 million (net book value €1,054 million) and stock of properties with carrying
value amounting to €109 million. In June 2019 the Group has derecognised the disposed portfolio relating
to Project Helix. During the year up until the completion date, the Group recorded credit losses on loans and
advances to customers of €16 million and net interest income of €34 million in relation to Disposal Group 1.
In addition, during June 2019 the Group disposed of the portfolio of project 'Velocity'. The portfolio of
project Velocity comprised of gross loans and advances to customers amounting to €30 million with net
book value of €4 million and the net proceeds amounted to €4 million. The Group has derecognised the
disposed portfolio relating to Project Velocity as of 30 June 2019.
173
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
30.
Non-current assets and disposal groups held for sale (continued)
Disposal group 2
In June 2019 BOC PCL disposed of its entire holding of 88.2% in the investment shares of Cyreit Variable
Capital Investment Company PLC (Cyreit). Cyreit is the holding company of a group of companies which
holds and manages investment properties. As at 31 December 2018, the relevant properties with associate
assets and liabilities were classified as a disposal group.
The investment properties held within the disposal group were measured at fair value up to the date of
disposal. The results of the fair value changes and the impact on disposal are presented within ‘Net losses
from revaluation and disposal of investment properties’ in the consolidated income statement and are within
the Cyprus operating segment since the investment properties are in Cyprus. Further information is
presented in Note 53.2.1.
Disposal group 3
The disposal group 3 related to the subsidiary Nicosia Mall Holdings (NMH) Limited and its subsidiaries
(NMH group) which are involved in the construction and management of the Nicosia Mall. It was disposed of
during December 2019. Further information is presented in Note 53.2.2. It was classified as a disposal
group held for sale as at 31 December 2018, as management was committed to sell and had proceeded
with an active programme to complete this plan.
Disposal group 4
Disposal group 4 comprises loans and advances to customers of projects Velocity 2 and Helix tail as further
analysed below. The disposal group has been classified as held for sale as management is committed to sell
it and has proceeded with an active programme to complete this plan. The plan is expected to be completed
within 12 months from the classification date.
Velocity 2 relates to a portfolio of unsecured loans and advances to customers with a net book value of
€13,931 thousand. The disposal is expected to be completed by the end of the second quarter of 2020.
Helix tail includes a portfolio of credit facilities related to Helix and its carrying value amounts to €11,998
thousand. The disposal is expected to be completed within the second quarter of 2020.
Further analysis of the loans and advances to customer's portfolio, which is included in this disposal group,
is disclosed in Note 46.7.
Other exposures held by Serbian subsidiary
The portfolio held by Serbian subsidiary related to loans with collaterals in Serbia and properties in Serbia.
It was disposed of in August 2019 except for two properties with a carrying value of €288 thousand as at 31
December 2019. These properties are still classified as non-current assets held for sale and are expected to
be disposed of during 2020.
Investment properties
The investment properties classified as held for sale as at 31 December 2018 were properties which
management was committed to sell and had proceeded with an active programme to complete this plan.
The disposals were completed during 2019. Investment properties classified as held for sale were measured
at fair value. The results of the fair value changes were presented within ‘Net losses from revaluation and
disposal of investment properties’ in the consolidated income statement and were within the Cyprus
operating segment since these investment properties were in Cyprus.
31.
Funding from central banks
Funding from central banks comprises funding from the ECB under Eurosystem monetary policy operations
as set out in the table below:
Targeted Longer-Term Refinancing Operations (TLTRO II)
2019
€000
2018
€000
-
830,000
174
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
31.
Funding from central banks (continued)
As at 31 December 2018, ECB funding was at €830 million that was borrowed from the 4-year TLTRO II.
ECB funding was fully repaid in September 2019.
The interest rate applied to TLTRO II is fixed for each operation at the rate applied in the Main Refinancing
Operations (MRO) prevailing at the time of allotment and is subject to a lower rate for counterparties whose
eligible net lending in the pre-specified period exceeds their benchmark. The interest rate applicable to the
amount borrowed by BOC PCL under the TLTRO II transactions was 0% as eligible net lending in the pre-
specified period did not exceed the benchmark.
Details on encumbered assets related to the above funding facilities are disclosed in Note 48.
32.
Customer deposits
By type of deposit
Demand
Savings
Time or notice
By geographical area
Cyprus
By currency
Euro
US Dollar
British Pound
Russian Rouble
Swiss Franc
Other currencies
2019
€000
2018
(restated)
€000
7,595,231
1,567,344
7,528,956
6,708,852
1,352,452
8,782,254
16,691,531
16,843,558
16,691,531
16,843,558
15,009,828
14,961,025
1,286,292
288,289
30,113
10,803
66,206
1,482,867
292,640
25,529
7,994
73,503
16,691,531
16,843,558
175
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
32.
Customer deposits (continued)
By customer sector
Corporate
Global corporate
SMEs
Retail
Restructuring
– Corporate
– SMEs
– Retail other
Recoveries
– Corporate
International banking services
Wealth management
2019
€000
1,117,222
691,550
770,655
2018
(restated)
€000
1,122,465
628,052
800,671
10,140,920
10,032,047
52,421
28,222
10,507
69,180
29,299
16,773
6,140
3,543,315
330,579
6,492
3,707,713
430,866
16,691,531
16,843,558
Deposits by geographical area are based on the originator country of the deposit.
Comparative information was restated due to the reorganisational change in BOC PCL and the set-up of
Global corporate. Deposits amounting to €628,052 thousand were restated out of Corporate into Global
corporate. (Note 2.38 and Note 7).
As at 31 December 2018 customer deposits denominated in Romanian Lei amounting to €443 thousand
were previously separately presented in the analysis by currency. In the current year the table was restated
to include this amount within 'Other currencies' for both 2019 and 2018.
33.
Insurance liabilities
Life insurance
Life insurance
contract
liabilities
Non-life
insurance
Provision for
unearned
premiums
Other liabilities
Claims
outstanding
Unexpired risks
reserve
Non-life
insurance
contract
liabilities
2019
2018
Gross
€000
Reinsurers' share
€000
Net
€000
Gross
€000
Reinsurers' share
€000
Net
€000
579,128
(28,625)
550,503
531,640
(27,601)
504,039
26,656
(9,728)
16,928
25,962
(9,475)
16,487
34,155
(12,256)
21,899
33,397
(11,272)
22,125
74
-
74
58
-
58
60,885
640,013
(21,984)
(50,609)
38,901
59,417
589,404
591,057
(20,747)
(48,348)
38,670
542,709
Reinsurers' share of insurance contract liabilities and other reinsurance balances receivable are included in
'Prepayments, accrued income and other assets' (Note 29).
176
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
33.
Insurance liabilities (continued)
Life insurance contract liabilities
The movement of life insurance contract liabilities and reinsurance assets during the year is analysed as
follows:
Gross
€000
531,640
11,045
36,443
579,128
1 January
New business
Change in
existing
business
31 December
2019
Reinsurers'
share
€000
Net
€000
(27,601)
(1,128)
504,039
9,917
2018
Gross
Reinsurers' share
€000
546,887
13,633
€000
(27,608)
(1,275)
104
36,547
(28,880)
(28,625)
550,503
531,640
1,282
(27,601)
Net
€000
519,279
12,358
(27,598)
504,039
Non-life insurance contract liabilities
The movement in non-life insurance contract liabilities and reinsurance assets for the year is analysed as
follows:
Gross
2019
Reinsurers'
share
Net
Gross
Reinsurers' share
Net
2018
€000
€000
€000
€000
€000
€000
25,962
76,075
(75,381)
26,656
(9,475)
(34,362)
34,109
(9,728)
16,487
41,713
24,151
72,912
(41,272)
(71,101)
16,928
25,962
(8,879)
(32,128)
31,532
(9,475)
15,272
40,784
(39,569)
16,487
Liabilities for
unearned
premium
1 January
Premium income
Earned
premiums
31 December
The provisions for unearned insurance and reinsurance premiums represent the portion of premiums that
relate to risks that have not yet expired at the reporting date.
Gross
€000
2019
Reinsurers'
share
€000
Net
€000
2018
Gross
Reinsurers' share
Net
€000
€000
€000
33,397
(11,272)
22,125
34,076
(11,513)
22,563
(33,922)
13,799
(20,123)
(34,516)
14,735
(19,781)
34,680
34,155
32,166
1,989
34,155
(14,783)
(12,256)
(11,379)
(877)
(12,256)
19,897
21,899
20,787
1,112
21,899
33,837
33,397
31,427
1,970
33,397
(14,494)
(11,272)
(10,395)
(877)
(11,272)
19,343
22,125
21,032
1,093
22,125
Claims
outstanding
1 January
Amount paid for
claims settled in
the year
Increase in
liabilities arising
from claims
31 December
Reported claims
Incurred but not
reported
31 December
177
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
34.
Subordinated loan stock
Subordinated Tier 2 Capital Note with
nominal value of €250 million
Contractual interest rate
2019
€000
2018
€000
9.25% up to 19 January 2022
272,170
270,930
BOC PCL maintains a Euro Medium Term Note (ΕΜΤΝ) Programme with an aggregate nominal amount up to
€4,000 million.
In January 2017, BOC PCL issued a €250 million unsecured and subordinated Tier 2 Capital Note (the Note)
under BOC PCL’s EMTN Programme. The Note was priced at par with a coupon of 9.25% per annum payable
annually up to 19 January 2022 and then a rate at the then prevailing 5-year swap rate plus a margin of
9.176% per annum up to 19 January 2027, payable annually. The Note matures on 19 January 2027. BOC
PCL has the option to redeem the Note early on 19 January 2022, subject to applicable regulatory consents.
The Note is listed on the Luxembourg Stock Exchange’s Euro Multilateral Trading Facility (MTF) market. The
fair value as at 31 December 2019 is disclosed in Note 23.
35.
Accruals, deferred income, other liabilities and other provisions
Income tax payable and related provisions
Special defence contribution payable
Retirement benefit plans liabilities (Note 15)
Provisions for financial guarantees and commitments (Notes 46.8.1 and
46.8.2)
Liabilities for investment-linked contracts under administration
Accrued expenses and other provisions
Deferred income
Items in the course of settlement
Lease liabilities (Note 44)
Other liabilities
2019
€000
2018
€000
5,025
2,065
9,212
22,112
9,237
89,620
13,611
49,975
29,704
93,685
324,246
14,568
4,270
8,777
27,685
2,971
72,702
18,869
47,958
-
87,683
285,483
The ECL allowance for financial guarantees and commitments is analysed by stage in the table below:
Stage 1
Stage 2
Stage 3
2019
€000
2018
€000
51
157
21,904
22,112
1,314
2,593
23,778
27,685
178
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
36.
Share capital
Authorised
2019
2018
Number of
shares
(thousand)
€000
Number of
shares
(thousand)
€000
Ordinary shares of €0,10 each
10,000,000
1,000,000
10,000,000
1,000,000
Issued
1 January and 31 December
446,200
44,620
446,200
44,620
Authorised and issued share capital
All issued ordinary shares carry the same rights.
There were no changes to the authorised or issued share capital during the year ended 31 December 2019
and during the year ended 31 December 2018.
Share premium reserve
2019
There were no changes to the share premium reserve during the year ended 31 December 2019.
2018
The Annual General Meeting of the shareholders of the Company held in August 2018 approved a reduction
of up to €1.5 billion of the Company's share premium to eliminate the Company's accumulated losses and
create distributable reserves (retained earnings). This was approved by the Irish High Court pursuant to
sections 85(1) of the Companies Act on 13 December 2018.
Treasury shares of the Company
Shares of the Company held by entities controlled by the Group are deducted from equity on the purchase,
sale, issue or cancellation of such shares. No gain or loss is recognised in the consolidated income
statement. Following the restructuring of the Group and the introduction of the Company as the new holding
company of the Group, the shares held by the life insurance subsidiary were cancelled and New Shares of
the Company were issued.
The life insurance subsidiary of the Group, as at 31 December 2019, held a total of 142 thousand ordinary
shares of the Company of a nominal value of €0.10 each (2018: 142 thousand ordinary shares of a nominal
value of €0.10 each), as part of its financial assets which are invested for the benefit of insurance
policyholders. The cost of acquisition of these shares was €21,463 thousand (2018: €21,463 thousand).
The treasury shares represent 0.03% of the total issued share capital of the Company (2018: 0.03%).
The Company did not provide financial assistance permitted by Section 82 of the Companies Act 2014 for
the purchase of its shares.
Share-based payments - share options
Following the incorporation of the Company and its introduction as the new holding company of the Group in
January 2017, the Long-Term Incentive Plan was replaced by the Share Option Plan which operates at the
level of the Company. The Share Option Plan is identical to the Long-Term Incentive Plan except that the
number of shares in the Company to be issued pursuant to an exercise of options under the Share Option
Plan should not exceed 8,922,945 ordinary shares of a nominal value of €0.10 each and the exercise price
was set at €5.00 per share. The term of the options was also extended to between 4-10 years after the
grant date.
179
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
36.
Share capital (continued)
Share-based payments - share options (continued)
No share options were granted since the date of replacement of the Long-Term Incentive Plan by the Share
Option Plan at the level of the Company and the Share Option Plan remains frozen. Any shares related to
the Share Option Plan carry rights with regards to control of the Company that are only exercisable directly
by the employee.
Other equity instruments
Reset Perpetual Additional Tier 1 Capital Securities
2019
€000
220,000
2018
€000
220,000
In December 2018 the Company issued €220 million Subordinated Fixed Rate Reset Perpetual Additional
Tier 1 Capital Securities (AT1). AT1 constitutes an unsecured and subordinated obligation of the Company.
The coupon is at 12.50% and is payable semi-annually. During the year ended 31 December 2019 two
coupon payments to AT1 holders were made of a total amount of €27,199 thousand and have been
recognised in retained earnings. The Company may elect to cancel any interest payment for an unlimited
period, on a non-cumulative basis, whereas it mandatorily cancels interest payment under certain
circumstances. AT1 is perpetual and has no fixed date for redemption but can be redeemed (in whole but
not in part) at the Company's option on the fifth anniversary of the issue date and each subsequent fifth
anniversary subject to the prior approval of the regulator. AT1 is listed on the Luxembourg Stock
Exchange's Euro Multilateral Trading Facility (MTF) market.
During the year ended 31 December 2018, the transaction costs, directly attributable to the issuance,
amounted to €2,458 thousand and have been recognised in retained earnings.
37.
Dividends
Based on the SREP decisions of prior years, the Company and BOC PCL were under a regulatory prohibition
for equity dividend distribution and therefore no dividends were declared or paid during years 2019 and
2018.
Following the 2019 SREP decision, the Company and BOC PCL are still under equity dividend distribution
prohibition. This prohibition does not apply if the distributions are made via the issuance of new ordinary
shares to the shareholders which are eligible as Common Equity Tier 1 capital.
No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company
and BOC PCL.
180
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
38.
Retained earnings/(accumulated losses)
For the purpose of dividend distribution, retained earnings determined at the Company level, are the only
distributable reserve.
Companies, tax resident in Cyprus, which do not distribute at least 70% of their profits after tax as defined
by the Special Defence Contribution Law during the two years after the end of the year of assessment to
which the profits refer, will be deemed to have distributed this amount as dividend. Special defence
contribution at 17% is payable on such deemed dividend distribution to the extent that the shareholders of
the Company at the end of the period of two years from the end of the year of assessment to which the
profits refer, are directly or indirectly Cyprus tax residents or individuals who are domiciled in
Cyprus. Deemed distribution does not apply in respect of profits that are directly or indirectly attributable to
shareholders that are non-Cyprus tax residents and individual shareholders who are not domiciled in
Cyprus.
The amount of this deemed dividend distribution is reduced by any actual dividend paid out of the profits of
the relevant year.
This special defence contribution is paid by the company on account of the shareholders. During 2019 and
2018 no special defence contribution on deemed dividend distribution was paid by the Company and by BOC
PCL.
39.
Fiduciary transactions
The Group offers fund management and custody services that result in holding or investing financial assets
on behalf of its customers. The Group is not liable to its customers for any default by other banks or
organisations. The assets under management and custody are not included in the consolidated balance
sheet of the Group unless they are placed with the Group. Total assets under management and custody at
31 December 2019 amounted to €1,320,195 thousand (2018: €1,244,908 thousand).
40.
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.
Apart from what is described below, the Group considers that none of these matters is material, either
individually or in aggregate. The Group has not disclosed an estimate of the potential financial effect on its
contingent liabilities arising from these matters where it is not practicable to do so because it is too early or
the outcome is too uncertain or, in cases where it is practicable, where disclosure could prejudice conduct of
the matters. Provisions have been recognised for those cases where the Group is able to estimate probable
losses. Where an individual provision is material, the fact that a provision has been made is stated. Any
provision recognised does not constitute an admission of wrongdoing or legal liability. While the outcome of
these matters is inherently uncertain, management believes that, based on the information available to it,
appropriate provisions have been made in respect of legal proceedings and regulatory matters as at 31
December 2019 and hence it is not believed that such matters, when concluded, will have a material impact
upon the financial position of the Group.
181
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
40.
Pending litigation, claims, regulatory and other matters (continued)
40.1
Pending litigation and claims
Investigations and litigation relating to securities issued by BOC PCL
A number of institutional and retail customers have filed various separate actions against BOC PCL alleging
that BOC PCL is guilty of misselling in relation to securities issued by BOC PCL between 2007 and 2011.
Remedies sought include the return of the money investors paid for these securities. Claims are currently
pending before the courts in Cyprus and in Greece, as well as the decisions and fines imposed upon BOC
PCL in related matters by Cyprus Securities and Exchange Commission (CySEC) and/or Hellenic Capital
Market Commission (HCMC).
The bonds and capital securities in respect of which claims have been brought are the following: 2007
Capital Securities, 2008 Convertible Bonds, 2009 Convertible Capital Securities (CCS) and 2011 Convertible
Enhanced Capital Securities (CECS).
BOC PCL is defending these claims, particularly with respect to institutional investors and retail purchasers
who received investment advice from independent investment advisors. In the case of retail investors, if it
can be documented that the relevant BOC PCL officers 'persuaded' them to proceed with the purchase
and/or purported to offer 'investment advice', BOC PCL may face significant difficulties. To date, a number
of cases have been tried in Greece. BOC PCL has appealed against any such cases which were not ruled in
its favour. The resolution of the claims brought in the courts of Greece is expected to take a number of
years. Also a small number of cases are being heard in Cyprus. Provision has been made based on
management's best estimate of probable outflows and based on advice of legal counsel.
In July 2019 the first capital securities case to reach the Areios Pagos (Supreme Court of Greece) has been
adjudged in favour of BOC PCL, ruling in effect that BOC PCL can rely on the defence of Frustration (i.e.
intervening event out of the control of BOC PCL, in this case BOC PCL’s resolution and recapitalisation
through the bail-in of deposits) to show that the risks associated with the sale of the capital securities
because of the consequences of the bail-in were unforeseeable.
The case will be retried by the Larissa District Court as per the direction of the Supreme Court, however the
ruling of the Supreme Court on this point is final and binding on lower courts and BOC PCL’s position
therefore is that BOC PCL will, most probably, win the case at the Larissa District Court.
In July 2018 the Nicosia District Court ruled in favour of BOC PCL in an action against BOC PCL by a capital
securities holder and rejected the claim to reimburse the plaintiff for alleged damages sustained from
investing in the capital securities of BOC PCL. In September 2018 judgement was issued by the District
Court of Larnaca against BOC PCL with respect to a capital securities case. The plaintiffs were seeking
compensation against BOC PCL (and others) for negligence/fraud/breach of statutory duty in selling to the
plaintiffs contingent convertible bonds. The court found in favour of the plaintiffs and against BOC PCL,
awarding damages plus interest and legal fees. BOC PCL has filed an appeal against this judgement.
In May 2019 and June 2019 the District Court of Nicosia issued the second and third judgements in favour
of BOC PCL relating to capital securities cases. The plaintiffs have filed appeals against both of these
judgements.
Bail-in related litigation
Depositors
A number of the BOC PCL's depositors, who allege that they were adversely affected by the bail in, filed
claims against BOC PCL and other parties (such as the CBC and the Ministry of Finance of Cyprus) including
against BOC PCL as the alleged successor of Laiki Bank on the grounds that, inter alia, the ‘Resolution Law
of 2013’ and the Bail-in Decrees were in conflict with the Constitution of the Republic of Cyprus and the
European Convention on Human Rights. They are seeking damages for their alleged losses resulting from
the bail-in of their deposits. BOC PCL is defending these actions.
182
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
40.
Pending litigation, claims, regulatory and other matters (continued)
40.1
Pending litigation and claims (continued)
Shareholders
Numerous claims were filed by shareholders in 2013 against the Government and the CBC before the
Supreme Court in relation to the dilution of their shareholding as a result of the recapitalisation pursuant to
the Resolution Law and the Bail-in Decrees issued thereunder. These proceedings sought the cancellation
and setting aside of the Bail-in Decrees as unconstitutional and/or unlawful and/or irregular. BOC PCL
appeared in these proceedings as an interested party to support the position that the cases should be
adjudicated upon in the context of private law. The Supreme Court ruled in these cases in October 2014
that the proceedings fall within private and public law and thus fall within the jurisdiction of the District
Courts.
As at the present date, both the Resolution Law and the Bail-in Decrees have not been annulled by a court
of law and thus remain legally valid and in effect. A number of actions for damages have been filed and are
still being filed with the District Courts of Cyprus alleging either the unconstitutionality of the Resolution
Law and the bail-in Decrees, or a misapplication of same by BOC PCL (as regards the way and methodology
whereby such Decrees have been implemented), or that BOC PCL failed to follow instructions promptly prior
to the bail-in coming into force. BOC PCL intends to contest all of these claims.
Legal position of the Group
All above claims are being vigorously disputed by the Group, in close consultation with the appropriate state
and governmental authorities. The position of the Group is that the Resolution Law and the Decrees take
precedence over all other laws. As matters now stand, both the Resolution Law and the Decrees issued
thereunder are constitutional and lawful, in that they were properly enacted and have not so far been
annulled by any court.
Provident fund case
In December 2015, the Bank of Cyprus Employees Provident Fund (the Provident Fund) filed an action
against BOC PCL claiming €70 million allegedly owed as part of BOC PCL's contribution by virtue of an
agreement with the union dated 31 December 2011. Based on facts currently known, it is not practicable at
this time for BOC PCL to predict the resolution of this matter, including the timing or any possible impact on
BOC PCL.
Employment litigation
Former senior officers of BOC PCL have instituted one claim for unfair dismissal and one claim for Provident
Fund entitlements against BOC PCL and Trustees of the Provident Fund. As at the present date one case had
been dismissed as filed out of time, but the plaintiff has subsequently filed a civil action in the District Court
on the same grounds as the previous case which was filed in the Labour Disputes Court. The Group does not
consider that these cases will have a material impact on its financial position.
Additionally, a number of former employees have filed claims against BOC PCL contesting entitlements
received relating to the various voluntary exit plans. As at the balance sheet date no judgement has been
issued in any of the said claims. The Group does not expect that these actions will have a material impact
on its financial position.
Swiss Francs loans litigation in Cyprus and UK
Α number of actions have been instituted against BOC PCL by borrowers who obtained loans in foreign
currencies (mainly Swiss Francs). The central allegation in these cases is that BOC PCL misled these
borrowers and/or misrepresented matters, in violation of applicable law. BOC PCL intends to contest such
proceedings. The Group does not expect that these actions will have a material impact on its financial
position.
UK property lending claims
BOC PCL is the defendant in certain proceedings alleging that BOC PCL is legally responsible for allegedly,
inter alia, advancing and misselling loans for the purchase by UK nationals of property in Cyprus. The
proceedings in the United Kingdom are currently stayed in order for the parties to have time to negotiate
possible settlements. The Group does not expect that these negotiations will lead to outflows for the Group.
183
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
40.
Pending litigation, claims, regulatory and other matters (continued)
40.1
Pending litigation and claims (continued)
Banking business cases
There is a number of banking business cases where the amounts claimed are significant. Management has
assessed the probability of loss as remote and does not expect any remote future outflows with respect to
these cases to have a material impact on the financial position of the Group. These cases primarily concern
allegations as to BOC PCL's standard policies and procedures allegedly resulting to damages and other
losses for the claimants.
Consumer Protection Service decision
The Consumer Protection Service (‘CPS’) has issued decisions against BOC PCL regarding unfair contract
terms and unfair commercial practices – decisions of the CPS (according to rulings of the Administrative
Court) are not binding but merely an expression of opinion. Against this decision, BOC PCL has filed an
application before the Administrative Court which has not yet issued its judgement. In March 2020 BOC PCL
has been served with an application by the director of CPS through the Attorney General seeking for an
order of the court, with immediate effect, the result of which will be for the BOC PCL to cease the use of a
number of unfair terms in the contracts of BOC PCL. The said terms relate to contracts that had been signed
during 2006-2007. Furthermore the said application seeks for an order ordering BOC PCL to undertake
measures to remedy the situation. BOC PCL will take all necessary steps for the protection of its interests.
General criminal investigations and proceedings
The Attorney General and the Cypriot Police (the Police) are conducting various investigations and inquiries
following and relating to the financial crisis which culminated in March 2013. BOC PCL is cooperating fully
with the Attorney General and the Police and is providing all information requested of it. Based on the
currently available information, the Group is of the view that any further investigations or claims resulting
from these investigations will not have a material impact on its financial position.
In January 2017 the Attorney General had filed a criminal case against a number of current and former
officers of BOC PCL relating to the reclassification of Greek Government Bonds in April 2010. No charges
were instituted against BOC PCL in this case. Two of the former officers accused, had already been acquitted
on the basis of preliminary objections raised by them. The Attorney General had filed an appeal against the
acquittals. The Supreme Court dismissed the Attorney General’s appeal.
On 19 March 2020, the Assize Court of Nicosia discontinued the criminal case and discharged all accused,
including the current officers of BOC PCL, who had been charged with various criminal offences relating to
events occurring before the financial crisis of 2013 and the bailing-in of BOC PCL. The Court ruled that there
had been clear and serious abuse of the process of the Court and that in fact the specific prosecution should
never have been instituted.
Others
An investigation is in process relating to the examination of any exaggerated and/or fabricated claims paid
by the non-life insurance subsidiary of the Group. The information usually required by IAS 37 Provisions,
Contingent Liabilities and Contingent Assets is not disclosed on the grounds that it can be expected to
prejudice seriously the outcome of the investigation and of the potential litigation. Based on the information
available at present, Management’s view is that it is unlikely for this matter to have a material adverse
impact on the financial position and capital adequacy of the non-life insurance subsidiary and thereby the
Group, considering also the relevant insurance policy in place, a reimbursement is virtually certain to be
received upon settlement of any relevant obligation that may arise.
184
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
40.
Pending litigation, claims, regulatory and other matters (continued)
40.2
Regulatory matters
The Hellenic Capital Market Commission (HCMC) Investigation
The HCMC is currently in the process of investigating matters concerning the Group's investment in Greek
Government Bonds from 2009 to 2011, including, inter-alia, related non-disclosure of material information
in BOC PCL's CCS and CECS and rights issue prospectus (tracking the investigation carried out by CySEC in
2013), Greek government bonds' reclassification, ELA disclosures and allegations by some Greek
Government Bond investors regarding BOC PCL's non-compliance with Markets in Financial Instruments
Directive (MiFID) in respect of investors' direct investments in Greek Government Bonds.
A specific estimate of the outcome of the investigations or of the amount of possible fines cannot be given
at this stage, though it is not expected that any resulting liability or damages will have a material impact on
the financial position of the Group.
The Cyprus Securities and Exchange Commission (CySEC) Investigations
As at 31 December 2019 there were no pending CySEC investigations against BOC PCL.
The only pending CySEC investigation against BOC PCL as at 31 December 2018 concerned possible price
manipulation attributable to BOC PCL for the period from 1 November 2009 to 30 June 2010 post the
investment in Banca Transylvania. As at the balance sheet date the investigation is closed and BOC PCL is
acquitted of all responsibilities.
Commission for the Protection of Competition Investigation
In April 2014, following an investigation which began in 2010, the Cypriot Commission for the Protection of
Competition (the CPC) issued a statement of objections, alleging violations of Cypriot and EU competition
law relating to the activities and/or omissions in respect of card payment transactions by, among others,
BOC PCL and JCC Payment Systems Ltd (JCC), a card-processing business currently 75% owned by BOC
PCL. BOC PCL is expecting the final conclusion of this matter and has provided for it accordingly.
The Commission for the Protection of Competition has ruled in March 2020 that there is breach of
competition law in relation to BOC PCL participation in the shareholding of Fairways Ltd. A fine will be
imposed upon BOC PCL following submission of BOC PCL’s written address on mitigation. The fine is not
expected to be material.
There was also an allegation concerning BOC PCL's arrangements with American Express, namely that such
exclusive arrangements violated Cypriot and EU competition law. On both matters, the CPC has concluded
that BOC PCL (in common with other banks and JCC) has breached the relevant provisions of the applicable
law for the protection of competition. In May 2017 the CPC imposed a fine of €18 million upon BOC PCL and
BOC PCL filed a recourse against the decision and the fine. The payment of the fine has been stayed
pending the final outcome of the recourse. In June 2018 the Administrative court accepted BOC PCL’s
position and cancelled the decision as well as the fine imposed upon BOC PCL. The Attorney General has
filed an appeal before the Supreme court with respect to such decision and the final outcome is pending.
UK regulatory matters
The provision outstanding as at 31 December 2019 is €1,645 thousand (31 December 2018: €15,795
thousand). As part of the agreement for the sale of Bank of Cyprus UK Ltd, liability in regards to UK
regulatory matters remains an obligation for settlement by the Group. The level of the provision represents
the best estimate of all probable outflows arising from customer redress based on information available to
management. Management continues to reassess the adequacy of the provision, as well as the assumptions
underlying the calculations based upon experience and other relevant factors prevailing at the time.
185
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
40.
Pending litigation, claims, regulatory and other matters (continued)
40.2
Regulatory matters (continued)
Romanian Competition Council
An investigation has been initiated by the Romanian Competition Council on all leasing companies in
Romania. All leasing companies were members of the professional association ALB (Asociatia Societatilor
Financiare din Romania) and the Romanian Competition Council is alleging that there was an illegal
exchange of information between them. BOC Asset Management Romania is included in the said
investigation due to the fact that it is a member of the said association. Upon receipt of the investigation
report BOC Asset Management Romania - assisted by Romanian attorneys - prepared and submitted its
observations on the report and subsequently it has submitted its defence. This may result in the imposition
of a fine on BOC Asset Management Romania which is not expected to be material.
40.3
Provisions for pending litigation, claims, regulatory and other matters
2019
1 January
Increase of provisions including unwinding of
discount (Note 16)
Utilisation of provisions
Release of provisions (Note 16)
Transfer to income tax payable
Foreign exchange adjustments
31 December
Provisions expected to be settled within 12
months post reporting date
2018
1 January
Increase of provisions including unwinding of
discount - continuing operations (Note 16)
Utilisation of provisions
Release of provisions - continuing operations
(Note 16)
Foreign exchange adjustments
31 December
Provisions expected to be settled within 12
months post reporting date
Pending
litigation or
claims
(Note 40.1)
€000
Regulatory
matters
(Note 40.2)
Other matters
(Note 40.4)
Total
€000
€000
74,372
29,569
13,010
16,325
(15,641)
(4,981)
-
-
413
(14,856)
(1,480)
-
45
18,574
(2,397)
-
(4,859)
-
70,075
13,691
24,328
108,094
16,333
1,600
-
17,933
€000
€000
€000
62,646
70,672
20,804
(9,016)
(62)
-
74,372
6,675
(39,242)
(9,000)
464
29,569
5,057
7,953
-
-
-
2,000
15,795
-
17,795
13,010
116,951
€000
116,951
35,312
(32,894)
(6,461)
(4,859)
45
€000
138,375
35,432
(48,258)
(9,062)
464
The increase in provisions for the year 2019 was primarily driven by the progressed status of the pending
investigations and litigations relating to securities issued by BOC PL as well as the provisions taken for other
matters in relation to the disposal process of certain of its operations.
An increase by 5% in the probability of loss rate for pending litigation and claims (2018: 5%) with all other
variables held constant, would lead to an increase in the actual provision by €5,848 thousand at 31
December 2019 (2018: increase by €6,914 thousand).
186
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
40.
Pending litigation, claims, regulatory and other matters (continued)
40.3
Provisions for pending litigation, claims, regulatory and other matters (continued)
40.4
Οther matters
Other matters include other provisions for various open examination requests by governmental and other
public bodies or provisions for warranties and indemnities related to the disposal process of certain
operations of the Group (Note 41). The provisions for pending litigation, claims, regulatory and other
matters do not include insurance claims arising in the ordinary course of business of the Group’s insurance
subsidiaries as these are included in ‘Insurance liabilities’.
Some information required by the IAS 37 Provision, Contingent Liabilities and Contingent Assets is not
disclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation or the
outcome of the negotiation in relation to provisions for warranties and indemnities related to the disposal
process of certain operations of the Group.
41.
Contingent liabilities and commitments
As part of the services provided to its customers, the Group enters into various irrevocable commitments
and contingent liabilities. These consist of financial guarantees, letters of credit and other undrawn
commitments to lend.
Even though these obligations may not be recognised on the consolidated balance sheet, they do contain
credit risk and are therefore part of the overall credit risk exposure of the Group (Note 46.8).
41.1
Capital commitments
Capital commitments for the acquisition of property, equipment and intangible assets as at 31 December
2019 amount to €26,341 thousand (2018: €28,851 thousand).
41.2
Other contingent liabilities
The Group, as part of its disposal process of certain of its operations, has provided various representations,
warranties and indemnities to the buyers. These relate to, among other things, the ownership of the loans,
the validity of the liens, tax exposures and other matters agreed with the buyers. As a result, the Group
may be obliged to compensate the buyers in the event of a valid claim by the buyers with respect to the
above representations, warranties and indemnities.
A provision has been made, based on management’s best estimate of probable outflows, where it was
assessed that such an outflow is probable.
187
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
42.
Net cash flow from operating activities
Loss before tax from continuing operations
Profit before tax from discontinued operations
Adjustments for:
Credit losses to cover credit risk on loans and advances to customers and net gains on
derecognition of financial assets measured at amortised cost
Depreciation of property and equipment
Amortisation of intangible assets
Impairment of property held for own use and equipment
Impairment of other non-financial assets
Credit losses of other financial instruments
Amortisation of discounts/premiums, catch-up adjustment on debt securities and interest on debt
securities
Loss/(profit) on sale and write-offs of property and equipment and intangible assets
Net gains on disposal of investment properties
Net losses from revaluation of investment properties and investment properties held for sale
Dividend income
Net gains on disposal of investments at FVOCI
Net losses/ (gains) on financial liabilities at FVPL
Share of profit from associates
(Profit)/loss from revaluation of debt securities designated as fair value hedges
Profit on disposal/dissolution of subsidiaries and associates
Net gains on disposal of stock of property
Impairment of stock of property
Negative interest on loans and advances to banks and central banks
Interest on subordinated loan stock
Change in value of in-force life insurance business
Remeasurement of investment in associate upon classification as held for sale
Interest expense on lease liability
Special levy
Change in:
Loans and advances to banks
Deposits by banks
Obligatory balances with central banks
Customer deposits
Value of in-force life insurance policies and liabilities
Loans and advances to customers measured at amortised cost
Loans and advances to customers measured at FVPL
Other assets
Accrued income and prepaid expenses
Other liabilities and pending litigation, claims, regulatory and other matters
Accrued expenses and deferred income
Derivative financial instruments
Investments measured at FVPL
Repurchase agreements
Proceeds on disposals of stock of property
Tax (paid)/received
Net cash flow from operating activities
For information on restatement of comparatives refer to Notes 2.2.1 and 2.38.
188
2019
€000
(180,569)
-
224,264
20,118
16,161
-
787
4,790
(33,175)
99
(2,551)
302
(361)
-
495
(5,513)
(5,539)
(3,886)
2018
(restated)*
€000
(33,360)
8,926
300,634
12,016
13,542
11
1,368
1,610
(25,418)
(99)
(1,430)
13,275
(547)
(19,484)
(1,435)
(9,095)
22,775
(6,205)
(25,952)
(30,437)
25,294
17,448
23,325
(1,200)
25,943
386
13,077
113,743
26,150
101,462
2,627
(152,027)
(7,331)
(178,414)
26,279
9,644
1,794
22,695
17,267
13,304
(23,633)
(80,816)
219,478
112,222
(2,475)
109,747
17,272
14,142
25,365
5,314
-
-
-
308,740
(284,836)
(61,938)
(8,942)
983,999
12,934
(320,757)
(5,710)
12,230
(8,306)
(46,236)
27,855
(18,636)
(9,816)
(8,377)
221,125
793,329
3,913
797,242
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
42.
Net cash flow from operating activities (continued)
Non-cash transactions
2019
Repossession of collaterals
During 2019, the Group acquired properties by taking possession of collaterals held as security for loans
and advances to customers of €197,209 thousand (2018: €396,256 thousand) (Note 46.10).
Disposal of Project Helix
Upon the disposal of Project Helix, the Group participated in a senior debt in relation to the financing of the
Project Helix amounting to €45 million (Note 30).
Acquisition of equity investments
During 2019 the Group acquired equity investments amounting to €6,529 thousand as a result of its loan
restructuring activities. The Group elected to classify this equity participation at FVOCI. The carrying value
as at 31 December 2019 is €6,789 thousand.
Disposal of NMH group
During 2019 the Group disposed of its 64% holding in NMH group. The transaction involved settlement of
existing facilities and provision of new lending. Further information is disclosed in Note 53.2.2.
Recognition of RoU asset and lease liabilities
During 2019 the Group recognised RoU assets and corresponding lease liabilities of €39,227 thousand
(2018: not applicable).
2018
Increase in the shareholding of Nicosia Mall Holdings (NMH) Ltd
During 2018, BOC PCL increased its controlling interest from 51% to 64% in Nicosia Mall Holdings (NMH)
Ltd.
Net cash flow from operating activities - interest and dividends
Interest paid
Interest received
Dividends received
2019
€000
(161,447)
733,623
361
2018
€000
(225,585)
633,733
547
572,537
408,695
189
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
42.
Net cash flow from operating activities (continued)
Changes in liabilities arising from financing activities
2019
1 January
Cash flows
Other non-cash movements
31 December
2018
1 January
Cash flows
Foreign exchange adjustments
Other non-cash movements
Disposal of subsidiary
31 December
Funding from
central banks
(Note 31)
€000
Subordinated
loan stock
(Note 34)
€000
Total
€000
830,000
270,930
1,100,930
(830,000)
(23,325)
(853,325)
-
-
24,565
24,565
272,170
272,170
930,000
302,288
1,232,288
(100,000)
(24,476)
(124,476)
-
-
-
(33)
28,491
(33)
28,491
(35,340)
(35,340)
830,000
270,930
1,100,930
Further information relating to the change in lease liabilities is disclosed in Note 44.
43.
Cash and cash equivalents
Cash and cash equivalents comprise:
Cash and non-obligatory balances with central bank
2019
€000
4,899,994
2018
€000
4,447,816
Loans and advances to banks with original maturity less than three months
230,869
357,028
5,130,863
4,804,844
Analysis of cash and balances with central banks and loans and advances to banks
Cash and non-obligatory balances with central bank
Obligatory balances with central banks (Note 20)
Total cash and balances with central banks (Note 20)
2019
€000
4,899,994
2018
€000
4,447,816
160,048
162,675
5,060,042
4,610,491
Loans and advances to banks with original maturity less than three months
230,869
Restricted loans and advances to banks
Other loans and advances to banks
Total loans and advances to banks (Note 20)
88,712
1,300
357,028
115,504
-
320,881
472,532
Restricted loans and advances to banks include collaterals under derivative transactions of €41,104
thousand (2018: €42,631 thousand) which are not immediately available for use by the Group, but are
released once the transactions are terminated.
190
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
44.
Leases
The Group is a lessee for commercial properties such as office buildings and branches. Prior to the adoption
of IFRS 16 on 1 January 2019 those contracts were classified as operating leases under IAS17. The basic
terms for lease contracts relating to the branch network are uniform, irrespective of lessors, with the non-
cancellable rental period being two years. The Group has the option to extend the tenancy for four further
periods of two years each. The Group has the right at any time after the expiry of the initial term to
terminate the present rental agreement by providing notice (usually 3 or 6 months’ notice) to the lessor.
Depending on the terms agreed, the rent is adjusted at the end of each renewal period, according to the
current rents of the area and considering the relevant legislation.
Office buildings are leased by the Group for the operation of administrative divisions. The basic terms for a
new lease contracts and the current practise are substantially the same with those for lease contracts of
branches.
The carrying amounts of the Group’s RoU assets and lease liabilities and the movement during the year is
presented in the table below:
1 January 2019 - Impact on adoption of IFRS 16 (Note 6)
Additions
Assets de-recognised
Restoration liability - disclosed within other liabilities
Depreciation charge for the year (Note 16)
Interest expense (Note 9)
Cash outflows
31 December 2019
RoU asset
(Note 26)
€000
37,474
2,476
(723)
-
(8,839)
-
-
Lease
Liabilities
(Note 35)
€000
(37,474)
(2,476)
723
1,230
-
(386)
8,679
30,388
(29,704)
RoU assets comprised of leases of buildings and are presented within Property.
Cash outflows relate to lease payments made in the year.
The maturity analysis of lease liabilities is disclosed in Note 48 ‘Risk management–Liquidity risk and
funding’.
The total future minimum lease payments under non-cancellable operating leases at 31 December 2018
under IAS 17 are presented below:
Within one year
Between one and five years
After five years
2018
€000
1,864
2,542
47
4,453
191
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
45.
Analysis of assets and liabilities by expected maturity
Less than
one year
€000
2019
Over one
year
€000
Total
€000
Less than
one year
€000
2018
(restated)
Over one
year
€000
Total
€000
4,899,994
160,048
5,060,042
4,447,816
162,675
4,610,491
232,169
3,217
88,712
19,843
320,881
23,060
364,655
4,148
107,877
20,606
472,532
24,754
446,293
1,459,537
1,905,830
135,679
1,379,012
1,514,691
1,521,642
9,200,199 10,721,841
1,525,865
9,395,921
10,921,786
14,528
444,324
458,852
498
402,067
402,565
192,831
582,878
51,099
243,930
794,575
1,377,453
82,214
542,419
37,909
341,217
379,126
14
-
-
466,986
136,197
467,000
136,197
2,393
2,393
6
-
-
-
173,788
884,438
301,778
431,128
128,006
256,002
1,426,857
301,778
431,134
128,006
114,637
114,637
26,217
-
26,217
1,470,038
-
1,470,038
7,957,692 13,165,130 21,122,822
8,573,338
13,501,933
22,075,271
Assets
Cash and balances with
central banks
Loans and advances to
banks
Derivative financial assets
Investments including
investments pledged as
collateral
Loans and advances to
customers
Life insurance business
assets attributable to
policyholders
Prepayments, accrued
income and other assets
Stock of property
Deferred tax assets
Property, equipment and
intangible assets
Investment properties
Investment in associates and
joint venture
Non-current assets and
disposal groups held for sale
Liabilities
Deposits by banks
203,406
329,998
533,404
151,230
Funding from central banks
Repurchase agreements
Derivative financial liabilities
-
168,129
11,839
-
-
38,754
-
168,129
50,593
-
80,692
12,459
280,712
830,000
168,253
26,524
431,942
830,000
248,945
38,983
Customer deposits
5,327,735 11,363,796 16,691,531
2,946,714
13,896,844
16,843,558
Insurance liabilities
Accruals, deferred income
and other liabilities and
pending litigation, claims,
regulatory and other matters
Subordinated loan stock
Deferred tax liabilities
Non-current liabilities and
disposal group classified as
held for sale
88,796
551,217
640,013
90,464
500,593
591,057
273,914
-
-
-
158,426
272,170
46,015
432,340
272,170
46,015
300,765
-
-
101,669
270,930
44,282
402,434
270,930
44,282
-
-
5,812
-
5,812
6,073,819 12,760,376 18,834,195
3,588,136
16,119,807
19,707,943
The main assumptions used in determining the expected maturity of assets and liabilities are set out below.
The investments are classified in the relevant time band based on expectations as to their realisation. In
most cases this is the maturity date, unless there is an indication that the maturity will be prolonged or
there is an intention to sell, roll or replace the security with a similar one. The latter would be the case
where there is secured borrowing, requiring the pledging of bonds and these bonds mature before the
maturity of the secured borrowing. The maturity of bonds is then extended to cover the period of the
secured borrowing.
192
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
45.
Analysis of assets and liabilities by expected maturity (continued)
Performing loans and advances to customers in Cyprus are classified based on the contractual repayment
schedule. Overdraft accounts are classified in the ‘Over one year’ time band. The Stage 3 Loans are
classified in the ‘Over one year’ time band except from expected receipts which are included within time
bands, according to historic amounts of receipts in the last months.
Stock of property is classified in the relevant time band based on expectations as to its realisation.
A percentage of customer deposits in Cyprus maturing within one year is classified in the ‘Over one year’
time band, based on the observed behavioural analysis.
The expected maturity of all prepayments, accrued income and other assets and accruals, deferred income
and other liabilities is the same as their contractual maturity. If they do not have a contractual maturity, the
expected maturity is based on the timing the asset is expected to be realised and the liability is expected to
be settled.
Regarding comparative information, stock of property amounting to €103,531 thousand within the 'Over
one year time' band was restated to 'Investment properties' in the same time band as disclosed in Notes
2.2.1 and 2.38.
Additionally regarding 'Deposits by banks' an amount of €17,510 thousand was reclassified out of the 'Less
than one year' time band into the Over one year time based on the expected maturity of the loans related
to this funding (Note 2.38).
46.
Risk management - Credit risk
In the ordinary course of its business the Group is exposed to credit risk which is monitored through various
control mechanisms across all Group entities in order to prevent undue risk concentrations and to price
credit facilities and products on a risk-adjusted basis.
Credit risk is the risk that arises from the possible failure of one or more customers to discharge their
obligations towards the Group.
The Credit Risk Management department sets the Group’s credit disbursement policies and monitors
compliance with credit risk policy applicable to each business line and the quality of the Group’s loans and
advances portfolio through the timely assessment of problematic customers. The credit exposures from
related accounts are aggregated and monitored on a consolidated basis.
The Credit Risk Management department, safeguards the effective management of credit risk at all stages
of the credit cycle, monitors the quality of decisions and processes and ensures that credit sanctioning
function is being properly managed.
The credit policies are combined with the methods used for the assessment of the customers’
creditworthiness (credit rating and credit scoring systems).
The loan portfolio is analysed on the basis of assessments about the customers’ creditworthiness, their
economic sector of activity and the country in which they operate.
The credit risk exposure of the Group is diversified across the various sectors of the economy. Credit Risk
Management determines the prohibitive/ high credit risk sectors of the economy and sets out stricter policy
rules for these sectors, according to their degree of riskiness.
The Group’s significant judgements, estimates and assumptions regarding the determination of the level of
provisions for impairment are described in Note 5 ‘Significant and other judgements, estimates and
assumptions’ of these Consolidated Financial Statements.
193
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
The Market Risk department assesses the credit risk relating to investments in liquid assets (mainly loans
and advances to banks and debt securities) and submits its recommendation for limits to be set to the
Assets and Liabilities Committee (ALCO) for approval.
46.1
Maximum exposure to credit risk and collateral and other credit enhancements
The Group's maximum exposure to credit risk is analysed by geographic area as follows:
On-balance sheet
Cyprus
Other countries
Off-balance sheet
Cyprus
Other countries
Total on and off-balance sheet
Cyprus
Other countries
2019
€000
17,890,028
2018
€000
18,504,113
45,382
83,307
17,935,410
18,587,420
2,563,718
2,781,943
58,290
60,592
2,622,008
2,842,535
20,453,746
21,286,056
103,672
143,899
20,557,418
21,429,955
The Group offers guarantee facilities to its customers under which the Group may be required to make
payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs.
Letters of credit and guarantee (including standby letters of credit) commit the Group to make payments on
behalf of customers in the event of a specific act, generally related to the import or export of goods. Such
commitments expose the Group to risks similar to those of loans and advances and are therefore monitored
by the same policies and control processes.
Loans and advances to customers
The Credit Risk Management department determines the amount and type of collateral and other credit
enhancements required for the granting of new loans to customers.
The main types of collateral obtained by the Group are mortgages on real estate, cash collateral/blocked
deposits, bank guarantees, government guarantees, pledges of equity securities and debt instruments of
public companies, fixed and floating charges over corporate assets, assignment of life insurance policies,
assignment of rights on certain contracts and personal and corporate guarantees.
The Group’s management regularly monitors the changes in the market value of the collateral and, where
necessary, requests the pledging of additional collateral in accordance with the relevant agreement.
Other financial instruments
Collateral held as security for financial assets other than loans and advances is determined by the nature of
the financial instrument. Debt securities and other eligible bills are generally unsecured with the exception
of asset-backed securities and similar instruments, which are secured by pools of financial assets. In
addition, some debt securities are government-guaranteed.
194
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.1
(continued)
Maximum exposure to credit risk and collateral and other credit enhancements
The Group has chosen the ISDA Master Agreement for documenting its derivatives activity. It provides the
contractual framework within which dealing activity across a full range of over-the-counter (OTC) products
is conducted and contractually binds both parties to apply close-out netting across all outstanding
transactions covered by an agreement, if either party defaults. In most cases the parties execute a Credit
Support Annex (CSA) in conjunction with the ISDA Master Agreement. Under a CSA, the collateral is passed
between the parties in order to mitigate the market contingent counterparty risk inherent in their open
positions.
Settlement risk arises in any situation where a payment in cash or securities is made in the expectation of a
corresponding receipt in securities or cash. The Group sets daily settlement limits for each counterparty.
Settlement risk is mitigated when transactions are effected via established payment systems or on a
delivery upon payment basis.
The table below presents the maximum exposure to credit risk, the tangible and measurable collateral and
credit enhancements held and the net exposure to credit risk, that is the exposure after taking into account
the impairment loss and tangible and measurable collateral and credit enhancements held. Personal
guarantees are an additional form of collateral, but are not included in the information below since it is
impracticable to estimate their fair value.
The fair value of the collateral presented in the tables below is capped to the carrying value of the loans and
advances to customers.
195
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.1
Maximum exposure to credit risk and collateral and other credit enhancements (continued)
2019
Balances with central banks (Note 20)
Loans and advances to banks (Note 20)
FVPL debt securities (Note 21)
Debt securities classified at amortised cost and
FVOCI (Note 21)
Derivative financial instruments (Note 22)
Loans and advances to customers (Note 24)
Loans and advances to customers classified as
held for sale (Note 30)
Receivable relating to disposal of operations
(Note 29)
Debtors (Note 29)
Reinsurers' share of insurance contract
liabilities (Note 29)
Other assets (Note 29)
On-balance sheet total
Contingent liabilities
Acceptances and endorsements
Guarantees
Commitments
Documentary credits
Undrawn formal stand-by facilities, credit lines
and other commitments to lend
Off-balance sheet total
Fair value of collateral and credit enhancements held by the Group
Maximum
exposure to
credit risk
€000
Cash
€000
4,908,487
320,881
24,093
1,713,914
23,060
-
470
-
-
-
Securities
Letters of credit/
guarantee
Property
Other
Surplus collateral Net collateral
Net exposure to
credit risk
€000
€000
€000
€000
€000
€000
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
470
-
-
-
4,908,487
320,411
24,093
1,713,914
23,060
10,721,841
434,985
637,792
170,711
15,507,312
1,387,859
(8,525,943)
9,612,716
1,109,125
25,929
53,354
39,663
50,609
53,579
25
689
253
29,276
15,704
(31,293)
14,654
11,275
-
-
-
-
-
-
-
-
23,816
48,900
44,270
(93,207)
23,779
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29,575
39,663
50,609
53,579
17,935,410
435,480
638,481
194,780
15,585,488
1,447,833
(8,650,443)
9,651,619
8,283,791
5,816
683,084
447
127,078
11,767
1,993
1,921,341
2,622,008
20,557,418
28,653
158,171
593,651
-
2,045
-
6,087
8,132
-
3,132
4,471
137,509
175
34,527
-
5,429
618
1,590
4,722
345,199
492,608
51,128
86,448
-
-
-
-
-
5,093
304,291
723
378,793
8,040
3,727
432,657
1,488,684
750,081
1,871,927
646,613
199,502
16,078,096
1,534,281
(8,650,443)
10,401,700
10,155,718
196
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.1
Maximum exposure to credit risk and collateral and other credit enhancements (continued)
2018
Balances with central banks (Note 20)
Loans and advances to banks (Note 20)
FVPL debt securities (Note 21)
Debt securities classified at amortised cost and FVOCI
(Note 21)
Derivative financial instruments (Note 22)
Loans and advances to customers (Note 24)
Loans and advances to customers classified as held for
sale (Note 30)
Receivable relating to disposal of operations (Note 29)
Debtors (Note 29)
Reinsurers' share of insurance contract liabilities (Note
29)
Other assets (Note 29)
On-balance sheet total
Contingent liabilities
Acceptances and endorsements
Guarantees
Commitments
Fair value of collateral and credit enhancements held by the Group
Maximum
exposure to
credit risk
€000
4,456,768
472,532
14,616
1,350,127
24,754
Cash
Securities
Letters of credit/
guarantee
Property
Other
Surplus collateral Net collateral
Net exposure to
credit risk
€000
€000
€000
€000
€000
€000
€000
€000
-
12,220
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,456,768
12,220
-
-
-
460,312
14,616
1,350,127
24,754
10,921,786
419,735
291,662
209,274
15,735,094
1,315,573
(8,241,099)
9,730,239
1,191,547
1,154,108
2,726
14,283
13,156
2,371,672
85,606
30,671
48,348
28,104
-
-
-
-
-
-
-
-
31,768
48,900
-
-
-
-
-
-
13,307
46,683
(1,374,545)
1,040,599
(96,505)
30,846
-
-
-
-
-
-
-
-
-
113,509
54,760
30,671
48,348
28,104
18,587,420
434,681
305,945
254,198 18,155,666
1,375,563
(9,712,149)
10,813,904
7,773,516
5,561
323
748,705
120,139
-
985
34
4,506
4,563
152,272
492
34,958
Documentary credits
Undrawn formal stand-by facilities, credit lines and
other commitments to lend
Off-balance sheet total
24,297
3,115
-
10
6,440
5,143
2,063,972
30,197
2,842,535
153,774
8,490
9,475
810
346,736
5,417
509,954
41,288
81,881
The contingent liabilities and commitments include exposures relating to loans and advances to customers classified as held for sale amounting to €6,569
thousand (2018: €3,656 thousand), which largely relate to the Cyprus geographical area.
21,429,955
588,455
315,420
259,615 18,665,620
1,457,444
(9,712,149)
11,574,405
9,855,550
197
-
-
-
-
-
5,355
312,917
206
435,788
14,708
9,589
427,521
1,636,451
760,501
2,082,034
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.2
Credit risk concentration of loans and advances to customers
There are restrictions on loan concentrations which are imposed by the Banking Law in Cyprus, the relevant
CBC Directives and CRR. According to these restrictions, banks are prohibited from lending more than 25%
of their capital base to a single customer group. The Group’s risk appetite statement imposes stricter
concentration limits and the Group is taking actions to run down those exposures which are in excess of
these internal limits over time.
For the application of these restrictions, BOC PCL categorises its loans per customer group, using the
following customer sectors:
Retail – all personal customers and small businesses with facilities from BOC PCL of up to €260
thousand, excluding professional property loans.
SME – any company or group of companies (including personal and housing loans to the directors
or shareholders of a company) with facilities with BOC PCL in the range of €260 thousand to €6
million and a maximum annual credit turnover of €10 million.
Corporate – any company or group of companies (including personal and housing loans to the
directors or shareholders of a company) with available credit lines with BOC PCL in excess of an
aggregate principal amount of €6 million or having a minimum annual credit turnover of €10
million.
Fair value adjustment on initial recognition
The fair value adjustment on initial recognition related to the loans and advances to customers acquired as
part of the acquisition of certain operations of Laiki Bank in 2013. In accordance with the provisions of IFRS
3, this adjustment decreased the gross balance of loans and advances to customers. However, for IFRS 7
disclosure purposes as well as for credit risk monitoring, the residual of the fair value adjustment on initial
recognition as at each balance sheet date is not presented within the gross balances of loans and advances.
The Group presents its credit risk concentration below, which is based on industry (economic activity)
concentration and by business line under which its customers are managed. A geographical analysis, based
on the country in which loans are managed, is presented in the table below. This geographical analysis
presents loans in Romania, and Russia within 'Other countries'.
2019
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Cyprus
Other
countries
Total
Residual fair value
adjustment on
initial recognition
€000
€000
€000
€000
1,334,506
11,092
1,345,598
456,129
932,435
838,388
3,222
840
3,272
459,351
933,275
841,660
1,131,179
23,777
1,154,956
(16,375)
(4,659)
(17,436)
(10,821)
(14,760)
Private individuals
5,892,821
929
5,893,750
(110,332)
Professional and other services
Other sectors
797,044
741,858
41,970
683
839,014
742,541
(22,745)
(4,871)
Gross loans at
amortised cost
after residual fair
value adjustment
on initial
recognition
€000
1,329,223
454,692
915,839
830,839
1,140,196
5,783,418
816,269
737,670
12,124,360
85,785
12,210,145
(201,999)
12,008,146
198
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.2
Credit risk concentration of loans and advances to customers (continued)
2019
By business line
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Wealth management
2018
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other services
Other sectors
Cyprus
Other
countries
Total
Residual fair value
adjustment on
initial recognition
€000
€000
€000
€000
Gross loans at
amortised cost
after residual fair
value adjustment
on initial
recognition
€000
1,970,656
1,862,119
1,118,499
22,371
53,972
1,993,027
1,916,091
8,632
1,127,131
2,834,411
893,199
-
810
2,834,411
894,009
323,670
322,284
353,593
181,768
93,299
449,559
882,311
670,787
134,940
33,265
-
-
-
-
-
-
-
-
-
-
323,670
322,284
353,593
181,768
93,299
449,559
882,311
670,787
134,940
33,265
(18,212)
(16,342)
(16,827)
(41,724)
1,835
(2,545)
(5,007)
(3,059)
(2,723)
(2,692)
(15,981)
(37,654)
(37,256)
(1,288)
(2,524)
1,974,815
1,899,749
1,110,304
2,792,687
895,844
321,125
317,277
350,534
179,045
90,607
433,578
844,657
633,531
133,652
30,741
12,124,360
85,785
12,210,145
(201,999)
12,008,146
Cyprus
Other
countries
Total
Residual fair value
adjustment on
initial recognition
€000
€000
€000
€000
Gross loans after
residual fair value
adjustment on
initial recognition
€000
1,447,623
39,682
1,487,305
437,030
877,501
991,122
980,152
6,234,765
866,093
720,876
7,572
3,806
2,552
21,644
11,536
45,758
4,704
444,602
881,307
993,674
1,001,796
6,246,301
911,851
725,580
(24,096)
(6,439)
(20,354)
(14,661)
(16,231)
1,463,209
438,163
860,953
979,013
985,565
(135,603)
6,110,698
(36,551)
(8,114)
875,300
717,466
12,555,162
137,254
12,692,416
(262,049)
12,430,367
199
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.2
Credit risk concentration of loans and advances to customers (continued)
2018 (restated)
By business line
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Wealth management
Cyprus
Other
countries
Total
Residual fair value
adjustment on
initial recognition
€000
€000
€000
€000
Gross loans after
residual fair value
adjustment on
initial recognition
€000
1,977,498
1,504,175
1,188,420
65,854
59,284
11,188
2,043,352
1,563,459
1,199,608
2,871,294
940,385
480,676
560,806
498,601
328,952
164,821
630,968
697,212
480,733
192,646
37,975
-
904
24
-
-
-
-
-
-
-
-
-
2,871,294
941,289
480,700
560,806
498,601
328,952
164,821
630,968
697,212
480,733
192,646
37,975
(31,553)
(16,784)
(16,537)
(45,016)
2,965
(9,552)
(11,637)
(4,481)
(8,588)
(7,439)
(26,178)
(40,577)
(39,923)
(2,158)
(4,591)
2,011,799
1,546,675
1,183,071
2,826,278
944,254
471,148
549,169
494,120
320,364
157,382
604,790
656,635
440,810
190,488
33,384
12,555,162
137,254
12,692,416
(262,049)
12,430,367
The residual fair value adjustment on initial recognition for loans and advances to customers included in the
Cyprus geographical area amounts to €201,853 thousand (2018: €261,862 thousand).
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 €184,130 thousand (2018: €55,789
thousand) and lending exposures in Cyprus with collaterals in Greece with a carrying value of €80,324
thousand (2018: €76,303 thousand).
Loans and advances to customers under the business line of ‘Global corporate’ as restated include
€1,385,800 thousand previously classified under ‘Corporate Cyprus’ and €59,284 thousand previously
classified under ‘Corporate Other countries’, along with their equivalent residual fair value adjustment of
€18,429 thousand. The new business line also includes €50,786 thousand from ‘Restructuring corporate’,
along with its equivalent residual fair value adjustment debit of €1,645 thousand as well as €67,550 from
‘Wealth Management’, €36 thousand from ‘SME’ and €3 thousand from ‘Retail consumer, credit cards and
other’ (Note 2.38).
46.3
Credit risk concentration of loans and advances to customers classified as held for sale
Industry and business lines concentrations and geographical analysis of Group loans and advances to
customers at amortised cost classified as held for sale are presented in the table below.
