Annual Financial Report 2020
BANK OF CYPRUS GROUP
Annual Financial Report
for the year ended 31 December 2020
Annual Financial Report 2020
Contents
Board of Directors and Executives
Forward Looking Statements and Notes
Management Report of Bank of Cyprus Public Company Ltd
Consolidated Financial Statements of Bank of Cyprus Group
Independent Auditor’s Report to the Members of Bank of Cyprus Public Company Ltd on the
Consolidated Financial Statements
Financial Statements of Bank of Cyprus Public Company Ltd
Independent Auditor’s Report to the Members of Bank of Cyprus Public Company Ltd on the
Separate Financial Statements
Definitions and explanations on Alternative Performance Measures Disclosures
Page
1
2
3
38
230
243
399
411
BANK OF CYPRUS GROUP
Board of Directors and Executives
as at 29 March 2021
Annual Financial Report 2020
Board of Directors of Bank of Cyprus
Public Company Ltd
Efstratios-Georgios Arapoglou
CHAIRMAN
Lyn Grobler (elected as Vice-Chairperson on 26 May 2020)
VICE-CHAIRPERSON
Executive Committee
Arne Berggren
Dr. Michael Heger
Panicos Nicolaou
Ioannis Zographakis
Maria Philippou
Maksim Goldman (resigned from Vice-Chairperson position on 26 May 2020)
Nicos Sofianos (appointed on 14 May 2020 - approved by ECB on 26 February 2021)
Paula Hadjisotiriou
Constantine Iordanou (appointed on 28 September 2020, subject to ECB approval)
Eliza Livadiotou (appointed on 28 September 2020, subject to ECB approval)
Dr. Christodoulos Patsalides (resigned on 31 October 2020)
Anat Bar Gera (resigned on 26 May 2020)
Panicos Nicolaou
CHIEF EXECUTIVE OFFICER
Dr. Charis Pouangare
DEPUTY CHIEF EXECUTIVE OFFICER
Eliza Livadiotou
EXECUTIVE DIRECTOR FINANCE
Demetris Demetriou
CHIEF RISK 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
43 Demostheni Severi Avenue,
1080 Nicosia,
Cyprus
51 Stassinos Street
Ayia Paraskevi, Strovolos
CY-2002 Nicosia, Cyprus
Telephone: +357 22122100
Telefax: +357 22336258
1
BANK OF CYPRUS GROUP
Forward Looking Statements and Notes
Annual Financial Report 2020
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 Group (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, adverse market conditions, the impact of outbreaks, epidemics or pandemics, such as the COVID-19
pandemic and ongoing challenges and uncertainties posed by the COVID-19 pandemic for businesses and
governments around the world. 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 at 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 Public Company Ltd (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 411 to 421 of the Annual Financial Report for the year ended 31 December 2020 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 2020 is available on the Group’s website
www.bankofcyprus.com (Investor Relations/Annual Reports).
2
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Annual Financial Report 2020
The Board of Directors submits to the shareholders of Bank of Cyprus Public Company Ltd (the Company)
their Management Report together with the audited Consolidated Financial Statements (Consolidated
Financial Statements) and Financial Statements of the Company for the year ended 31 December 2020.
The Annual Financial Report relates to the Company and together with its subsidiaries the Group.
Activities
The principal activities of the Company 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 51 of the Consolidated Financial Statements. The
Group has established branches in Greece. Acquisitions and disposals made during the year 2020 are
detailed in Notes 51, 52 and 53 of the Consolidated Financial Statements.
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 2020 on the ‘underlying basis’ which the management believes best fits the true
measurement of the performance and position of the Group, as this presents separately the exceptional and
the one-off items. Reconciliations between the statutory basis and the underlying basis are included in
section ‘Unaudited reconciliation of the Income Statement for the year ended 31 December 2020 between
statutory 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 2020 to facilitate the
comparability of the underlying basis to the statutory information.
With respect to the ‘Balance Sheet Analysis’, please note the following in relation to the disclosure of pro
forma figures and ratios with respect to Project Helix 2 (as explained in the paragraph below). All relevant
figures are based on 31 December 2020 financial results, unless otherwise stated. Numbers on a pro forma
basis are based on the 31 December 2020 underlying basis figures and are adjusted for Project Helix 2, and
assume its completion, which remains subject to required customary regulatory and other approvals. Where
numbers are provided on a pro forma basis this is stated.
The below definitions are used in the commentary that follows the presentation of the underlying basis
financial information:
NPE sales: NPE sales refer to sales of portfolios completed in each period and contemplated sale
transactions, as well as potential further NPE sales, at each reporting date, irrespective of whether or not
they meet the held for sale classification criteria at the reporting dates. They include both Project Helix and
Project Helix 2, as well as other portfolios.
Project Helix 2: Project Helix 2 refers to the agreement the Group reached in August 2020 with funds
affiliated with Pacific Investment Management Company LLC ('PIMCO'), for the sale of a portfolio of loans
with gross book value of €0.9 billion (Helix 2 Portfolio A), as well as to the agreement the Group reached
with PIMCO in January 2021 for the sale of an additional portfolio of loans with gross book value of €0.5
billion (Helix 2 Portfolio B). Further details of the transaction are provided in ‘Loan portfolio quality’ under
the 'Balance Sheet Analysis' section below.
Project Helix: Project Helix refers to the sale of a portfolio of loans with a gross book value of €2.8 billion
completed in June 2019.
3
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
The main financial highlights for 2020 are set out below:
Unaudited Consolidated Income Statement on the underlying basis
Annual Financial Report 2020
€ 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 and contributions to Single Resolution Fund (SRF) and Deposit
Guarantee Fund (DGF)
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
(Loss)/profit before tax and non-recurring items
Tax
Profit/(loss) attributable to non-controlling interests
(Loss)/profit after tax and before non-recurring items (attributable
to the owners of the Company)
Advisory and other restructuring costs-organic
(Loss)/profit after tax - organic (attributable to the owners of the
Company)
Provisions/net loss relating to NPE sales, including restructuring expenses3
Restructuring costs - Voluntary Staff Exit Plan (VEP)
(DTC levy)/reversal of impairment of DTA and impairment of other tax
receivables
Loss on remeasurement of investment in associate upon classification as held
for sale (CNP) net of share of profit from associates
Loss after tax (attributable to the owners of the Company)
Key Performance Ratios4
Net interest margin
Cost to income ratio
Cost to income ratio excluding special levy, contributions to SRF and DGF
Operating profit return on average assets
Basic losses per share attributable to the owners of the Company (€ cent)
20201
20191,2
330
144
15
56
7
15
567
(195)
(145)
(30)
(370)
197
(149)
(42)
(7)
(198)
(1)
(8)
3
(6)
(10)
(16)
(146)
(6)
(3)
-
(171)
344
150
38
58
32
29
651
(220)
(165)
(25)
(410)
241
(146)
(22)
(10)
(178)
63
(3)
(2)
58
(22)
36
(92)
(81)
88
(21)
(70)
%1.84
%65
%60
%0.9
(1.79)
%1.90
%63
%59
%1.1
(0.74)
1The financial information is derived from and should be read in conjunction with the accompanied
Consolidated Financial Statements.
2The interest income, non-interest income, staff costs, other operating expenses and loan credit losses
relating to Project Helix are disclosed under ‘Provisions/net loss relating to NPE sales, including
restructuring expenses’ in the underlying basis, in order to separate out the impact of this non-recurring
transaction.
3‘Provisions/net loss relating to NPE sales, including restructuring expenses’ refer to the net loss on
transactions completed during each year, net loan credit losses on transactions under consideration, as well
as the restructuring costs relating to these trades.
4
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Annual Financial Report 2020
Unaudited Consolidated Income Statement on the underlying basis (continued)
4Including the NPE portfolios classified as 'Non-current assets and disposal groups held for sale'.
Unaudited Consolidated Balance Sheet on the 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
20201
20191
5,653
403
1,913
9,886
1,350
128
1,550
631
21,514
392
995
-
16,533
272
1,247
19,439
1,831
220
2,051
24
2,075
21,514
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
5
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Annual Financial Report 2020
Unaudited Consolidated Balance Sheet on the underlying basis (continued)
Key Balance Sheet figures and ratios
Gross loans (€ million)
Allowance for expected credit losses (€ million)
Customer deposits (€ million)
Loans to deposits ratio (net)
NPE ratio
NPE coverage ratio
Leverage ratio
Capital ratios and risk weighted assets
Common Equity Tier 1 (CET1) ratio (transitional for
IFRS 9)4
Total capital ratio
Risk weighted assets (€ million)
2020
(proforma)2
10,907
1,033
16,533
%60
%16
%59
%8.8
2020
(as reported)3
12,261
1,902
16,533
%63
%25
%62
%8.8
15.17%
19.30%
11,374
14.81%
18.86%
11,630
2019
12,822
2,096
16,692
%64
%30
%54
%10.0
14.82%
18.46
%
12,884
1The financial information is derived from and should be read in conjunction with the accompanied
Consolidated Financial Statements.
2Pro forma: Pro forma for the agreement for the sale of NPEs (Project Helix 2, Portfolios A and B) of €1.3
billion on the basis of 31 December 2020 figures; calculations on a pro forma basis assume completion of
Project Helix 2 (Portfolios A and B), which is subject to required customary regulatory and other approvals.
3As reported: Including the NPE portfolios classified as 'Non-current assets and disposal groups held for
sale'.
4The CET1 fully-loaded ratio as at 31 December 2020 amounts to 12.95% and 13.27% pro forma for Helix 2
(Portfolios A and B) compared to 13.07% as at 31 December 2019.
Unaudited reconciliation of the Income Statement for the year ended 31 December 2020 between
statutory and 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
Insurance income net of 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
Loss before tax and non-recurring items
Tax
Loss attributable to non-controlling interests
Loss after tax and before non-recurring items (attributable to
the owners of the Company)
Advisory and other restructuring costs - organic
Loss after tax - organic* (attributable to the owners of the
Company)
Provisions/net loss relating to NPE sales, including restructuring
expenses
Restructuring costs-Voluntary Exit Plan (VEP)
DTC levy
Loss after tax (attributable to the owners of the Company)
6
Underlying
basis
330
144
15
56
7
15
567
(370)
197
(149)
(42)
(7)
(1)
(8)
3
(6)
(10)
NPE
sales
-
-
-
-
-
-
-
(26)
(26)
(120)
-
-
(146)
-
-
(146)
-
(16)
(146)
(146)
146
(6)
(3)
(171)
-
-
-
Tax related
items
Other
Statutory
basis
-
-
-
-
-
-
-
(3)
(3)
-
-
-
(3)
-
-
(3)
-
(3)
-
-
-
3
3
-
-
-
-
-
3
(23)
(20)
(3)
-
7
(16)
-
-
(16)
10
330
144
18
56
7
15
570
(422)
148
(272)
(42)
-
(166)
(8)
3
(171)
-
(6)
(171)
6
-
-
-
-
-
-
(171)
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Annual Financial Report 2020
Unaudited reconciliation of the Income Statement for the year ended 31 December 2020 between
statutory and underlying basis (continued)
*This is the loss after tax (attributable to the owners of Company), before the 'Provisions/net loss relating
to NPE sales, including restructuring expenses' as well as before the restructuring costs relating to the
voluntary staff exit plan (VEP) and the DTC levy.
The reclassification differences between the statutory basis and the underlying basis mainly relate to the
impact from 'non-recurring items' and are explained as follows:
NPE sales
Total expenses include restructuring costs of €5 million and operating expenses of €21 million
mainly relating to the agreements for the sale of portfolios of NPEs and are presented within
'Provisions/net loss relating to NPE sales, including restructuring expenses' under the underlying
basis.
Loan credit losses under the statutory basis include the loan credit losses relating to Project Helix
2 of €99 million recorded upon the closing of the transaction for each portfolio, as well as
additional loan credit losses of €21 million recorded in the second quarter of 2020 within the
context of IFRS 9, as a result of potential further NPE sales anticipated at the time; these are
disclosed under non-recurring items within 'Provisions/net loss relating to NPE sales, including
restructuring expenses' under the underlying basis.
Tax related items
Levy in the form of a guarantee fee relating to the revised income tax legislation of €3 million,
which has been disclosed within 'DTC levy’ 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.
Other reclassifications
Advisory and other restructuring costs of approximately €10 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 €7 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 (VEP) amounting to €6 million and
included within 'Staff costs' under the statutory basis, are separately presented under the
underlying basis, since they represent one-off items.
Net gains on loans and advances to customers at FVPL of approximately €3.5 million included in
'Loan credit losses' under the underlying basis are included in 'Net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and associates' under the statutory basis.
Their classification under the underlying basis is done in order to align them to the net losses on
loans and advances to customers at amortised cost.
Balance Sheet Analysis
Capital Base
Total equity excluding non-controlling interests totalled €2,051 million at 31 December 2020, compared to
€2,260 million at 31 December 2019. Shareholders’ equity totalled €1,831 million at 31 December 2020,
compared to €2,040 million at 31 December 2019.
The Common Equity Tier 1 capital (CET1) ratio on a transitional basis stood at 14.81% at 31 December
2020 and 15.17% pro forma for the Project Helix 2 (Portfolios A and B) sale agreements reached in the
third quarter 2020 and in the first quarter 2021 respectively (referred to as 'pro forma for Helix 2'),
compared to 14.82% at 31 December 2019.
During the year ended 31 December 2020, the CET1 ratio was positively impacted by the amendments to
the capital regulations introduced in June 2020 in response to COVID-19 by approximately 82 bps (net
positive impact). The main drivers behind this increase have been the acceleration of the implementation of
the new SME discount factor under CRR II introduced in June 2020 instead of June 2021, the introduction of
the prudential treatment of software assets in December 2020 and the amendments to the IFRS 9 dynamic
component introduced as of June 2020.
7
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
Annual Financial Report 2020
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 year 2018 was 5% of the impact on the impairment amounts from the initial
application of IFRS 9, which increased to 15% (cumulative) for year 2019, 30% (cumulative) for year 2020
and 50% (cumulative) for year 2021. This will increase to 75% (cumulative) for year 2022 and will be fully
phased in (100%) by 1 January 2023. The CET1 ratio on a transitional basis of the Group stood at 14.35%
on 1 January 2021 and 14.70% pro forma for Helix 2.
In June 2020, Regulation (EU) 2020/873, regarding certain adjustments in response to the COVID-19
pandemic, came into force, extending the IFRS 9 transitional arrangements and introducing further relief
measures to CET1, such as allowing to temporarily add back unrealised gains or losses on certain financial
instruments measured at fair value through other comprehensive income. Further details are set out further
below under ‘Implications on capital from the Outbreak of COVID-19’.
The CET1 ratio on a fully loaded basis amounted to 12.95% as at 31 December 2020 and 13.27% pro forma
for Helix 2, compared to 13.07% as at 31 December 2019. On a transitional basis and on a fully phased-in
basis, after the transition period is completed, the impact of IFRS 9 is expected to be manageable and
within the Group’s capital plans.
The Total Capital ratio stood at 18.86% as at 31 December 2020 and 19.30% pro forma for Helix 2,
compared to 18.46% as at 31 December 2019.
The Group’s capital ratios are above the Supervisory Review and Evaluation Process (SREP) requirements.
In the context of ECB’s capital easing measures for COVID-19, in April 2020 the Company received an
amendment to the December 2019 SREP decision effective as of 12 March 2020, reducing the Group’s
minimum phased-in Common Equity Tier 1 (CET1) capital ratio to 9.7% (comprising of 4.5% Pillar I
requirement, 1.7% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other
Systemically Important Institution Buffer of 1.0%), following the frontloading of the new rules on the Pillar
II Requirement composition, to allow banks to use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to
meet Pillar II Requirements and not meet P2R only by CET1, initially scheduled to come into effect in
January 2021.
The SREP Total Capital Requirement remained unchanged at 14.5%, comprising of 8.0% Pillar I
requirement (of which up to 1.5% can be in the form of AT1 capital and up to 2.0% in the form of T2
capital), 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other Systemically
Important Institution Buffer of 1.0%. The ECB has also provided non-public guidance for an additional Pillar
II CET1 buffer. Pillar II add-on capital requirements derive from the context of the SREP, which is a point in
time assessment, and are therefore subject to change over time.
In November 2020, the Group received communication from the ECB according to which no SREP decision
will be issued for the 2020 SREP cycle and that the 2019 SREP decision will remain in force, hence leaving
the Group’s capital requirements unchanged, as well as other requirements established by the 2019 SREP
decision (as amended in April 2020). The communication follows a relevant announcement by the ECB
earlier in the year that the ECB will be taking a pragmatic approach towards the SREP for the 2020 cycle.
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
Company has been designated as an O-SII and the O-SII buffer currently set by the CBC for the Group is
2%. This buffer is being phased-in gradually, having started from 1 January 2019 at 0.5% and increasing by
0.5% every year thereafter, until being fully implemented (2.0%). In April 2020, the CBC decided to delay
the phasing-in (0.5%) of the O-SII buffer on 1 January 2021 and 1 January 2022 by 12 months.
Consequently, the O-SII buffer will be fully phased-in on 1 January 2023, instead of 1 January 2022 as
originally set.
Further analysis on the recent developments on the regulatory capital ratios due to the COVID-19 outbreak
is set out further below under ‘Implications on capital from the Outbreak of COVID-19’.
8
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
Annual Financial Report 2020
The European Banking Authority (EBA) final guidelines on SREP and supervisory stress testing and the
Single Supervisory Mechanism’s (SSM) 2018 SREP methodology provide that own funds held for the
purposes of Pillar II Guidance cannot be used to meet any other capital requirements (Pillar I, Pillar II
requirements or the combined buffer requirement), and therefore cannot be used twice. Following the 2019
SREP decision, the new provisions became effective as of 1 January 2020.
Based on the SREP decisions of prior years, Bank of Cyprus Holdings Public Limited Company (BOCH) and
the Company were under a regulatory prohibition for equity dividend distribution and therefore no dividends
were declared or paid during 2019. Following the 2020 SREP communication, BOCH and the Company are
still under equity dividend distribution prohibition as the 2019 SREP decision remains in force. 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 BOCH or the Company.
The ECB, as part of its supervisory role, has completed an onsite inspection and review on the value of the
Group’s foreclosed assets with reference date 30 June 2019. The findings relate to a prudential charge of up
to 46 bps, the majority of which is expected to be taken at 30 June 2021, depending on the Company's
progress in disposing the properties impacted by the prudential charge.
Share Premium reduction of the Company
The Company having obtained approval by its shareholders, the ECB and the Court of Cyprus, implemented
a capital reduction process in October 2020, which resulted in the reclassification of approximately €619
million of the Company's share premium balance as distributable reserves. Such reduction of capital did 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 Capital
Requirements Regulation (EU) No. 575/2013 (CRR), which provides that coupons on AT1 capital
instruments may only be funded from distributable items.
Project Helix 2
In August 2020, the Group signed an agreement (the ‘agreement’) for the sale of a portfolio of loans with
gross book value of €0.9 billion as at 30 June 2020, known as Project ‘Helix 2 Portfolio A’. Loan credit losses
in relation to the agreement of approximately €68 million, including transaction costs were recognised
during the second quarter of 2020.
In January 2021, the Group amended and restated the agreement to incorporate the sale of an additional
portfolio of loans with gross book value of €0.5 billion as at 30 September 2020, known as Project ‘Helix 2
Portfolio B’. As at the year-end, in anticipation to the agreement for Project ‘Helix 2 Portfolio B’ loan credit
losses of approximately €27 million, estimated ECL (including transaction costs) were recognised in
December 2020.
The completion of Helix 2 Portfolio B will be aligned with the completion of Helix 2 Portfolio A and is
currently estimated to occur early in the second half of 2021. The completion remains subject to a number
of conditions, including required customary regulatory and other approvals.
The expected capital impact of Project Helix 2 (Portfolios A and B) at completion, and including the losses
already recognised in the second quarter of 2020 and the fourth quarter of 2020, is a negative impact of 42
bps on the Group’s CET1 ratio. The expected overall capital impact of Project Helix 2 (Portfolios A and B),
upon the full payment of the deferred considerations and without taking into consideration any positive
impact from the earnout, is a positive impact of 24 bps on the Group's CET 1 ratio. Further details regarding
the consideration, including the deferred component and earnout, are provided below in ‘Loan portfolio
quality’ discussed under the 'Balance Sheet Analysis' section.