200
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.3
(continued)
Credit risk concentration of loans and advances to customers classified as held for sale
2019
By economic activity
Trade
Manufacturing
Hotels and restaurants
Construction
Real estate
Private individuals
Professional and other services
Other sectors
2019
By business line
Corporate
SMEs
Retail
- consumer, credit cards and other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Cyprus
Other
countries
Total
Residual fair value
adjustment on
initial recognition
€000
€000
€000
€000
Gross loans at
amortised cost
after residual fair
value adjustment
on initial
recognition
€000
19,263
6,649
5,725
11,187
1,416
117,137
18,068
5,519
184,964
-
-
-
-
-
-
-
-
-
19,263
6,649
5,725
11,187
1,416
117,137
18,068
5,519
184,964
(1,224)
(322)
(561)
(595)
(153)
(6,474)
(1,490)
(264)
(11,083)
18,039
6,327
5,164
10,592
1,263
110,663
16,578
5,255
173,881
Cyprus
Other
countries
Total
Residual fair value
adjustment on
initial recognition
€000
€000
€000
€000
Gross loans at
amortised cost
after residual fair
value adjustment
on initial
recognition
€000
710
5
330
7,706
1,157
1,142
41,996
18,493
21,997
5,316
86,039
73
-
-
-
(88)
(2)
(15)
(1,884)
(853)
(1,306)
(564)
(6,365)
(6)
710
5
330
7,618
1,155
1,127
40,112
17,640
20,691
4,752
79,674
67
184,964
(11,083)
173,881
710
5
330
7,706
1,157
1,142
41,996
18,493
21,997
5,316
86,039
73
184,964
-
-
-
-
-
-
-
-
-
-
-
-
-
201
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.3
(continued)
Credit risk concentration of loans and advances to customers classified as held for sale
2018
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other services
Other sectors
2018
By business line
Corporate
SMEs
Retail
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
- consumer, credit cards and other
128
Cyprus
Other
countries
Total
Residual fair value
adjustment on
initial recognition
€000
€000
€000
€000
373,351
202,193
258,529
995,430
409,632
218,531
140,748
191,463
-
-
-
-
55,225
-
-
6,011
373,351
202,193
258,529
995,430
464,857
218,531
140,748
197,474
(12,213)
(7,216)
(11,960)
(74,233)
(11,765)
(9,098)
(5,941)
(6,727)
Gross loans at
amortised cost
after residual fair
value adjustment
on initial
recognition
€000
361,138
194,977
246,569
921,197
453,092
209,433
134,807
190,747
2,789,877
61,236
2,851,113
(139,153)
2,711,960
Cyprus
Other
countries
Total
Residual fair value
adjustment on
initial recognition
€000
€000
€000
€000
Gross loans at
amortised cost
after residual fair
value adjustment
on initial
recognition
€000
15,249
2,841
859,214
216,866
272
5,773
-
-
-
-
-
-
-
15,249
2,841
128
859,214
216,866
272
5,773
1,274,835
61,236
1,336,071
374,336
635
39,720
8
-
-
-
-
374,336
635
39,720
8
(584)
-
(1)
(24,379)
(4,858)
-
(210)
(86,644)
(17,991)
(115)
(4,371)
-
14,665
2,841
127
834,835
212,008
272
5,563
1,249,427
356,345
520
35,349
8
2,789,877
61,236
2,851,113
(139,153)
2,711,960
202
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.4
Currency concentration of loans and advances to customers
2019
Euro
US Dollar
British Pound
Russian Rouble
Romanian Lei
Swiss Franc
Other currencies
2018
Euro
US Dollar
British Pound
Russian Rouble
Romanian Lei
Swiss Franc
Other currencies
Cyprus
Other
countries
Total
Residual fair value
adjustment on
initial recognition
€000
€000
€000
€000
Gross loans at
amortised cost
after residual fair
value adjustment
on initial
recognition
€000
11,424,516
56,164
11,480,680
(198,488)
11,282,192
398,914
85,293
1
-
200,879
14,757
7,580
836
20,536
669
-
-
406,494
86,129
20,537
669
200,879
14,757
(355)
(204)
-
-
(2,619)
(333)
406,139
85,925
20,537
669
198,260
14,424
12,124,360
85,785
12,210,145
(201,999)
12,008,146
€000
€000
€000
€000
€000
11,992,100
300,718
37,955
81
-
203,026
21,282
60,006
28,523
11,735
36,058
932
-
-
12,052,106
(256,720)
11,795,386
329,241
49,690
36,139
932
203,026
21,282
(276)
(248)
-
-
(3,242)
(1,563)
328,965
49,442
36,139
932
199,784
19,719
12,555,162
137,254
12,692,416
(262,049)
12,430,367
46.5
Currency concentration of loans and advances to customers classified as held for sale
The following tables present the currency concentration of the Group’s loans and advances at amortised
cost classified as held for sale.
2019
Euro
US Dollar
British Pound
Swiss Franc
Other currencies
Cyprus
Other
countries
Total
Residual fair value
adjustment on
initial recognition
€000
€000
€000
€000
Gross loans at
amortised cost
after residual fair
value adjustment
on initial
recognition
€000
180,844
71
2
2,532
1,515
184,964
-
-
-
-
-
-
180,844
(10,794)
170,050
71
2
2,532
1,515
(16)
-
(110)
(163)
55
2
2,422
1,352
184,964
(11,083)
173,881
203
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.5
(continued)
Currency concentration of loans and advances to customers classified as held for sale
2018
Euro
US Dollar
British Pound
Swiss Franc
Other currencies
Cyprus
Other
countries
Total
Residual fair value
adjustment on
initial recognition
€000
€000
€000
€000
Gross loans at
amortised cost
after residual fair
value adjustment
on initial
recognition
€000
2,638,647
61,236
2,699,883
(129,898)
2,569,985
20,593
2,469
90,951
37,217
-
-
-
-
20,593
2,469
90,951
37,217
(123)
(18)
(8,239)
(875)
20,470
2,451
82,712
36,342
2,789,877
61,236
2,851,113
(139,153)
2,711,960
46.6
Analysis of loans and advances to customers by staging
The following tables present the Group’s loans and advances to customers at amortised cost by staging and
by business line concentration.
2019
Gross loans at amortised cost
before residual fair value
adjustment on initial
recognition
Residual fair value adjustment
on initial recognition
Gross loans at amortised
cost after residual fair value
adjustment on initial
recognition
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
7,020,377
1,523,823
3,038,733
627,212
12,210,145
(75,508)
(20,455)
(16,516)
(89,520)
(201,999)
6,944,869
1,503,368
3,022,217
537,692
12,008,146
204
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.6
Analysis of loans and advances to customers by staging (continued)
Gross loans at amortised
cost before residual fair
value adjustment on initial
recognition
2019
By business line
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Wealth management
Stage 1
Stage 2
Stage 3
POCI
Total
€000
€000
€000
€000
€000
1,643,073
1,467,004
849,347
248,464
263,296
226,351
60,676
149,464
40,463
40,814
36,327
10,970
1,993,027
1,916,091
1,127,131
2,237,619
435,853
149,257
11,682
2,834,411
644,345
169,440
60,826
19,398
894,009
32,992
49,279
2,613
430
-
-
-
216
76,253
17,206
61,896
55,902
3,881
607
-
-
-
-
45,300
12,833
198,152
195,681
336,931
173,213
74,899
374,671
706,060
503,408
12,805
2,227
30,630
21,422
10,168
7,518
18,400
74,888
176,251
167,163
582
999
323,670
322,284
353,593
181,768
93,299
449,559
882,311
670,787
134,940
33,265
7,020,377
1,523,823
3,038,733
627,212
12,210,145
205
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.6
Analysis of loans and advances to customers by staging (continued)
Residual fair value
adjustment on initial
recognition
2019
By business line
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Wealth management
(288)
(1,107)
(983)
(1,311)
Stage 1
Stage 2
Stage 3
€000
€000
€000
POCI
€000
Total
€000
(18,187)
(10,924)
(11,522)
(963)
(4,871)
(4,374)
1,241
-
(244)
(303)
(547)
(687)
(18,212)
(16,342)
(16,827)
(35,575)
(5,653)
(237)
(259)
(41,724)
2,303
(377)
64
(155)
1,835
(113)
(86)
(9)
(1,351)
(557)
(15)
-
-
-
-
-
-
-
-
-
-
(833)
(2,266)
(2,039)
(1,134)
(262)
(2,625)
(3,668)
(4,390)
(17)
(106)
(248)
(2,098)
(996)
(1,589)
(2,430)
(13,356)
(33,986)
(32,866)
-
-
(2,545)
(5,007)
(3,059)
(2,723)
(2,692)
(15,981)
(37,654)
(37,256)
(1,288)
(2,524)
(75,508)
(20,455)
(16,516)
(89,520)
(201,999)
206
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.6
Analysis of loans and advances to customers by staging (continued)
Gross loans at amortised
cost after residual fair
value adjustment on initial
recognition
2019
By business line
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Wealth management
2018
Gross loans at amortised cost
before residual fair value
adjustment on initial
recognition
Residual fair value adjustment
on initial recognition
Gross loans at amortised
cost after residual fair
value adjustment on initial
recognition
Stage 1
Stage 2
Stage 3
POCI
Total
€000
€000
€000
€000
€000
1,624,886
1,456,080
837,825
247,501
258,425
221,977
61,917
149,464
40,219
40,511
35,780
10,283
1,974,815
1,899,749
1,110,304
2,202,044
430,200
149,020
11,423
2,792,687
646,648
169,063
60,890
19,243
895,844
32,879
49,193
2,604
430
-
-
-
216
75,965
16,099
60,545
55,345
3,866
607
-
-
-
-
44,317
11,522
197,319
193,415
334,892
172,079
74,637
372,046
702,392
499,018
12,788
2,121
30,382
19,324
9,172
5,929
15,970
61,532
142,265
134,297
582
999
321,125
317,277
350,534
179,045
90,607
433,578
844,657
633,531
133,652
30,741
6,944,869
1,503,368
3,022,217
537,692
12,008,146
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
6,035,781
1,921,255
3,915,591
819,789
12,692,416
(77,738)
(20,673)
(40,432)
(123,206)
(262,049)
5,958,043
1,900,582
3,875,159
696,583
12,430,367
207
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.6
Analysis of loans and advances to customers by staging (continued)
Gross loans at amortised
cost before residual fair
value adjustment on initial
recognition
2018 (restated)
By business line
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
Stage 1
Stage 2
Stage 3
POCI
Total
€000
€000
€000
€000
€000
1,485,461
769,386
739,166
342,564
490,325
346,112
160,788
261,348
103,384
54,539
42,400
10,946
2,043,352
1,563,459
1,199,608
2,259,976
300,101
300,584
10,633
2,871,294
591,239
199,099
130,816
20,135
941,289
38,612
55,295
6,883
5,140
-
-
-
89
91,234
52,573
3,745
1,226
-
-
-
-
268,912
406,369
473,444
304,076
120,234
515,542
512,175
313,529
41,352
3,038
81,942
46,569
14,529
18,510
44,587
115,426
185,037
167,115
3,565
3,856
480,700
560,806
498,601
328,952
164,821
630,968
697,212
480,733
192,646
37,975
International banking services
Wealth management
69,620
14,914
78,109
16,167
6,035,781
1,921,255
3,915,591
819,789
12,692,416
Loans and advances to customers under the business line 'Global corporate' as restated include €1,445,084
thousand Corporate loans, €50,786 thousand Restructuring corporate loans, €67,550 thousand Wealth
management loans, €36 thousand SME loans and €3 thousand Retail consumer credit cards and other. The
Corporate loans include €729,803 thousand Stage 1, €450,685 thousand Stage 2, €226,305 thousand
Stage 3 and €38,291 thousand POCI loans. The Restructuring corporate loans include €10,331 thousand
Stage 1, €1,303 thousand Stage 2, €35,043 thousand Stage 3 and €4,109 thousand POCI loans. The Wealth
management loans, include €29,249 thousand Stage 1, and €38,301 thousand Stage 2 loans. SMEs loans
are Stage 2 and Retail loans are Stage 1 (Note 2.38).
208
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.6
Analysis of loans and advances to customers by staging (continued)
Residual fair value
adjustment on initial
recognition
2018 (restated)
By business line
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Wealth management
(303)
(1,088)
(1,164)
(1,439)
Stage 1
Stage 2
Stage 3
€000
€000
€000
POCI
€000
Total
€000
(20,547)
(4,612)
(10,652)
(43,528)
3,248
(199)
28
(119)
34
-
-
-
-
(1,246)
(10,334)
(4,150)
(97)
352
(1,972)
(580)
(3)
(40)
-
-
-
-
(9,330)
(1,291)
(1,113)
(430)
(547)
(622)
(31,553)
(16,784)
(16,537)
(1,246)
(145)
(45,016)
(375)
(260)
2,965
(4,348)
(3,931)
(2,796)
(3,971)
(1,654)
(2,073)
(3,200)
(4,695)
(195)
(214)
(3,033)
(7,154)
(1,563)
(4,611)
(5,785)
(24,105)
(37,377)
(35,228)
(496)
(1,850)
(9,552)
(11,637)
(4,481)
(8,588)
(7,439)
(26,178)
(40,577)
(39,923)
(2,158)
(4,591)
(77,738)
(20,673)
(40,432)
(123,206)
(262,049)
209
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.6
Analysis of loans and advances to customers by staging (continued)
Gross loans at amortised
cost after residual fair
value adjustment on initial
recognition
2018 (restated)
By business line
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
Stage 1
Stage 2
Stage 3
POCI
Total
€000
€000
€000
€000
€000
1,464,914
764,774
728,514
341,318
479,991
341,962
151,458
260,057
102,271
54,109
41,853
10,324
2,011,799
1,546,675
1,183,071
2,216,448
300,004
299,338
10,488
2,826,278
594,487
199,451
130,441
19,875
944,254
38,413
55,323
6,764
5,174
-
-
-
89
89,262
51,993
3,742
1,186
-
-
-
-
264,564
402,438
470,648
300,105
118,580
513,469
508,975
308,834
41,157
2,824
78,909
39,415
12,966
13,899
38,802
91,321
147,660
131,887
3,069
2,006
471,148
549,169
494,120
320,364
157,382
604,790
656,635
440,810
190,488
33,384
International banking services
Wealth management
69,317
13,826
76,945
14,728
5,958,043
1,900,582
3,875,159
696,583
12,430,367
The movement of the gross loans at amortised cost after residual fair value adjustment on initial recognition
by staging including the loans and advances to customers classified as held for sale is presented in the table
below. Details on the loans and advances to customers classified as held for sale are disclosed in Note 46.7.
210
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.6
Analysis of loans and advances to customers by staging (continued)
2019
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Foreign exchange and other
adjustments
Write offs
Interest accrued and other
adjustments
New loans originated or
purchased and drawdowns of
existing facilities
Loans other than Helix and
Velocity portfolios
derecognised or repaid
(excluding write offs)
Changes to contractual cash
flows due to modifications
resulting in derecognition
Disposal of Helix and Velocity
portfolios
31 December
Stage 1
€000
5,964,996
Stage 2
€000
1,991,921
1,099,371
(935,543)
(616,576)
776,129
(98,708)
(117,022)
Stage 3
€000
6,073,519
(163,828)
(159,553)
215,730
10
-
533
POCI
€000
1,111,891
Total
€000
15,142,327
-
-
-
-
-
-
-
543
(3,351)
(5,096)
(369,744)
(63,674)
(441,865)
47,600
216,036
258,631
67,757
590,024
1,801,886
49,540
67,220
798
1,919,444
(1,239,757)
(426,773)
(551,549)
(148,439)
(2,366,518)
487
72
(298)
(717)
(456)
(10,913)
(45,076)
(2,198,238)
(407,245)
(2,661,472)
6,945,045
1,504,188
3,172,423
560,371
12,182,027
211
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.6
Analysis of loans and advances to customers by staging (continued)
2018
1 January
Change in the basis of
calculation of gross carrying
value (IFRS 9 Grossing up
adjustment)
Restated balance at 1 January
2018
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Write offs
Interest accrued and other
adjustments
New loans originated or
purchased and drawdowns of
existing facilities
Loans other than Helix and
Velocity portfolios
derecognised or repaid
(excluding write offs)
Changes to contractual cash
flows due to modifications
resulting in derecognition
Disposal of subsidiary
Stage 1
€000
5,100,964
Stage 2
€000
4,418,226
Stage 3
€000
6,838,643
POCI
€000
1,308,500
Total
€000
17,666,333
5,068
6,594
1,350,043
327,792
1,689,497
5,106,032
4,424,820
8,188,686
1,636,292
19,355,830
2,180,460
(1,952,997)
(269,513)
(171,920)
(12,256)
462,775
(441,097)
(227,463)
(193,262)
613,017
-
-
-
-
-
-
(21,814)
(2,028,137)
(556,097)
(2,618,304)
97,860
38,850
516,425
109,977
763,112
1,752,138
193,416
111,124
33,044
2,089,722
(1,021,693)
(603,701)
(879,866)
(112,836)
(2,618,096)
(22)
(65)
(654)
1,511
770
(1,696,090)
(108,266)
(26,351)
-
(1,830,707)
31 December
5,964,996
1,991,921
6,073,519
1,111,891
15,142,327
For revolving facilities, overdrafts and credit cards the net positive change in balance by stage excluding
write-offs is reported in ‘New loans originated’ and if net negative change is reported as ‘Loans
derecognised or repaid'.
The movement of gross loans and advances to customers at amortised cost after residual fair value
adjustment on initial recognition, in the Corporate, Global corporate and Retail business line in Cyprus
(excluding loans under Restructuring Recoveries, International banking services and Wealth management)
including loans and advances to customers classified as held for sale are presented in the table below:
212
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.6
Analysis of loans and advances to customers by staging (continued)
1 January
Change in the basis of calculation of gross
carrying value (IFRS 9 Grossing up
adjustment)
Transfers in/(out) of business line
Transfer in/(to) Global corporate business
line
Interest accrued, foreign exchange and
other adjustments
Write offs
New loans originated or purchased
Loans other than Helix and Velocity
portfolios derecognised or repaid
(excluding write offs)
Changes to contractual cash flows due to
modifications not resulting to
derecognition
Disposal of Helix and Velocity portfolios
Corporate
€000
3,323,801
-
3,323,801
(8,718)
2019
Global
corporate
€000
-
-
-
2018
Retail
Corporate
Retail
€000
€000
3,769,872 2,822,022 4,048,153
€000
-
33,867
22,650
3,769,872 2,855,889 4,070,803
8,867 (167,414)
358,019 (305,898)
(1,367,371)
1,487,391
(3)
-
-
69,113
(12,740)
489,068
62,841
108,655
172,622
144,670
(545)
(7,637)
(80,160)
(25,188)
644,947
524,813
870,620
446,855
(528,094)
(356,620)
(540,004)
(852,997)
(561,675)
2,776
(1,104)
(14,665)
-
(18)
(127)
(192)
-
305
-
31 December
1,953,170 1,845,777 3,688,137 3,323,801 3,769,872
As disclosed in Note 2.38 disclosure of movement of Corporate gross loans for 2018 for Corporate line is not
restated due to impracticability to extract the information in the manner disclosed in the table above.
Rather the ‘transfer’ of the closing balance of loans as reported in the 2018 financial statements from the
Corporate line into the new Global corporate line is disclosed in the table above providing information as to
the impact of the change compared to the amounts disclosed in the 2018 financial statements.
Geographical analysis
The following table presents the staging of the Group's loans and advances to customers at amortised cost
before residual fair value adjustment on initial recognition by geographical analysis:
2019
Cyprus
Other countries
2018
Cyprus
Other countries
Stage 1
€000
7,019,591
786
Stage 2
€000
1,523,823
-
Stage 3
€000
2,953,734
84,999
POCI
€000
627,212
Total
€000
12,124,360
-
85,785
7,020,377
1,523,823
3,038,733
627,212
12,210,145
Stage 1
€000
6,023,870
11,911
Stage 2
€000
1,921,234
Stage 3
€000
3,790,269
POCI
€000
819,789
Total
€000
12,555,162
21
125,322
-
137,254
6,035,781
1,921,255
3,915,591
819,789
12,692,416
213
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.6
Analysis of loans and advances to customers by staging (continued)
46.6.1 Credit quality of loans and advances to customers based on the internal credit rating
Credit scoring is the primary risk rating system for assessing obligor and transaction risk for the key
portfolios of BOC PCL. These are corporate, retail and SMEs. Corporate and SME clients include legal
entities. Retail includes individuals.
Scoring models use internal and external data to assess and 'score' borrowers, predict future performance
and manage limits for existing loans and collection activities. The data is specific to the borrower but
additional data which could affect the borrower’s behaviour is also used.
Credit score is one of the factors employed on new clients and management of existing clients. The credit
score of the borrower is used to assess the predicted credit risk for each independent acquisition or account
management action, leading to an automated decision or guidance for an adjudicator. Credit scoring
improves credit decision quality, adjudication timeframes and consistency in the credit decision process and
facilitates risk-based pricing.
Borrower scores define the rating of the borrower from a range of 1-7 and 8 is defined as defaulted. The 12
months default rates (PDs) are calculated per rating. These default rates are assumed to be the 12 month
probability of default for the scored borrowers. The following table maps PD bands to various risk levels for
corporate, retail and SME exposures.
Unrated loans for corporate are assessed using a decision tree methodology based on customer’s
characteristics such as days past due and gross book value. Unrated loans for retail include qualifying
revolving facilities without scoring (i.e. prepaid cards) and other revolving facilities (i.e. financial
guarantees) which are assigned a more generic curve. Similarly unrated SME exposures are assigned a
more generic segment curve.
New customers for corporate and SME legal entities and new lending for retail individuals are separately
disclosed since a time span of seven months is necessary in order to provide an accurate rating.
The IFRS 9 PD models were calibrated during the second quarter of 2019 in order to include additional
recent historical observations.
2019
Rating
1
2
3
4
5
6
7
Corporate legal entities
%
0.89
1.55
1.59
2.53
3.51
4.16
8.63
12-month PD
Retail individuals
%
1.15
1.75
3.08
7.29
12.72
19.21
43.82
SME legal entities
%
0.34
0.81
2.30
7.46
13.11
18.16
41.82
214
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.6
Analysis of loans and advances to customers by staging (continued)
46.6.1 Credit quality of loans and advances to customers based on the internal credit rating
(continued)
2018
Rating
1
2
3
4
5
6
7
Corporate legal entities
%
2.46
3.04
3.37
3.74
4.21
7.47
12.28
12-month PD
Retail individuals
%
1.49
1.87
3.20
5.42
7.92
13.37
29.54
SME legal entities
%
0.88
1.85
2.57
3.84
6.49
9.03
18.17
Low rating exposures demonstrate a good capacity to meet financial commitments, with low probability of
default. Medium range rating exposures require closer monitoring and demonstrate an average to fair
capacity to meet financial commitments, with moderate default risk. High rating exposures require varying
degrees of special attention and default risk is of greater concern.
The tables below shows the gross loans after fair value adjustment on initial recognition in Cyprus, using the
corporate legal entities, SMEs legal entities and retail individual definition as per the internal rating of BOC
PCL. Loans and advances to customers classified based on the internal credit rating grades include €53,972
thousand (2018: €67,381 thousand) managed in Cyprus but originated in other countries.
Corporate legal entities
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
Stage 1
€000
455,089
307,934
663,727
503,200
559,043
170,365
59,916
88,175
2019
Stage 2
€000
28,855
Total
€000
483,944
Stage 1
€000
203,010
2018
Stage 2
€000
51,808
43,602
351,536
485,028
110,127
41,449
705,176
398,722
61,739
44,019
547,219
429,053
223,243
78,257
637,300
184,338
58,189
228,554
174,717
42,488
102,404
123,716
62,825
12,577
16,911
240,389
328,564
184,900
573,703
New customers
581,894
65,999
647,893
259,164
19,022
3,389,343
643,247 4,032,590 2,442,648 1,131,955
Total Stage 3 and POCI
839,728
4,872,318
Total
€000
254,818
595,155
460,461
652,296
247,163
187,294
140,627
758,603
278,186
3,574,603
1,237,587
4,812,190
215
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.6
Analysis of loans and advances to customers by staging (continued)
46.6.1 Credit quality of loans and advances to customers based on the internal credit rating
(continued)
Retail individuals
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
Stage 1
€000
372,733
2019
Stage 2
€000
32,921
Total
€000
405,654
Stage 1
€000
279,305
878,683
93,604
972,287
686,960
968,991
146,123 1,115,114
930,261
340,375
110,972
451,347
423,067
201,829
139,552
341,381
330,270
72,163
22,411
97,418
169,581
174,645
52,736
75,147
42,216
-
3,284
3,284
-
New customers
249,288
24,024
273,312
259,495
2018
Stage 2
€000
67,286
94,836
99,008
74,341
76,060
52,359
51,842
3,470
36,397
Total Stage 3 and POCI
3,106,473
700,634 3,807,107 3,126,219
2,220,743
555,599
SMEs legal entities
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New customers
Total Stage 3 and POCI
6,027,850
Stage 1
€000
121,507
2019
Stage 2
€000
17,969
Total
€000
139,476
144,339
35,365
179,704
59,538
31,598
19,863
14,724
9,176
-
47,522
14,584
14,430
14,639
18,698
23,431
14,658
5,713
448,267
159,487
74,122
46,028
34,502
33,422
32,607
14,658
53,235
607,754
468,411
1,076,165
Stage 1
€000
2018
Stage 2
€000
55,500
87,460
51,932
41,757
40,685
35,414
37,283
-
37,717
30,751
31,678
17,992
15,644
22,250
32,538
36,180
19,080
6,918
387,748
213,031
Total
€000
346,591
781,796
1,029,269
497,408
406,330
227,004
94,058
3,470
295,892
3,681,818
2,709,494
6,391,312
Total
€000
86,251
119,138
69,924
57,401
62,935
67,952
73,463
19,080
44,635
600,779
556,403
1,157,182
46.7
Analysis of loans and advances to customers classified as held for sale
The following tables present the staging of the Group’s loans and advances at amortised cost classified as
held for sale as at 31 December 2019 and 2018 by business line concentration.
216
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.7
Analysis of loans and advances to customers classified as held for sale (continued)
2019
Gross loans at amortised cost
before residual fair value
adjustment on initial
recognition
Residual fair value adjustment
on initial recognition
Gross loans at amortised cost
after residual fair value
adjustment on initial
recognition
2019
Gross loans at amortised
cost before residual fair
value adjustment on initial
recognition
Corporate
SMEs
Retail
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
176
-
807
13
153,608
30,373
184,964
(3,402)
(7,694)
(11,083)
176
820
150,206
22,679
173,881
Stage 1
Stage 2
Stage 3
POCI
Total
€000
€000
€000
€000
€000
-
-
139
20
7
4
6
-
-
-
-
-
360
-
47
397
1
2
-
-
-
-
-
-
350
2
144
6,164
952
1,128
37,281
14,757
15,749
4,154
72,908
19
3
-
-
1,125
197
10
710
5
330
7,706
1,157
1,142
4,707
41,996
3,736
6,248
1,162
13,131
54
18,493
21,997
5,316
86,039
73
176
807
153,608
30,373
184,964
217
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.7
Analysis of loans and advances to customers classified as held for sale (continued)
2019
Residual fair value
adjustment on initial
recognition
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
2019
Gross loans at amortised
cost after residual fair
value adjustment on initial
recognition
Corporate
SMEs
Retail
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Stage 1
Stage 2
Stage 3
€000
€000
€000
POCI
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
Stage 1
€000
139
20
7
4
6
-
-
-
-
-
13
-
-
-
-
-
-
-
-
(2)
-
(9)
(99)
(2)
(6)
(88)
(2)
(15)
(732)
(1,152)
(1,884)
(214)
(357)
(200)
(639)
(949)
(364)
(1,888)
(4,477)
-
(6)
(853)
(1,306)
(564)
(6,365)
(6)
13
(3,402)
(7,694)
(11,083)
Stage 2
Stage 3
POCI
Total
€000
€000
€000
€000
360
-
47
410
1
2
-
-
-
-
-
-
350
2
144
6,162
952
1,119
36,549
14,543
15,392
3,954
71,020
19
-
3
-
1,026
195
4
710
5
330
7,618
1,155
1,127
3,555
40,112
3,097
5,299
798
8,654
48
17,640
20,691
4,752
79,674
67
176
820
150,206
22,679
173,881
218
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.7
Analysis of loans and advances to customers classified as held for sale (continued)
2018
Gross loans at amortised cost
before residual fair value
adjustment on initial
recognition
Residual fair value adjustment
on initial recognition
Gross loans at amortised cost
after residual fair value
adjustment on initial
recognition
2018
Gross loans at amortised
cost before residual fair
value adjustment on initial
recognition
Corporate
SMEs
Retail
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
7,148
(195)
94,600
2,222,931
526,434
2,851,113
(3,261)
(24,571)
(111,126)
(139,153)
6,953
91,339
2,198,360
415,308
2,711,960
Stage 1
Stage 2
Stage 3
POCI
Total
€000
€000
€000
€000
€000
165
2,835
-
2,110
2,038
-
-
-
-
-
-
-
-
-
-
85,783
8,817
-
-
-
-
-
-
-
14,343
6
741
-
15,249
2,841
125
3
128
722,631
187,831
231
5,575
967,761
300,509
484
23,427
8
48,690
18,180
41
198
859,214
216,866
272
5,773
368,310
1,336,071
73,827
374,336
151
16,293
-
635
39,720
8
7,148
94,600
2,222,931
526,434
2,851,113
219
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.7
Analysis of loans and advances to customers classified as held for sale (continued)
2018
Residual fair value
adjustment on initial
recognition
Corporate
Retail
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
2018
Gross loans at amortised
cost after residual fair
value adjustment on initial
recognition
Corporate
SMEs
Retail
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Stage 1
Stage 2
Stage 3
€000
€000
€000
POCI
€000
Total
€000
-
-
-
(195)
-
-
-
-
-
-
-
(2,722)
(539)
-
-
-
-
-
(584)
-
(13,730)
(1,470)
(132)
(4,900)
(3,473)
-
(282)
-
(1)
(7,927)
(2,654)
(78)
(81,744)
(14,518)
(115)
(4,089)
(584)
(1)
(24,379)
(4,858)
(210)
(86,644)
(17,991)
(115)
(4,371)
(195)
(3,261)
(24,571)
(111,126)
(139,153)
Stage 1
Stage 2
Stage 3
POCI
Total
€000
€000
€000
€000
€000
165
2,835
-
2,110
1,843
-
-
-
-
-
-
-
-
-
-
83,061
8,278
-
-
-
-
-
-
-
13,759
6
741
-
14,665
2,841
125
2
127
708,901
186,361
231
5,443
962,861
297,036
484
23,145
8
40,763
15,526
41
120
834,835
212,008
272
5,563
286,566
1,249,427
59,309
356,345
36
12,204
-
520
35,349
8
6,953
91,339
2,198,360
415,308
2,711,960
The following table presents the staging of the Group’s gross loans and advances at amortised cost before
residual fair value adjustment on initial recognition classified as held for sale as at 31 December 2019 and
2018 by geographical concetrantion.
220
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.7
Analysis of loans and advances to customers classified as held for sale (continued)
2019
Cyprus
2018
Cyprus
Other countries
Stage 1
€000
Stage 2
€000
176
176
807
807
Stage 1
€000
Stage 2
€000
7,148
-
94,600
-
Stage 3
€000
153,608
153,608
Stage 3
€000
2,161,695
61,236
POCI
€000
30,373
30,373
Total
€000
184,964
184,964
POCI
€000
Total
€000
526,434
2,789,877
-
61,236
7,148
94,600
2,222,931
526,434
2,851,113
An analysis of gross loans and advances to customers after residual fair value adjustment, classified as held
for sale, as per the internal rating system of BOC PCL is disclosed in the tables below.
Corporate legal entities
Rating 2
Rating 3
Rating 6
Unrated
New customers
Total Stage 3 and POCI
Retail legal entities
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Total Stage 3 and POCI
Stage 1
€000
2019
Stage 2
€000
Total
€000
Stage 1
€000
-
-
20
-
-
20
-
-
-
769
-
769
-
-
20
769
-
789
12,910
13,699
2018
Stage 2
€000
-
4,468
951
Total
€000
2,452
5,190
3,951
80,402
80,402
-
99
2,452
722
3,000
-
99
6,273
85,821
92,094
2,363,960
2,456,054
Stage 1
€000
2019
Stage 2
€000
Total
€000
Stage 1
€000
15
45
53
2
3
118
-
10
3
10
-
23
15
55
56
12
3
141
125,377
125,518
-
10
670
-
-
680
2018
Stage 2
€000
-
-
Total
€000
-
10
2,276
2,946
-
2,092
4,368
-
2,092
5,048
234,237
239,285
221
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.7
Analysis of loans and advances to customers classified as held for sale (continued)
SMEs legal entities
Rating 2
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New customers
Total Stage 3 and POCI
Stage 1
€000
2019
Stage 2
€000
Total
€000
Stage 1
€000
2018
Stage 2
€000
Total
€000
-
38
-
-
-
-
-
38
10
-
14
4
-
-
-
28
10
38
14
4
-
-
-
66
34,598
34,664
-
-
-
-
-
-
-
-
-
-
-
-
129
362
659
1,150
-
-
-
-
129
362
659
1,150
15,471
16,621
46.8
Contingent liabilities and commitments
The Group enters into various irrevocable commitments and contingent liabilities. These consist of
acceptances and endorsements, guarantees, documentary credits and undrawn formal stand-by facilities,
credit lines and other commitments to lend.
46.8.1 Contingent liabilities
An analysis of changes in the outstanding nominal amount of exposures and the corresponding ECLs are
disclosed in the tables below:
2019
Exposures
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net increase/(decrease)
31 December
2018
Exposures
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net increase/(decrease)
Foreign exchange and other adjustments
Disposal of subsidiary
31 December
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
399,573
39,122
(29,376)
(2,776)
23,750
430,293
194,076
(28,885)
44,313
(3,495)
(46,085)
159,924
160,617
(10,237)
(14,937)
6,271
754,266
-
-
-
(43,031)
(65,366)
98,683
688,900
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
302,437
48,097
(9,298)
(2,528)
62,315
(25)
(1,425)
252,230
(32,459)
26,050
(6,749)
221,865
(15,638)
(16,752)
9,277
776,532
-
-
-
(44,996)
(38,135)
(20,816)
-
-
-
-
(25)
(1,425)
399,573
194,076
160,617
754,266
222
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.8
Contingent liabilities and commitments (continued)
46.8.1 Contingent liabilities (continued)
2019
ECL
1 January
Transfers to stage 1
Transfers to stage 2
Charge for the year*
31 December
Individually assessed
Collectively assessed
2018
ECL
1 January
Impact of adopting IFRS 9 at 1 January 2018
Restated balance at 1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Charge for the year*
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
302
9
(10)
(280)
21
11
10
21
811
(1)
21
(761)
70
12
58
70
23,778
24,891
(8)
(11)
(1,855)
21,904
21,904
-
-
-
(2,896)
21,995
21,927
68
21,904
21,995
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
877
(796)
81
77
(16)
(887)
1,047
302
35
267
302
2,095
(1,865)
43,214
46,186
(14,158)
(16,819)
230
(47)
290
(3,890)
4,228
811
149
662
811
29,056
29,367
(30)
(274)
4,777
(9,751)
23,778
23,778
-
23,778
-
-
-
(4,476)
24,891
23,962
929
24,891
* The charge for the year mainly relates to changes to models and inputs.
The outstanding contingent liabilities by geography are disclosed in the table below:
2019
Cyprus
Other countries
Total
2018
Cyprus
Other countries
Total
Stage 1
€000
Stage 2
€000
Stage 3
€000
430,293
-
127,493
32,431
73,167
25,516
Total
€000
630,953
57,947
430,293
159,924
98,683
688,900
Stage 1
€000
Stage 2
€000
Stage 3
€000
399,573
-
158,630
35,446
135,814
24,803
Total
€000
694,017
60,249
399,573
194,076
160,617
754,266
223
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.8
Contingent liabilities and commitments (continued)
46.8.1 Contingent liabilities (continued)
The credit quality of contingent liabilities as per the internal rating system of BOC PCL is disclosed in the
table below.
Corporate legal
entities
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New customers
Total Stage 3
SME legal entities
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New customers
Total Stage 3
Stage 1
2019
Stage 2
€000
€000
Total
€000
Stage 1
2018
Stage 2
€000
€000
99,978
8,548
68,485
16,230
68,600
5,257
15,561
29,715
63,757
10,831
110,809
93
3,263
331
5,417
974
-
8,641
71,748
16,561
74,017
6,231
15,561
91,811
121,526
-
63,757
78,723
28,878
41,333
27,406
22,468
4,811
10,717
37,573
86,675
Total
€000
78,786
28,902
42,689
29,975
22,508
5,229
11,137
63
24
1,356
2,569
40
418
420
145,101
182,674
-
86,675
376,131
112,720
488,851
79,600
568,451
338,584
149,991
Stage 1
€000
24,343
4,881
3,197
464
330
85
451
-
20,411
54,162
2019
Stage 2
€000
3,989
2,919
400
43
276
26
1,770
14,165
51
23,639
2018
Stage 2
€000
2,515
1,233
192
900
673
1,588
1,429
13,211
555
22,296
Total
€000
Stage 1
€000
28,332
10,951
4,520
1,343
4,243
2,797
4,898
1,901
-
30,336
60,989
7,800
3,597
507
606
111
2,221
14,165
20,462
77,801
18,450
96,251
488,575
155,784
644,359
Total
€000
13,466
5,753
1,535
5,143
3,470
6,486
3,330
13,211
30,891
83,285
2,824
86,109
224
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.8
Contingent liabilities and commitments (continued)
46.8.1 Contingent liabilities (continued)
Stage 1
€000
-
-
2019
Stage 2
€000
23,565
23,565
2018
Stage 2
€000
21,789
21,789
-
-
Total
€000
Stage 1
€000
23,565
23,565
633
24,198
Total
€000
21,789
21,789
2,009
23,798
Retail individuals
Unrated
Total Stage 3
46.8.2 Commitments
An analysis of changes in the outstanding exposures and the corresponding ECLs are disclosed in the tables
below:
2019
Exposure
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net decrease
31 December
2018
Exposure
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net increase/(decrease)
Disposal of subsidiary
Foreign exchange and other adjustments
31 December
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
1,307,229
615,502
165,538
2,088,269
204,396
(200,726)
(127,827)
(2,006)
(90,399)
144,188
(5,217)
(44,886)
(3,670)
(16,361)
7,223
-
-
-
(19,876)
(155,161)
1,291,393
508,861
132,854
1,933,108
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
1,160,742
883,737
218,329
2,262,808
232,355
(205,220)
(150,375)
(10,820)
172,014
(12,993)
(27,135)
(21,639)
23,813
-
-
-
93,749
(222,036)
(27,830)
(156,117)
(18,232)
(190)
-
-
-
-
(18,232)
(190)
1,307,229
615,502
165,538
2,088,269
225
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.8
Contingent liabilities and commitments (continued)
46.8.2 Commitments (continued)
2019
ECL
1 January
Transfers to stage 1
Transfers to stage 2
Charge for the year*
31 December
Individually assessed
Collectively assessed
2018
ECL
1 January
Impact of adopting IFRS 9 at 1 January 2018
Restated balance at 1 January 2018
Transfers to stage 1
Transfers to stage 2
Charge for the year*
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
1,012
3
(11)
(974)
30
6
24
30
1,782
(3)
20
(1,712)
87
8
79
87
Stage 1
€000
Stage 2
€000
Stage 3
€000
-
-
(9)
9
-
-
-
-
-
-
25
367
392
282
(265)
603
1,012
78
934
1,012
-
22
1,204
1,226
(203)
754
5
1,782
71
1,711
1,782
5,754
(3,672)
2,082
(79)
(489)
(1,514)
-
-
-
-
2,794
-
-
(2,677)
117
14
103
117
Total
€000
-
5,801
(2,101)
3,700
-
-
(906)
2,794
149
2,645
2,794
*The charge in the year mainly relates to changes to models and inputs.
Commitments by geography are presented in the table below:
2019
Cyprus
Other countries
Total
2018
Cyprus
Other countries
Total
Stage 1
€000
1,291,393
Stage 2
€000
Stage 3
€000
Total
€000
508,861
132,511
1,932,765
-
-
343
343
1,291,393
508,861
132,854
1,933,108
Stage 1
€000
1,307,229
Stage 2
€000
Stage 3
€000
Total
€000
615,502
165,195
2,087,926
-
-
343
343
1,307,229
615,502
165,538
2,088,269
226
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.8
Contingent liabilities and commitments (continued)
46.8.2 Commitments (continued)
The credit quality of commitments, as per the internal rating system of BOC PCL is disclosed in the table
below.
Corporate legal
entities
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New customers
Total Stage 3
SME legal entities
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New customers
Total Stage 3
Total
€000
183,803
161,098
101,080
60,331
30,216
12,835
13,773
229,128
106,045
898,309
137,557
1,035,866
Total
€000
138,211
45,943
16,305
35,752
16,026
55,727
18,200
23,122
25,768
375,054
12,672
387,726
Stage 1
2019
Stage 2
€000
€000
Total
€000
Stage 1
2018
Stage 2
€000
€000
299,680
22,488
322,168
32,741
89,930
32,658
55,968
1,237
906
13,133
42,973
4,960
37,701
24,666
114,596
1,835
14,695
3,863
183
34,493
70,663
5,100
1,089
139,064
152,197
175,810
155,852
85,480
54,717
28,247
10,853
11,606
31,070
7,993
5,246
15,600
5,614
1,969
1,982
2,167
198,058
2,604
134
43,107
103,441
569,226
211,888
Stage 1
€000
174,415
52,230
15,215
4,952
1,970
521
138
-
14,784
2019
Stage 2
€000
54,779
12,724
6,448
4,691
3,418
940
1,777
12,942
176
264,225
97,895
657,076
241,233
Stage 1
€000
2018
Stage 2
€000
83,581
31,666
12,873
19,947
10,731
27,252
5,109
-
25,035
54,630
14,277
3,432
15,805
5,295
28,475
13,091
23,122
733
216,194
158,860
781,114
98,942
880,056
Total
€000
229,194
64,954
21,663
9,643
5,388
1,461
1,915
12,942
14,960
362,120
22,597
384,717
227
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.8
Contingent liabilities and commitments (continued)
46.8.2 Commitments (continued)
Retail individuals
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New lending
Total Stage 3
Stage 1
€000
106,440
121,923
89,794
49,897
13,786
5,894
721
-
69,487
2019
Stage 2
€000
36,537
65,694
32,207
15,709
9,285
6,258
4,755
23,998
4,635
457,942
199,078
Stage 1
€000
84,297
122,073
85,405
50,785
16,026
5,475
1,240
-
68,658
2018
Stage 2
€000
43,628
67,980
38,570
18,416
7,423
5,054
3,466
26,481
4,391
433,959
215,409
Total
€000
142,977
187,617
122,001
65,606
23,071
12,152
5,476
23,998
74,122
657,020
11,315
668,335
Total
€000
127,925
190,053
123,975
69,201
23,449
10,529
4,706
26,481
73,049
649,368
15,309
664,677
228
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.9
customers held for sale
Credit losses of loans and advances to customers, including loans and advances to
The movement in ECL of loans and advances, including the loans and advances to customers held for sale,
is as follows:
2019
Cyprus
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Impact on transfer between
stages during the year*
Foreign exchange and other
adjustments
Write offs
Contractual interest
(provided) not recognised in
the income statement
New loans originated or
purchased*
Loans derecognised or repaid
(excluding write offs)*
Write offs*
Changes to models and inputs
(changes in PDs, LGDs and
EADs) used for ECL
calculations*
Changes to contractual cash
flows due to modifications
not resulting in
derecognition*
Disposal of Helix and Velocity
portfolios
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
26,233
28,434
(3,645)
(1,297)
73,870
(13,836)
16,739
(18,404)
Stage 3
€000
2,783,232
(14,598)
(13,094)
19,701
POCI
€000
Total
€000
431,924
3,315,259
-
-
-
-
-
-
(18,450)
(569)
51,033
(128)
31,886
-
-
5,949
675
6,624
(3,991)
(3,888)
(331,239)
(63,216)
(402,334)
-
3,581
228
1,933
-
-
96,042
13,299
109,341
-
-
3,581
(3,154)
2,011
(55,752)
46,020
5,430
5,595
(53,248)
55,559
(8,446)
(5,401)
214,203
17,988
218,344
(137)
260
5,917
(889)
5,151
(7,778)
16,665
3,862
12,803
16,665
(22,248)
(1,313,522)
(204,512)
(1,548,060)
25,380
1,493,892
206,166
1,742,103
7,572
17,808
136,369
8,983
156,786
1,357,523
197,183
1,585,317
25,380
1,493,892
206,166
1,742,103
* Individual components of the ‘Impairment loss net of reversals of loans and advances to customers’
229
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2019
Other countries
1 January
Impact on transfer between
stages during the year*
Foreign exchange and other
adjustments
Write offs
Contractual interest
(provided) not recognised in
the income statement
Loans derecognised or repaid
(excluding write offs)*
Write offs*
Changes to models and inputs
(changes in PDs, LGDs and
EADs) used for ECL
calculations*
Disposal of Helix and Velocity
1 portfolios
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
135
(3)
-
-
-
(132)
-
-
-
-
-
-
-
Stage 3
€000
146,611
(350)
3,857
(38,608)
5,376
(247)
17
(444)
(54,765)
61,447
55,433
6,014
61,447
-
-
-
-
-
-
-
-
-
-
-
-
-
POCI
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
€000
146,746
(353)
3,857
(38,608)
5,376
(379)
17
(444)
(54,765)
61,447
55,433
6,014
61,447
*Individual components of the ‘Impairment loss net of reversals of loans and advances to customers’
230
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2019
Total
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Impact on transfer between
stages during the year*
Foreign exchange and other
adjustments
Write offs
Contractual interest
(provided) not recognised in
the income statement
New loans originated or
purchased*
Loans derecognised or repaid
(excluding write offs)*
Write offs*
Changes to models and inputs
(changes in PDs, LGDs and
EADs) used for ECL
calculations*
Changes to contractual cash
flows due to modifications
not resulting in
derecognition*
Disposal of Helix and Velocity
1 portfolios
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
26,368
28,434
(3,645)
(1,297)
73,870
(13,836)
16,739
(18,404)
Stage 3
€000
2,929,843
(14,598)
(13,094)
19,701
POCI
€000
Total
€000
431,924
3,462,005
-
-
-
-
-
-
(18,453)
(569)
50,683
(128)
31,533
-
-
9,806
675
10,481
(3,991)
(3,888)
(369,847)
(63,216)
(440,942)
-
3,581
96
1,933
-
-
101,418
13,299
114,717
-
-
3,581
(3,154)
2,011
(55,999)
46,037
5,430
5,595
(53,627)
55,576
(8,446)
(5,401)
213,759
17,988
217,900
(137)
260
5,917
(889)
5,151
(7,778)
16,665
3,862
12,803
16,665
(22,248)
(1,368,287)
(204,512)
(1,602,825)
25,380
1,555,339
206,166
1,803,550
7,572
17,808
191,802
8,983
212,219
1,363,537
197,183
1,591,331
25,380
1,555,339
206,166
1,803,550
*Individual components of the ‘Impairment loss net of reversals of loans and advances to customers’ (Note
17).
231
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2018
Cyprus
1 January
Change in the basis of
calculation of gross carrying
value (IFRS 9 Grossing up
adjustment)
Impact of adopting IFRS 9 at
1 January 2018
Restated balance at 1 January
Transfer from Romania branch
('Other countries' table)
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Foreign exchange and other
adjustments
Write offs
Contractual interest
(provided) not recognised in
the income statement
New loans originated or
purchased*
Loans derecognised or repaid
(excluding write offs)*
Write offs*
Changes to models and inputs
(changes in PDs, LGDs and
EADs) used for ECL
calculations*
Changes to contractual cash
flows due to modifications
not resulting in
derecognition*
Impact on transfer between
stages during the year*
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
20,840
29,510
Stage 3
€000
2,654,800
POCI
€000
Total
€000
500,027
3,205,177
5,068
6,561
1,294,541
326,152
1,632,322
(6,660)
19,248
-
54,379
(1,721)
(5,459)
32,744
68,815
-
(29,841)
28,096
(11,362)
235,471
52,373
313,928
4,184,812
878,552
5,151,427
-
22,176
22,176
(24,538)
(26,375)
16,821
-
-
-
-
-
-
-
-
1,601
317
1,918
(13,693)
(20,303)
(1,961,979)
(552,912)
(2,548,887)
-
6,345
832
2,334
-
-
141,719
17,521
159,240
-
5,581
11,926
(3,760)
(107,462)
(9,868)
(120,258)
5,369
68,483
11,690
87,876
3,691
36,336
380,988
61,123
482,138
119
(39,842)
26,233
6,326
19,907
26,233
226
294
(1,616)
(576)
(1,847)
110,778
(1,680)
69,550
73,870
2,783,232
431,924
3,315,259
17,411
56,459
147,327
22,206
193,270
2,635,905
409,718
3,121,989
73,870
2,783,232
431,924
3,315,259
*Individual components of the ‘Impairment loss net of reversals of loans and advances to customers’
232
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2018
Other countries
1 January
Change in the basis of calculation
of gross carrying value (IFRS 9
Grossing up adjustment)
Impact of adopting IFRS 9 at 1
January 2018
Restated balance at 1 January
Transfer to Cyprus operations
('Cyprus' table)
Transfers to stage 2
Foreign exchange and other
adjustments
Write offs
Disposal of UK subsidiaries
Contractual interest (provided)
not recognised in the income
statement
New loans originated or
purchased*
Assets derecognised or repaid
(excluding write offs)*
Write offs*
Changes to models and inputs
(changes in PDs, LGDs and EADs)
used for ECL calculations*
Discontinued operations
Impact on transfer between
stages during the year*
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
1,344
365
222,389
23,575
247,673
-
(7)
1,337
-
-
(236)
1
(1,495)
-
(1)
-
-
33
233
263
135
-
135
135
33
55,502
1,640
57,175
4,215
4,613
-
28
-
(42)
(368)
-
-
(3)
6
(4,212)
3
(25)
-
-
-
-
933
33
5,174
278,824
25,248
310,022
-
(28)
(8,189)
(116,353)
(1,731)
5,197
-
(4,209)
944
(9,346)
(860)
2,362
146,611
88,716
57,895
146,611
(22,176)
(22,176)
-
1
-
(8,424)
(832)
(117,226)
-
-
-
(89)
3
(3,594)
5,197
(1)
(4,301)
953
(2,155)
(15,680)
-
-
-
-
-
-
(624)
2,600
146,746
88,716
58,030
146,746
*Individual components of the ‘Impairment loss net of reversals of loans and advances to customers’.
233
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2018
Total
1 January
Change in the basis of calculation
of gross carrying value (IFRS 9
Grossing up adjustment)
Impact of adopting IFRS 9 at 1
January 2018
Restated balance at 1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Impact on transfer between
stages during the period*
Foreign exchange and other
adjustments
Write offs
Disposal of UK subsidiaries
Contractual interest (provided)
not recognised in the income
statement
New loans originated or
purchased*
Loans derecognised or repaid
(excluding write offs)*
Write offs*
Changes to models and inputs
(changes in PDs, LGDs and EADs)
used for ECL calculations*
Discontinued operations
Changes to contractual cash flows
due to modifications not resulting
in derecognition*
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
22,184
29,875
Stage 3
€000
2,877,189
POCI
€000
523,602
Total
€000
3,452,850
5,068
(6,667)
20,585
54,379
(1,721)
(5,459)
(39,579)
(236)
(13,692)
(1,495)
-
6,344
832
2,334
3,724
233
119
26,368
6,326
20,042
26,368
6,594
1,350,043
327,792
1,689,497
36,959
73,428
(29,841)
28,124
(11,362)
269
-
236,404
52,406
319,102
4,463,636
903,800
5,461,449
(24,538)
(26,403)
16,821
-
-
-
-
-
-
113,140
(1,680)
72,150
(6,588)
318
(6,506)
(20,345)
(2,078,332)
(553,744)
(2,666,113)
(368)
(1,731)
-
(3,594)
-
-
146,916
17,521
164,437
-
5,581
11,925
(3,763)
5,375
(111,671)
69,427
(9,957)
11,693
(124,559)
88,829
32,124
3
371,642
(860)
58,968
-
466,458
(624)
226
(1,616)
(576)
(1,847)
73,870
2,929,843
431,924
3,462,005
17,411
56,459
236,043
2,693,800
22,206
409,718
281,986
3,180,019
73,870
2,929,843
431,924
3,462,005
* Individual components of the ‘Impairment loss net of reversals of loans and advances to customers’ (Note
17).
The above tables do not include the residual fair value adjustments on initial recognition of loans acquired
from Laiki Bank as this forms part of the gross carrying amount and ECL on financial guarantees which are
part of other liabilities on the balance sheet.
234
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
The movement of credit losses of loans and advances to customers for 2019 and 2018 includes credit losses
relating to loans and advances to customers classified as held for sale. Their balance at 31 December 2019
and 2018 by staging and geographical area is presented in the table below:
2019
Cyprus
Total
Individually assessed
Collectively assessed
2018
Cyprus
Other countries
Total
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
7
7
7
7
-
42
42
-
42
42
130,551
130,551
115
130,436
130,551
17,352
17,352
64
17,288
17,352
Total
€000
147,952
147,952
179
147,773
147,952
Stage 1
€000
Stage 2
€000
Stage 3
€000
1,271,559
50,393
POCI
€000
Total
€000
188,482
1,507,459
-
50,393
43,977
-
43,977
1,321,952
188,482
1,557,852
43,977
1,321,952
188,482
1,557,852
3,441
-
3,441
3,441
The credit losses of loans and advances as at 31 December 2019 and 2018 (including the loans and
advances to customers held for sale), by business line is presented in the table below:
2019
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Wealth management
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
2,133
3,447
1,525
2,871
2,247
232
2,905
1,052
173
-
-
-
2
73
5
846
5,016
1,940
4,720
3,077
2,834
4,695
1,445
251
-
-
-
-
546
10
28,615
60,175
12,458
676
1,908
334
Total
€000
32,270
70,546
16,257
19,499
413
27,503
15,823
1,104
22,251
80,347
72,662
143,988
125,335
55,912
213,544
337,807
386,193
2,223
758
3,195
5,224
3,985
7,190
13,719
29,726
62,576
75,507
157
452
86,608
85,486
150,470
132,949
69,631
243,270
400,383
461,702
2,999
1,225
16,665
25,380
1,555,339
206,166
1,803,550
235
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2018 (restated)
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Wealth management
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
4,722
3,787
5,621
4,052
4,848
1,616
1,507
23
127
-
-
-
-
52
13
4,218
11,804
3,333
1,028
4,655
42,731
5,469
102
53
-
-
-
-
462
15
85,226
80,480
22,574
1,364
3,780
320
Total
€000
95,530
99,851
31,848
28,109
301
33,490
26,152
1,878
37,533
402,181
253,504
138,799
171,882
696,310
538,148
248,429
226,379
10,180
1,490
21,620
24,325
4,309
9,479
147,552
83,209
59,651
72,396
1,175
565
468,148
284,805
143,233
181,541
843,862
621,357
308,080
298,775
11,869
2,083
26,368
73,870
2,929,843
431,924
3,462,005
236
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
Credit losses under the business line Global corporate as restated include credit loss of €99,649 thousand
previously included in Corporate loans (Stage 1: €3,600 thousand, Stage 2: €11,790 thousand, Stage 3:
€80,480 thousand and POCI 3: €3,779 thousand). Additionally they include credit losses of €202 thousand
previously included in Restructuring corporate (Stage 1: €187 thousand, Stage 2: €14 thousand and POCI:
€1 thousand.
The movement of the ECL allowance for the loans and advances to customers in the Corporate, Global
corporate and Retail business line in Cyprus (excluding loans under Restructuring, Recoveries, International
banking services and Wealth management) including ECL allowance for loans and advances to customers
held for sale is presented in the table below:
1 January
Change in the basis of
calculation of gross carrying
value (IFRS 9 Grossing up
adjustment)
Impact of adopting IFRS 9 at
1 January 2018
Transfer (to)/in Global
corporate business line
Transfer (out of)/in of the
business line
Loans derecognised or repaid
(excluding write offs)
Write offs
Interest (provided) not
recognised in the income
statement
New loans originated or
purchased*
Loans derecognised or repaid
(excluding write offs)*
Write offs*
Changes to models and inputs
(changes in PDs, LGDs and
EADs) used for ECL
calculations*
Changes to contractual cash
flows due to modifications
not resulting in
derecognition*
Impact on transfer between
stages during the year*
Disposal of Helix and Velocity
portfolios
31 December
Corporate
€000
107,869
-
-
107,869
2019
Global
corporate
€000
-
-
-
-
2018
Retail
€000
Corporate
€000
Retail
€000
70,476
106,153
115,197
-
-
70,476
33,867
22,651
40,270
180,290
40,645
178,493
(56,374)
56,576
-
-
-
(8,110)
(1,351)
(19,793)
18,978
(95,078)
(410)
(12,740)
268
528
-
(545)
2,381
1,400
(1,260)
(8,436)
-
-
(80,160)
(25,188)
931
979
1,788
5,987
1,531
1,385
(2,541)
572
(4,977)
1
(1,900)
4,586
(36,005)
(10,796)
772
8,018
(1,777)
(11,679)
3,169
(1,156)
17,962
25
-
2,436
7
827
(2,092)
(7,824)
(1,806)
17,368
(6,678)
(9,864)
15,354
-
33,982
(125)
49,257
-
-
107,869
70,476
237
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
* Individual components of the 'Impairment loss net of reversal of loans and advances to customers'.
As disclosed in Note 2.38 disclosure of movement of ECL for 2018 for Corporate line is not restated due to
impracticability to extract the information in the manner disclosed in the table above. Rather the ‘transfer’
of the closing balance of ECL as reported in the 2018 financial statements from the Corporate line into the
new Global corporate line is disclosed in the table above providing information as to the impact of the
change compared to the amounts disclosed in the 2018 financial statements.
As from 1 January 2018, to comply with the requirements of IFRS 9, relating to the measurement and
presentation of the gross carrying amount and accumulated allowance for impairment as impacted from
interest income on impaired loans, the gross carrying amounts of the loans have been increased by an
amount of €1,689,497 thousand and an equivalent adjustment was effected on the accumulated allowance
for impairment. There was no impact on the net carrying amount of the customer loans and advances from
this change in the presentation.
During 2019 the total non-contractual write-offs recorded by the Group amounted to €235,181 thousand
(2018: €2,264,902 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 31 December 2019 the weighted average haircut (including liquidity haircut and selling expenses) used in
the collectively assessed provision calculation for loans and advances to customers excluding those
classified as held for sale is c.32% under the baseline scenario (2018: c.32%).
The timing of recovery from real estate collaterals used in the collectively assessed provision calculation for
loans and advances to customers has been estimated to be on average seven years under the baseline
scenario (2018: average of seven years), excluding those classified as held for sale.
For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the
haircuts used are based on the specific facts and circumstances of each case.
For Stage 3 customers, the calculation of individually assessed ECL is the weighted average of three
scenarios; base, adverse and favourable. The base scenario focuses on the following variables, which are
based on the specific facts and circumstances of each customer: the operational cash flows, the timing of
recovery of collaterals and the haircuts from the realisation of collateral. The base scenario is used to derive
additional scenarios for either better or worse cases. Under the adverse scenario operational cash flows are
decreased by 50%, applied haircuts on real estate collateral are increased by 50% and the timing of
recovery of collaterals is increased by 1 year with reference to the baseline scenario. Under the favourable
scenario, applied haircuts are decreased by 5%, with no change in the recovery period with reference to the
baseline scenario. Assumptions used in estimating expected future cash flows (including cash flows that
may result from the realisation of collateral) reflect current and expected future economic conditions and
are generally consistent with those used in the Stage 3 collectively assessed exposures. In the case of loans
held for sale the Group has taken into consideration the timing of expected sale and the estimated sale
proceeds in determining the ECL. Amounts previously written off which are expected to be recovered
through sale are presented in 'Recoveries of loans and advances to customers previously written off' in
(Note 17).
For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with
50%, 30% and 20% probability respectively.
238
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
Any positive cumulative average future change in forecasted property values was capped to zero for 2019
and 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
provisions.
Any changes in these assumptions or difference between assumptions made and actual results could result
in significant changes in the estimated amount of expected credit losses of loans and advances.
Sensitivity analysis
The Group has performed sensitivity analysis relating to the loan portfolio in Cyprus, which represents 99%
of the total loan portfolio of the Group (excluding the loans and advances to customers classified as held for
sale) with reference date 31 December 2019.
The Group uses three different economic scenarios in the ECL calculation: a base, an adverse and a
favourable scenario with weights 50%, 30% and 20% respectively. The same scenario weights determined
at 31 December 2019 were used for the scenario weights determined on 31 December 2018.
The Group has altered for the purpose of sensitivity analysis the weights of the economic scenarios and
changed the collateral realisation periods and the impact on the ECL, for both individually and collectively
assessed ECL calculations, as presented in the table below:
Increase the adverse weight by 5% and decrease the favourable weight by
5%
Decrease the adverse weight by 5% and increase the favourable weight by
5%
Increase the expected recovery period by 1 year
Decrease the expected recovery period by 1 year
Increase the collateral realisation haircut by 5%
Decrease the collateral realisation haircut by 5%
Increase in the PDs of stages 1 and 2 by 20%
Decrease in the PDs of stages 1 and 2 by 20%
Increase/(decrease) on ECL
for loans and advances to
customers at amortised cost
2019
€000
2018
€000
2,702
4,963
(2,682)
42,064
(42,200)
81,569
(75,148)
5,486
(5,632)
(4,956)
50,898
(49,821)
89,682
(81,862)
12,733
(11,126)
A bundle of sensitivity runs were carried out as at 31 December 2019 in order to stress the expected
lifetime on revolving facilities. The expected lifetime for all Stage 1 and Stage 2 facilities was extended to
three, five, seven and nine years and the impact on the carrying value upon increase in the imposed lifetime
is shown in the table below:
239
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
Increase in the
expected lifetime of
revolving facilities
3 years
5 years
7 years
9 years
Increase on the ECL
carrying value of
Stage 1 facilities
2019
€000
2018
€000
4,160
7,030
9,390
11,370
14,690
24,530
32,200
38,310
Increase on the ECL
carrying value of
Stage 2 facilities
2019
€000
2018
€000
2,400
3,960
5,080
5,950
7,000
12,760
17,070
20,410
The main drivers of the deviation between the 2018 and 2019 sensitivities are the model calibration, which
took place in the second quarter of 2019, and the transition of balances between stages. The underlying
ECL differs significantly between the two time points. The relative increase in the sensitivities remains
consistent.
46.10
Collateral and other credit enhancements obtained
The carrying value of assets obtained during 2019 and 2018 by taking possession of collateral held as
security, was as follows:
Residential property
Commercial and other property
2019
€000
69,134
128,075
197,209
2018
€000
66,893
329,363
396,256
The total carrying value of the assets obtained over the years by taking possession of collateral held as
security for customer loans and advances and held by the Group as at 31 December 2019 amounted to
€1,483,167 thousand (2018: €1,684,606 thousand).
The disposals of repossessed assets during 2019 amounted to €212,501 thousand (2018: €173,080
thousand).
46.11
Forbearance
Forbearance measures occur in situations in which the borrower is considered to be unable to meet the
terms and conditions of the contract due to financial difficulties. Taking into consideration these difficulties,
the Group decides to modify the terms and conditions of the contract to provide the borrower with the
ability to service the debt or refinance the contract, either partially or fully.
The practice of extending forbearance measures constitutes a grant of a concession whether temporarily or
permanently to that borrower. A concession may involve restructuring the contractual terms of a debt or
payment in some form other than cash, such as an arrangement whereby the borrower transfers collateral
pledged to the Group.
The loans forborne continue to be classified as Stage 3 in the case they are performing forborne exposures
under probation for which additional forbearance measures are extended, or performing forborne exposures
under probation that present more than 30 days past due within the probation period.
240
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.11
Forbearance (continued)
Modifications of loans and advances that do not affect payment arrangements, such as restructuring of
collateral or security arrangements, are not regarded as sufficient to categorise the facility as credit
impaired, as by themselves they do not necessarily indicate credit distress affecting payment ability such
that would require the facility to be classified as NPE.
Rescheduled loans and advances are those facilities for which the Group has modified the repayment
programme (provision of a grace period, suspension of the obligation to repay one or more instalments,
reduction in the instalment amount and/or elimination of overdue instalments relating to capital or interest)
and current accounts/overdrafts for which the credit limit has been increased with the sole purpose of
covering an excess.
For an account to qualify for rescheduling it must meet certain criteria including that the client’s business
must be considered to be viable. The extent to which the Group reschedules accounts that are eligible
under its existing policies may vary depending on its view of the prevailing economic conditions and other
factors which may change from year to year. In addition, exceptions to policies and practices may be made
in specific situations in response to legal or regulatory agreements or orders.
The forbearance characteristic contributes in two specific ways for the calculation of lifetime ECL for each
individual facility. Specifically, it is taken into consideration in the scorecard development where if this
characteristic is identified as statistically significant it affects negatively the rating of each facility. The
second contribution of the forbearance flag is in the construction of the through the cycle probability of
default curve, where when feasible a specific curve for the forborne products is calculated and assigned
accordingly.
Forbearance activities may include measures that restructure the borrower's business (operational
restructuring) and/or measures that restructure the borrower’s financing (financial restructuring).
Restructuring options may be of a short or long-term nature or combination thereof. The Group has
developed and deployed restructuring solutions, which are suitable for the borrower and acceptable for the
Group.
Short-term restructuring solutions are defined as restructured repayment solutions of duration of less than
two years. In the case of loans for the construction of commercial property and project finance, a short-
term solution may not exceed one year.
Short-term restructuring solutions can include the following:
Interest only: during a defined short-term period, only interest is paid on credit facilities and no
principal repayment is made.
Reduced payments: decrease of the amount of repayment instalments over a defined short-term
period in order to accommodate the borrower’s new cash flow position.
Arrears and/or interest capitalisation: the capitalisation of arrears and/or of accrued interest arrears;
that is forbearance of the arrears and capitalisation of any unpaid interest to the outstanding
principal balance for repayment under a rescheduled program.
Grace period: an agreement allowing the borrower a defined delay in fulfilling the repayment
obligations usually with regard to the principal.
Long-term restructuring solutions can include the following:
Interest rate reduction: permanent or temporary reduction of interest rate (fixed or variable) into a
fair and sustainable rate.
Extension of maturity: extension of the maturity of the loan which allows a reduction in instalment
amounts by spreading the repayments over a longer period.
Additional security: when additional liens on unencumbered assets are obtained as additional
security from the borrower in order to compensate for the higher risk exposure and as part of the
restructuring process.
241
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.11
Forbearance (continued)
Forbearance of penalties in loan agreements: waiver, temporary or permanent, of violations of
covenants in the loan agreements.
Rescheduling of payments: the existing contractual repayment schedule is adjusted to a new
sustainable repayment program based on a realistic, current and forecasted, assessment of the cash
flow generation of the borrower.
Strengthening of the existing collateral: a restructuring solution may entail the pledge of additional
security for instance, in order to compensate for the reduction in interest rates or to balance the
advantages the borrower receives from the restructuring.
New loan facilities: new loan facilities may be granted during a restructuring agreement, which may
entail the pledge of additional security and in the case of inter-creditor arrangements the
introduction of covenants in order to compensate for the additional risk incurred by the Group in
providing a new financing to a distressed borrower.
Debt consolidation: the combination of multiple exposures into a single loan or limited number of
loans.
Debt/equity swaps: partial set-off of the debt and obtaining of an equivalent amount of equity by
the Group, with the remaining debt right-sized to the cash flows of the borrower to allow repayment
to the Group from repayment on the re-sized debt and from the eventual sale of the equity stake in
the business. This solution is used only in exceptional cases and only where all other efforts for
restructuring are exhausted and after ensuring compliance with the banking law.
Debt/asset swaps: agreement between the Group and the borrower to voluntarily dispose of the
secured asset to partially or fully repay the debt. The asset may be acquired by the Group and any
residual debt may be restructured within an appropriate repayment schedule in line with the
borrower’s reassessed repayment ability.
Debt write-off: cancellation of part or the whole of the amount of debt outstanding by the borrower.
The Group applies the debt forgiveness solution only as a last resort and in remote cases having
taken into consideration the ability of the borrower to repay the remaining debt in the agreed
timeframe and the moral hazard.
Split and freeze: the customer’s debt is split into sustainable and unsustainable parts. The
sustainable part is restructured and continues to operate. The unsustainable part is ‘frozen’ for the
restructured duration of the sustainable part. At the maturity of the restructuring, the frozen part is
either forgiven pro-rata (based on the actual repayment of the sustainable part) or restructured.
Stage 2 and Stage 3 loans after residual fair value adjustment on initial recognition that were forborne
during the year amounted to €206,007 thousand (2018: €480,437 thousand). Their related modification
loss amounted to €2,141 thousand (2018: €7,009 thousand).
Facilities that have cured since their modification and are classified as Stage 1 at 31 December 2019
amount to €13,221 thousand (2018: €31,138 thousand) and their corresponding ECL amount to €37
thousand (2018: €220 thousand).
Facilities that reverted to Stage 2 and Stage 3 having once cured amount to €66,215 thousand (2018:
€165,379 thousand) and their corresponding ECL amounts to €1,431 thousand (2018: €6,495 thousand) as
at 31 December 2019.
46.12 Rescheduled loans and advances to customers
The below table presents the movement of the Group’s rescheduled loans and advances to customers
measured at amortised cost including those classified as held for sale (by geography). The rescheduled
loans related to loans and advances classified as held for sale as at 31 December 2019 amounts to €42,803
thousand (2018: €1,412,802 thousand).
242
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.12 Rescheduled loans and advances to customers (continued)
2019
1 January
New loans and advances rescheduled in the year
Loans no longer classified as rescheduled (including
repayments)
Applied in writing off rescheduled loans and advances
Interest accrued on rescheduled loans and advances
Foreign exchange adjustments
Disposal of Helix and Velocity portfolios
31 December
2018
1 January
Rescheduled loans measured at FVPL on adoption of IFRS 9
Change in the basis of calculation of
gross carrying value (IFRS 9 Grossing up adjustment)
Restated balance at 1 January
Transfer between geographical areas
New loans and advances rescheduled in the year
Loans no longer classified as rescheduled (including
repayments)
Applied in writing off rescheduled loans and advances
Cyprus
€000
4,566,470
146,422
Other
countries
€000
Total
€000
48,806
4,615,276
-
146,422
(830,137)
(683)
(830,820)
(136,135)
(13,634)
(149,769)
91,281
2,490
(5,509)
4,387
85,772
6,877
(1,370,825)
-
(1,370,825)
2,469,566
33,367
2,502,933
Cyprus
€000
6,272,946
(341,765)
Other
countries
€000
Total
€000
99,068
6,372,014
-
(341,765)
416,093
3,678
419,771
6,347,274
102,746
6,450,020
6,254
240,660
(6,254)
-
220
240,880
(1,472,701)
(98)
(1,472,799)
(727,759)
(31,932)
(759,691)
Interest accrued on rescheduled loans and advances
166,922
919
167,841
Foreign exchange adjustments
31 December
5,820
(16,795)
(10,975)
4,566,470
48,806
4,615,276
The classification as rescheduled loans is discontinued when all EBA criteria for the discontinuation of the
classification as forborne exposure are met. These are set out in EBA Final draft Implementing Technical
Standards (ITS) on supervisory reporting and non-performing exposures.
The below tables present the Group’s rescheduled loans and advances to customers by staging, industry
sector, geography and business line classification excluding those classified as held for sale, as well as ECL
allowances and tangible collateral held for rescheduled loans.
243
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.12 Rescheduled loans and advances to customers (continued)
2019
Stage 1
Stage 2
Stage 3
POCI
2018
Stage 1
Stage 2
Stage 3
POCI
Fair value of collateral
2019
Stage 1
Stage 2
Stage 3
POCI
2018
Stage 1
Stage 2
Stage 3
POCI
Cyprus
€000
357,658
299,448
1,567,155
202,502
Other
countries
€000
114
-
Total
€000
357,772
299,448
33,253
1,600,408
-
202,502
2,426,763
33,367
2,460,130
Cyprus
€000
508,664
376,794
2,001,947
266,263
Other
countries
€000
120
24
Total
€000
508,784
376,818
48,662
2,050,609
-
266,263
3,153,668
48,806
3,202,474
Cyprus
€000
334,938
254,238
1,276,055
187,363
Other
countries
€000
114
-
Total
€000
335,052
254,238
16,102
1,292,157
-
187,363
2,052,594
16,216
2,068,810
Cyprus
€000
480,611
327,142
1,631,012
248,691
Other
countries
€000
101
21
Total
€000
480,712
327,163
11,204
1,642,216
-
248,691
2,687,456
11,326
2,698,782
The fair value of collateral presented above has been computed based on the extent that the collateral
mitigates credit risk.
244
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.12 Rescheduled loans and advances to customers (continued)
Credit risk concentration
2019
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other services
Other sectors
2019
By business line
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Wealth management
Cyprus
€000
187,008
67,568
80,704
281,820
161,629
1,427,904
145,220
74,910
Other
countries
€000
5,824
1,601
-
535
12,793
Total
€000
192,832
69,169
80,704
282,355
174,422
143
1,428,047
12,470
1
157,690
74,911
2,426,763
33,367
2,460,130
Cyprus
€000
Other
countries
€000
Total
€000
123,889
185,718
107,720
17,000
12,794
3,449
106,889
172,924
104,271
322,880
98,973
181,986
226,447
269,648
111,534
46,299
191,847
376,391
196,431
17,017
3,226
-
124
322,880
99,097
-
-
-
-
-
-
-
-
-
-
181,986
226,447
269,648
111,534
46,299
191,847
376,391
196,431
17,017
3,226
2,426,763
33,367
2,460,130
245
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.12 Rescheduled loans and advances to customers (continued)
2019
By business line
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
32,875
104,633
40,025
49,897
68,291
33,453
38,369
12,794
31,632
2,748
-
2,610
Total
€000
123,889
185,718
107,720
118,262
71,835
128,167
4,616
322,880
27,598
20,901
48,059
2,539
99,097
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
3,901
26,658
1,811
239
17,843
28,055
3,077
443
-
-
-
-
-
-
-
-
International banking services
Wealth management
1,770
-
5,166
487
141,185
157,682
260,227
108,838
36,395
154,134
316,500
154,670
9,959
1,797
19,057
14,052
4,533
2,014
9,904
37,713
59,891
41,761
122
942
181,986
226,447
269,648
111,534
46,299
191,847
376,391
196,431
17,017
3,226
357,772
299,448
1,600,408
202,502
2,460,130
2018
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other services
Other sectors
Cyprus
€000
245,919
84,267
123,596
373,539
221,011
1,761,663
249,607
94,066
Other
countries
€000
20,430
2,729
1
532
13,186
Total
€000
266,349
86,996
123,597
374,071
234,197
166
1,761,829
11,761
1
261,368
94,067
3,153,668
48,806
3,202,474
246
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.12 Rescheduled loans and advances to customers (continued)
2018 (restated)
By business line
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Wealth management
Cyprus
€000
Other
countries
€000
140,634
217,870
207,000
568,879
172,559
332,022
363,465
382,478
177,241
64,698
139,309
222,244
117,573
43,698
3,998
32,029
13,163
3,466
-
124
24
-
-
-
-
-
-
-
-
-
Total
€000
172,663
231,033
210,466
568,879
172,683
332,046
363,465
382,478
177,241
64,698
139,309
222,244
117,573
43,698
3,998
3,153,668
48,806
3,202,474
Rescheduled loans under the business line Global corporate as restated include €196,682 thousand loans
previously classified under 'Corporate Cyprus' and €21,188 thousand loans previously classified under
'Restructuring corporate Cyprus' and rescheduled loans of €13,163 thousand previously classified under
'Corporate Other countries' (Note 2.38).
247
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.12 Rescheduled loans and advances to customers (continued)
2018 (restated)
By business line
Corporate
Global corporate
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
57,825
41,259
67,513
39,932
115,693
63,170
71,600
74,081
75,310
3,306
-
4,473
Total
€000
172,663
231,033
210,466
246,922
45,090
271,988
4,879
568,879
46,012
17,148
107,184
2,339
172,683
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
7,304
31,579
3,800
1,468
43,411
27,729
871
153
-
-
-
-
-
-
-
-
International banking services
Wealth management
4,174
928
23,621
-
216,894
281,415
369,482
171,789
49,759
102,355
165,738
76,716
14,185
2,113
64,437
22,742
8,325
3,831
14,939
36,954
56,506
40,857
1,718
957
332,046
363,465
382,478
177,241
64,698
139,309
222,244
117,573
43,698
3,998
508,784
376,818
2,050,609
266,263
3,202,474
248
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.12 Rescheduled loans and advances to customers (continued)
Rescheduled loans under business line Global corporate as restated include rescheduled loans previously
included into Corporate, classified as Stage 1, Stage 2 and Stage 3 amounting to €40,660 thousand,
€114,599 thousand and €54,586 thousand respectively. Additionally, they include rescheduled loans
previously included in Restructuring corporate classified as Stage 1, Stage 2 and Stage 3 amounting to
€599 thousand, €1,094 thousand and €19,495 thousand respectively (Note 2.38).
ECL allowances
2019
Stage 1
Stage 2
Stage 3
POCI
2018
Stage 1
Stage 2
Stage 3
POCI
Cyprus
€000
4,391
9,595
638,308
78,088
Other
countries
€000
-
-
22,379
-
730,382
22,379
Cyprus
€000
4,122
8,613
589,372
85,412
687,519
Other
countries
€000
-
-
7,513
-
7,513
Total
€000
4,391
9,595
660,687
78,088
752,761
Total
€000
4,122
8,613
596,885
85,412
695,032
46.13
customers - analysis by rating agency designation
Credit quality of Group assets exposed to credit risk other than loans and advances to
Balances with central banks and loans and advances to banks
Balances with central banks and loans and advances to banks are analysed by Moody’s Investors Service
rating as follows:
Aaa - Aa3
A1 - A3
Baa1 - Baa3
Ba1 - Ba3
B1 - B3
Caa - C
Unrated
Other receivables from banks
2019
€000
62,550
76,916
101,093
2018
€000
182,968
100,478
68,666
4,909,533
4,472,223
7,553
5,968
15,284
50,471
8,621
20,973
38,147
37,224
5,229,368
4,929,300
All balances with central banks and loans and advances to banks are classified as Stage 1 (Note 20).
249
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.13
customers - analysis by rating agency designation (continued)
Credit quality of Group assets exposed to credit risk other than loans and advances to
Debt securities
Investments in debt securities are analysed as follows:
Moody's rating
Aaa - Aa3
A1 - A3
Baa1 - Baa3
Ba1 - Ba3
Unrated
Issued by:
- Cyprus government
- Other governments
- Banks and other corporations
Classified as:
Investments mandatorily measured at FVPL
Investments at FVOCI
Investments at amortised cost
2019
Aaa - Aa3
A1 - A3
Baa1 - Baa3
Ba1 - Ba3
Unrated
2018 (restated)
Aaa - Aa3
A1 - A3
Baa1 - Baa3
Ba1 - Ba3
2019
€000
2018
(restated)
€000
1,044,585
869,537
75,161
35,901
542,047
40,313
27,005
26,001
441,700
500
1,738,007
1,364,743
542,048
389,928
806,031
441,757
423,675
499,311
1,738,007
1,364,743
24,093
885,810
828,104
14,616
819,748
530,379
1,738,007
1,364,743
FVOCI
Stage 1
€000
448,296
28,259
10,851
398,404
-
Stage 1
€000
Amortised cost
Stage 2
€000
572,696
46,902
25,050
94,989
39,813
-
-
-
48,654
-
885,810
779,450
48,654
FVOCI
Stage 1
€000
494,906
1,876
946
322,020
819,748
Stage 1
€000
Amortised cost
Stage 2
€000
374,631
11,560
25,055
70,841
482,087
-
-
-
48,292
48,292
Total
€000
572,696
46,902
25,050
143,643
39,813
828,104
Total
€000
374,631
11,560
25,055
119,133
530,379
250
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
46.
Risk management - Credit risk (continued)
46.13
customers - analysis by rating agency designation (continued)
Credit quality of Group assets exposed to credit risk other than loans and advances to
Moody’s equivalent rating was assigned on bonds which were rated by other rating agencies. Unrated bonds
with carrying value as at 31 December 2018 of €46,052 thousand were restated to Moody’s equivalent
rating ‘Aaa-Aa3’. Investments in debt securities classified at amortised cost Stage 1 ‘Aaa-Aa3’ rating as
restated includes €37,531 thousand bonds previously classified at amortised cost Stage 2 ‘Unrated’. ‘Aaa-
Aa3’ rating at FVOCI as restated includes €8,521 thousand bonds previously classified as FVOCI unrated.
47.
Risk management - Market risk
Market risk is the risk of loss from adverse changes in market prices namely from changes in interest rates,
exchange rates, property and security prices. The Market Risk department is responsible for monitoring the
risk resulting from such changes with the objective to minimise the impact on earnings and capital. The
department also monitors liquidity risk and credit risk with counterparties and countries. It is also
responsible for monitoring compliance with the various market risk policies and procedures.
Interest rate risk
Interest rate risk refers to the current or prospective risk to Group's capital and earnings arising from
adverse movements in interest rates that affect the Group's banking book positions.
Interest rate risk is measured mainly using the impact on net interest income and impact on economic
value. In addition to the above measures, interest rate risk is also measured using interest rate risk gap
analysis where the assets, liabilities and off balance sheet items, are classified according to their remaining
repricing period. Items that are not sensitive to rate changes are recognised as non-rate sensitive (NRS)
items. The present value of 1 basis point (PV01) is also calculated.
Interest rate risk is managed through a Year 1 Interest Rate Effect (IRE) limit on the maximum reduction of
net interest income under the various interest rate shock scenarios. Limits are set as a percentage of the
Group capital and as a percentage of the net interest income (when positive). There are different limits for
the Euro and the US Dollar.
Sensitivity analysis
The table below sets out the impact on the Group’s net interest income, over a one-year period, from
reasonably possible changes in the interest rates of the main currencies using the assumption of the
prevailing market risk policy for the current and the comparative year.
251
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
47.
Risk management - Market risk (continued)
Currency
All
Interest Rate Scenario
Parallel up
All
All
All
All
All
Euro
Euro
Euro
Euro
Euro
Euro
Currency
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
Parallel down
Steepening
Flattening
Short up
Short down
Parallel up
Parallel down
Steepening
Flattening
Short up
Short down
Interest Rate Scenario
Parallel up
Parallel down
Steepening
Flattening
Short up
Short down
Impact on Net Interest
Income in €000
2019
(50 bps for
Euro and 60
bps for US
Dollar)
2018
(50 bps for
Euro and 60
bps for US
Dollar)
28,446
(33,117)
(24,875)
21,023
27,010
32,640
(29,712)
(25,455)
27,170
31,590
(32,076)
(29,590)
27,577
(30,735)
(23,857)
21,225
26,401
32,247
(28,001)
(23,917)
26,894
31,211
(29,958)
(27,743)
869
(2,382)
(1,018)
(202)
609
393
(1,711)
(1,538)
276
379
(2,118)
(1,847)
The table below sets out the impact on the Group’s equity, from reasonably possible changes in the interest
rates under various interest rate scenarios for the Euro and the US Dollar in line with the EBA guidelines.
252
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
47.
Risk management - Market risk (continued)
Currency
All
Interest Rate Scenario
Parallel up
All
All
All
All
All
Euro
Euro
Euro
Euro
Euro
Euro
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
Parallel down
Steepening
Flattening
Short up
Short down
Parallel up
Parallel down
Steepening
Flattening
Short up
Short down
Parallel up
Parallel down
Steepening
Flattening
Short up
Short down
Impact on Equity in €000
2019
(50 bps for
Euro and 60
bps for US
Dollar)
2018
(50 bps for
Euro and 60
bps US
Dollar)
(55,270)
42,858
(22,598)
7,278
(28,788)
23,067
(56,259)
91,255
(21,581)
14,034
(29,632)
51,308
1,977
(2,769)
(1,017)
523
1,687
(62,222)
39,961
(37,309)
11,001
(31,449)
15,908
(63,551)
87,037
(36,216)
21,382
(32,584)
38,322
2,659
(3,558)
(1,093)
620
2,271
(2,588)
(3,253)
The aggregation of the impact on equity was performed as per the EBA guidelines by adding the negative
and 50% of the positive impact of each scenario.
In addition to the above fluctuations in net interest income, interest rate changes can result in fluctuations
in the fair value of investments at FVPL (including investments held for trading) and in the fair value of
derivative financial instruments.
The equity of the Group is also affected by changes in market interest rates. The impact on the Group’s
equity arises from changes in the fair value of fixed rate debt securities classified at FVOCI.
The sensitivity analysis is based on the assumption of a parallel shift of the yield curve. The table below
sets out the impact on the Group’s profit/loss before tax and equity as a result of reasonably possible
changes in the interest rates of the major currencies.
Parallel change in interest rates
((increase)/decrease in net
interest income)
2019
+0.6% for US Dollar
+0.5% for Euro
+1.0% for British Pound
-0.6% for US Dollar
-0.5% for Euro
-1.0% for British Pound
Impact on loss before
tax
Impact on equity
€000
€000
(239)
(1,041)
3,120
1,041
253
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
47.
Risk management - Market risk (continued)
Parallel change in interest rates
((increase)/decrease in net
interest income)
2018
+0.6% for US Dollar
+0.5% for Euro
+1.0% for British Pound
-0.6% for US Dollar
-0.5% for Euro
-1.0% for British Pound
Currency risk
Impact on loss before
tax
Impact on equity
€000
€000
(400)
9,997
(1,126)
1,126
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates.
In order to manage currency risk, the ALCO has approved open position limits for the total foreign exchange
position limits. The foreign exchange position limits are lower than those prescribed by the CBC. These
limits are managed by Treasury and monitored daily by market risk officers.
The Group does not maintain a currency trading book.
The table below sets out the Group’s currency risk resulting from the financial instruments that it holds.
The analysis assumes reasonably possible changes in the exchange rates of major currencies against the
Euro, based mainly on historical price fluctuations. The impact on profit/loss after tax includes the change
in net interest income that arises from the change of currency rate.
The impact on equity arises from the hedging instruments that are used to hedge part of the net assets of
the subsidiaries whose functional currency is not the Euro. The net assets of foreign operations are also
revalued and affect equity, but their impact is not taken into account in the above sensitivity analysis as the
above relates only to financial instruments which have a direct impact either on profit/loss after tax or on
equity.
2019
US Dollar
Russian Rouble
Romanian Lei
Swiss Franc
British Pound
Japanese Yen
Other currencies
US Dollar
Russian Rouble
Romanian Lei
Swiss Franc
British Pound
Japanese Yen
Other currencies
Change in foreign
exchange rate
%
Impact on loss after
tax
€000
Impact on equity
€000
+10
+10
+10
+10
+10
+10
+10
-10
-10
-10
-10
-10
-10
-10
254
2,717
995
-
460
420
44
(14)
(2,223)
(814)
-
(376)
(344)
(36)
11
-
10,483
(275)
-
(1,185)
-
-
-
(8,577)
225
-
969
-
-
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
47.
Risk management - Market risk (continued)
2018
US Dollar
Russian Rouble
Romanian Lei
Swiss Franc
British Pound
Japanese Yen
Other currencies
US Dollar
Russian Rouble
Romanian Lei
Swiss Franc
British Pound
Japanese Yen
Other currencies
Price risk
Change in foreign
exchange rate
%
Impact on
profit/(loss) after tax
€000
Impact on equity
€000
+10
+20
+10
+10
+20
+10
+10
-10
-20
-10
-10
-20
-10
-10
2,071
2,049
-
1,138
671
119
(74)
(1,695)
(1,366)
-
(931)
(448)
(97)
60
-
18,060
(667)
-
(2,472)
-
-
-
(12,040)
546
-
1,648
-
-
Equity securities price risk
The risk of loss from changes in the price of equity securities arises when there is an unfavourable change in
the prices of equity securities held by the Group as investments.
Investments in equities are outside the Group’s risk appetite but may be acquired in the context of
delinquent loan workouts. The Group monitors the current portfolio mostly acquired by the Group as part of
the acquisition of certain operations of Laiki Bank, or through delinquent loan workouts with the objective to
gradually liquidate all positions for which there is a market. Equity securities are disposed of by the Group
as soon as practicable.
Changes in the prices of equity securities that are classified as investments at FVPL, affect the results of the
Group, whereas changes in the value of equity securities classified as FVOCI affect directly the equity of the
Group.
The table below shows the impact on the profit/loss before tax and on equity of the Group from a change in
the price of the equity securities held, as a result of reasonably possible changes in the relevant stock
exchange indices.
2019
Cyprus Stock Exchange
Athens Exchange
Other stock exchanges and
unlisted
Cyprus Stock Exchange
Athens Exchange
Other stock exchanges and
unlisted
Change in index
%
Impact on loss before
tax
€000
Impact on equity
€000
+15
+20
+15
-15
-20
-15
255
248
94
884
(248)
(94)
(884)
305
-
2,023
(305)
-
(2,023)
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
47.
Risk management - Market risk (continued)
2018
Cyprus Stock Exchange
Athens Exchange
Other stock exchanges and
unlisted
Cyprus Stock Exchange
Athens Exchange
Other stock exchanges and
unlisted
+25
+25
+20
-25
-25
-20
574
95
1,007
(574)
(95)
997
-
1,695
(997)
-
(1,007)
(1,695)
Debt securities price risk
Debt securities price risk is the risk of loss as a result of adverse changes in the prices of debt securities
held by the Group. Debt security prices change as the credit risk of the issuer changes and/or as the
interest rate changes for fixed rate securities. The Group invests a significant part of its liquid assets in
highly rated securities. The average Moody’s Investors Service rating of the debt securities portfolio of the
Group as at 31 December 2019 was A2 (2018: A1). The average rating excluding the Cyprus Government
bonds and non-rated transactions as at 31 December 2019 was Aa2 (2018: Aa1). Further information on
the debt securities rating is disclosed in Note 46.13.
Changes in the prices of debt securities classified as investments at FVPL, affect the profit or loss of the
Group, whereas changes in the value of debt securities classified as FVOCI affect directly the equity of the
Group.
The table below indicates how the profit/loss before tax and equity of the Group will be affected from
reasonably possible changes in the price of the debt securities held, based on observations of changes in
credit risk over the past years.
2019
+1.1% for Aa3 and above rated bonds
+3.2% for A3 and above rated bonds
+4.7% for Baa3 and above rated bonds
+7.6% for Cyprus Government bonds
-1.1% for Aa3 and above rated bonds
-3.2% for A3 and above rated bonds
-4.7% for Baa3 and above rated bonds
-7.6% for Cyprus Government bonds
2018
+1.5% for Aa3 and above rated bonds
+3.5% for A3 and above rated bonds
+5.5% for Baa3 and above rated bonds
+7.8% for Cyprus Government bonds
-1.5% for Aa3 and above rated bonds
-3.5% for A3 and above rated bonds
-5.5% for Baa3 and above rated bonds
-7.8% for below A3 rated bonds
Impact on loss before
tax
€000
Impact on equity
€000
915
1,108
-
-
(915)
(1,108)
-
-
4,891
894
509
30,011
(4,891)
(894)
(509)
(30,011)
Impact on loss before
tax
€000
Impact on equity
€000
1,476
774
-
42
(1,476)
(774)
-
(42)
7,320
167
51
24,808
(7,320)
(167)
(51)
(24,808)
256
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
47.
Risk management - Market risk (continued)
Other non-equity instruments price risk
The table below shows the impact on the profit/loss before tax and on equity of the Group from a change in
the price of other non-equity investments held, as a result of reasonably possible changes in the relevant
stock exchange indices.
2019
Other (non-equity instruments)
Other (non-equity instruments)
2018
Other (non-equity instruments)
Other (non-equity instruments)
Change in index
%
Impact on loss before
tax
€000
Impact on equity
€000
+15
-15
+25
-25
3,539
(3,539)
3,388
(3,388)
-
-
-
-
48.
Risk management - Liquidity risk and funding
Liquidity risk is the risk that the Group is unable to fully or promptly meet current and future payment
obligations as and when they fall due. This risk includes the possibility that the Group may have to raise
funding at high cost or sell assets at a discount to fully and promptly satisfy its obligations.
It reflects the potential mismatch between incoming and outgoing payments, taking into account
unexpected delays in repayment or unexpectedly high payment outflows. Liquidity risk involves both the
risk of unexpected increases in the cost of funding of the portfolio of assets and the risk of being unable to
liquidate a position in a timely manner on reasonable terms.
In order to limit this risk, management has adopted a policy of managing assets with liquidity in mind and
monitoring cash flows and liquidity on a daily basis. The Group has developed internal control processes and
contingency plans for managing liquidity risk.
Management and structure
The Board of Directors sets the Group’s Liquidity Risk Appetite being the level of risk at which the Group
should operate.
The Board of Directors, through its Risk Committee, approves the Liquidity Policy Statement and reviews
almost at every meeting the liquidity position of the Group.
The ALCO is responsible for setting the policies for the effective management and monitoring of liquidity
across the Group.
The Treasury Division is responsible for liquidity management at Group level to ensure compliance with
internal policies and regulatory liquidity requirements and provide direction as to the actions to be taken
regarding liquidity needs. Treasury assesses on a continuous basis, and informs ALCO at regular time
intervals, the adequacy of the liquid assets and takes the necessary actions to ensure a comfortable liquidity
position.
Liquidity is also monitored daily by Market Risk, which is an independent department responsible for
monitoring compliance with both internal policies and limits, and with the limits set by the regulatory
authorities. Market Risk reports to ALCO the regulatory liquidity position of the Group, at least monthly. It
also provides the results of various stress tests to ALCO at least quarterly.
Liquidity is monitored and managed on an ongoing basis through:
(i)
Risk appetite: established Group Risk Appetite together with the appropriate limits for the
management of all risks including liquidity risk.
257
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
48.
Risk management - Liquidity risk and funding (continued)
(ii)
(iii)
(iv)
(v)
(vi)
Liquidity policy: sets the responsibilities for managing liquidity risk as well as the framework, limits
and stress test assumptions.
Liquidity limits: a number of internal and regulatory limits are monitored on a daily, monthly and
quarterly basis. Where applicable, a traffic light system (RAG) has been introduced for the ratios, in
order to raise flags when the ratios deteriorate.
Early warning indicators: monitoring of a range of indicators for early signs of liquidity risk in the
market or specific to the Group. These are designed to immediately identify the emergence of
increased liquidity risk to maximise the time available to execute appropriate mitigating actions.
Liquidity Contingency Plan: maintenance of a Liquidity Contingency Plan (LCP) which is designed to
provide a framework where a liquidity stress could be effectively managed. The LCP provides a
communication plan and includes management actions to respond to liquidity stresses.
Recovery Plan: the Group has developed a Recovery Plan (RP). The key objectives of the RP are to
set key Recovery and Early Warning Indicators so as to monitor these consistently and to set in
advance a range of recovery options to enable the Group to be adequately prepared to respond to
stressed conditions and restore the Group’s position.
Monitoring process
Daily
The daily monitoring of customer flows and the stock of highly liquid assets is important to safeguard and
ensure the uninterrupted operations of the Group’s activities. Market risk prepares a daily report analysing
the internal liquidity buffer and comparing it to the previous day’s buffer. This report is made available to
Treasury and Group Finance. In addition, Treasury monitors daily and intraday the customer inflows and
outflows in the main currencies used by the Group.
Market Risk also prepares daily stress testing for bank-specific, market wide and combined scenarios. The
requirement is to have sufficient liquidity buffer to enable BOC PCL to survive a three-month stress period,
including capacity to raise funding under all scenarios.
Moreover, an intraday liquidity stress test takes place to ensure that the Group maintains sufficient liquidity
buffer in immediately accessible form, to enable it to meet the stressed intraday payments.
The liquidity buffer is made up of: Banknotes, CBC balances (excluding the Minimum Reserve Requirements
(MRR)), unpledged cash and nostro current accounts, as well as money market placements up to the stress
horizon, available ECB credit line and market value net of haircut of unencumbered/available liquid bonds.
These bonds are High Quality Liquid Assets (HQLA) as per the LCR definitions and/or ECB Eligible bonds.
The designing of the stress tests followed guidance and was based on the liquidity risk drivers which are
recognised internationally by both the Prudential Regulation Authority (PRA) and EBA. In addition it takes
into account SREP recommendations as well as the Annual Risk Identification Process of the Group. The
stress tests assumptions are included in the Group Liquidity Policy which is reviewed on an annual basis and
approved by the Board. However, whenever it is considered appropriate to amend the assumptions during
the year, approval is requested from ALCO and the Board Risk Committee. The main items shocked in the
different scenarios are: deposit outflows, wholesale funding, loan repayments, off-balance sheet
commitments, marketable securities and cash collateral for derivatives and repos.
Weekly
Market Risk prepares a report indicating the level of Liquid Assets including Credit Institutions Money Market
Placements as per LCR definitions.
Bi-Weekly report
Market Risk prepares a liquidity report twice a month which is submitted to the ECB. The report includes
information on the following: deposits breakdown, cash flow information, survival period, LCR ratio, rollover
of funding, funding gap (through the Maturity ladder analysis), concentration of funding and collateral
details. It concludes on the overall liquidity position of BOC PCL and describes the measures implemented
and to be implemented in the short-term to improve liquidity position.
258
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
48.
Risk management - Liquidity risk and funding (continued)
Monthly
Market Risk prepares reports monitoring compliance with internal and regulatory liquidity ratios
requirements and submits them to the ALCO, the Executive Committee and the Board Risk Committee. It
also calculates the expected flows under a stress scenario and compares them with the projected available
liquidity buffer in order to calculate the survival days. The fixed deposit renewal rates, the percentage of
IBU deposits over total deposits and the percentage of instant access deposits are also presented to the
ALCO. The liquidity mismatch in the form of the Maturity Ladder report (for both contractual and
behavioural flows) is also presented to ALCO and resulting mismatch between assets and liabilities is
compared to previous month’s mismatch. A monthly customer deposit analysis by Business Line, Tenor and
currency is also presented to ALCO.
Market Risk reports the LCR and Additional Liquidity Monitoring Metrics (ALMM) to the CBC/ECB monthly.
Quarterly
The results of the stress testing scenarios prepared daily are reported to ALCO and Board Risk Committee
quarterly as part of the quarterly Internal Liquidity Adequacy Assessment Process (ILAAP) review. Market
Risk reports the Net Stable Funding Ratio (NSFR) to the CBC/ECB quarterly as well as various other liquidity
reports, included in the short term exercise of the SSM per their SREP guidelines.
Annually
The Group prepares on an annual basis its report on ILAAP.
As part of the Group’s procedures for monitoring and managing liquidity risk, there is a Group Liquidity
Contingency Plan (LCP) for handling liquidity difficulties. The LCP details the steps to be taken in the event
that liquidity problems arise, which escalate to a special meeting of the extended ALCO. The LCP sets out
the members of this committee and a series of the possible actions that can be taken. The LCP, which forms
a part of the Group’s Liquidity Policy, is reviewed by ALCO at least annually, during the ILAAP review. The
ALCO submits the updated Liquidity Policy with its recommendations to the Board through the Board Risk
Committee for approval. The approved Liquidity Policy is notified to the SSM.
Liquidity ratios
The Group LCR is calculated based on the Delegated Regulation (EU) 2015/61. It is designed to establish a
minimum level of high-quality liquid assets sufficient to meet an acute stress lasting for 30 calendar days.
As from 1 January 2018, the minimum requirement is 100%.
Main sources of funding
For most of 2019 and during 2018, the Group’s main sources of funding were its deposit base and central
bank funding, through the Eurosystem monetary policy operations.
In September 2019, ECB funding of €830 million in the form of 4-Year TLTRO II was repaid early thus no
ECB funding was outstanding as at December 2019.
Funding to subsidiaries
The funding provided by BOC PCL to its subsidiaries for liquidity purposes is repayable as per the terms of
the respective agreements.
Any new funding to subsidiaries requires approval from the ECB and the CBC.
The subsidiaries may proceed with dividend distributions in the form of cash to BOC PCL, provided that they
are not in breach of their regulatory capital and liquidity requirements. Certain subsidiaries have a
recommendation from their regulator to avoid any dividend distribution at this point in time.
259
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
48.
Risk management - Liquidity risk and funding (continued)
Collateral requirements and other disclosures
Collateral requirements
The carrying values of the Group's encumbered assets as at 31 December 2019 and 2018 are summarised
below:
Cash and other liquid assets
Investments
Loans and advances
2019
€000
90,437
222,961
2018
€000
118,627
737,587
2,537,031
2,528,241
2,850,429
3,384,455
Cash is mainly used to cover collateral required for (i) derivatives and repurchase transactions and (ii) trade
finance transactions and guarantees issued. It is also used as part of the supplementary assets for the
covered bond.
Investments are mainly used as collateral for repurchase transactions with commercial banks,
supplementary assets for the covered bond and with the ECB.
Loans and advances indicated as encumbered as at 31 December 2019 and 2018 are mainly used as
collateral for available funding from ECB and the covered bond.
Loans and advances to customers include mortgage loans of a nominal amount €1,000 million as at 31
December 2019 (2018: €1,009 million) in Cyprus, pledged as collateral for the covered bond issued by BOC
PCL in 2011 under its Covered Bond Programme. Furthermore as at 31 December 2019 housing loans of a
nominal amount €1,498 million (2018: €1,543 million) in Cyprus, are pledged as collateral to be available
for obtaining funding from the ECB (Note 31).
BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the
Covered Bonds Directive of the CBC. Under the Covered Bond Programme, BOC PCL has in issue covered
bonds of €650 million secured by residential mortgages originated in Cyprus. On 6 June 2018, the terms of
the covered bonds have been amended to extend the maturity date to 12 December 2021 and set the
interest rate to 3 months Euribor plus 2.50% on a quarterly basis. The covered bonds are traded on the
Luxemburg Bourse. The covered bonds have a conditional Pass-Through structure. All the bonds are held
by BOC PCL. The covered bonds are eligible collateral for the Eurosystem credit operations and are placed
as collateral for accessing funding from the ECB.
Other disclosures
Further, deposits by banks as shown in the table further below which discloses contractual maturities
includes balances of €51,934 thousand as at 31 December 2019 (2018: €31,002 thousand) relating to
borrowings from international financial and similar institutions for funding, aiming to facilitate access to
finance and improve funding conditions for small or medium sized enterprises, active in Cyprus. The
carrying value of the respective loans and advances granted to such enterprises serving this agreement
amounts to €93,668 thousand as at 31 December 2019 (2018: €94,972 thousand).
Analysis of financial assets and liabilities based on remaining contractual maturity
The analysis of the Group’s financial assets and liabilities based on the remaining contractual maturity at 31
December is based on undiscounted cash flows, analysed in time bands according to the number of days
remaining from 31 December to the contractual maturity date.
260
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
48.
Risk management - Liquidity risk and funding (continued)
Financial assets
The analysis of financial assets does not include any interest receivable cash flows. Financial assets have a
much longer duration than financial liabilities and non-discounted interest receivable cash flows are higher
than non-discounted interest payable cash flows (based on remaining contractual maturity). As a result,
non-discounted cash inflows from interest receivable would have greatly exceeded non-discounted cash
outflows on interest payable, thus artificially improving liquidity.
Current accounts, overdrafts and amounts in arrears are included within the first maturity time band which
reflects their contractual maturity. All other loans and advances to customers are analysed according to
their contractual repayment schedule.
Loans and advances to banks are analysed in the time bands according to the number of days remaining
from 31 December, until their contractual maturity date. Amounts placed as collateral (primarily for
derivatives and loans) are assigned to different time bands based on either their maturity (in the case of
loans), or proportionally according to the maturities of derivatives (where the collateral had no fixed
maturity).
Financial assets with no contractual maturity (such as equity securities) are included in the 'Over five years'
time band, unless classified as at FVPL, in which case they are included in the 'On demand and up to one
month' time band.
The investments are classified in the relevant time band according to their contractual maturity.
Financial liabilities
All financial liabilities for the repayment of which notice is required, are included in the relevant time bands
as if notice had been given on 31 December, despite the fact that the Group expects that the majority of its
customers will not demand repayment of such liabilities on the earliest possible date. Fixed deposits are
classified in time bands based on their contractual maturity. Although customers may demand repayment
of time deposits (subject to penalties depending on the type of the deposit account), the Group has the
discretion not to accept such early termination of deposits.
Subordinated loan stock is classified in the relevant time band according to the remaining contractual
maturity, ignoring the call date.
The amounts presented in the table below are not equal to the amounts presented on the balance sheet,
since the table below presents all cash flows (including interest to maturity) on an undiscounted basis.
Derivative financial instruments
The fair value of the derivatives is included in financial assets or in financial liabilities in the time band
corresponding to the remaining maturity of the derivative.
Gross settled derivatives or net settled derivatives are presented in a separate table and the corresponding
cash flows are classified accordingly in the time bands which relate to the number of days until their receipt
or payment.
Commitments and contingent liabilities
The limits of loans and advances are commitments to provide credit to customers. The limits are granted
for predetermined periods and can be cancelled by the Group after giving relevant notice to the customers.
Usually the customers do not fully utilise the limits granted to them.
261
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
48.
Risk management - Liquidity risk and funding (continued)
2019
Financial assets
Cash and balances with
central banks
Loans and advances to
banks
Investments at FVPL
Loans and advances to
customers
Fair value of derivative
assets
Non-trading investments
Financial assets classified as
held for sale
Other assets
On demand
and up to one
month
€000
Between one
and three
months
€000
Between three
months and
one year
€000
Between one
and five years
Over five years
Total
€000
€000
€000
5,002,953
21,601
31,129
2,571
1,788
5,060,042
178,469
150,225
52,400
1,573
1,300
-
88,712
-
59
24,249
320,881
176,106
2,181,791
196,572
776,266
3,160,333
4,406,879 10,721,841
2,953
32,182
19,660
76,140
105
158
64,401
327,718
19,511
999,274
333
23,060
306,149
1,729,724
85
32,436
503
29,710
2,651
8,310
3,030
-
25,929
146,596
7,644,373
369,173
1,166,784
4,281,421
4,742,428 18,204,179
Financial liabilities
Deposits by banks
159,078
28,581
Repurchase agreements
-
-
18,759
170,503
Customer deposits
10,931,766
2,292,781
3,353,357
23,125
6,244
946
213,900
-
71
1,535
6,383
-
5,524
6,884
3,943
147,378
194,118
-
132,036
92,500
13,194
22,075
-
547,914
170,503
16,709,940
-
-
319,375
435,000
25,560
-
50
50,593
31,440
224,276
11,335,059
2,329,351
3,558,970
407,183
539,103 18,169,666
(3,690,686) (1,960,178) (2,392,186)
3,874,238
4,203,325
34,513
262
Subordinated loan stock
Fair value of derivative
liabilities
Lease liabilities
Other liabilities
Net financial
(liabilities)/assets
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
48.
Risk management - Liquidity risk and funding (continued)
On demand
and up to one
month
€000
Between one
and three
months
€000
Between three
months and
one year
€000
Between one
and five
years
€000
Over five years
Total
€000
€000
4,541,876
27,022
38,972
87
2,534
4,610,491
357,944
141,219
8,347
2,175
367
-
105,874
48
-
9,031
472,532
152,473
2,356,405
200,730
742,393
3,181,229
4,441,029 10,921,786
3,764
3,683
823,140
28,055
376
-
14,453
30,637
8
20,606
-
24,754
108,969
822,333
427,233
1,362,218
71,658
9,623
75,722
75,854
169,135
1,154,108
212
144,381
8,256,086
283,740
971,990 4,281,753
5,049,174 18,842,743
2018 (restated)
Financial assets
Cash and balances with
central banks
Loans and advances to
banks
Investments at FVPL
Loans and advances to
customers
Fair value of derivative
assets
Non-trading investments
Financial assets classified as
held for sale
Other assets
Financial liabilities
Deposits by banks
Funding from central banks
Repurchase agreements
90,495
33,728
32,369
-
-
-
-
-
90,174
Customer deposits
9,894,848
2,834,384
4,138,620
Subordinated loan stock
Fair value of derivative
liabilities
Other liabilities
23,125
-
9,343
181,706
188
4,741
-
2,929
2,065
102,390
830,000
172,803
8,870
92,500
185,526
-
-
-
444,508
830,000
262,977
16,876,722
319,375
435,000
14,907
11,616
-
-
38,983
188,512
Net financial
(liabilities)/assets
(1,943,431) (2,589,301) (3,294,167) 3,060,283
4,532,657
(233,959)
10,199,517
2,873,041
4,266,157 1,221,470
516,517 19,076,702
In relation to comparative information as at 31 December 2018, deposits by banks amounting to €115,263
thousand were reclassified into the various time bands according to the remaining contractual maturity of
the loans and advances to customers related to these funding balances. Specifically, €84,261 thousand and
€31,002 thousand were reclassified out of the 'Over five years' time bands' time band and 'On demand and
up to one month' time band respectively and into 'Between one and three months' time band (€3,645
thousand), 'Between three months and one year' time band (€10,354 thousand) and 'Between one and five
years' time band (€101,951 thousand) including interest of €687 thousand.
Additionally investments at FVPL amounting to €39,090 thousand were reclassified from the ‘Between one
and five year years’ time band to the ‘On demand and up to one month’ upon consideration of the
contractual maturity of the investment itself, which is highly liquid, rather than the average contractual
maturity of its underlying assets.
263
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
48.
Risk management - Liquidity risk and funding (continued)
2019
Gross settled derivatives
Financial assets
Contractual amounts
receivable
Contractual amounts payable
Financial liabilities
Contractual amounts
receivable
Contractual amounts payable
2019
Contingent liabilities and
commitments
Contingent liabilities
Acceptances and
endorsements
Guarantees
Commitments
Documentary credits
Undrawn formal standby
facilities, credit lines and
other commitments to lend
2018
Gross settled derivatives
Financial assets
Contractual amounts
receivable
Contractual amounts payable
Financial liabilities
Contractual amounts
receivable
Contractual amounts payable
On demand
and up to one
month
€000
Between one
and three
months
€000
Between three
months and
one year
€000
Between one
and five years
Over five years
Total
€000
€000
€000
434,309
(432,201)
2,108
843,726
(850,046)
(6,320)
6,525
(6,439)
86
4,222
(4,276)
(54)
448
(445)
3
445
(444)
1
-
-
-
-
-
-
-
-
-
-
-
-
441,282
(439,085)
2,197
848,393
(854,766)
(6,373)
On demand
and up to one
month
€000
Between one
and three
months
€000
Between three
months and
one year
€000
Between one
and five years
Over five years
Total
€000
€000
€000
2,922
88,696
2,373
521
-
-
5,816
117,436
278,187
155,718
43,047
683,084
3,217
4,002
2,403
985
1,160
11,767
1,921,341
-
-
-
-
1,921,341
2,016,176
123,811
281,111
156,703
44,207
2,622,008
On demand
and up to one
month
€000
Between one
and three
months
€000
Between three
months and
one year
€000
Between one
and five years
Over five years
Total
€000
€000
€000
241,235
32,188
(237,967)
(31,933)
3,268
255
997,856
37,174
(1,006,555)
(37,284)
(8,699)
(110)
448
(446)
2
446
(445)
1
-
-
-
-
-
-
-
-
-
-
-
-
273,871
(270,346)
3,525
1,035,476
(1,044,284)
(8,808)
264
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
48.
Risk management - Liquidity risk and funding (continued)
2018
Contingent liabilities and
commitments
Contingent liabilities
Acceptances and
endorsements
Guarantees
Commitments
Documentary credits
Undrawn formal standby
facilities, credit lines and
other commitments to lend
On demand
and up to one
month
€000
Between one
and three
months
€000
Between three
months and
one year
€000
Between one
and five years
Over five years
Total
€000
€000
€000
1,985
3,008
568
-
-
5,561
115,174
116,697
258,603
206,044
52,187
748,705
5,085
10,649
5,993
885
1,685
24,297
2,063,972
-
-
-
-
2,063,972
2,186,216
130,354
265,164
206,929
53,872
2,842,535
49.
Risk management - Insurance risk
Insurance risk is the risk that an insured event under an insurance contract occurs and the uncertainty of
the amount and the timing of the resulting claim. By the very nature of an insurance contract, this risk is
random and therefore unpredictable.
For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning,
the principal risk that the Group faces is that the actual claims and benefit payments will exceed the
carrying amount of insurance liabilities. This could occur because the frequency or severity of claims and
benefits are greater than estimated. Insurance events are random and the actual volume and cost of claims
and benefits will vary from year to year compared to the estimate established using statistical or actuarial
techniques.
The above risk exposure is mitigated by the Group through the diversification across a large portfolio of
insurance contracts. The variability of risks is also reduced by careful selection and implementation of
underwriting strategy guidelines, as well as the use of reinsurance arrangements. Although the Group has
reinsurance arrangements, it is not relieved of its direct obligations to policyholders and is thus exposed to
credit risk with respect to ceded insurance, to the extent that any reinsurer is unable to meet the
obligations assumed under such reinsurance arrangements. For that reason, the creditworthiness of
reinsurers is evaluated by considering their solvency and credit rating.
Life insurance contracts
The main factors that could affect the overall frequency of claims are epidemics, major lifestyle changes and
natural disasters.
The underwriting strategy and risk assessment is designed to ensure that risks are well diversified in terms
of type of risk and level of insured benefits. This is largely achieved through the use of medical screening in
order to ensure that pricing takes account of the current medical conditions and family medical history and
through the regular review of actual claims and product pricing. The Group has the right to decline policy
applications, it can impose additional charges and it has the right to reject the payment of fraudulent
claims.
The most significant risks relating to accident and health insurance contracts result from lifestyle changes
and from climate and environmental changes. The risks are mitigated by the careful use of strategic
selection and risk-taking at the underwriting stage and by thorough investigation for possible fraudulent
claims.
265
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
49.
Risk management - Insurance risk (continued)
The Group uses an analysis based on its embedded value which provides a comprehensive framework for
the evaluation and management of risks faced, the understanding of earnings volatility and operational
planning. The table below shows the sensitivity of the embedded value to assumption changes that
substantially affect the results:
Changes in embedded value
Change in interest rates +0.25%
Change in expenses +10%
Change in lapsation rates +10%
Change in mortality rates +10%
2019
€000
2018
€000
80
(2,351)
(665)
(6,196)
76
(2,523)
(902)
(7,727)
The variables above are not linear. In each sensitivity calculation for changes in key economic variables, all
other assumptions remain unchanged except when they are directly affected by the revised economic
conditions.
Changes to key non–economic variables do not incorporate management actions that could be taken to
mitigate effects, nor do they take account of consequential changes in policyholder behaviour. In each
sensitivity calculation all other assumptions are therefore unchanged.
Some of the sensitivity scenarios shown in respect of changes to both economic and non–economic
variables may have a consequential effect on the valuation basis when a product is valued on an active
basis which is updated to reflect current economic conditions.
While the magnitude of these sensitivities will, to a large extent, reflect the size of closing embedded value,
each variable will have a different impact on different components of the embedded value. In addition,
other factors such as the intrinsic cost and time value of options and guarantees, the proportion of
investments between equities and bonds and the type of business written, including for example, the extent
of with–profit business versus non–profit business and to the extent to which the latter is invested in
matching assets, will also have a significant impact on sensitivities.
Non-life insurance contracts
Non-life insurance business is concentrated in Cyprus and the main claims during 2019 and 2018 related to
fire and natural forces and other damage to property, motor vehicle liability and general liability.
Risks under these policies are usually covered for a period of 12 months, with the exception of the goods in
transit class that covers shorter periods and the contractors all risks class that covers longer periods.
The liabilities for outstanding claims arising from insurance contracts issued by the Group are calculated
based on experts’ estimates and facts known at the balance sheet date. With time, these estimates are
reconsidered and any adjustments are recognised in the financial statements of the period in which they
arise.
The principal assumptions underlying the estimates for each claim are based on past experience and market
trends and take into consideration claims handling costs, inflation and claim numbers for each accident
year. Also external factors that may affect the estimate of claims, such as recent court rulings and the
introduction of new legislation are taken into consideration.
The insurance contract liabilities are sensitive to changes in the above key assumptions. The sensitivity of
certain assumptions, such as the introduction of new legislation and the rulings of court cases, is very
difficult to be quantified. Furthermore, the delays that arise between the occurrence of a claim and its
subsequent notification and eventual settlement increase the uncertainty over the cost of claims at the
reporting date.
266
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
49.
Risk management - Insurance risk (continued)
Derivative financial instruments (continued)
The risk of a non-life insurance contract occurs from the uncertainty of the amount and time of presentation
of the claim. Therefore the level of risk is determined by the frequency of such claims, the severity and the
evolution of claims from one period to the next.
The main risks for the non-life insurance business arise from major catastrophic events like natural
disasters. These risks vary depending on location, type and nature. The variability of risks is mitigated by
the diversification of risk of loss to a large portfolio of insurance contracts, as a more diversified portfolio is
less likely to be affected by changes in any subset of the portfolio. The Group’s exposure to insurance risks
from non-life insurance contracts is also mitigated by the following measures: adherence to strict
underwriting policies, strict review of all claims occurring, immediate review and processing of claims to
minimise the possibility of negative developments in the future, and use of effective reinsurance
arrangements in order to minimise the impact of risks, especially for catastrophic events.
50.
Capital management
The primary objective of the Group’s capital management is to ensure compliance with the relevant
regulatory capital requirements and to maintain strong credit ratings and healthy capital adequacy ratios in
order to support its business and maximise shareholders’ value.
The Group follows the EU Regulations, primarily the CRR and CRD IV as amended by CRR II applicable as
at the reporting date and any other decisions or circulars issued by the regulators, ECB and CBC with
respect to the capital adequacy calculations.
On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V) came into force. As an
amending regulation, the existing provisions of CRR apply unless they are amended by CRR II. Member
states are required to transpose the CRD V into national law. Certain provisions took immediate effect
(primarily relating to MREL) but most changes will start to apply from mid-2021. Certain aspects of CRR II
are dependent on final technical standards to be issued by the EBA and adopted by the European
Commission. The key changes introduced consist of among others changes to qualifying criteria for CET1,
AT1 and Tier 2 instruments, introduction of requirements for MREL and a binding Leverage Ratio
requirement and a Net Stable Funding Ratio (NSFR).
The Group and BOC PCL have complied with the minimum capital requirements (Pillar I and Pillar II).
The insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance
including the minimum solvency ratio. The regulated UCITS management company of the Group, BOC Asset
Management Ltd complies with the regulatory capital requirements of the Cyprus Securities and Exchange
Commission (CySEC) laws and regulations as at 31 December 2019. The regulated investment firm (CIF) of
the Group, The Cyprus Investment and Securities Corporation Ltd (CISCO) meets the minimum total capital
ratio hurdle of CySEC but lacks behind the minimum initial capital requirement and the additional capital
conservation buffer as at 31 December 2019. As a result a business and capital plan was submitted to
CySEC in December 2019. CISCO also submitted to CySEC its Internal Capital Adequacy Assessment
Process (ICAAP) Report in September 2019. It is expected that CySEC will provide CISCO a reasonable
timeframe, based on the capital/business plan submitted, to comply, as per its Supervisory Review and
Evaluation Process (SREP).
The Pillar III Disclosures Report (unaudited) of the Group required with respect to the requirements of the
Capital Requirements Regulation (EU) No 575/2013 as amended by CRR II applicable as at the reporting
date, is published on the Group’s website www.bankofcyprus.com (Investor Relations).
51.
Related party transactions
Related parties of the Group include associates and joint ventures, key management personnel, Board of
Directors and their connected persons.
267
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
51.
Related party transactions (continued)
(a)
Transactions with subsidiary
The Company is the holding company of the Group. The Company enters into transactions with its
subsidiary in the normal course of business. Balances and transactions between the Company and its
subsidiaries are disclosed in Note 16 of the Company’s financial statements. Transactions with the
subsidiaries have been eliminated on consolidation.
(b)
Associates
The Group provides to and receives from its associates certain banking and financial services. These are not
material to the Group and all the transactions are made on normal business terms as for comparable
transactions with customers of a similar standing. Additional information is disclosed in Note 54.
(c)
Compensation of the Board of Directors and key management personnel
The following disclosures are made in accordance with the provisions of IAS 24 Related Party Disclosures
and sections 305 and 306 of the Companies Act 2014, in respect of the compensation of the Board of
Directors and key management personnel.
Fees and emoluments of members of the Board of Directors and other key management
personnel
Director emoluments
Executives
Salaries and other short term benefits
Employer's contributions
Retirement benefit plan costs
Non-executives
Fees
Total directors' emoluments
Other key management personnel emoluments
Salaries and other short term benefits
Termination benefits
Employer's contributions
Retirement benefit plan costs
Total other key management personnel emoluments
Total
2019
€000
2018
€000
1,910
100
152
2,162
1,008
3,170
2,453
98
216
2,767
970
3,737
3,013
3,070
186
170
131
3,500
6,670
-
192
127
3,389
7,126
Other key management personnel emoluments for 2018 include an amount of €572 thousand which relates
to emoluments of key management personnel of Bank of Cyprus UK Limited, which was disposed of in
November 2018.
Fees and benefits are included for the period that they serve as members of the Board of Directors.
The retirement benefit plan costs relate to contributions paid for defined contribution plan.
The termination benefits relate to compensation paid to a member of the Executive Committee who left the
Group under the voluntary exit plan.
268
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
51.
Related party transactions (continued)
Executive Directors
The salaries and other short term benefits of the Executive Directors are analysed as follows:
John Patrick Hourican (Chief Executive Officer resigned on 30 August 2019)
Panicos Nicolaou (Chief Executive Officer - appointed on 1 September 2019)
Christodoulos Patsalides (First Deputy Chief Executive Officer)
2019
€000
2018
€000
1,510
168
232
1,910
2,256
-
197
2,453
The retirement benefit plan costs for 2019 amounting to €152 thousand (2018: €216 thousand) relate to:
Mr John Patrick Hourican €117 thousand up to the date of his resignation (2018: €198 thousand), Mr
Panicos Nicolaou €15 thousand since the date of his appointment and Dr Christodoulos Patsalides €20
thousand (2018: €18 thousand).
Non-executive Directors
Josef Ackermann (resigned on 14 May 2019)
Efstratios-Georgios Arapoglou (appointed on 12 June 2019 following ECB
approval)
Arne Berggren
Maksim Goldman
Michalis Spanos (resigned on 21 January 2019)
Ioannis Zographakis
Michael Heger
Lyn Grobler
Anat Bar-Gera
Paula Hadjisotiriou
Maria Philippou
2019
€000
2018
€000
57
84
117
122
6
159
122
92
86
97
66
1,008
150
-
115
120
100
135
110
90
85
36
29
970
The fees of the non-executive Directors include fees as members of the Board of Directors of the Company
and its subsidiaries, as well as of committees of the Board of Directors.
Other key management personnel
The other key management personnel emoluments include the remuneration of the members of the
Executive Committee since the date of their appointment to the Committee and other members of the
management team who report directly to the Chief Executive Officer or to the First Deputy Chief Executive
Officer or Deputy CEO (prior to the change in the group organisational structure, those who reported
directly to the Chief Executive Officer or the Deputy Chief Executive Officer and Chief Operating Officer).
269
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
51.
Related party transactions (continued)
Transactions with Directors and key management personnel
The table below shows the loans and advances, deposits and other credit balances held by the directors and
key management personnel and their connected persons, as at the balance sheet date:
Deposits at 31 December
- members of the Board of Directors and other key management personnel
- connected persons
Interest expense on deposits for the year
2019
€000
2018
€000
1,896
4,979
6,875
4
1,575
3,122
4,697
41
The above table does not include year-end balances for members of the Board of Directors and their
connected persons who resigned during the year.
Interest expense is disclosed for the period during which they were members of the Board of Directors or
served as key management personnel.
Loans to Directors
The following information is presented in accordance with the Companies Act 2014. For the purposes of the
Companies Acts disclosures, ‘Directors’ means the current Board of Directors of the Company and any past
directors who were members of the Board of Directors of the Company during the relevant period.
All transactions with members of the Board of Directors and their connected persons are made on normal
business terms as for comparable transactions, including interest rates, with customers of a similar credit
standing. A number of loans and advances have been extended to other key management personnel on the
same terms as those applicable to the rest of the Group’s employees and their connected persons on the
same terms as those of customers.
Connected persons include spouses, minor children and companies in which directors/other key
management personnel, hold directly or indirectly, at least 20% of the voting shares in a general meeting,
or act as executive director or exercise control of the entities in any way.
Additional to members of the Board of Directors, related parties include entities providing key management
personnel services to the Group.
Directors: There were 14 Directors in office during the year (2018: 12 Directors), four of whom availed of
credit facilities (2018: three Directors). Three of the Directors who availed of credit Facilities had balances
outstanding at 31 December 2019 (2018: three Directors). The balances outstanding are disclosed below.
Key management personnel: There were 20 key management personnel in office during the year (2018: 13
key management personnel), 18 of whom availed of credit facilities (2018: 11 key management personnel).
All of the key management personnel who availed of credit facilities had balances outstanding at 31
December 2019 (2018: 11 key management personnel).
Where no amount is shown in the tables below, this indicates a credit balance, a balance of nil, or a balance
of less than €500.
The value of arrangements at the beginning and end of the current and preceding financial years as stated
below in accordance with section 307 of the Companies Act 2014, expressed as a percentage of the net
assets of the Group at the beginning and end of the current and preceding financial years is less than 1%.
Details of transactions with key management personnel, and their connected persons where indicated, for
the years ended 31 December 2019 and 2018 are as follows:
270
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
51.