9
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
Legislative amendments for the conversion of DTA to DTC
Annual Financial Report 2020
Legislative amendments allowing for the conversion of specific deferred tax assets (DTA) into deferred tax
credits (DTC) became effective in March 2019. The law amendments cover the utilisation of income tax
losses transferred from Laiki Bank to the Company in March 2013. The introduction of CRD IV in January
2014 and its subsequent phasing-in led to a more capital-intensive treatment of this DTA for the Company.
The law amendments resulted in an improved regulatory capital treatment, under CRR, of the DTA
amounting to approximately €285 million or a CET1 uplift of approximately 190 bps in March 2019.
The Group understands that, in response to concerns raised by the European Commission with regard to the
provision of state aid arising out of the treatment of such tax losses, the Cyprus Government is considering
the adoption of modifications to the Law, 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.
The Group, in anticipation of modifications in the Law, acknowledges that such increased annual fee may be
required to be recorded on an annual basis until expiration of such losses in 2028. The determination and
conditions of such amount will be prescribed in the Law to be amended and the amount determined by the
Government on an annual basis. Amendments to the Law will need to be adopted by the Cyprus Parliament
and published in the Official Gazette of the Republic for the amendments to be effective. The Group,
however, understands that contemplated amendments to the Law may provide that the minimum fee to be
charged will be 1.5% of the annual instalment and can range up to a maximum amount of €10 million per
year. The Group estimates that such increased fees could range up to €5.3 million per year (for each tax
year in scope i.e. since 2018) although the Group understands that such fee may fluctuate annually as to be
determined by the Ministry of Finance. In this respect, an amount of €3 million has been recorded in the
fourth quarter of 2020 to bring the total amount provided for years 2018-2020 to €16 million, being the
maximum expected increased amount for these years (2019: €13 million in the fourth quarter of 2019 and
€19 million for year 2019).
Voluntary Staff Exit Plan
In December 2020, the Group completed a targeted voluntary staff exit plan (VEP) at a total cost of €6
million, recorded in the consolidated income statement in the fourth quarter of 2020, resulting in a negative
impact of approximately 5 bps on the Group’s CET1 ratio. 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 the fourth quarter of 2019, resulting in a negative impact of approximately 60 bps on the Group’s CET1
ratio. For further information please refer to the section of ‘Total expenses’.
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.
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.
10
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
Implications on capital from the outbreak of COVID-19
Annual Financial Report 2020
The Group continues to closely monitor developments in, and the effects of COVID-19 on both the global
and Cypriot economy. In early 2020, the ECB announced a package of positive measures that should help to
support the capital position of banks, in order to secure favourable conditions of financing for the economy
with the aim to mitigate the effects of the crisis. Specifically, the measures increased 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.
In the context of the ECB’s capital easing measures for COVID-19, in April 2020, the Company received an
amendment to the December 2019 SREP decision effective as of 12 March 2020, reducing the Group’s
minimum phased-in CET1 capital ratio to 9.7%. In addition, in March 2020, the ECB announced that banks
are temporarily allowed to operate below the level of Pillar II Guidance (P2G), the capital conservation
buffer (CCB) and the countercyclical buffer. The CBC has set the level of the countercyclical buffer for
Cyprus at 0% for the years 2020 and 2019. In July 2020, the ECB committed to allow banks to operate
below the P2G and the combined buffer requirement until at least end of 2022, without automatically
triggering supervisory actions. In addition, in April 2020, the CBC decided to delay the phasing-in of the O-
SII buffer. Further details are given above.
In June 2020, Regulation (EU) 2020/873, in response to the COVID-19 pandemic, came into force, bringing
forward some of the capital-relieving measures that were due to come into force at a later stage and
introducing modifications as part of the wider efforts of competent authorities to provide the support
necessary to the institutions. The main amendments affecting the Group’s own funds relate to the
acceleration of the implementation of the new SME discount factor under CRR II introduced in June 2020,
instead of June 2021, extending the IFRS 9 transitional arrangements and introducing further relief
measures to CET1, advancing the application of the prudential treatment of software assets as amended by
CRR II, and introducing a temporary treatment of unrealized gains and losses to exposures to central
governments, regional governments or local authorities, measured at fair value through other
comprehensive income.
With respect to the SME discount factor, banks will be required to hold less capital against SMEs as revised
capital discount factors come into effect. These changes became effective in June 2020 and added 44 bps to
capital in 2020 upon implementation (i.e. as at 30 June 2020).
The amendments to the existing IFRS 9 transitional arrangements relate to the extension of the transitional
period for the recalculation of the transitional adjustment on credit losses on Stage 1 and Stage 2 loans
(dynamic component). A 100% add-back of IFRS 9 provisions is allowed for the years 2020 and 2021
reducing to 75% in 2022, to 50% in 2023 and to 25% in 2024. The calculation at each reporting period is to
be made against Stage 1 and Stage 2 provisions as at 1 January 2020, instead of 1 January 2018. The
calculation of the static component has not been amended. These amendments became effective in June
2020 and added 20 bps to capital as at 31 December 2020.
In relation to the prudential treatment of intangibles, software assets will no longer be deducted in full in
CET1 calculations, subject to certain criteria. The new amendments came into force during the fourth
quarter 2020 and added 19 bps to capital as at 31 December 2020.
Finally, institutions may remove from the calculation of their CET1 the amount of unrealised gains and
losses accumulated since 31 December 2019 for certain financial instruments accounted for as ‘debt
instruments measured at fair value through other comprehensive income’ in the balance sheet,
corresponding to exposures to central governments, to regional governments or to local authorities and to
public sector entities, excluding those financial assets that are credit-impaired, subject to a scaling factor
set at 100% from January to December 2020, at 70% from January to December 2021 and at 40% from
January to December 2022. The Company applies the temporary relief as of the third quarter of 2020 and
the relief contributed 2 bps to capital as at 31 December 2020.
11
Annual Financial Report 2020
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
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 this was
an amending regulation, the existing provisions of CRR apply, unless they are amended by CRR II. Being a
Regulation, CRR II is directly applicable in each member state. Member states are required to transpose the
CRD V into national law. To date, this transposition has not yet taken place. 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 MREL requirements and a binding Leverage Ratio and Net Stable Funding Ratio (NSFR)
requirement.
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 ΙΙ came into effect and must be
transposed into national law. To date, this transposition has not yet taken place. 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.
In February 2021, the Company received notification from the Single Resolution Board (SRB) of the draft
decision for the binding minimum requirement for own funds and eligible liabilities (MREL) for the Company,
determined as the preferred resolution point of entry.
As per the draft decision, the minimum MREL requirement is set at 23.32% of risk weighted assets and
5.91% of Leverage Ratio Exposure (LRE) and must be met by 31 December 2025. Furthermore, the
Company must comply by 1 January 2022 with an interim requirement of 14.94% of risk weighted assets
and 5.91% of LRE. The own funds used by the Company to meet the Combined Buffer Requirement (CBR)
will not be eligible to meet its MREL requirements expressed in terms of risk-weighted assets. Once the
above-mentioned decision becomes final (expected end of March 2021/early April 2021), these
requirements will replace those that were previously applicable.
The MREL ratio of the Company as at 31 December 2020, calculated according to SRB’s eligibility criteria
currently in effect and based on the Company's internal estimate, stood at 15.36% of risk weighted assets
(and at 14.92% of risk weighted assets as at 1 January 2021) and at approximately 10% of LRE (and at
approximately 10% of LRE as at 1 January 2021). Pro forma for Project Helix 2, the MREL ratio of the
Company as at 31 December 2020, calculated on the same basis, stood at 15.80% of risk weighted assets
(and at 15.35% of risk weighted assets as at 1 January 2021). The MREL ratio expressed as a percentage of
risk weighted assets does not include capital used to meet the CBR amount, currently at 3.5% and expected
to increase to 4% on 1 January 2022.
The MREL per the draft decision is in line with the Company's expectations and funding plans, and in this
context, the Company will consider initiating its MREL issuance, as part of its overall capital and funding
strategy.
12
Annual Financial Report 2020
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Funding and liquidity
Funding
Funding from Central Banks
At 31 December 2020, the Company's funding from central banks amounted to €995 million, which relates
to ECB funding, comprising solely of funding through the Targeted Longer-Term Refinancing Operations
(TLTRO) III, compared to no funding from central banks as at 31 December 2019. In June 2020, the
Company borrowed €1 billion from the fourth TLTRO III operation, despite its comfortable liquidity position,
given the favourable borrowing rate, in combination with the relaxation of collateral terms.
Deposits
Customer deposits totalled €16,533 million at 31 December 2020, compared to €16,692 million at 31
December 2019, remaining broadly flat.
The Company's deposit market share in Cyprus reached 35.0% as at 31 December 2020, at similar levels as
at 31 December 2019. Customer deposits accounted for 77% of total assets and 85% of total liabilities at
31 December 2020, compared to 79% of total assets and 89% of total liabilities at 31 December 2019.
The net Loans to Deposits (L/D) ratio stood at 63% as at 31 December 2020, compared to 64% as at 31
December 2019. The L/D ratio had reached a peak of 151% as at 31 March 2014.
Subordinated Loan Stock
At 31 December 2020 the Company's subordinated loan stock (including accrued interest) amounted to
€272 million, compared to €272 million at 31 December 2019 and relates to unsecured subordinated Tier 2
Capital Notes of nominal value €250 million, issued by the Company in January 2017.
The Group is currently evaluating opportunities for a potential Tier 2 capital transaction given the terms and
maturity profile of the Company’s existing €250 million 10NC5 Tier 2 notes, subject to market conditions.
Liquidity
At 31 December 2020 the Group Liquidity Coverage Ratio (LCR) stood at 254%, compared to 208% at 31
December 2019, above the minimum regulatory requirement of 100%.
The liquidity surplus in LCR at 31 December 2020 amounted to €4.2 billion, compared to €3.2 billion at 31
December 2019. The increase in 2020 is driven mainly by the borrowing of €1 billion TLTRO III in June
2020.
The Net Stable Funding Ratio (NSFR) has not yet been introduced. It will be enforced as a regulatory ratio
under CRR II in June 2021, with the limit set at 100%. At 31 December 2020, the Group’s NSFR, on the
basis of Basel ΙΙΙ standards, stood at 139%, compared to 127% at 31 December 2019.
Regulatory measures to mitigate the impact of COVID-19 crisis on banks' liquidity position
Resulting from the outbreak of COVID-19, the ECB has adopted a broad set of policy measures to mitigate
the economic impact of the crisis and to ensure that its directly supervised banks can continue to fulfil their
role in funding the real economy. The main measures which have a direct or indirect impact on the liquidity
position of banks are summarised below:
The ECB allows banks to operate below the defined level of 100% of the LCR until at least end-2021.
Collateral easing measures: The package included a set of collateral easing measures, which
resulted in increasing the Company's borrowing capacity at the ECB operations and improving the
liquidity buffers due to the lower haircuts applied to the ECB eligible collateral the Company holds,
that comprises of bonds and Additional Credit Claims (ACC). The collateral easing packages are
designed mainly as temporary measures that will remain in place until June 2022 and will be
reassessed before then. Furthermore, the ECB enlarged the scope of the ACC framework, increasing
the universe of eligible loans. In addition, the ECB announced changes in collateral rules, temporarily
accepting collateral with a rating below investment grade, not lower than a certain rating level.
13
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Funding and liquidity (continued)
Annual Financial Report 2020
Favourable terms of LTRO operations: the package contained measures to provide liquidity support
to the euro area financial system. Such measures include a series of LTROs which ran from March to
June 2020 so that participants could shift their outstanding LTRO amounts to TLTRO III, as well as
significant amendments in the terms and characteristics of TLTRO III, including a very low interest
rate applicable to the TLTRO III funding, provided the lending performance target during the
specified periods is achieved. Furthermore, a new series of longer-term refinancing operations,
called Pandemic Emergency Longer-Term Refinancing Operations (PELTROs), with low rates, was
introduced.
Loans
Group gross loans totalled €12,261 million at 31 December 2020, compared to €12,822 million at 31
December 2019. Gross loans of the Group’s Cyprus operations totalled €12,196 million at 31 December
2020 accounting for 99% of Group gross loans. Pro forma for Helix 2, gross loans are reduced by €1,354
million to €10,907 million as at 31 December 2020.
New lending granted in Cyprus reached €1,351 million for 2020, compared to €2,045 million for 2019 down
by 34%, impacted by the outbreak of COVID-19. New lending in 2020 comprised €596 million corporate
loans, €540 million retail loans (of which €363 million were housing loans), €144 million SME loans and €71
million shipping and international loans.
At 31 December 2020, the Group net loans and advances to customers totalled €9,886 million, compared to
€10,722 million at 31 December 2019. In addition, at 31 December 2020 net loans and advances to
customers of €493 million were classified as held for sale in line with IFRS 5 and relate to Project Helix 2
(€485 million, comprising €310 million relating to Portfolio A and €175 million relating to Portfolio B) and
Helix Tail (€8 million), compared to €26 million as at 31 December 2019 relating to Helix Tail and Velocity
2.
The Company is the single largest credit provider in Cyprus with a market share of 41.9% at 31 December
2020, compared to 41.1% at 31 December 2019.
Loan portfolio quality
Tackling the Group’s loan portfolio quality remains a top priority for management. The Group has continued
to make steady progress across all asset quality metrics and the loan restructuring activity has continued
despite challenges brought upon by COVID-19. The Group has been successful in engineering restructuring
solutions across the spectrum of its loan portfolio. The Group’s near-term priorities include completing the
balance sheet de-risking, whilst managing the post-pandemic NPE inflow.
The loan credit losses for 2020 totalled €149 million, (excluding provisions/net loss relating to NPE sales,
including restructuring expenses), compared to €146 million for 2019. Further details regarding loan credit
losses are provided in ‘(Loss)/profit before tax and non-recurring items’ discussed under the 'Income
Statement Analysis' section below.
Loan moratorium
As part of the measures to support borrowers affected by COVID-19 and the wider Cypriot economy, the
Cyprus Parliament voted for the suspension of loan repayments for interest and principal (loan moratorium)
for the period to the end of the year 2020, for all eligible borrowers with no arrears for more than 30 days
as at the end of February 2020. Over 25,000 customers were approved, relating to gross loans of
approximately €5.9 billion as at 31 December 2020 (comprising gross loans to private individuals of €2.1
billion and gross loans to businesses of €3.8 billion).
14
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loan portfolio quality (continued)
Annual Financial Report 2020
The payment holiday for all these loans expired on 31 December 2020 and their performance since the end
of the moratorium is encouraging. €3.8 billion of the performing loans had an instalment due by 19 March
2021, and 96% of those resumed payments. Of the remaining €2.1 billion loans under the moratorium €0.3
billion of performing loans have an instalment due between 19 March 2021 and end of March 2021, €0.9
billion of performing loans in the second quarter of 2021 and €0.3 billion of performing loans in the second
half of 2021. Gross loans of €0.3 billion relate to NPEs as at the start of the moratorium that were eligible
and participated in the payment deferred scheme. The remaining €0.3 billion relate to overdraft facilities
and current accounts with no instalment.
Gross loans to private individuals under payment deferrals that expired on 31 December 2020, totalled €2.1
billion of which €1.9 billion related to performing loans. 93% of those performing loans had an instalment
due by 19 March 2021, and 93% of those resumed payments. Similarly, gross loans to businesses under
payment deferrals that expired on 31 December 2020, totalled €3.8 billion of which €3.4 billion related to
performing loans. 59% of those performing loans had an instalment due by 19 March 2021, and 98% of
those resumed payments.
At the same time reclassifications of approximately €260 million of loans to private individuals and
approximately €450 million of loans to businesses under payment deferrals were moved from Stage 1 to
Stage 2 in the year ended 31 December 2020, mainly due to the significant increase in credit risk resulting
from the deterioration of the macro assumptions, and management overlays. Further details are provided in
Note 5.2 'Calculation of expected credit losses'-'Overlays in the context of COVID-19' in the Consolidated
Financial Statements. The Company will continue to monitor this portfolio closely, to ensure that
problematic areas are identified at an early stage, and appropriate solutions are provided to viable
customers. To that end, it has enhanced its monitoring process to include transactional analysis to establish
funds availability to meet upcoming instalments and performance of daily monitoring of arrears and
excesses, as well as NPEs inflows and outflows.
Overall, regarding the economic effects of COVID-19, the impact of IFRS 9 Forward Looking Information
(FLI) driven by the deterioration of the macroeconomic outlook, resulted in a €54 million charge included in
loan credit losses for the year ended 31 December 2020. The loan credit losses charge (cost of risk) for
2020 accounted for 1.18% of gross loans, of which 43 bps reflect the deterioration of the macroeconomic
outlook for the year ended 31 December 2020 (compared to a loan credit losses charge of 1.12% for 2019).
Finally, the provision coverage of Stage 3 loans under payment deferrals that expired on 31 December 2020
of approximately 26% is considered to be adequate, as it is higher than the coverage of re-performing NPEs
(NPEs in the pipeline to exit, subject to meeting all exit criteria) of approximately 20%.
The table below presents the loans under payment deferrals that expired on 31 December 2020, by IFRS 9
staging.
IFRS 9 staging for expired loan payment deferrals (€ billion)
Stage 1
Stage 2
Stage 3
Total
2020
2019
3.96
1.58
0.33
5.87
4.35
1.14
0.46
5.95
A second scheme for the suspension of loan repayments for interest and principal (loan moratorium) was
launched in January 2021 for customers impacted by the second lockdown. Payment deferrals are offered to
the end of June 2021, however, the total months under loan moratorium, when including the loan
moratorium offered in 2020, cannot exceed a total of nine months. The application period expired on 31
January 2021 and loans of approximately €20 million have been approved for the second moratorium. Close
monitoring of the credit quality of loans in moratoria continues.
Following the outbreak of COVID-19, the sectors most adversely affected are tourism, trade, transport and
construction. The Group has a well – diversified performing loan portfolio. For further information on the
Group’s non-legacy loan book exposure to tourism and trade and the performance of these loans after the
expiry of the loan moratorium, please refer to 'Business Overview' section.
15
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loan portfolio quality (continued)
Non-performing exposure reduction
Annual Financial Report 2020
During 2020, and pro forma for Helix 2, non-performing exposures (NPEs) as defined by the European
Banking Authority (EBA) were reduced by €2,120 million, comprising organic NPE reductions of €661 million
and NPE sales of €1,459 million to €1,760 million at 31 December 2020, compared to €3,880 million at 31
December 2019, and the NPE ratio was reduced by 14 p.p. from 30% to 16%.
NPEs were reduced to €3,086 million at 31 December 2020 compared to €3,880 million at 31 December
2019. Pro forma for Helix 2, NPEs are reduced by a further €1,326 million to €1,760 million on the basis of
31 December 2020 figures.
The NPEs account for 25% of gross loans as at 31 December 2020, compared to 30% at 31 December
2019, on the same basis, i.e. including the NPE portfolios classified as 'Non-current assets and disposal
groups held for sale'. Pro forma for Helix 2 the NPE ratio is reduced to 16% on the basis of 31 December
2020 figures.
The NPE coverage ratio increased to 62% at 31 December 2020, compared to 54% at 31 December 2019,
on the same basis, i.e. including the NPE portfolios classified as 'Non-current assets and disposal groups
held for sale'. When taking into account tangible collateral at fair value, NPEs are fully covered. Pro forma
for Helix 2 the NPE coverage ratio is maintained at 59% on the basis of 31 December 2020 figures.
As of 1 January 2021, the new regulation on Definition of Default has been implemented, affecting NPE
exposures and the calculation of Days-Past-Due (please refer to Note 2.19.2 of the Consolidated Financial
Statements for the changes in the definition). The impact of these changes on the Group on 1 January 2021
is immaterial.
NPEs as per EBA definition
Of which, in pipeline to exit:
- NPEs with forbearance
measures, no arrears*
2020
pro forma
2020
2019
€ million
% gross
loans
€ million
% gross
loans
€ million
% gross
loans
1,760
%16.1
3,086
%25.2
3,880
%30.3
245
%2.2
303
%2.5
428
%3.3
*The analysis is performed on a customer basis.
Project Helix 2
In August 2020, as announced, the Group signed an agreement for the sale of a portfolio of loans with gross
book value of approximately €898 million (of which €886 million related to non-performing exposures) as at
30 June 2020, known as Project Helix 2 Portfolio A. This portfolio had a contractual balance of €1.46 billion
as at the reference date of 30 September 2019 and comprises of loans to mainly retail and small-to-
medium-sized enterprises, secured by real estate collateral. This portfolio is classified as a disposal group
held for sale since 30 June 2020 and it includes other assets (comprising properties and cash already
received since the reference date) amounting to approximately €34 million as at 30 June 2020. Further
information for amounts as at 31 December 2020 is included in Note 29 of the Consolidated Financial
Statements.