Related party transactions (continued)
Current Directors
Balance as at
1 January
Amounts
advanced during
the year
Amounts repaid
during the
year/period
Balance as at
31 December
Aggregate
maximum
amount
outstanding
during the year
Unused credit
facilities
€000
€000
€000
€000
€000
€000
212
44
256
238
23
261
-
-
2
4
115
2
117
-
n/a
-
n/a
56
n/a
33
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-
n/a
12
n/a
164
36
200
212
44
256
-
-
1
4
106
1
107
211
53
264
236
51
287
4
3
1
4
115
1
116
-
21
21
-
14
14
2
8
9
6
-
46
46
Christodoulos
Patsalides
2019
Loans
Overdrafts/ credit
cards
2018
Loans
Overdrafts/ credit
cards
Michael Spanos
2019
Overdrafts/ credit
cards
2018
Overdrafts/ credit
cards
Ioannis
Zographakis
2019
Overdrafts/ credit
cards
2018
Overdrafts/ credit
cards
Panicos
Nicolaou
2019
Loans
Overdrafts/ credit
cards
Connected persons of the Board of Directors
The balances included in the table above include principal and interest. Also, amounts advanced and repaid
are not shown for overdraft and credit card facilities as these are revolving in nature. The aggregate
maximum amount outstanding includes credit card exposures at the maximum statement balance.
271
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
51.
Related party transactions (continued)
No other Directors had any loan facilities or overdraft/credit card balances with the Group during the year
ended 31 December 2019 (2018: nil).
No impairment charges or provisions have been recognised during the year ended 31 December 2019 and
2018 in respect of the above loans and facilities. All interest that has fallen due on these loans or facilities
has been paid.
During 2019 three directors resigned from the Board of Directors. No Directors resigned during 2018.
The aggregate of loans to connected person of Directors in office at 31 December 2019, as defined in
section 220 of the Companies Act 2014, are as follows (aggregate of 1 person; 2018: 1 person):
2019
Persons connected to Michael
Spanos
Overdrafts/credit cards
2018
Overdrafts/credit cards
2019
Panicos Nicolaou
Overdrafts/credit cards
Balance as at 1
January/(or
appointment
date
Amounts
advanced during
the year
Amounts repaid
during the year
Balance as at
31 December
€000
€000
€000
€000
Aggregate
maximum
amount
outstanding
during the year
€000
6
1
1
n/a
n/a
n/a
n/a
n/a
n/a
6
6
1
9
8
1
The balances included in the table above include principal and interest. Also, amounts advanced and repaid
are not shown for overdraft and credit card facilities as these are revolving in nature. The aggregate
maximum amount outstanding includes credit card exposures at the maximum statement balance.
No impairment charges or provisions have been recognised during the year ended 31 December 2019 and
2018 in respect of the above loans and facilities. All interest that has fallen due on these loans or facilities
has been paid.
Key management personnel in office during the year (and their connected persons)
Balance as at
1 January
€000
2,230
361
2,591
Balances of
key
management
personnel
appointed in
the year
€000
Balances of
key
management
personnel
retired in the
year
€000
Amounts
advanced during
the year
Amounts repaid
during the year
Balance as at
31 December
€000
€000
€000
Aggregate
maximum
amount
outstanding
during the
year
€000
20,212
n/a
200
n/a
32
n/a
785
n/a
21,712
515
22,227
22,454
762
23,216
2019
Loans
Overdrafts/credit cards
272
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
51.
Related party transactions (continued)
2018
Loans
Overdrafts/credit cards
Balance as at 1
January
Amounts
advanced during
the year
Amounts repaid
during the year
Balance as at
31 December
€000
€000
€000
€000
Aggregate
maximum
amount
outstanding
during the
year
€000
2,549
335
2,884
-
n/a
403
n/a
2,230
361
2,591
2,546
508
3,054
The balances included in the table above include principal and interest. Also, amounts advanced and repaid
are not shown for overdraft and credit card facilities as these are revolving in nature. The aggregate
maximum amount outstanding includes credit card exposures at the maximum statement balance.
No impairment charges or provisions have been recognised during the year ended 31 December 2019 and
2018 in respect of the above loans and facilities. All interest that has fallen due on these loans or facilities
has been paid.
Aggregate amounts outstanding at year end and additional transactions
2019
2018
Number of directors
2019
€000
2018
€000
Loans and advances as at 31 December
- Board of Directors
- key management personnel
Connected persons
Interest income for the year
Commission income for the year
Insurance premium income for the year
Subscriptions and insurance expenses
for the year
11
18
12
12
308
2,938
19,290
22,536
179
3
179
902
260
2,216
381
2,857
81
9
133
633
Accruals and other liabilities as at 31 December with entity providing
key management personnel services
Staff costs consultancy and restructuring expenses with entity
providing key management personnel services
9,827
5,108
17,941
14,629
The above table does not include year-end balances for members of the Board of Directors and their
connected persons who resigned during the year.
Interest income and expense are disclosed for the period during which they were members of the Board of
Directors or served as key management personnel.
In addition to loans and advances, there were contingent liabilities and commitments in respect of members
of the Board of Directors and their connected persons, mainly in the form of documentary credits,
guarantees and commitments to lend, amounting to €78 thousand (2018: €37 thousand).
There were also contingent liabilities and commitments to other key management personnel and their
connected persons amounting to €1,367 thousand (2018: €402 thousand).
273
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
51.
Related party transactions (continued)
The total unsecured amount of the loans and advances and contingent liabilities and commitments to
members of the Board of Directors, key management personnel and other connected persons (using forced-
sale values for tangible collaterals and assigning no value to other types of collaterals) at 31 December
2019 amounted to €1,216 thousand (2018: €532 thousand).
At 31 December 2019 the Group has a deposit of €2,848 thousand (2018: €4,086 thousand) with Piraeus
Bank SA, in which Mr Arne Berggren is a non-executive Director. The Group has also provided certain
indemnities to Piraeus Bank SA as part of the disposal of Kyprou Leasing SA in 2015.
During the year ended 31 December 2019 premiums of €40 thousand (2018: €45 thousand) and claims of
€784 thousand (2018: €19 thousand) were paid between the members of the Board of Directors of the
Company and their connected persons and the insurance subsidiaries of the Group.
There were no other transactions during the year ended 31 December 2019 and the year ended 31
December 2018 with connected persons of the current members of the Board of Directors or with any
members who resigned during the year.
274
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
52.
Group companies
The main subsidiary companies and branches included in the Consolidated Financial Statements of the
Group, their registered office their activities and the percentage held by the Company (directly or indirectly)
as at 31 December 2019 are:
Company
Registered office
Activities
Percentage
holding
(%)
Bank of Cyprus Holdings Public Limited
Company
Bank of Cyprus Public Company Ltd
10 Earlsfort Terrace, Dublin 2, D02
T380, Ireland
51 Stassinos Street, Ayia Paraskevi,
Strovolos, CY-2002, Nicosia Cyprus
The Cyprus Investment and Securities
Corporation Ltd (CISCO)
154 Limassol Avenue, CY-2025,
Strovolos, Nicosia, Cyprus
General Insurance of Cyprus Ltd
EuroLife Ltd
Kermia Ltd
Kermia Properties & Investments Ltd
Global Balanced Fund of Funds Salamis
Variable Capital Investment Company
PLC (formerly Cytrustees Investment
Public Company Ltd)
LCP Holdings and Investments Public
Ltd
2-4 Themistokli Dervis Street, CY-1066,
Nicosia, Cyprus
4 Evrou Street, CY-2003, Strovolos,
Nicosia, Cyprus
51 Stassinos Street, Ayia Paraskevi,
Strovolos, CY-2002, Nicosia Cyprus
51 Stassinos Street, Ayia Paraskevi,
Strovolos, CY-2002, Nicosia Cyprus
154 Limassol Avenue, CY-2025
Strovolos, Nicosia, Cyprus
UCITS Fund
26 Vyronos Street, CY-1096 Nicosia,
Cyprus
JCC Payment Systems Ltd
1 Stadiou Street, Nisou, CY-2571 Cyprus
CLR Investment Fund Public Ltd
Auction Yard Ltd
BOC Secretarial Company Ltd
S.Z. Eliades Leisure Ltd
26 Vyronos Street, CY-1096 Nicosia,
Cyprus
51 Stassinos Street, Ayia Paraskevi,
Strovolos,CY-2002, Nicosia Cyprus
51 Stassinos Street, Ayia Paraskevi,
Strovolos,CY-2002, Nicosia Cyprus
51 Stassinos Street, Ayia Paraskevi,
Strovolos,CY-2002, Nicosia Cyprus
BOC Asset Management Ltd
154 Limassol Avenue, CY-2025,
Strovolos, Nicosia, Cyprus
Bank of Cyprus Public Company Ltd
(branch of BOC PCL)
192 Alexandras Avenue, 11521 Athens,
Greece
BOC Asset Management Romania S.A.
Calea Dorobonti 187B, Sector 1,
Bucharest, Romania
MC Investment Assets Management LLC 19-1 Zvezdnyi building, Moscow, Russia
Fortuna Astrum Ltd
Internacionalniti Brigada 69, 11104,
Grad Beograd, Serbia
275
Holding company
Commercial bank
Investment
banking and
brokerage
Non-life insurance
Life insurance
Property trading
and development
Property trading
and development
Holding company
Card processing
transaction
services
Investment
company
Auction company
Secretarial services
Land development
and operation of a
golf resort
Management
administration and
safekeeping of
UCITS Units
Administration of
guarantees and
holding of real
estate properties
Collection of the
existing portfolio of
receivables,
including third
party collections
Problem asset
management
company
Problem asset
management
company
n/a
100
100
100
100
100
100
62
67
75
20
100
100
70
100
n/a
100
100
100
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
52.
Group companies (continued)
In addition to the above companies, at 31 December 2019 BOC PCL had 100% shareholding in the
companies listed below whose activity is the ownership and management of immovable property:
Cyprus: Belvesi Properties Ltd, Hamura Properties Ltd, Legamon Properties Ltd, Noleta Properties Ltd,
Tolmeco Properties Ltd, Arlona Properties Ltd, Dilero Properties Ltd, Ensolo Properties Ltd, Folimo Properties
Ltd, Pelika Properties Ltd, Cobhan Properties Ltd, Birkdale Properties Ltd, Innerwick Properties Ltd, Ramendi
Properties Ltd, Ligisimo Properties Ltd, Nalmosa Properties Ltd, Emovera Properties Ltd, Estaga Properties
Ltd, Skellom Properties Ltd, Blodar Properties Ltd, Tebane Properties Ltd, Cranmer Properties Ltd, Vieman
Ltd, Les Coraux Estates Ltd, Natakon Company Ltd, Oceania Ltd, Dominion Industries Ltd, Ledra Estate Ltd,
EuroLife Properties Ltd, Laiki Lefkothea Center Ltd, Labancor Ltd, Steparco Ltd, Joberco Ltd, Zecomex Ltd,
Domita Estates Ltd, Memdes Estates Ltd, Thryan Properties Ltd, Edoric Properties Ltd, Canosa Properties
Ltd, Kernland Properties Ltd, Jobelis Properties Ltd, Melsolia Properties Ltd, Koralmon Properties Ltd,
Kedonian Properties Ltd, Lasteno Properties Ltd, Spacous Properties Ltd, Calinora Properties Ltd, Marcozaco
Properties Ltd, Soluto Properties Ltd, Solomaco Properties Ltd, Linaland Properties Ltd, Andaz Properties
Ltd, Unital Properties Ltd, Neraland Properties Ltd, Wingstreet Properties Ltd, Nolory Properties Ltd, Lynoco
Properties Ltd, Fitrus Properties Ltd, Lisbo Properties Ltd, Mantinec Properties Ltd, Syniga Properties Ltd,
Colar Properties Ltd, Irisa Properties Ltd, Provezaco Properties Ltd, Hillbay Properties Ltd, Ofraco Properties
Ltd, Forenaco Properties Ltd, Hovita Properties Ltd, Badrul Properties Ltd, Astromeria Properties Ltd, Orzo
Properties Ltd, Regetona Properties Ltd, Arcandello Properties Ltd, Camela Properties Ltd, Subworld
Properties Ltd, Jongeling Properties Ltd, Fareland Properties Ltd, Barosca Properties Ltd, Fogland Properties
Ltd, Tebasco Properties Ltd, Homirova Properties Ltd, Valecross Properties Ltd, Altco Properties Ltd,
Marisaco Properties Ltd, Olivero Properties Ltd, Jaselo Properties Ltd, Elosa Properties Ltd, Flona Properties
Ltd, Toreva Properties Ltd, Resoma Properties Ltd, Mostero Properties Ltd, Helal Properties Ltd, Yossi
Properties Ltd, Gozala Properties Ltd, Pendalo Properties Ltd, Frontyard Properties Ltd, Bonsova Properties
Ltd, Garmozy Properties Ltd, Palmco Properties Ltd, Thermano Properties Ltd, Venicous Properties Ltd,
Lorman Properties Ltd, Eracor Properties Ltd, Rulemon Properties Ltd, Thelemic Properties Ltd, Maledico
Properties Ltd, Dentorio Properties Ltd, Valioco Properties Ltd, Bascone Properties Ltd, Balasec Properties
Ltd, Bendolio Properties Ltd, Diafor Properties Ltd, Kartama Properties Ltd, Paradexia Properties Ltd,
Paramina Properties Ltd, Nouralia Properties Ltd, Resocot Properties Ltd, Soblano Properties Ltd, Talamon
Properties Ltd, Weinar Properties Ltd, Zemialand Properties Ltd, Asianco Properties Ltd, Cimonia Properties
Ltd, Coeval Properties Ltd, Comenal Properties Ltd, Finevo Properties Ltd, Intelamon Properties Ltd, Mazima
Properties Ltd, Nesia Properties Ltd, Nigora Properties Ltd, Riveland Properties Ltd, Rosalica Properties Ltd,
Secretsky Properties Ltd, Senadaco Properties Ltd, Tasabo Properties Ltd, Venetolio Properties Ltd, Zandexo
Properties Ltd, Flymoon Properties Ltd, Meriaco Properties Ltd, Odolo Properties Ltd, Calandomo Properties
Ltd, Molemo Properties Ltd, Nivamo Properties Ltd, Edilia Properties Ltd, Icazo Properties Ltd, Limoro
Properties Ltd, Rofeno Properties Ltd, Samilo Properties Ltd, Jalimo Properties Ltd, Sendilo Properties Ltd,
Baleland Properties Ltd and Prodino Properties Ltd.
Romania: Otherland Properties Dorobanti SRL, Green Hills Properties SRL, Romaland Properties SRL,
Imoreth Properties SRL, Inroda Properties SRL, Zunimar Properties SRL, Allioma Properties SRL and Nikaba
Properties SRL.
Further, at 31 December 2019 BOC PCL had 100% shareholding in Obafemi Holdings Ltd, Stamoland
Properties Ltd, Unoplan Properties Ltd, Petrassimo Properties Ltd and Gosman Properties Ltd.
The main activities of the above companies are the holding of shares and other investments and the
provision of services.
276
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
52.
Group companies (continued)
At 31 December 2019 BOC PCL had 100% shareholding in the companies listed below which are reserved to
accept property:
Cyprus: Tavoni Properties Ltd, Amary Properties Ltd, Holstone Properties Ltd, Alepar Properties Ltd,
Cramonco Properties Ltd, Monata Properties Ltd, Aktilo Properties Ltd, Alezia Properties Ltd, Aparno
Properties Ltd, Enelo Properties Ltd, Mikosa Properties Ltd, Stormino Properties Ltd, Stevolo Properties Ltd,
Lomenia Properties Ltd, Vemoto Properties Ltd, Vertilia Properties Ltd, Zenoplus Properties Ltd, Carilo
Properties Limited, Gelimo Properties Limited, Rifelo Properties Limited, Avaleto Properties Limited, Midelox
Properties Limited, Ameleto Properties Limited, Orilema Properties Limited, Montira Properties Limited,
Larizemo Properties Limited and Olisto Properties Limited.
Romania: Selilar Properties SRL.
In addition, BOC PCL holds 100% of the following intermediate holding companies:
Cyprus: Otherland Properties Ltd, Battersee Properties Ltd, Trecoda Properties Ltd, Bonayia Properties Ltd,
Bocaland Properties Ltd, Romaland Properties Ltd, Janoland Properties Ltd, Imoreth Properties Ltd, Inroda
Properties Ltd, Tantora Properties Ltd, Zunimar Properties Ltd, Selilar Properties Ltd, Nikaba Properties Ltd,
Allioma Properties Ltd, Landanafield Properties Ltd and Hydrobius Ltd.
BOC PCL also holds 100% of the following companies which are inactive:
Cyprus: Laiki Bank (Nominees) Ltd, Thames Properties Ltd, Paneuropean Ltd, Philiki Ltd, Cyprialife Ltd,
Imperial Life Assurance Ltd, Philiki Management Services Ltd, Nelcon Transport Co. Ltd, Weinco Properties
Ltd, Renalandia Properties Limited, Crolandia Properties Ltd, Iperi Properties Ltd, Finerose Properties Ltd,
Fantasio Properties Ltd, Demoro Properties Ltd, Elosis Properties Ltd, Polkima Properties Ltd, Pariza
Properties Ltd, Prosilia Properties Ltd, Otoba Properties Ltd, Dolapo Properties Limited, Nivoco Properties
Limited, Bramwell Properties Ltd, CYCMC II Ltd, CYCMC III Ltd and CYCMC IV Ltd.
Greece: Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki (branch of General Insurance of Cyprus
Ltd), Kyprou Commercial SA and Kyprou Properties SA.
Romania: Battersee Real Estate SRL, Trecoda Real Estate SRL, Bocaland Properties SRL and Tantora
Properties SRL.
All Group companies are accounted for as subsidiaries using the full consolidation method. All companies
listed above, except from Global Balanced Fund of Funds Salamis Variable Capital Investment Company PLC
which is a UCITS Fund, have share capital consisting of ordinary shares.
Control over CLR Investment Fund Public Ltd (CLR) and its subsidiaries without substantial
shareholding
The Group considers that it exercises control over CLR and its subsidiaries (Europrofit Capital Investors
Public Limited, Axxel Ventures Limited and CLR Private Equity Limited) through control of the members of
the Board of Directors and is exposed to variable returns through its holding.
277
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
52.
Group companies (continued)
Dissolution and disposal of subsidiaries
As at 31 December 2019, the following subsidiaries were in the process of dissolution or in the process of
being struck off: Bank of Cyprus (Channel Islands) Ltd, BC Romanoland Properties Ltd, Blindingqueen
Properties Ltd, Buchuland Properties Ltd, Corner LLC, Diners Club (Cyprus) Ltd, Fairford Properties Ltd,
Leasing Finance LLC, Mirodi Properties Ltd, Nallora Properties Ltd, Omiks Finance LLC, Salecom Ltd,
Sylvesta Properties Ltd, Commonland Properties Ltd, Fledgego Properties Ltd, Loneland Properties Ltd,
Frozenport Properties Ltd, Melgred Properties Ltd and Unknownplan Properties Ltd.
Bank of Cyprus Romania (Romanian branch), BOC Ventures Ltd, Lameland Properties Ltd, Calomland
Properties Ltd, Pittsburg Properties Ltd and Kyprou Finance (NL) B.V., Frozenport Properties SRL, Loneland
Properties SRL, Melgred Properties SRL, were dissolved during the year ended 31 December 2019. Asendo
Properties Ltd, Gylito Properties Ltd, Lamezoco Properties Ltd, Timeland Properties Ltd, Spaceglowing
Properties Ltd, Pamaco Platres Complex Ltd, Racotino Properties Ltd, Rondemio Properties Ltd, Rylico
Properties Ltd, Vatino Properties Ltd, Valecast Properties Ltd, Teresan Properties Ltd, Virevo Properties Ltd,
Armozio Properties Ltd, Garveno Properties Ltd, Dorfilo Properties Ltd, Barway Properties Ltd, Bokeno
Properties Ltd, Sailoma Properties Ltd, Fodilo Properties Ltd, Gordian Holdings Limited (formerly CYCMC I
Ltd), Citlali Properties Ltd, Livena Properties Ltd, Volparo Properties Ltd, Domilas Properties Ltd, Introserve
Properties Ltd, Cereas Properties Ltd, Sindelaco Properties Ltd, Nasebia Properties Ltd, Indene Properties
Ltd, Ingane Properties Ltd, Ganina Properties Ltd, Kenelyne Properties Ltd and Ilera Properties Ltd were
disposed of during the year ended 31 December 2019. Additionally the entire holding of 64% in Nicosia Mall
Management (NMM) Limited, Nicosia Mall Finance (NMF) Limited, Nicosia Mall Holdings (NMH) Limited and
Nicosia Mall Property (NMP) Ltd were disposed of during 2019.
During the year ended 31 December 2019, the Group disposed of its entire shareholding in Cyreit, and
subsequently its indirect holding in the following Cyreit’s subsidiaries: Smooland Properties Ltd, Threefield
Properties Ltd, Vameron Properties Ltd, Bascot Properties Ltd, Vanemar Properties Ltd, Consoly Properties
Ltd, Alomnia Properties Ltd, Artozaco Properties Ltd, Elizano Properties Ltd, Letimo Properties Ltd, Allodica
Properties Ltd, Wiceco Properties Ltd, Primaco Properties Ltd, Arleta Properties Ltd, Kuvena Properties Ltd,
Nuca Properties Ltd, Orleania Properties Ltd, Ravenica Properties Ltd, Rouena Properties Ltd, Lancast
Properties Ltd and Azemo Properties Ltd.
53.
Acquisitions and disposals of subsidiaries
53.1
Acquisitions during 2019
There were no acquisitions during 2019.
53.2
Disposals during 2019
53.2.1 Disposal of Cyreit
In June 2019, the Group completed the sale of its entire holding of 88.2% in Cyreit.
The carrying value of the BOC PCL's share of assets and liabilities disposed of as at the date of their disposal
are presented below:
Assets
Loans and advances to banks
Investment properties
Liabilities
Other liabilities
Net identifiable assets sold
278
€000
7,980
133,401
141,381
(314)
141,067
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
53.
Acquisitions and disposals of subsidiaries (continued)
53.2. Disposals during 2019 (continued)
53.2.1. Disposal of Cyreit (continued)
The final purchase consideration amounts to €141,139 thousand. The disposal resulted in a gain of €72
thousand disclosed within 'Net losses from revaluation and disposal of investment properties'.
The net cash flows of Cyreit are as follows:
Net cash inflow for the year from operating activities
There were no cash equivalents as at the date of disposal.
53.2.2 Disposal of NMH group
2019
€000
2018
€000
1,330
7,514
In December 2019, the Group completed the sale of its entire holding of 64% in NMH group. The carrying
value of the assets and liabilities disposed of as at the date of their disposal are presented below:
Assets
Property and equipment
Other assets
Placements with banks
Liabilities
Other liabilities
Net identifiable assets sold
€000
91,219
420
2,161
93,800
(6,340)
87,460
The accumulated losses allocated to non-controlling interest amount to €847 thousand. The purchase
consideration amounted to €92,193 thousand and involved the settlement of existing facilities and provision
of new lending giving rise to a gain on disposal of €3,886 thousand disclosed within 'Net gains on financial
instrument transactions and disposal/dissolution of subsidiaries and associates.
The net cash flows of NMH group are as follows:
Operating
Investing
Financing
Net cash inflow for the year
2019
€000
2018
€000
(1,148)
(33)
1,181
-
3,579
(32,006)
28,432
5
The cash and cash equivalents as at the date of disposal amounted to €1,936 thousand.
53.3
Acquisitions during 2018
There were no acquisitions during 2018.
279
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
53.
Acquisitions and disposals of subsidiaries (continued)
53.4
Disposals during 2018
53.4.1 Disposal of Bank of Cyprus UK Limited
In November 2018, the Group completed the sale of 100% of its subsidiary bank in the UK, Bank of Cyprus
UK Limited and its subsidiary Bank of Cyprus Financial Services Limited.
The carrying value of assets and liabilities disposed of as at the date of their disposal are presented below:
Assets
Cash and balances with central banks
Loans and advances to banks
Loans and advances to customers
Property and equipment
Intangible assets
Prepayments, accrued income and other assets
Liabilities
Deposits by banks
Customer deposits
Accruals, deferred income and other liabilities
Subordinated loan stock
Net identifiable assets sold
€000
278,250
71,932
1,827,113
17,224
1,883
23,204
2,219,606
30,869
1,990,360
29,317
35,340
2,085,886
133,720
The cash consideration amounted to €120,131 thousand comprising of €115,991 thousand base
consideration plus a purchase price adjustment of €4,140 thousand. The disposal resulted in a gain of
€3,680 thousand comprising a loss of €13,703 thousand against the book value of the assets as at the
disposal date and a gain of €17,383 thousand representing the recycling of the foreign currency translation
reserve from other comprehensive income to consolidated income statement.
The net cash flows of Bank of Cyprus UK Limited are as follows:
Operating
Investing
Financing
Net cash (outflow)/inflow for the year
2018
€000
(119,269)
(744)
-
(120,013)
2017
€000
92,291
(1,862)
34,483
124,912
The cash and cash equivalents as at the date of disposal amounted to €321,225 thousand.
280
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
54.
Investments in associates and joint venture
Carrying value of the investments in associates and joint venture
CNP Cyprus Insurance Holdings Ltd (Note 30)
Apollo Global Equity Fund of Funds Variable Capital
Investment Company Plc
Aris Capital Management LLC
Rosequeens Properties Limited
Rosequeens Properties SRL
Tsiros (Agios Tychon) Ltd
M.S. (Skyra) Vassas Ltd
D.J. Karapatakis & Sons Limited
Rodhagate Entertainment Ltd
Fairways Automotive Holdings Ltd
Share of pre-tax profit/(loss) from associates
CNP Cyprus Insurance Holdings Ltd
Interfund Investments Plc
Apollo Global Equity Fund of Funds Variable Capital
Percentage
holdings
(%)
-
2019
€000
2018
€000
-
114,637
34.1
30.0
33.3
33.3
50.0
15.0
-
-
45.0
2,393
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,393
114,637
2019
€000
2018
€000
5,312
-
201
5,513
9,164
(69)
-
9,095
The share of profit from CNP Cyprus Insurance Holdings Ltd for the year ended 31 December 2019 refers to
the period up to the date of classification of CNP Cyprus Insurance Holdings Ltd as held for sale as described
below.
Investments in associates
CNP Cyprus Insurance Holdings Ltd
The holding in CNP Cyprus Insurance Holdings Ltd of 49.9% had been acquired as part of the acquisition of
certain operations of Laiki Bank in 2013. In May 2019 BOC PCL signed a binding agreement to sell its entire
shareholding to CNP Assurances S. A. who owned the remaining 50.1% and was the controlling party. The
investment was classified as held for sale as at 30 June 2019 and prior to this classification it was
remeasured at fair value less cost to sell; a loss of €25,943 thousand was recognised in the consolidated
income statement. The sale was completed in October 2019 and the sale consideration of €97,500 thousand
was payable in cash on completion. There was no accounting loss on the sale.
281
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
54.
Investments in associates and joint venture (continued)
No information is provided regarding the financial highlights for 31 December 2019 since the investment in
associate was disposed of in October 2019.
The transactions between CNP Cyprus Insurance Holdings Ltd and the Group during 2019, up to the date of
disposal, and during the whole 2018 are presented in the table below:
Dividend income
Interest expense paid by the Group
Other expenses paid by the Group
Other income received by the Group
2019
€000
2018
€000
-
62
46
3
5,362
129
92
1
Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc (Apollo)
The Group holds effectively 34.1% (2018: 33.2%) of the UCITS of Apollo due to gradual redemption of the
other holders of Apollo. The Group considers that it exercises significant influence over Apollo even though
no Board representation exists, because due to its UCITS holdings, it possesses the power to potentially
appoint members of the Board of Directors.
Interfund Investments Plc
In May 2018, BOC PCL sold its holding of 23.1% in its associate Interfund Investments Plc, which is a
closed-end investment company in Cyprus, listed on the CSE. The loss of disposal amounted to €191
thousand.
Rosequeens Properties Limited and Rosequeens Properties SRL
The Group effectively owns 33.3% of the share capital of Rosequeens Properties SRL which is incorporated
in Romania and owns a shopping mall in Romania. The shareholding was acquired after BOC PCL took part
in a public auction for the settlement of customer loan balances amounting to approximately €21 million.
The Group’s share of net assets of the associate at 31 December 2019 and 2018 had nil accounting value as
the net assets of the associate had a negative balance.
Aris Capital Management LLC
The Group’s holding in Aris Capital Management LLC of 30.0% was transferred to the Group following the
acquisition of certain operations of Laiki Bank in 2013. The investment is considered to be fully impaired
and its value is restricted to zero.
M.S. (Skyra) Vassas Ltd
In the context of its loan restructuring activities, the Group acquired 15.0% interest in the share capital of
M.S. (Skyra) Vassas Ltd. M.S. (Skyra) Vassas Ltd is the parent company of a group of companies (Skyra
Vassas group) with operations in the production, processing and distribution of aggregates (crushed stone
and sand) and provision of other construction materials, and services based on core products such as ready-
mix concrete, asphalt and packing of aggregates. The Group considers that it exercises significant influence
over the Skyra Vassas group as the Group has the power to have representation to the Board of Directors
and to vote for matters relating to the relevant activities of the business. The investment is considered to
be fully impaired and its value is restricted to zero.
D.J. Karapatakis & Sons Limited and Rodhagate Entertainment Ltd
During December 2019, the Group transferred its entire holding in D.J. Karapatakis & Sons Limited and
Rodhagate Entertainment Ltd of 7.5% to the majority holder following settlement of their facilities. The
holding had been acquired in the context of its loan restructuring activities. D.J. Karapatakis & Sons Limited
and Rodhagate Entertainment Ltd had operations in leisure, tourism, film and entertainment industries in
Cyprus. The investments were considered to be fully impaired and their value was restricted to zero. The
disposal did not impact the consolidated income statement of the Group.
282
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
54.
Investments in associates and joint venture (continued)
Fairways Automotive Holdings Ltd
In the context of its loan restructuring activities, the Group acquired 45.0% interest in the share capital of
Fairways Automotive Holdings Ltd. Fairways Automotive Holdings Ltd is the parent company of Fairways Ltd
operating in the import and trading of motor vehicles and spare parts. The Group considers that it exercises
significant influence over the company. The investment is considered to be fully impaired and its value is
restricted to zero.
Investment in joint venture
Tsiros (Agios Tychon) Ltd
The Group holds a 50.0% shareholding in Tsiros (Agios Tychon) Ltd. The shareholder agreement with the
other shareholder of Tsiros (Agios Tychon) Ltd stipulates a number of matters which require consent by
both shareholders, therefore the Group considers that it jointly controls the company. The carrying value of
Tsiros (Ayios Tychon) Ltd is restricted to zero.
The percentage holdings are in ordinary shares or membership interests.
283
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
55.
Country by country reporting
Article 89 of CRD IV requires banks to disclose on a consolidated basis the following information for all countries where the Group operates. The table below
provides information on the following items of the Group for year 2019:
Country
Cyprus
Russia
United Kingdom
Romania
Greece
Total
Total operating
income/(expense)
Average number
of employees
Profit/(loss)
before tax
€000
693,316
(1,640)
30
367
(4,133)
687,940
€000
4,029
(159,308)
5
1
10
8
(3,231)
121
(3,421)
(14,730)
4,053
(180,569)
Accounting tax
expense/(income)
on profit/(loss)
€000
Corporation tax
paid/(refunded)
Public subsidies
received
€000
€000
(86)
544
-
(6)
153
605
19,549
(544)
-
-
7,143
26,148
-
-
-
-
-
-
Total operating income/(expenses), profit/(loss) before tax and accounting tax expenses/(income) on profit/(loss) are prepared on the same basis as the
figures reported elsewhere in these financial statements.
The activities of Group companies by geographical area are disclosed in Note 52.
Total operating income/(expense): comprises net interest income, net fee and commission income, net foreign exchange gains, net gains on financial
instrument transactions, insurance income net of claims and commissions, gains/(losses) from revaluation and disposal of investment properties,
gains/(losses) on revaluation and disposal of stock of property and other income.
Number of employees: the number of employees has been calculated as the average number of employees, on a quarterly basis, who were employed by the
Group during the year ended 31 December 2019.
Profit/(loss) before tax: profit/(loss) before tax represents profits/(losses) after the deduction of inter-segment revenues/(expenses).
Accounting tax expense/(income) on profit/(loss): includes corporation tax and Cyprus special defence contribution. Deferred tax charge for the year is
excluded from the above.
Corporation tax paid/(refunded) includes actual payments made during 2019 for corporation tax (including insurance premium taxes) and Cyprus special
defence contribution.
284
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
56.
Events after the reporting date
56.1
Development on the Coronavirus disease (COVID-19) outbreak
With the recent and rapid development of the Coronavirus disease (COVID-19) outbreak, the world
economy entered a period of unprecedented health care crisis that has already caused considerable global
disruption in business activities and everyday life. Many countries have adopted extraordinary and
economically costly containment measures. Governments around the world, including the Republic of
Cyprus, have required certain companies to limit or even suspend normal business operations and have
implemented restrictions on travelling as well as strict quarantine measures.
The Group is closely monitoring developments and the effects of the impact of COVID-19 on the global and
Cyprus economy as well as on the likely effect on the Group’s financial performance and financial position.
Specifically, COVID-19 could have an adverse impact across risks including the credit and investment
portfolios, operational risk, human resources, capital, funding and liquidity.
With respect to the Group’s credit portfolio, COVID-19 could negatively impact specific portfolios through
negative rating migrations, higher than expected loan losses, and through the sensitivity of the credit risk
models to macro-parameters. The impact on GDP and other key indicators will be considered when
determining the severity and likelihood of economic scenarios that will be used to estimate ECL under IFRS
9 in 2020. The property portfolio of the Group may incur losses due to market fluctuations and volatility in
case of significant drops in property prices and the speed of property asset reduction may decrease due to
reduced counterparty appetite due to the uncertainties. Following the COVID-19 outbreak and the resultant
volatile market and economic environment, the Fair Value Reserve of the FVOCI debt security portfolio of
the Group held as at 31 December 2019 has decreased by €39 million on 24 April 2020. This change is
recognised directly through OCI. Furthermore, on 24 April 2020, the Group held Cyprus sovereign debt
securities of a nominal amount of €772 million, compared to €477 million on 31 December 2019, of which
€350 million is held at FVOCI portfolio and €422 million is held at amortised cost portfolio. The increase
since year end is mainly due to the Group’s participation on the issuance of the Cyprus Government of 52-
week treasury bills in April 2020.
The extent of the adverse impact of the pandemic on the global and local economy and markets will
depend, in part, on the length and severity of the measures taken to limit the spread of the virus and, in
part, on the size and effectiveness of the compensating measures taken by governments (measures taken
by the Cyprus Government and various regulators are discussed below). The financial effect of the current
crisis on the global economy and overall business activities cannot be estimated with reasonable certainty
at this stage, due to the pace at which the outbreak expands and the high level of uncertainties arising from
the inability to reliably predict the outcome. As the situation is rapidly evolving the Group cannot at this
stage reliably estimate the potential financial impact of the outbreak on the Group.
The event is considered as a non-adjusting event and is therefore not reflected in the recognition and
measurement of the assets and liabilities in the financial statements as at 31 December 2019.
Measures announced by the Cyprus Government
In Cyprus, on 15 March 2020, the Council of Ministers in an extraordinary meeting, announced that it
considers that Cyprus is entering a state of emergency considering the uncertain situation as it unfolds
daily, the growing spread of COVID-19 outbreak and the World Health Organization's data on the situation.
To this end, certain measures have been taken with a view to safeguarding public health and ensuring the
economic survival of working people, businesses, vulnerable groups and the economy at large.
The Cyprus Government announced a ‘Support Programme’ valued at €700 million to address the financial
effects of COVID-19 and support labour population and business in Cyprus. The measures, amongst others
include extension of period and suspension of indirect tax payments and suspension of additional
contributions to the General Health Scheme for three months.
285
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
56.
Events after the reporting date (continued)
56.1. Development on the Coronavirus disease (COVID-19) outbreak (continued)
With respect to the measures for the protection of labour relationships for businesses that have suspended
their operations following the relevant decree or businesses that have suffered a more than 25% drop in
revenue, these involve the provision of partial subsidy for the compensation for employees, self-employed
and single-person enterprises affected by the crisis and at the same time ensuring redundancies are
avoided.
In addition, the CBC together with the Government announced the suspension of capital and interest
payments until 31 December 2020 for natural persons, self-employed persons and businesses for all eligible
borrowers with no arrears for more than 30 days as at the end of February 2020. Eligible borrowers can
apply for the suspension. This was passed through a bill in Parliament on 29 March 2020. Following the
Emergency Measures by Financial Institutions and Supervisory Authorities Decree of 2020, dated 30 March
2020, the Group proceeded to announce the procedure through which its clients may apply for the
suspension of instalments and interest on their credit facilities. In response to the moratorium the
Association of Cyprus Banks also announced the non-capitalisation of interest for the period during which
the moratorium is in effect.
The Cyprus Government has also announced that it intends to provide government guaranteed loans that
can be extended to customers impacted from COVID-19. In accordance with the draft government proposal,
the maximum amount of the guarantees will be €1.75 billion and the guarantee will cover 70% of the new
facilities. Participating banks will provide these loans at prescribed interest rates. The proposed scheme is
still being deliberated upon and no final scheme has been approved to date.
Additionally, the ESTIA Scheme period for submission of applications has been extended for 3 months, until
30 June 2020, aiming to allow qualifying applicants to provide the relevant information supporting the
application.
On 7 April 2020, Cyprus Government issued 7-year and 30-year bonds totalling €1.75 billion to safeguard
the liquidity buffers to fund the government measures on the one hand and to strengthen state reserves in
accordance with the Medium-Term Public Debt Management Strategy.
Measures announced by regulators
The ECB announced on 12 March 2020 the implementation of a package of monetary policy measures in
order to secure favourable conditions of financing for the economy with the aim to mitigate the effects of
the crisis.
a) Capital Relief measures
On 12 March 2020, the ECB and the EBA announced the following relaxation measures for the minimum
capital requirements for banks:
Banks are temporarily allowed to operate below the level of capital defined by the Pillar II
Guidance, the Capital Conservation Buffer and the Countercyclical Buffer. The Countercyclical
Buffer is 0% for Cypriot Banks.
Banks are allowed to use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to meet Pillar II
Requirements and not only by CET 1; this brings forward a measure that was scheduled to come
in effect in January 2021 with the revision of CRD IV.
The CBC has also decided the postponement of the remaining phase-in of the Other Systemically Important
Institution (O-SII) buffer by one year.
The above measures increase the Group’s capital base available to absorb potential losses due to the crisis.
In addition, the early adoption of CRD V for the composition of Pillar II Requirements provides flexibility
regarding the Group’s compliance with the minimum capital requirement of Pillar II.
b) Liquidity relief measures
On 12 March 2020 together with the capital relief measures set out above, ECB announced that it will allow
banks to operate temporarily below the liquidity coverage ratio (LCR).
286
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
56.
Events after the reporting date (continued)
56.1. Development on the Coronavirus disease (COVID-19) outbreak (continued)
In addition, on 12 March 2020 the ECB decided on additional longer-term refinancing operations (LTROs)
through a full-spread fixed-rate auction equal to the average deposit facility interest rate and similarly it
was decided that for the TLTRO III operation in June 2020, considerably more favourable terms will be
applied during the period from June 2020 to June 2021 to all TLTRO III operations outstanding during that
same time.
The Governing Council of the ECB decided on 18 March 2020 to launch a new Pandemic Emergency
Purchase Programme (PEPP) for an amount of €750 billion and purchases will be conducted until the end of
2020. Furthermore, it was decided to expand the range of eligible assets under the Corporate Sector
Purchase Programme (CSPP) to non-financial commercial paper and to ease the collateral standards by
adjusting the main risk parameters of the collateral framework.
c) 2020 EBA EU-wide stress test postponement
Similarly, due to the outbreak of COVID-19 and its global spread, the EBA decided to postpone until 2021
the EU-wide Stress Test Exercise of 2020 to allow banks to focus on and ensure continuity of their core
operations. For 2020, the EBA will carry out an additional EU-wide transparency exercise in order to provide
updated information on banks’ exposures and asset quality to market participants. The ECB announced that
it supports the decision of EBA and will extend the postponement to all banks subject to the 2020 stress
test.
d) Supervisory flexibility regarding prudential treatment of forborne and definition of default
and accounting considerations
In the same direction, the EBA in cooperation with the ESMA issued statements on 25 March 2020 to
provide guidance to banks for the estimation of the expected impact on their financial figures from COVID-
19. Specifically the EBA statement seeks to provide clarity to the EU banking sector on how to handle in a
consistent manner, aspects related to (i) the classification of loans in default, (ii) the identification of
forborne exposures and (iii) the accounting treatment and similarly ESMA’s statement is aiming in
promoting consistent application on the accounting implications of IFRS 9 Financial Instruments in the
specific context of the COVID-19 outbreak. In particular, the EBA clarified that generalised payment delays
due to legislative initiatives and addressed to all borrowers do not lead to any automatic classification in
default, forborne or unlikeness to pay. Individual assessments of the likeliness to pay should be prioritized.
On 2 April 2020, EBA issued detailed guidelines aiming to provide clarity on the treatment of legislative and
non-legislative moratoria applied before 30 June 2020.
The IASB issued on 27 March 2020 educational material encouraging entities whose regulators have issued
guidance on the application of IFRS 9 in the context of the COVID-19 pandemic to consider that guidance.
Other measures at European Union level
On 23 March 2020, the EU Ministers of Finance agreed with the Commission’s proposal to activate
the general escape clause of the Stability and Growth Pact (SGP). Member States will be allowed
to undertake measures to deal adequately with the crisis, while departing from the budgetary
requirements that would normally apply under the European fiscal framework.
The Commission has issued a specific temporary State-aid framework to expedite public support
to companies to mitigate the economic impact of the crisis, while ensuring the necessary level
playing field in the Single Market.
The Commission launched a Coronavirus Response Investment Initiative (CRII) to mobilise
cohesion policy to flexibly respond to the rapidly emerging needs in the most exposed sectors,
such as healthcare, SMEs and labour markets, and help the most affected territories in Member
States and their citizens. The first package adopted on 30 March 2020 involved about €8 billion of
immediate liquidity to accelerate up to €37 billion of European public investment, provide
flexibility in applying EU spending rules and extend the scope of the EU Solidarity Fund.
287
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2019
56.
Events after the reporting date (continued)
56.1. Development on the Coronavirus disease (COVID-19) outbreak (continued)
On 9 April 2020 the EU finance ministers reached a comprehensive economic policy response to
the COVID-19 pandemic which in addition to the measures announced earlier, the following crisis
response instruments were agreed:
The Eurogroup proposed to establish a Pandemic Crisis Support, based on the existing
Enhanced Conditions Credit Line (ECCL) precautionary credit line, adjusted to meet the
current needs and to safeguard the euro area financial stability. Access granted will be
2% of the respective Member’s GDP as of end-2019, as a benchmark.
Agreed the creation of a dedicated COVID-19 instrument to support the financing of
emergency aid, through the provision of grants. In this context the Commission’s
proposal to re-activate the Emergency Support Instrument in the context of the COVID-
19 outbreak which will be used to support the financing of emergency aid, through the
provision of grants for an amount of €2.7 billion was welcomed.
Agreed with the European Investment Bank’s proposal for the creation of a pan-European
guarantee fund of €25 billion, which could support €200 billion of financing for companies
with a focus on SMEs, throughout the EU, including through national promotional banks.
A temporary loan-based instrument labelled SURE (temporary Support to mitigate
Unemployment Risks in an Emergency) will be established as soon as possible. In this
context, the Commission's proposal of 2 April 2020 to set up a temporary instrument
supporting Member States
in the specific emergency
to protect employment
circumstances of the COVID-19 crisis was accepted. This instrument will be used to
provide financial assistance, in the form of loans granted on favourable terms from the EU
to member states, of up to €100 billion in total.
56.2
Capital reduction through use of the Company’s share premium
The Company will proceed (subject to approval by the shareholders, the ECB and the Irish High Court) with
a capital reduction process which will result in the reclassification of €700 million of the Company’s share
premium as distributable reserves. This will increase the distributable reserves of the Company to
approximately €1 billion on a pro forma basis (31 December 2019). The capital reduction has been
proposed as a special resolution for approval by shareholders at the Company’s Annual General Meeting
scheduled on 26 May 2020. The capital reduction will not have any impact on regulatory capital or the total
equity position of the Company, BOC PCL or the Group.
The distributable reserves provide the basis for the calculation of distributable items under the CRR, which
provides that coupons on AT1 capital instruments may only be funded from distributable items.
56.3
Introduction of contribution to the Deposit Guarantee Fund
As from 1 January 2020 and until 3 July 2024 BOC PCL is subject to contribution to the Deposit Guarantee
Fund (DGF) on a semi-annual basis. The contributions are calculated based on the Risk Based Methodology
(RBM) as approved by the management committee of the Deposit Guarantee and Resolution of Credit and
Other Institutions Schemes (DGS) and is publicly available on the CBC’s website. In line with the RBM, the
contributions are broadly calculated on the covered deposits of all authorised institutions and the target
level is to reach at 0.8% of these deposits by 3 July 2024. The contribution of BOC PCL has been set at €2.9
million for the first half of 2020 and in line with IFRSs, it will be charged in the first quarter of 2020.
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Independent auditors’ report to the members of Bank of Cyprus
Holdings plc
Report on the audit of the financial statements
Opinion
In our opinion, Bank of Cyprus Holdings plc’s consolidated financial statements and company financial statements (the
“financial statements”):
∙
∙
∙
give a true and fair view of the group’s and the company’s assets, liabilities and financial position as at 31
December 2019 and of the group’s and company’s loss and cash flows for the year then ended;
have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as
adopted by the European Union; and
have been properly prepared in accordance with the requirements of the Companies Act 2014 and, as regards the
consolidated financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Financial Report 2019 (the “Annual Report”), which
comprise:
∙
∙
∙
∙
∙
The Consolidated and Company Balance Sheet as at 31 December 2019;
the Consolidated Income Statement and Statement of Comprehensive Income and the Company Statement of
Comprehensive Income for the year then ended;
the Consolidated and Company Statement of Cash Flows for the year then ended;
the Consolidated and Company Statement of Changes in Equity for the year then ended; and
the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (“ISAs (Ireland)”) and
applicable law. Our responsibilities under ISAs (Ireland) are further described in the Auditors’ responsibilities for the
audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in Ireland, which includes IAASA’s Ethical Standard as applicable to listed public interest entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by IAASA’s Ethical Standard were
not provided to the group or the company.
Other than those disclosed in note 16 to the financial statements, we have provided no non-audit services to the group or
the company in the period from 1 January 2019 to 31 December 2019.
Our audit approach
Overview
Materiality
∙ €18.4 million - Consolidated financial statements
∙ Based on circa 1% of net assets.
∙ €18 million - Company financial statements
∙ Based on circa 1% of net assets.
Audit scope
∙ We audited the complete financial information of Bank of Cyprus public company
limited, which is the main trading entity of the Group and its only directly held
289
subsidiary, Bank of Cyprus Holdings plc.
∙ Our audit scope addressed approximately 98%, 95% and 96% respectively of the
Group’s revenues, the Group’s absolute value of underlying profit and the Group’s total
assets.
Key audit matters
Litigation provisions and regulatory claims.
Impairment of loans and advances to customers.
∙
∙ Going concern.
∙
∙ Valuation of and accounting for repossessed properties.
∙
∙ Carrying value of Investment in Bank of Cyprus pcl (company only).
Privileged user access
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of
significant accounting estimates that involved making assumptions and considering future events that are inherently
uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including
evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to
fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any
comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Impairment of loans and advances to customers
IFRS 9 ECL provisions on Loans and Advances to
Customers
Refer to note 2.19, “Impairment of financial assets” within
Note 2, “Summary of significant accounting policies”, Note
5.2, “Calculation of expected credit losses” within Note 5
“Significant and other judgements, estimates and
assumptions, Note 24, “Loans and advances to customers”
and Note 46, “Risk management - credit risk”.
The Group has developed complex models to calculate
expected credit losses (“ECL”) on its loans and advances to
customers. Impairment provisions are calculated on a
collective basis for portfolios of loans of similar credit risk
characteristics and on an individual basis for loans that are
either individually significant or for other exposures meeting
specific criteria determined by management.
We understood and evaluated the overall control
framework and tested the design and operating
effectiveness of key controls across processes relevant to the
calculation of ECL.
We read and considered the minutes of the Joint Audit &
Risk committee meetings where key inputs, assumptions,
adjustments and outcomes were discussed and approved by
the committee members.
We assessed the appropriateness of the key assumptions
used in the methodologies and models of the Group and
their compliance with the requirements of IFRS 9.
We assessed the triggers identified by management to
determine the appropriate staging of loans within Stages 1,
2 or 3 and tested, on a sample basis, the criteria used to
allocate loans and advances to customers to Stages 1, 2 or 3
with reference to those triggers.
We determined this to be a key audit matter due to the
We tested the completeness and accuracy of data inputs to
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significant judgement exercised by management and the
complexity in making the estimate including:
●
●
●
●
●
the interpretations and assumptions required to
build the model, including the segmentation
employed;
the allocation of loans and advances to customers
within Stages 1, 2 or 3;
the level of data used as inputs to the Group’s
models;
the approaches to separately measuring ECL for
individually and collectively assessed loan exposures;
and
the inputs, assumptions and probability weights
assigned to multiple economic scenarios as used by
the Bank.
the ECL model via reconciliation to source systems, on a
sample basis, tracing relevant data fields to source
documents (such as loan agreements and collateral
valuations) on a sample basis and the performance of data
validation tests.
We tested, with the assistance of PwC credit risk specialists,
the assumptions, inputs and formulas used in the
calculation of collective ECL. This included considering the
appropriateness of model design and challenging the
assumptions used (eg Exposure at Default, Loss Given
Default and Profitability of Default), and the
appropriateness of the segmentation employed. We built
an ECL calculator ‘’challenger model’’, on the basis of which
an independent point ECL estimate was developed and
compared against the Group’s own calculation.
We evaluated the Group’s individual assessments for a
sample of material Stage 3 exposures for compliance with
the Group’s policies, developments during 2019 and
compliance with IFRS 9 requirements; significant data
inputs were tested with reference to appropriate supporting
documentation, such as collateral valuations and Land
Registry records.
We considered the impact on the Group’s ECL charge of
expected realisation of certain loan portfolios comprising
primarily Stage 3 loans through disposals and determined
whether the related ECL charge is reasonable.
We assessed, with the assistance of PwC credit risk
specialists, forecast macroeconomic variables used within
the macroeconomic model scenarios such as Gross
Domestic Product, unemployment, interest rates and House
Price Index.
We evaluated the appropriateness of the Group’s
disclosures particularly in relation to significant judgements
and estimates.
We concluded that the methodologies and judgments used
by management in determining the ECL charge were
reasonable, that the ECL provisions recognised were
reasonable and the disclosures made in relation to these
matters in the consolidated financial statements were
appropriate.
Going concern
Refer to pages 30 to 32 in the Directors’ Report, note 3 to the
financial statements and pages 335 and 355 in the Corporate
Governance report.
We obtained the Directors’ going concern assessment and
assessed whether there are events and conditions that exist
that create material uncertainty that may cast significant
doubt on the Group’s ability to continue as a going concern.
The directors are required to prepare the financial statements
on a going concern basis unless it is inappropriate to presume
that the Company or Group will continue in business.
The Directors have determined that it is appropriate to
prepare the financial statements using the going concern
assumption and that no material uncertainties exist which
We read correspondence with the relevant regulators with
regards to regulatory capital and liquidity requirements of
the Group, as well as other correspondence such as the
findings of the ECB’s Supervisory Review and Evaluation
Process (SREP) which determines the Group’s required
Regulatory ratios.
291
would cast doubt on the going concern assumption. In making
their assessment, the directors have considered a period of at
least twelve months from the date of approval of the financial
statements.
We considered the Group’s 3 year Financial and Capital
Plan approved by the Board in February 2019 and which
was further updated and approved by the Board in
December 2019.
As part of their assessment, the Group has considered a
number of economic scenarios which assess future Group
capital and liquidity ratios for comparison against regulatory
requirements. The development of these scenarios requires
considerable management judgement. Particular
consideration has been given to assessing the impact of
COVID-19 and of measures taken by the Cypriot government
to mitigate its spread as well as legislative amendments in
Cyprus and changes to Bank capital and liquidity
requirements announced recently by the European Central
Bank (‘ECB’). Where appropriate, the Directors have
identified relevant actions to support the Group's capital and
liquidity positions.
We determined this to be a key audit matter due to the
ongoing focus on Capital adequacy for the Group, the
uncertainties involved in the delivery of the Group’s
“Financial and Capital Plan” and the increased risk presented
by the outbreak in quarter 1 of 2020 of COVID-19.
We assessed the Group’s CET1 and other capital and
liquidity ratios as included in management’s going concern
assessment versus regulatory reporting submissions of the
bank.
We evaluated the Group’s assessment of the impact of
COVID-19 on its operations, liquidity and capital ratios for
the period of assessment. In particular, we:
● Considered the Group’s models used to develop
projected future operating results, cash flows and
estimates of assets and liabilities and challenged
the assumptions underlying them by reference to
past experience and recent policy announcements
by the Cypriot government designed to support the
economy.
● Assessed the Group’s development of alternative
(base and adverse) macroeconomic scenarios by
reference to internal and external forecasts for the
performance of the Cypriot economy over the next
two years.
● Considered the Group’s estimates with respect to
projected liquidity, taking into consideration
changes in market values of treasury investments
after the reporting period and other customer
behavioural assumptions in the context of liquidity
stress testing.
● Assessed the Group’s estimation of the
expected ECL impact on the customer loan
portfolio and the valuation of property assets held
as collateral and their consistency with the
adversity of the macroeconomic scenarios under
consideration.
We read correspondence concerning the capital and
liquidity relief measures announced by the ECB in March
2020 and the implied capital release made available to the
Group as a result of these measures. We discussed a
number of matters with relevant regulatory authorities
including the nature of the relief measures, their availability
to the Group and their likely duration.
We also evaluated the disclosures made in the financial
statements and assessed whether they reflected the
conclusions of the Directors’ assessment.
We concluded that the judgements made by the Directors in
preparing the financial statements on a going concern basis
were reasonable and the disclosures made in relation to
these matters in the consolidated financial statements were
appropriate.
292
Litigation provisions and regulatory claims
Refer to Note 2.37 “Provisions for pending litigation, claims
and regulatory matters” within Note 2 “Summary of
significant accounting policies”, and Note 5.4 “Provisions”
within Note 5 “Significant and other judgements, estimates
and assumptions” and Note 40 “Pending litigation, claims,
regulatory and other matters”.
The Group is subject to various legal claims, investigations
and other proceedings. Provisions for pending litigation,
claims, regulatory and other matters amounted to €108m as
at 31 December 2019.
Management together with the Group’s compliance and legal
departments review all existing and potential legal cases,
prepare a detailed assessment of potential outcomes for each
individual case and assess the probability of economic outflow
from the Group.
We determined this to be a key audit matter as the recognition
and measurement of provisions in respect of pending
litigation, claims, regulatory and other matters require a
significant level of judgement by management. The judgement
relates to the existence and completeness of obligating events,
the probability of those crystallising and the extent of any
related economic outflow.
For a sample of cases, we assessed management’s proposed
provision against information contained in case files and
information obtained from external legal advisors. We
confirmed case facts and judgements directly with external
legal advisors.
For cases where economic outflow was assessed as probable
and therefore a provision recorded, we recalculated the
provision and performed sensitivity analysis on key
assumptions used by management.
We inspected minutes of the meetings of the board of
directors and certain of its committees for evidence of any
unidentified legal cases or developments in current cases
which might impact their outcome.
We inspected regulatory correspondence for the duration of
the audit period and further inquired with the compliance
department about known existing circumstances of or
possible non-compliance with any regulatory requirements.
We evaluated whether the disclosures made addressed
significant uncertainties and assessed their adequacy
against the relevant accounting standards including cases
where a reliable estimate could not be made as at 31
December 2019.
Based on evidence obtained, while noting the inherent
uncertainty in such matters, we concluded that the recorded
provisions for pending litigation, claims, regulatory and
other matters were reasonable and the disclosures made in
relation to these matters in the consolidated financial
statements were appropriate.
Valuation of and accounting for repossessed properties
Refer to Note 2.30 “Investment properties” and 2.31 “Stock of
property”, within Note 2 “Summary of significant accounting
policies”, Note 5.3, “Stock of property - estimation of net
realisable value” and Note 5.12 ‘’Fair value of properties held
for own use and investment properties’’ within Note 5
“Significant and other judgements, estimates and
assumptions”, Note 28 “Stock of properties”, Note 23 ‘’Fair
value measurement’’ and Note 56 “Events after the reporting
date”.
The Group has acquired a significant number of properties as
a result of restructuring agreements with customers. Most of
these properties are accounted for as stock of property in
accordance with IAS 2. The remaining are accounted for as
investment properties in accordance with IAS 40.
Properties accounted for in accordance with IAS 2 are held at
the lower of their cost or net realisable value. Properties
accounted for in accordance with IAS 40 are held at their fair
value at the balance sheet date. In both cases, valuations
We evaluated the overall control framework relevant to
repossessed properties and tested the design and operating
effectiveness of key controls around their valuation.
We focused on the key inputs and assumptions underlying
the valuation of the properties accounted for in accordance
with IAS 2 and IAS 40.
We evaluated the competence, capability and objectivity of
management’s external specialists (property valuers).
For a sample of properties, we independently obtained the
valuation reports used by the Group from external valuers
to ensure the accuracy of management’s records.
For a sample of external valuation reports, we assessed the
methodology and assumptions used with the assistance of
PwC valuation specialists.
We performed look-back procedures by comparing the price
293
obtained from reputable external valuers are a key input to
determine the appropriate carrying value.
achieved for disposals during 2019 to the carrying values for
those assets at 31 December 2018.
In light of the large volume of properties held and the
uncertainty around market conditions when estimating the
carrying amount, we have considered these financial
statement line items which total €1.514 collectively, to be a
key audit matter.
Privileged user access
Refer to pages 352 to 356 in the Corporate Governance
report.
The Group’s financial reporting is heavily reliant on a number
of IT systems which have been in place for a number of years
and which are inherently complex.
The Group operates privileged user access controls which are
critical to ensuring that changes to applications and
underlying data are made in an appropriate manner.
Appropriate privileged user access controls contribute to
mitigating the risk of potential fraud or errors as a result of
changes to application functionality and data.
We considered this to be a key audit matter as our audit
approach relies on IT dependent controls and data and we
performed extensive procedures due to the nature of the
legacy systems in place.
Carrying value of investment in Bank of Cyprus pcl
(company only)
Refer to Note 3 “significant accounting estimates, judgements
and assumptions”, Note 8 “investment in subsidiary” to the
Company financial statements and Note 56 “Events after the
reporting date”.
As noted in the accounting policies, investment in subsidiaries
is shown at cost in the Company financial statements unless
We evaluated whether the disclosures address significant
judgements and estimates and assessed their adequacy
against the relevant accounting standards.
We concluded that the judgements and estimates used by
management in determining the carrying amount of
repossessed properties were reasonable and the disclosures
made in relation to these matters in the consolidated
financial statements were appropriate.
With the assistance of PwC IT audit specialists, we obtained
an understanding of the group’s IT environment and
evaluated and tested the design and operating effectiveness
of those IT General Controls (ITGCs) on IT systems that
support financial reporting.
Where appropriate, we performed additional audit
procedures. Specifically, we:
∙
∙
∙
∙
extracted user access listings directly from the
production environment of relevant IT applications,
along with their supporting IT infrastructure to
validate the completeness of access rights within the
Security Identity Manager (SIM) toolset which is
used to support the management of user access;
extracted the list of privileged users on the Group’s
data warehouse and considered the appropriateness
of access during 2019;
extracted the list of developers from the production
IT systems and release tools for those applications
where system functionality is managed in-house and
considered the appropriateness of developer access;
and
considered the authentication controls of
applications and supporting IT infrastructure to
assess compliance with the group’s password policy
requirements.
On completion of these procedures we evaluated the
residual audit risk and performed additional audit
procedures where necessary.
We evaluated and tested controls over the recoverability
assessment.
We assessed the forecasts of expected cash flows included
in management’s value in use calculations at 31 December
2019 for consistency with the group’s recent trading
performance and detailed Capital Plan. We challenged the
basis on which management projected cash flows for years
after the Capital Plan period and evaluated their
294
there is evidence of impairment which case, it is shown at cost
less impairment.
reasonableness by reference to historic performance,
future plans and external data, as appropriate.
Having completed an impairment test, the directors have
recorded an impairment charge of €413 million.
We considered management’s calculation of the Group’s
weighted average cost of capital by reference to external
sources used by management.
We considered this to be a key audit matter because of the
judgement associated with the assessment of the recoverable
amount of the investment at 31 December 2019 used to
measure the impairment loss.
We reperformed management’s terminal value calculation
and considered the appropriateness of the long term
growth rate used by reference to external forecasts for the
Cypriot economy as at 31 December 2019.
We concluded that the impairment assessment in respect
of the investment in Bank of Cyprus pcl and the disclosures
made in the financial statements are reasonable.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on the
financial statements as a whole, taking into account the structure of the group, the accounting processes and controls, and
the industry in which the group operates.
Bank of Cyprus pcl is the main trading entity of the group and prepares consolidated financial statements which
consolidate all subsidiaries of the Group. In establishing the overall approach to scoping the group audit engagement we
determined the type of work that needed to be performed by legal entity.
The Group team were responsible for the scope and direction of the audit. Where the work was performed by component
auditors, we determined the level of involvement the Group team needed to have to be able to conclude whether sufficient
appropriate audit evidence had been obtained as a basis for our opinion on the consolidated financial statements as a
whole.
For the consolidated financial statements we performed an audit of the full financial information of Bank of Cyprus pcl as
this accounts for approximately 98%, 95% and 96% respectively of the Group’s revenues, the Group’s absolute value of
underlying profit and the Group’s total assets. The nature and extent of audit procedures was determined by our risk
assessment
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual financial statement line items and disclosures and in
evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Consolidated financial statements
Company financial statements
Overall
materiality
How we
determined it
Rationale for
benchmark
applied
€18.4 million
Circa 1% of net assets.
€18 million
1% of net assets.
Given the volatility in profit / loss before tax arising over
recent years from elevated impairments and subsequent
reductions and the scale of losses arising from exceptional
activities, we believe that net assets provide us with a more
appropriate and consistent year on year basis for determining
materiality rather than profitability.
The Parent Company is a holding
company. Consequently, we consider
that net assets is the most relevant
measure to reflect the nature of its
activities and transactions.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
€918,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
295
Going concern
In accordance with ISAs (Ireland) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw
attention to in respect of the directors’ statement in the financial
statements about whether the directors considered it appropriate to adopt
the going concern basis of accounting in preparing the financial
statements and the directors’ identification of any material uncertainties
to the group’s or the company’s ability to continue as a going concern over
a period of at least twelve months from the date of approval of the
financial statements.
We have nothing material to add or to draw
attention to. However, because not all future
events or conditions can be predicted, this
statement is not a guarantee as to the group’s
or the company’s ability to continue as a
going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent
otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or
material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the
financial statements or a material misstatement of the other information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report based on these responsibilities.
With respect to the Directors’ Report, we also considered whether the disclosures required by the Companies Act 2014
(excluding the information included in the “Non Financial Statement” as defined by that Act on which we are not required
to report) have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (Ireland) and the
Companies Act 2014 (CA14) require us to also report certain opinions and matters as described below. (required by ISAs
(Ireland) unless otherwise stated).
296
Directors’ Report
∙
In our opinion, based on the work undertaken in the course of the audit, the information given in the Directors’
Report (excluding the information included in the “Non Financial Statement” on which we are not required to
report) for the year ended 31 December 2019 is consistent with the financial statements and has been prepared in
accordance with the applicable legal requirements. (CA14)
∙ Based on our knowledge and understanding of the group and company and their environment obtained in the
course of the audit, we did not identify any material misstatements in the Directors’ Report (excluding the
information included in the “Non Financial Statement” on which we are not required to report). (CA14)
Corporate governance statement
∙
In our opinion, based on the work undertaken in the course of the audit of the financial statements,
−
the description of the main features of the internal control and risk management systems in relation to the
financial reporting process; and
the information required by Section 1373(2)(d) of the Companies Act 2014;
−
included in the Corporate Governance Statement, is consistent with the financial statements and has been
prepared in accordance with section 1373(2) of the Companies Act 2014. (CA14)
∙ Based on our knowledge and understanding of the company and its environment obtained in the course of the
audit of the financial statements, we have not identified material misstatements in the description of the main
features of the internal control and risk management systems in relation to the financial reporting process and
the information required by section 1373(2)(d) of the Companies Act 2014 included in the Corporate Governance
Statement. (CA14)
In our opinion, based on the work undertaken during the course of the audit of the financial statements, the
information required by section 1373(2)(a),(b),(e) and (f) of the Companies Act 2014 and regulation 6 of the
European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and
groups) Regulations 2017 is contained in the Corporate Governance Statement. (CA14)
∙
The directors’ assessment of the prospects of the group and of the principal risks that would threaten
the solvency or liquidity of the group
As a result of the directors’ voluntary reporting on how they have applied the UK Corporate Governance Code (the
“Code”), under ISAs (Ireland) we are required to report to you if we have anything material to add or to draw attention to
regarding:
∙
∙
∙
The directors’ confirmation on page 334 of the Annual Report that they have carried out a robust assessment of
the principal risks facing the group, including those that would threaten its business model, future performance,
solvency or liquidity.
The disclosures in the Annual Report that describe those risks and explain how they are being managed or
mitigated.
The directors’ explanation on page 32 of the Annual Report as to how they have assessed the prospects of the
group, over what period they have done so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the group will be able to continue in operation
and meet its liabilities as they fall due over the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
We have nothing to report in respect of this responsibility.
Other Code provisions
As a result of the directors’ voluntary reporting on how they have applied the Code, we are required to report to you if, in
our opinion:
∙
∙
The statement given by the directors on page 355 that they consider the Annual Report taken as a whole to be fair,
balanced and understandable and provides the information necessary for the members to assess the group’s and
company’s position and performance, business model and strategy is materially inconsistent with our knowledge
of the group and company obtained in the course of performing our audit.
The section of the Annual Report on pages 352 - 356 describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit Committee.
We have nothing to report in respect of this responsibility.
297
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 50, the directors are responsible for
the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they
give a true and fair view.
The directors are also responsible for such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no
realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the IAASA website at:
https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-
a98202dc9c3a/Description_of_auditors_responsibilities_for_audit.pdf
This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance
with section 391 of the Companies Act 2014 and for no other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it
may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2014 opinions on other matters
∙ We have obtained all the information and explanations which we consider necessary for the purposes of our
audit.
In our opinion the accounting records of the company were sufficient to permit the company financial statements
to be readily and properly audited.
The Company Balance Sheet is in agreement with the accounting records.
∙
∙
Other exception reporting
Directors’ remuneration and transactions
Under the Companies Act 2014 we are required to report to you if, in our opinion, the disclosures of directors’
remuneration and transactions specified by sections 305 to 312 of that Act have not been made. We have no exceptions to
report arising from this responsibility.
Prior financial year Non Financial Statement
We are required to report if the company has not provided the information required by Regulation 5(2) to 5(7) of the
European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups)
Regulations 2017 in respect of the prior financial year. We have nothing to report arising from this responsibility.
298
Appointment
We were appointed by the directors on 2 April 2019 to audit the financial statements for the year ended 31 December 2019
and subsequent financial periods. This is therefore our first year of uninterrupted engagement.
Kevin Egan
for and on behalf of PricewaterhouseCoopers
Chartered Accountants and Statutory Audit Firm
Dublin
28 April 2020
Company Financial Statements
300
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Company Financial Statements - Contents
for the year ended 31 December 2019
Contents
Company Statement of Comprehensive Income
Company Balance Sheet
Company Statement of Changes in Equity
Company Statement of Cash Flows
Page
302
303
304
305
Notes to the Company Financial Statements 306-315
301
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Company Statement of Comprehensive Income
for the year ended 31 December 2019
Notes
2019
€000
2018
€000
Income
Dividend income
Income from equity instruments
Other income
Total net income
Fee and commission expenses
Administrative and other operating expenses
Finance costs
Impairment of investment in subsidiary
Loss before income tax
Income tax
Loss for the year
Other comprehensive income (OCI)
OCI not to be reclassified in the income statement in
subsequent periods
Fair value reserve (equity instruments)
16
135,000
27,199
2,923
165,122
-
-
15,838
15,838
-
(11,215)
(2,793)
162,329
(12)
(2,237)
2,386
(22)
(413,489)
(383,131)
(251,172)
(380,767)
(5)
-
(251,177)
(380,767)
9
4
5
6
8
7
Net gains on investments in equity instruments measured at
fair value through OCI (FVOCI)
9
19,558
Total OCI not to be reclassified in the income statement
in subsequent periods
Other comprehensive income for the year
19,558
19,558
-
-
-
Total comprehensive loss for the year
(231,619)
(380,767)
The notes on pages 306 to 315 form an integral part of these Company financial statements.
302
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Company Statement of Changes in Equity
for the year ended 31 December 2019
Share
capital
(Note 12)
Share
premium
(Note 12)
(Accumulated
losses)/retained
earnings
(Note 13)
Financial
instruments
fair value
reserve
(Note 9)
Total equity
attributable to the
owners of the
Company
Other
equity
instruments
(Note 12)
Total equity
€000
€000
€000
€000
€000
€000
€000
Balance at 1 January 2018
44,620
2,794,358
(545,351)
Loss after tax for the year
Elimination of share premium
reserve (Note 12)
Issue of other equity
instruments (Note 12)
Balance at 31 December
2018/1 January 2019
Loss after tax for the year
Other comprehensive income
after tax for the year
Total comprehensive income
after tax for the year
Payment of coupon to AT1
holders (Note 12)
Balance at 31 December
2019
-
-
-
-
(380,767)
(1,500,000)
1,500,000
-
(2,458)
44,620
1,294,358
571,424
-
-
-
-
-
-
2,293,627
(380,767)
-
-
-
-
2,293,627
(380,767)
-
(2,458)
220,000
217,542
1,910,402
220,000
2,130,402
-
-
-
-
-
-
-
-
(251,177)
(251,177)
-
19,558
19,558
(251,177)
19,558
(231,619)
(27,199)
-
(27,199)
-
-
-
-
(251,177)
19,558
(231,619)
(27,199)
44,620
1,294,358
293,048
19,558
1,651,584
220,000
1,871,584
The notes on pages 306 to 315 form an integral part of these Company financial statements.
304
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Company Statement of Cash Flows
for the year ended 31 December 2019
Cash flows from operating activities
Loss before tax
Adjustments for:
Dividend income
Income from equity instruments
Impairment of investment in subsidiary
Changes in working capital:
Other assets
Receivables from related parties
Other payables
Payables to related parties
Net cash (used in)/from operating activities
Cash flows from investing activities
Income received from equity securities
Purchases of equity securities
Net cash from/(used in) investing activities
Cash flows from financing activities
Payment of AT1 coupon
Net proceeds from issuance of capital securities
Net cash (used in)/from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents:
At beginning of the year
At end of the year
Notes
2019
€000
2018
€000
(251,172)
(380,767)
(135,000)
(27,199)
-
-
413,489
383,131
118
2,364
(272)
734
(819)
125
(114)
(101)
(673)
699
-
2,289
27,199
-
-
(220,000)
27,199
(220,000)
(27,199)
-
(27,199)
-
217,542
217,542
(114)
(169)
(18)
(132)
151
(18)
16
9
8
9
9
12
12
10
The notes on pages 306 to 315 form an integral part of these Company financial statements.
305
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
1.
Corporate information
Bank of Cyprus Holdings Public Limited Company (the ‘Company’) was incorporated in Ireland on 11 July 2016,
as a public limited company under company number 585903 in accordance with the provisions of the
Companies Act 2014 of Ireland (Companies Act 2014). Its registered office is 10 Earlsfort Terrace, Dublin 2,
D02 T380, Ireland.
The Company owns 100% of the share capital of Bank of Cyprus Public Company Limited (BOC PCL) whose
principal activities involve the provision of banking, financial services, insurance services and management and
disposal of property predominately acquired in exchange of debt. The Board of Directors does not expect that
the Company’s activities will change in the foreseeable future. The Company is tax resident in Cyprus.
The Bank of Cyprus Holdings Group (the ‘Group’) comprises the Company, its subsidiary BOC PCL and the
subsidiaries of BOC PCL.
The shares of the Company are listed and trading on the London Stock Exchange (LSE) and the Cyprus Stock
Exchange (CSE).
The Company financial statements are available at the Company’s registered office (at 10 Earlsfort Terrace,
Dublin 2, D02 T380, Ireland) and on the Group’s website www.bankofcyprus.com (Investor Relations).
Company Financial statements
The Company financial statements for the year ended 31 December 2019 were authorised for issue by a
resolution of the Board of Directors on 28 April 2020. The Company also issues consolidated financial
statements which are available at the Company’s registered office and on the Group’s website.
The Company financial statements have been prepared in both the English and Greek language. In case of a
difference or inconsistency between the two, the English version prevails.
2.
Summary of significant accounting policies
2.1
Basis of preparation
The Company financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union (EU) and with those parts of the Companies Act 2014
applicable to companies reporting under IFRSs.
Presentation of the Company financial statements
The Company financial statements are presented in Euro (€) and all amounts are rounded to the nearest
thousand, except where otherwise indicated. A comma is used to separate thousands and a dot is used to
separate decimals.
2.2
Going concern
The going concern assessment of the Company is consistent with the going concern assessment of the Group, a
summary of which is presented in Note 3 of the consolidated financial statements of the Group for the year
ended 31 December 2019.
2.3
Changes in accounting policies and disclosures
The accounting policies adopted in preparing the financial statements of the Company are consistent with those
adopted in preparing the consolidated financial statements of the Group, a summary of which is presented in
Note 2 of the consolidated financial statements of the Group for the year ended 31 December 2019.
In addition the following policies are adopted:
Investment in subsidiary
The investment in subsidiary is measured at cost less impairment.
The accounting policies adopted are consistent with those of the previous financial year, except for the adoption
of new and amended standards and interpretations as explained in Note 2.2 of the consolidated financial
statements of the Group for the year ended 31 December 2019.
306
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
3.
Significant accounting estimates, judgements and assumptions
The preparation of the Company financial statements requires the Company’s Board of Directors and
management to make judgements, estimates and assumptions that can have a material impact on the amounts
recognised in the Company financial statements and the accompanying disclosures, as well as the disclosures of
contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require
a material adjustment to the carrying amount of assets or liabilities affected in future periods. The Board of
Directors has made the following judgements and estimations:
Fair value of investments
The best evidence of fair value is a quoted price in an actively traded market. If the market for a financial
instrument is not active, a valuation technique is used. The majority of valuation techniques employed by the
Company use only observable market data and so the reliability of the fair value measurement is relatively
high.
However, certain financial instruments are valued on the basis of valuation techniques that feature one or more
significant inputs that are not observable. Valuation techniques that rely on non-observable inputs require a
higher level of management judgement to calculate a fair value than those based wholly on observable inputs.
Valuation techniques used to calculate fair values include comparisons with similar financial instruments for
which market observable prices exist, discounted cash flow analysis and other valuation techniques commonly
used by market participants. Valuation techniques incorporate assumptions that other market participants
would use in their valuations, including assumptions about interest rate yield curves, exchange rates, volatilities
and default rates. When valuing instruments by reference to comparable instruments, management takes into
account the maturity, structure and rating of the instrument with which the position held is being compared.
The Company only uses models with unobservable inputs for the valuation of certain unquoted equity
investments. In these cases, estimates are made to reflect uncertainties in fair values resulting from a lack of
market data inputs, for example, as a result of illiquidity in the market. Inputs into valuations based on
unobservable data are inherently uncertain because there is little or no current market data available from
which to determine the level at which an arm’s length transaction would occur under normal business
conditions. Unobservable inputs are determined based on the best information available.
Further details on the fair value of assets and liabilities are disclosed in Note 15.
Investment in subsidiary
The Company periodically evaluates the recoverability of the investment in subsidiary whenever indicators of
impairment are present. Indicators of impairment include such items as declines in revenues, earnings or cash
flows of the subsidiary or material adverse changes in the economic or political stability of the country that the
subsidiary operates, which may indicate that the carrying amount of the subsidiary is not recoverable. If facts
and circumstances indicate that the investment in subsidiary may be impaired, the Company determines the
recoverable amount of the investment in subsidiary as the higher of its fair value less costs to sell and its
value-in-use. Value-in-use is calculated by estimating the future cash inflows and outflows to be derived from
continuing use of the asset and applying the appropriate discount rate.
If the recoverable amount is lower than the carrying value of the subsidiary, an impairment loss is recognised
equal to the excess of the carrying value over the recoverable amount.
Further details on the determination of the recoverable amount of the investment in subsidiary are disclosed in
Note 8.
4.
Other income
Management consultancy services (Note 16 (ii))
Reimbursement of expenses and fees (Note 16 (ii))
2019
€000
2018
€000
1,068
1,855
2,923
1,034
14,804
15,838
307
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
5.
Fee and commission expenses
Fee and commission expenses
2019
€000
2018
€000
-
11,215
In accordance with the purchase agreement of the Capital Securities issued in December 2018 (Note 12)
between the Company and the investors each investor paid in August and September 2018 an amount equal
to the purchase price (principal amount) of the Capital Securities it has agreed to purchase to an escrow agent
in accordance with the terms and conditions of an escrow deed. The escrow deed provided that the aggregate
purchase proceeds would be held in escrow until the issue date of the capital securities. The purchase
proceeds in respect of each investor accrued a commitment fee payable by the Company for the period during
which the money was held in escrow, at a rate that was commercially agreed between the investors and the
Company.
6.
Administrative and other operating expenses
Directors’ fees (Note 16 (iv))
Insurance
Consultancy and other professional fees (Note 16 (iii))
Stock exchange fees
Audit fees
Other expenses
2019
€000
2018
€000
1,008
997
497
196
74
21
970
-
898
284
51
34
2,793
2,237
Audit fees above include fees to the statutory auditors for work engaged by the Company during the year 2019
of €36 thousand (2018: €nil) and €38 thousand fees to the previous statutory auditors for 2018 audit fees. The
consultancy and other professional fees above do not include any fees charged by the Company’s statutory
auditors.
The Company did not employ any staff during the years 2019 and 2018.
7.
Income tax
Current tax
Prior years’ tax adjustments
2019
€000
2018
€000
4
1
5
-
-
-
308
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
7.
Income tax (continued)
The reconciliation between the income tax expense and the loss before tax as estimated using the current
income tax rates is set out below:
Loss before tax
2019
€000
2018
€000
(251,172)
(380,767)
Income tax at the normal tax rates in Cyprus
(31,397)
(47,596)
Income tax effect of:
- expenses not deductible for income tax purposes
- income not subject to income tax
Prior years’ tax adjustments
51,908
(20,507)
1
5
49,447
(1,851)
-
-
Income tax in Cyprus is calculated at the rate of 12.5% on taxable income (2018: 12.5%).
8.
Investment in subsidiary
1 January
2019
€000
2018
€000
1,910,489
2,293,620
Issue of shares following the scrip dividend (Note 16 (i))
135,000
-
Impairment of investment in subsidiary
31 December
(413,489)
(383,131)
1,632,000
1,910,489
The investment in subsidiary represents a 100% investment in the share capital of BOC PCL, a company
registered in Cyprus and its activities are presented in Note 1. Its registered office is at 51 Stassinos Street,
Ayia Paraskevi, Strovolos, P.O.Box 24884, 1398 Nicosia, Cyprus.
On 31 December 2019, the Company made an assessment of the carrying value of the investment in subsidiary
and as a result of that assessment an impairment of €413,489 thousand has been recognised (year ended 31
December 2018: €383,131 thousand).
The assessment involved the determination of the recoverable amount of the investment in subsidiary as the
higher of its fair value less costs to sell and the value-in-use. To determine the value-in-use of the investment
in subsidiary, the future cash flows to be derived from continuing use of the asset were estimated with the use
of a dividend discount model, which was based on the business plan, approved by the Board, and projections
which had been extrapolated beyond 2023 until the end of 2028. From year 2029 onwards, a terminal growth
rate has been assumed in the valuation. An appropriate discount factor has been applied, which reflects the
cost of equity of the investment in subsidiary.
The impairment losses during the year ended 31 December 2018 were primarily driven by the decrease of the
equity of the subsidiary following IFRS 9 impact on transition and 2018 loss after tax.
9.
Investments
Equity instruments at fair value through other comprehensive
income (Note 16 (vi))
2019
€000
2018
€000
239,558
220,000
309
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
9.
Investments (continued)
On 19 December 2018 the Company issued €220,000 thousand of Fixed Rate Reset Perpetual Additional Tier 1
Capital Securities (AT1) (Note 12). On the same date, the Company and BOC PCL entered into an agreement
pursuant to which the Company on-lent to BOC PCL the entire €220,000 thousand proceeds of the issue of the
AT1 (the loan, the ‘AT1 Loan’) on terms substantially identical to the terms and conditions of the AT1 issued by
the Company. The AT1 Loan constitutes an unsecured and subordinated obligation of BOC PCL. The interest is
at 12.50% and is payable semi-annually. BOC PCL may elect to cancel any interest payment for an unlimited
period, and on a non-cumulative basis, whereas it mandatorily cancels interest payment under certain
circumstances. The AT1 Loan is perpetual and has no fixed date for redemption but can be redeemed (in whole
but not in part) at BOC PCL's option on the fifth anniversary of the issue date and each subsequent fifth
anniversary. AT1 Loan has been classified as equity instruments at fair value through other comprehensive
income. During the year ended 31 December 2019 an income of €27,199 thousand (2018: nil) has been
recognised in profit and loss in respect of these investments.
The fair value of equity instruments held by the Company is determined using models for which all inputs that
have a significant effect on fair value are market observable. Equity instruments are financial instruments
whose fair value is categorised as Level 2 instruments in fair value hierarchy. The maximum exposure to credit
risk at the balance sheet date is the carrying value of the equity instruments.
There were no transfers in and out of Level 2 during 2019.
During the year ended 31 December 2019 an amount of €19,558 thousand (2018: nil) has been recognised in
other comprehensive income in respect of the fair value measurement of these investments.
10.
Bank balances
Bank balances include the following for the purpose of the statement of cash flows:
2019
€000
2018
€000
Bank overdrafts (Note 16 (v))
(132)
(18)
11.
Receivables from/Payables to related parties
Current assets
Receivables from related parties (Note 16 (v))
-
734
2019
€000
2018
€000
Current liabilities
Payables to related parties (Note 16 (v))
130
-
The above balances represent the maximum exposure to credit risk at the balance sheet date.
2019
€000
2018
€000
310
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
12.
Share capital
Authorised
Ordinary shares of €0.10
each
Issued and fully paid
Ordinary shares of €0.10
each
2019
2018
Number of
shares
(thousand)
€000
Number of
shares
(thousand)
€000
10,000,000
1,000,000
10,000,000
1,000,000
446,200
44,620
446,200
44,620
The Company did not provide financial assistance permitted by section 82 of the Companies Act 2014 for the
purchase of its shares.
Authorised and issued share capital
All issued shares are fully paid and carry the same rights.
There were no changes to the authorised or issued share capital during the years ended 31 December 2019 and
2018.
Share premium reserve
2019
There were no changes to the share premium reserve during the year ended 31 December 2019.
2018
The Annual General Meeting of the shareholders of the Company held in August 2018 approved a reduction of
up to €1.5 billion of the Company's share premium to eliminate the Company's accumulated losses and create
distributable reserves (retained earnings). This was approved by the Irish High Court pursuant to section 85(1)
of the Companies Act 2014 of Ireland on 13 December 2018.
Share-based payments-share options
Following the incorporation of the Company and its introduction as the new holding company of the Group in
January 2017, the Long Term Incentive Plan was replaced by the Share Option Plan which operates at the level
of the Company. The Share Option Plan is identical to the Long Term Incentive Plan except that the number of
shares in the Company to be issued pursuant to an exercise of options under the Share Option Plan should not
exceed 8,922,945 ordinary shares of a nominal value of €0.10 each and the exercise price was set at €5.00 per
share. The term of the options was also extended to between 4-10 years after the grant date.
No share options were granted since the date of replacement of the Long Term Incentive Plan by the Share
Option Plan at the level of the Company. Any shares related to the Share Option Plan carry rights with regards
to control of the Company that are only exercisable directly by the employee.
Other equity instruments
Reset Perpetual Additional Tier 1 Capital Securities
220,000
220,000
2019
€000
2018
€000
311
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
12.
Share capital (continued)
Other equity instruments (continued)
In December 2018 the Company issued €220 million Subordinated Fixed Rate Reset Perpetual Additional Tier 1
Capital Securities (AT1). AT1 constitutes an unsecured and subordinated obligation of the Company. The
coupon is at 12.50% and is payable semi-annually. During the year ended 31 December 2019 two coupon
payments to AT1 holders were made of a total amount of €27,199 thousand and have been recognised in
retained earnings. The Company may elect to cancel any interest payment for an unlimited period, on a
non-cumulative basis, whereas it mandatorily cancels interest payment under certain circumstances. AT1 is
perpetual and has no fixed date for redemption but can be redeemed (in whole but not in part) at the
Company's option on the fifth anniversary of the issue date and each subsequent fifth anniversary subject to
the prior approval of the regulator. AT1 is listed on the Luxembourg Stock Exchange's Euro Multilateral Trading
Facility (MTF) market.
During the year ended 31 December 2018, the transaction costs, directly attributable to the issuance,
amounted to €2,458 thousand and have been recognised in retained earnings.
13.
Retained earnings/(accumulated losses)
For the purpose of dividend distribution, retained earnings determined at Company level, are the only
distributable reserve.
Companies, tax resident in Cyprus, which do not distribute at least 70% of their profits after tax as defined by
the Special Defence Contribution Law during the two years after the end of the year of assessment to which the
profits refer, will be deemed to have distributed this amount as dividend. Special defence contribution at 17%
is payable on such deemed dividend distribution to the extent that the shareholders of the Company
(individuals who are domiciled in Cyprus and companies) at the end of the period of two years from the end of
the year of assessment to which the profits refer, are directly or indirectly Cyprus tax residents. Deemed
distribution does not apply in respect of profits that are directly or indirectly attributable to shareholders that
are non-Cyprus tax residents and individual shareholders who are not domiciled in Cyprus.
The amount of this deemed dividend distribution is reduced by any actual dividend paid out of the profits of the
relevant year.
This special defence contribution is paid by the Company on account of the shareholders. During 2019 and
2018 no deemed dividend distribution was paid by the Company.
14.
Other payables
Accruals
Other payables
VAT payable
2019
€000
2018
€000
64
-
21
85
510
253
141
904
Other payables are due within 12 months from the balance sheet date.
15.
Fair value measurement
The fair value of the financial assets and financial liabilities approximates their carrying value as at 31
December 2019 and 31 December 2018.
312
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
16.
Related party transactions
The following transactions were carried out with related parties:
(i)
Dividend income and income from equity instruments
Dividend income
BOC PCL
Income from equity instruments
BOC PCL
2019
€000
2018
€000
135,000
27,199
-
-
On 14 December 2018, the Board of Directors of BOC PCL approved the declaration of a conditional interim
dividend, amounting to €135,000 thousand, in the form of scrip, through the issue of 675,000 thousand of
ordinary shares of a nominal value of €0.10 per share to be issued at a premium of €0.10 per share to the
Company, out of BOC PCL's profits for the financial year of 2016. The declaration of such dividend was
conditional and subject to lifting of regulatory restrictions. Specifically, the payment of the aforementioned
interim dividend could be effected only if the 2018 SREP decision permitted the BOC PCL to make the
distribution contemplated by such declaration. The final 2018 SREP decision, received on 27 March 2019,
allowed the payment in the form of scrip dividend. The scrip dividend was paid by BOC PCL on 27 March 2019
through the issue of 675,000 thousand of ordinary shares of a total issue price of €0.20 per share to the
Company.
During the year ended 31 December 2019 an income of €27,199 thousand (2018: nil) has been recognised in
profit and loss in respect of equity instruments at fair value through other comprehensive income (Note 9) held
by the Company.
(ii)
Other income
Management consultancy services
Reimbursement of expenses and fees
2019
€000
2018
€000
1,068
1,855
2,923
1,034
14,804
15,838
The above transactions were carried out between the Company and its subsidiary BOC PCL on an arm’s length
basis.
(iii)
Administrative and other expenses
2019
€000
2018
€000
Consultancy and other professional fees
24
30
The above consultancy and other professional fees were carried out between the Company and its subsidiary
BOC PCL on an arm’s length basis.
(iv)
Directors’ remuneration
The total directors’ fees amount to €1,008 thousand (2018: €970 thousand). These were reimbursed by BOC
PCL and included in other income above.
Fees are included for the period that Directors serve as members of the Board of Directors.
313
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
16.
(iv)
Related party transactions (continued)
Directors’ remuneration (continued)
Non-executive Directors
Josef Ackermann (resigned on 14 May 2019)
Efstratios-Georgios Arapoglou (appointed on 12 June 2019
following ECB approval)
Arne Berggren
Maksim Goldman
Michalis Spanos (resigned on 21 January 2019)
Ioannis Zographakis
Michael Heger
Lyn Grobler
Anat Bar-Gera
Paula Hadjisotiriou
Maria Philippou
2019
€000
2018
€000
57
84
117
122
6
159
122
92
86
97
66
1,008
150
-
115
120
100
135
110
90
85
36
29
970
The fees of the non-executive Directors include fees as members of the Board of Directors of the Company, as
well as of members of the committees of the Board of Directors.
(v)
Year-end balances
Receivables from related parties
BOC PCL
Payables to related parties
BOC PCL
Bank overdrafts
BOC PCL
2019
€000
2018
€000
-
734
130
132
-
18
The payable to related parties as at 31 December 2019 relates to outstanding administrative and other
operating expenses. The receivable from related parties as at 31 December 2018 related to income outstanding
from management consultancy services and reimbursement of expenses and fees.
There were no other significant transactions with related parties of the Company and no information to be
disclosed under section 307 of the Companies Act 2014 for the years 2019 and 2018.
(vi)
AT1 Loan
On 19 December 2018 the Company and BOC PCL entered into an agreement pursuant to which the Company
on-lent to BOC PCL the entire €220,000 thousand proceeds of the issue of the AT1. Further details are disclosed
in Note 9.
17.
Dividend
Following the 2018 and 2019 Supervisory Review and Evaluation Process (SREP) decisions, the Company is 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 Common Equity Tier 1 capital. No
dividends were declared or paid during years 2019 and 2018.
No prohibition applies to the payment of coupon on any AT1 capital instruments issued by the Company.
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Notes to the Company Financial Statements
18.
Financial risk management
The Company is exposed to risks the most significant of which are the liquidity risk and market risk.
18.1
Liquidity risk
Liquidity risk refers to probable losses that the Company may face, in case of repayment difficulties to its cash
flow obligations. The level of operational costs is low and the Company enjoys adequate liquidity.
18.2
Market risk
Market risk is the risk of loss from adverse changes in market prices namely from changes security prices. The
Market Risk department is responsible for monitoring the risk resulting from such changes with the objective to
minimise the impact on earnings and capital. The department also monitors liquidity risk and credit risk with
counterparties and countries. It is also responsible for monitoring compliance with the various market risk
policies and procedures.
Price risk
Equity securities price risk
The risk of loss from changes in the price of equity securities arises when there is an unfavourable change in
the prices of equity securities held by the Company as investments.
Investments in equities are outside the Company’s risk appetite.
Changes in the prices of equity securities that are classified as FVOCI affect the equity of the Company.
The table below shows the impact on the equity of the Company from a change in the price of the equity
instruments held, as a result of reasonably possible changes in the relevant stock exchange indices.
2019
Other stock exchanges and unlisted
Change in index
Impact on equity
%
€000
+15
35,938
Other stock exchanges and unlisted
-15
(35,938)
2018
Other stock exchanges and unlisted
+20
44,000
Other stock exchanges and unlisted
-20
(44,000)
19.
Capital management
The capital management of the Company is consistent with the capital management of the Group as presented
in Note 50 of the consolidated financial statements of the Group for the year ended 31 December 2019.
20.
Events after the reporting date
20.1
Developments on the Coronavirus disease (COVID-19) outbreak
With respect to the developments around the Coronavirus disease (COVID-19) outbreak please refer to Note
56.1 of the consolidated financial statements of the Group for the year ended 31 December 2019.
20.2
Capital reduction through use of the Company’s share premium
The Company will proceed (subject to approval by the shareholders, the ECB and the Irish High Court) with a
capital reduction process which will result in the reclassification of €700 million of the Company’s share
premium as distributable reserves. This will increase the distributable reserves of the Company to
approximately €1 billion on a pro forma basis (31 December 2019). The capital reduction has been proposed as
a special resolution for approval by shareholders at the Company’s Annual General Meeting scheduled on 26
May 2020. The capital reduction will not have any impact on regulatory capital or the total equity position of the
Company 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.
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Introduction
The Board of Directors (the ‘Board’) of the Bank of Cyprus Holdings Plc (the ‘Company’) is committed to the
highest standards of corporate governance and aims to ensure on an ongoing basis that the Company is a
modern, transparent, competitive and sustainable organisation. A key objective of the governance framework
of the Company together with its subsidiaries (the ‘Group’) is to ensure compliance with applicable legal and
regulatory requirements. The Company is subject to the Code of Corporate Governance of the Cyprus Stock
Exchange (available on www.cse.com.cy), as well as the Directive on Governance and Management
Arrangements of the Central Bank of Cyprus (the ‘CBC Directive on Governance’) and the Directive on the
Assessment of Fitness & Probity of the members of the management body and managers of authorised credit
institutions (the ‘CBC Directive on Fitness & Probity’) (available on www.centralbank.cy).
The Company has also elected to apply the revised 2018 UK Corporate Governance Code published by the
Financial Reporting Council in the UK (the ‘UK Code’ which is available on www.frc.org.uk).
Part A
The Company has fully adopted the Code of Corporate Governance of the Cyprus Stock Exchange (5th revised
edition – January 2019) (the ‘CSE Code’), has incorporated its provisions in the Group’s Corporate Governance
Policy and fully implements its principles. The policy together with the Board Manual, the terms of reference of
the Board committees and the practices followed by the Board and its committees, constitute important
foundations for maximising shareholder value.
Part B
The Company confirms that it has complied with the provisions of the CSE Code throughout 2019. The
Company applies the provisions of the Code throughout the Group. As at the date of this Report, all significant
subsidiary companies maintain an audit committee and a risk committee. Details of how the Company has
applied the provisions of the CSE Code throughout 2019 are set out in this Corporate Governance Report and in
the Remuneration Policy Report on page 365.
The Directors further consider that the Company has complied with the provisions of the UK Code, other than
as set out herein:
• Following the resignation of Mr. Michael Spanos on 21 January 2019 until 26 February 2019 when Mr.
Zographakis was appointed to the role, there was no Senior Independent Director. There was only one
intermediate meeting in this time which took place on 25 February and continued into 26 February 2019
because of the large number of matters to be discussed. During this period the Investors Relations
Department was ready to take any queries / concerns and address them to the Board if relevant.
• The update on the views received from shareholders and actions taken were not published within six months
of the AGM, given that a new Chairman was appointed to the Board in June and a new CEO in September
2019 and discussions with shareholders were slightly delayed to obtain their views on the change in the
leadership of the Group. An update is included in this report on page 327.
The narrative that follows also covers how the Company has applied the principles, provisions and disclosure
requirements set out in the UK Code.
The Board considers that the Group’s governance arrangements are robust and include a clear organisational
structure and well defined, transparent and consistent lines of responsibility which support the maintenance of
a strong control environment. These governance arrangements also include well-defined and consistent
authority limits, reporting mechanisms to higher levels of management and the Board as well as effective
processes through which to identify, manage, monitor and report risks to which the Group is or might be
exposed. They provide systems of checks and controls to ensure accountability and drive better decision-
making, supported by policies and procedures which ensure the Board and its committees operate effectively.
The Group has appropriate internal control mechanisms including sound administrative and accounting
procedures, Information Technology (‘IT’) systems and controls. The Board continually monitors and reviews
internally, at least once a year, its governance framework and that of the Group’s subsidiary companies (where
applicable) through effective oversight. Corporate governance principles are constantly evolving, and the Board
is committed to monitoring and reviewing its corporate governance framework accordingly.
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Introduction (continued)
Part B (continued)
In late October 2019, the Group’s operational structure was re-organised, to ensure that the Group is
structured effectively to achieve the Group’s vision, mission and transformation. The new senior management
structure is based on three pillars: Functions; Business; and Legacy to better focus and align with the Group’s
key objectives. These objectives include significant de-risking of the balance sheet, the building of core
activities in the light of the new digital age and the rationalization of the Group’s operating activities, with
emphasis on digital transformation and cost reduction.
1.
Board of Directors
The Board derives its authority to act from the Articles of Association of the Company and the prevailing
companies, stock exchange and banking laws, the directives of the CBC, as well as the CSE and UK Codes. The
role of the Board and its committees is well described and analysed in the Board Manual that is annually fully
revised and incorporates all responsibilities that emanate from the regulatory framework and best practices.
On 18 January 2017 the Company became the sole shareholder of Bank of Cyprus PCL (‘BOC PCL’ or ‘the
Bank’). A common board and committee structure applies, with the same directors sitting on the Board of
Directors of the Company and on the Board of Directors of BOC PCL and on the committees of each of the two
Boards.
The Board is collectively responsible for the long-term success of the Group; it sets the Group’s strategic
objectives and risk appetite to support the strategy; integrates sustainability into the way business is
conducted; ensures that the necessary financial and human resources are in place for the Group to meet its
objectives; and reviews management performance. The Board also ensures that its obligations towards its
shareholders and other stakeholders are understood and met. The Board recognises the need to be adaptable
and flexible to respond to changing circumstances and emerging business priorities, whilst ensuring the
continuous monitoring and oversight of core issues.
The Board has delegated authority to committees of the Board to support its oversight of risk and control. The
committees are the Audit Committee (the ‘AC’), the Risk Committee (the ‘RC’), the Nominations and Corporate
Governance Committee (the ‘NCGC’), the Human Resources and Remuneration Committee (the ‘HRRC’), the
Technology Committee (the ‘TC’) and the Ethics, Conduct and Culture Committee (the ‘ECCC’). Details of these
committees are set out in section 5 of this report. The chairperson of each committee reports on matters
discussed during committee meetings to the subsequent scheduled meetings of the Board and minutes of these
meetings are tabled at the Board as soon as possible for noting and/or discussion, as necessary. The committee
terms of reference are reviewed annually by the relevant committees and by the Board and are available on the
Group’s website www.bankofcyprus.com or by request to the Company Secretary.
1.1
The Role of the Board
The Board’s role is to provide effective leadership of the Group and promote the Group’s vision, values, culture
and behaviour, within a framework of prudent and effective controls, which enables risk to be assessed and
managed. The Board is responsible for ensuring that management maintains an appropriate system of internal
controls which provides ongoing assurance of effective operations, internal financial controls and compliance
with rules and regulations. It has the overall responsibility for the Group and approves and oversees the
implementation of the Group’s strategic objectives, risk strategy and internal governance.
Furthermore, the Board has the responsibility to present a fair, balanced and understandable assessment of the
Company’s position and prospects, including in relation to the annual and interim financial statements and
other price-sensitive public reports and reports required by regulators and by law.
The Board is the decision-making body for all matters of importance because of their strategic, financial or
reputational implications or consequences. A formal schedule of matters reserved for approval by the Board
ensures that control of these key decisions is maintained by the Board. The schedule is reviewed and updated
regularly. Matters requiring Board approval include amongst others:
• Strategy and Risk Appetite
•
•
•
The Group’s long-term objectives and strategy;
The overall risk policy and risk management procedures;
The Group’s Risk Appetite Statement;
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1.
1.1
Board of Directors (continued)
The Role of the Board (continued)
•
Transactions
Capital expenditures for amounts over €20 million;
Unusual transactions;
•
•
• Mergers, acquisitions and disposals of the Group’s assets for amounts over €20 million;
• Management
•
•
The annual and three-year budgets and business plans;
Intra-group guarantees, indemnities and security;
• Corporate Governance
•
•
•
•
Directors’ conflicts of interest;
The selection, appointment, re-appointment of directors of the Company and the termination of the
services of the Chief Executive Officer;
Overseeing the corporate governance and succession planning framework; setting the right tone; and
promoting the appropriate culture, values and ethics of the Group; and
The Remuneration Policy.
Moreover, the Board is responsible for endorsing the appointment of individuals who may have a material
impact on the risk profile of the Group. Their appropriateness for the role is monitored on an ongoing basis. A
full schedule of matters reserved for the Board can be found at www.bankofcyprus.com.
Stakeholders
The Board recognises that the relationship with the Group’s stakeholders is a critical component of the drive
towards sustained and sustainable growth. Responding to the concerns of stakeholders is a key element of the
Group’s corporate responsibility and transparency projects and initiatives. The Group has identified, inter alia,
the following key stakeholders: regulators, society, suppliers, customers, shareholders and employees.
The Chairman and members of the Board regularly meet with regulators including the Joint Supervisory Team
(‘JST’) and the Central Bank of Cyprus (‘CBC’), the European Central Bank (‘ECB’) and others. Discussions
include regulation and supervision, risk governance and oversight, the future of the banking industry, strategic
challenges and rebuilding culture. The Board is regularly updated on these meetings.
Following the equity participation of the European Bank for Reconstruction and Development (‘EBRD’) in the
Company’s capital in 2014, and in view of its commitment to environmental and social (E&S) issues, the
Company is committed to applying certain environmental and social policies and procedures to its lending
activities based on specific criteria. The key elements of these procedures are as follows:
• Screening of lending activities against any eligibility criteria and determining the level of E&S risk;
• Obtaining satisfactory assurance that customers comply, at a minimum, with national environmental,
health, safety and labour regulations and standards;
• Conducting further due diligence as required on lending above a specified E&S risk level and including such
findings in the overall lending decision making;
• Using contractual requirements (where required) to ensure customer compliance with national health and
safety requirements, and any other actions to be taken by the customer to mitigate E&S risk;
• Monitoring E&S transactions throughout the life of the facility;
• Reporting to the EBRD on E&S issues on an annual basis.
The Company has adopted the United Nations 2030 Agenda, as represented by the Sustainable Development
Goals (SDGs) for 2030. The Group’s management has decided that the Company should actively contribute to
the achievement of the SDGs through promoting well-being in society, committing to protecting the
environment and supporting employee development. To this respect the CEO has endorsed the initiative ‘CEOs
call to Action’ undertaken by CSR Europe.
The Bank recognises the importance of waste resource management, and for that reason for several years Bank
of Cyprus PCL has had in place a paper recycling programme on all Bank premises. The Bank continually strives
to meet environmental and social challenges by:
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1.
1.1
•
•
•
•
Board of Directors (continued)
The Role of the Board (continued)
Considering all factors which affect the Company, be it risk management or management strategies for
alternative investments;
Expanding the new procedures and criteria for the supply chain, ensuring a smooth and transparent
process in the selection of suppliers;
Adopting and upgrading supplier assessment and selection procedures in all areas of cooperation; and
Expanding the larger bidders’ list by 10%.
The Company remains a strong pillar of society and a key driver for sustainable growth in Cyprus. It develops
initiatives that aim to improve the living conditions of the more vulnerable groups of society and preserve local
culture. Community activities fall within the two pillars: Health and Education. Each year, the Bank supports
more than 300 Non-Governmental Organisations (NGOs), charity organisations, associations, municipalities,
schools, sports federations and sports academies with the amount of approximately €1 million. During 2019
Bank of Cyprus continued to actively support significant institutions in the area of health improvement and
society welfare and was engaged in numerous initiatives supporting Education, Youth, New Entrepreneurship
and highlighting Cyprus’ strong heritage. More information on the initiatives of the Company with respect to its
role in society can be found in the Corporate Responsibility Report on www.bankofcyprus.com.
The Bank maintains a Donations, Sponsorships and Partnership Policy which does not allow sponsorship of
political parties or any associations or organisation related directly or indirectly to one.
The Group plays a key role and contributes to the growth of Cyprus economy as the largest banking and
financial services group in Cyprus, with a long presence and tradition. The Board recognises that the Group’s
performance is highly correlated to the Cypriot economy. Though Cyprus has had strong economic recovery in
2015-2019, the COVID-19 pandemic can lead to a significant slowdown in 2020 and even to a potential
recession. Growth in new lending is focused on the consumer, SME and corporate sectors. It is focused on
selected industries that are more in line with the Company’s target risk profile such as tourism, trade,
professional services, information/communication technologies, shipping, energy, education, health and green
projects. The Board has approved the budgets and plans of the business lines supporting this focus.
The Company is improving its risk profile by reducing its non-performing exposures either organically or
through sales of loans while enhancing its liquidity and capital positions as well as focusing on diversifying its
income streams by optimising fee income from international transaction services, wealth management and
insurance. The Board has reviewed the three-year plan of the Restructuring & Recoveries Division (‘RRD’) and
approved individual steps in this direction.
The Group embarked on a journey of digitization in 2018 which involved digitising and automating its processes
and directing routine customer interaction over to digital channels. The Bank has been working closely with IBM
to redesign its digital channels beginning with mobile services. Electronic banking is secure and internet
services are fast, cheap or even free of charge. However, currently some specific demographics do not have
access to such services. A key focus for the Bank is educating customers on digital services informing them on
ways to avoid charges and encouraging them to use their smart mobile phones for the Bank’s services. BOC
PCL has already begun the journey of transforming its branch network. The first two model branches (one in
Nicosia and one in Limassol) were planned to be launched in the second quarter of 2020 but dates are subject
to revision following the pandemic crisis. The Board is closely monitoring the digital transformation project
through its Technology Committee which has oversight responsibility with respect to the overall role of
technology in the Group’s strategy and reviews and approves significant technology investments.
The Bank has replaced the hard copy bank statement which its customers received every month by post with
an e-statement, thereby minimizing the use of paper and reducing the environmental impact of its production
such as deforestation and wasteful energy and water consumption.
The Board has set down the values of the Company and aims to embed them in every activity and operation of
the Group. These are: integrity, transparency, accountability, confidentiality and sustainability. The Group is
thus creating value for its customers, shareholders and employees. The security, protection and privacy of
personal data are important to the Group and therefore the Board has approved a Data Protection Policy that
outlines the principles for data privacy and preserves the customers’ ability to have better control of their
personal data and to pursue their rights under the EU General Data Protection Regulation (‘GDPR’).
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1.
1.1
Board of Directors (continued)
The Role of the Board (continued)
Securing Bank’s information and systems has been one of the most significant priorities for the Bank. To this
end a multilayer defence approach is used in terms of governance and security controls. The governance model
follows regulatory directives employing the three lines of defence. Management support is at the highest
possible level and there is direct independent reporting to the appropriate Board committees. In parallel all our
security controls follow regulatory standards (GDPR, NIS, PSD2, PCI, SWIFT) and international best practices
(such as ISO 27001).
The Group has very low appetite for threats and loses arising from cyber attacks and information misuse.
Investments are thus made in terms of people to first, second and third lines of defence employing qualified
security engineers, analysts and IT auditors. In addition, significant investments are made in state-of-the-art
technology on a continuous basis (such as machine learning and artificial intelligence).
The Bank recognises that its workforce is one of its most valuable assets. To this respect, it has a number of
policies and practices in place that relate to talent identification, development and reward/recognition of its
employees. Additionally, the Bank invests in the development of its people through the provision of numerous
training and development opportunities which aim to create the relevant competencies and behaviours and are
appropriate and in line with the Bank’s strategy.
Further, the Group maintains a zero-tolerance policy for money laundering and terrorism financing incidents
and does not accept excuses for any violations of the relevant legislation or for breaches of the Group’s internal
policies, procedures and its compliance framework. Strict written instructions were issued in 2018 by the
Chairman of the Board and the CEO asking all employees to set rigorous standards and abide by them.
Leadership
There is a clear separation between the role of the Chairman who is responsible for the leadership and
effectiveness of the Board, and the Chief Executive Officer (‘CEO’) who is responsible for the running of the
Company’s business. This clear division of responsibility is documented in the Board Manual and the Corporate
Governance Policy which have been approved by the Board. The day to day operations of the Group have been
delegated to management.
Role of the Chairperson
The Chairman creates the conditions for the effectiveness of the Board; oversees the Board’s operations
ensuring the agenda cover the key strategic items the Group must face; sets the style and tone of Board
discussions; and sets clear expectations regarding the Group’s culture, values and behaviour.
The Chairman ensures the effective functioning of the Board on all aspects of its role including:
•
•
Providing leadership to the Board;
Ensuring that the Board determines the nature and extent of the significant risks the Group is willing to
embrace in the implementation of its strategy;
Ensuring the Board’s committees are properly structured with appropriate terms of reference;
•
• Maintaining effective lines of communication and information between the Board and senior management
•
•
•
•
of the Group;
Ensuring that the members of the Board have sufficient time to consider strategic and other critical issues
and are not faced with unrealistic deadlines for decision making;
Encouraging the active participation of members of the Board;
Regularly reviewing and agreeing with each Director their training and development needs;
Ensuring conflicts of interests are disclosed and members abstain from participating in the decision-making
and voting on any matter on which they may have a conflict of interest;
• Maintaining effective communication with supervisory authorities, shareholders and other stakeholders;
•
Acting on the results of Board evaluation, including by recognising the strengths and addressing the
weakness of the Board and, where appropriate, proposing the appointment of new directors or seeking the
resignation of directors; and
Promoting high standards of corporate governance.
•
Josef Ackermann retired as Group Chairman on 14 May 2019. Takis Arapoglou was appointed to the Board as
an independent non-executive Director on 26 February 2019. He was elected Group Chairman on 12 June 2019,
following ECB consent.
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1.
1.1
Board of Directors (continued)
The Role of the Board (continued)
Role of the CEO
The CEO is responsible:
•
•
•
•
To develop and present to the Board the strategy of the Group;
To execute the approved strategy;
To recommend annual operating and capital expenditure budgets;
In conjunction with the Chairman, represent the Group to clients, regulators, shareholders, potential
investors, financial industry and the general public;
To lead the senior management team in the day-to-day running of the business;
•
• Accept accountability for the performance of the management team and the delivery of the strategy agreed
by the Board;
• Set an example to the Group’s employees and communicate to them the expectations of the Board in
•
relation to the Group’s culture, values and behaviour; and
To make decisions on all matters affecting the operations, performance, compliance and strategy of the
Group’s business with the exception of those matters reserved for the Board.
The CEO, in his day-to-day management of the Group, as delegated by the Board, is supported with
recommendations and advice from the Executive Committee (‘ExCo’) which he chairs. The CEO’s service
contract is reviewed at least every five years.
John Hourican resigned as CEO on 30 August 2019, after giving appropriate six-month notice. Panicos Nicolaou,
CEO designate since May 2019 was appointed to the Board on 1 September 2019 following ECB consent.
Roles of Deputy Chairperson and Senior Independent Director
The Deputy Chairman deputises the Chairman as required. The Senior Independent Director (the ‘SID’) is
available to shareholders and members of the Board if they have concerns that have not / cannot be dealt with
through normal communication channels. He provides a sounding board for the Chairman, as well as support to
the Chairman in delivering his objectives.
He chairs an executive session of the non-executive directors to assess the performance of the Chairman as
part of the annual evaluation of Board performance and oversees the appointment of the Chairperson. He also
attends meetings with major shareholders to ensure that there is a balanced understanding of the issues and
concerns that they may have.
Michael Spanos, SID, resigned from the Board on 21 January 2019. Ioannis Zographakis was appointed as SID
on 26 February 2019.
1.1.1
Information and Support
The Board meets on a regular basis and has a formal schedule of matters for consideration which is annually
reviewed. The Board receives regular reports and presentations from the CEO and other senior management on
strategy and developments in the operations of the Group. The Board considers reports from each of the Board
committees, while regular reports are also provided on the Group’s risk appetite, top and emerging risks, risk
management, credit exposures and the Group’s loan portfolio, asset and liability management, liquidity,
litigation, compliance and reputational issues.
Under the supervision of the Chairman of the Board, the Company Secretary’s responsibilities include
facilitating the flow of information within the Board and its committees, between senior management and non-
executive directors and between heads of internal control functions and non-executive directors, as well as
facilitating the induction, development and evaluation of members of the Board.
All members of the Board have access to the advice and services of the Company Secretary and the Corporate
Governance Compliance Officer (the ‘CGCO’) who can provide relevant information related to Board procedures
and the CSE and UK Codes. The directors also have access to the advice of the Group external legal advisors
and to independent professional advice at the Group’s expense if and when required. Committees of the Board
have similar access and are provided with sufficient resources to undertake their duties. All members of the
Board have the benefit of directors’ and officers’ liability insurance in respect of legal actions against them.
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1.
1.1
Board of Directors (continued)
The Role of the Board (continued)
1.1.1
Information and Support (continued)
Occasionally the Board holds deep dive sessions with key business lines to provide members with a deeper
insight into key areas of strategic focus, enable better quality of debate and enhance knowledge. The deep
dives usually include presentations and opportunity for discussion. In 2019, discussions on the capital plan
including discussions with external consultants and the regulators took place. A deep dive on new lending for
the period 2015-2018 showed consistent governance processes with good practices in retail banking. Some
policy exceptions on corporate banking lending were identified but even these indicated due care and adequate
analysis.
A quality assurance exercise was carried out by external consultants on the process followed for ICAAP and
ILAAP. The cost reduction programme was discussed at length and a cost reduction sponsor was appointed to
deliver the program.
The key areas of focus in 2019 for the Board, inter alia, were:
Group
Strategy
Regular
Updates
• Three-year business and capital plan;
• Acquisitions and divestitures;
• Consideration and approval of large transactions;
• Resolution Plan;
• Progress of the Bank’s Digital Transformation Program;
• Minimum Requirement of own funds and Eligible Liabilities (MREL).
Finance report, including budgets, forecasts and capital positions;
• Group Performance Report;
•
• Risk report;
• CEO’s report;
• Reports from chairpersons of committees.
Business
environment
• Cyprus economic development;
• Quarterly economic reports;
•
Investors and stakeholders’ perspectives;
• Market updates and share trading activity.
Business
performance
• Review of business lines’ strategies;
• Review of the performance of Corporate Finance projects.
Risk
management
Internal Capital Adequacy Assessment Process (‘ICAAP’) Report;
Internal Liquidity Adequacy Assessment process (‘ILAAP’) Report;
• New Covered Bond Monitor;
•
•
• Group Risk Appetite Statement;
• Cyber Security briefings.
Governance
and
regulatory
compliance
• Approval of appointments to the Board;
• Approval of appointments to the boards of major subsidiaries;
• Replacement of the chairperson of HRRC;
• Replacement of SID;
• Board effectiveness and Chairman’s performance reviews;
• Review and approval of various Group policies;
• Succession planning.
Strategy Development
The strategy to revive the Bank in the last six years, premised on a strong set of values along three constituent
reform pillars. These were 1) to focus on completing its ‘shrinking to strength’ strategy which included the
divestment of its non-core business abroad concentrating the Bank’s business model and capital base on the
home market 2) to repair the Bank, to restore confidence in the Bank and to gradually address the challenge of
excessively high non-performing exposures (NPEs) and finally 3) to re-build the Bank.
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1.
1.1
Board of Directors (continued)
The Role of the Board (continued)
1.1.1
Information and Support (continued)
Strategy Development (continued)
This last pillar entailed developing an effective senior management team, improving efficiency and
strengthening and diversifying revenue generation. With the first pillar completed and the second pillar well on
the way to being addressed, the Bank is now concentrating on the third pillar, i.e. to re-build the Bank through
improved efficiency and through strengthening and diversifying revenue income.
The Group focuses on implementing its strategic objectives and aims 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:
• Arrest any asset quality deterioration resulting from the outbreak of COVID-19 and further reduce the level
of delinquent loans upon normalisation of market and operational conditions
Further optimise the funding structure
•
• Maintain an appropriate capital position by internally generating capital
•
• Achieve a lean operating model
• Deliver value to shareholders and other stakeholders
Focus on the core Cyprus market
To better serve its customers, the Bank intends to invest in improved products and services and to modernise
its agenda. It has become a leader among all financial institutions in Cyprus on digitisation. The benefits of this
transformation are already enjoyed by the Bank’s customers who have online access to banking services
through their computer, tablets and mobile devices. The Group retains the largest market share in outstanding
deposits and loans and the lion’s share in credit expansion. It is also serving the insurance needs of its clients
through two very efficient and dynamic insurance companies, which themselves have the largest market share
in life insurance and the second largest share in the non-life insurance market.
Detailed information relating to strategy is set out in Strategy and Outlook of the Directors' Report of the 2019
Annual Financial Report on page 28.
1.2
Composition of the Board of Directors
As at 31 December 2019, the Board comprised of eleven members: the Group Chairman who was independent
on appointment, two executive directors and eight non-executive directors. According to the provisions of the
CBC Governance seven of the non-executive directors are independent. However, the Board has determined all
of the non-executive directors to be independent non-executives in accordance with the provisions of both the
UK and the CSE Code. The names and brief biographical details including each Director’s background,
experience and independent status are set out in section 4 of this report.
The Board considers its current size appropriate to provide the full range of skills and experience necessary on
the Board and to populate its committees while retaining a sense of accountability by each Director for Board
decisions; to govern the business effectively, while enabling full and constructive participation by all directors
given the size and operations of the Group and the time demands placed on the directors.
Each of the committees’ structure facilitates open discussion and debate, with steps taken to ensure adequate
time for members of the committees to consider proposals which are put forward.
The NCGC at least annually reviews the structure, size, and composition of the Board (including skills,
knowledge, experience, independence and diversity) and recommends to the Board the skills and experience
required to provide sound governance oversight. These include experience in banking, insurance, markets and
regulatory environments, risk management, financial management, strategy development, technology and
operations experience and knowledge of governance, compliance and audit. The assessment of the skills profile
of the Board is carried out to ensure that the Board and committees comprise of members having an all-
embracing perception of the Group’s activities and the risks associated with them. Further, should the overall
size of the Board be altered by any appointment or resignation, a review is undertaken to ensure that the
composition remains appropriate. Tenure is another aspect reviewed when considering succession planning and
Board renewal. The Board further ensures that all members commit the necessary time to executing their
duties and responsibilities to the Group.
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Annual Financial Report 2019
1.
1.2
Board of Directors (continued)
Composition of the Board of Directors (continued)
The Board believes diversity of thinking is essential to sound decision-making and has therefore approved a
Board Diversity Policy and is strongly committed to diversity across all dimensions. The Board has retained its
gender diversity target of 40% female members by the end of 2020.
The NCGC takes into consideration succession planning and the impact of possible retirements on the skills
profile of the Board. Recruitment is supported by Egon Zehnder, an international search agency. In 2019 the
agency identified a range of candidates for appointment to the Board for the position of Chairperson and CEO
and conducted an independent assessment of short-listed candidates, providing reports to the Board in advance
of a series of interviews for each candidate with the NCGC and other directors.
The Group carries out a review of the ongoing fitness and probity of Board members on an annual basis,
whereby they are required to confirm any changes in their circumstances in respect of their compliance with the
CBC Fitness & Probity Directive. All changes in circumstances disclosed are assessed and their materiality
determined. Following the review of 2019, certain changes to directorships were reported. The Board concluded
that each of the directors has the requisite standard of fitness, probity and financial soundness to perform
his/her functions effectively and commits the necessary time for the execution of his/her duties.
Executive Directors
The CEO and the First Deputy CEO (the ‘FDCEO’) are employees of BOC PCL. The CEO’s termination of
employment is subject to six months’ notice to that effect to be given to the executive Director, without cause
but at the sole discretion of BOC PCL. The FDCEO’s employment is mainly based on the provisions of the
collective agreement in place, which provides for notice or compensation by BOC PCL based on years of service
and for a four-month prior written notice by the executive director in the event of a voluntary resignation.
Non-Executive Directors
Non-executive directors are responsible for monitoring executive activity and contributing to the development
of strategy of the Company. They are not Company employees and do not participate in the daily management
of the Group.
Their role is to constructively challenge management, to scrutinize the performance of senior management in
meeting agreed goals and objectives and to monitor the reporting of the performance. Non-executive directors
must also satisfy themselves on the integrity of financial information and that the systems of financial controls,
compliance and risk management frameworks and the internal control framework are robust and defensible.
They bring independent challenge and judgement to the deliberations of the Board through their character,
objectivity and integrity.
Regular meetings are held between the non-executive directors in the absence of the executive directors and at
least once a year in the absence of the Chairman.
1.2.1. Meetings of the Board of Directors
A yearly planner is prepared by the Company Secretary, with input from all Board members, to map out the
flow of key items of business to the Board. The Group has a comprehensive and continuous agenda setting and
escalation process in place to ensure that the Board has the right information at the right time and in the right
format to enable the directors to make the right decisions. The Chairman leads the process assisted by the
Company Secretary.
The process ensures that sufficient time is being set aside for strategic discussions and business critical items.
Matters may be added to agendas in response to external events, non-executive directors’ requests and
regulatory initiatives inter alia.
The Company Secretary is closely involved in preparing the schedule of all Board and committee meetings and
the agendas for these meetings, in conjunction with the Chairman, ensuring that relevant information is
dispatched timely to all members of the Board.
Agendas and papers are circulated in a timely manner prior to each meeting and all members of the Board are
informed in writing of forthcoming Board meetings to allow them adequate time to review the relevant
information and enable them to fully discharge their duties.
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1.
1.2
Board of Directors (continued)
Composition of the Board of Directors (continued)
1.2.1. Meetings of the Board of Directors (continued)
Meetings packs are typically uploaded a week in advance of the meetings and communicated to all members of
the Board via a secure electronic Board portal to ensure they have sufficient time to review the matters which
are to be discussed and to seek clarifications or any additional information they may require.
Board meetings have certain standing items such as a report from the CEO and the executive Director Finance
on Group performance, reports from the chairmen of committees and updates from other senior management
members. In addition to formal meetings, the Board meets as necessary to consider matters of a time-sensitive
nature. The Chairman and the chairpersons of each committee ensure Board and committee meetings are
structured to facilitate discussions.
Committee meetings are held prior to Board meetings with the chairperson of each committee then reporting
matters discussed to the Board. Topics for deep dives or additional items are discussed when required and
include business, governance and regulatory update.
During 2019 the Board held 12 meetings. Further details on the number of the meetings of the Board and its
committees and attendance by individual directors are set out below. In March 2019 the Board held a two-day
offsite meeting specifically focused on strategy. During the year, the Chairman and the non-executive directors
met without the executive directors present, to discuss a range of business matters.
Board of Directors 1/1/2019-31/12/2019
Name
Josef Ackermann (Chairman)1
Takis Arapoglou (Chairman)2
Maksim Goldman (Vice Chairman)
Anat Bar-Gera
Arne Berggren
Lyn Grobler
Paula Hadjisotiriou
Michael Heger
John P. Hourican3
Panicos Nicolaou4
Christodoulos Patsalides
Maria Philippou
Michael Spanos5
Ioannis Zographakis
Total meeting6
Board of
Directors
7/7
4/4
12/12
12/12
11/12
12/12
11/12
11/12
10/10
2/2
12/12
9/12
0/1
12/12
12
AC
HRRC
NCGC
RC
5/5
5/5
9/10
10/10
13/13
12/13
11/13
11/13
11/13
13/13
9/9
9/9
8/9
0/1
13/13
13
9
10
12/13
13
1 Resigned on 14 May 2019
2 Appointed on 12 June 2019
3 Resigned 30 August 2019
4 Appointed 1 September 2019
5 Resigned 21 January 2019
6 The number of Board meetings at BOC PCL level was 22 during the year 2019. The attendance of these meetings can be
found on page 335.
The Board makes full use of technology such as teleconferencing, a Board portal and tablets in its meeting
arrangements. This leads to greater flexibility, security and efficiency in Board paper distribution and meeting
arrangements. Minutes and matters arising from the meetings are produced and circulated to the directors for
review and feedback. Matters arising are followed up in subsequent meetings through relevant updates.
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1.
Board of Directors (continued)
1.2.
Composition of the Board of Directors (continued)
1.2.2
Terms of Appointment, Retirement and Re-election of Directors
Non-executive directors are appointed for an initial three-year term and are typically expected to serve a
further term of three years, assuming satisfactory performance and subject to the needs of the business,
shareholder re-election and continuing fitness & probity. The Board may invite directors to serve additional
periods. A non-executive’s term of office will not extend beyond 12 years in total and any re-appointment
beyond 6 cumulative years is subject to rigorous review and will take into account the need for progressive
refreshing of the Board.
The Board may at any time appoint any person who is willing to act as Director and who fulfils the criteria as
these are determined in the Board Nominations Policy, either to fill a vacancy or as an addition to the existing
Board, but the total number of directors should not exceed 13. Any Director so appointed is subject to election
at the Annual General Meeting (the ‘AGM’) following his/her appointment.
According to the Articles of Association of the Company, all directors retire each year and if eligible offer
themselves for re-election. A rigorous review of their skills, experience, independence and knowledge was
carried out in March 2019 and the Board concluded that all directors continue to be effective and make a
valuable contribution to the deliberations of the Board.