The gross consideration amounts to 46% of the gross book value as at 30 June 2020 and 29% of the
contractual balance, payable in cash, of which 35% is payable at completion, and the remaining 65% is
deferred without any conditions attached. The deferred component is payable in three broadly equal
instalments over 48 months from completion. The consideration can be increased through an earnout
arrangement, depending on the performance of Portfolio A.
16
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loan portfolio quality (continued)
Annual Financial Report 2020
In January 2021, the Group reached agreement with the buyer of Project Helix 2 Portfolio A for the sale of
an additional portfolio of loans with gross book value of €545 million (of which €529 million related to non-
performing exposures) as at 30 September 2020, known as Project Helix 2 Portfolio B. The gross book value
of €545 million includes other assets (comprising properties and cash already received since the reference
date) amounting to €26 million as at 30 September 2020. This portfolio had a contractual balance of €783
million as at the reference date of 30 September 2019 and comprises of loans to mainly retail and small-to-
medium-sized enterprises, secured by real estate collateral. This portfolio is classified as a disposal group
held for sale since 31 December 2020. Further information for amounts as at 31 December 2020 is included
in Note 29 of the Consolidated Financial Statements.
The gross consideration amounts to 44% of the gross book value as at 30 September 2020 and 31% of the
contractual balance as at the reference date (30 September 2019), payable in cash, of which 50% is
payable at completion and the remaining 50% is deferred up to December 2025 without any conditions
attached. The consideration can be increased through an earnout arrangement, depending on the
performance of Portfolio B.
The completion of Helix 2 Portfolio B will be aligned with the completion of Helix 2 Portfolio A and is
currently estimated to occur early in the second half of 2021. The completion of Project Helix 2 remains
subject to a number of conditions, including required customary regulatory and other approvals.
Following a transitional period where servicing will be retained by the Company, it is intended that the
servicing of both portfolios will be carried out by a third party servicer selected and appointed by the
purchaser.
Project Helix 2 (Portfolios A and B) accelerates the Group's strategy of de-risking its balance sheet, by
reducing its stock of NPEs by 43% to €1,760 million pro forma on the basis of the 31 December 2020
figures, and its NPE ratio by 9 p.p., to 16% pro forma on the basis of the 31 December 2020 figures.
Project Velocity 2
In May 2020, the Group completed the sale of a non-performing loan portfolio of primarily retail unsecured
exposures, with a contractual balance of €398 million and gross book value of €144 million as at the
reference date of 31 August 2019 (known as Project Velocity 2) to B2Kapital Cyprus Ltd. This portfolio
comprised approximately 10.000 borrowers, including approximately 8.400 private individuals and
approximately 1.600 small-to-medium-sized enterprises. The gross book value of this portfolio as at the
date of disposal was €133 million. The sale was broadly neutral to both the profit and loss and to capital.
Project Helix
In June 2019, the Group announced the completion of Project Helix, that referred 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),
secured by real estate collateral, to certain funds affiliated with Apollo Global Management LLC, the
agreement of which was announced on 28 August 2018. Cash consideration of approximately €1.2 billion
was received on completion, reflecting adjustments resulting from, inter alia, loan repayments received on
the Helix portfolio since the reference date of 31 March 2018. The participation of the Company in the
senior debt in relation to financing Project Helix was syndicated down from the initial level of €450 million to
approximately €45 million, representing approximately 4% of the total acquisition funding. Upon
completion, the NPE ratio was reduced by approximately 11 p.p. to 33% as at 30 June 2019, approximately
70% lower than its peak in 2014.
Project Velocity 1
In June 2019, the Group completed the sale of a non-performing loan portfolio of primarily retail unsecured
exposures, with a contractual balance of €245 million and a gross book value of €34 million as at the
reference date of 30 September 2018 (known as Project Velocity 1) to APS Delta s.r.o. This portfolio
comprised 9,700 heavily delinquent borrowers, including 8,800 private individuals and 900 small-to-
medium-sized enterprises. The gross book value of this portfolio as at the date of disposal was €30 million.
The sale was broadly neutral to both the profit and loss and to capital.
17
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loan portfolio quality (continued)
Additional strategies to accelerate de-risking
Annual Financial Report 2020
The Group remains committed to further de-risking its balance sheet and will continue to seek solutions to
achieve this. The Group continues to work with its advisers towards the sale of portfolios of NPEs in the
future, assessing the potential to accelerate the decrease in NPEs through further NPE sales. In the context
of IFRS 9, other than the loan credit losses relating to Project Helix 2 of €99 million recorded upon the
closing of the transaction for each portfolio, the Company recognised additional loan credit losses of €21
million in the second quarter of 2020 as a result of potential further NPE sales anticipated at the time. In
December 2019, additional loan credit losses of €75 million had been recognised as a result of the
anticipated balance sheet de-risking at the time.
As at 31 December 2020, a portfolio of credit facilities related to Project Helix of mainly secured non-
performing exposures (known as ‘Helix Tail’) with gross book value of €34 million, compared to €46 million
as at 31 December 2019, continues to be classified as a disposal group held for sale.
Real Estate Management Unit (REMU)
The focus of the Real Estate Management Unit (REMU) is on the disposal of on-boarded properties resulting
from debt for asset swaps. The Group completed disposals of €80 million during the year ended 31
December 2020, compared to €207 million during the year ended 31 December 2019, resulting in a profit
on disposal of €9 million for the year ended 31 December 2020, compared to a profit on disposal of €32
million for the year ended 31 December 2019.
During the year ended 31 December 2020, the Group executed sale-purchase agreements (SPAs) for
disposals with contract value of €91 million (492 properties), compared to €345 million (558 properties) for
the year ended 31 December 2019, excluding the sale of Cyreit. In addition, the Group had signed SPAs for
disposals of assets with contract value of €53 million as at 31 December 2020, compared to €36 million as
at 31 December 2019.
REMU on-boarded €146 million of assets during the year ended 31 December 2020 (down by 26%), via the
execution of debt for asset swaps and repossessed properties.
Details with respect to the prudential charge relating to the REMU OSI finding are provided above in ‘Capital
Base’ discussed under the 'Balance Sheet Analysis' section.
Project Helix 2
Stock of property with a carrying value of €59 million as at 31 December 2020 is classified as non-current
assets and disposal groups held for sale as it is included in the Helix 2 portfolio, comprising stock of
property with carrying value of €33 million relating to Helix 2 Portfolio A and €25 million of stock of property
and €1 million of investment property relating to Helix 2 Portfolio B.
Completion of sale of Cyreit
In the second quarter of 2019, the Group completed the sale of its entire holding in the investment shares
of the Cyreit Variable Capital Investment Company PLC (Cyreit) (21 properties), recognising a loss of
approximately €1 million. The total proceeds from the disposal of Cyreit were €160 million.
Completion of Project Helix
With the completion of Project Helix in the second quarter of 2019, properties with a carrying value of €109
million, in the Project Helix portfolio, were derecognised as of 30 June 2019.
Assets held by REMU
As at 31 December 2020, assets held by REMU had a carrying value of €1,457 million (comprising
properties of €1,350 million classified as ‘Stock of property’ and €107 million classified as ‘Investment
properties’), compared to €1,490 million as at 31 December 2019 (comprising properties of €1,378 million
classified as ‘Stock of property’ and €112 million classified as ‘Investment properties’).
In addition to assets held by REMU, properties classified as ‘Investment properties’ with carrying value of
€21 million as at 31 December 2020, compared to €24 million as at 31 December 2019, relate to legacy
properties held by the Company before the set-up of REMU in January 2016.
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Management Report
Financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Overseas exposures
Annual Financial Report 2020
The Group continues its efforts for further deleveraging and disposal of non-essential assets and operations
in Greece, Romania and Russia.
As at 31 December 2020 there were overseas exposures of €270 million in Greece, relating to both loans
and properties, compared to €265 million at 31 December 2019, not identified as non-core exposures, since
they are considered by management as exposures arising in the normal course of business.
Income Statement Analysis
Total income
Net interest income (NII) and net interest margin (NIM) for 2020 amounted to €330 million and 1.84%
respectively, down by 4% compared to previous year, mainly due to the lower volume of new loans and
continued pressure on lending yields.
Average interest earning assets for 2020 amounted to €17,931 million, down by 1% a year earlier.
Non-interest income for 2020 amounted to €237 million, compared to €307 million in 2019, down by 23%
compared to 2019, comprising net fee and commission income of €144 million, net foreign exchange gains
and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates of
€15 million, net insurance income of €56 million, net gains/(losses) from revaluation and disposal of
investment properties and on disposal of stock of properties of €7 million and other income of €15 million.
The yearly decrease is mainly driven by lower net gains on disposal of stock of properties (REMU gains)
negatively impacted by COVID-19, lower revaluation gains on financial instrument transactions and
disposal/dissolution of subsidiaries and associates and lower other income.
Net fee and commission income for 2020 amounted to €144 million, compared to €150 million for 2019,
reflecting the COVID-19 lockdown during the first half of 2020.
Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of
subsidiaries and associates of €15 million for 2020 (comprising net foreign exchange gains of €17 million
and net revaluation losses on financial instrument transactions and disposal/dissolution of subsidiaries and
associates of €2 million) decreased by 62% compared to 2019. The yearly decrease is mainly driven by
lower net revaluation gains and disposal/dissolution of subsidiaries and associates and lower net foreign
exchange gains in 2020 resulting from the COVID-19 lockdown during the first half of 2020.
Net insurance income of €56 million for 2020, compared to €58 million for 2019, down by 3%, reflecting the
net impact of the reduction of net claims in the general insurance business positively impacted by the
COVID-19 lockdown during the first half of 2020 and the negative impact of the change in the valuation
assumptions in the life insurance business.
Net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of
properties for 2020 amounted to €7 million (comprising a profit on disposal of stock of properties of €9
million and loss from revaluation of investment properties of €2 million), compared to €32 million in 2019,
impacted by the COVID-19 lockdown during the first half of 2020.
Total income for 2020 amounted to €567 million, compared to €651 million for 2019, down by 13%.
Total expenses
Total expenses for the year ended 31 December 2020 were €370 million, compared to €410 million for the
year ended 31 December 2019 and down by 10%, 53% of which related to staff costs (€195 million), 39%
to other operating expenses (€145 million) and 8% (€30 million) to special levy and contributions to Single
Resolution Fund (SRF) and Deposit Guarantee Fund (DGF). The yearly decrease is driven by both lower
other operating expenses and lower staff costs, reflecting the on-going efforts for cost containment. More
information is provided on these further below.
Total operating expenses for 2020 were €340 million, compared to €385 million for 2019, down by 12%.
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Management Report
Financial results on the underlying basis (continued)
Income Statement Analysis (continued)
Total expenses (continued)
Annual Financial Report 2020
Staff costs of €195 million for 2020 decreased by 11%, compared to €220 million in 2019, mainly driven by
cost savings following the completion of the voluntary staff exit plan (VEP) in the fourth quarter of 2019,
through which approximately 11% of the Group’s full-time employees were approved to leave at a total cost
of €81 million, recorded in the consolidated income statement in the fourth quarter of 2019. The annual
savings net of the impact from the renewal of the collective agreement for 2020 are estimated at €23
million or 11% of staff costs.
In December 2020, the Group completed a targeted voluntary staff exit plan (VEP) with a total cost of €6
million, recorded in the consolidated income statement in the fourth quarter of 2020 (as a non-recurring
item in the underlying basis). The gross annual savings are estimated at approximately €2 million or
approximately 1% of staff costs. The renewal of the collective agreement for 2021 remains under
discussion.
The Group employed 3,573 persons as at 31 December 2020, compared to 3,672 as at 31 December 2019,
including approximately 100 persons relating to Project Helix who were transferred to the buyer upon full
migration in January 2020. The staff costs relating to these persons in 2019 are included within
‘Provisions/net loss relating to NPE sales, including restructuring expenses’ in the underlying basis.
Other operating expenses for 2020 were €145 million, lower by 12% from €165 million in 2019, mainly due
to lower consultancy, marketing and property-related expenses in 2020, resulting from the focus of
management to contain costs and savings from the COVID-19 lockdown in the first half of 2020.
Special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF) for 2020
were €30 million, compared to €25 million in 2019, increased by 22%. The increase of approximately €5
million is driven by the contribution of the Company to the Deposit Guarantee Fund (DGF) first recorded in
2020, of which €3 million relates to the first half of 2020 and €3 million relates to the second half of 2020,
and was recorded in the first quarter of 2020 and the third quarter of 2020 respectively, in line with IFRSs.
As from 1 January 2020 and until 3 July 2024 the Company 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 covered deposits by 3 July 2024.
The cost to income ratio excluding special levy and contributions to Single Resolution Fund (SRF) and
Deposit Guarantee Fund (DGF) for 2020 was 60%, broadly flat compared to 2019.
(Loss)/profit before tax and non-recurring items
Operating profit for 2020 was €197 million, compared to €241 million for 2019, down by 18%.
The loan credit losses for 2020 totalled €149 million, compared to €146 million for 2019. With regards to
loans under moratorium considerations refer to ‘Loan portfolio quality’ - ‘Loan moratorium’ discussed above,
under the 'Balance Sheet Analysis' section.
The loan credit losses charge (cost of risk) for 2020 accounted for 1.18% of gross loans, of which 43 bps
reflect the deterioration of the macroeconomic outlook in 2020, compared to a loan credit losses charge of
1.12% for 2019.
At 31 December 2020, the allowance for expected loan credit losses, including residual fair value
adjustment on initial recognition and credit losses on off balance sheet exposures totalled €1,902 million,
compared to €2,096 million at 31 December 2019 and accounted for 15.5% of gross loans including
portfolios held for sale, compared to 16.3% at 31 December 2019.
Impairments of other financial and non-financial assets for 2020 amounted to €42 million, compared to €22
million for 2019.
Provisions for litigation, claims, regulatory and other matters for 2020 totalled €7 million, compared to €10
million for 2019.
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Management Report
Financial results on the underlying basis (continued)
Income Statement Analysis (continued)
Annual Financial Report 2020
(Loss)/profit after tax (attributable to the owners of the Company)
The tax charge for 2020 is €8 million, compared to €3 million for 2019.
Loss after tax and before non-recurring items (attributable to the owners of the Company) for 2020 was €6
million, compared to a profit of €58 million for 2019.
Advisory and other restructuring costs - organic for 2020 amounted to €10 million, compared to €22 million
for 2019.
Loss after tax arising from the organic operations (attributable to the owners of the Company) for 2020
amounted to €16 million, compared to a profit of €36 million for 2019.
Provisions/net loss relating to NPE sales, including restructuring expenses for 2020 amount to €146 million,
compared to €92 million for 2019.
Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) amounted to €6 million for 2020. For
further details please refer to the ‘Total expenses’ section.
The DTC levy was €3 million for 2020, and relates to a levy in the form of a guarantee fee relating to the
revised Income Tax legislation. The reversal of impairment of DTA and impairment of other tax receivables
was €88 million for 2019, comprising the net positive impact of €96 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 2020 was €5 million, at the same level as at 31 December 2019. For further information
please refer to ‘Legislative amendments for the conversion of DTA to DTC’ within the Section of ‘Capital
base’.
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. 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.
Loss after tax attributable to the owners of the Company for 2020 was €171 million, compared to a loss of
€70 million for 2019.
Operating environment
The Cyprus economy declined steeply by 5.1% in 2020 according to the Cyprus Statistical Service.
However, this has been a better performance than initially anticipated and better than most other EU
countries particularly in the south. The decline was driven by the trade and tourism sectors, construction
activity, industry and entertainment related services sectors. In the tourism sector in particular, total
arrivals declined by 84% in 2020 and receipts by 85.4%. On the expenditure side, the contraction was
driven by a drop in net exports and by private consumption to a lesser extent.
In the labour market, the unemployment rate increased modestly to 7.6% in 2020 according to Eurostat,
from 7.1% in 2019. Consumer prices declined by 0.6% on average in 2020, owing to the sharp decline in
global energy prices, the hit on domestic demand caused by the COVID-19 pandemic and the cut to the VAT
rate for the tourism and hospitality sector. The current fiscal and monetary stimulus have not fed into
higher prices and inflation is likely to rise only modestly in the second half of 2021 as economic activity
accelerates and the temporary reduction in the VAT income is reversed.
The Cyprus Government’s fiscal package in 2020 in response to the COVID-19 pandemic was large, at
approximately 4.5% of GDP, according to recent estimates, and included income support for households,
wage subsidies for businesses and grants to small businesses and the self-employed.
A loan moratorium for interest and principal repayments on loans for individuals and businesses was also
put in place until the end of 2020. In January 2021, a second moratorium for the period until end-June 2021
was launched for borrowers impacted by the second lockdown. Eligible borrowers are entitled to a total
moratorium not exceeding nine months, including the moratorium offered in 2020.
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Management Report
Annual Financial Report 2020
Operating environment (continued)
In the banking sector there has been significant progress since the crisis in 2013. Capital adequacy has
improved substantially, and non-performing exposures have dropped steeply. The ratio of NPEs to gross
loans was 19.1% at the end of November 2020, or 15.7% for companies and 26.2% for households.
However, banking remains vulnerable to the economic conditions amidst prevailing uncertainties and slow
progress on further reform.
Cyprus will benefit considerably from the EU’s €750 billion Next Generation funds. On a net basis, Cyprus
expects to obtain grants of up to €1.1 billion or about 5% of GDP, in the budget period 2021-2027.
However, the effectiveness of the funds in the medium and the long-term will depend on the
implementation of long-delayed structural reforms, such as improving the efficiency of the judiciary and of
the public and local administration.
Naturally, public finances deteriorated markedly in 2020 as a result of the COVID-19 pandemic and the
economic slump that ensued in the year. It is estimated that the budget deficit deteriorated from a surplus
of 1.5% of GDP in 2019 to a deficit of 5% of GDP in 2020 according to official statistics published by the
Cyprus Statistical Service. With restrictions tightened since early October 2020 in response to a second
wave of the pandemic, the Government will be providing additional support to the economy, for at least
until the end of May 2021. As a result, the trend of lower revenues and higher spending will continue
through the first half of 2021 at least. The Government’s budget position is expected to improve and the
deficit to gradually shrink in the medium term as the economy recovers and spending is scaled back. Public
debt has risen to about 118.2% of GDP (Cyprus Statistical Service). However, this is seen as temporary
driven by fiscal measures to mitigate the effects of the COVID-19 pandemic. The underlying fundamentals
remain favourable and the downward trajectory is expected to resume as growth returns. Cyprus’ debt
profile has improved considerably in recent years by proactive debt management. Average maturity has
lengthened to around eight years and debt service costs have dropped. In addition, the Government holds
significant cash buffers, at least equivalent to nine months of financing needs, reducing short-term
refinancing risk.
The monetary response of the European Central Bank (ECB) to the COVID-19 pandemic has been extremely
accommodative. In addition to negative interest rates and a renewed quantitative easing, most importantly,
the ECB introduced the Pandemic Emergency Purchase Programme (PEPP) and boosted its refinancing
operations for commercial banks. The ECB also adopted dual rates and eased the rules around its collateral
framework. The ECB provided further stimulus in December 2020, including a €500 billion increase in the
size of the PEPP to €1.85 trillion and extending its duration until March 2022. The ECB remains strongly
committed to preventing financial fragmentation in the Eurozone by keeping interest rates low and the risk
of a sovereign debt crisis marginal.
The current account also deteriorated sharply in 2020 driven by a substantial drop in net exports. However,
the current account deficit is expected to shrink gradually over the medium term as exports earnings
recover and as EU recovery funds are credited to the secondary income account of the balance of payments.
Cyprus’ reliance on external demand for tourism and travel means that economic recovery will be rather
prolonged. Real GDP is forecast to grow by 3.2% in 2021 and by another 3.1% in 2022 according to the
European Commission (European Economic Forecast, Winter 2021). Thus, real GDP can be expected to
recover to pre-pandemic levels within 2022.
The medium-term forecasts for the Cyprus economy are subject to downside and upside risks. On the
upside, the anticipated recovery in the EU may be stronger. On the downside, vaccinations may take longer
to complete and may not be as effective as now anticipated, especially if virus mutations spread. In this
context it will take longer for tourism activity to recover leading to a more permanent loss of productive
capacity. At the same time, fiscal policies may prove less effective in the future, and more difficult to
reverse, ushering in a longer period of budget imbalances and rising debt ratios. This may have implications
for debt servicing costs. The UK after Brexit may take longer to normalise its economy which may give rise
to a period of poor performances and exchange rate pressures. Geopolitical tensions in the eastern
Mediterranean may escalate, delaying hydrocarbon exploitation.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved considerably in recent years reflecting
improvements in economic resilience and consistent fiscal outperformance. Cyprus demonstrated policy
commitment to correcting fiscal imbalances through reform and restructuring of its banking system.
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Management Report
Annual Financial Report 2020
Operating environment (continued)
S&P Global Ratings maintains an investment grade rating of BBB- with a stable outlook since September
2018. The rating and the outlook were affirmed in March and September 2020 and March 2021. In March
2021, S&P Global Ratings affirmed its rating (BBB-) and its outlook to stable, balancing the risks from the
pandemic's protracted adverse impact on growth, fiscal, and banking sector performance against benefits of
the EU's Recovery and Resilience Facility (RRF) transfers, as well as further improvement in the
government's debt profile.
Fitch Ratings maintains a Long-Term Issuer Default rating of investment grade at BBB- since November
2018, affirmed in April and October 2020 and March 2021. Its outlook was upgraded to positive in October
2019 and revised to stable in April 2020 and affirmed in March 2021, reflecting the significant impact the
global COVID-19 pandemic might have on the Cyprus economy and fiscal position.
Moody’s Investors Service maintains a long-term credit rating of Ba2 since July 2018 and a positive outlook
since September 2019. More recently in January 2021, Moody’s issued a revised credit opinion on the
Cyprus Sovereign, maintaining the positive rating outlook. This was driven by the substantial reduction of
non-performing exposures and a favourable outlook on public debt reduction expected to resume after the
COVID-19 crisis. The large increase in debt related to the COVID-19 pandemic is expected to be transitory
in part because of Cyprus’ large fiscal surplus going into the pandemic.
In November 2020, DBRS Ratings affirmed the Republic of Cyprus’s Long-Term Foreign and Local Currency
– Issuer Ratings at BBB (low) with a stable trend.
Business Overview
Credit ratings
The Group’s financial performance is highly correlated to the economic and operating conditions in Cyprus.
In January 2021, Fitch Ratings affirmed their long-term issuer default rating of B- (negative outlook). In
April 2020, Fitch Ratings revised their outlook to negative, reflecting the significant impact the outbreak of
COVID-19 might have on the Cypriot economy and consequently on the Company. In November 2020,
Moody’s Investors Service affirmed the Company’s long-term deposit rating of B3 (positive outlook). In July
2020, Standard and Poor’s affirmed their long-term issuer credit rating on the Bank of ‘B+’ (stable outlook).
COVID-19 impact
The Group continues to deliver on its strategic priorities while supporting its customers, colleagues and
community in which it operates through the COVID-19 crisis, ensuring at the same time that all of its
branches operate in accordance with the guidelines and recommendations issued by the Ministry of Health.
The Group continues to closely monitor developments in, and the effects of COVID-19 on both the global
and Cypriot economy. The changed economic environment in the first half of the year 2020 resulted in
lower levels of economic activity and credit formation, which gradually recovered in the third quarter of the
year. The restrictive measures imposed in the fourth quarter for the management of the second wave have
extended into the new year and are expected to lead to some temporary loss of momentum in the economic
recovery in early 2021.
At the same time, statistics are encouraging as Cyprus ranks first among EU countries in terms of testing
for COVID-19 and fifth globally for the management of the pandemic (Lowy Institute). In addition, the
development of effective vaccines is encouraging and successful vaccination programmes both in Cyprus
and abroad should act as strong catalysts for both global and local economic recovery. In fact, the Cyprus
Government expects that over 60% of the population over 18 years old will be vaccinated by the end of
June 2021.
In common with other European banks, the prolonged low interest rate environment also continues to
present a challenge to the Group’s profitability. As a consequence of the pandemic, the Company has
updated its macroeconomic assumptions underlying the IFRS 9 calculation of loan credit losses in the first
quarter 2020 in line with the relevant regulatory guidance, resulting in increased organic loan credit losses
for the first quarter 2020 of €28 million. During the year, these assumptions were updated increasing the
respective organic loan credit losses to a total of €54 million for the year 2020. At 31 December 2020, the
Company expected, under the base scenario, the Cypriot economy to contract by 5.8% in 2020, with
gradual recovery from 2021 onwards, with GDP growth of 4.0% expected for 2021. The Company's
projections are broadly in line with those published by the CBC, the Cyprus Ministry of Finance, the
European Commission and the Economics Research Centre of the University of Cyprus.
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Annual Financial Report 2020
Business Overview (continued)
Upon the outbreak of COVID-19 in March 2020, the Pandemic Incident Management Plan of the Group was
invoked and a dedicated team (Pandemic Incident Management Team) has been monitoring the situation
domestically and globally and providing guidance on health and safety measures, travel advice and business
continuity for the Group. Local government guidelines are being followed in response to the virus.
In accordance with the Pandemic Plan, the Group adopted a set of measures to ensure minimum disruption
to its operations. The Pandemic Incident Management Team and the Crisis Management Committee are still
closely monitoring the dynamic COVID-19 pandemic developments and status. The measures comprise rules
for quarantine for vulnerable employees due to health conditions and for those returning from epicentres of
the infection. The Group replaced face-to-face meetings with telecommunications, adjusting the customary
etiquette of personal contact, including those with customers. Staff of critical functions has been split into
separate locations. In addition, to ensure continuity of business, a number of employees have been working
from home and the remote access capability has been upgraded significantly while at the same time
maintaining relevant control procedures to ensure authorisation in line with the Group's governance
structure. 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.
Also, the potential economic implications for the sectors where the Group is active have been assessed and
possible mitigating actions for supporting the economy have been identified, such as supporting viable
affected businesses and households with new lending to cover liquidity, working capital, capital expenditure
and investments related to the activity of the borrower.
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, have helped and should continue to
help reduce the negative impact and support the recovery of the Cypriot economy.
As part of the measures to support borrowers affected by COVID-19 and the wider Cypriot economy, the
Cyprus Parliament voted for the suspension of loan repayments for interest and principal (loan moratorium)
for the period to the end of the year 2020, for all eligible borrowers with no arrears for more than 30 days
as at the end of February 2020. Over 25,000 customers were approved, relating to gross loans of
approximately €5.9 billion as at 31 December 2020 (comprising gross loans to private individuals of €2.1
billion and gross loans to businesses of €3.8 billion).
The payment holiday for all these loans expired on 31 December 2020 and their performance since the end
of the moratorium is encouraging. €3.8 billion of the performing loans had an instalment due by 19 March
2021 and 96% of those resumed payments. Close monitoring of the credit quality of these loans continues
and customers with early arrears are offered solutions.
A second scheme for the suspension of loan repayments for interest and principal (loan moratorium) was
launched in January 2021 for customers impacted by the second lockdown. Payment deferrals are offered to
the end of June 2021, however, the total months under loan moratorium, when including the loan
moratorium offered in 2020, cannot exceed a total of nine months. The application period expired on 31
January 2021 and loans of approximately €20 million have been approved for the second moratorium. Close
monitoring of the credit quality of loans in moratoria continues.
Following the outbreak of COVID-19, the sectors most adversely affected are tourism being the sector with
the highest impact, then trade with medium impact, and transport and construction with moderate impact.
The Group has a well-diversified performing loan portfolio.
As at 31 December 2020, the Group’s non-legacy loan book exposure to tourism was limited to €1.1 billion
(out of a total non-legacy loan book of €9.2 billion), of which approximately 91% were under payment
deferrals that expired at the end of 2020. About 39% of the performing loans had an instalment due by 19
March 2021 and 99% of those resumed payments. It is important to note that the majority of
‘accommodation’ customers entered the crisis with significant liquidity, following strong performance in
recent years. The reduction in international tourist arrivals in 2020 was partly offset by domestic tourism, a
trend expected to continue in 2021. A recovery in tourism activity is expected from the second half of 2021
and will be linked with international vaccination programmes, noting that countries such as the UK and
Israel (accounting for over 40% of tourist arrivals) are well-progressed in their vaccination programmes.
Close monitoring of the developments continues.
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Annual Financial Report 2020
Business Overview (continued)
Respectively, the Group’s non-legacy loan book exposure to trade was €0.9 billion, of which 53% were
under payment deferrals that expired at the end of 2020. 89% of performing loans of this sector had an
instalment due by 19 March 2021 and 95% of those resumed payments. It is important to note that
approximately 30% of the exposure to trade relates to lower-risk essential retail services, not materially
impacted by COVID-19.
Strategic priorities for the medium term
The Bank’s medium-term strategic priorities remain clear, with a sustained focus on strengthening its
balance sheet, and improving asset quality and efficiency, whilst maintaining a good capital position, in
order to continue to play a vital role in supporting the recovery of the Cypriot economy. The Group
continues to explore opportunities to grow revenues in a more capital efficient way and to improve
efficiency through its digital transformation programme in order to provide products and services while
reducing operating costs.
In addition, the Company is looking to enhance its organisational resilience and ESG (Environmental, Social
and Governance) agenda by building a forward looking organisation with a clear strategy supported by
effective corporate governance aligned with ESG agenda priorities. In order to further strengthen the Bank’s
corporate responsibility regarding the protection of the environment the Bank is proceeding with the launch
of ‘environmentally friendly’ loan products to promote investment in energy saving and environmentally
friendly products and services. The Bank maintains an ESG rating of A (from a scale of AAA to CCC) from
MSCI (June 2020).
Tackling the Company's loan portfolio quality is of utmost importance for the Group. Despite the challenging
market conditions resulting from the outbreak of COVID-19, the Group signed an agreement for the sale of
a portfolio of loans with gross book value of approximately €898 million (of which €886 million related to
non-performing exposures) as at 30 June 2020, known as Project Helix 2 Portfolio A and also signed an
agreement for the sale of an additional portfolio of loans with gross book value of approximately €545
million (of which €529 million related to non-performing exposures) as at 30 September 2020, known as
Project Helix 2 Portfolio B.
Project Helix (Portfolios A and B) represents a further milestone in the delivery of one of the Group’s
strategic priorities of improving asset quality through the reduction of NPEs. Combined with a further €600
million organic reduction in NPEs and a smaller NPE sale earlier in the year, the pro forma NPE reduction for
2020 amounted to approximately €2.1 billion, reducing NPEs to €1.8 billion and the NPE ratio to 16%.
Overall, since the peak in 2014, the stock of NPEs has been reduced by €13.2 billion or 88% and the NPE
ratio by 47 percentage points, from 63% to 16%, on the same basis.
Project Helix 2 marks further progress against delivering on the Group’s strategic objectives of becoming a
stronger, safer and more efficient institution. The Group is now better positioned to manage the challenges
resulting from the impact of the ongoing COVID-19 crisis, and to support the recovery of the Cypriot
economy.
The Group remains committed to further de-risking of its balance sheet and will continue to seek solutions
to achieve this. The Group continues to work with its advisers towards the sale of portfolios of NPEs in the
future, assessing the potential to accelerate the decrease in NPEs on the balance sheet through additional
sales of NPEs. At the same time, following the outbreak of COVID-19 and the expiration of the 2020 loan
moratorium at the end of year 2020, the Group remains focused on arresting any potential asset quality
deterioration and early managing arrears.
The foreclosure process which had been suspended following the outbreak of COVID-19, from 18 March
2020 until 31 August 2020 in line with the decision of the Association of Cyprus Banks, resumed on 1
September 2020. On 29 December 2020 the Cyprus Parliament enacted via legislation the suspension of
foreclosures of primary residences with a value up to €350 thousand and of premises of the borrower if they
relate to “very small businesses” as defined by the legislation, until 31 March 2021.
The Group continues to provide high quality new loans via prudent underwriting standards and 99% of new
exposures in Cyprus since 2016 were performing at the start of the loan moratorium. Growth in new lending
in Cyprus has been focused on selected industries more in line with the Company's target risk profile, and
following the outbreak of COVID-19, the focus remains to support the Cypriot economy in order to
overcome the crisis. During the quarter ended 31 December 2020, new lending amounted to €374 million,
increased by 30% from the previous quarter, as new demand increased post the COVID-19 lockdown in first
half 2020, supported by the Government schemes. The pipeline for new housing loans is strong at over
€140 million as at mid-March.
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Business Overview (continued)
Aiming at supporting investments by SMEs and mid-caps to boost the Cypriot economy, and create new
jobs for young people, the Company continues to provide joint financed schemes. To this end, the Company
continues its partnership with the European Investment Bank (EIB), the European Investment Fund (EIF)
and the Cyprus Government.
The Group is currently evaluating opportunities for a potential Tier 2 capital transaction given the terms and
maturity profile of the Bank’s existing €250 million 10NC5 Tier 2 notes, subject to market conditions.
Separately the Group continues to evaluate opportunities to initiate its MREL issuance as part of its overall
capital and funding strategy.
The accelerated de-risking of the balance sheet increases pressure on revenues in the near term. There are
multiple initiatives underway to increase net interest income and less capital-intensive non-interest income,
with a focus on fees, insurance and non-banking business.
There are efforts underway to improve credit spreads, despite competition pressures. Over the medium-
term, the Group aims to grow its performing book by approximately 10%, as well as to grow shipping and
international corporate lending with prudency.
At the same time, in order to further optimise its funding structure, the Company continues to focus on the
shape and cost of its deposit franchise, taking advantage of the increased customer confidence towards the
Company. The cost of deposits has been reduced by 71 bps to 5 bps over the last three years. The
reduction in the cost of deposits amounts to 11 bps in 2020, compared to a reduction of 25 bps in 2019.
Moreover, liquidity fees for specific customer groups were introduced in March 2020. The introduction of
liquidity fees to a broader group of corporate clients that was delayed due to the COVID-19 pandemic was
implemented as of 1 February 2021. Separately, a new price list for charges and fees was also implemented
as of 1 February 2021, with the positive impact from both initiatives estimated at approximately €13 million
per annum. Transactional fee volumes are expected to recover to pre-COVID-19 levels, as the Cypriot
economy recovers.
In the medium-term, the Group aims to increase the average product holding through cross selling to the
under-penetrated customer base, as well as to introduce the Digital Economy Platform to generate new
revenue sources, through leveraging the Company's market position, knowledge and digital infrastructure.
Management is placing emphasis on diversifying income streams by optimising fee income from
international transaction services, wealth management and insurance. The Group’s insurance companies,
EuroLife Ltd and General Insurance of Cyprus Ltd (GIC) operating in the sectors of life and general
insurance respectively, are leading players in the insurance business in Cyprus, and have been providing a
stable, recurring fee income, further diversifying the Group’s income streams. The insurance income net of
claims and commissions for 2020 amounted to €56 million (down 3% compared to previous year),
contributing to 24% of non-interest income. Furthermore, there are initiatives underway to enhance
revenues from the insurance business in the medium-term, in order to deliver sustainable profitability and
shareholder returns. Specifically, EuroLife Ltd is aiming to improve total regular income mainly by extending
its customer base and using a new distribution philosophy; whereas GIC is aiming to increase its gross
written premiums mainly by leveraging on the Bank’s customer base through revamping its bancassurance
channel, and by focusing on high margin products. Efficiencies through enhancing digital capabilities are
also expected in the medium-term.
The Digital Transformation Programme that started in 2017 has begun to deliver an improved customer
experience (see section below), whilst the branch footprint rationalisation to date, further improved the
Company's operating model. The number of branches was reduced by 18% in 2019 and the branch network
is now less than half the size it was in 2013.
Management remains focused on further improvement in efficiency, through further branch footprint
rationalisation, further exit solutions to release full time employees, containment of restructuring costs
following the completion of balance sheet de-risking, enhancement of procurement control, as well as
reduction of total operating expenses by approximately 10% compared to 2019 over the medium term
despite inflation, facilitated by the Digital Transformation Programme.
Digital Transformation
As part of its vision to be the leading financial hub in Cyprus, the Company 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.
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Business Overview (continued)
In recent months, a number of new features have been introduced in the Company's mobile banking app.
Users can now use the app to apply and obtain an eIDAS-certified digital signature, which enables them to
electronically sign any document on multiple devices at their convenience. Also, 1bank subscribers can now
communicate with a Call Centre agent during working hours via the mobile chat in order to ask questions
and receive answers / resolve issues. As of September 2020, users have the option to receive push
notifications via the mobile app instead of SMS messages for card purchases and ATM withdrawals. Push
notifications are an instant, more secure channel that incurs no message specific cost to the Company.
Moreover, as of December 2020, users receive push notifications on their mobile phones to authorize online
card transactions through the app (instead of SMS OTP), thus providing even greater security. In addition to
using the mobile banking app, Visa cardholders can make secure and fast payments without having to carry
their mobile phone, using their Garmin or Fitbit smartwatch.
The adoption of digital products and services continued to grow and gained momentum in 2020. As at the
end of January 2021, 85.4% of the number of transactions involving deposits, cash withdrawals and
internal/external transfers were performed through digital channels (up by 21 p.p. from 65% in September
2017 when the digital transformation programme was initiated). Active mobile banking users and active
QuickPay users have grown by 20% and 76% respectively in the last 12 months. The highest number of
active users to date was recorded in January 2021 with 91 thousand active QuickPay users. The highest
number of payments was recorded in December 2020 with 228 thousand transactions.
In 2020, as a result of the COVID-19 restrictive measures, a reduction has been observed in cash
withdrawals and deposits performed through the branch network. There was an increase in the adoption of
digital products and services and in digital subscriber penetration as more customers have gained access to
digital channels and more cards have been issued. As at the end of January 2021, 74.5% of customers were
considered as digitally engaged (up by 15 p.p. from 60% since the digital transformation programme was
initiated in September 2017). A further increase is expected in 2021 driven by the increase in the number of
subscribers and the number of cards that have been issued.
As part of the Company's ambition to be one of the cornerstones of the digital economy, customers have
been enabled to authorise the release of their identification details to the Government, using the 1bank
credentials thus enabling a digital registration on the Government Gateway Portal (Ariadni), where they can
use electronic services that are made available by the Government of Cyprus (up until now citizens needed
to be physically present to identify themselves).
In addition, the Company is the first bank in the EU to offer its customers the ability to obtain a Qualified
Digital Signature through the BoC mobile app without the need of physical presence. A Qualified Digital
Signature has the same legal effect as the physical signature and thus can be used to sign digitally any
document. Signing can be done substantially faster than before and offers an enhanced customer
experience. The Company currently offers the signing of some of the Bank’s documentation with the use of
a Digital Signature and has a roadmap in place to gradually offer the digital signing of the majority of the
Bank’s documents.
Furthermore, as part of the Digital Transformation Programme, major changes are underway in relation to
enabling a modern and more efficient workplace. New technologies and tools have been introduced that will
drastically change the employee experience, improving collaboration and knowledge sharing across the
organisation. For instance, the rollout of portable devices has been initiated to the employees, whose role
demands high mobility, allowing them to work seamlessly wherever they are. Further enhancements will be
implemented in 2021 and the full impact will be seen over the coming months.
Strategy and Outlook
The strategic objectives for the Group are to become a stronger, safer and a more efficient institution
capable of supporting the recovery of the Cypriot economy and delivering appropriate shareholder returns
in the medium term.
The key pillars of the Group’s strategy are to:
Complete balance sheet de-risking
Grow revenues in a more capital efficient way; by enhancing revenue generation via growth in
performing book and less capital-intensive banking and financial services operations (Insurance
and Digital economy)
Improve operating efficiency; by achieving leaner operations through digitisation and automation
Enhance organisational resilience and ESG (Environmental, Social and Governance) agenda; by
building a forward-looking organisation with a clear strategy supported by effective corporate
governance aligned with ESG agenda priorities
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Strategy and Outlook (continued)
KEY STRATEGIC PILLARS
ACTION TAKEN IN 2020
AND TO DATE
PLAN OF ACTION
Agreement for the sale of
NPE portfolios totalling €1.3
billion, on the basis of 31
December 2020 figures.
Combined with a further
approximately €600 million
organic reduction in NPEs,
and a smaller NPE sale
earlier in the year, the pro
forma NPE reduction for
2020 amounted to
approximately €2.1 billion,
reducing NPEs to €1.8 billion
and the NPE ratio from 30%
to 16%.