The following directors, being eligible, offered themselves for re-election and were elected at the AGM on 14
May 2019: Maksim Goldman, Anat Bar-Gera, Arne Berggren, Lyn Grobler, Michael Heger, John Patrick Hourican,
Christodoulos Patsalides, Maria Philippou, Paula Hadjisotiriou and Ioannis Zographakis. Takis Arapoglou was
also elected to the Board subject to ECB consent which was received on 12 June 2019.
One of the resolutions of the AGM regarding the re-election of Maksim Goldman, received negative votes
slightly exceeding 20%. The framework for sounding the views of shareholders was made public through the
Chairman’s speech at the AGM (available on the Group’s website https://www.bankofcyprus.com/en-
GB/investor-relations-new/shareholder-information/annual-general-meetings1/agm-2019/chairmans-speech/).
The Board, through the Chairman and the SID, initiated contacts with interested shareholders to sound out
their views for better understanding of the result. The overall findings were communicated to the Board. The
main conclusions from these interactions were that the shareholders’ concerns had little to do with Mr.
Goldman’s person, but rather the shareholders’ perceptions of how his previous association with a sanctioned
entity might affect them in relation to the way markets might view any potential risks related to the Bank’s
capital actions or shareholder actions. These views are being seriously considered by the Board which, however,
remains unanimous in their view that Mr. Goldman, apart from his official disengagement with the sanctioned
entity, has practically demonstrated great commitment to his role and a high level of independence and has
contributed significantly to the deliberations of the Board.
The names of directors submitted for election or re-election are accompanied by sufficient biographical and
other relevant information in the AGM documentation and are available on the Group’s website to enable
shareholders to take an informed decision. The NCGC considers, inter alia, whether a potential Director is able
to devote the requisite time and attention to the Company’s affairs, prior to the Board’s approval of the
individual’s appointment.
1.2.3
Conflicts of interest
The Group Policy on Conflict of Interests which applies to all employees and directors sets out each person’s
duty to avoid, manage and disclose actual, potential or perceived conflict of interests. The policy is reviewed
annually and is communicated throughout the Group.
The Board Manual documents procedures specifically relating to directors’ conflict of interests, and sets out how
these are to be identified, reported and managed to ensure that the directors act at all times in the best
interests of the Company. The Board Manual is reviewed and revised if necessary, at least annually.
The Board has adopted a Dealing Code for transactions in the Company’s securities by Persons Discharging
Managerial Responsibilities (PDMRs). The Dealing Code complies with the European Market Abuse Regulation.
All PDMRs have been informed of their obligations under the Dealing Code in writing. All directors have
complied with the Dealing Code during 2019.
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Annual Financial Report 2019
1.
1.2
Board of Directors (continued)
Composition of the Board of Directors (continued)
1.2.3
Conflicts of interest (continued)
None of the directors had, during the year or at year end, a material interest, directly or indirectly in any
contract of significance with the Group (See Note 51 of the Consolidated Financial Statements of Bank of
Cyprus Holdings).
1.2.4
Time commitment
The NCGC ensures that individual Board directors have sufficient time to dedicate to their duties, having regard
to applicable regulatory limits on the number of directorships which may be held by any individual Director. The
Board has determined the time commitment expected of non-executive directors to be 35-40 days per annum.
Time devoted to the Group can be considerably more when serving on Board committees.
BOC PCL has been classified as a ‘significant institution’ under the European Union (Capital Requirements)
Regulation 2014. The CBC Fitness and Probity Directive which incorporates the provisions of Article 91 of the
European Capital Requirements Directive (‘CRD IV’) on management bodies of credit institutions, determines
that a Director cannot hold more than one of the following combinations:
• One executive directorship with two non-executive directorships; or
•
Four non-executive directorships.
Executive or non-executive directorships held within the same group, count as a single directorship.
Directorships in organisations which do not pursue predominantly commercial objectives do not count for the
purposes of the above guidelines.
The ECB which supervises BOC PCL following the European Union Regulation 468/2014 which established the
framework for cooperation within the SSM between the ECB and national competent authorities may in
exceptional cases, and taking into consideration the nature and complexity of the business of the Group,
authorise members of the Board to hold one additional directorship.
In 2019 the ECB granted permission to Mr. Arapoglou to hold one additional non-executive directorship given
the very limited time commitment involved in that directorship. All other directors were within the directorship
limits set out for ‘significant institutions’.
All newly appointed directors are provided with a comprehensive letter of appointment detailing their
responsibilities as directors, the terms of their appointment and the expected time commitment for the role. A
copy of the standard terms and conditions of appointment of non-executive directors can be inspected during
normal business hours by contacting the Company Secretary. Directors are required to devote adequate time to
the business of the Group which includes attendance at regular meetings and briefings, preparation time for
meetings and visits to business units. In addition, non-executive directors are normally required to sit on at
least one Board Committee, which involves the commitment of additional time.
Certain non-executive directors such as the Deputy Chairman, the SID and committee chairmen are required to
allocate additional time in fulfilling those roles.
The directors hold positions on the management bodies of other companies as noted in their biographical
details included in section 4 of this report. Such participation does not prevent them from devoting the
necessary time and attention to their duties as members of the Board of the Company and is within the limits
set by the CBC Fitness and Probity Directive. External appointments which may affect existing time
commitment for the Board’s business must obtain prior approval. It was estimated that in 2019, each non-
executive director spent at least 40 days on board-related duties. The Board considered the time commitment
of all directors and concluded that each director devotes the requisite time for the effective performance of
his/her duties. The Chairman commits the appropriate amount of time to the Group. There were no material
changes to the other significant commitments of the Chairman following his appointment up to 31 December
2019.
1.3
Board Balance and Independence
Both the CSE Code and the UK Code provide that at least 50% of the Board, excluding the Chairman, should be
independent non-executive directors, so that no individual or small group of individuals can dominate the
Board’s decision-taking.
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1.
1.3
Board of Directors (continued)
Board Balance and Independence (continued)
The NCGC and the Board determine the independence status of each Director on appointment. In addition, a
review of the independence status of each Director takes place annually to ensure that the determination
regarding independence remains appropriate. In 2019 the Board considered the principles relating to
independence contained in the CSE Code and UK Code and concluded that the status of each Director except
Mr. Goldman, as determined remained appropriate.
By reason of his employment up to June 2018 by a corporation controlled by a significant shareholder in the
Company, Mr. Goldman was not considered independent by reference to the provisions of the CBC Directive on
Fitness and Probity. However, both the UK Code and the CSE Code provide that notwithstanding circumstances
that may appear to impair a non-executive’s independence, the Board may decide that a non-executive is
independent. Maksim Goldman has always exhibited and continues to exhibit an independent character and
judgement. Currently there are no relationships or circumstances likely to affect his judgement and the Board
therefore considers him to be independent non-executive director. The Board has initiated procedures to have
Mr. Goldman determined independent as per the provisions of the CBC Fitness and Probity Directive, by the
regulator as well.
Similarly, the Chairman, Mr. Arapoglou, was independent on appointment and continues to be independent
having no other relationship or circumstances to affect his judgement. He commits the appropriate time for the
Group’s business which is slightly more than the other non-executive directors, but his time commitment does
not exceed 50 days per year. He has no other remuneration from the Group other than as Chairman of the
Board and chairman of the NCGC.
The status of each director is presented in the biographical details in section 4 of this report.
The Board comprises a majority of independent non-executive directors to ensure that no individual or small
group can dominate its decision making. The Board considers that each non-executive director brings
independent challenge and judgement to the workings of the Board, through his/her character, objectivity and
integrity.
A relevant ‘Confirmation of Independence’ based on the independence criteria of provision A.2.3 of the CSE
Code is signed annually by each of the independent non-executive directors and is submitted to the CSE
together with the Corporate Governance Report.
1.3.1 Appointments to the Board
The Board is responsible for the appointment of directors and recognises the need to identify the best qualified
and available people to serve on the Board. In accordance with the Board Nominations Policy and the Board
Diversity Policy, all appointments are made on merit against objective criteria (including skills and experience)
with due regard for the benefits of diversity on the Board. The Board plans for its own renewal with the
assistance of the NCGC which regularly reviews Board composition, tenure and succession planning.
The NCGC, prior to assessing candidates, identifies the skills and experience required for the role, assesses the
time commitment involved and with due regard to the formal assessment of the skills profile of the Board and
succession planning, recommends the nomination to the Board.
The recruitment process for non-executive directors is supported by an experienced third-party professional
search firm, which develops an appropriate pool of candidates and provides independent assessments of the
candidates. The NCGC then works with that firm to shortlist candidates, conduct interviews/meetings (including
meetings with members of the NCGC) and carry out comprehensive due diligence. In accordance with the Board
Nominations Policy, the assessment and due diligence process is extensive and includes self-certification
confirmations of probity and financial soundness as well as external checks involving a review of various
publicly available sources.
The process also involves the NCGC satisfying itself as to the candidate’s ability to devote sufficient time to the
role, his/her independence, fitness and probity as well as assessing and documenting its consideration of
possible conflicts of interest. The NCGC then makes recommendations to the Board.
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1.
1.3
Board of Directors (continued)
Board Balance and Independence (continued)
1.3.1 Appointments to the Board (continued)
The process described above was followed in the selection and appointment of Takis Arapoglou. On 26 February
2019 he was appointed to the Board subject to ECB consent and was considered as a candidate to replace Josef
Ackermann, who had previously announced his decision to retire from the Board on the date of the 2019 AGM,
to the Chair. ECB consent was received on 12 June 2019 and Mr. Arapoglou was elected Chairman on the same
day.
The same firm was also engaged to identify the right candidate to replace John Hourican who had given notice
of his resignation in early March 2019. Several internal and external candidates were interviewed and assessed
and the NCGC recommended to the Board for approval the appointment of Panicos Nicolaou, until then Director
of Corporate Banking Division of the Bank. Following the selection process Panicos Nicolaou was appointed as
CEO designate in May 2019 and following the relevant ECB consent he was appointed to the Board on 1
September 2019. As noted above, Egon Zehnder, an external search consultancy firm with no other connection
to the Company, was engaged in respect of both Director appointments.
The Board appointed Ioannis Zographakis as SID on 26 February 2019. Michael Heger was appointed as
chairman of the HRRC to replace Michael Spanos who had resigned on 21 January 2019. On 14 April 2020, the
Board decided to appoint Mr. Nicos Sofianos to the Board subject to ECB approval.
Letters setting out the terms of appointment of each of the non-executive directors, including the time
commitment expected of each of them, are available on request from the Company Secretary.
1.3.2 Directors’ induction and ongoing development
On appointment, each Director receives a full, formal induction plan, tailored to his or her specific requirements
including committee membership. It consists of meetings with senior management on Group and divisional
strategy, deep dives on businesses, an overview of the Group’s risk appetite and Group Risk Framework,
supplemented by sessions on the management of key risks, and a comprehensive range of meetings covering
the Group’s regulatory environment, people strategies, technology and payments.
Deep dives on capital and liquidity management and overview of the Group’s financial position are also
included, along with sessions relevant to membership of specific committees. Induction programmes, with
particular emphasis on risk management, corporate governance and internal control systems are arranged for
newly appointed directors.
The programmes also entail a series of meetings with senior executives and other directors to enable new
directors to familiarise themselves with the business, management and governance structure including the
function of the Board and the role of the committees. The Company Secretary under the supervision of the
Chairman develops programmes based on the directors’ individual needs.
Training sessions for the Board members during 2019
Name
InfoSec
Awareness
Module 1*
InfoSec
Awareness
Module 2*
InfoSec
Awareness
Module 3*
Regulatory
considerations
of the banking
system**
InfoSec
Awareness
Module 4*
AML
Essentials
2019*
UK
Gover-
nance
Code*
J. Ackermann
T. Arapoglou
M. Goldman
A. Bar-Gera
A. Berggren
L. Grobler
P. Hadjisotiriou
M. Heger
J. Hourican
P. Nicolaou
C. Patsalides
M. Philippou
Y. Zographakis
√
N/A
√
√
√
√
√
√
√
N/A
√
√
√
√
N/A
√
√
√
√
√
√
√
N/A
√
√
√
*e-learning session
** Ran by external service providers
√
N/A
√
√
√
√
√
√
√
√
N/A
√
√
√
√
330
√
√
√
√
√
√
√
N/A
√
√
√
√
√
√
√
√
√
√
√
N/A
√
√
√
√
√
√
√
√
√
√
√
N/A
√
√
√
√
BANK OF CYPRUS HOLDINGS GROUP
Annual Corporate Governance Report 2019
Annual Financial Report 2019
1.
1.3
Board of Directors (continued)
Board Balance and Independence (continued)
1.3.2 Directors’ induction and ongoing development (continued)
Ongoing education is provided for the Board, informed by the effectiveness reviews of the Board and individual
directors, as well as emerging external developments. Focused training of the Board is arranged in conjunction
with scheduled Board meetings where information is provided to ensure that directors receive adequate insight
into a particular area through presentations by Group business units and control functions and briefings with
senior management. Dedicated training sessions also take place on particular issues (refer to table above for
2019 training schedule) usually identified by the directors themselves and the Company Secretary. A training
schedule is prepared at the beginning of each year and directors are expected to attend accordingly.
All the members of the Board were provided on appointment with an information pack which includes, among
others, the Board Manual, key legislation, directives and regulations and the Company’s Articles of Association.
As demonstrated in the table above, during the year specialised training sessions with the contribution of
external advisors were provided, covering issues relating to the duties and responsibilities of Board members.
The training material is distributed to all directors regardless of attendance. In 2019, most of the training was
in the form of e-learning sessions on an online platform with an assessment quiz at the end of the training
session. The directors can access this at any time, and once the training is completed, it is recorded on the
system to provide a full audit trail.
Directors are also offered the option of attending suitable external educational courses, events or conferences
designed to provide an overview of current issues of relevance to directors. The Company Secretary ensures all
directors are provided with relevant information on a timely basis to enable them to consider issues for
decision-making and discharge of their oversight responsibilities.
In the performance of their roles, executive directors develop and refresh their skills and knowledge of the
Group’s business and operations through regular interactions, meetings and briefings with senior management
and through presenting on the Group’s business to investors and analysts. They remain abreast of
developments affecting the financial services sector and banking by representing the Group’s interests at
conferences, advisory groups and other events and meetings with regulators and other authorities.
The Company Secretary provides the Board with comprehensive guidance on Board procedures and provides
dedicated support for directors on any matter relevant to the business on which they require advice separately
from or additional to that available in the normal board process.
1.3.3
Board Performance Evaluation
The Board annually reviews its effectiveness and that of its committees in order to improve its operations. The
objective of these evaluations is to review past performance with the aim of identifying efficiencies,
opportunities for improvement and maximizing strengths, determining whether the Board or committee as a
whole is effective in discharging its responsibilities and, in the case of individual directors, to determine whether
each director continues to contribute effectively and to demonstrate commitment to the role.
The Board is subject to external evaluation every three years. The last external review was in 2018. The Board
conducted an internal evaluation in Spring 2019, led by the Chairman with the support of the NCGC and the
CGCO. It included a review of the effectiveness of the Board, its committees and individual directors. The
directors’ views on a range of topics was sought including inter alia, strategy, performance, reporting, risk and
control. Board composition and size, diversity, balance of skills, culture and dynamics, the Board’s agenda; the
quality and timeliness of information, training for directors etc. The review indicated an effective Board with a
strong and diverse composition of experiences.
Executive directors’ individual performance evaluation is undertaken as part of the performance management
process for all employees and includes self-assessment and a discussion by the NCGC.
Recommendations emanating from the Board Performance evaluation included the following:
Pro-active engagement with regulators;
Enhanced participation of CEO during discussions of specific issues by Board committees;
•
•
• More concise reporting to the Board;
• Specialised training on emerging issues;
• More focus by business lines on new business opportunities.
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Annual Financial Report 2019
1.
1.3
Board of Directors (continued)
Board Balance and Independence (continued)
1.3.3
Board Performance Evaluation (continued)
The outcome of the Board evaluation was considered by the NCGC and collectively discussed by the Board. The
recommendations were intended to enhance the Board process, although they were not material to the
effectiveness of the Board. The Board accepted them and set up an action plan to incorporate those
recommendations. Taking into account the evaluation report, the Board concluded that it continues to be
effective and that each Director continues to make a valuable contribution to the deliberations of the Board. The
Board also concluded that all the members of the Board have appropriate qualifications; broad relevant
experience; continue to be effective; and demonstrate continuing commitment to the role.
The Board adopted the recommendations of the 2018 Board Performance Evaluation which included the
following: a) The annual retreat in March is exclusively dedicated to strategy on an open agenda including
strategic business development; b) Detailed discussions on HR issues and other evolving challenges are
encouraged; c) Cybersecurity and reputational risk reviews are discussed to raise awareness of the Board
members; d) Closer interaction between the TC and the RC as well as the TC, RC and AC is achieved through
joint meetings (two and one respectively in 2019) to discuss matters of interest to these committees; e) The
outcome of decisions taken through the year is discussed to understand lessons learned.
The chairperson of each principal Board committee led the self-assessment process in respect of committee
performance through discussion with all committee members. The effectiveness of each of the four principal
committees was assessed as adequate. All non-executive directors provided feedback on their uptake of
committee work performed and the results were satisfactory.
The Chairman’s performance evaluation was carried out by the non-executive directors led by the SID and was
based on a discussion during an executive session of the non-executive directors (without the Chairman). The
Board concluded that Josef Ackermann created an environment that encouraged contribution from all Board
members whilst maintaining an appropriately disciplined meeting structure, continued to lead the Board
effectively, made valuable contribution and demonstrated strong work ethic and commitment to the job at
hand, knowledge and experience on the subject matter, was future focused, with a good grasp of external
trends and challenge of the status quo.
The Chairman met with directors on a one to one basis to discuss their individual performance taking into
account their input, which was submitted in advance of the meetings. In each case, the Chairman assessed
each director as fully effective in his or her role on the Board and as continuing to demonstrate independence of
mind and therefore remain independent.
The directors are aware that in case they have material concerns about the overall governance of the Group,
these should be reported without delay to the Board and, if their concerns are not satisfactorily addressed, the
directors should report these concerns to the CBC.
1.3.4
Interaction with principal subsidiaries
There are close interactions between the subsidiary boards and the Group Board and their respective
committees, including the requirement for appointments to subsidiary boards to be approved by the Group
Board. The chairs of the subsidiary audit and risk committees submit an annual report to the respective Group
Board committees. The chairpersons of the Company’s AC and RC are invited, respectively, to participate
occasionally in the subsidiary audit and risk committee meetings as observers. In addition, the CGCO and other
heads of control functions are invited to attend these meetings as observers.
1.3.5
Loans to Directors and Other Transactions
Details of credit facilities to directors and other transactions with the Group are set out in Note 51 of the
Consolidated Financial Statements for the year ended 31 December 2019.
It is hereby confirmed that the credit facilities to Company directors (and related parties) or to its subsidiary or
associated company directors are granted in the normal course of the Company’s business, under normal
commercial and employment terms and with transparency. Furthermore, it is confirmed that all relevant cases
of bank facilities to Company directors and its subsidiary company directors are forwarded for approval to the
Board after the relevant proposal of the Risk Committee. The interested member of the Board is neither present
nor participates in the procedure.
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1.
1.3
Board of Directors (continued)
Board Balance and Independence (continued)
1.3.5
Loans to Directors and Other Transactions (continued)
The Banking Law currently forbids the extension of any credit to independent members of the Board, but the
CBC may exempt certain exposures from time to time having regard to the exceptionally low risk arising from
the exposures concerned.
All members of the Board complied with the relevant provisions of the CSE Code and the Banking Law as at 31
December 2019.
2.
Internal Controls
The Board is responsible for the adequacy and effectiveness of the system of internal controls, corporate
governance and risk management processes of the Group. These ensure amongst others that:
•
•
•
The governance framework is effective, monitored and periodically assessed;
The compliance framework is appropriate;
The integrity and internal controls of the accounting and financial reporting systems, as well as the
compliance with relevant legal / supervisory requirements and reporting standards, are adequate;
The information security framework for the protection of confidential information is appropriate;
The process of taking appropriate steps to timely address any deficiencies is effective.
•
•
The system of internal controls, corporate governance and risk management processes have been designed in
accordance with the nature, scale and complexity of the Group’s operations, in order to provide reasonable but
not absolute assurance against material misstatements, errors, losses, fraud or breaches of laws and
regulations.
The overall system of internal controls, corporate governance and risk management processes of the Group
include amongst others:
• A transparent organisational structure with clear reporting lines to Senior Management and the Board;
• Board and executive committees with clear responsibilities;
•
•
• Monthly reporting by business lines to enable progress to be monitored, trends to be evaluated and
Three lines of defence model for the effective risk management and compliance across the Group;
Formal policies and procedures;
variances to be acted upon;
• Monthly meetings of committees to review performance;
• Code of Conduct setting out the standards expected of all officers and employees;
• Whistleblowing policy, including processes and procedures, to be followed for independent investigation of
concerns raised by staff;
• Anti-Bribery policy in line with the UK regulatory guidance as well as with ISO37001;
• Conflicts of Interest policy;
• Quarterly representations by all Divisions of the Bank to the CEO on the effectiveness of the system of
internal controls (policies, procedures and monitoring activities);
• Annual representations by all control functions of the Bank (Compliance, Risk, Information Security) to the
CEO on effectiveness of the system of internal controls (policies, procedures, monitoring activities).
The Board confirms that, through the AC and the RC, it has conducted reviews for the year ended 31st
December 2019, regarding the effectiveness of the Group’s internal control and information systems, as well as
in relation to the procedures used to ensure the accuracy, completeness and validity of the information
provided to investors. The reviews covered all systems of internal controls, including financial, operational and
compliance controls, as well as risk management systems. In carrying out their reviews, the AC and RC receive
regular business and operational risk assessments, regular reports from the Internal Audit Director, the
Compliance Director and the Chief Risk Officer, other internal memos and external audit reports, as well as
regulatory reports.
The Board receives a confirmation on an annual basis by the CEO for the effectiveness of compliance, risk
management and information security system of internal controls. Additionally, the Board, through the AC and
RC, has received confirmation that executive management has taken or is taking the necessary actions to
remedy all significant weaknesses identified through the operation of the Company’s framework of internal
controls, corporate governance and risk management processes.
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2.
Internal Controls (continued)
Based on the internal audit work carried out in 2019, reasonable assurance is provided, with emphasis on
specific matters, that the system of internal controls within the Group is adequately designed and operates
effectively, to address significant risks according to the risk appetite set by the Board of Directors.
Emphasis is provided on specific areas and in particular on non-performing exposures (NPEs) and Information
Systems, which require management’s attention to further reduce risk exposure. These are areas which were
emphasised in the Annual Audit Report for the year 2018 as well and areas where ineffective controls have
been identified. Nonetheless mitigating factors did exist to adequately provide to management the comfort
required. As regards balance sheet de-risking through the sale of NPE portfolios, management has already
taken significant steps in the right direction and should maintain this momentum. In relation to Information
Systems, management should intensify its efforts towards the optimisation of the operating model, the
implementation of the digitalisation strategy and the reduction of overreliance on external service providers.
Overall, the Board of Directors through its committees, has reviewed the effectiveness of the system of internal
controls, corporate governance and risk management processes of the Group for the year ended 31st December
2019 and confirms their effectiveness either through the effective design and operation of controls or through
mitigating factors that existed. The Board also confirms that it is not aware of any violation of the Cyprus
Securities and Stock Exchange Laws and Regulations.
The Group’s financial reporting process is controlled using documented accounting policies and procedures
supported by instructions and guidance on reporting requirements, issued to all reporting entities within the
Group in advance of each reporting period. The submission of financial information from each reporting entity is
subject to sign off by the responsible financial officer.
The internal control system also ensures that the integrity of the accounting and financial reporting systems,
including financial and operational controls and compliance with legal and supervisory requirements and
relevant standards, is adequate. The Group has in place an adequate financial statement closing process by
which transactions and events reflected in the Group’s accounting records are processed to produce the
financial statements, related disclosures and other financial reports which relies either on the effective design
and operation of controls or other mitigating factors where these were inefficient. Where from time to time
areas of improvement are identified these become the focus of management’s attention in order to resolve
them and thus strengthen the procedures that are in place. Areas of improvement may include the
formalisation of existing controls and the introduction of new information technology controls, as dependency
on information technology is ever increasing.’
Τhe Annual Report and Interim Report prior to their submission to the Board are reviewed and approved by the
ExCo. The Board, through the AC scrutinises and approves the financial statements, results, announcements
and the Annual Report and ensures that appropriate disclosures have been made. Detailed papers are prepared
for review and approval by the AC covering all accounting issues including presentations and disclosures. This
governance process enables both management and the Board to challenge the Group’s financial statements and
other significant disclosures before their publication.
The Board is responsible for determining the nature and extent of the principal risks the Group is willing to take
in achieving its strategic objectives and ensuring the maintenance of an effective risk management and
oversight process across the Group. The Board approves the Group Risk Appetite Statement on an annual basis
and receives regular updates on the Group’s risk environment and exposure to the Group’s material risk types
through the Risk Report reviewed monthly. The Bank has developed an Integrated Risk Identification
Framework which provides for the identification of risk and updates the Key Risk Matrix which is approved by
the RC and the Board through the ICAAP process. The Group is forward looking to ensure emerging risks are
identified. A consolidated risk report and risk appetite dashboard is regularly reviewed by the RC to ensure the
risk profile and mitigating actions are satisfactory. The key risks with their mitigant actions are presented n
Pillar 3 Disclosure Report. The Board confirms that it carries out a robust assessment of both principal and
emerging risks, including risks that might threaten the Group’s business model, future performance, liquidity
etc.
Detailed information relating to Group risk management is set out in Notes 46 to 49 of the Consolidated
Financial Statements and the Additional Risk and Capital Management Disclosures section of the 2019 Annual
Financial Report.
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2.
2.1
Internal Controls (continued)
Going concern
The Directors have made an assessment of the Group’s ability to continue as a going concern for a period of 12
months from the date of approval of the 2019 Financial Statements. The Directors believe that the Group is
taking all necessary measures to maintain its viability and the development of its business in the current
economic environment. Detailed information relating to going concern is set out in Going Concern of the
Directors’ Report of the 2019 Annual Financial Report on page 30.
2.2
Group Code of Conduct and Whistleblowing Policy
The Group has set out the standards that are expected from all employees and directors of the Group in a Code
of Conduct along with guidance on how these standards should be applicable. In 2019 the Code of Conduct was
enhanced to bring focus on ethics and a new dedicated Code of Ethics will be available in mid-2020 to all staff.
The Group has a Whistleblowing Policy and relevant written procedure in place for all employees, including
directors, which is in accordance with international practice. The policy is reviewed annually. Its general
principles are:
• Concerns in good faith, about wrongdoing or malpractice can be raised in confidence without fear of
•
victimisation, discrimination, disadvantage or dismissal;
Procedures for the reporting of any matters of concern are clearly provided. The persons concerned must be
able to bypass the main channels for whistleblowing if these prove inappropriate, and use the anonymous
reporting line;
• Disclosures are managed in a timely, consistent and professional manner; and
•
The appointment of the chairman of the AC, an independent non-executive Director as a Whistleblowing
Champion with specific responsibilities.
The Board and CEO are committed to this policy, which encourages staff to raise concerns. A message from the
CEO to staff to speak up was repeated in early 2020 and a number of other initiatives such as e-learning
sessions have been planned to take place to further increase awareness in 2020.
3.
Other matters
The table below show attendance of the directors on the meetings of BOC PCL throughout 2019.
Board of Directors of BOC PCL 1/1/2019-31/12/2019
Board of
Directors
7/7
12/12
22/22
22/22
21/22
22/22
21/22
21/22
14/15
8/8
22/22
19/22
0/1
22/22
22
Name
Josef Ackermann (Chairman)1
Takis Arapoglou (Chaiman)2
Maksim Goldman (Vice Chairman)
Anat Bar-Gera
Arne Berggren
Lyn Grobler
Paula Hadjisotiriou
Michael Heger
John P. Hourican3
Panicos Nicolaou4
Christodoulos Patsalides
Maria Philippou
Michael Spanos5
Ioannis Zographakis
Total meetings
1 Resigned on 14 May 2019
2 Appointed on 12 June 2019
3 Resigned 30 August 2019
4 Appointed 1 September 2019
5 Resigned 21 January 2019
AC
HRRC
NCGC
RC
AC/RC
Joint
TC
ECCC
5/5
6/6
10/11
11/11
13/13
8/9
12/13
9/9
7/7
7/7
1/1
11/13
8/9
9/9
7/7
11/13
11/13
13/13
12/12
12/12
11/12
0/1
1/1
1/1
1/1
1
13/13
13
12
11
12/13
13
9/9
9
7/7
7
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3.
3.1
Other matters (continued)
Company Secretary
The Board appointed Mrs Katia Santis as the Company Secretary.
3.2
Internal Audit Director
The Board appointed Mr. George Zornas as the Internal Audit Director.
3.3
Corporate Governance Compliance Officer
The Board appointed Mr. Marios Skandalis as CGCO.
4.
4.1
Members of the Board of Directors
Non-Executive Directors
Efstratios-Georgios (Takis) Arapoglou (Chairman)
Takis Arapoglou is an expert financial consultant. He has served as Chairman and CEO of the National Bank of
Greece Group, Chairman of the Hellenic Banks Association, Member of the Board of Eurobank and has held
senior management positions with Citibank and Chase Manhattan in the UK and with American Express in
Greece. Currently, he is Chairman of the Board of Titan Cement, an international cement company listed on
the Athens Stock Exchange and of Tsakos Energy Navigation, a shipping company listed on the New York Stock
Exchange.
Mr. Arapoglou holds an MSc in Finance and Management from the University of Brunel, London, a BSc in Naval
Architecture and Ocean Engineering from the University of Glasgow and a BA in Mathematics and Physics from
the University of Athens.
He has extensive experience in international capital markets and in corporate, commercial and investment
banking in South East Europe, the UK, the Middle East and Africa.
Term of Office:
External Appointment:
Appointed to the Board of BOC PCL
and the Board in June 2019
Independent:
Yes on an ongoing basis.
(Mr. Arapoglou commits the appropriate time for
the Group’s business which does not exceed
50 days per year. He has no other remuneration
from the Group other than as Chairman
of the Board and chairman of the NCGC).
Chairman of the Board of Tsakos Energy Navigation
Chairman of the Board of Titan Cement SA
EFG Hermes Holding SAE
Bank Alfalah Ltd
Committee Membership:
Chairman of
Governance
Committee
the Nominations
and Corporate
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4.
4.1
Members of the Board of Directors (continued)
Non-Executive Directors (continued)
Maksim Goldman (Vice Chairman)
Maksim Goldman is Director of Strategic Projects at AO Complexprom since June 2018 and is responsible for
oversight of various projects and investments under management of the company. Previously, from July 2007
to May 2018 he was Director of Strategic Projects at Renova Group and had served as Deputy Chief Legal
Officer of the Group, responsible for implementing the investment policy and support of key mergers and
acquisitions transactions. From 2005 to 2007 he worked as Vice President and International Legal Counsel of
OAO Sual-Holding, which was the management company for OAO ‘SUAL’, the second largest aluminium
producer in Russia, and also participated in the creation of UC Rusal through combination of the assets of Sual-
Holding, Rusal and Glencore. From 1999 to 2005 he worked as an associate at Chadbourne & Parke LLP in New
York and in Moscow.
He holds a J.D. from the School of Law, University of California (Los Angeles). He also holds a Bachelor of Arts
degree in History from the University of California (Los Angeles).
Mr. Goldman has extensive experience in investments, business development and strategy formation and
benefits from oversight experience in a number of external directorships.
Term of Office:
Appointed
to the Board of BOC PCL in November 2014
and the Board in October 2016
External Appointment:
Stentex s.a.r.L
United Manganese of Kalahari Ltd
Independent:
Yes
Committee Membership:
Member of the Risk Committee
Member of the Nominations and Corporate Governance
Committee
Arne Berggren (Chairman of the Risk Committee)
Arne Berggren has been involved in corporate and bank restructurings, working for both the private sector as
well as for international organisations since the early 90s, starting with Nordea during the Swedish financial
crisis. This was followed by bank crises management and bank restructuring assignments in numerous
countries in Latin America, Eastern Europe and Asia, and more recently during the recent financial crisis in the
Baltics, Spain and Slovenia. He has been Head of Financial Restructuring and Recovery at Carnegie Investment
Bank AB and Swedbank AB and as CEO of Swedcarrier AB he led the restructuring of parts of Swedish Rail.
Mr. Berggren has held numerous board positions in the financial and corporate sector, including a position on
the Board of Directors at LBT Varlik Yönetim AS and DUTB Ldt.
He is a graduate of the University of Uppsala, Sweden and has postgraduate studies at the Universities of
Amsterdam, Geneva and New York.
Arne Berggren has significant experience in corporate and bank restructurings, bank crises management and
risk management and has extensive experience in oversight from a number of directorships.
Term of Office:
Appointed
to the Board of BOC PCL in November 2014
and the Board in October 2016
External Appointment:
Eusticon AB
Pireaus Bank Group
TBC Bank Group PLC
Independent:
Yes
Committee Membership:
Chairman of the Risk Committee
Member of the Audit Committee
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4.
4.1
Members of the Board of Directors (continued)
Non-Executive Directors (continued)
Anat Bar-Gera
Anat Bar-Gera is the Chairwoman of Cyverse, since 2015, a leading Switzerland-based cybersecurity company
established with the aim of providing access to the most advanced cybersecurity solutions coming out of Israel
and the Silicon Valley. She is currently a member of the expert network of the World Economic Forum and a
former member of the Global Agenda Council on the future of the internet, of the World Economic Forum. Prior
to this and for more than 20 years, she co-founded, scaled and exited a number of telecom and internet
international companies operating primarily across Europe and Africa. In 1988, she joined UBS in Switzerland
as an Associate in the M&As department, where she initiated and executed pan-European deals especially in the
high-tech area.
Mrs. Bar-Gera holds an MBA from INSEAD, France and a Bachelor of Law (LL.B.) from the Hebrew University,
Israel.
She has significant experience in start-ups and cybersecurity and benefits from oversight experience in a
number of external directorships.
Term of Office:
External Appointment:
Appointed to the Board of BOC PCL
and the Board in October 2017
Independent:
Yes
Chairwoman of Cyverse AG
Swiss Mobile Data
Expert Network of the World Economic Forum
Committee Membership:
Member of the Human Resources and Remuneration
Committee
Member of the Technology Committee
Lyn Grobler (Chairperson of Technology Committee)
Lyn Grobler is an experienced executive with a strong track-record in technology and IT roles. She was
appointed Group Chief Information Officer (CIO) at Hyperion Insurance Group in 2016. Prior to this she was
Vice President and CIO Corporate Functions at BP where she led the transformation of both the organisation
and the digital landscape through introducing sustained change in process, capability and technology, having
held a variety of roles across IT and global trading over 16 years. Before BP, she managed large scale global
technology projects and strategies within banking and trading based in both London and South Africa. She has
been recognised as one of the 25 most influential women in UK IT.
She holds an HND in computer systems from Durban University in South Africa and a National Diploma in
Electronic Data Processing from Cape Peninsula University (South Africa).
Mrs. Grobler has significant experience in IT and digital transformation and benefits from oversight experience
in a number of external directorships.
Term of Office:
External Appointment:
Appointed to the Board of BOC PCL
and the Board in February 2017
Independent:
Yes
Chairwoman of the Board of Hyperion Services Ltd
Howden Broking Group
Hyperion & Partners Ltd
Committee Membership:
Chairperson of the Technology Committee
Member of the Nominations and Corporate Governance
Committee
Member of the Ethics, Conduct and Culture Committee
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4.
4.1
Members of the Board of Directors (continued)
Non-Executive Directors (continued)
Paula Hadjisotiriou
Paula Hadjisotiriou is an experienced executive with a long career in senior management roles in financial
institutions. She started her accountancy career at Howard, Wade & Jacob before moving to Pricewaterhouse
Coopers. Following a six-year tenor at the Latsis Group of Companies as Deputy General Manager of Internal
Audit, she embarked on a career in banking, in Greece between 1990-2015, first with Eurobank Ergasias S.A as
Group Chief Financial Officer and then with National Bank of Greece as Deputy Chief Executive Officer & Chief
Financial Officer. Currently she serves as an advisor to the Latsis Group of Companies in the UK.
She is a Chartered Accountant (Institute of Chartered Accountants of England and Wales (ICAEW)).
Mrs. Hadjisotiriou has significant experience in financial institutions and benefits from oversight experience in a
number of external directorships.
Term of Office:
External Appointment:
Appointed to the Board of BOC PCL
and the Board in August 2018
None
Independent:
Yes
Committee Membership:
Member of the Audit Committee
Member of the Risk Committee
Michael Heger (Chairman of the Human Resources and Remuneration Committee)
Michael Heger currently serves as the general manager of finance and investment and as an independent senior
advisor for S.I.F. International Holding S.A., Luxembourg at its representative office in Vienna. Previously,
from 2009-2012 he served as general manager and chief executive officer of Metal Trade Overseas AG in Zug,
Switzerland. He began his career in 1980 as a manager in export finance and legal affairs for Waagner-Biro AG
in Vienna, Austria. Having spent two years at Waagner-Biro AG, he moved to UniCredit Bank Austria Group,
where he held various management positions from 1982 to 2002. Between 2001 and 2002, he served as
general manager and head of structured trade finance at Bank Austria AG. From 2002 to 2003, he served as
the deputy general manager and head of International division for Raiffeisenlandesbank Niederosterreich-Wien
AG. Dr Heger then joined MPH Management and Participation Holding S.A., a special purpose company for
equity participation in commercial and industrial companies, financial institutions and in property developments
as well as for financial and consulting services for domestic and international clients and commodity trading, as
the general manager of finance and investment and head of the representative office from 2004-2009.
Dr Heger holds a doctorate in law from the University of Vienna and obtained a postgraduate degree in law
from the College of Europe in Bruges, Belgium.
He has extensive banking experience having spent more than 20 years in various senior positions in UniCredit
Bank Austria Group and has considerable strategic knowledge of industrial and commercial companies, financial
institutions and property developments.
Term of Office:
External Appointment:
Appointed to
to the Board of BOC PCL in June 2016
and the Board in October 2016
None
Independent:
Yes
Committee Membership:
Member of the Human Resources and Remuneration
Committee (Chairman since 21 January 2019)
Member of the Audit Committee
Member of the Technology Committee
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4.
4.1
Members of the Board of Directors (continued)
Non-Executive Directors (continued)
Maria Philippou
Maria Philippou started her career as an HR Consultant with KPMG Greece, before moving to the Lambrakis
Press Group as HR Generalist. Having spent three years with Eurobank Ergasias S.A as Compensation &
Benefits Manager, in 2006 she moved to the Coca Cola Company Group, progressing through various roles such
as Rewards Manager and HR Business & Strategic Partner to her current position as Global Talent &
Development Director.
She holds a degree in Business Administration from Nottingham Trent University and a Master of Science in
Human Resources Management form Brunel University.
Mrs. Philippou is an experienced executive in human resources and brings valuable skills to the Board in people
management.
Term of Office:
External Appointment:
Appointed to the Board of BOC PCL
and the Board in July 2018
None
Independent:
Yes
Nicos Sofianos
Committee Membership:
Member of the Human Resources and Remuneration
Committee
Member of Ethics, Conduct and Culture Committee
Nicos Sofianos is a qualified Chartered Accountant, member of the Institute of Chartered Accountants in
England and Wales (ICAEW) and a member of the Body of Certified Public Accountants of Greece (SOEL). He
was a founding partner of Deloitte Greece and representative of the firm before the regulatory, supervisory and
fiscal authorities in Greece. In 2016 he retired with 40 years of audit and broader professional experience.
He holds an Honours degree in Chemical Engineering with a major in Mathematical Modelling and Computer
Simulation from the University of Manchester, UK.
Mr. Sofianos has extensive experience in the coordination of accounting, auditing, tax and consulting services
rendered to a wide range of companies covering nearly all sectors of industry and in particular the financial
services industry sector.
Term of Office:
External Appointment:
Appointed to the Board of BOC PCL
and the Board in April 2020
(subject to ECB approval)
Dimand SA
DoValue SA
Independent:
Yes
Committee Membership:
Member of the Audit Committee (subject to ECB
approval)
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4.
4.1
Members of the Board of Directors (continued)
Non-Executive Directors (continued)
Ioannis Zographakis (Chairman of the Audit Committee & Senior Independent Director)
Ioannis Zographakis is a senior executive with a broad and diverse international experience in the banking
industry. He started his career in 1990 with Citibank in Greece as a Management Associate for Europe, Middle
East & Africa (EMEA). He then worked as the Deputy Treasurer and Treasurer for the Citibank Consumer Bank
in Greece, before moving to the USA in 1996 as the Director of Finance for Citibank CitiMortgage. In 1997 he
became the Financial Controller for Citigroup's Consumer Finance business in the US and then he served as the
Director of Finance and Acting Chief Financial Officer for the Consumer Assets Division. From 1998 until 2004
he worked in the Student Loan Corporation (SLC), a Citigroup subsidiary and a New York Stock Exchange
traded company. He started as the Chief Financial Officer, became the Chief Operations Officer and in 2001 he
was named the Chief Executive Officer. In 2005 he moved back to Europe as Citibank's Consumer Lending Head
for EMEA and Head of UK Retail Bank. In 2006, he took the position as Citibank's Retail Bank Head in Greece
where he stayed until 2011, before moving back to Cyprus consulting on financial services when requested. He
has been a Director for the Student Loan Corporation in the US, a Director for Tiresias (Greek Credit Bureau)
and the Secretary of the Audit Committee, a Director and member of the Audit Committee for Diners Club
Greece, the Vice-Chairman of the Citi Insurance Brokerage Board in Greece and the Chairman of the
Investments and Insurance Supervisory Committee in Citibank Greece. He has also served as non-executive
Director for the National Bank of Greece group during 2018-2019.
Mr. Zographakis holds an MBA from Carnegie Mellon University in the USA and a Bachelor’s degree in civil
engineering from Imperial College in London.
He has an extensive background in corporate governance, business restructuring, crisis management, finance,
operation & technology in the banking industry, having spent more than 20 years in various senior operational
and financial roles in Citibank in the US, UK and Greece and on the Board of a number of financial entities.
Term of Office:
External Appointment:
Appointed
to the Board of BOC PCL in September 2013
and the Board in October 2016
Independent:
Yes
A. Eternity Capital Management Ltd
Committee Membership:
Chairman of the Audit Committee
Chairman of
Committee
the Ethics, Conduct and Culture
Member of the Risk Committee
Member of the Technology Committee
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4.
4.2
Members of the Board of Directors (continued)
Executive Directors
Panicos Nicolaou (CEO)
Panicos Nicolaou joined the Bank in 2001. He has previously served as the Director of Corporate Banking
Division from June 2016 to August 2019, during which time he had under his supervision Corporate Banking
Centres throughout Cyprus, the International Corporate Banking Centre and International Operations, as well
as the Bank’s Factoring Unit. Prior to becoming Director of Corporate Banking, he served as Manager, Corporate
Management in the Restructuring and Recoveries Division where he managed a large portfolio of problematic
exposures.
He holds a diploma (5-year degree) in Mechanical Engineering from National Technical University of Athens
(Metsovio Polytechnic), Greece and an MSc in Mechanical and Industrial Engineering from University of Illinois
at Urbana-Champaign, USA. He also holds a BSc in Financial Services from the School of Management, UMIST,
UK, and is an Associate Member of the Chartered Institute of Bankers, Institute of Financial Services, UK since
2004.
He is an experienced financial services professional having served in a number of senior roles in the Group.
Term of Office:
External Appointment:
Appointed to the Board of BOC PCL
and the Board in September 2019
Independent:
No
Christodoulos Patsalides (First Deputy CEO)
Committee Membership:
Member of the Ethics, Conduct and Culture Committee
From 1989 to 1996, Christodoulos Patsalides worked for the Central Bank of Cyprus in the management of
Government External Debt and Foreign Exchange Reserves Department. In 1996, he joined the Group where he
has held several positions in corporate banking, treasury and private banking, among others. From December
2013 to April 2016, he served as Finance Director and was responsible for finance, treasury, investor relations,
economic research and procurement. From May 2016 to August 2019 he served as Deputy CEO & Chief
Operating Officer and was responsible for human resources, corporate affairs, central operations, legal services,
organisation and change, information technology, digital transformation and administrative operations. In his
current capacity as the First Deputy CEO, he is responsible for Corporate Affairs, Legal Services, Regulatory
Affairs and Compliance and shall be working closely with the CEO to oversee the progress on the strategic
pillars of the Group.
Dr Patsalides holds a PhD and an MSc in economics from the London School of Economics and a BSc in
economics from Queen Mary College in London.
He is an experienced financial services professional having served in a number of senior roles in the Group
including as Finance Director.
Term of Office:
External Appointment:
Appointed
to the Board of BOC PCL in November 2014
and the Board in July 2016
Vice-Chairman of the Association of Cyprus Banks
European Banking Federation
Cyprus Anti-Cancer Society
Independent:
No
Committee Membership:
None
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5.
Board Committees
BOC PLC
Board of Directors
Nominations &
Corporate Governance
Committee
Human Resources &
Remuneration Committee
Audit Committee
Risk Committee
Technology
Committee (Non
statutory)
Ethics, Conduct and
Culture Committee
(Non statutory)
Leading the process
for Board
appointments and for
identifying and
nominating, for
approval by the Board,
candidates for
appointment to the
Board
Setting the overarching
principles, parameters
and governance
framework of the
Group's remuneration
policy and the
remuneration of senior
executives
Oversight of, and
advice to the Board on
matters relating to
financial statements
and the system of
internal controls
Oversight of and advice
to the Board on, high
level risk related matters
and risk governance
Oversight of the overall
role of technology in
executing the business
strategy of the
Technology Committee
(Non statutory)
Promoting its
values, conduct and
culture, oversees
management's
efforts to foster a
culture of ethics and
appropriate conduct
and the how the
Group promotes
customer-centric
culture
In order to exercise proper oversight of risk and control and pursuant to authority granted under the Articles of
Association, the Board has delegated certain responsibilities to committees of the Board. The statutory
committees are the AC, the RC, the NCGC and the HRRC. The key roles of the Board committees are described
above. Further information of the work of these committees follows in the section below. The terms of reference
of the committees are based on the relevant provisions of the CSE and UK Codes and the CBC Governance
Directive (where applicable) and are available on the Group’s website (www.bankofcyprus.com) or by request
to the Company Secretary. Each committee reviews its terms of reference annually.
The overall responsibility for approving and monitoring the Group’s strategy, risk appetite and policies for
managing risks lies with the Board, which exercises this responsibility through two of its main committees,
namely the RC and the AC.
The chairperson of each committee reports on matters discussed during committee meetings to the subsequent
scheduled meetings of the Board and minutes of these meetings are tabled at the Board as soon as possible for
noting and/or discussion, as necessary. This linkage is important between the committees given that it is
impractical for independent non-executive directors to be members of all the committees.
In addition to the principal committees, the Board set up a Technology Committee in 2017 to drive the digital
transformation of BOC PCL. In November 2019, the Board set up the Ethics, Conduct and Culture Committee to
support it in promoting its collective vision of values, conduct and culture and oversee management effort to
foster a culture of ethics and appropriate conduct within the Group.
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5.
5.1
Board Committees
Nominations and Corporate Governance Committee
As at 31 December 2019 the NCGC comprised of three independent non-executive directors. Its composition is
fully compliant with the CSE Code, the UK Code and the CBC Governance Directive. The Chairman of the Board
chairs the Committee, except when the NCGC is dealing with the appointment of a successor to the role of
Chairperson.
Biographical details, including each member’s background, experience and independence status are set out in
section 4 of this report.
The Committee met 10 times in 2019. The Chairman and members of the Committee together with their
attendance at meetings are shown below. The CEO attends meetings as appropriate. The NCGC meets annually
with no management present.
Member attendance in 2019:
NCGC meetings* in 2019
Josef Ackermann (Chairman) resigned on 14 May 2019
Takis Arapoglou (Chairman) appointed on 12 June 2019
Maksim Goldman
Lyn Grobler
5/5
5/5
9/10
10/10
* The number of committee meetings at BOC PCL level were 11 during 2019. The attendance of these meetings can be found
on page 335.
The key responsibilities of the NCGC are set out in its terms of reference, which are available on the Group’s
website (www.bankofcyprus.com) and are reviewed annually and approved by the Board.
The role of the Committee is to ensure that the Board is comprised of members who are best able to discharge
the duties and responsibilities of directors and to support and advise the Board in relation to:
• Board recruitment (including regularly reviewing, reporting on and taking into account, when making
further appointments, the composition and effectiveness of the Board);
• Vice-Chairperson, director and CEO development (under the overall responsibility and supervision of the
Chairperson of the Board);
• Chairperson development (under the overall responsibility and supervision of the SID);
•
The ongoing evaluation of the structure, size, composition and performance of the Board, its committees
and individual directors; and
• Succession planning for directors and senior management.
The Committee also:
• Oversees the adoption of appropriate internal policies on the assessment of the fitness & probity of
members of the Group ExCo, other senior managers and heads of the internal control functions;
• Keeps the Board’s governance arrangements under review and makes appropriate recommendations to the
Board to ensure that such arrangements are consistent with best corporate governance standards and
practices in place;
• Considers and authorises a situation in which a director has, or could have, a direct or indirect interest that
conflicts, or possibly may conflict with the interests of the Group, and decides on remedial action to
eliminate such conflict or seeks to terminate the situation giving rise to it;
• Oversees the corporate governance arrangements of material subsidiaries and reviews the evaluation of
board performance of the subsidiary boards; and
• Defines the Group’s sustainability strategy aimed at achieving present and future economic prosperity
environmental integrity and social equity for the Group and its stakeholders.
The matters considered and the actions taken by the NCGC during the year are set out in the following table.
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5.
5.1
Board Committees (continued)
Nominations and Corporate Governance Committee (continued)
Matters considered and action taken by the NCGC in 2019
Board and
committee size
and composition
• Recruitment of a new non-executive to the Board;
• Recommendation for approval of appointments to the
boards of major subsidiaries;
• Replacement of the Chairperson of the HRRC;
• Replacement of the SID;
• Structure and composition of the Board.
Executive
Succession
Planning
• Appointment of CEO.
shortlists of
• The external search firm Egon Zehnder
for
provided
consideration,
various
members of the Board were held and the
process resulted in the appointment of Takis
Arapoglou.
interviews with
candidates
• Following Michael Spanos’ decision to step
down, the Committee recommended to the
Board that Michael Heger replaces him as
chairman of the HRRC. This was based on
Board succession planning and the fact that
Dr Heger is an experienced non-executive
director and has been a member of the
HRRC since his appointment in June 2016.
• Ioannis Zographakis was recommended to
the Board for appointment as SID based on
his extensive experience as an independent
non-executive director.
shortlists of
• The external search firm Egon Zehnder
provided
for
consideration, consisting of both internal
and external candidates. Interviews with
various members of the Board were held
and the process resulted in the appointment
of Panicos Nicolaou, an internal candidate.
candidates
Annual Board
effectiveness
Review
Disclosure &
Governance
Executive
performance
review
• Annual Board Performance Evaluation including its
committees and individual directors.
• Review and approval of revision to the Corporate
Governance Framework of the Group;
• The 2019 Action plan for corporate governance
compliance;
• Review and recommendation for approval to the
Board of the Group Corporate Governance Policy;
• Review of the Annual Corporate Governance Report;
• Review of
reports;
the quarterly corporate governance
• Approval of the report on compliance with the CSE
Code and the UK Code;
• Approval of the Terms of Reference of an Ethics,
Conduct and Culture Committee.
• Performance appraisal of the two executive directors;
• Setting of KPIs of new CEO.
• An internal process of evaluation took place
in 2019 and resulted in an action plan to
implement the recommendations emanating
from the report.
• Annual review of the Corporate Governance
Framework, to incorporate requirements of
recent regulatory developments including
those of the revised UK Code.
• A review of the Board Diversity Policy to
ensure the action plan in place to achieve
40% female representation on the Board in
2020 is still appropriate.
• The establishment of an Ethics, Conduct and
Culture Committee was approved to support
the Board in promoting its collective vision
of values, conduct and culture.
• The performance appraisal of the two
executive directors was carried out in terms
of both their role as executives and as board
members
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5.
5.1
Board Committees (continued)
Nominations and Corporate Governance Committee (continued)
Matters considered and action taken by the NCGC in 2019 (continued)
Independence
and time
commitments
• Review of:
• Skills, knowledge and expertise;
•
• Review of potential conflicts of interest of
Independence of Non-executive members;
directors;
• Appointments to other directorships;
• Attendance records and time commitment.
Training
• Further use of the e-learning online training.
Subsidiary
oversight
• Review and approval of the revision of the Corporate
Governance Guidelines for subsidiaries.
• All
directors
non-executive
remained
independent as to character and judgement.
All directors are considered
to have
appropriate roles including capabilities and
skills.
• During the annual performance evaluation
review each non-executive director and
his/her ability to continue meeting their time
commitments was assessed.
• Approval from the NCGC was sought prior to
taking on any other directorships outside the
Group.
• Any
training needs of non-executive
directors are identified by the directors
the
themselves and communicated
the
Chairman who
relevant
/ presentations are
organised by the Company Secretary.
then ensures
to
that
training
• Alignment of the corporate governance
framework of the subsidiaries with that of
consideration
the Group
proportionality.
taking
into
Discussions were held on the matter of succession planning. Job specifications were prepared to be available for
the external consultants who would assist in the search for potential candidates for the positions of CEO and
Chairperson. Interviews were carried out once a shortlist was prepared and a recommendation was submitted
to the Board. The chairman of the Committee reported to the Board after each meeting to ensure all directors
were informed of the Committee’s activities. The Committee’s terms of reference can be found
at www.bankofcyprus.com.
The Committee ensures plans are in place for the selection, appointment and orderly succession of executive
directors and senior managers. The Group carries out a review of the ongoing fitness and probity of ExCo
members on an annual basis, whereby they are required to confirm any changes in their circumstances in
respect of their compliance with the CBC Fitness & Probity Directive. Any changes in circumstances disclosed
are assessed and their materiality determined. Following the review of 2019, certain changes to directorships
were reported. The Board concluded that each of the senior management members has the requisite standard
of fitness, probity and financial soundness to perform his/her functions effectively.
5.1.1 Diversity
The Group recognises the importance of ensuring that there is diversity on the Board and is committed to this
respect. In reviewing Board composition and identifying suitable candidates, the NCGC considers the benefits of
all aspects of diversity including the skills identified as relevant to the business of the Group, industry
experience, nationality, gender, age and other relevant qualities, in order to maintain an appropriate range and
balance of skills, experience and background on the Board.
The Group’s approach to Board diversity is set out in full in the Board Diversity Policy which can be found online
at https://www.bankofcyprus.com/en-GB/who-we-are/corporate-governance/. The Policy recognises that a
truly diverse Board will include and make good use of the differences in skills, experience, background, race,
gender and other distinctions brought by each director, with such differences being considered in determining
the optimum composition of the Board.
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5.
5.1
Board Committees (continued)
Nominations and Corporate Governance Committee (continued)
5.1.1 Diversity (continued)
Non-executive members of the Board possess a wide range of skills, knowledge and extensive experience
acquired from executive and/or non-executive appointments as directors of other companies that combine to
provide independent perspective and effective board dynamics. The effectiveness of the Board depends on
ensuring the right balance of directors with banking or financial services experience and broader commercial
experience.
A combination of demographics, skills, experience, race, age, gender, educational and professional background
and cognitive and personal strengths on the Board is important in providing a range of perspectives, insights
and challenge needed to support good decision making. New appointments are made on merit, taking account
of the specific skills and experience, independence and knowledge needed to ensure a well-rounded Board and
the diversity benefits each candidate can bring to the overall board composition.
Takis Arapoglou and Panicos Nicolaou were the only two appointments made in 2019 and these were made in
alignment with the strategy of the Group to concentrate on its main market, divesting itself of non-core
activities. Knowledge of the area and especially the local market played a significant role in the appointment of
the two directors.
Following review in 2019, the NCGC determined that the skills profile of the Board, either academically or
through professional experience was appropriate and relevant to the business of the Group including inter alia,
banking, insurance, manufacturing, audit and accounting, economics, risk management, dealing with
competent authorities, strategy and business models, legal and consultancy services, information technology
and cyber-security and human resource management.
Directors bring their individual knowledge, skills and experience to bear in discussions on the major challenges
facing the Group. The participation of executives on the Board enhances the banking expertise of the Board and
ensures that the Board is provided with direct, precise and up-to-date information about significant issues
concerning the Group.
Gender Diversity at Board level
Gender Diversity in senior management
and their direct reports
Age Range at Board level
4
7
47
57
5
3
3
Male
Female
Male
Female
40-49
50-59
60-69
During 2019, the NCGC reviewed the Board Diversity Policy which aims to achieve gender diversity by 2020
with appointments based on merit in the context of the skills and experience required. The Group having
recognised the benefits of a diverse Board is aiming to achieve and maintain 40% female representation by the
end of 2020 and is implementing an action plan approved by the NCGC describing all key intervening
milestones leading to the accomplishment of this target. Currently gender diversity is at 36.4%.
The Board also places high emphasis on ensuring the development of diversity in the senior management roles
within the Group. A number of policies within the Group ensure unbiased career progression opportunities. The
Code of Conduct similarly ensures equal opportunities to all members of staff and treats diversity with fairness
and respect aiming to provide fair treatment for everyone at work.
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5.
5.2
Board Committees (continued)
Human Resources and Remuneration Committee
On 31 December 2019, the Committee comprised of three independent non-executive members. Its
composition complied with the requirements of the CSE Code, the UK Code and the CBC Governance Directive.
The Board considers that at least one member of the Committee possesses appropriate knowledge and
expertise on Human Resources (‘HR’) and remuneration issues and that the chair has at least one year prior
committee experience. The diverse backgrounds of the members of the Committee provide a balanced and
independent view on remuneration matters.
The chairman of the Committee, Michael Spanos, resigned on 21 January 2019 and was replaced by Michael
Heger who has been a member of the Committee since his appointment to the Board on 9 June 2016.
Biographical details, including each member’s background, experience and independence status are set out in
section 4 of this report.
The Committee held 9 meetings in 2019. The chairman and members of the Committee together with their
attendance at meetings are shown below. The CEO and the Director of Human Resources are invited to attend
meetings as appropriate.
Member attendance in 2019:
HRRC meetings* in 2019:
Michael Spanos (Chairman) (resigned 21 Jan 2019)
Michael Heger (Chairman) (appointed on 21 Jan 2019)
Anat Bar-Gera
Maria Philippou
0/1
9/9
9/9
8/9
* The number of committee meetings at BOC PCL level were 12 during 2019. The attendance of these meetings can be found
on page 335.
The key responsibilities of the HRRC are set out in its terms of reference, which are available on the Group’s
website (www.bankofcyprus.com) and are reviewed annually and approved by the Board.
The role of the Committee is:
•
•
•
•
•
•
To ensure that the Group is equipped with the human capital at the right size and with the right skill mix
necessary for the achievement of its strategic goals. It is imperative for the Group to employ the
appropriate forward-looking, commercially minded, human resources that would promote digital
transformation and continuous innovation;
To ensure that the Group is equipped with the organisational capital to be able to effect continuous
improvement and elicit the right behaviour which would lead to the desired outcome;
To ensure that the Group is equipped with the information capital and the technology necessary to facilitate
process improvements that will create a comparative advantage in the market;
To propose adequate remuneration considered necessary to attract and retain high value-adding
professionals. Therefore, remuneration has to be satisfactory vis-a-vis peer companies;
To set the overarching principles and parameters of compensation and benefits policies across the Group
and exercise oversight for such issues;
To consider the remuneration arrangements of the executive directors of the Group, other senior managers
and the Group Remuneration Policy bearing in mind the European Banking Authority (‘EBA’) Guidelines on
remuneration policies and practices, the CBC Governance Directive and the CSE Code.
The HRRC oversees the HR initiatives that foster employee engagement such as the application of a holistic
internal communication programme, the implementation of the ‘Well-at-Work’, an employee wellbeing / care
programme and the application of fair and transparent recognition initiatives across the Group.
The Committee is responsible for the development and periodic review of the Group Remuneration Policy which
is proposed to the Board for ratification. In addition, the Board, through the Committee, is ultimately
responsible for monitoring the implementation of the Group Remuneration Policy. More information about the
role of the Committee in respect of the Remuneration Policy can be found in the Remuneration Policy Report on
page 365
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5.
5.2
Board Committees (continued)
Human Resources and Remuneration Committee (continued)
The Committee exercises oversight of negotiations with the labour union in Cyprus and provides guidance and
support to management. It advises the Board on the approval of the collective agreements and reviews the
framework of industrial relations and collective agreements to ensure they are relevant to best practices and
conducive to good performance. The Committee reviews any voluntary retirement/separation schemes for BOC
PCL and material subsidiaries in cooperation with the Human Resources Division (‘HRD’) and succession
planning for all divisions and subsidiaries for senior management throughout the Group.
The Committee monitors compliance with the Code of Conduct and reviews disciplinary controls and measures
of the Group as presented by HRD on an annual basis. It also reviews the annual training plan as presented by
HRD and approved by the CEO and ensures that it creates and/or develops the right competencies and
behaviours that are necessary for meeting the Group’s strategic priorities.
The Committee reviews and approves the content of any resolutions submitted for approval at the general
meeting of the shareholders. These resolutions are prepared by the Company Secretary in cooperation with the
Group’s legal advisers in accordance with Annex 3 of the CSE Code and concern possible plans for the
compensation of members of the Board in the form of shares, share warrants or share options.
Matters considered and action taken by the HRRC in 2019
Annual
Remuneration
Review
• Annual review and approval of the Remuneration
Policy;
• Annual review of the remuneration of the senior
management team.
• Given the restraints on awarding variable pay,
in order to maintain motivation across the
team, sensible pay awards were given bearing
in mind that competitor banks do not have the
same restraints on variable pay. Pay awards
were biased
individual’s
reflect
contribution.
the
to
Disclosure and
governance
• Review of the Remuneration Policy Report in the
Annual Report;
• Review of the Terms of Reference of the
Committee;
• Review of the External Recruitment Policy;
• Review of the new CEO contract;
• Review and approval of the revised organisation
structure of the Bank;
• Executive Team structure.
• The Report was reviewed and approved.
• The re-organisation of the operational structure
is intended to create a more functional structure
taking into account the Bank’s current focus
areas.
Human
resources
review
• Monitoring of the Bank’s headcount and payroll
cost evolution as well as the external recruitment
process;
• Review of the Reorganisation Plan which formed
the basis of the 2019 Voluntary Exit Plan (VEP);
• Review of the VEP design and parameters and
monitoring of the process.