For further information,
please refer to Section ‘Loan
Portfolio Quality’ and Section
‘Business Overview’
Liquidity fees for specific
customer groups were
introduced in March 2020
Liquidity fees to a broader
group of corporate clients,
that was delayed due to the
COVID-19 pandemic, was
implemented as of 1
February 2021
New price list for charges and
fees was implemented as of
1 February 2021
For further information,
please refer to Section
‘Business Overview’
Targeted voluntary staff exit
plan in the fourth quarter
2020
Reduced operating expenses
in year 2020 by 12%
compared to 2019
Further developments in the
Digital Transformation
Programme
For further information,
please refer to Section
‘Business Overview’
For further information,
please refer to Section
‘Business Overview’
Please refer to slide 38 in the
FY2020 Group Financial
Results Investors
Presentation
Complete balance sheet de-risking
Grow revenues in a more capital
efficient way; by enhancing
revenue generation via growth in
performing book, and less capital-
intensive banking and financial
services operations (Insurance and
Digital economy)
Improve operating efficiency; by
achieving leaner operations
through digitisation and
automation
Enhance organisational resilience
and ESG (Environmental, Social
and Governance) agenda; by
building a forward-looking
organisation with a clear strategy
supported by effective corporate
governance aligned with ESG
agenda priorities
Gross NPE reduction in 2021,
through both organic and
inorganic actions, expected to
more than offset NPE inflows
Continue to work with advisers
towards the sale of portfolios of
NPEs in the future, assessing
potential to accelerate NPE
reduction through additional NPE
sales
Mitigating actions against NII
challenges put in place, e.g.
growing performing book and
pricing away/price correctly
deposits
Enhance fee and commission
income, e.g. on-going review of
price list for charges and fees,
increase average product holding
through cross selling, new
sources of revenue through
introduction of Digital Economy
Platform
Profitable insurance business
with further opportunities to
grow, e.g. focus on high margin
products, leverage on Bank’s
strong franchise and customer
base for more targeted cross
selling enabled by DT
Offer exit solutions to release full
time employees
Achieve further branch footprint
rationalisation
Contain restructuring costs
following completion of balance
sheet de-risking
Enhance procurement control
Reduce total operating expenses
by approximately 10% over the
medium term despite inflation
Enhanced structure and
corporate governance
Focus on our people
Priority on ESG agenda, e.g.
introduction of 'environmentally
friendly' loan products.
Although there remains uncertainty in the broader economic environment as a result of the pandemic, the
Management remains confident in delivering on the strategic objectives for the Group.
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Strategy and Outlook (continued)
The Group’s near-term priorities include completing the balance sheet de-risking, whilst managing the post-
pandemic NPE inflow; positioning the Company on the path for sustainable profitability; ensuring the cost
base remains appropriate, whilst further investing in the digital transformation programme in the near term
in order to modernise the Bank’s franchise (in fact, the cost to income ratio is expected to rise in the near
term as revenues remain under pressure and operating expenses increase due to higher digitisation
investment costs, and to reduce to mid-50s% in the medium term); addressing the challenges from low
rates and surplus liquidity; and evaluating opportunities for a potential Tier 2 capital transaction given the
terms and maturity profile of the Company's existing €250 million 10NC5 Tier 2 notes, subject to market
conditions, whilst separately continuing to evaluate opportunities to initiate its MREL issuance as part of its
overall capital and funding strategy.
The medium-term priorities include delivering sustainable profitability and shareholder returns, enhancing
revenues by capitalising on the Group’s market leading position; enhancing operating efficiency; and
optimising capital management.
Key Metrics
Profitability
Asset Quality
Return on Tangible Equity
(ROTE)1
Total operating expenses2
NPE ratio
Cost of risk
Capital
Supported by CET1 ratio of
2020
n/a
€340 million
16% pro forma for
NPE sales
118 bps
15.17%
transitional and
pro forma for NPE
sales
Strategic Targets for
2022
Medium-Term
<10%
~7%
<€350 million
~5%
70-80 bps
at least 13%
1. Return on Tangible Equity (ROTE) is calculated as Profit after Tax divided by Shareholders' equity
minus intangible assets.
2. Total operating expenses comprise staff costs and other operating expenses. Total operating
expenses do not include the special levy or contributions to the Single Resolution Fund (SRF) or
Deposit Guarantee Fund (DGF) and do not include any advisory or other restructuring costs.
Maintaining a strong capital base has been a key priority for management over the past few years and this
remains equally important for the Group going forward. The business plan is based on maintaining a CET1
ratio of at least 13% over the entire period of the plan. The Group’s capital is to be supported by organic
capital generation and by focus on less capital-intensive businesses, the further reduction of high intensity
risk weighted assets and the Helix 2 risk weighted asset benefit upon full repayment of deferred
consideration. At the same time, factors that could potentially have a negative impact on the Group’s capital
ratios in addition to IFRS 9 phasing-in, include any potential regulatory impacts, as well as one-off cost
optimisation charges. Until the completion of the de-risking and the restructuring of the business, there may
be volatility in the capital ratios due to the timing of potential future impacts from regulatory changes and
one-off restructuring costs.
The Group has a clear strategy in place, leveraging on its strong customer base, its renewed customer trust,
its market leadership position, and further developing digital knowledge and infrastructure, in order to
complete the turnaround of its business and set the Company on a path for profitability and delivering value
for shareholders.
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 continue in operation and the development of its business in
the current economic environment.
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Going concern (continued)
The Group has developed a Financial Plan which was approved by the Board in November 2020 (the ‘Plan’).
The Plan incorporates the impact of the COVID-19 pandemic and considers the disruption it has caused to
the Group’s customers, suppliers and staff. It remains unclear how the COVID-19 pandemic will evolve
through 2021 and beyond, which from a commercial, regulatory and risk perspective could be significantly
different to past crises and persist for a prolonged period. The Group’s Financial Plan considered factors that
may inform the impact of the COVID-19 pandemic, including (amongst other things), changing
macroeconomic variables, further waves of the pandemic and successful deployment of vaccines. This
included the development of macroeconomic scenarios, base and adverse. The scenarios developed take
into consideration the following drivers and implications:
Impact on relevant economic variables, the most significant of which include residential and
commercial property prices, national output and lending volumes.
Impact on employment levels and relevant unemployment rates.
Government guidance and policy response to the crisis.
Capital and liquidity relief measures.
Other considerations such as the prudential charge that the Company will need to take in order to
address the findings of the onsite inspection and review on the value of the Group’s foreclosed
assets completed by the ECB with reference date 30 June 2019.
Expected formation of NPEs following the exit from the moratorium at the end of December 2020
as well as expected resolution over the period of the Financial Plan.
Due to the dynamic nature of COVID-19, the full impact on the future profitability is difficult to estimate.
The government response to curtail the virus and changing customer behaviours may impact the future
performance. The Group has sensitised its projection to cater for downside scenarios and has used
conservative economic inputs to develop its medium-term strategy. The Plan adverse scenarios have
considered the capital forecast for the Group, and its ability to withstand adverse scenarios such as the
economic environment in Cyprus deteriorating.
The Directors have concluded that there are no material uncertainties which would cast significant doubt
over the ability of the Group, the Company and BOCH to continue to operate as a going concern for a period
of 12 months from the date of approval of these Consolidated Financial Statements.
Capital
The following items have been considered in relation to the Group’s capital adequacy throughout the period
of the going concern assessment:
The Common Equity Tier 1 (CET1) ratio and the Total Capital ratio on a transitional basis at 31
December 2020 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 Financial Plan.
The capital relief measures announced by the ECB, the EBA, the CBC, the Cyprus Government
and the Eurogroup in order to allow banks to absorb the impact of the COVID-19 outbreak and
support the real economy.
The agreement for the Helix 2 transaction in August 2020 and January 2021 which, along with
the organic and inorganic reduction over the last years led to a significant decrease in NPEs.
Funding and liquidity
The following items have been considered in relation to the Group’s liquidity position throughout the period
of the going concern assessment:
The Group is in compliance with the Liquidity Coverage Ratio (LCR) and is significantly above the
minimum requirements.
The Group is monitoring its liquidity position and is considering ways to further reduce the
deposits cost.
The various measures of regulators which aim to mitigate the impact of the COVID-19 outbreak.
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Going concern (continued)
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, expected
further declines in non-performing exposures and a more stable price environment following a
protracted period of deflation and low inflation. The risk profile of the country deteriorated in
2020 as a result of the coronavirus pandemic and measures to mitigate its impact on the
economy, but the rating outlook remains stable to positive reflecting expectations of a return to
growth and stabilising underlying dynamics in public finances. Following the severe recession in
2020 there will be recovery in 2021, which will be partial, and it will take until 2022 for real GDP
to return to its pre-crisis levels.
In March 2021, S&P affirmed its rating (BBB-) and its outlook to stable, balancing the risks from
the pandemic's protracted adverse impact on growth, fiscal, and banking sector performance
against benefits of the EU's Recovery and Resilience Facility (RRF) transfers, as well as further
improvement in the government's debt profile. In January 2021, Moody’s issued a credit opinion
for the Cyprus Government, according to which Moody’s expect the economy to return to growth
rates from 2021 (GDP growth rate for 2021 expected at 3.5% following a contraction of 5.5% in
2020).
With respect to the Company's ratings, Moody's affirmed the Company's Long-term deposit rating
of 'B3' (positive outlook) in November 2020. In July 2020, S&P affirmed their long-term issuer
credit rating on the Company of ‘B+’ and the short-term issuer credit rating of ‘B’, with a stable
outlook, expressing the view that the enhanced capital reserves and the good liquidity position of
the Company will allow it to withstand the current shock and absorb the effects of the increasing
pressure on revenues and credit losses. In January 2021, Fitch Ratings affirmed their long-term
issuer credit rating of the Company of 'B-' and outlook of the Company to negative. Negative
outlook reflecting that risks remain skewed to the downside in the medium-term, if recession
proves deeper or the recovery weaker than Fitch's forecasts.
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. Adverse developments
regarding growth, fiscal policy, unemployment, tourism and real estate prices, could have a
negative impact on the Group’s capital adequacy and its liquidity. Management closely monitors
the developments and the impact they may have on the Group’s operations and financial
performance.
Capital base
Εquity totalled €2,051 million at 31 December 2020, compared to €2,040 million at 31 December 2019. The
CET1 ratio (transitional) stood at 14.81% at 31 December 2020 and at 14.82% at 31 December 2019. The
CET1 ratio was negatively affected mainly by the phasing-in of IFRS 9 transitional adjustments on 1 January
2020, the decrease in reserves and by ECL charges, including provisions recognised as a result of the NPE
sale agreements signed in the third quarter 2020 and in the first quarter 2021 (Project Helix 2 Portfolios A
and B). Risk Weighted Assets (RWAs) movement and pre-provision income had a positive effect on CET1
ratio. The recently introduced adjustments in response to the COVID-19 pandemic, affected positively the
CET1 ratio through increasing the IFRS9 add-back (dynamic component), the add-back in relation to
unrealized losses of certain financial instruments measured at FVOCI and by decreasing RWAs through the
implementation of the new SME supporting factor, which expanded the population of performing exposures,
the increased provision coverage in NPEs, the decrease in the overall customer advances balance sheet
values and the decrease in operational risk RWAs. The Total Capital ratio (transitional) at 31 December
2020 stood at 18.86% (2019: 18.46%).
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 2020, there were 9,597,944,533 issued ordinary shares with a nominal value of €0.10
each. Information about the authorised and issued share capital during 2020 and 2019 is disclosed in Note
35 of the Consolidated Financial Statements.
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Share-based payments - share options
Following the incorporation of BOCH 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 the Company) was replaced by the Share Option Plan which operates at the level of BOCH.
Treasury shares of the Company
There were no treasury shares of the Company as at 31 December 2020 and 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 2020 and 2019 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 regulatory 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 BOCH 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.
Dividends
Based on the SREP decisions of prior years, the Company and BOCH were under a regulatory prohibition for
equity dividend distribution and therefore no dividends were declared or paid during years 2020 and 2019,
except as detailed in Note 36 of the Consolidated Financial Statements.
Following the 2019 SREP decision, which remains in effect during 2021, the Company and BOCH 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 BOCH.
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 45 to 48 to
the Consolidated Financial Statements.
The Group is also exposed to litigation risk, arising from claims, investigations, regulatory and other
matters. Further information is disclosed in Note 39 to 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 27 to the Consolidated Financial Statements.
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Principal risks and uncertainties - Risk management and mitigation (continued)
The Group activities are mainly in Cyprus therefore the Group's performance is impacted by changes in the
Cyprus operating environment as described in the 'Operating environment' section of this Management
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 to the Consolidated Financial
Statements.
Details of the financial instruments and hedging activities of the Group are set out in Note 21 to the
Consolidated Financial Statements.
The COVID-19 and its longer term impacts on the economy and the Group’s financial performance remain
uncertain. Specifically, COVID-19 could have an adverse impact across risks including the credit portfolio,
operational risk, people, capital, funding and liquidity. The Group is closely monitoring the effects of COVID-
19 and impact on its operations, businesses and financial performance, including liquidity and capital usage.
The effects of COVID-19 are described in the 'Business Overview' section of this Management Report.
Events after the reporting date
TLTRO III
In December 2020 the ECB announced the extension of the period over which more favourable terms will
apply to the third series of targeted longer-term refinancing operations (TLTRO III) by twelve months, to
June 2022 and also announced that three additional TLTRO III operations will be conducted between June
and December 2021.
The Company already participated in 2020 in TLTRO III by borrowing €1,000 million, which may benefit
from the favourable terms for a further 12 months following the announcement by the ECB in December
2020, provided it meets the lending threshold set by the ECB. In addition, in March 2021 the Company
borrowed additional €1,700 million under the new TLTRO III operation.
Project Helix 2B
In January 2021, the Group reached an agreement for the sale of a portfolio (the ‘Portfolio 2B’) of loans and
advances to customers (known as ‘Project Helix 2B’ or the ‘Transaction’). The Portfolio 2B will be transferred
to a CyCAC by the Company and the shares of the CyCAC will then be acquired by certain funds affiliated
with PIMCO, the purchaser of both Portfolios Helix 2A and 2B. The parties amended and restated the
agreement executed in August 2020 for Helix 2A to incorporate the transaction of Helix 2B.
As at 31 December 2020, the Portfolio 2B including stock of property and cash, had a net book value of
€224,476 thousand. The gross consideration for Project Helix 2B amounts to €243 million before transaction
and other costs, of which 50% is payable at completion and the remaining 50% is deferred up to December
2025 without any conditions attached. The consideration can be increased through an earnout arrangement,
depending on the performance of the Portfolio 2B.
The completion of the sale of Helix 2B portfolio is planned to occur together with the completion of Helix 2A
portfolio, currently estimated in the second half of 2021 and remains subject to a number of conditions,
including required, customary regulatory and other approvals.
Research and development
In the ordinary course of business, the Group develops new products and services that enhance the
customer experience. Additional information is disclosed in the 'Business Overview' section of this
Management Report.
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.
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Preparation of periodic reporting (continued)
Annual Financial Report 2020
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.
Service agreements termination
The service contract of the Executive Director in office as at 31 December 2020 includes a clause for
termination, by service of six months’ notice to that effect by either the Executive Director or the Company,
without cause and the Company 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 the Company or the Executive Director,
unless there is a change of control of the Company 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.
Board of Directors
The members of the Board of Directors of the Company as at the date of this Management Report are listed
on page 1. All Directors were members of the Board throughout the year and up to the date of this
Management Report except as disclosed below.
On 14 April 2020 and 28 September 2020 the Board of Directors decided to appoint Mr Nicos Sofianos and
Mr Constantine Iordanou as members of the Board of Directors. The appointment of Mr Nicos Sofianos has
been approved by ECB on 26 February 2021, but Mr Constantine Iordanou's appointment is 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 26 May 2020.
On 26 May 2020 Mrs Lyn Grobler was elected as Vice-Chairperson to the Board of Directors, succeeding Mr
Maksim Goldman who resigned as Vice-Chairperson on the same date.
34
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Annual Financial Report 2020
Board of Directors (continued)
On 28 September 2020 Dr Chris Patsalides resigned as Executive Member of the Board of Directors of the
Company, following the termination of his employment as First Deputy Chief Executive Officer on the same
date. Dr Chris Patsalides remained in office until 31 October 2020. On 28 September 2020 Mrs Eliza
Livadiotou, Executive Director Finance, was appointed as Executive Member of the Board, but her
appointment is subject to ECB approval.
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 50 of the Consolidated Financial Statements.
Auditors
The auditors were re-appointed as Auditors at the last Annual General Meeting.
Non-financial information statement
The Group plays a key role in driving economic growth of Cyprus with a long presence and a dominant
market position. Sustainable development, social progress, and a viable economy are all among the Group’s
key goals for 2021 and beyond.
Commitment to Sustainability
The Group’s strategic approach to Sustainability is that our role in its community and its market must
continue to extend “Beyond Banking”. Its approach is based on the foundations of Sound Governance and
ethics, focusing on four key pillars:
Responsible Services,
People,
Society and
Environment,
as detailed in the 2020 Sustainability Report. The Group takes into consideration local, global and sectoral
Sustainability Standards, frameworks, legislation and initiatives, including the 17 Sustainable Development
Goals and ESG (Environmental, Social, Governance) criteria. The Group acts with transparency and
accountability, in line with its code of ethics, and aspires to lead in an era characterized by exponential
change, disruption and digitalization through its innovative approach. The Group remains consistent and
committed towards all its stakeholders; investors, customers, shareholders, employees and Cypriot society
at large.
The Group’s Sustainability & CSR Policy serves as a framework to identify, define and manage all
Sustainability related issues.
Employees
Under the Group's Learning and Development Policy, in 2020 the training programmes delivered were based
on the following training pillars:
Systems,
Professional Effectiveness (Regulatory, Compliance, Credit related) and
Personal Development (Management Skills, Customer Service).
Due to the pandemic restrictions, there was a significant limitation of classroom training and a shift to
digital learning (e-learnings and Live-online courses). In 2020 97% of employees received training, with a
total of 57,237 training hours.
The Group approaches Health and Safety of its employees as a primary concern. In 2020, in addition to all
COVID-19 precautions and measurements, the Group installed 8 new automated external defibrillators
(AED). Currently total 78 AEDs are in place at the Company's premises for the common use by employees
and customers.
35
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Non-financial information statement (continued)
Annual Financial Report 2020
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. Unfortunately, during
2020, due to the pandemic, no major charity events were organised by the Group and therefore the
engagement of staff volunteers was limited to smaller volunteering actions.
Society
The Group’s Donations, Sponsorships and Partnerships policy covers the Group’s engagement with key
partners, customers and other stakeholders which aim to create sustainable social impact and material
difference to the community.
During 2020, the Group initiated the award-winning network of companies and NGOs 'SupportCY' in order to
support Public Services performing frontline duties during the Pandemic. The actions of the network, led by
Bank of Cyprus, expanded in supporting various societal needs. At the same time it generated Social Capital
which is both sustainable and more effective, by bringing businesses and organisations together to share
what each does best, in responding to specific needs. By 31 December 2020, the SupportCY network had 93
members.
Within the SupportCY initiative, in 2020 the Group undertook sustainable support actions and showed
particular concern for vulnerable social groups. Accordingly, it participated and encouraged all other
members of the network, in efforts to enhance services related to health, education and social welfare,
based on its relevant policy and strategy. Additionally, the Group developed initiatives that aimed to
preserve local culture and history and to support innovation.
In 2020, approximately €700 thousand were offered for the support and enhancement of more than 180
NGOs, associations, charity organizations, municipalities, schools, sports federations, and sports academies,
while offering refurbished computers and other office equipment to schools, associations and NGOs from the
Company's stock.
The main sustainable support actions within the two pillars of Health and Education, are indicated below.
Health pillar main actions:
More than 43,000 patients have been treated at the Bank of Cyprus Oncology Centre since its
establishment by the Company and the Cyprus Government in 1998, while the Group continued
offering extensive support, financial and otherwise, towards the Centre. The cumulative
contribution of the Group to the Bank of Cyprus Oncology Centre has exceeded €70 million.
The Group coordinated the 'Fight against Cancer' campaign with the Cyprus Anticancer Society,
customized to meet Pandemic-related social distancing and other rules. The campaign resulted to
fund raising of €286 thousand. The significant decrease in the amount from long-term averages is
attributed to the cancellation of the largest fundraising events and activities due to COVID-19
(2019: €539 thousand).
In 2020, the Group repeated its provision of financial and other medical support to families in
need through key NGOs, based on the Donations, Sponsorships and Partnerships Policy, and
within the SupportCY network. Additionally, the Group partners with, and supports several
Patient Associations.
In 2020, the SupportCY initiative contributed in funds, services and products worth more than
€116 thousand to Health Services and an additional €191 thousand towards social welfare.
Education pillar main actions:
Since the Bank of Cyprus Cultural Foundation’s establishment by the Company in 1985, more
than 100 thousand pupils have participated in educational programmes on subjects related to art,
literature, and culture of Cyprus, offered by the Bank of Cyprus Cultural Foundation. During 2020,
many of the Foundation’s programmes were converted to digital due to pandemic. At the same
time, the Foundation launched a series of online activities targeted the children and adults, under
the broader title 'Culture means Solidarity', focusing on various aspects of the permanent
museums and collections of the Foundation such as the Art Collection, its Archaeological
Collections, etc.
In 2020, the Company continued its support to seven start-ups through the IDEA Incubator. IDEA
continued to work throughout the pandemic to provide a fully functional Business Creation
Training Program by carrying out its trainings, consulting and mentoring sessions either
completely online or by adopting a hybrid mode of operation.
36
Consolidated Financial Statements 2020
Funding from central banks
29. Non-current assets and disposal groups held for sale
30.
31. Customer deposits
32.
Insurance liabilities
33. Subordinated loan stock
34. Accruals, deferred income, other liabilities and other
provisions
Leases
Fiduciary transactions
35. Share capital
36. Dividends
37. Retained earnings
38.
39. Pending litigation, claims, regulatory and other matters
40. Contingent liabilities and commitments
41. Net cash flow from operating activities
42. Cash and cash equivalents
43.
44. Analysis of assets and liabilities by expected maturity
45. Risk management - Credit risk
46. Risk management - Market risk
47. Risk management - Liquidity risk and funding
48. Risk management - Insurance risk
49. Capital management
50. Related party transactions
51. Group companies
52. Acquisitions and disposals of subsidiaries
53.
54. Country by country reporting
55. Events after the reporting period
Investments in associates and joint venture
Page
140
142
143
144
145
145
146
147
147
148
148
154
155
157
157
159
160
202
209
216
218
220
222
224
226
228
229
BANK OF CYPRUS GROUP
Consolidated Financial Statements - Contents
for the year ended 31 December 2020
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 credit 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
Hedge accounting
Cash and cash equivalents
Insurance business
Repurchase and reverse repurchase agreements
Leases - The Group as lessee
Property and equipment
Investment properties
Stock of property
Non-current assets held for sale and discontinued
operations
Intangible assets
Share capital
2.32
2.33
2.34 Other equity instruments
Treasury shares
2.35
Provisions for pending litigation, claims, regulatory
2.36
and other matters
Comparative information
3.
4.
5.
2.37
Going concern
Operating environment
Significant and other judgements, estimates and
assumptions
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. Net foreign exchange gains
11. Net gains on financial instrument transactions and
disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions
12.
13. Other income
14. Staff costs
15. Other operating expenses
16. Credit losses of financial instruments and impairment of
non-financial assets
17.
Income tax
18. Earnings per share
19. Cash, balances with central banks and loans and advances
to banks
Investments
20.
21. Derivative financial instruments
22.
23.
24.
Fair value measurement
Loans and advances to customers
Life insurance business assets attributable to
policyholders
25. Property and equipment
26.
Intangible assets
27. Stock of property
28. Prepayments, accrued income and other assets
40
41
42
43
45
46
46
46
46
47
50
51
51
52
52
53
53
54
55
56
56
57
60
61
61
62
68
69
69
70
71
71
72
72
73
74
74
74
75
76
76
76
76
76
76
78
80
90
96
97
97
97
98
98
99
99
106
107
108
111
112
113
117
122
134
134
135
137
138
139
39
BANK OF CYPRUS GROUP
Consolidated Income Statement
for the year ended 31 December 2020
Annual Financial Report 2020
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 (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 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 net of reversals 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
Income tax
Loss after tax for the year
Attributable to:
Owners of the Company
Non-controlling interests
Loss for the year
Notes
2020
€000
2019
€000
6
7
7
8
8
9
9
10
11
12
27
13
14
15
15
16
16
16
53
53
17
765,113
389,197
47,530
(61,991)
(44,720)
330,016
151,091
(6,417)
16,535
1,721
56,063
(1,499)
8,189
14,957
570,656
(201,052)
(33,656)
(188,457)
147,491
2,949
(275,080)
(4,585)
(37,586)
(166,811)
-
69
(166,742)
(7,920)
(174,662)
(171,411)
(3,251)
(174,662)
910,588
455,009
53,180
(93,493)
(48,708)
365,988
171,715
(9,821)
26,596
18,675
57,660
2,249
25,952
28,938
687,952
(306,713)
(43,609)
(242,752)
94,878
8,187
(232,451)
(4,790)
(26,081)
(160,257)
(25,943)
5,513
(180,687)
112,836
(67,851)
(70,388)
2,537
(67,851)
Basic and diluted loss per share attributable to the owners of the Company
(€ cent)
18
(1.8)
(0.7)
40
BANK OF CYPRUS GROUP
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2020
Annual Financial Report 2020
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 (losses)/gains on investments in debt instruments measured at fair
value through OCI (FVOCI)
Transfer to the consolidated income statement on disposal
Foreign currency translation reserve
Profit/(loss) on translation of net investments in foreign branches and
subsidiaries
(Loss)/profit 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 from fair value changes of associates
Net losses on investments in equity instruments designated at FVOCI
Property revaluation reserve
Fair value gain before tax
Deferred tax
Actuarial losses 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 (loss)/income 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
2020
€000
(174,662)
2019
€000
(67,851)
(6,984)
(3,653)
(10,637)
15,100
-
15,100
24,551
(9,743)
21
(23,756)
10,927
84
879
(403)
781
(9,758)
15,881
25
17
14
-
(367)
(367)
1,550
1,787
3,337
4,199
(670)
3,529
-
88
88
(3,415)
(3,353)
(445)
(10,203)
(184,865)
(181,703)
(3,162)
(184,865)
264
16,145
(51,706)
(54,273)
2,567
(51,706)
41
BANK OF CYPRUS GROUP
Consolidated Statement of Changes in Equity
for the year ended 31 December 2020
Annual Financial Report 2020
1 January 2020
Loss 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
Reduction of share premium (Note 35)
Change in the holding of Undertakings for
Collective Investments in Transferable Securities
(UCITS) Fund
Payment of coupon to AT1 holders (Note 35)
Dividends paid to non-controlling interests
31 December 2020
Attributable to shareholders of the Company
Share
capital
(Note 35)
Share
premium
(Note 35)
Retained
earnings
(Note 37)
Property
revaluation
reserve
Financial
instruments
fair value
reserve
Life insurance
in-force
business
reserve
Foreign
currency
translation
reserve
Total
Other equity
instruments
(Note 35)
Non-
controlling
interests
Total
equity
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
959,794
620,118
227,863
79,286
33,900
102,051
16,927
2,039,939
220,000
28,662
2,288,601
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(171,411)
-
-
(3,415)
3,250
(11,006)
(174,826)
3,250
(11,006)
(9,543)
1,193
3,021
-
-
(3,021)
(618,868)
618,868
-
-
-
3
(27,500)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,543
(1,193)
-
-
-
-
-
-
(171,411)
879
(10,292)
879
(181,703)
-
-
-
-
-
-
-
-
-
-
-
3
(27,500)
-
-
-
-
-
-
-
-
-
-
-
(3,251)
(174,662)
89
(10,203)
(3,162)
(184,865)
-
-
-
-
-
-
-
-
-
-
3
(27,500)
(1,090)
(1,090)
959,794
1,250
639,079
79,515
22,894
110,401
17,806
1,830,739
220,000
24,410
2,075,149
43
BANK OF CYPRUS GROUP
Consolidated Statement of Changes in Equity
for the year ended 31 December 2020
Annual Financial Report 2020
Attributable to shareholders of the Company
Share
capital
(Note 35)
Share
premium
(Note 35)
Retained
earnings
(Note 37)
Property
revaluation
reserve
Financial
instruments
fair value
reserve
Life insurance
in-force
business
reserve
Foreign
currency
translation
reserve
Total
Other
equity
instruments
(Note 35)
Non-
controlling
interests
Total
equity
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
892,294
552,618
464,631
79,433
15,289
101,001
16,151
2,121,417
220,000
25,998
2,367,415
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(70,388)
(3,353)
(73,741)
(1,200)
150
228
-
(6)
67,500
67,500
(135,000)
-
-
-
-
(27,199)
-
-
81
81
-
-
(228)
-
-
-
-
-
-
18,611
18,611
-
-
-
-
-
-
-
-
-
-
-
1,200
(150)
-
-
-
-
-
-
-
776
776
(70,388)
16,115
(54,273)
-
-
-
-
-
-
-
-
-
-
-
-
(6)
-
(27,199)
-
-
-
-
-
-
-
-
-
-
-
-
2,537
(67,851)
30
16,145
2,567
(51,706)
-
-
-
-
-
-
847
847
-
-
-
(6)
-
(27,199)
(750)
(750)
959,794
620,118
227,863
79,286
33,900
102,051
16,927
2,039,939
220,000
28,662
2,288,601
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 52.4.2)
Change in the holding of Undertakings for
Collective Investments in Transferable Securities
(UCITS) Fund
Issue of share capital (Note 35)
Payment of coupon to AT1 holders (Note 35)
Dividends paid to non-controlling interests
31 December 2019
44
BANK OF CYPRUS GROUP
Consolidated Statement of Cash Flows
for the year ended 31 December 2020
Annual Financial Report 2020
Net cash flow (used in)/from operating activities
Cash flows from investing activities
Purchases of debt securities and equity securities
Proceeds on disposal/redemption of investments:
- debt 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 1 and 2 portfolios
Proceeds on disposal of Helix 2A
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 investing activities
Cash flow from financing activities
Payment of AT1 coupon
Net proceeds/(repayment) of funding from central banks
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 from/(used in) 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
Details on the non-cash transactions are presented in Note 41.
Year ended
31 December
2020
€000
2019
€000
(273,503)
109,747
Notes
41
(575,638)
(428,233)
25
26
557,303
33,514
294
-
53,354
13,409
21,100
(10,121)
(15,129)
134,850
33,992
361
5,362
241,467
1,154,982
-
(8,660)
(23,684)
360
385
7,230
19,318
85,676
1,130,140
(27,500)
(27,199)
1,000,000
(830,000)
(8,626)
(23,329)
(18,782)
(1,090)
(8,679)
(23,325)
(17,448)
(750)
920,673
(907,401)
732,846
332,486
5,130,863
4,804,844
26,426
732,846
(6,467)
332,486
5,890,135
5,130,863
42
45
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
1.
Corporate information
Bank of Cyprus Public Company Limited (the Company) is the holding company of the Bank of Cyprus Group
(the Group). The principal activities of the Company 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.
The Company is a limited liability company incorporated in 1930 under the Cyprus Companies Law.
The Company is a significant credit institution for the purposes of the SSM Regulation and has been
designated by the CBC as an 'Other Systemically Important Institution' (O-SII). The Group is subject to
joint supervision by the ECB and the CBC for the purposes of its prudential requirements.
The shares of the parent company Bank of Cyprus Holdings Public Limited Company (BOCH), a company
incorporated in Ireland, are listed and trading on the London Stock Exchange (LSE) and the Cyprus Stock
Exchange (CSE). The Company remains a public company for the purposes of the Cyprus Income Tax Laws.
The Consolidated Financial Statements are available at the Bank of Cyprus Public Company Ltd registered
office (51 Stassinos Street, Ayia Paraskevi, Strovolos, P.O. Box 24884, 1398 Nicosia, Cyprus) and on the
website www.bankofcyprus.com (Investor Relations).
The Annual Report of Bank of Cyprus Holdings Public Limited Company Group is available on the website
www.bankofcyprus.com (Investor Relations).
Consolidated Financial Statements
The Consolidated Financial Statements of the Company for the year ended 31 December 2020 (the
Consolidated Financial Statements) were authorised for issue by a resolution of the Board of Directors on 29
March 2021.
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.
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 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 44.
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 the requirements of the
Cyprus Companies Law, Cap.113.
2.2
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 2.2.1.
46
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
2.2
Summary of significant accounting policies (continued)
Accounting policies and changes in accounting policies and disclosures (continued)
2.2.1
New and amended standards and interpretations
The Group applied for the first time certain standards and amendments, which are effective for annual
periods beginning on or after 1 January 2020. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet effective.
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. The Conceptual Framework did not have a material impact on the results and financial position
of the Group.
IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors: Definition of ‘material’ (amendments)
The amendments 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 amendments did not have a material
impact on the results and financial position of the Group.
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. The amendments did not have a material impact on the results and
financial position of the Group.
Amendments to IFRS 9, IAS 39 and IFRS 7 related to Interest Rate benchmark Reform (the Amendments)
The Amendments to IFRS 9, IAS 39 and IFRS 7 relating to Interest Rate Βenchmark Reform mandatorily
take effect from 1 January 2020, but early adoption was permitted. The Group had elected to early adopt
the interest rate benchmark reform amendments as described in Note 2.2.2 of the annual consolidated
financial statements for the year ended 31 December 2019.
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
IFRS 4: Insurance Contracts – Extension of the Temporary Exemption from Applying IFRS 9 (amendments)
The IASB published the amendments to IFRS 4 'Extension of the Temporary Exemption from Applying IFRS
9' to defer the fixed expiry date of the amendment to annual periods beginning on or after 1 January 2023.
The Group does not expect these amendments to have an impact on its results and financial position.
Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The changes in Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4
and IFRS 16) relate to the modification of financial assets, financial liabilities and lease liabilities, specific
hedge accounting requirements, and disclosure requirements applying IFRS 7 to accompany the
amendments regarding modifications and hedge accounting.
47
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
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)
Modification of financial assets, financial liabilities and lease liabilities: introduction of a practical
expedient for modifications required by the IBOR reform (modifications required as a direct
consequence of the IBOR reform and made on an economically equivalent basis). These
modifications are accounted for by updating the effective interest rate. All other modifications are
accounted for using the current IFRS requirements. A similar practical expedient is proposed for
lessee accounting applying IFRS 16.
Hedge accounting requirements: hedge accounting is not discontinued solely because of the IBOR
reform. Hedging relationships (and related documentation) must be amended to reflect modifications
to the hedged item, hedging instrument and hedged risk. Amended hedging relationships should
meet all qualifying criteria to apply hedge accounting, including effectiveness requirements.
Disclosures: the amendments require that an entity discloses information about: (i) how the
transition from interest rate benchmarks to alternative benchmark rates is managed, the progress
made at the reporting date, and the risks arising from the transition; (ii) quantitative information
about non-derivative financial assets, non-derivative financial liabilities and derivatives that continue
to reference interest rate benchmarks subject to the IBOR reform, disaggregated by significant
interest rate benchmark; and (iii) to the extent that the IBOR reform has resulted in changes to an
entity’s risk management strategy, a description of these changes and how the entity is managing
those risks.
The amendments are effective for annual periods beginning on or after 1 January 2021 and are to be
applied retrospectively, with earlier application permitted. Restatement of prior periods is not required. The
Group does not expect these amendments to have a material impact on its results and financial position.
IFRS 16: Leases Covid-19 Related rent concessions (amendment)
The IASB published 'amendments to IFRS 16 covering COVID-19-Related Rent Concessions’. These provide
lessees with an exemption from assessing whether a COVID-19 related rent concession is a lease
modification. The amendment is effective for annual reporting periods beginning on or after 1 June 2020.
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 and is assessing the impact of the standard on its results and
financial position.
48
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
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
IAS 1 Presentation of Financial Statements: classification of Liabilities as Current or Non-current
(amendments)
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 2023, with earlier application permitted. The Group does not expect these amendments to have a
material impact on its results and financial position.
IFRS 3: Business Combinations (amendments)
The IASB has published 'Reference to the Conceptual Framework (Amendments to IFRS 3)' with
amendments to IFRS 3 'Business Combinations' that update an outdated reference in IFRS 3 without
significantly changing the accounting requirements for business combinations. The amendments are
effective for annual periods beginning on or after 1 January 2022, with earlier application permitted if an
entity also applies all other updated references (published together with the updated Conceptual
Framework) at the same time or earlier. The Group does not expect these amendments to have a material
impact on its results and financial position.
IAS 16: Property, Plant and Equipment – Proceeds before Intended Use (amendments)
The amendments to the standard prohibit an entity from deducting from the cost of an item of property,
plant and equipment any proceeds from selling items produced while bringing that asset to the location and
condition necessary for it to be capable of operating in the manner intended by management. Instead, an
entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or
loss. They are effective for annual periods beginning on or after 1 January 2022, with earlier application
permitted. An entity will apply the amendments retrospectively only to items of property, plant and
equipment that are brought to the location and condition necessary for them to be capable of operating in
the manner intended by management on or after the beginning of the earliest period presented in the
financial statements in which the entity first applies the amendments. The Group does not expect these
amendments to have a material impact on its results and financial position.
IAS 37: Provisions, Contingent Liabilities and Contingent Assets – Onerous Contracts – Cost of Fulfilling a
Contract (amendments)
The changes in Onerous Contracts — Cost of Fulfilling a Contract specify that the ‘cost of fulfilling’ a contract
comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be
incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of
other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation
charge for an item of property, plant and equipment used in fulfilling the contract). The amendments are
effective for 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.
Annual Improvements to IFRS Standards 2018–2020 Cycle
Annual Improvements to IFRS Standards 2018–2020 makes amendments to the following standards:
IFRS 1 First-time Adoption of International Financial Reporting Standards: the amendment permits a
subsidiary that applies IFRS 1 to measure cumulative translation differences using the amounts
reported by its parent, based on the parent’s date of transition to IFRSs.
IFRS 9 Financial Instruments: the amendment clarifies which fees an entity includes when it applies
the ‘10 per cent’ test of IFRS 9 in assessing whether to derecognise a financial liability. An entity
includes only fees paid or received between the entity (the borrower) and the lender, including fees
paid or received by either the entity or the lender on the other’s behalf.
IFRS 16 Leases: the amendment to Illustrative Example 13 accompanying IFRS 16 removes from the
example the illustration of the reimbursement of leasehold improvements by the lessor in order to
resolve any potential confusion regarding the treatment of lease incentives that might arise because
of how lease incentives are illustrated in that example.
49
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
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
IAS 41 Agriculture: the amendment removes the requirement of IAS 41 for entities to exclude
taxation cash flows when measuring the fair value of a biological asset using a present value
technique, which ensures consistency with the requirements in IFRS 13.
The amendments to IFRS 1, IFRS 9, and IAS 41 are all effective for annual periods beginning on or after 1
January 2022, with earlier application permitted, whereas the amendment to IFRS 16 only regards an
illustrative example. The Group does not expect these amendments to have a material impact on its results
and financial position.
IAS 1 Presentation of Financial Statements and IFRS Practice Statements 2: Disclosure of Accounting
policies (amendments)
The amendments to IAS 1 require companies to disclose their material accounting policy information rather
than their significant accounting policies. The amendments to IFRS Practice Statement 2 provide guidance
on how to apply the concept of materiality to accounting policy disclosures. The amendments are effective
for annual reporting periods beginning on or after 1 January 2023, with early application permitted. The
Group does not expect these amendments to have an impact on its financial results and financial position.
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates
(amendments)
The amendments introduced the definition of accounting estimates and included other amendments to IAS
8 to help entities distinguish changes in accounting estimates from changes in accounting policies. The
amendments are effective for annual reporting periods beginning on or after 1 January 2023, with early
application permitted. The Group does not expect these amendments to have a material impact on its
financial 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 2020. 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. Specifically,
the Group controls an investee 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.
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.
50
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
2.4
Summary of significant accounting policies (continued)
Basis of consolidation (continued)
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.
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.
51
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
2.6
Summary of significant accounting policies (continued)
Investments in associates and joint ventures (continued)
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
ventures 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 translated 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.
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.
52
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
2.9
Summary of significant accounting policies (continued)
Turnover
Group turnover as presented in the Consolidated Income Statement is analysed in Note 6.
2.10
Revenue from contracts with customers
The Group recognises revenue when control of the promised goods or services is transferred to customers
in return of 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 the 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.
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.
53
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.10
Revenue from contracts with customers (continued)
2.10.1 Fee and commission income (continued)
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 Dividend income
Dividend income is recognised in the consolidated income statement when the Group’s right to receive
payment is established i.e. upon approval by the general meeting of the shareholders.
2.10.3 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’.
2.10.4 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.
2.10.5 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.
2.11
Recognition of interest income/expense and income/expense similar to interest
The Group calculates interest income/expense 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 has funding from central banks with negative interest rates. The Group classifies the interest on
these liabilities within interest income. Negative interest is disclosed in Note 7.