• The Committee reviewed the reorganisation
plan which
identified obsolete positions
emanating from changes in structure, digital
transformation efficiencies, closure of branches
etc. Consultation with the labour union took
place to ensure its on-boarding with the plan
and the VEP.
Training
• Review of the training plan of staff for the year.
Engagement
with labour
union
• Close monitoring of
the
negotiations with regards to renewal of the
Collective Agreement.
the progress of
• The training plan was reviewed to ensure it is
appropriate and aligned to the strategy of the
Group.
• The chairman of the Committee together with
the Chairman of the Board and the FDCEO held
a meeting with labour union representatives
and agreed on a course of action to re-activate
the platform of communication between the
Board and the union. Collective agreement was
finally signed for 2019-2020.
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5.
5.2
Board Committees (continued)
Human Resources and Remuneration Committee (continued)
Matters considered and action taken by the HRRC in 2019 (continued)
Performance
Appraisal,
Development
and Succession
• Review of the performance appraisals of senior
management;
• Review of key findings of the 2018 Management
Practices Survey process;
• Review of the Performance Appraisal results and
main findings;
• Informed on the result of the Performance Appraisal
Audit, carried out by Internal Audit;
• Review of the Performance Appraisal Policy.
• Reviewed
the results of
the appraisal
process, recommended amendments to the
process based on the findings of Internal
Audit.
• Reviewed the findings of the Management
Practices Survey whereby subordinates
12
assess
management dimensions and encouraged
the use of
leadership accelerator
program for development interventions.
their managers
across
the
Human
Resources
Practices
• HRD update Report (exit statistics, disciplinary cases,
financial aid and care leave;
• Darewinners;
• Change calendar;
• Well at Work.
• Various initiatives introduced by HRD to
align culture with strategy were reviewed
and commented on by the Committee.
Priorities for the HRRC in 2019 were the action plan of the HRD to promote employee engagement and
encourage two-way open communication. Further, the Committee was kept informed and updated on the
discussions for the renewal of the collective agreement and other matters with the labour union.
The Board is informed through the HRRC on staff surveys and is updated on progress in implementing actions
in response to staff feedback. The Staff Opinion Survey is run on an annual basis, aiming at evaluating
employee engagement and enablement levels while identifying areas of focus and improvement going forward.
In 2018 the Bank had introduced the concept of the Internal Customer Satisfaction Survey whereby employees
are given the opportunity to evaluate the level of service they receive from various internal departments of the
Bank.
According to the action plan set up to adhere to the revised UK Code, the Committee discussed and agreed the
approach to engagement in 2019, methods of gathering and documenting workforce views, and considering
how themes and viewpoints of the workforce would be presented to and considered by the Board for discussion
and debate to encourage a meaningful dialogue between the Board and the workforce on a timely basis.
Information from staff surveys allowed the Bank to proceed with major changes in the way it engaged with its
workforce. Initiatives emanating from the survey were the Internal Opportunities program whereby open
positions are advertised on the employee portal and staff members may apply for more senior positions.
Interviews are held with all applying staff that meet the qualifications and successful candidates have a second
interview before a decision is reached. Decisions are justified and staff is informed whether successful or not.
A project named ‘Kill B’ was introduced to eradicate bureaucracy through workshops and recommendations
made by staff. Around 30 such recommendations have already been implemented while more are being
evaluated. The Appraisal Procedure was improved and enhanced to make it more objective and meritocratic
through the involvement of staff. Surveys were used, workshops were ran and several in-depth personal
interviews were held for understanding the challenges facing both appraisers and appraisees.
To encourage honest and two-way communication as a priority, being the best tool to face challenges for a
continued development of a healthy organisation the ‘CEO Corner’ was set up on the employee portal, whereby
staff can contact the CEO through the Ask the CEO email address for direct communication. Staff may
participate in lunches that are organised regularly by booking a seat with the CEO. The Group’s existing
whistleblowing channel provides an opportunity for all staff to raise concerns in confidence.
97% of staff were trained in 2019 amounting to about 2.5 days in training for each member of staff. A
Leadership Accelerator program was attended by middle managers while other Skills Accelerator programs were
attended by relevant members of staff. Several Excellence programs were also run whereby staff gained
recognition and monetary awards for Change & Innovation, Outstanding Contribution, Team Spirit, Customer
Centricity and Ethics.
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5.
5.2
Board Committees (continued)
Human Resources and Remuneration Committee (continued)
In the last two years 51 open days with senior management were organised for all staff. Internal
communication is further encouraged with the quarterly financial results being presented by the Executive
Director Finance through a presentation on the employee portal. New tools of internal communication are
currently being evaluated through pilot groups. Directors participate in site visits and exchange views with staff
or address their concerns.
The ‘Darewinners’ initiative intended to identify a group of individuals from across the Group and from all levels
of hierarchy to facilitate the implementation of change during all the stages of the Bank’s transformation.
In 2019 a program was initiated that proved popular to staff which aimed to ensure staff is well at work and in
their private life by improving their health and well-being. The program, Well at Work, is based on four pillars of
actions that aim to achieve balance in the people of the Company in all areas: Psychosomatic health; mental
wellbeing; social activities /socialising; financial planning, all essential elements for an organisation that
depends on its human resources to move forward. These goals are achieved through specific tools, initiatives,
seminars and other actions that will be enriched on an on-going basis. Some of the tools already available are
annual wellness check-ups for all staff; seminars on mental and physical health and an employee assistance
line. An upcoming tool is the Guardian Angel mobile health application to be made available to all employees.
It is hereby confirmed that the workforce engagement method that the Board has settled on is through internal
surveys carried out by the HRD overseen by the HRRC which acts as the workforce advisory panel to the Board
and that regular reporting of the views expressed by staff is submitted to the HRRC which then reports through
its chairman to the Board.
Safeguarding the Bank’s viability is of paramount importance. In view of the international economic
environment in the banking sector, where interest rates are very low and operating costs keep increasing due
to the strict regulatory environment, there was a need for further specialisation, further modernisation and a
reduction of the Bank’s operating costs. The Company decided to invest in the digital transformation program in
order to simplify the way work is carried out and to be able to deliver an improved customer experience. A
reorganisation plan which described significant changes per business area and the abolition of significant
number of jobs/positions was discussed with the labour union. The VEP allowed 464 employees to depart
smoothly, with a generous benefits package.
Further information on the role of the Committee is presented in the Remuneration Policy Report, on page 365
of this report.
The chairman of the Committee reported to the Board after each meeting to ensure all directors were fully
informed of the Committee’s activities.
5.3
Audit Committee
As at 31 December 2019, the AC comprised of four independent non-executive directors. The Board considers
that the AC’s members, as a whole, have experience of the banking and financial services sector. The Board
further believes that Ioannis Zographakis and Paula Hadjisotiriou can be regarded as having recent and
relevant financial experience for the purposes of the UK Code and can be regarded as Audit Committee financial
experts.
Biographical details, including each member’s background, experience and independence status are set out in
section 4 of this report.
The Committee held 13 meetings during 2019. The chairman and members of the Committee together with
their attendance at meetings are shown below. Arne Berggren is the chairman of the RC and Ioannis
Zographakis and Paula Hadjisotiriou are members of the RC. Michael Heger is also a member and chairman of
the HRRC. Such common membership facilitates effective governance across all finance and risk issues.
Agendas can be aligned and overlap of responsibilities can be avoided.
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5.
5.3
Board Committees (continued)
Audit Committee (continued)
Member attendance in 2019:
AC meetings* in 2019
Ioannis Zographakis (Chairman)
Arne Berggren
Michael Heger
Paula Hadjisotiriou
13/13
11/13
13/13
11/13
* The number of committee meetings at BOC PCL level were 13 during 2019. The attendance of these meetings can be found
on page 335.
The key responsibilities of the AC are set out in its terms of reference, which are available on the Group’s
website (www.bankofcyprus.com) and are reviewed annually and approved by the Board.
The role of the Committee, inter alia, is:
•
•
•
•
•
•
•
•
To review and monitor the effectiveness of the Group’s system of internal controls;
To assess the integrity of the Group's financial statements and related announcements;
To advise the Board on appointment of the external auditors and be responsible for oversight and
remuneration of the external auditor, including monitoring their independence and objectivity;
To review the Group’s and Company’s financial and accounting policies and practices;
To monitor the effectiveness of the Group's whistle-blowing procedures and to report to the Board on its
findings;
To monitor the effectiveness of the internal audit function and the external audit process;
To monitor the effectiveness of the anti-money laundering function of the Company and all other aspects of
regulatory compliance;
To assist the Board in meeting its obligations under relevant stock exchange listing rules and other
applicable laws and regulations;
and to make recommendations to the Board on such matters.
The role of the Committee is fundamental to ensuring the integrity and accuracy of the Company’s financial
reporting. Good, open relationships between the Committee, the Executive Director Finance, the Internal Audit
Director and the Director of Compliance as well as the external auditors, are essential to adding value to the
organisation. This is achieved by holding management to account for the implementation of all audit
recommendations (internal and external) and inviting appropriate senior managers to meetings to explain how
they are delivering the agreed actions for which they are responsible. In addition to providing assurance within
the governance and accountability structures of the Group, it is essential that the Committee contributes,
delivers results and adds value to the Group.
The AC considered the following key significant accounting and other related issues in its review of the financial
statements for the year ended 31 December 2019. In addressing these issues, the AC considered the
appropriateness of management’s judgements and estimates and where appropriate, discussed those
judgements and estimates with the external auditors.
Matters considered and action taken by the AC in 2019
Allowances
for
impairment
losses on
loans and
advances
• IFRS9 Impairment assessment;
• Assurance that models used by the Bank cover the
probability of default as required by IFRS9.
• The AC jointly with the RC considered loan
impairment allowances and charges, discussing
with management and consultants the basis of
calculation. The AC took note of the consultants
‘assessment that the impairment allowances were
in accordance with the requirements of IFRS9.
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5.
5.3
Board Committees (continued)
Audit Committee (continued)
Matters considered and action taken by the AC in 2019(continued)
Conversion of
Deferred Tax
Assets to
Deferred Tax
Credits
• Discussion on the amendments to the Tax Law
which allow for the conversion of specific deferred
tax assets into deferred tax credits.
Uncertain tax
positions
• Review of Tax and VAT of prior years was
examined.
One-off
transactions
and other
matters
• Velocity I sale of loans;
• Helix I sale of loans;
• Estia project on NPEs;
• CNP shareholding disposal;
• Nicosia Mall shareholding disposal;
• CYREIT AIF disposal.
Future
accounting
standards
• Discussion of IFRS16 (Leases) applicable from
January 2019;
• Discussion of
IFRS17
(Insurance) which
is
applicable from 2022.
External
Reporting
• Review and recommendation for approval of the
annual and interim reporting;
• Review and approval of the quarterly financial
results;
• Review and approval of the Group’s existing
accounting policies;
• Approval of new and significant changes in existing
policies;
• Endorsement of the going concern assessment for
the purposes of the basis of preparation of the
financial statements.
• These amendments cover the income tax losses
transferred from Laiki Bank to BOC PCL in March
2013 following its resolution.
• Accounting and regulatory implications were
discussed with external
consultants who
provided accounting and regulatory capital
treatment opinions on the proposed law.
• The tax losses carried to BOC from Laiki were
discussed with
its
expectation that the Tax Authorities will provide
final confirmation of the level of tax losses
transferred soon.
the Bank expressing
• The Committee discussed the impact the sale of
loans would have on the Bank as well as the
project Estia on applicable NPEs.
• The sale of 49% participation in CNP, the sale of
the Bank’s participation in the Nicosia Mall, and
the sale of CYREIT were all discussed with the
Executive Director Finance and the external
auditors.
• The impact these standards would have on the
financial accounts was discussed with the
statutory auditors and the Executive Director
Finance.
• Gap analysis was carried out by the two
insurance subsidiaries and completed by end
2019. The reporting of both subsidiaries will
change fundamentally and the whole period
leading up to 2022 will be required for full
implementation.
• The AC considered management’s assessment of
the appropriateness of preparing the financial
statements of the Group on a going concern
basis.
• The considerations assessed by the AC in
relation to the going concern assessment are
also set out in Note 3 of the Consolidated
Financial Statements.
External
Auditors
• Discussion of the results of the audit of the financial
• The AC assessed
through
the AQIs
the
statements;
• Assessment of the independence of the external
auditors;
• Assessment through Audit Quality Indicators (AQI)
of the effectiveness of the external audit process;
• Approval of audit, tax compliance and other
assurance fees for the year;
• Approval of permissible non-audit services assigned
to the auditors;
• Update on the 2019 External Audit Plan.
effectiveness of the external auditors.
• The performance of the new external auditors
was assessed for the first time following the
issuance of the interim financial statements.
• The auditors as part of their audit approach
included the testing of IT general controls where
financial reporting controls relied on the specific
IT systems in scope. The findings were noted
and these will continue to be discussed along
with management’s actions.
• Further the auditors also presented
initial
findings coming from their financial reporting
controls testing, being part of their audit
approach. The findings were noted and these
will continue to be discussed along with
management’s actions.
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5.
5.3
Board Committees (continued)
Audit Committee (continued)
Matters considered and action taken by the AC in 2019 (continued)
Compliance
• Review of the Group Financial Crime Compliance
Department (‘FCCD’) Annual Report
• Review of the Group FCCD Risk Management
Report;
• Review of the Regulatory & Ethics (‘RECD’) Annual
Report;
• Review and approval of the FCCD Action Plan, the
RECD Action Plan, and the Data Privacy Dept.
Action Plan;
• Review and approval of the Anti-Money Laundering
risk appetite statement, AML Policy,
(‘AML’)
Customer Acceptance Policy and Sanctions Policy;
• Consideration of major compliance issues and
reports submitted to it by Compliance Division;
• Review and approval of the various regulatory &
ethics compliance policies;
• Update on
important
forthcoming
regulatory
developments;
• Appraisal of the Director Compliance;
• Review of the Data Privacy compliance function and
the overall function of the Data Protection Officer
(DPO).
Governance
• Review of the revised Terms of Reference of the
AC;
• Approval of the Corporate Governance Report;
• Approval of the Directors’ Compliance Statement.
Internal
Audit
• Annual Audit Report;
• Review of the Internal Audit’s (IA) Triennial Audit
Plan;
• Review of the independence of the IA Division and
the IA Director;
• Appraisal of the IA Director;
• Review of the self-assessment of IA conformance
with IIA standards;
• Approval of the IA budget;
• Review of the IA quarterly activity reports;
• Update on complaints
received
through
whistleblowing line.
Litigation
• Litigation provisioning.
• Complaints received were discussed. A ‘lessons
learned’ approach is applied by the Complaints
Management Unit to ensure the Bank improves its
operations to ensure customer satisfaction.
• Compliance with Best International compliance
Standards for IBUs was discussed and an action
plan was prepared to achieve this. Campaigns for
enhanced quality of AML reviews were run across
all business lines.
• The progress of GDPR compliance was monitored.
• Relevant clarifications were sought and the AC
was satisfied with respect to the Annual Corporate
Governance report and the Directors’ Compliance
Statement.
• The conclusions arising from the internal audit
activity as described in the 2019 Annual Audit
Report were discussed.
• The effectiveness of the internal audit function
was assessed as adequate and recommended to
the Board for discussion.
• Investigation
report
findings and recommendations were discussed as
well as management’s response and actions.
internal audit
reports,
the
• The methodology used for litigation provision was
revisited following the two cases where decisions
issued in Cyprus courts.
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Annual Financial Report 2019
5.
5.3
Board Committees (continued)
Audit Committee (continued)
Matters considered and action taken by the AC in 2019 (continued)
Internal
controls
• Annual review of the effectiveness of the Group’s
internal controls;
• Quarterly updating on outstanding operational risk
findings monitoring Dashboard;
• Review of
the Annual
Information Security
Assessment Report.
• The opinion provided in the 2019 Annual Audit
Report on the effectiveness of the internal control
framework was discussed and mutually agreed.
Reasonable assurance was provided, with
emphasis on specific matters, that the system of
internal controls within the Group is adequately
designed and operates effectively, to address
significant risks according to the risk appetite set
by the Board of Directors. Emphasis is provided
on specific areas and in particular on non-
performing exposures (NPEs) and Information
Systems, which require management’s attention
to further reduce risk exposure.
• The triennial assessment of the Group’s internal
control framework (ICF) was completed by KPMG.
Key points were overreliance on manual work i.e.
spreadsheets and procedures must be automated.
In subsidiaries there is concentration risk of
responsibilities and overreliance on specific staff.
The ICF is considered effective,
• The AC instructed the CIO to concentrate on
addressing the IT audit findings with a timetable.
In assisting the Board to monitor the integrity of the financial statements, the AC has reviewed the Annual
Report and monitored the appropriateness and completeness of the published financial statements and related
announcements to shareholders of the Company and any formal announcements relating to the Group’s
financial performance, including significant financial reporting judgements and estimates made by the Group.
The Committee advised the Board that the Group Annual Financial Report and financial statements, taken as a
whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess
the Group’s position and performance, business model and strategy. The Committee considered for disclosure
all material relevant issues that have concerned management and the Group statutory auditors during the year.
The AC considered among others, the following significant issues in its review of the financial statements for the
year ended 31 December 2019. In addressing these issues, the Committee discussed key areas of
management’s judgements and estimates with the external auditors, PricewaterhouseCoopers (‘PwC’);
particular areas for discussion included their findings/observations as part of their audit/review of the Group’s
financial statements, including inter alia, loan provisioning and impairment, going concern assessments, the
conversion of deferred tax asset into deferred tax credit, litigation and claims, provision and observations in
relation to the Group’s controls over Information Technology. The AC in a joint meeting with the RC also
considered management’s recommendations in respect of provisions for impairment of loans and advances and
other impairment losses and charges as reported in the Group’s financial statements.
Specific matters considered by the Committee were: the effectiveness of the system of internal control,
financial reporting, the major findings of internal audits and investigations into control weaknesses and
management’s response. The AC has received confirmation that executive management has taken or is taking
the necessary actions to remedy any failings or weaknesses identified through the operation of the Group’s
framework of controls and will continue to reassess and remediate further as needed.
The Bank is obligated to have in place a Recovery Plan that sets out recovery options to be initiated in the
event of the Group coming under severe financial stress. During 2019 the AC received updates and discussed
with management the structure of the Recovery Plan.
The Committee has the responsibility for examining any significant transactions in any form, carried out by the
Company and/or its subsidiary companies, where any member of the Board, CEO, senior executive officer,
Secretary, auditor or large shareholder has, directly or indirectly, any significant interest. It ensures that these
transactions are carried out within the framework of the Company’s normal commercial practices (at arm’s
length).
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5.
5.3
Board Committees (continued)
Audit Committee (continued)
The Committee received regular reports from the Executive Director Finance, the Internal Audit Director and
the Director of Compliance as well as the Chief Risk Officer who regularly attended the Committee’s meetings.
Reports were submitted to the Committee on internal control matters. The Committee has regular discussions
with the external auditors, the Internal Audit Director and the Director of Compliance on various issues without
the presence of the management.
Other responsibilities
The AC and the RC liaise closely and in joint committee meetings review the appropriateness of and
completeness of the system of internal controls. The AC is primarily responsible to review the manner and
framework in which management ensures and monitors the adequacy of the nature, extent and effectiveness of
internal controls system, including accounting control systems, thereby maintaining an effective system of
internal controls.
The Board has delegated authority to the NCGC to draw up the Annual Corporate Governance Report, but the
AC retains its duty to review and approve the Annual Corporate Governance Report.
The chairman of the Committee holds the role of Whistleblower’s Champion and has specific responsibility for
the integrity, independence and effectiveness of the Group’s policies and procedures on whistleblowing,
including the procedures for protecting employees who raise concerns from detrimental treatment. He has also
been named as the designated Board member responsible for the implementation of the AML Law and relevant
Directives.
The Committee’s performance during 2019 was assessed as part of an internal committee effectiveness review.
The conclusion drawn was that the Committee is regarded as operating effectively and the Board takes
assurance from the quality of the Committee’s work. The chairman of the Committee reported to the Board
after each meeting to ensure all directors were fully informed of the Committee’s activities.
It is noted that Eurolife Ltd and General Insurance Cyprus Ltd also maintain an Audit Committee which reports
to the AC on an annual basis.
5.3.1
Internal Audit & Compliance Divisions’ effectiveness
The Internal Audit and Compliance Divisions report directly to the Board through the AC. They are
organisationally independent of units with executive functions and are not subordinated to any other unit of the
Company, except the Director of Compliance who has a dotted reporting line to the FDCEO, for administration
matters. The Committee’s activities included the consideration of reports submitted by the Internal Audit and
Compliance Divisions.
The Committee has satisfied itself that the Internal Audit Division was effective and adequately resourced
through regular meetings held with and reports provided by the Internal Audit Director on internal audit issues,
including the effectiveness and adequacy of resources. The Committee received reports over the course of 2019
on the activities of the internal audit function and reviewed its planned activities for the following year. The
Internal Audit Director and other senior internal audit staff met with the JST in 2019 to discuss JST’s
perspectives.
The AC was informed on the discussion and invited the Internal Audit Division to anticipate the focus areas that
the regulator considers as important and align its audits in those areas to raise flags timely.
The report submitted by Internal Audit on its assessment of internal audit activity conformance to international
internal auditing standards was also discussed by the Committee.
Management’s responses to Internal Audit’s findings and recommendations and mitigating actions taken were
reviewed and monitored. The monthly reports issued by the Internal Audit Director and Director of Compliance
enable the Committee to focus discussion on specific areas of concern and root causes and to track remediation
progress over time.
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5.
5.3
Board Committees (continued)
Audit Committee (continued)
5.3.1
Internal Audit & Compliance Divisions’ effectiveness(continued)
Regular reports are submitted by Compliance Division to the AC on compliance risk across the Group and on
AML issues. The remediation plan approved by the AC across the Group on customer due diligence is rigorously
monitored. There is zero-tolerance on money laundering and terrorism financing incidents and no excuses are
accepted for any violations of the relevant legislation or for breaches of the Group’s internal policies, procedures
and its compliance framework.
The Committee proposes to the Board the appointment, replacement, transfer or removal of the Internal Audit
Director and the Director of Compliance. It submits a report to the Board on: a) the adequacy of the audits
carried out, the conclusions and the proposals of the Internal Audit, and b) subjects that are related to the
independence and smooth execution of audit work carried out by Internal Audit.
The AC assesses and monitors the independence, adequacy and effectiveness of the two functions as well as
the independence of the Internal Audit Director.
5.3.2 Arrangements relating to the external auditors
The AC is responsible for overseeing all matters relating to the relationship between the Group and its statutory
auditors, including the external audit plan, terms of engagement, audit and non-audit fee arrangements,
interim findings and audit finding reports. The AC also meets semi-annually with the auditors without
management present.
The Group is committed to ensuring the independence and objectivity of the statutory auditors and on an semi-
annual basis the AC formally reviews the effectiveness, independence and performance of the external auditors.
The AC reviews the external auditors’ approach and strategy for the annual audit and audit findings. This
process is supported by tailored questionnaires completed by the AC members and relevant senior
management personnel. The responses received are collated and presented to the AC for discussion.
The objectivity and independence of the external auditors is safeguarded, and effectiveness of the external
audit process assessed through monitoring of their relationship with the Group by the AC, including the
monitoring of the balance between audit and permissible non-audit services. As an additional check on
independence the AC has developed and implemented a Group Policy on the Provision of Non-Audit Services by
the Group’s statutory auditors in line with the EU Directive and related regulation. The Group policy ensures,
among other things, that auditor objectivity and independence are not compromised. Under this policy, a key
procedural control requires that any engagement of the external auditors for services must be approved in
advance by the AC. The AC monitors compliance with the Group Policy and receives reports on the performance
of such services.
The external auditors provide six-monthly written confirmation of their objectivity and independence to the AC.
In addition, the external auditors do not provide internal audit services to the Group. The AC reviews annually a
detailed analysis of the audit and non-audit fees relating to work done by the external auditors, to confirm their
independence and refers this analysis to the Board. The External Recruitment Policy provides on hiring
employees or former employees of the external auditor.
Information on fees paid in respect of audit and non-audit services, along with details of non-audit services
provided during the year are set out in Note 16 of the Consolidated Financial Statements.
In accordance with the provisions of the European Directive on statutory audits and following a transparent and
competitive tender process in 2017, the AC recommended to the Board the appointment of the audit firm of
PricewaterhouseCoopers (‘PwC’) for accounting periods commencing 1 January 2019. The AGM held on 14 May
2019 considered the continuation in office of PricewaterhouseCoopers as Auditors of the Company and
authorised the Board to fix their remuneration. The AC assessed the independence of the new statutory
auditors prior to the commencement of the audit period and continues to assess their independence on a six-
monthly basis. The AC closely monitored the transition period prior to the audit rotation whereby PwC
shadowed EY during EY’s 2018 audit. The audit firm rotation transition period was closely monitored by the AC
and discussions with both statutory firms took place up to the completion of the 2018 audit engagement work.
The lead partner for the audit engagement is Mr. Kevin Egan.
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5.
5.3
Board Committees (continued)
Audit Committee (continued)
5.3.2 Arrangements relating to the external auditors (continued)
The effectiveness of the external audit process was also assessed using AQIs and discussed with both the
Internal Audit and the Executive Director Finance.
5.4
Risk Committee
The RC as at 31 December 2019 comprised of four independent non-executive directors. The Board considers
that the RC, as a whole, possesses adequate knowledge, skills and expertise to fully understand and monitor
the risk strategy and the risk appetite of the Group.
Biographical details, including each member’s background, experience and independence status, are set out in
section 4 of this report.
The Committee held 13 meetings during 2019. The chairman and members of the Committee together with
their attendance at meetings are shown below.
Member attendance in 2019:
RC meetings* in 2019
Arne Berggren (Chairman)
Maksim Goldman
Ioannis Zographakis
Paula Hadjisotiriou
12/13
13/13
12/13
11/13
* The number of committee meetings at BOC PCL level were 13 during 2019. The attendance of these meetings can be found
on page 335.
To ensure coordination with the work of the AC, Mr. Zographakis is the chairman of the AC while Messrs
Berggren and Hadjisotiriou are members of the AC. Mr. Goldman is also a member of the NCGC. Such common
membership facilitates effective governance across all finance and risk issues. Agendas can be aligned and
overlap of responsibilities can be avoided. There are regular joint meetings of the AC and RC to ensure there
are no gaps in the oversight of internal controls and that any areas of significant overlap are appropriately
addressed.
The main purpose of the Committee is to review, on behalf of the Board, the aggregate risk profile of the
Group, including performance against risk appetite for all risk types and to ensure that both the risk profile and
risk appetite remain appropriate. Specifically, it:
• Advises the Board on risk appetite and alignment with strategy;
• Monitors the effectiveness of the Group’s risk management and internal control systems except from
financial reporting and compliance internal control systems;
• Monitors the Group’s risk appetite and risk profile against key performance/risk indicators as set out in the
•
•
Group’s Risk Appetite Statement;
Identifies the potential impact of key issues and themes that may impact the risk profile of the Group;
Ensures that the Group’s overall risk profile and risk appetite remain appropriate given the external
environment, any key issues and themes impacting the Group and the internal control environment;
• Seeks to identify and assess future potential risks which, by virtue of their uncertainty, of low probability
and unfamiliarity may not have been factored adequately into review by other Board committees;
• Advises the Board on alignment of remuneration with risk appetite (through advice to the Group HRRC);
and
• Advises the Board on risks associated with proposed strategic acquisitions and disposals.
The Bank, like all other financial institutions, is exposed to risks, the most significant of which are credit risk,
liquidity and funding risk, market risk, operational risk and property price risk. The Group monitors and
manages these risks through various control mechanisms and reviews the mitigating actions proposed by
management.
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5.
5.4
Board Committees (continued)
Risk Committee (continued)
At each meeting, the RC reviews the risk report which identifies key issues and includes a view of the Group’s
risk appetite statement, as well as top and emerging risks. The Committee provides challenge and review to the
Group’s regulatory submissions relating to capital management and liquidity adequacy assessments.
To ensure consistency of scope and approach by subsidiary company committees, the RC has established core
terms of reference to guide subsidiary companies when adopting terms of reference for the non-executive risk
committees. The Committee’s endorsement is required for any proposed material changes to subsidiary
company risk committee terms of reference and for appointments to such committees.
Detailed information relating to Group Risk Management is set out in Notes 46 to 49 of the Consolidated
Financial Statements and the Additional Risk and Capital Management Disclosures section of the 2019 Annual
Financial Report.
Key areas of focus for the Committee during the year were to set strategies and ensure compliance with
reference to non-performing exposures management, review risk policies where necessary to comply with the
changing regulatory environment and better support business needs. The Committee also reviewed and
challenged the approach and the assumptions of the ICAAP and ILAAP. A more granular approach to legal risk
in terms of ICAAP was requested and reviewed.
The Committee identified the current and potential impact of key issues and themes on the Group’s risk profile
and performed deep dive discussions in order to better understand and provide guidance to the management.
Deep dive discussions concentrated on the new lending processes as well as the Information Security Operating
Model. The Integrated Risk Identification Framework was discussed at length. Further the Committee discussed
and approved or recommended for approval a large number of restructurings and contractual or non-
contractual write-offs.
The RC discussed and approved the RC calendar for 2019 and undertook the following key activities:
Matters considered and action taken by the RC in 2019
Risk Strategy
and
Management
• Recommendation of the Risk Appetite Statement
and approval of the Group Risk Framework and
Policy;
• Approval of risk-related limits;
• Review of alignment of risk appetite and Group
strategy;
• Review of monthly reports
from the CRO
including a risk map;
• The strategy and planning to comply with MREL
by the end of 2022 was discussed.
• A presentation in shipping business and a
discussion on risks and opportunities took place.
• An integrated Risk identification framework was
presented and discussed at the committee
• Review of Shipping Loans;
• Loan
syndication
strategy
to
facilitate
Operational Risk
diversification of risk;
• Capital Plan and MREL Funding Plan;
• Charter and Strategy of Risk Management
Division.
• Approval of
Framework
Integrated Risk
Identification
• Approval of the operational risk framework;
• Review of IT risk and cybercrime and model risk;
• Consideration of business continuity, information
security, cybersecurity etc;
• NPE curability;
• Significant risk transfer methodology.
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5.
5.4
Board Committees (continued)
Risk Committee (continued)
Matters considered and action taken by the RC in 2019 (continued)
Credit Risk
• Review of new lending in the period 2015-2018;
• Approval of the non-performing loans strategy
Market /
Liquidity Risk
Other Risks
and operating plan;
• Recommendation for approval of the Group
Credit Policy;
• Review of the Group Country Risk Policy and
limits;
• Approval/recommendation of a large number of
restructurings;
• Credit monitoring of healthy portfolio.
• Recommendation of the Group Market Risk Policy
and review of controls on discretionary risk and
stress testing;
• Recommendation of the Group Funding and
Liquidity Policy and management strategy
including the Contingency Funding Plan and the
Group Liquidity Stress Testing Position;
• Approval of the Liquidity Adequacy Statement;
• Monitor the activities and decisions of ALCO
through a review of its minutes;
• Liquidity and deposits update.
• Review of top and emerging risks;
• Information Security Operating Model;
• Review of Reputational Risk;
• Review of regulatory communication;
• Review of other risk related policies;
• Approval of the Capital Adequacy Statement;
• Review and approval of the Recovery Plan;
• CRO appointment;
• REMU and RRD progress;
• Property exposure analysis;
• Political instability in Lebanon;
• Cloud Risk Assessment;
• Enhancement of the role of the RC.
• Discussed
the downward
in non-
performing exposure inflows and whether this is
sustainable
trend
• External service providers were asked to review
the new
to provide
lending processes
independent view as to soundness and quality
lending. Findings and
of
recommendations were discussed.
• Provisioning reviewed jointly with AC.
type of
this
• The triggers and scenarios for appropriate
stress tests and Reverse stress tests were
discussed.
• Sensitivity analysis on Liquidity risk.
• Business Continuity Plan (BCP) testing.
• External review was carried out on the InfoSec
and
Operating
Model
recommendations were discussed.
findings
and
• The appointment of the new CRO was discussed
following the re-organisation of the operational
structure.
• The use of the Yammer tool was tested to
satisfy the need for two-way communication
internally and a pilot group was set up. The RC
requested reporting on use and findings of the
pilot run.
• The Committee discussed how its role can be
reinforced to embed a stronger review and a
pro-active challenging role.
Governance
• Review of the terms of reference of the RC;
• Review of the effectiveness of the Committee;
• Appraisal of the Chief Risk Officer and the
• The committee discussed how the Key Risk
Matrix is calculated and how it is linked to the
Capital Plan.
Information Security Manager;
• Review of the reports of material subsidiaries.
Data Risk
• Laptops and USBs are encrypted;
• Discussion of the data leakage prevention system
adopted in 2019.
• The strategy the Bank has followed and the
process in place for monitoring data leakage
was discussed.
Regulatory
communication
• Emphasis on quality reporting to the ECB;
• Follow up of SREP findings and mitigating
actions.
• Regulatory activity is expected to increase. RC
reiterated
the
regulators should be enhanced and interaction
be more proactive to anticipate and meet
regulatory expectations.
communication with
that
The chairman of the Committee reported to the Board after each meeting to ensure all directors were fully
informed of the Committee’s activities.
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5.
5.5
Board Committees (continued)
Technology Committee
The Committee held 7 meetings during 2019 at BOC PCL level. The chairperson and members of the Committee
together with their attendance at meetings are shown below.
Member attendance in 2019:
TC meetings in 2019
Lyn Grobler (Chairperson)
Anat Bar-Gera
Michael Heger
Ioannis Zographakis
7/7
7/7
7/7
7/7
The purpose of the TC is to assist the Board of Directors in fulfilling its oversight responsibilities with respect to
the overall role of technology in executing the business strategy of the Group including, but not limited to,
major technology investment, technology strategy, operational performance, and technology trends that may
affect the Group’s client portfolio and/or affairs in general.
The Committee has delegated authority by the Board of Directors and is responsible to:
• Review and approve the Group’s technology planning and strategy within the overall strategy framework
approved by the Board;
• Review and approve significant technology investments and expenditures as per the Committee and limit
structures approved by the Board, provided they do not fall within the limits that are reserved for the
Board;
• Monitor and evaluate existing and future trends in technology that may affect the Group’s strategic plans,
including monitoring of overall industry trends; and
• Receive reports from management concerning the Group’s technology operations including, among other
things, software development project performance, technical operations performance, technology
architecture and significant technology investments and approve related policies.
Notwithstanding the above, responsibility for the oversight of risks associated with technology, including risk
assessment and risk management, remains with the RC.
The Committee monitored the progress of the digitisation transformation of the Bank and reviewed Key
Performance Indicators focused on measuring movement from branches to digital channels. Adoption rate
stood at 70% towards year end. The projects running in the IT function were monitored to ensure they stayed
within reasonable deadlines.
External consultants were engaged to assess the mobile application of the Bank. The Committee was informed
on connectivity with UK banks as part of the Open Banking Initiative and the introduction of Apple Pay
improved customers’ perception of the Bank’s leadership in digitisation. Finally, the TC followed-up on the ECB
on-site inspection of IT function with focus on Disaster Recovery and Business Continuity.
5.6
Ethics, Conduct and Culture Committee
The Committee was established in November 2019 and held 1 meeting during 2019 at BOC PCL level. The
chairman and members of the Committee together with their attendance at meetings are shown below.
Member attendance in 2019:
ECCC meetings in 2019
Ioannis Zographakis (Chairman)
Lyn Grobler
Maria Philippou
Panicos Nicolaou
1/1
1/1
1/1
1/1
361
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Annual Financial Report 2019
5.
Board Committees (continued)
5.6
Ethics, Conduct and Culture Committee (continued)
The role of the Committee is:
•
•
•
•
To support the Board in promoting its collective vision of values, conduct and culture;
To oversee management’s efforts to foster a culture of ethics and appropriate conduct within the Group;
To oversee the way the Group conducts business focusing on developing a customer-centric culture with an
eye on profitability in all its operations; and
To oversee the Group’s conduct in relation to its corporate and societal obligations, including setting the
direction and policies for the Group’s approach to customer and regulatory matters.
Its role is one of oversight, recognising that management is responsible for continuously reinforcing and
championing the Group’s sound ethics, responsible conduct and principled culture throughout the organisation.
The modus operandi of the Committee was discussed and how to align the culture of the Group with its strategy
concentrating on risk, control and customer centric culture.
6.
Remuneration Policy Report
The Remuneration Policy Report was prepared by the Board following a proposal by the HRRC in accordance
with Annex 1 of the CSE Code and the UK Code. It is presented in the 2019 Annual Financial Report of the
Group, after the Corporate Governance Report. Information on the remuneration of the members of the Board
for the year 2019 is disclosed in Note 51 of the Consolidated Financial Statements of the Group, as well as in
the Remuneration Policy Report.
7.
Shareholder Relations
Mrs Annita Pavlou, Manager Investor Relations Department, has been appointed by the Board as Investor
Relations Officer, responsible for the communication between shareholders and the Group since 30 August
2016. Information concerning the Group is provided to shareholders, prospective investors, brokers and
analysts in a prompt and unbiased manner free of charge.
The Group uses its website (www.bankofcyprus.com) to provide shareholders and potential investors with
recent and relevant financial information, including the annual, the mid-year financial report and quarterly
results, announcements and presentations. The Investor Relations section of the Group’s website is updated
with all announcements published on the LSE and CSE as these are made. It also contains contact details for
the Investor Relations Department.
Directors receive an investor relations update from management at all scheduled Board meetings. This update
typically includes market updates, share price and valuation analysis, updates on analysts’ reports and share
register analysis.
One of the responsibilities of the Chairman of the Board is to ensure that the views, issues and concerns of
shareholders are effectively communicated to the Board and to ensure that directors develop an understanding
of the views of major investors. The Board considered the views of major shareholders on company strategy
and performance and assessed investor sentiment more broadly in conjunction with the Group’s corporate
brokers. The SID, Ioannis Zographakis, is available to shareholders if they have concerns that are not resolved
through the normal communication channels.
All shareholders of the Company are treated on an equal basis. There are no shareholders with special control
rights. Shareholders are promptly and accurately informed of any material changes regarding the Group,
including its financial condition, financial results, ownership and governance.
Under the Irish Companies Act 2014, one or more members holding at least 3% of the issued share capital of
the Company, representing at least 3% of the total voting rights of all the members who have a right to vote at
the meeting to which the request for inclusion of the item relates, has the right to: (a) put an item on the
agenda of the AGM provided that the item has been accompanied by stated grounds justifying its inclusion or a
draft resolution to be adopted; and (b) to table a draft resolution for an item on the agenda of a general
meeting. Such a request must have been received by the Company at least 42 days prior to the relevant
meeting.
362
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Annual Financial Report 2019
7.
Shareholder Relations (continued)
Any change or addition to the Articles of Association of the Company is only valid if approved by special
resolution at a meeting of the shareholders.
Major shareholders do not have different voting rights from those of other shareholders. As at 31 December
2019, the Company has been advised of the following notifiable interest in the share capital of the Company:
•
•
•
•
•
•
•
Lamesa Investments Limited
Caius Capital
European Bank for Reconstruction and Development
Cyprus Popular Bank Public Co Ltd
Senvest Management LLC
Eaton Vance Management
TD Asset Management
9.27%
6.24%*
5.02%
4.81%
3.67%
3.58%
3.51%
* Financial Instruments with similar economic effect according to Regulation 17(1)(b) of the Transparency (Directive
2004/1109/EC) Regulations 2007 of Ireland as amended.
In accordance with the Company’s Constitution, at the Company’s AGM in 2019:
•
•
•
The Directors were authorised to allot shares up to an aggregate of 147,245,978 ordinary shares of €0.10
each and a further 147,245,978 ordinary shares of €0.10 each in the case of a pre-emptive issue (as
described in the notice for that general meeting). The Directors were authorised to issue and allot those
shares as if the pre-emption provisions set out in section 1022 of the Companies Act 2014 are dis-applied
in respect of:
• (i) in the case of a pre-emptive issue, the aggregate number of ordinary shares of €0.10 each
authorised to be issued pursuant to such issue (as described in the notice for that general meeting);
and (ii) 22,309,997 ordinary shares of €0.10 otherwise that (i); and
• a further 22,309,997 ordinary shares of €0.10 each for specified transactions.
the Directors were also authorised to issue, allot, grant options over or otherwise dispose of Additional
Tier 1 (“AT1 ECNs”) and ordinary shares pursuant to the conversion or exchange of AT1 ECNS provided
that this be limited to the issue, allotment, grant of options over or other disposal of ordinary shares of
an aggregate nominal amount €6,662,999 and of AT1 ECNs convertible or exchangeable into ordinary
shares up to such maximum aggregate nominal amount, and the pre-emption provisions set out in
section 1022 of the Companies Act 2014 in respect of this authority were dis-applied.
The Directors were also authorised to make purchases of up to 44,619,993 ordinary shares. Such
purchases may be made only at price levels which the Directors considered to be in the best interests of
the shareholders generally, after taking into account the Company’s overall financial position. In addition,
the minimum price which may be paid for such shares shall not be less than the nominal value of the
shares and the maximum price will be the higher of 105% of the average market price of such shares
and the amount stipulated by Article 5(1) of the EU Market Abuse (Buyback and Stabilisation) Regulation.
The authority conferred in each of the above resolutions expires on the earlier of close of business on the date
of the AGM of the Company to be held in 2020 or on 13 August 2020.
The AGM was held on 14 May 2019 at the Company’s headquarters. The Chairman of the Board (who is also the
Chairman of the NCGC) and the chairpersons of the committees of the Board were present to hear the views of
the shareholders and answer questions. As is the practice, all directors of the Board at the time of the AGM
attended the AGM. At the 2019 AGM, separate resolutions were proposed on each substantially separate issue
and voting was conducted by poll. To facilitate shareholder participation, electronic voting is available. Votes
are taken by way of a poll to include all shareholder votes cast.
The results of every AGM of the Company including details of votes cast for and against on each resolution are
posted on the Group’s website (www.bankofcyprus.com) and released to the London and Cyprus Stock
Exchanges.
363
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Annual Corporate Governance Report 2019
Annual Financial Report 2019
7.
Shareholder Relations (continued)
There was one resolution for which a negative vote of slightly more than 20% was cast and the Chairman of
Board mentioned that ‘The Company notes the votes cast in respect of resolution 4(a) which relates to the re-
election of Mr. Maksim Goldman. While Mr. Goldman’s re-election has been approved, the Company will be
engaging with shareholders to understand their views as part of its ongoing programme of engagement’.
Several meetings were held between the SID and major investors following the AGM during which the position
of the Group was explained and views from shareholders were obtained. The result of these meetings is
presented on page 327 of this report.
The Board values the AGM as a key opportunity to meet shareholders. The AGM of the Company in 2019 is
scheduled to be held on 26 May 2020. The whole Board is expected to attend and will be available to answer
shareholders’ questions.
364
BANK OF CYPRUS HOLDINGS GROUP
Annual Corporate Governance Report 2019
Remuneration Policy Report for the year 2019
Annual Financial Report 2019
Remuneration Policy Report for the year 2019
1.
Introduction
In accordance with the provisions of the CSE Code published by the CSE (5th Edition (Revised) January 2019) and
in particular Annex 1 of the CSE Code, the HRRC prepares the Annual Board of Directors’ Remuneration Policy
Report which is ratified by the Board and submitted to the shareholders’ AGM as part of the Annual Report of the
Group. The Board of Directors Remuneration Policy Report for the year 2019 was ratified by the Board on 28 April
2020.
The Bank of Cyprus Group’s objective to attract, develop, motivate and retain high value professionals is
considered fundamental in achieving the goals and objectives of the Group and ensuring that the right people are
in the right roles whilst managing the Group’s remuneration strategy and policies in a manner aligned with the
interests of the Group’s shareholders.
2.
Human Resources and Remuneration Committee
The Committee’s primary role is to ensure that staff members contribute to sustainable growth by staying ahead
of challenges and opportunities.
The Group aims to review its remuneration policies and practices on an ongoing basis and amend them where
necessary, in order to ensure that they are consistent with and promote sound and effective risk management.
Every year, the Committee proposes to the Board the Annual Remuneration Policy Report as part of the Annual
Report of the Group, which is submitted to the shareholders’ AGM. The Committee also reviews the related party
transactions note (Note 51) of the Consolidated Financial Statements of the Group and the Remuneration Policy
Report itself.
2.1
Terms of Reference of the Human Resources and Remuneration Committee
The role of the Committee is described in detail in section 5.2. of the Annual Corporate Governance Report on
page 348. In respect of remuneration the HRRC undertakes the following:
•
•
•
To propose adequate remuneration considered necessary to attract and retain high value-adding professionals;
To consider the remuneration arrangements of the executive directors of the Group, senior management and
the Group Remuneration policy bearing in mind the European Banking Authority (‘EBA’) Guidelines on
remuneration policies and practices, the CBC Governance Directive, the CSE Code and the UK Code; and
To review the implementation and effectiveness of the Remuneration Policy and ensure this is in compliance
with the Remuneration Framework of the CBC Governance Directive.
The Committee ensures that internal control functions are involved in the design, review and implementation of
the Remuneration Policy and that staff members who are involved in the design, review and implementation of the
Remuneration Policy and practices have relevant expertise and are capable of forming independent judgement on
the suitability of the Remuneration Policy and practices, including their suitability for risk management.
The Group’s aim is to align its Remuneration Policy and human resources practices, with its long term objectives,
its risk tolerance, capital and liquidity availability, the interests of its shareholders and ensure that they are
consistent with and promote sound and effective management of risk and do not encourage excessive risk-taking.
In developing its Remuneration Policy, the Group takes into account the provisions that are included in the CSE
Code, the CBC Governance Directive which came into effect in August 2014 and incorporated the requirements for
Remuneration Policies included in the European Capital Requirements Directive (‘CRD IV’) and the EBA Guidelines
on sound remuneration policies issued in December 2015, as well as regulatory restrictions currently pertinent to
the banking sector and the Group in particular.
The Committee reviews and approves the content of any resolutions submitted for approval at the AGM of the
shareholders, which are prepared by the Company Secretary in cooperation with the Group’s legal advisers in
accordance with Annex 3 of the Code which may concern possible plans for the compensation of members of the
Board in the form of shares, share warrants or share options.
365
BANK OF CYPRUS GROUP
Annual Corporate Governance Report 2019
Remuneration Report for the year 2019
Annual Financial Report 2019
Remuneration Policy Report for the year 2019 (continued)
2.
2.1
Human Resources and Remuneration Committee (continued)
Terms of Reference of the Human Resources and Remuneration Committee (continued)
Senior Management
The Committee reviews and approves remuneration packages of Group divisional directors, senior managers and
subsidiaries’ general managers, including salary, pension policy, option plans, and other types of compensation,
recommended by the CEO or by the chairmen of the Risk and Audit Committees (in the case of the heads of
internal control functions) in consultation with the CEO and HRD.
The Committee also reviews the performance appraisals of Group divisional directors (except heads of internal
control functions). Senior managers and subsidiaries’ general managers’ appraisals are performed by the CEO.
The Committee reviews and approves appointments, transfers and dismissals of Group divisional directors, senior
managers and subsidiaries’ general managers (except heads of internal control functions), recommended by the
CEO, and ensures that all contractual obligations are adhered to.
The chairman of the Committee is available to shareholders in the AGM to answer any questions regarding the
Remuneration Policy of the Group. Workforce engagement is described in section 5.2 of the Annual Corporate
Governance Report.
3.
3.1
Governance of Group Remuneration Policy
Principles of the CSE Code of Corporate Governance
Companies should implement official and transparent procedures for developing policies concerning the
remuneration of executive directors and fixing the remuneration of each Board member separately.
The level of remuneration should be sufficient to attract and retain talent required for the efficient operation of the
Company. Part of the remuneration of executive directors should be determined in such a way as to link rewards
to corporate and individual performance. Resolution, or any other authority allowing, variable pay should be
linked to performance.
The Company’s Corporate Governance Report includes a statement of the Remuneration Report and relevant
criteria, as well as the total remuneration of the executive and non-executive members of the Board.
3.2
EBA Guidelines
The EBA Guidelines aim to ensure that an institution’s remuneration policies and practices are consistent with and
promote sound and effective risk management. The Group seeks to ensure it implements remuneration policies
which are in compliance with regulatory guidelines, while at the same time operating under legal and regulatory
constraints.
In accordance with EBA guidelines for identification of those employees whose professional activities are deemed
to have a material impact on the Group’s risk profile, the Group maintains a list of these employees known as
Material Risk Takers which is reviewed and approved by the Board annually.
4.
4.1
Remuneration
Remuneration of Non-executive Directors
The remuneration of non-executive directors is not linked to the profitability of the Group. It is related to the
responsibilities and time devoted for Board meetings and decision-making for the governance of the Group, and
for their participation in the committees of the Board and any participation in the boards of Group subsidiary
companies. The shareholders’ AGM held on 14 May 2019 approved the same levels of remuneration as those
approved by the shareholders’ AGM on 28 August 2018.
The remuneration of non-executive directors is determined and approved by the Board. Neither the Chairman nor
any director participates in decisions relating to their own personal remuneration. The Committee proposes fees
payable to the Chairman and the Vice Chairman, while the Chairman makes recommendations for the
remuneration of the non-executive directors to the Board for approval by the AGM, considering the following
factors:
366
BANK OF CYPRUS GROUP
Annual Corporate Governance Report 2019
Remuneration Report for the year 2019
Annual Financial Report 2019
Remuneration Policy Report for the year 2019 (continued)
4.
4.1
•
•
•
•
•
•
Remuneration (continued)
Remuneration of Non-executive Directors (continued)
Τhe time allocated and effort exerted by non-executive directors to meetings and decision-making in the
management of the Group;
Τhe undertaken level of risk;
Τhe increased compliance and reporting requirements;
Τhe requirement not to link remuneration of non-executive directors to the profitability of the Group;
Τhe requirement that non-executive directors do not participate in the pension schemes of the Group;
Τhe requirement not to include share options as remuneration of non-executive directors.
Neither the Chairman nor any director participates in decisions relating to their own personal remuneration.
The Chairman receives annual fees of €120,000, the Vice Chairman of €80,000, the SID of €70,000 and the
members of €45,000. Additionally, the Group reimburses all directors for expenses incurred in the course of their
duties.
The chairmen of the Audit and Risk Committees receive annual fees of €45,000 each and members receive
€25,000. The chairmen of the HRRC, the Nominations and Corporate Governance Committee (NCGC) and the
Technology Committee (TC) receive annual fees of €30,000 each. Each member of the HRRC and the TC receives
€20,000 per annum, while each member of the NCGC receives €15,000 per annum.
4.2
Remuneration and Other Benefits of Executive Directors
The Committee reviews and approves the remuneration packages vis-a-vis their performance. In line with the UK
Code the following factors are also considered: clarity, simplicity, risk, predictability and proportionality and finally
alignment to culture. The CEO and the First Deputy CEO (FDCEO’) are employees of BOC PCL.
Contracts of Employment
The remuneration (salary and bonus) of executive directors is set out in their employment contracts which have a
maximum duration of five years, unless any of the executive directors is an appointed member of the senior
management team, in which case the terms of employment are based on the provisions of the collective
agreement in place, excluding the CEO.
The employment contract of the CEO was extended to 31 December 2020. On 3 March 2019 the CEO John
Hourican informed the Board of his decision to leave the Group in September 2019. He was succeeded to the role
of CEO by Panicos Nicolaou.
The Group at present does not grant guaranteed variable remuneration or discretionary pension payments.
Service Termination Agreements
The employment contract of Mr. P. Nicolaou includes a clause for termination, by service of six months’ notice to
that effect by either the executive director or BOC PCL, without cause and BOC PCL also maintains the right to pay
to the executive director six month’s salary in lieu of notice for immediate termination. There is an initial locked-in
period of three years during which no such notice may be served either by BOC PCL or the executive director
unless there is a change of control of BOC PCL as this is defined in the service agreement whereupon the
executive director may serve the notice and is further entitled to compensation as this is determined in the service
agreement.
The terms of employment of Dr Patsalides, FDCEO and executive member of the Board, are mainly based on the
provisions of the collective agreement in place, which provides for notice or compensation by the BOC PCL based
on years of service and for a four month prior written notice by the executive director in the event of a voluntary
resignation.
Bonus
No bonus was recommended by the Company’s Board for executive directors for 2019.
367
BANK OF CYPRUS GROUP
Annual Corporate Governance Report 2019
Remuneration Report for the year 2019
Annual Financial Report 2019
Remuneration Policy Report for the year 2019 (continued)
4.
4.2
Remuneration(continued)
Remuneration and Other Benefits of Executive Directors (continued)
Retirement Benefit Schemes
The CEO participates in a defined contribution plan largely on the same basis as other employees. The FDCEO
participates in a defined contribution plan on the same basis as other employees.
The main characteristics of the retirement benefit schemes are presented in Note 15 of the Consolidated Financial
Statements for the year ended 2019.
Share Options
No share options were granted to the executive directors during 2019.
Other Benefits
Other benefits provided to the executive directors include other benefits provided to staff, medical fund
contributions and life insurance. John Hourican, CEO until 30 August 2019, had been provided with other benefits
related to his relocation and residence in Cyprus. The relevant costs for the executive directors are disclosed in
Note 51 of the Consolidated Financial Statements for the year ended 2019.
John Hourican, received and retained fees relative to his appointment as a non-executive on the Board of Atradius
N.V. of €50,000 per annum.
368
BANK OF CYPRUS GROUP
Annual Corporate Governance Report 2019
Remuneration Report for the year 2019
Annual Financial Report 2019
5.
Information Regarding the Remuneration of Directors for Year 2019
Remuneration
for
participation in
the Board of
Directors and
its Committees
€
Total
remuneration
for services
€
Remuneration
and benefits
from other
Group
companies
€
Remuneration
in the form of
profit and/or
bonus
distribution
€
Assessment of
the value of
benefits that
are considered
to form
remuneration
€
Total
remuneration
and benefits
€
Annual
contribution
to
retirement
benefits
€
Remuneration
for services*
€
Executive Directors
John P. Hourican
1,535,861
Panicos Nicolaou
Christodoulos
Patsalides
Non-Executive
Directors
Josef Ackermann
Takis Arapoglou
Maksim Goldman
Arne Berggren
Anat Bar-Gera
Lyn Grobler
Paula Hadjisotiriou
Michael Heger
Maria Philippou
Michael Spanos
Ioannis Zographakis
177,240
245,621
-
-
-
-
-
-
-
-
1,535,861
177,240
245,621
56,661
84.362
122,220
117,128
86,573
91,665
96,758
56,661
84,362
122,220
117,128
86,573
91,665
96,758
121,654
121,654
66,203
5,834
66,203
5,834
158,999
158,999
1,958,722
1,008,057
2,966,779
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
43,280
1,579,141
116,755
177,240
15,000
6,292
251,913
20,299
-
-
-
-
-
-
-
56,661
84,362
122,220
117,128
86,573
91,665
96,758
121,654
66,203
5,834
158,999
-
-
-
-
-
-
-
49,572
3,016,351
152,054
* Includes employers’ contributions excluding contributions to retirement benefits.
28 April 2020
369
Additional Risk and Capital Management
Disclosures
2019
370
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2019
Additional Risk and Capital Management Disclosures
(Unaudited)
This report includes additional risk and capital management disclosures.
1.
Credit risk
According to the European Banking Authority’s (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 borrower is assessed as unlikely to pay its credit obligations in full without the realisation of the
collateral, regardless of the existence of any past due amount or of the number of days past due.
Defaulted or impaired exposures as per the approach provided in the Capital Requirement Regulation
(CRR), which would also trigger a default under specific credit adjustment, distress restructuring and
obligor bankruptcy.
Material exposures as set by the Central Bank of Cyprus (CBC), which are more than 90 days past
due.
Performing forborne exposures under probation for which additional forbearance measures are
extended.
Performing forborne exposures under probation that present more than 30 days past due within the
probation period.
(ii)
(iii)
(iv)
(v)
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: Total arrears/excesses amount greater than €100
- Exposures other than retail: Total arrears/excesses are greater than €500
and the amount in arrears/excess in relation to the customer’s total exposure is at least 1%.
The extension of forbearance measures does not lead to the recognition of impairment or default.
NPEs may cease to be considered as non-performing only when all of the following conditions are met:
(i)
(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 non-insignificant amount of capital (different
capital thresholds exist according to the facility type).
The tables below disclose NPEs based on the definitions of the EBA standards.
371
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
1.
Credit risk (continued)
The tables below present the analysis of loans and advances to customers in accordance with the EBA standards.
31 December 2019
Loans and advances to customers
General governments
Other financial corporations
Non-financial corporations
Of which: Small and Medium sized
Enterprises2
Of which: Commercial real estate2
Non-financial corporations by sector
Construction
Wholesale and retail trade
Accommodation and food service activities
Real estate activities
Professional, scientific and technical
activities
Other sectors
Households
Of which: Residential mortgage loans2
Of which: Credit for consumption2
Loans and advances to customers
classified as held for sale
Total on-balance sheet
Gross loans and advances to customers
Accumulated impairment, accumulated negative changes in fair
value due to credit risk and provisions
Of which exposures with
forbearance measures
Group gross
customer
loans and
advances1
Of which
NPEs
Total exposures with
forbearance measures
Of which
NPEs
€000
€000
€000
€000
Accumulated
impairment,
accumulated
negative
changes in fair
value due to
credit risk and
provisions
€000
Of which exposures with
forbearance measures
Of which
NPEs
Total exposures
with forbearance
measures
Of which
NPEs
€000
€000
€000
56,921
124,343
1
27,459
6,271,155
1,382,074
-
18,489
1,216,902
-
2,366
737,602
3,389
17,542
753,848
-
14,843
686,025
4,662,994
1,073,846
786,069
556,483
636,820
576,635
-
1,466
348,577
271,110
-
462
337,290
261,229
4,270,225
858,998
767,008
480,382
457,622
402,751
219,952
211,902
823,276
1,294,815
1,055,448
1,266,772
265,879
371,613
50,116
296,406
425,134
90,832
1,405,710
307,228
6,192,505
4,808,202
770,552
2,285,998
1,811,698
280,584
144,336
185,720
44,823
153,802
53,916
171,251
1,148,304
842,389
158,044
1,577,249
1,291,083
177,047
1,245,937
1,021,084
151,313
1,080,696
783,146
156,642
526,423
401,561
71,357
513,772
392,046
70,065
12,644,924
3,695,532
2,812,640
1,985,905
1,923,083
1,781,564
876,466
851,524
184,964
183,974
45,191
45,028
159,035
158,998
37,438
37,429
12,829,888
3,879,506
2,857,831
2,030,933
2,082,118
1,940,562
913,904
888,953
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.
372
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
1.
Credit risk (continued)
31 December 2018
Loans and advances to customers
General governments
Other financial corporations
Non-financial corporations
Of which: Small and Medium sized
Enterprises4
Of which: Commercial real estate4
Non-financial corporations by
sector
Construction
Wholesale and retail trade
Accommodation and food service
activities
Real estate activities
Manufacturing
Other sectors
Households
Of which: Residential mortgage loans4
Of which: Credit for consumption4
Loans and advances to customers
classified as held for sale
Total on-balance sheet
Gross loans and advances to customers
Accumulated impairment, accumulated negative changes in fair
value due to credit risk and provisions
Of which exposures with
forbearance measures
Group gross
customer
loans and
advances3
Of which
NPEs
Total exposures
with
forbearance
measures
Of which
NPEs
€000
€000
€000
€000
Accumulated
impairment,
accumulated
negative
changes in fair
value due to
credit risk and
provisions
€000
Of which exposures with
forbearance measures
Of which
NPEs
Total
exposures with
forbearance
measures
Of which
NPEs
€000
€000
€000
70,638
167,910
3
21,338
1,595
28,028
-
5,621
6,331,381
1,941,479
1,682,997
1,042,164
4,573,824
1,488,289
1,108,153
793,579
3,681
13,378
947,857
759,484
-
8,471
864,983
692,343
468
3,374
367,235
280,675
-
2,076
347,924
266,736
4,473,159
1,284,145
1,124,078
742,839
569,351
501,842
231,694
216,486
972,059
1,431,706
1,005,691
1,140,596
428,828
1,352,501
6,588,202
5,022,617
891,964
382,697
522,151
96,702
406,226
134,950
398,753
2,805,496
2,112,152
397,747
1,924,928
1,552,445
234,572
1,486,583
1,180,705
195,422
184,282
254,823
58,563
174,269
74,884
201,036
1,271,429
828,205
225,505
1,208,624
774,656
221,996
481,701
336,651
79,417
471,184
327,956
77,930
13,158,131
4,768,316
3,637,548
2,534,368
2,236,345
2,082,078
852,778
821,184
2,851,113
2,749,301
1,492,083
1,437,851
1,697,005
1,646,091
825,977
797,692
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.
373
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
2.
2.1
Liquidity risk and funding
Encumbered and unencumbered assets
Asset encumbrance arises from collateral pledged against secured funding and other collateralised obligations.
An asset is classified as encumbered if it has been pledged as collateral against secured funding and other
collateralised obligations and, as a result, is no longer available to the Bank of Cyprus Holdings Group (the
Group) for further collateral or liquidity requirements. The total encumbered assets of the Group amounted to
€2,850,429 thousand as at 31 December 2019 (31 December 2018: €3,384,455 thousand).
An asset is classified as unencumbered if it has not been pledged as collateral against secured funding and other
collateralised obligations. Unencumbered assets are further analysed into those that are available and can be
potentially pledged and those that are not readily available to be pledged. As at 31 December 2019, the Group
held €14,408,148 thousand (31 December 2018: €12,518,132 thousand) of unencumbered assets that can be
potentially pledged and can be used to support potential liquidity funding needs and €2,525,161 thousand (31
December 2018: €4,878,219 thousand) of unencumbered assets that are not readily available to be pledged for
funding requirements in their current form.
Loans and advances to customers indicated as encumbered as at 31 December 2019 and 31 December 2018 are
mainly used as collateral for funding from the ECB and the covered bond.
Loans and advances to customers include mortgage loans of a nominal amount €1,000 million as at 31 December
2019 (2018: €1,009 million) in Cyprus, pledged as collateral for the covered bond issued by Bank of Cyprus
Public Company Ltd (BOC PCL) in 2011 under its Covered Bond Programme. Furthermore, as at 31 December
2019 housing loans of a nominal amount €1,498 million (2018: €1,543 million) in Cyprus were pledged as
collateral to be available for obtaining funding from the ECB (Note 48 of the Consolidated Financial Statements
for the year ended 31 December 2019).