54
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.11
(continued)
Recognition of interest income/expense and income/expense similar to interest
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 8.
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 rate 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.
The carrying amount of a financial asset or liability is adjusted if the Group revises its estimates of
payments or receipts. The adjusted carrying amount is calculated based on the original effective interest
rate and the change in carrying amount is recorded in ‘Net gains on financial instrument transactions' for
debt securities, or 'changes in expected cash flows’ for loans and advances to customers.
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.
55
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
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.
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 which are subject to the Income Tax Law
Amendment 28 (I) of 2019, 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 17.
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.
56
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.14
Financial instruments - initial recognition (continued)
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.
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).
57
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.15
Classification and measurement of financial assets and liabilities (continued)
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.
Where the contractual terms of a financial asset introduce a more than de-minimis exposure to risks 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.
58
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.15
Classification and measurement of financial assets and liabilities (continued)
2.15.2 Financial assets measured at amortised cost (continued)
After their initial recognition, financial instruments measured at amortised cost are measured at amortised
cost using the effective interest rate 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.
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 these 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 sale 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)
59
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
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)
Such designation is determined on an instrument-by-instrument basis.
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 under which they are
managed and their 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 rate 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.
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.
60
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.16
Reclassification of financial assets and liabilities (continued)
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 substantially different terms such as addition of equity conversion
features, changes in the legal framework and other.
Where the modification does not result in derecognition, the Group recognises a modification gain or loss,
based on the difference between 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.
Where the modification results in derecognition, the new financial asset is classified at amortised cost or
FVOCI and 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.
61
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
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.
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 categorises 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 ECLs 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: These are purchased or originated financial assets that are credit-impaired on initial recognition. POCI
assets include loans purchased or originated at a deep discount that reflects incurred credit losses. Changes
in lifetime ECLs since initial recognition are recognised.
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.
62
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.2 Credit impaired and definition of default (continued)
(iv) Performing forborne exposures under probation for which additional forbearance measures are
extended.
(v) Performing forborne exposures previously classified as NPEs that present more than 30 days past
due.
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 a non-retail debtor has an exposure with significant arrears of more than 90 days, the total customer
exposure is classified as non-performing, irrespective of the 20% threshold.
Material arrears/excesses are defined as follows:
Retail exposures: Total arrears/excesses amount greater than €100
Exposures other than retail: Total arrears/excesses amount greater than €500 and the amount in
arrears/excess in relation to the customer's total exposure is at least 1%.
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, ECLs 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.
Non performing forborne 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 non-insignificant amount of capital (different
capital thresholds exist according to the facility type).
Non-performing non-forborne exposures cease to be considered as NPEs and in such case are transferred
out of Stage 3, only when all conditions for which the exposures were classified originally as NPEs, cease to
apply.
When an account exits Stage 3, it is transferred to Stage 2 for a probationary period of 6 months. At the
end of this period, the significant increase in credit risk (SICR) trigger is activated as described in Note
2.19.3 and the loan is either transferred to Stage 1 or remains in 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'.
New default definition effective from 1 January 2021
From 1 January 2021 two regulatory guidelines came into force that affect NPE classification and Days-Past-
Due calculation. More specifically, these are the RTS on the Materiality Threshold of Credit Obligations Past
Due (EBA/RTS/2016/06), and the Guideline on the Application of the Definition of Default under article 178
(EBA/RTS/2016/07).
63
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.2 Credit impaired and definition of default (continued)
As a result of the above, the following changes came into effect as from 1 January 2021:
1. New Days-past-Due (DPD) counter: The new counter will begin counting DPD as soon as the arrears or
excesses of an exposure reach the materiality threshold (rather than as of the first day of presenting
any amount of arrears or excesses). Similarly, the counter will be set to zero when the arrears or
excesses drop below the materiality threshold. Payments towards the exposure that do not reduce the
arrears/excesses below the materiality threshold, will not impact the counter.
2. Additionally to the above criteria for the exit of non-performing forborne exposures the following
condition should also be met:
A period of one year has passed since the latest of the following events:
a.
b.
c.
The restructuring date
The date the exposure was classified as non-performing
The payment of interest and capital for at least 12 months
3. Non-performing non-forborne exposures cease to be considered as NPEs only when all of the following
conditions are met:
i.
ii.
iii.
A three month probation period has passed
No trigger of default continues to apply
No Unlikely-to-Pay criteria exist for the debtor
4. As per the new definition of default, the 20% materiality threshold and the 90 days past due counter,
will no longer apply for non-retail exposures i.e. any non-performing exposure of the customer, for any
reason, will result in a non-performing classification at customer level.
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 date, by considering the change in the risk of default occurring over the remaining life of the
financial instrument since initial recognition.
Significant credit risk increase for loans and advances to customers
Primarily, the Group uses the lifetime probability of default (PDs) as the quantitative metric in order to
assess transition from Stage 1 to Stage 2 for all portfolios. The Group considers an exposure to have
experienced 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
facility's 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.
64
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
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
as disclosed in Note 45.7.
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 2020 and 2019:
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 2020
1-7 X PD@O
1-4 X PD@O
1-4 X PD@O
3 X PD@O
3 X PD@O
3 X PD@O
1-2 X PD@O
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
The IFRS 9 parameters (PD components), including the thresholds were calibrated during the fourth quarter
of 2020 in order to include additional recent historical observations, having a positive impact on the ECL of
€6 million.
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. The transfer to Stage 2 does not take place in cases where certain
exposures are past due for more than 30 days but certain materiality limits are not met (such as arrears up
to €100 and funded balances up to 1% in the case of retail exposures and arrears up to €500 and funded
balances up to 1% on all exposures other than retail). 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
been 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 securities, 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 credit rating which remains investment grade is considered as having low credit risk.
For debt securities, loans and advances to banks and balances with central banks which are below
investment grade, the low credit risk exemption does not apply and therefore an assessment of significant
credit deterioration takes place, by comparing their credit rating at origination with the credit rating on the
reporting date. Significant deterioration in credit risk is considered to have occurred when the adjusted
rating of the exposures drops to such an extent that the new rating relates to a riskier category (i.e. from a
non-investments grade to speculative) and then to highly speculative 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.
65
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
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 flow shortfalls,
discounted at an approximation to the EIR as calculated at initial recognition. A cash flow 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).
Exposure at default (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.
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 origination 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.
The Company's internal rating process is summarised in Note 45.
66
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.4 Measurement of ECLs (continued)
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 the Company 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 segments 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. In 2020, in response to the COVID-19 pandemic, the selection criteria
included significant stage 1 exposures within highly impacted sectors by COVID-19 to assess potential
increase in credit risk and significant exposures transitioned to Stage 2 from Stage 1 to assess potential
indications for unlikeness to pay.
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.
2.19.5 Scenarios and scenario 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 45).
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 relevant categories 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
projections of long-run growth averages based on estimates of potential growth.
67
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.5 Scenarios and scenario weights (continued)
Regarding the scenario weights, these are determined using probability theory and severity analysis.
Historical data for GDP growth (1980-2020) is analysed and a frequency distribution is produced. From that
distribution probabilities are derived for all possible outcomes assuming a normal distribution pattern for
the data. Cyprus’ historical growth data exhibit high volatility and the resulting distribution is positively
skewed. However, the distribution tends to normal as outliers are excluded. Deviations of actual outcomes
from the mean are calculated in terms of standard deviation ratios, and severity is higher at higher
deviation ratios. Probabilities are calculated using confidence intervals. The baseline scenario is defined over
the range of values that correspond to 50% probability of equidistant deviations around the mean of the
historical distribution. The adverse scenario is defined over the range of values to the left of the distribution
that correspond to 25% probability. And the favourable scenario is defined over the range of values to the
right of the distribution that correspond to the remaining 25% probability. These benchmark probability
points (50%, 25% and 25%), are decided using severity analysis which incorporates the average and
standard deviation of the distribution.
The macroeconomic forecasts for the baseline, favourable and adverse scenarios as well as the
corresponding weights, are determined by the Economic Research Department of Bank of Cyprus. This
process utilises a variety of external actual and forecast information (International Monetary Fund (IMF),
European Commission and other). The resulting scenarios and weights are reviewed and proposed by the
CRO and are submitted to the Provisions Committee for its endorsement.
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, the Company has the right to cancel
and/or reduce the facilities with two months’ notice. The Company does not limit its exposure to credit
losses to the contractual notice period, but instead a behavioural maturity model is utilised where each
revolving facility is assigned an expected time period to termination.
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 lifetime 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. A non-contractual write-off is defined as the accounting
reduction of a debt, without waiving the legal claim against the debtor. The Company continues to seek
recovery of the debt (e.g. restructuring arrangements, debt for assets swaps, full settlement, etc.) and the
amount written off for financial assets that are still subject to enforcement activity.
Indicative conditions for writing off part or the full amount of the exposure include, but are not limited to,
the following list of criteria. The criteria are applicable to both contractual and non-contractual write offs
and are not by default applicable to all cases, as individual assessment and judgement is required in order
to evaluate each case on its own merits.
68
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.20 Write-offs (continued)
Cases which are close to realisation of a security or collateral may be deemed necessary to be
considered for write-off. With regards to such financial assets on which the security or collateral has
not yet been realised (but may be close to agreement or other arrangement for realising), the
Company forms a reasonable expectation of future cash flows which would also take into account the
collateral’s realisable value.
When the Company ceases all collection and debt enforcement actions, such remaining debt can be
assessed for write-off. However, debt can be written-off even while collection and enforcement
activities are proceeding.
Debtor status is another indicator for assessment for write-off, for example, the debtor’s insolvency
status, or whether the debtor is deceased or cannot be traced. While such loans may already be
impaired, the Company might be unable to form a reasonable expectation of future cash flows.
Nevertheless, the Company takes all the legally available steps to recover the debt, where
appropriate.
Customers with exposures with significant number of days past due, provided that all other efforts
for restructuring are exhausted and the exposure or part of the exposure is deemed as
unrecoverable / uncollectable, are also assessed for write-off.
Write-offs are subject to the Groups internal governance process for review and approval.
Write-offs and partial write-offs represent derecognition/partial derecognition events. If the amount of
write-off 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 credit and undrawn loan commitments
The Group issues financial guarantees to its customers, consisting of letters of credit, letters of guarantee
and acceptances. Financial guarantees are initially recognised at fair value, 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 credit 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 ECLs 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 loan commitments and letters of credits 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.
69
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
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 in 2019 the Amendments to IFRS 9, IAS 39 and IFRS 7 related to Interest
Rate benchmark Reform which became effective on 1 January 2020 but earlier adopted as permitted. These
amendments did not result in any adjustments to the amounts presented in the financial statements.
Required disclosures are provided in Note 21.
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.
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.
70
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.23
Hedge accounting (continued)
2.23.3 Hedges of net investments in foreign operations (continued)
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.
Once a contract has been classified as an insurance contract, it remains an insurance contract until expiry or
until all the rights and obligations under the contract have been fulfilled, even if the insurance risk has been
significantly reduced during its term.
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.
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.
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 be
earned in subsequent reporting periods.
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BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.25
Insurance business (continued)
2.25.3 Non-life insurance business (continued)
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
Income from investment contracts is recognised when received and when the units have been allocated to
policyholders.
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 rate method. 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 rate method.
2.27
Leases - The Group as lessee
The Group recognises right of use assets (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'.
RoU assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. 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'. RoU assets are subject to impairment under IAS 36.
72
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.27
Leases - The Group as lessee (continued)
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. Lease liability is
remeasured if there is a change in future lease payments, a change in the lease term, or as appropriate, a
change in the assessment of whether an extension option is reasonably certain to be exercised or a
termination option is reasonably certain not to be exercised. 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.
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.
2.28
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,
(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 internationally accepted valuation standards. 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’.
73
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.28
Property and equipment (continued)
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.
2.29
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/or for 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 22.
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 or Group's internal 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 2.28 ‘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.
2.30
Stock of property
The Group in its normal course of business acquires properties in exchange of debt, which are held either
directly by the Company 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.
2.31
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.
74
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.31
Non-current assets held for sale and discontinued operations (continued)
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.
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.
2.32
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 in 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.
75
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
2.
Summary of significant accounting policies (continued)
2.33
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.
2.34
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.
2.35
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.
2.36
Provisions for pending litigation, claims, regulatory and other matters
Provisions for pending litigation, claims, regulatory and other 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.
2.37
Comparative information
Comparative information was restated in relation to the presentation of Credit risk concentration of loans
and advances to customers as detailed in Notes 45.2 and 45.3.
The changes did not have an impact on the results for the year or the equity of the Group.
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 continue in operation and the development of its business in
the current economic environment.
The Group has developed a Financial Plan which was approved by the Board in November 2020 (the ‘Plan’).
The Plan incorporates the impact of the COVID-19 pandemic and considers the disruption it has caused to
the Group’s customers, suppliers and staff. It remains unclear how the COVID-19 pandemic will evolve
through 2021 and beyond, which from a commercial, regulatory and risk perspective could be significantly
different to past crises and persist for a prolonged period. The Group’s Financial Plan considered factors that
may inform the impact of the COVID-19 pandemic, including (amongst other things), changing
macroeconomic variables, further waves of the pandemic and successful deployment of vaccines. This
included the development of macroeconomic scenarios, base and adverse. The scenarios developed take
into consideration the following drivers and implications:
Impact on relevant economic variables, the most significant of which include residential and
commercial property prices, national output and lending volumes.
Impact on employment levels and relevant unemployment rates.
Government guidance and policy response to the crisis.
Capital and liquidity relief measures.
76
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
3.
Going concern (continued)
Other considerations such as the prudential charge that the Company will need to take in order to
address the findings of the onsite inspection and review on the value of the Group’s foreclosed
assets completed by the ECB with reference date 30 June 2019.
Expected formation of NPEs following the exit from the moratorium at the end of December 2020
as well as expected resolution over the period of the Financial Plan.
Due to the dynamic nature of COVID-19, the full impact on the future profitability is difficult to estimate.
The government response to curtail the virus and changing customer behaviours may impact the future
performance. The Group has sensitised its projection to cater for downside scenarios and has used
conservative economic inputs to develop its medium-term strategy. The Plan adverse scenarios have
considered the capital forecast for the Group, and its ability to withstand adverse scenarios such as the
economic environment in Cyprus deteriorating.
The Directors have concluded that there are no material uncertainties which would cast significant doubt
over the ability of the Group, the Company and BOCH to continue to operate as a going concern for a period
of 12 months from the date of approval of these Consolidated Financial Statements.
Capital
The following items have been considered in relation to the Group’s capital adequacy throughout the period
of the going concern assessment:
The Common Equity Tier 1 (CET1) ratio and the Total Capital ratio on a transitional basis at 31
December 2020 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 Financial Plan.
The capital relief measures announced by the ECB, the EBA, the CBC, the Cyprus Government
and the Eurogroup in order to allow banks to absorb the impact of the COVID-19 outbreak and
support the real economy.
The agreement for the Helix 2 transaction in August 2020 and January 2021 which, along with
the organic and inorganic reduction over the last years led to a significant decrease in NPEs.
Funding and liquidity
The following items have been considered in relation to the Group’s liquidity position throughout the period
of the going concern assessment:
The Group is in compliance with the Liquidity Coverage Ratio (LCR) and is significantly above the
minimum requirements.
The Group is monitoring its liquidity position and is considering ways to further reduce the
deposits cost.
The various measures of regulators which aim to mitigate the impact of the COVID-19 outbreak.
Economic environment
As the Cypriot operations account for 99% of gross loans and 100% of customer deposits, the
Group’s financial performance is highly correlated to the economic and operating conditions in
Cyprus. The sovereign risk ratings of the Cyprus Government improved considerably in recent
years, reflecting expectations of a sustained decline in public debt as a ratio to GDP, expected
further declines in non-performing exposures and a more stable price environment following a
protracted period of deflation and low inflation. The risk profile of the country deteriorated in
2020 as a result of the coronavirus pandemic and measures to mitigate its impact on the
economy, but the rating outlook remains stable to positive reflecting expectations of a return to
growth and stabilising underlying dynamics in public finances. Following the severe recession in
2020 there will be recovery in 2021, which will be partial, and it will take until 2022 for real GDP
to return to its pre-crisis levels.
In March 2021, S&P affirmed its rating (BBB-) and its outlook to stable, balancing the risks from
the pandemic's protracted adverse impact on growth, fiscal, and banking sector performance
against benefits of the EU's Recovery and Resilience Facility (RRF) transfers, as well as further
improvement in the government's debt profile. In January 2021, Moody’s issued a credit opinion
for the Cyprus Government, according to which Moody’s expect the economy to return to growth
rates from 2021 (GDP growth rate for 2021 expected at 3.5% following a contraction of 5.5% in
2020).
77
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
3.
4.
4.1
Going concern (continued)
With respect to the Company's ratings, Moody's affirmed the Company's long-term deposit rating
of 'B3' (positive outlook) in November 2020. In July 2020, S&P affirmed their long-term issuer
credit rating on the Company of ‘B+’ and the short-term issuer credit rating of ‘B’, with a stable
outlook, expressing the view that the enhanced capital reserves and the good liquidity position of
the Company will allow it to withstand the current shock and absorb the effects of the increasing
pressure on revenues and credit losses. In January 2021, Fitch Ratings affirmed their long-term
issuer credit rating of the Company of 'B-' and outlook of the Company to negative. Negative
outlook reflecting that risks remain skewed to the downside in the medium-term, if recession
proves deeper or the recovery weaker than Fitch's forecasts.
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. Adverse developments
regarding growth, fiscal policy, unemployment, tourism and real estate prices, could have a
negative impact on the Group’s capital adequacy and its liquidity. Management closely monitors
the developments and the impact they may have on the Group’s operations and financial
performance.
Operating environment
Regulatory capital ratios
Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2019 the
Group’s minimum phased in CET1 capital ratio and Total Capital Ratio remained unchanged for 2020
compared to 2019, when ignoring the phasing in of the Other Systemically Important Institution (O-SII)
buffer.
The Group is 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.
The Group’s minimum phased in CET1 capital ratio for 2020 was set to 11.0% (2019: 10.5%), comprising a
4.5% Pillar I requirement, a 3.0% Pillar II requirement (P2R), the Capital Conservation Buffer (CCB) of
2.5% (fully phased in as of 1 January 2019) and the O-SII buffer of 1.0% (2019: 0.5%). The Group’s Total
Capital requirement is 14.5% (2019: minimum phased in Total capital ratio of 14.0%), comprising an 8.0%
Pillar I requirement (of which up to 1.5% could be in the form of Additional Tier 1 (AT1) capital and up to
2.0% in the form of Tier 2 (T2) capital), a 3.0% P2R, the CCB of 2.5% and the O-SII buffer of 1.0% (2019:
0.5%). The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer.
In April 2020, and following ECB and EBA announcements on 12 March 2020 in response to the COVID-19
outbreak, the Company received an amending SREP decision from the ECB amending the composition of the
Pillar II additional own funds requirement, allowing it to use AT1 capital and T2 capital to meet P2R and not
only by CET1, compared to the 2019 final SREP decision received in December 2019 which required P2R to
be met in full with CET1. This decision became effective from 12 March 2020. This brings forward a measure
that was scheduled to come into force in January 2021 with CRD V. As a result of this amending decision,
the minimum phased in CET1 requirement of the Group decreased to 9.7%, comprising a 4.5% Pillar I
requirement, a 1.7% P2R, 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.
Moreover, on 12 March 2020, the ECB and the EBA also announced that banks are temporarily allowed to
operate below the level of capital defined by P2G, the CCB and the CCyb. In July 2020, the ECB committed
to allow banks to operate below P2G and the combined buffer requirement (CCB, CCyb and O-SII buffer)
until at least the end of 2022, without automatically triggering supervisory actions.
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 (P2G) cannot be used to meet any other capital requirements (Pillar I, Pillar II requirements or
the combined buffer requirement), and therefore cannot be used twice. In line with the final 2019 SREP
decision, these new provisions became effective from 1 January 2020.
The CBC, in accordance with the Macroprudential Oversight of Institutions Law of 2015, sets, on a quarterly
basis, the Countercyclical Capital Buffer (CCyB) level in accordance with the methodology described in this
law. The CBC has set the level of the CCyB for Cyprus at 0% for the years 2020 and 2019 and the six
months up to June 2021.
78
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
4.
4.1
Operating environment (continued)
Regulatory capital ratios (continued)
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. The Company has been designated as an O-SII and the CBC set the O-SII buffer for the Company
and the Group at 2.0%.