The table below presents an analysis of the Group’s encumbered and unencumbered assets and the extent to
which these assets are currently pledged for funding or other purposes. The carrying amount of such assets is
disclosed below:
31 December 2019
Cash and bank placements
Investments
Loans and advances to customers
Non-current assets held for sale
Property
Total on-balance sheet
31 December 2018
Cash and bank placements
Investments
Loans and advances to customers
Non-current assets held for sale
Property
Encumbered
Unencumbered
Pledged as
collateral
€000
Which can
potentially be
pledged
€000
Which are not
readily available
to be pledged
€000
Total
€000
5,380,923
1,905,830
10,721,841
90,437
222,961
2,537,031
-
4,774,845
1,633,571
6,271,879
515,641
49,298
1,912,931
-
26,217
26,217
-
2,850,429
1,727,853
14,408,148
21,074
2,525,161
1,748,927
19,783,738
118,627
737,587
2,528,241
-
-
4,326,166
742,152
5,708,960
638,230
34,952
2,684,585
5,083,023
1,514,691
10,921,786
-
1,470,038
1,470,038
1,740,854
50,414
1,791,268
Total on-balance sheet
3,384,455
12,518,132
4,878,219
20,780,806
374
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
2.
Liquidity risk and funding (continued)
2.1
Encumbered and unencumbered assets (continued)
Encumbered assets primarily consist of loans and advances to customers and investments in debt securities.
These are mainly pledged for the funding facilities of the Central Banks (ECB and CBC) (Note 48 of the
Consolidated Financial Statements for the year ended 31 December 2019) and for the covered bond.
Investments are mainly used as collateral for repurchase transactions with commercial banks as well as
supplementary assets for the covered bond (Note 48 of the Consolidated Financial Statements for the year ended
31 December 2019). Encumbered assets include cash and other liquid assets placed with banks as collateral
under ISDA/GMRA agreements which are not immediately available for use by the Group but are released once
the transactions are terminated. Cash is mainly used to cover collateral required for (i) derivatives and
repurchase transactions and (ii) trade finance transactions and guarantees issued. It is also used as part of the
supplementary assets for the covered bond and for other operational purposes.
BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the
Covered Bonds Directive of CBC. Under the Covered Bond Programme, BOC PCL has in issue covered bonds of
€650 million secured by residential mortgages originated in Cyprus. On 6 June 2018, the terms of the covered
bond have been amended to extend the maturity date to 12 December 2021, and set the interest rate to 3
months Euribor plus 2.50% on a quarterly basis. The covered bonds are traded on the Luxemburg Bourse. The
covered bonds have a conditional Pass-Through structure. All the bonds are held by BOC PCL. The covered bonds
are eligible collateral for the Eurosystem credit operations and are placed as collateral for accessing funding from
the ECB.
Unencumbered assets which can potentially be pledged include Cyprus loans and advances which are less than
90 days past due. Balances with central banks are reported as unencumbered and can be pledged, to the extent
that there is excess available over the minimum reserve requirement. The minimum reserve requirement is
reported as unencumbered not readily available to be pledged.
Unencumbered assets that are not readily available to be pledged primarily consist of loans and advances which
are prohibited by contract or law to be encumbered or which are over 90 days past due or for which there are
pending litigations or other legal actions against the customer, a proportion of which would be suitable for use in
secured funding structures but are conservatively classified as not readily available for collateral. Properties
whose legal title has not been transferred in the name of the Company or a subsidiary are not considered to be
readily available as collateral.
Insurance assets held by Group insurance subsidiaries are not included in the table above or below as they are
primarily due to the insurance policyholders.
375
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
2.
Liquidity risk and funding (continued)
2.1
Encumbered and unencumbered assets (continued)
The carrying and fair value of the encumbered and unencumbered investments of the Group as at 31 December
2019 and 31 December 2018 are as follows:
31 December 2019
Carrying
value of
encumbered
investments
Fair value of
encumbered
investments
Carrying value of
unencumbered
investments
Fair value of
unencumbered
investments
€000
€000
€000
€000
Equity securities
Debt securities
-
-
167,823
167,823
222,961
223,362
1,515,046
1,531,336
Total investments
222,961
223,362
1,682,869
1,699,159
31 December 2018
Equity securities
Debt securities
-
-
737,587
739,222
149,948
627,156
149,948
633,773
Total investments
737,587
739,222
777,104
783,721
2.2
Liquidity regulation
The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR) under CRD IV/CRR (as
supplemented by the Commission Delegated Regulation (EU) No 2015/61 which prescribes the criteria for liquid
assets and methods of calculation as from 1 October 2015 and the Commission Implementing Regulation (EU) No
2016/322 which prescribes supervisory reporting requirements and applied from 10 September 2016). It also
monitors its position against the Net Stable Funding Ratio (NSFR) as proposed under Basel III. The LCR is
designed to promote short-term resilience of a Group’s liquidity risk profile by ensuring that it has sufficient high
quality liquid resources to survive an acute stress scenario lasting for 30 days. The NSFR has been developed to
promote a sustainable maturity structure of assets and liabilities.
In October 2014, the Basel Committee on Banking Supervision proposed the methodology for calculating the
NSFR. It is noted that the NSFR will become a regulatory indicator when Capital Requirements Regulation 2
(CRR2) is enforced with the limit set at 100%.
As at 31 December 2019 the Group was in compliance with all regulatory liquidity requirements. As at 31
December 2019 the LCR stood at 208% 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. As at 31
December 2019 the Group’s NSFR, on the basis of the Basel ΙΙΙ standards, was 127% (compared to 119% at 31
December 2018).
376
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
2.
2.3
Liquidity risk and funding (continued)
Liquidity reserves
The below table sets out the Group’s liquidity reserves:
Composition of the
liquidity reserves
31 December 2019
31 December 2018
Internal
Liquidity
reserves
Liquidity reserves as
per LCR Delegated
Reg (EU)
2015/61 LCR eligible
Level 2A
Level 1
Internal
Liquidity
reserves
Liquidity reserves as per
LCR Delegated Reg (EU)
2015/61 LCR eligible
Level 1
Level 2A
€000
€000
€000
€000
€000
€000
Cash and balances with
central banks
Nostro and placements
with banks
Liquid investments
4,898,360 4,898,361
147,086
-
-
-
4,447,511
4,447,511
281,383
-
-
-
1,214,197 1,115,196 124,763
881,091
929,380
93,165
Available ECB Buffer
1,116,249
-
-
108,374
-
-
Total
7,375,892 6,013,557 124,763
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.
The Liquidity Reserves are managed by Group Treasury.
Resulting from the outbreak of COVID-19, the ECB has announced a positive package of measures including that
the ECB will allow banks to temporarily operate below the LCR. In addition, the ECB decided on additional longer-
term refinancing operations (LTROs) through a full-spread fixed-rate auction equal to the average deposit facility
interest rate. In addition, the ECB announced that for the TLTRO III operation in June 2020, considerably more
favourable terms will be applied during the period from June 2020 to June 2021 to all TLTRO III operations
outstanding during that same time.
The Governing Council of the European Central Bank on 18 March 2020 decided to launch a new Pandemic
Emergency Purchase Programme (PEPP) for an amount of € 750 billion and purchases will be conducted until the
end of 2020. Additionally, it was decided to expand the range of eligible assets under the corporate sector
purchase programme (CSPP) to non-financial commercial paper and to ease the collateral standards by adjusting
the main risk parameters of the collateral framework.
377
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
3.
Other risks
3.1
Operational risk
Operational risk is defined as the risk of a direct or indirect impact loss resulting from inadequate or failed
internal processes, people and systems or external events. The Group includes in this definition compliance, legal
and reputational risk.
The Group recognises that the control of operational risk is directly related to effective and efficient management
practices and high standards of corporate governance. To that effect, the management of operational risk is
geared towards maintaining a strong internal control governance framework and managing operational risk
exposures through a consistent set of management processes that drive risk identification, assessment, control
and monitoring.
The main objectives of operational risk management within the Group are: (i) the development of operational
risk awareness and culture, (ii) the provision of adequate and timely information to the Group’s management at
all levels in relation to the operational risk profile at a company, unit and activity level, so as to facilitate decision
making for risk control activities, and (iii) the control of operational risk to ensure that operational losses do not
cause material damage to the Group’s franchise and that the impact on the Group’s profitability and corporate
objectives is contained.
Operational risks can arise from all business lines and from all activities carried out by the Group and are thus
diverse in nature. To enable effective management of all material operational risks, the operational risk
management framework adopted by the Group is based on the three lines of defence model, through which risk
ownership is dispersed throughout the organisation. The first line of defence comprises of management and staff
who have immediate responsibility of day-to-day operational risk management and own the risk. Each business
unit owner is responsible for identifying and managing all the risks that arise from the unit’s activities as an
integral part of their first line responsibilities.
The second line of defence comprises of the risk management function whose role is to provide operational risk
oversight and independent and objective challenge to the first line of defence, supported by other specialist
control and support functions such as the Group Compliance, Legal Services, Information Security and Health
and Safety functions. The third line of defence comprises of the Internal Audit function, which provides
independent assurance over the integrity and effectiveness of the risk management framework throughout the
Group.
During 2019, ongoing activities/initiatives towards further enhancement of Operational Risk management
involved inter alia the following: (i) Enhancements introduced to the internal operational loss database (RCMS
system) with regards to the automation of reports, additional control mechanisms and alerts, as well as, the
enrichment of incident/loss recording module with additional fields to record mitigation action plans, (ii)
Successful implementation of additional enhancements of the Alert based Fraud system (FRM), monitoring all
Web & Mobile banking transactions on a 24x7 basis, through the use of models, rules and behavioural profile
analytics. The implementation of Fraud Cards & ATM Module, (project in progress), will add a new layer of
protection to the existing Cards & ATM fraud prevention controls, (iii) Interface of the new Legal Services System
with the RCMS system, (iv) Business Continuity Management System in place for an efficient and effective
response to business disruption stemming from risks and threats that could materially impact upon, disrupt or
interrupt the operations of BOC PCL (i.e. the hazards of physical disasters, loss of vital information, services and
materials). The Business Continuity Plans of the Business Units are gradually incorporated into the Business
Continuity Management software tool-relevant training delivered and on-going, (v) on-going training offered to
all staff in the form of e-learning, as well as workshop/seminar type of training, delivered to specialised members
of staff.
378
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
3.
Other risks (continued)
3.1
Operational risk (continued)
Operational risk loss events are classified and recorded in the Group’s RCMS system, which serves as an
enterprise tool integrating all risk-control data (i.e. risks, loss incidents, Key risk indicators) to provide a holistic
view with regards to risk identification, corrective action and statistical analysis. An integrated risk identification
approach was adopted in 2019 introducing more thorough and granular risk taxonomies leading to a more
comprehensive risk reporting. During 2019, 548 loss events with gross loss equal to or greater than €1,000 each
were recorded including incidents of prior years (mostly legal cases) for which losses materialised in 2019 (2018:
247 loss events).
The Group strives to continuously enhance its risk control culture and increase awareness of its employees on
operational risk issues through ongoing staff training (both classroom/workshop type of training and e-learning
sessions).
The Group also maintains adequate insurance policies to cover for unexpected material operational losses.
Business resilience is treated as a priority and as such the Group places significant importance on continuously
enhancing the continuity arrangements, to ensure timely recovery in the case of events that may cause major
disruptions to the business operations.
3.2
Regulatory risk
The Group’s operations are supervised by the ECB as a supervisory body for all the banks in the Eurozone area
(referred to as the Single Supervisory Mechanism, SSM). The ECB exercises its supervisory responsibilities in
cooperation with the national central banks which together constitute the Eurosystem, the central banking
system of the Eurozone. As such, in Cyprus the ECB cooperates with the CBC, as BOC PCL is considered as an
Other Systemically Important Institution (O-SII) for the purposes of the ECB Regulation.
The overseas subsidiaries and branches of the Group are also supervised by the ECB and the national regulatory
authorities in the countries where they operate.
In this context, the Group is exposed to a series of regulatory and legal risks:
•
Legislative action and regulatory measures which may materially impact the Group and the financial and
economic environment in which it operates.
The Group's business and operations are subject to substantial regulation and supervision and can be
negatively affected by its non-compliance with/non-implementation of regulatory requirements and any
adverse regulatory and governmental developments.
The implementation of SSM recommendations as well as Supervisory Review and Evaluation Process (SREP)
prudential requirements, may impact the Group and its strategy.
The implementation of a more demanding and restrictive regulatory framework (including CRD IV/CRR and
upcoming new directives CRD V and BRRD II) with respect to, amongst others, capital ratios, leverage,
liquidity and disclosure requirements, notwithstanding the benefit to the financial system, poses additional
risks for banks.
Changes in laws or regulations might also restrict certain types of transactions, affect the Group's strategy
and lead to modification of the customer charges for banking products or transactions.
The Group is subject to certain regulatory and legal constraints in originating new loans, managing and
restructuring existing loans and foreclosing on collateral.
The Group is exposed to tax risk and failure to manage such risk may adversely impact the Group.
•
•
•
•
•
•
The EU Bank Recovery and Resolution Directive 2014/59/EU (BRRD) establishes a framework for the recovery
and resolution of European Union (EU) credit institutions. The stated aim of the BRRD is to provide supervisory
resolution authorities, with common tools and powers to address banking crises pre-emptively in order to ensure
the continuity of the institution’s critical financial and economic functions whilst safeguarding financial stability
and minimising taxpayers’ exposure to losses. The BRRD includes the concept of loss absorption.
379
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
3.
Other risks (continued)
3.2
Regulatory risk (continued)
The EU has also established a Single Resolution Mechanism (SRM), set up under the Single Resolution Mechanism
Regulation No 806/2014 as part of the European Banking Union. Under the SRM, a single resolution process
applies to all credit institutions supervised by the SSM. This process is co-ordinated by the Single Resolution
Board (SRB). BOC PCL is subject to the supervision of the SSM and accordingly the SRM.
The SRM Regulation is closely connected with the BRRD. For credit institutions within the SSM, the SRB
effectively takes on the role of the relevant national resolution authority established under the BRRD. BOC PCL is
subject to the supervision of the SRB.
The BRRD also requires that from January 2016 EU member states apply the BRRD’s provisions requiring EU
credit institutions and certain investment firms to maintain a Minimum Requirement for Own Funds and Eligible
Liabilities (MREL), subject to the provisions of the Commission Delegated Regulation (EU) 2016/1450. On 27
June 2019, as part of the reform package for strengthening the resilience and resolvability of European banks,
the BRRD 2 came into effect and it has to be transposed into national law. In addition, certain provisions on
MREL have been introduced in CRR ΙΙ which also came into force on 27 June 2019 as part of the reform package
and took immediate effect.
BOC PCL has received formal notification from the SRB, of its draft decision for the binding Minimum
Requirement for Own Funds and Eligible Liabilities (MREL) for BOC PCL, which has been determined as the
preferred resolution point of entry. The MREL requirement has been set at 28.36% of risk weighted assets of the
BOC Group as of 30 June 2019 and must be met by 31 December 2025. This MREL requirement would be
equivalent to 18.54% of total liabilities and own funds (TLOF) as at 30 June 2019. The MREL requirement is in
line with BOC PCL’s expectations, and largely in line with its funding plans.
The MREL requirements remain subject to final confirmation by the SRB. This decision is based on the current
legislation, which is expected to be updated annually and could be subject to subsequent changes by the
resolution authorities, especially considering the developments of the BRRD and its transposition into the local
legislation.
The MREL ratio of BOC PCL as at 31 December 2019, calculated according to SRB’s eligibility criteria currently in
effect, and based on BOC PCL’s internal estimate stood at 18.54% of RWAs.
The BRRD also has significant funding implications for credit institutions, which include the establishment of pre-
funded resolution funds of 1% of deposits covered under the EU Deposit Guarantee Schemes Directive (DGSD)
2014/49 to be built up by 31 December 2024.
On 1 January 2016 the Directive 2009/138/EC of the European Parliament and of the Council and the relevant
Regulations on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) came in
force. Additionally, on 11 April 2016 the Law on Insurance and Reinsurance Services and Other Related Issues
(Law 38(I)/2016) became effective. The Insurance Companies Control Service (Ministry of Finance) supervises
the required capital which should be maintained by insurance companies in order to ensure they meet the
solvency requirement. Additional internal risk appetite limits are set by the insurance subsidiaries of the Group,
EuroLife Ltd and General Insurance of Cyprus Ltd, in order to maintain sound capital ratios which can support
operational targets. The insurance subsidiaries of the Group manage their capital base by monitoring the
coverage of solvency capital requirements on a quarterly basis using high quality own funds. Both subsidiaries
were compliant with the solvency capital requirements imposed by the Insurance Companies Control Service
during 2019.
380
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
3.
Other risks (continued)
3.2
Regulatory risk (continued)
The Cyprus Investment and Securities Corporation Ltd (CISCO) and BOC Asset Management Ltd (BOCAM) are
regulated entities under the supervision of CySEC. Both entities are members of the Investor Compensation Fund
(ICF) for clients of Investment Firms. The ICF was established pursuant to Article 59(1) and (2) of Law
144(Ι)/2007 which provides for the Provision of Investment Services, the Exercise of Investment Activities, the
Operation of Regulated Markets and other Related Matters as an investor compensation fund for ICF clients other
than credit institutions. In 2017 Law 144(I)/2007 was replaced by Law 87(I)/2017. The powers and functions of
the ICF are regulated by the provisions of the Directive DI87-07 for the Operation of the ICF (dated 8th March
2019), which replaced Directive 144-2007-15 of the Cyprus Securities and Exchange Commission (CySEC) for the
Continuance of Operation and the Operation of the CIF Investor Compensation Fund. The ICF is administered by
a five-member Administrative Committee, comprised of three members designated by the Minister of Finance
and two members elected by the General Meeting of the members of the Fund. CISCO is obliged to contribute
annually an amount of 0.5% of the eligible funds and financial instruments of the member’s covered clients and if
paid by 10th July, there is a discount of 80% on the amount due. This payment no longer accrues to CISCO’s
already existing share at ICF which currently stands at €828 thousand and which has reached the maximum
permissible level according to the previous ICF Directive. This amount is also deductible from the CET1 capital of
CISCO as per CySEC’s Circular C162 of 2016. CISCO is also obliged to contribute, when called upon by CySEC,
an extraordinary supplementary contribution, if CySEC deems that the existing means for the payment of
compensation are inadequate, particularly in the event of a liquidation procedure of a member of the ICF. The
amount of the extraordinary supplementary contribution is not designated (nor capped). BOCAM is exempted
from the aforementioned annual contribution since custody of these funds is held with BOC PCL and CISCO.
Furthermore, CISCO is required to keep a minimum cash buffer of 0.3% of the eligible funds and financial
instruments of its clients as at the previous year, in a separate bank account, in case there is a need for an
extraordinary contribution and this should not be used for any other purpose. The cash buffer must be deducted
from CISCO’s Common Equity Tier 1 capital.
The EU Investor Compensation Schemes Directive 97/9/EC (the ICSD) requires member states to establish
Investor Compensation Schemes (ICS) to protect investors with respect to firms carrying on investment business
(which may be an investment firm or a credit institution). An ICS will typically make payouts if an investment
firm or credit institution carrying on investment business fails.
In Cyprus, the Investor Compensation Fund for Clients of Banks (the Fund) was established under the
Investment Firms (IF) Law 2002, as amended thereafter. It is governed by the establishment and operation
regulations of an Investor Compensation Fund for Clients of Banks Regulations of 2004 and 2007. Such a Fund is
administered by a five member Management Committee, comprised of the Governor and the Senior Manager of
the Banking Supervision and Regulation Division of CBC and three other members appointed by the Governor of
CBC. The Company is obligated to contribute annually an amount of up to 0.01% of the eligible funds and
financial instruments of the Company's clients.
Regulation (EU) No. 2016/679 of 27 April 2016 on the protection of natural persons with regard to the processing
of personal data and on the free movement of such data (also known as the EU General Data Protection
Regulation or the ‘GDPR’) directly applies in all EU member states (including Cyprus) from 25 May 2018. The
GDPR introduced obligations on data controllers and enhanced rights for data subjects. The requirements of the
GDPR affect the Group’s ability to collect, record, store, retain and use personal data as well as transfers of
personal data to countries that do not have adequate data protection laws. The implementation of the GDPR
required substantial amendments to the Group’s procedures, systems and policies.
Directive (EU) 2015/2366 on payment services (the ‘PSD II’) was enacted into the Law on the Provision and Use
of Payment Services and Access to Payment Systems (Law No. 31(I)/2018). The Company is fully compliant with
this Law, by duly amending the agreement and relative terms and conditions applied to the payment services
offered by the Company to its clients.
381
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
3.
Other risks (continued)
3.2
Regulatory risk (continued)
Directive (EU) 2014/65/EU and Regulation (EU) No. 600/2014 on markets in financial instruments (the ‘MiFID II
and MiFIR’) was transposed into national law with the enactment of the Law on the provision of investment
services, the exercise of investment activities and the operation of regulated markets (Law No. 87(I)/2017). This
new legislative framework strengthens investor protection and improves the functioning of financial markets. The
implementation of MiFID II and MiFIR required substantial amendments to the Group’s procedures, systems and
policies.
On 27 June 2019, a series of measures referred to as the Banking Reform Package came into force, subject to
various transitional and staged timetables. The banking reform package updated the framework of harmonized
rules established following the financial crisis and introduces changes to:
• the Capital Requirements Regulation (CRR-EU/575/2013),
•
the Fourth Capital Requirements Directive (CRD IV-2013/36/EU),
• the Bank Recovery and Resolution Directive (BRRD-2014/59/EU), and
• the Single Resolution Mechanism Regulation (SRMR-EU/806/2014).
The amended BRRD II and SRMR II aim to strengthen the framework for the recovery and resolution of banks in
difficulty and ensure that bank failures are resolved with banks’ own funds with minimum impact on taxpayers.
The rules on the subordination of Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
instruments are tightened and a new category of large banks, the so-called ‘top-tier banks’ is introduced.
Additionally, during 2019 a number of laws and legislative amendments were enacted and adopted by the Group
where applicable, as indicated below:
• 5th AML Directive: The CBC has issued the 5th edition of the Directive on the Prevention of Money
Laundering and Terrorist Financing (‘the CBC AML/CFT Directive’) which replaced all previous editions and
amendments. The new CBC AML/CFT Directive makes analytical reference to ways of applying various
provisions of the AML/CFT Law. The CBC has also issued guidelines to credit institutions on key thematic
areas, such as customer identification procedures and due diligence measures, ongoing monitoring of
accounts and transactions, politically exposed persons, fraudulent tax crimes now considered as predicate
offenses and risk management systems for the prevention and suppression of money laundering and
terrorism financing.
• EBA guidelines on Outsourcing: The guidelines clarify that the management of each financial institution
remains responsible for that institution and its activities at all times. To this end, the management should
ensure that sufficient resources are available to appropriately support and ensure the performance of
outsourcing responsibilities, including overseeing all risks and managing the outsourcing arrangements.
• Amendments to the legislative package for the foreclose procedure, the Estia Decree: The Estia mortgage
relief scheme aims to support and protect vulnerable households who have mortgaged their primary
residences for their loans and reduce the high number of bad debts. It applies to loans (mortgages) that
were deemed non-performing on 30 September 2017. Loans designated as non-performing after that date
are not eligible. The primary residence which is mortgaged must have a maximum market value of up to
€350,000. Thresholds also apply to the total household income of the applicant. The Estia scheme applies
to the first mortgage on a residence and covers loans or credit facilities regardless of currency.
• Insurance Distribution Directive: The directive lays down the information that should be given to
consumers before they sign an insurance contract, imposes certain conduct of business and transparency
rules on distributors, clarifies procedures and rules for cross-border business and contains rules for the
supervision and sanctioning of insurance distributors in case they breach the provisions of the directive.
The rules apply to the sale of all insurance products. However, more prescriptive rules apply to those
distributors that sell insurance products that have an investment element, such as unit-linked life
insurance contracts.
382
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
3.
Other risks (continued)
3.2
Regulatory risk (continued)
• Directive on encouragement of long-term shareholder engagement: the directive introduces new provisions
allowing shareholders to decide on the remuneration of the company’s directors. New transparency
obligations are imposed on institutional investors – such as pension funds and life insurance companies –
asset managers and proxy advisory firms. In addition, certain transactions, identified as potentially
prejudicial to the company, will have to be published and approved through procedures that ensure the
protection of the interests of the company and its shareholders.
• Regulation 2019/2088 on sustainability
related disclosures in the financial services sector: The regulation
applies to all financial market participants, including AIFMs, UCITS management companies, and
investment firms, but also applies to financial advisers, and foresees new, mandatory transparency
requirements both at entity/ asset manager level and at product level. The regulation affects Eurolife Ltd
and BOC Asset Management Ltd and requires certain disclosures on the organization’s website i.e.:
‐
o the way sustainability risks are integrated into their investment decisions,
o the likely impacts of sustainability risks on the returns of the financial products made available, and
o how the financial products made available consider principal adverse impacts on sustainability
factors.
The regulation will apply from 10th March 2021, with product rules to be implemented by 30 December
2022.
3.3
Intensity of competition
The Group faces intense competition in the markets in which it operates in the Cyprus economy. Competition
primarily originates from other commercial banks, branches and subsidiaries of foreign banks, and insurance
companies offering savings and investment products.
During 2016 the Group’s market share in deposits increased significantly and continued to increase in 2017 and
2018 as well. The Group remains today the biggest and most systemically important local banking organisation in
Cyprus.
Any intensification of competition as a result of more competitive interest rates being offered on deposits and
advances compared to those offered by the Group, may create pressure on Group profitability.
3.4
Litigation risk
The Group may, from time to time, become involved in legal or arbitration proceedings which may affect its
operations and results. Litigation risk arises from pending or potential legal proceedings against the Group (Note
40 of the Consolidated Financial Statements for the year ended 31 December 2019) and in the event that legal
issues are not properly dealt with by the Group, this may result in financial and/or reputational loss to the Group.
3.5
Political risk
External factors which are beyond the control of the Group, such as developments in the European and the global
economy, as well as political and government actions in Cyprus can affect the operations of the Group, its
strategy and prospects, either directly or indirectly through their possible impact on the domestic economy.
Cyprus is a small open economy with a large external sector. Exports of goods and services were about 60% of
Gross Domestic Product (GDP) in 2017 and 2018. As a result, the Cyprus economy is exposed to developments
outside its borders, particularly in Russia, the UK and Greece. Cyprus is also exposed to developments in the
European Union and the Eurozone that might impact bond markets and interest rates, as well as to developments
in the global economy at large, including trade.
383
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
3.
Other risks (continued)
3.5
Political risk (continued)
While Cyprus has had a five-year streak of strong economic recovery in 2015-2019, the COVID-19 pandemic can
lead to a significant slowdown in 2020 and even to recession. The pandemic has also altered the global economic
outlook, where earlier favorable forecasts are now being replaced by fears for a global recession which can be
relatively deep for some countries. The recovery will depend on the speed and effectiveness of policy responses
by the fiscal and monetary authorities at both the national and international levels, and on success in containing
virus.
In China, one of the major economies, economic growth will continue to slow in the years ahead and may
aggravate the global economic slowdown and increase financial uncertainty affecting capital flows and currency
markets.
What started as a massive supply shock in China is now morphing into a global demand shock after governments
around the world, imposed quarantines and social distancing to contain the spread of the virus. Governments and
central banks are acting proactively and decidedly to support consumers and businesses and to limit financial
disruptions. The pandemic is having (and will continue to have) an impact on consumer spending, which is the
primary driver of economic growth in most parts of the world. The pandemic is also expected to affect corporate
profits causing businesses to cut back further on investment and ultimately to affect the ability of companies to
repay their debts. Primary credit markets are essentially frozen, which means that some companies will not be
able to roll-over liabilities without increasing their refinancing costs.
Social instability is already observed in various parts of the world including Hong Kong, Russia, parts of Latin
America and even in the US. Instability and tensions can be disruptive in trade and capital flows and economic
policy coordination.
The risk of disruption from Brexit-related developments remains. The UK has left the EU at the end of January
2020, but trade negotiations with the EU are unlikely to be concluded in the transition period and the country will
remain vulnerable to political instability long after exiting. The UK economy slowed significantly in 2019 and will
slow further in 2020. Tourist arrivals from the UK stagnated in 2019 whilst overall spending dropped. Arrivals
from the UK may be affected more significantly in 2020 and beyond if Brexit-related uncertainty increases and
the UK economy suffer as a result.
Instability in the UK will likely have implications for the EU, leading to decline in confidence in the European
Union and its institutions. In addition, Italy remains a main source of financial risk within the Eurozone. The real
threat to the country’s financial stability comes from the financial markets. Italian banks have considerable
holdings in government debt and the government fiscal policies may create uncertainty on the government debt.
Global uncertainties and the slowing economic activity, will sustain for a longer period the low interest rates in
the euro area, which in turn will continue compressing bank interest margins and profitability, as well as straining
the pension systems.
Trade frictions and the exports crisis will affect Germany which exports about half of its GDP, and other countries
that form Germany’s supply chain in eastern and central Europe. Given a relatively high degree of Euroscepticism
in these countries, economic problems are likely to create political challenges for the EU.
The Russian economy may continue to deteriorate. Russia is impacted negatively by persistent sanctions and by
low oil prices. Given that the banking sector has linkages with business and professional services with Russia and
that Russia has become a major market for Cypriot tourism, any events and developments on the Russian
economy may potentially have an impact on the Cyprus economy as well.
Cyprus is less exposed to Greece than it was prior to the crisis in 2013. Greece’s departure from the Eurozone is
no longer a short-term risk and the country’s growth outlook has improved. However, Greece continues to face
challenges and long-term risks.
384
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
3.
Other risks (continued)
3.5
Political risk (continued)
Developments in other non-EU countries with which Cyprus maintains significant economic links, the unresolved
Cyprus problem, and political and social unrest or escalation of military conflict in neighboring countries and/or
other overseas areas may adversely affect the Cyprus economy. Political risk remains at an elevated level due to
the de facto division of the island and the potential for tension with Turkey over hydrocarbons explorations in
Cyprus’ Exclusive Economic Zone (EEZ).
Given the above, the Group recognises that unforeseen political events can have negative effects on the
fulfilment of contractual relationships and obligations of its customers and other counterparties, which may have
a significant impact on the Group’s activities, operating results and position.
4.
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 as from 2019.
On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRDV) came into force. As an amending
regulation, the existing provisions of CRR apply unless they are amended by CRR II. Member states are required
to transpose the CRDV into national law. Certain provisions took immediate effect (primarily relating to MREL)
but most changes will start to apply from mid-2021. Certain aspects of CRR II are dependent on final technical
standards to be issued by the European Banking Authority (EBA) and adopted by the European Commission. The
key changes introduced consist of among others changes to qualifying criteria for CET1, AT1 and Tier 2
instruments, introduction of requirements for MREL and a binding Leverage Ratio requirement and a Net Stable
Funding Ratio (NSFR).
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 31 December 2019 stands at 14.8% and the total capital ratio at 18.0% on a
transitional basis.
The minimum Pillar I total capital requirement is 8.0% and may be met, in addition to the 4.5% CET1
requirement, with up to 1.5% by Additional Tier 1 capital and with up to 2.0% by Tier 2 capital.
The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital
requirements (Pillar II add-ons).
385
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
4.
Capital management (continued)
Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2019 and
based on the final 2019 ECB decision received on 4 December 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 (O-SII buffer). The Group’s phased-in CET1 capital ratio will be 11.0%, comprising a
4.5% Pillar I requirement, a 3.0% Pillar II requirement (P2R), the Capital Conservation Buffer of 2.5% (fully
phased-in as of 1 January 2019) and the O-SII buffer of 1.0%. The Group’s Total Capital requirement will 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 O-SII buffer of 1.0%. The ECB has also provided non-public guidance for an additional Pillar II
CET1 buffer. The final 2019 SREP decision is effective from 1 January 2020.
In April 2020, BOC PCL received a decision from the ECB amending the composition of the Pillar II additional own
funds requirement, compared to the 2019 final SREP decision received in December 2019 which requested P2R to
be met in full with CET1. This decision is effective as from 12 March 2020 and follows the announcements by the
ECB on the capital relief measures as a result of COVID-19. As a result, the minimum phased-in CET1
requirement decreased to 9.7%, comprising a 4.5% Pillar I requirement, a 1.7% Pillar II requirement, the Capital
Conservation Buffer (CCB) of 2.5% (fully phased in as of 1 January 2019) and the O-SII buffer of 1.0%. There is
no change on the Total Capital requirement.
The EBA final guidelines on SREP and supervisory stress testing and the Single Supervisory Mechanism’s (SSM)
2018 SREP methodology provide that own funds held for the purposes of Pillar II Guidance cannot be used to
meet any other capital requirements (Pillar I, Pillar II requirements or the combined buffer requirement), and
therefore cannot be used twice. Following the Annual Supervisory Review and Evaluation Process (SREP)
performed by the ECB in 2019 and based on the final 2019 ECB decision received on 4 December 2019, the new
provisions are effective from 1 January 2020.
The Group’s minimum phased-in CET1 capital ratio for 2019 is 10.5%, comprising a 4.5% Pillar I requirement, a
3.0% Pillar II requirement, the CCB of 2.5% and the O-SII buffer of 0.5%. The Group’s minimum phased-in CET1
capital ratio for 2018 was 9.375%, comprising 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 Group’s minimum phased-in Total capital ratio requirement for 2019 is 14.0%, comprising a 8.0% Pillar I
requirement (of which up to 1.50% can be in the form of Additional Tier 1 capital and up to 2.00% in the form of
Tier 2 capital), a 3.0% Pillar II requirement, the CCB of 2.5% and the O-SII buffer of 0.5%.
The minimum phased-in Total capital ratio requirement for 2018 was 12.875% comprising a 8.00% Pillar I
requirement (of which up to 1.50% can be in the form of Additional Tier 1 capital and up to 2.00% in the form of
Tier 2 capital), a 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 31 December 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.
386
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
4.
Capital management (continued)
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 of 2018 and 2019 and the six months up to June 2020.
In accordance with the provisions of this law, the CBC is also the responsible authority for the designation of
banks that are O-SIIs and for the setting of the O-SII buffer requirement for these systemically important banks.
BOC PCL has been designated as an O-SII and the CBC set the O-SII buffer for BOC PCL and the Group at 2.0%.
This buffer will be phased-in gradually, having started from 1 January 2019 at 0.5% and set to be increasing by
0.5% every year thereafter, until being fully implemented (2.0%) on 1 January 2022. In April 2020, the CBC
decided to delay the phasing-in (0.5%) of the O-SII buffer on 1 January 2021 and 1 January 2022 by 12 months.
Consequently, the O-SII buffer will be fully phased-in on 1 January 2023, instead of 1 January 2022 as originally
set.
The 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 insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance
including the minimum solvency ratio as at 31 December 2019 and during the year. The regulated UCITS
management company of the Group, BOC Asset Management Ltd complies with the regulatory capital
requirements of the Cyprus Securities and Exchange Commission (CySEC) laws and regulations as at 31
December 2019. The regulated investment firm (CIF) of the Group, The Cyprus Investment and Securities
Corporation Ltd (CISCO), meets the minimum total capital ratio hurdle of CySEC but lacks behind the minimum
initial capital requirement and the additional capital conservation buffer as at 31 December 2019. As a result a
business and capital plan was submitted to CySEC in December 2019. CISCO also submitted to CySEC its
Internal Capital Adequacy Assessment Process (ICAAP) Report in September 2019. It is expected that CySEC will
provide CISCO a reasonable timeframe, based on the capital/business plan submitted, to comply, as per its
Supervisory Review and Evaluation Process (SREP).
387
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
4.
Capital management (continued)
The capital position of the Group and the BOC PCL under CRD IV/CRR basis as amended by CRR II applicable as
at the reporting date (after applying the transitional arrangements) is presented below:
Regulatory capital
Group
BOC PCL
31 December
2019
€000
31 December
20185
€000
31 December
2019
€000
31 December
2018
€000
Transitional Common Equity Tier 1 (CET1)6,7
1,909,049
1,864,000
1,869,105
1,861,098
Transitional Additional Tier 1 capital (AT1)
Tier 2 capital (T2)
220,000
189,955
220,000
212,000
220,000
250,000
220,000
250,000
Transitional total regulatory capital7
2,319,004
2,296,000
2,339,105
2,331,098
Risk weighted assets – credit risk8
Risk weighted assets – market risk
11,547,303
13,832,589
11,518,932
13,820,385
-
2,182
-
-
Risk weighted assets – operational risk
1,342,700
1,538,588
1,255,875
1,411,788
Total risk weighted assets
12,890,003
15,373,359
12,774,807
15,232,173
Transitional Common Equity Tier 1 ratio
Transitional total capital ratio
%
%
%
%
14.8
18.0
12.1
14.9
14.6
18.3
12.2
15.3
Fully loaded
Common Equity Tier 1 ratio
Total capital ratio
Group
BOC PCL
31 December
20199
%
31 December
201810
%
31 December
20199
%
31 December
201810
%
13.1
16.5
10.1
13.2
12.9
16.6
10.2
13.4
During the year ended 31 December 2019, the CET1 was positively affected primarily from the legislative
amendments allowing for the conversion of deferred tax assets into tax credits for regulatory purposes (Note 18
of the Consolidated Financial Statements) and negatively affected mainly by the phasing-in of transitional
adjustments (mainly the IFRS 9), the cost of voluntary staff exit plan, property impairments and ECL charges.
The RWAs were positively affected mainly by the sale of loans in 2019 (Projects Helix and Velocity 1), the
disposal of the associate CNP Cyprus Insurance Holdings Ltd, which was completed in October 2019 and the
Group’s ongoing efforts for risk weighted assets optimization.
As a result of the above, the CET1 ratio increased by 270 bps during the year.
5 As per Annual Report 2018 and Pillar III Disclosures 2018.
6 CET1 includes regulatory deductions, primarily comprising deferred tax assets and intangible assets amounting to €51,204 thousand and
€43,364 thousand as at 31 December 2019 and 31 December 2018 respectively. At 31 December 2018 CET1 included regulatory deductions
comprising deferred tax assets amounting to €163,082 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.
388
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
4.
Capital management (continued)
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 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.
Following the COVID-19 outbreak, on 12 March 2020, the ECB and the EBA announced the following relaxation
measures for the minimum capital requirements for banks:
•
•
Banks are temporarily allowed to operate below the level of capital defined by the Pillar II Guidance, the
Capital Conservation Buffer and the Countercyclical Buffer. The Countercyclical Buffer is 0% for Cypriot
Banks.
Banks are allowed to use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to meet Pillar II
Requirements and not only by CET1; this brings forward a measure that was scheduled to come into effect
in January 2021 with CRD V.
The ECB’s capital easing measures for COVID-19 will increase the Group’s CET1 buffer by 131 bps following the
frontloading of the new rules on the Pillar II Requirement composition, initially scheduled to come into effect in
January 2021. The Total SREP capital requirement remains unchanged.
In addition, in April 2020 the CBC decided to delay the phasing-in of the 1 January 2021 O-SII buffer (0.5% for
BOC PCL) by 12 months. Consequently, the O-SII buffer will be fully phased-in on 1 January 2023, instead of 1
January 2022 as originally set.
Further information is disclosed in Note 56.1 of the Consolidated Financial Statements.
5.
Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Assessment
Process (ILAAP), Pillar II and Supervisory Review and Evaluation Process (SREP)
The Group prepares the ICAAP and ILAAP reports annually. Both reports for 2019 are in progress and will be
submitted to the ECB in end of April 2020 once approved by the Board of Directors. Further information on 2019
ICAAP/ILAAP is disclosed in the Directors’ Report and specifically within ‘Viability statement’ section.
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 the Risk Committee of the Board of Directors. During the quarterly review, the liquidity risk drivers are
assessed and, if needed, the stress test assumptions are amended accordingly. Any material changes since the
year-end are assessed in terms of liquidity. 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.
389
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures
(Unaudited)
Annual Financial Report 2019
5.
Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Assessment
Process (ILAAP), Pillar II and Supervisory Review and Evaluation Process (SREP) (continued)
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 and
based on the final 2019 ECB decision received on 4 December 2019, the Group’s minimum phased-in CET1
capital ratio and Total Capital ratio remain unchanged, when ignoring the phasing-in of the O-SII 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 I, 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 final 2019 ECB decision, the new provisions are effective from
January 2020. Following the COVID-19 outbreak, the ECB in March 2020 announced certain relaxation measures
to the minimum capital requirements, described in Section 4 above, which provide capital relief. In April 2020,
BOC PCL received a decision from the ECB amending the composition of the Pillar II additional own funds
requirement, compared to the 2019 final SREP decision received in December 2019 which requested P2R to be
met in full with CET1. This decision is effective as from 12 March 2020.
The Group was to participate in the ECB SREP stress test of 2020 which was launched in January 2020 and was
to be concluded by end of July 2020. However due to the outbreak of COVID–19 and its global spread, EBA
decided to postpone until 2021 the EU-wide Stress Test Exercise of 2020 to allow banks to focus on and ensure
continuity of their core operations. For 2020, the EBA will carry out an additional EU-wide transparency exercise
in order to provide updated information on banks’ exposures and asset quality to market participants. The ECB
announced that it supports the decision of EBA to postpone the stress tests exercise and will extend the
postponement to all banks subject to the 2020 stress test.
390
BANK OF CYPRUS HOLDINGS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
DEFINITIONS
Allowance for
expected loan credit
losses
Allowance for expected loan credit losses comprises: (i) allowance for expected
credit losses (ECL) on loans and advances to customers (including allowance for
expected credit losses on loans and advances to customers held for sale), (ii) the
residual fair value adjustment on initial recognition of loans and advances to
customers, (iii) allowance for expected credit losses for off-balance sheet
exposures (financial guarantees and commitments) disclosed on the balance
sheet within other liabilities and (iv) the aggregate fair value adjustment on
loans and advances to customers classified and measured at FVPL.
Cost to income ratio Cost to income ratio is calculated as the total staff costs (excluding costs relating
to the Voluntary Exit Plan) (on an underlying basis as reconciled in the table
further below), special levy on deposits on credit institutions in Cyprus,
contribution to Single Resolution Fund (excluding other levies) (on an underlying
basis as reconciled in the table further below), and other operating expenses
(excluding ‘Advisory and other restructuring costs-organic’, any restructuring
costs and other operating expenses relating to NPE sales, and provisions for
litigation, claims, regulatory and other matters) (on an underlying basis as
reconciled in the table further below) divided by total income on the underlying
basis (as defined below).
Gross loans
Comprises: (i) gross loans and advances to customers measured at amortised
cost before the residual fair value adjustment on initial recognition (including
loans and advances to customers classified as non-current assets held for sale)
and (ii) loans and advances to customers classified and measured at FVPL
adjusted for the aggregate fair value adjustment.
Gross loans are reported before the residual 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). This applies for loans and advances measured at amortised cost
on the statutory basis.
Interest earning
assets
Interest earning assets include: cash and balances with central banks, plus loans
and advances to banks, plus net loans and advances to customers (including
loans and advances to customers classified as non-current assets held for sale),
plus investments (excluding equities and mutual funds).
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 losses
Loan credit losses comprise: (i) credit losses to cover credit risk on loans and
advances to customers, (ii) net gains on derecognition of financial assets
measured at amortised cost and (iii) net gains on loans and advances to
customers at FVPL, for the reporting year.
Loan credit losses
charge (cost of risk)
Loan credit losses charge (cost of risk) (year to date) is calculated as the loan
credit losses (as defined) (annualised based on year to date days) divided by the
average gross loans (as defined). The average balance is calculated as the
average of the opening balance and the closing balance for the reporting year.
Net fee and
commission income
over total income
Fee and commission income less fee and commission expense divided by total
income (as defined).
391
BANK OF CYPRUS HOLDINGS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
Net Interest Margin Net interest margin is calculated as the net interest income (per the underlying
basis) (annualised based on year to date days) divided by the quarterly average
interest earning assets. Quarterly average interest earning assets exclude
interest earning assets of any discontinued operations at each quarter end, if
applicable.
Net loans and
advances to
customers
Net loans to
deposits ratio
New lending in the
Directors’ Report
Non-performing
exposures (NPEs)
Comprises gross loans (as defined) net of allowance for expected loan credit
losses (as defined, but excluding allowance for expected credit losses on off-
balance sheet exposures).
Net loans to deposits ratio is calculated as the gross loans (as defined) net of
allowance for expected loan credit losses (as defined), divided by customer
deposits.
New lending includes the average YTD change (if positive) for overdraft facilities.
As per the EBA standards and European Central Bank’s (ECB) Guidance to Banks
on Non-Performing Loans (which was published in March 2017), NPEs are defined
as those exposures that satisfy one of the following conditions:
(i)
(ii)
(iii)
(iv)
(v)
The borrower is assessed as unlikely to pay its credit obligations in
full without the realisation of the collateral, regardless of the
existence of any past due amount or of the number of days past due.
Defaulted or impaired exposures as per the approach provided in the
Capital Requirement Regulation (CRR), which would also trigger a
default under specific credit adjustment, distress restructuring and
obligor bankruptcy.
Material exposures as set by the Central Bank of Cyprus (CBC), which
are more than 90 days past due.
Performing forborne exposures under probation for which additional
forbearance measures are extended.
Performing forborne exposures under probation that present more
than 30 days past due within the probation period.
When a specific part of the exposures of a customer that fulfils the NPE criteria
set out above is greater than 20% of the gross carrying amount of all on balance
sheet exposures of that customer, then the total customer exposure is classified
as non-performing; otherwise only the specific part of the exposure is classified
as non-performing.
The NPEs are reported before the deduction of allowance for expected loan credit
losses (as defined).
Non-recurring items Non-recurring items as presented in the ‘Unaudited Consolidated Income
Statement on the underlying basis’ relate to: (i) Advisory and other restructuring
costs – organic, (ii) Restructuring costs – Voluntary Exit Plan (VEP), (iii)
Provisions/net loss relating to NPE sales, (iv) (Loss)/profit on remeasurement of
investment in associate upon classification as held for sale (CNP) net of share of
profit from associates, (v) Reversal of impairment/(impairment) of deferred tax
assets (DTA) and impairment of other tax receivables, and (vi) Profit from
discontinued operations (UK) (in 2018 only).
NPE coverage ratio
The NPE coverage ratio is calculated as the allowance for expected credit losses
(as defined) over NPEs (as defined).
NPE ratio
The NPE ratio is calculated as the NPEs (as defined) divided by gross loans (as
defined).
392
BANK OF CYPRUS HOLDINGS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
Operating profit
Operating profit comprises profit before loan credit losses (as defined),
impairments of other financial and non-financial assets, provisions for litigation,
claims, regulatory and other matters, tax, profit attributable to non-controlling
interests and non-recurring items (as defined).
Operating profit
return on average
assets
Operating profit return on average assets is calculated as the annualised (based
on year to date days) operating profit (on an underlying basis) (as defined)
divided 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.
Profit/(loss) after
tax – organic
(attributable to the
owners of the
Company)
Total income
Profit/(loss) after tax - organic (attributable to the owners of the Company) is the
profit after tax and before non-recurring items (as defined above) (attributable to
the owners of the Company), except for the ‘Advisory and other restructuring
costs – organic’.
Total income under the underlying basis comprises total of net interest income,
net fee and commission income, net foreign exchange gains, net gains on financial
instrument transactions and disposal/dissolution of subsidiaries and associates
(excluding net gains on loans and advances to customers at FVPL), insurance
income net of claims and commissions, net gains/(losses) from revaluation and
disposal of investment properties, net gains on disposal of stock of property and
other income (on the underlying basis). A reconciliation of these amounts between
the statutory and the underlying bases is disclosed in the Directors’ Report under
section ‘Financial Results on the underlying basis’.
393
BANK OF CYPRUS HOLDINGS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
RECONCILIATIONS
For the purpose of the Definitions and explanations of Alternative Performance Measures Disclosures, reference to
‘Note’ relates to the respective note in the Consolidated Financial Statements for the year ended 31 December 2019.
1. Reconciliation of Gross loans and advances to customers
2019
€000
2018
€000
Gross loans and advances to customers (as defined above)
12,821,838
15,900,427
Reconciling items:
Residual fair value adjustment on initial recognition (Note 46.2)
(201,999)
(262,049)
Loans and advances to customers classified as held for sale (Note 46.7)
(173,881)
(2,711,960)
Residual fair value adjustment on initial recognition on loans and advances
to customers classified as held for sale (Note 46.7)
Reclassification between gross loans and allowance for expected credit
losses on loans and advances to customers classified as held for sale
Loans and advances to customers measured at fair value through profit
and loss (Note 24)
Aggregate fair value adjustment on loans and advances to customers
measured at fair value through profit or loss
Gross loans and advances to customers at amortised cost as per
the Consolidated Financial Statements (Note 24)
(11,083)
(139,153)
-
99,000
(369,293)
(395,572)
(57,436)
(60,326)
12,008,146
12,430,367
2. Reconciliation of Allowance for expected credit losses
on loans and advances to customers (ECL)
2019
€000
2018
€000
Allowance for expected credit losses on loans and advances to customers
(as defined above)
2,096,180
3,852,218
Reconciling items:
Residual fair value adjustment on initial recognition (Note 46.2)
(201,999)
(262,049)
Aggregate fair value adjustment on loans and advances to customers
measured at fair value through profit or loss
Allowance for expected credit losses on loans and advances to customers
classified as held for sale (Note 46.9)
Residual fair value adjustment on initial recognition on loans and advances
to customers classified as held for sale (Note 46.7)
Reclassification between gross loans and allowance for expected credit
losses on loans and advances to customers classified as held for sale
(57,436)
(60,326)
(147,952)
(1,557,852)
(11,083)
(139,153)
-
99,000
Provisions for financial guarantees and commitments (Note 35)
(22,112)
(27,685)
Allowance for ECL for impairment of loans and advances to
customers as per the Consolidated Financial Statements (Note 24)
1,655,598
1,904,153
394
BANK OF CYPRUS HOLDINGS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
3. Reconciliation of NPEs
NPEs (as defined above)
Reconciling items:
Loans and advances to customers (NPEs) classified as held for sale (Note 1
below)
Residual fair value adjustment on initial recognition on loans and advances
to customers (NPEs) classified as held for sale (Note 2 below)
Reclassification between gross loans and allowance for expected credit
losses on loans and advances to customers classified as held for sale
Loans and advances to customers measured at fair value through profit
and loss (NPEs)
POCI (NPEs) (Note 3 below)
Stage 3 gross loans and advances to customers at amortised cost
as per the Consolidated Financial Statements (Note 46.6)
NPE ratio
2019
€000
2018
€000
3,879,508
7,418,613
(172,880)
(2,613,603)
(11,096)
(135,697)
-
99,000
(144,866)
(160,907)
(511,933)
(691,815)
3,038,733
3,915,591
NPEs (as per table above) (€000)
3,879,508
7,418,613
Gross loans and advances to customers (as per table above) (€000)
12,821,838
15,900,427
Ratio of NPE/Gross loans (%)
30.3%
46.7%
Note 1: Gross loans at amortised cost after residual fair value adjustment on initial recognition classified as held for
sale include an amount of €150,206 thousand Stage 3 loans (2018: €2,198,360 thousand Stage 3 loans) and an
amount of €22,674 thousand POCI – Stage 3 loans (out of a total of €22,679 thousand POCI loans) (2018: €415,243
thousand POCI – Stage 3 loans (out of a total of €415,308 thousand POCI loans) as disclosed in Note 46.7 of the
Consolidated Financial Statements for the year ended 31 December 2019.
Note 2: Residual fair value adjustment on initial recognition of loans and advances to customers classified as held
for sale includes an amount of €3,402 thousand for Stage 3 loans (2018: €24,571 thousand for Stage 3 loans) and
an amount of €7,694 thousand for POCI – Stage 3 loans (2018: €111,126 thousand for POCI – Stage 3 loans) as
disclosed in Note 46.7 of the Consolidated Financial Statements for the year ended 31 December 2019.
Note 3: Gross loans and advances to customers at amortised cost before residual fair value adjustment on initial
recognition include an amount of €511,933 thousand POCI – Stage 3 loans (out of a total of €627,212 thousand
POCI loans) (2018: €691,815 thousand POCI – Stage 3 loans (out of a total of €819,789 thousand POCI loans)) as
disclosed in Note 46.6 of the Consolidated Financial Statements for the year ended 31 December 2019.
395
BANK OF CYPRUS HOLDINGS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
4. Reconciliation of Loan credit losses
2019
€000
2018*
€000
Loan credit losses per the underlying basis
145,498
135,290
Reconciling items:
Loan credit losses relating to Helix portfolio and NPE sales, disclosed under
non-recurring items within ‘Provisions/net loss relating to NPE sales’ under
the underlying basis
One off charge disclosed in ‘Net interest income’ under the statutory basis
and in ‘Loan credit losses’ under the underlying basis, given that this was
a non-recurring item which is related to a change in the method of
amortising arrangement fees
Loan credit losses (as defined) are reconciled to the statutory basis as
follows:
Credit losses to cover credit risk on loans and advances to customers
(Note 17)
Net gains on derecognition of financial assets measured at amortised cost
(Consolidated Income Statement)
87,481
149,843
(11,606)
-
221,373
285,133
232,451
329,083
(8,187)
(27,825)
Net gains on loans and advances to customers at FVPL (Note 12)
(2,891)
(16,125)
221,373
285,133
*Refer to section ‘Comparative information’ for details on the reclassifications made to comparative information.
396
BANK OF CYPRUS HOLDINGS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
RATIO INFORMATION
For the purpose of the Definitions and explanations of Alternative Performance Measures Disclosures, reference to
‘Note’ relates to the respective note in the Consolidated Financial Statements for the year ended 31 December 2019.
1. Net Interest Margin
Reconciliation of the various components of net interest margin from the underlying basis to the statutory basis is
provided below:
1.1.
Reconciliation of Net interest income
2019
€000
2018*
€000
Net interest income as per the underlying basis
343,620
330,549
Reclassifications for:
Net interest income relating to the Helix portfolio, disclosed under non-
recurring items within 'Provisions/net loss relating to NPE sales' under the
underlying basis
One off charge disclosed in ‘Net interest income’ under the statutory
basis and in ‘Loan credit losses’ under the underlying basis, given that
this was a non-recurring item which is related to a change in the method
of amortising arrangement fees
33,962
88,504
(11,606)
-
Net interest income as per the statutory basis
365,976
419,053
Net interest income used in the calculation of NIM
343,620
330,549
1.2.
Interest earning assets
31 December
2019
30 September
2019
€000
€000
30 June
2019
€000
31 March
2019
€000
31 December
2018
€000
Cash and balances with central banks
5,060,042
4,412,542
5,261,896
3,913,391
4,610,491
Loans and advances to banks
320,881
427,966
403,041
448,043
472,532
Loans and advances to customers
10,721,841
10,970,923
10,949,002
10,954,529
10,921,786
Loans and advances to customers held
for sale (Note 30)
Investments
25,929
-
5,891
1,108,440
1,154,108
Debt securities (Note 21)
1,738,007
1,808,891
1,720,231
1,556,668
1,364,743
Less:
interest bearing
Investments which are not
(23,593)
(22,345)
(13,563)
(10,181)
(8,606)
Total interest earning assets
17,843,107
17,597,977
18,326,498
17,970,890
18,515,054
1.3.
Quarterly
average
interest earning assets
(€000)
-
-
as at 31 December 2019
18,050,705
as at 31 December 2018
18,190,281
*Refer to section ‘Comparative information’ for details on the reclassifications made to comparative information.
397
BANK OF CYPRUS HOLDINGS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
2. Cost to income ratio
2.1. Reconciliation of the various components of total expenses used in the cost to income ratio calculation
from the underlying basis to the statutory basis is provided below:
2019
€000
2018*
€000
2.1.1. Reconciliation of Staff costs
Total Staff costs as per the underlying basis
219,983
211,540
Reclassifications for:
Staff costs relating to the Helix portfolio, reclassified under the
underlying basis to ‘Provisions/net loss relating to NPE sales’
Staff costs-voluntary exit plan and other termination benefits,
separately presented under the underlying basis (Note 15)
5,564
5,200
81,166
-
Total Staff costs as per the statutory basis
306,713
216,740
2.1.2. Reconciliation of Other operating expenses
Total Other operating expenses as per the underlying basis
165,493
156,297
Reclassifications for:
Operating expenses relating to the Helix portfolio, presented within
‘Provisions/net loss relating to NPE sales’ under the underlying basis
Provisions for litigation, claims, regulatory and other matters, separately
presented under the underlying basis
Advisory and other restructuring costs – organic, separately presented
under the underlying basis
Restructuring costs relating to the Helix portfolio and NPE sales,
presented within ‘Provisions/net loss relating to NPE sales’ under the
underlying basis
Fee and commission expense on the amounts deposited in regards to
AT1 issue, included within ‘Advisory and other restructuring costs –
organic’ under the underlying basis (Note 10)
Expenses relating to UK regulatory matters included within ‘Other
operating expenses’ under the statutory basis are disclosed within ‘Profit
from discontinued operations (UK)’ under the underlying basis
Restructuring costs relating to the disposal of the UK group included
within ‘Other operating expenses’ under the statutory basis are
disclosed within ‘Profit from discontinued operations (UK)’ under the
underlying basis
20,021
10,451
21,590
1,620
22,784
42,051
25,067
18,420
-
-
-
(11,215)
3,586
1,348
Total Other operating expenses as per the statutory basis
242,622
234,891
2.1.3. Special levy on deposits on credit institutions in
Cyprus, contribution to Single Resolution Fund and
other levies
Special levy on deposits on credit institutions in Cyprus and contribution
to Single Resolution Fund (SRF) per the underlying basis
Reclassification for:
Levy fee relating to the revised income tax legislation, which has been
disclosed within ‘Reversal of impairment/(impairment) of deferred tax
assets (DTA) and impairment of other tax receivables’ under the
underlying basis
Special levy on deposits on credit institutions in Cyprus, contribution to
Single Resolution fund and other levies as per the statutory basis
24,854
25,095
18,755
-
43,609
25,095
*Refer to section ‘Comparative information’ for details on the reclassifications made to comparative information.
398
BANK OF CYPRUS HOLDINGS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
2.2. Reconciliation of the various components of total income (as defined) used in the cost to income ratio
calculation from the underlying basis to the statutory basis is provided below:
2019
€000
2018*
€000
2.2.1. Reconciliation of Net fee and commission income
Total Net fee and commission income as per the underlying basis
149,960
162,486
Reclassifications for:
Fee and commission income relating to Helix portfolio, disclosed under
non-recurring items within ‘Provisions/net loss relating to NPE sales'
under the underlying basis
Fee and commission expense on the amounts deposited in regards to
the AT1 issue disclosed within ‘Advisory and other restructuring costs –
organic’ under the underlying basis (Note 10)
11,934
4,000
-
(11,215)
Total net fee and commission income as per the statutory basis
161,894
155,271
2.2.2. Reconciliation of Net foreign exchange gains and Net
gains on financial instrument transactions and
disposal/dissolution of subsidiaries and associates
Total Net foreign exchange gains and net gains on financial instruments
transactions and disposal/dissolution of subsidiaries and associates as
per the underlying basis
Reclassifications for:
Net gains on loans and advances to customers measured at fair value
through profit or loss (FVPL), disclosed within ‘Loan credit losses’ under
the underlying basis (Note 12)
Profit relating to the disposal of UK operations, disclosed within ‘Profit
from discontinued operations (UK)’ under the underlying basis
Impairment of other financial instruments relating to UK have been
disclosed as a cost within ‘Profit from discontinued operations (UK)’ per
the underlying basis
Profit relating to the disposal of subsidiary, disclosed within ‘Net gains
from revaluation and disposal of investment properties and on disposal
of stock of properties’ under the underlying basis
Total Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and associates as
per the statutory basis (see below)
Net foreign exchange gains as per the statutory basis
Net gains on financial instrument transactions and disposal/dissolution
of subsidiaries and associates as per the statutory basis
Total Net foreign exchange gains and Net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and associates as
per the statutory basis
38,494
67,106
2,891
16,125
-
-
3,817
(2,690)
3,886
-
45,271
84,358
26,596
18,675
37,688
46,670
45,271
84,358
Reconciliation of Net interest income between the underlying and the statutory basis has been provided in the
tables above.
*Refer to section ‘Comparative information’ for details on the reclassifications made to comparative information.
399
BANK OF CYPRUS HOLDINGS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
3. Operating profit return on average assets
The various components used in the determination of the operating profit return on average assets are provided
below:
31 December
2019
30 September
2019
€000
€000
30 June
2019
€000
31 March
2019
€000
31 December
2018
€000
Total assets used in the
computation of the
operating profit return
on average assets/per
the Consolidated
Balance Sheet
21,122,822
21,114,340
21,887,186
21,745,438
22,075,271
Operating profit
Quarterly average total assets
2019
€000
2018*
€000
240,429
264,316
21,589,011
21,675,817
The reconciliation of the various components of operating profit between the underlying and the statutory basis has
been provided in the tables above.
*Refer to section ‘Comparative information’ for details on the reclassifications made to comparative information.
400
BANK OF CYPRUS HOLDINGS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
COMPARATIVE INFORMATION
Comparative information has been restated as noted within the Directors’ Report for the purposes of the underlying
basis. The restatements relate to the project Helix impact as a non-recurring event and impacts the lines noted in
the table below. Amounts were reclassified out of the below lines and into the line 'Provisions/net loss relating to NPE
sales' in order to match the current year underlying basis treatment.
Items relating to Project Helix:
Net interest income (table 1.1 refers)
Net fee and commission income (table 2.2.1 refers)
Other operating expenses (table 2.1.2 refers)
Staff costs (table 2.1.1 refers)
Loan credit losses (table 4 refers)
2018
€000
88,504
4,000
(1,620)
(5,200)
(149,843)
Reclassifications to comparative information were also made for unrecognised interest on previously credit impaired
loans which cured during the year ended 31 December 2018, amounting to €32,538 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 agenda decision (tentative agenda decision in November 2018 finalised in March 2019) (Presentation of
unrecognised interest following the curing of a credit impaired financial asset (IFRS 9)). This is presented in the table
below:
Amounts reported in the Annual Report 2018 – Directors’ report –
Consolidated Income Statement underlying basis
IFRIC adjustment
Net interest income relating to Project Helix (per table above)
Amounts reported in the Annual Report 2019 – Directors’ Report
- Unaudited Consolidated Income Statement on the underlying
basis – 2018
Net interest
income
(Table 1.1)
Credit losses to
cover credit risk
on loans and
advances to
customers
(Table 4)
€000
€000
451,591
(167,828)
(32,538)
(88,504)
32,538
-
330,549
(135,290)
The changes in presentation did not have an impact on the loss after tax of the Group for the year. However the net
interest margin, the cost to income and the cost of risk ratios were recalculated to account for these reclassifications.
401