This buffer is being phased in gradually, having started from 1 January 2019 at 0.5% and increasing by
0.5% every year thereafter, until being fully implemented (2.0%). 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.
In November 2020, the Group received communication from the ECB according to which no SREP decision
will be issued for the 2020 SREP cycle and the 2019 SREP decision will remain in force, hence leaving the
Group’s capital requirements unchanged as well as other requirements established by the 2019 SREP
decision (as amended in March 2020). The communication follows relevant announcement by the ECB
earlier in the year that ECB will be taking a pragmatic approach towards the SREP for the 2020 cycle.
The above minimum ratios apply for both the Company and the Group.
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 is currently in the process of updating its NPE Strategy plan which is to be submitted to the ECB
by 31 March 2021. The NPE Strategy is expected to be in line with the NPEs evolution as per the Group’s
Financial Plan.
4.3
Liquidity
Group customer deposits totalled €16,533 million at 31 December 2020, compared to €16,692 million at 31
December 2019. At 31 December 2020 and 31 December 2019 all deposits were in Cyprus. As at 31
December 2020 Group customer deposits accounted for 77% of total assets (31 December 2019: 79%) and
85% of total liabilities (31 December 2019: 89%).
As at 31 December 2020 and 31 December 2019, the Group was in compliance with all regulatory liquidity
requirements. As at 31 December 2020 and 31 December 2019 the Group's LCR was in compliance with the
minimum regulatory requirements of 100%. In addition the Group monitors 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
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 instruments of the Company. 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, in relation to such
matters but also for other litigation claims, regulatory and matters, 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 39.
79
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
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 affecting future
periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities are described below. The Group based its assumptions and estimates on parameters available
when the Consolidated Financial Statements were prepared. Existing circumstances and assumptions about
future developments may, however, change due to market changes or circumstances beyond the control of
the Group. Such changes are reflected in the assumptions when they occur.
The most significant judgements, estimates and assumptions relate to the classification of financial
instruments and the calculation of expected credit losses (ECL), the estimation of the net realisable value of
stock of property and the 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
a significant increase in credit risk has occurred, is based on statistical metrics and could be subject to
management judgement. The relevant thresholds are set, monitored and updated on a yearly basis by the
Risk Management Division and endorsed by the Group Provisions Committee.
Determining the probability of default (PD) at initial recognition requires management estimates. In the
case of exposures existing prior to the adoption of IFRS 9, a retrospective calculation of the PD is made in
order to quantify the risk of each exposure at the time of the initial recognition. In certain cases estimates
about the date of initial recognition might be required.
For the retail portfolio, the Group uses a PD at origination incorporating behavioural information (score
cards) whereas, for the corporate portfolio, the Group uses the internal credit rating information. In
determining the relevant PDs, management estimates are required with respect to the life-time of revolving
facilities. For revolving facilities, the origination date is the date when a credit review has taken place.
80
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
Scenarios and macroeconomic factors
The Group determines the ECL, which is a probability-weighted amount, by evaluating a range of possible
outcomes. Management uses forward-looking scenarios and assesses the suitability of weights used. These
are based on management’s assumptions taking into account macroeconomic, market and other factors.
Changes in these assumptions and in other external factors could significantly impact ECL. Macroeconomic
inputs and weights per scenario are monitored by the Economic Research department based on internal
model analysis after considering external market data supplemented by expert judgement.
The outlook for the global economy has deteriorated markedly in 2020 as a result of the COVID-19
pandemic and the lockdown measures to contain it that led to significant disruptions in economic activity.
Worst outcomes were avoided by aggressive and excessively expansive monetary and fiscal policies. As a
result, the Group updated its forward-looking scenarios, factoring in updated macroeconomic assumptions
and other monetary and fiscal developments at the national and the EU level, for mitigating the
consequences of the pandemic. While the outlook for 2021 and the medium term is now positive, the risk
profile of the country has deteriorated. This has been the result of a combination of political, policy, cyclical
and structural factors, and by the uncertainties in the external environment which remain high. The strength
and shape of the economic recovery will depend on the upside and downside risks. The most serious
downside risk is how prolonged the pandemic will be and potential complications regarding vaccination
programmes.
The Group uses three different economic scenarios in the calculation of default probabilities and provisions.
The tables below indicate the most significant macroeconomic variables as well as the scenarios used by the
Group as at 31 December 2020 and 2019 respectively. The Group has used the 30-50-20 probability
structure for the adverse, base and favourable scenarios respectively compared to the 25-50-25 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.
Despite the more positive outlook for 2021, given the added uncertainties and downside risks in the global
economy as well as the local economy, related to the COVID-19 pandemic, management decided to
maintain an elevated weight on the adverse scenario.
The economy continues to face financial and macroeconomic risks, including high public debt ratio and a
relatively high level of NPEs that together maintain elevated vulnerabilities and limit the policy reaction
space thus sustaining conditions, which can lead to a deeper recession in response to shocks than under
normal times.
In the banking sector, there has been a steady and significant progress since the crisis of 2013-2014.
Private indebtedness and non-performing exposures have declined sharply. However, the end of the
moratoria on interest and principal payments that were implemented to mitigate the impact of the COVID-
19, may lead to pressures that may give rise to an increase in non-performing exposures especially if the
travel related sectors (most hit by the coronavirus pandemic) take longer to recover. Also, there is a
significant economic structural risk given a very large external sector and high concentration to
geographical areas. 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 management has decided to increase the weight of the adverse
scenario to 30%, and correspondingly reduce the weight of the favourable scenario to 20%.
81
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
31 December 2020
Year
Scenario
Weight
%
Real GDP
(% change)
Unemployment
rate (% of
labour force)
2021
2022
2023
2024
2025
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
-0.6
4.0
4.8
4.3
3.9
4.4
4.0
3.4
3.5
3.5
3.0
3.0
2.7
2.7
2.7
31 December 2019
9.6
7.4
6.4
8.7
6.2
5.8
7.4
5.7
5.6
6.7
5.7
5.6
6.6
5.7
5.5
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
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
Consumer
Price Index
(average
% change)
-2.2
-0.8
-0.1
-1.1
0.8
1.4
0.3
1.4
1.4
0.8
1.6
1.6
1.5
1.9
2.0
RICS House
Price Index
(average
% change)
-4.0
-2.3
-0.8
-2.3
0.3
2.4
2.5
4.1
5.2
5.3
5.3
5.9
5.8
5.5
6.1
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
The December 2019 scenarios were constructed before the outbreak of the coronavirus pandemic and did
not incorporate its impact in the underlying assumptions. The December 2020 scenarios were constructed
incorporating the impact of the pandemic on the economy in 2020. The adverse scenario for 2021 in the
December 2020 exercise incorporated the steep contraction in 2020 that was not anticipated at the time of
the December 2019 forecast exercises and hence growth in the later years is higher in the 2020 scenarios.
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.
82
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
The baseline scenario was updated for the December 2020 reporting, considering available information and
relevant developments until then and after the second wave of the pandemic had given rise to lockdown
measures as from October 2020. Economic activity had dropped sharply in the second quarter and
continued to decline in the third and fourth quarters on a year-on-year basis but at a considerably slower
pace. The second wave and associated lockdown measures were less economically damaging given their
lower severity and an increased competence of the economy to cope with the pandemic-related disruption.
Real GDP contracted by 5.1% in the year on average according to the latest estimates of the Cyprus
Statistical Service. This is better than initially anticipated and was driven by the strength of fiscal measures
at the national level and the coherent policy reaction at the EU level. Economic activity is expected to
remain weak in the first quarter of 2021 due to the continued implementation of lockdown measures.
Recovery is expected to accelerate from the second quarter onwards. Real GDP is expected to increase by
4% in 2021. Inflation will remain subdue as long as wages remain subdued and energy prices are unlikely
to rise significantly. The unemployment rate may edge a little higher as government support is withdrawn
and businesses cut costs. Likewise, property prices may drop slightly as demand remains relatively weak.
The adverse scenario is consistent with assumptions for the COVID-19 related disruptions under the
baseline scenario but to a higher degree of severity. The Cypriot economy relies on services, particularly on
tourism and travel. This makes the economy more exposed than other countries to travel restrictions and
quarantine measures that have been adopted in Cyprus and across the globe. The hit to the Cyprus
economy from falling external demand for travel and tourism services and the knock-on effects to related
sectors will be significantly more severe than under the baseline scenario. The accommodation and food
services sector continues to be the most highly impacted and also manufacturing and construction that are
more highly correlated with travel. Real GDP is expected to continue to contract in 2021, under the adverse
scenario, but marginally by 0.6% given the steep contraction of the year before. In the labour market the
unemployment rate rises more steeply to 9.6% as the government withdraws fiscal support and banks limit
their lending to riskier sectors. Property prices will be affected more severely and drop by about 4% as
foreign demand drops, and domestic housing demand slows also.
Since 1 January 2018, the Group has reassessed the key economic variables used in the ECL models
consistent with the implementation of IFRS9. The Group uses actual values for the input variables. These
values are sourced from the Cyprus Statistical Service, the Eurostat, the Central Bank of Cyprus for the
residential property price index, and the European Central Bank for interest rates. Interest rates are also
sourced from Bloomberg. In the case of property prices the Group additionally uses actual values from the
Royal Institute of Chartered Surveyors. For the forward reference period, the Group uses the forecast values
for the same variables, as prepared by the Bank’s Economic Research Department. The results of the
internal forecast exercises are consistent with publicly available forecasts from official sources including the
European Commission, the International Monetary Fund, the European Central Bank and the Ministry of
Finance of the Republic of Cyprus.
Qualitative adjustments or overlays are occasionally made when inputs calculated do not capture all the
characteristics of the market. These are reviewed and adjusted, if considered necessary, by the Risk
Management Division and endorsed by the Group Provisions Committee. Qualitative adjustments or
overlays were applied to the positive future property value capping it to 0% for all scenarios and to all loans
and advances to customers which are secured by property collaterals.
The RICS indices, which are considered for the purposes of determining the real estate collateral value on
realisation date have been used as the basis to estimate updated market values of properties supplemented
by management judgement where necessary given the difficulty in differentiating between short term
impacts and long term structural changes and the shortage of market evidence for comparison purposes
and are capped accordingly in case of any future projected increase, whereas any future projected decrease
is taken into account.
83
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
For Stage 3 customers, the calculation of individually assessed provisions is the weighted average of three
scenarios: base, adverse and favourable. The base scenario focuses on the following variables, which are
based on the specific facts and circumstances of each customer: the operational cash flows, the timing of
recovery of collaterals and the haircuts from the realisation of collateral. The base scenario is used to derive
additional either more favourable or more adverse scenarios. Under the adverse scenario operational cash
flows are decreased by 50%, applied haircuts on real estate collateral are increased by 50% and the timing
of recovery of collaterals is increased by 1 year with reference to the baseline scenario, whereas under the
favourable scenario applied haircuts are decreased by 5%, with no change in the recovery period with
reference to the baseline scenario. Assumptions used in estimating expected future cash flows (including
cash flows that may result from the realisation of collateral) reflect current and expected future economic
conditions and are generally consistent with those used in the Stage 3 collectively assessed exposures.
For collectively assessed customers the calculation is also the weighted average of three scenarios: base,
adverse and favourable.
Assessment of loss given default
A factor for the estimation of loss given default (LGD) is the timing and net recoverable amount from
repossession or realisation of collaterals which mainly comprise real estate assets.
Assumptions have been made about the future changes in property values, as well as the timing for the
realisation of collateral, taxes and expenses on the repossession and subsequent sale of the collateral as
well as any other applicable haircuts. Indexation has been used as the basis to estimate updated market
values of properties supplemented by management judgement where necessary given the difficulty in
differentiating between short term impacts and long term structural changes and the shortage of market
evidence for comparison purposes, while assumptions were made on the basis of a macroeconomic scenario
for future changes in property prices and are capped accordingly in case of any future projected increase,
whereas any future projected decrease is taken into consideration.
At 31 December 2020 the weighted average haircut (including liquidity haircut and selling expenses) used in
the collectively assessed provisions calculation for loans and advances to customers excluding those
classified as held for sale is approximately 32% under the baseline scenario (31 December 2019:
approximately 32%).
The timing of recovery from real estate collaterals used in the collectively assessed provisions calculation for
loans and advances to customers has been estimated to be on average seven years under the baseline
scenario (31 December 2019: average of seven years), excluding those classified as held for sale.
For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the
haircuts used are based on the specific facts and circumstances of each case. For specific cases judgement
may also be exercised over staging during the individual assessment including cases where no specific
model has been developed.
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 a variance between assumptions made and actual results could result
in significant changes in the amount of required credit losses of loans and advances.
Expected lifetime of revolving facilities
A behavioural maturity model for revolving facilities has been developed during 2020 based on the
Company's available historical data, where an expected maturity for each revolving facility based on the
customer's profile is assigned. The impact from the implementation of the behavioural maturity model had
an increase in ECL of €5 million. Prior to the introduction of the model, the lifetime of such facilities was set
by reference to their next review date.
84
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
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 is exercised in the form of
management overlay by applying adjustments on the modelled parameters. Governance of these models
lies with the Risk Management Division, where a strong governance process is in place around the
determination of the impairment measurement methodology including inputs, assumptions and overlays.
Any management overlays are prepared by the Risk Management Division, endorsed by the Provisions
Committee and approved by the joint Risk and Audit Committee.
ECL allowances also include off-balance sheet credit exposures represented by guarantees given and by
irrevocable commitments to disburse funds. Off-balance sheet credit exposures of the individually assessed
assets require assumptions on the probability, timing and amount of cash outflows. For the collectively
assessed off-balance sheet credit exposures, the allowance for provisions is calculated using the Credit
Conversion Factor (CCF) model.
Overlays in the context of COVID-19
Following the COVID-19 pandemic, the Group considered the complexities of governmental support
programmes and regulatory guidance on treatment of customer payment breaks by the ECL models. In this
context, management has considered the data and measurement limitations arising from the extraordinary
impact of COVID-19 and addressed them through management overlays in relation to the significant credit
risk deterioration, behavioural ratings and PD.
SICR adjustment
The initial granting of customer relief does not automatically trigger a migration to Stage 2 or Stage 3 for
the customers that have applied for the moratorium. Following an assessment performed for SICR for these
customers as at 31 December 2020, a management overlay was applied, in order to capture any bias
introduced in the customer’s credit ratings by defining collective rules that can assess Stage 1 and Stage 2
misclassified customers, due to unrepresentative outlook of the idiosyncratic risk. The exercise carried out
compared the observed with the expected score/rating (excluding days past due and arrears elements that
are unavailable for moratorium customers) movement and assessed if any customers exhibit severe
deterioration/improvement. A staging overlay was then applied on these customers in order to classify them
accordingly to Stage 2 or Stage 1. The isolated impact of this overlay resulted in a transfer of loans of €157
million from Stage 1 to Stage 2 and a transfer of loans of €2 million from Stage 2 to Stage 1. These
overlays had an impact on the ECL of €517 thousand.
Additionally, customers that were identified as having experienced a SICR resulting in a migration of €354
million of loans from Stage 1 to Stage 2 during the first, second or third quarter of 2020 were not allowed
to migrate back to Stage 1 during 2020. The impact on the ECL (no reversal of ECL) was €2 million.
SICR overlays also include transfers of moratorium loans of €56 million that have incurred missed payments
in the first week of January 2021 and €63 million of moratorium loans for which their review was not
completed by 31 December 2020 based on quantitative characteristics from Stage 1 to Stage 2. These
overlays had an impact on the ECL of €754 thousand.
Probability of default and behavioural ratings adjustment
A PD overlay was applied in order to avoid extreme values in the model predictions whilst ensuring that the
moratorium will not cause a timeline misalignment between the model projected and observed 2021
defaults. Specifically, model projected default rates from first quarter of 2020 onwards have been shifted
and distributed equally throughout the year. The isolated impact of this overlay resulted in an ECL impact of
€11 million.
The second PD overlay relates to behavioural ratings, where a prudent logic was applied in order to prevent
any moratorium-biased ratings to reflect an improved asset quality. To this end, an overlay was applied
which did not allow any moratorium facilities to have improved ratings when compared to their
corresponding February 2020 rating. The isolated impact of this overlay resulted in an ECL increase of €5
million.
The purpose of these overlays is to minimise potential cliff effects with the end of the moratorium, by
assessing the customers’ long term recovery ability, utilising short term behavioural signals.
85
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
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. During 2020, in response
to the COVID-19 pandemic, the selection criteria were expanded to include significant Stage 1 exposures
within highly impacted sectors to assess potential increase in credit risk and significant exposures which
transitioned from Stage 1 to Stage 2 to assess potential indications for unlikeliness to pay.
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 portfolio 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 45.
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 where considered necessary, and any other relevant
parameters. Selling expenses are deducted from the realisable value. Depending on the value of the
underlying asset and available market information, the determination of costs to sell may require
professional judgement which involves a high degree of uncertainty due to the relatively low level of market
activity.
More details on the stock of property are presented in Note 27.
5.4
Provisions for pending litigation, claims, regulatory and other matters
The accounting policy for provisions is described in Note 2.36 of the annual consolidated financial
statements for the year ended 31 December 2020. Judgement is required 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 39.
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.
86
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
5.
5.5
Significant and other judgements, estimates and assumptions (continued)
Tax (continued)
Deferred tax assets
In the absence of a specific accounting standard dedicated to the accounting of the asset that arose
pursuant to amendments in the Income Tax Law effected in March 2019 which provides for the
recoverability of tax assets arising from transfer of tax losses following resolution of a credit institution,
within the framework of 'The Resolution of Credit and Other Institutions', to be guaranteed (Note 17), the
Company 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, the Company had determined that this
asset should be accounted for on the basis of IAS 12 principles relating to deferred tax assets.
For further details on such deferred tax assets refer to Note 17.
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.
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 22.
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 14.
87
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
5.
5.8
Significant and other judgements, estimates and assumptions (continued)
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 using 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 experience and market
trends taking into consideration claims 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 account.
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 12.
5.9
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 12.
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 2020, are set out in Note 24.
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.
88
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
5.
5.9
Significant and other judgements, estimates and assumptions (continued)
Life insurance business (continued)
5.9.2
Insurance liabilities (continued)
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.
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
Every two years 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 32.
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/or 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).
89
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
5.
Significant and other judgements, estimates and assumptions (continued)
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 internationally accepted valuation
standards.
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 information, 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.
Further information on inputs used is disclosed in Note 22.
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 judgement. The IBR used
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 the Company 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 and
subsequently updated where considered appropriate, based on the horizon used in the Group’s
business plan. The current medium term business plan assessment is for a duration of 4 years.
The lease term was therefore based on an assessment of either 4 years (being the medium time
horizon) or 8 years (being an assessment of a 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 assets which was set at
€5,000.
Further details on the leases are disclosed in Note 43.
6.
Segmental analysis
The Group’s activities are mainly concentrated in Cyprus. Cyprus operations are organised into operating
segments based on the line of business. As from October 2019 and following the reorganisation of the
Company, a new operating segment was formed, namely Global corporate. As a result in 2019, certain
identified areas and business products were classified out of the previously existing reporting lines
Corporate and Wealth management and were 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.
90
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
6.
Segmental analysis (continued)
The operating segments are analysed below:
The Corporate, Small and medium-sized enterprises and Retail business lines are managing loans
and advances to customers. Categorisation of loans per customer group is detailed below.
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 central functions of the Company such as finance, risk
management, compliance, legal, corporate affairs and human resources. These functions provide
services to the operating segments. 'Other' includes also other subsidiary companies in Cyprus,
excluding the insurance subsidiaries and property companies under REMU.
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'.
The Company broadly categorises its loans per customer group, using the following customer sectors:
Retail – all personal customers and small businesses with facilities from the Company 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 from the Company 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 the Company in excess of
an aggregate principal amount of €6 million or having a minimum annual credit turnover of €10
million. These companies are either local-larger corporations or international companies or
companies in the shipping sector (lending also includes direct lending or through syndications).
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 associated with each business line are included for determining the line’s
performance. Transfer pricing methodologies are applied between the business lines to present their results
on an arm’s length basis. Income and expenses incurred directly by the business lines are allocated to the
business lines as incurred. Indirect income and expenses are re-allocated from the central functions to the
business lines. For the purposes of the Cyprus analysis by business line, notional tax at the 12.5% Cyprus
tax rate is charged/credited to 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 managed, 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.
91
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
6.
Segmental analysis (continued)
Analysis by business line
Annual Financial Report 2020
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
2020
Net interest income/(expense)
Net fee and commission income/(expense)
Net foreign exchange gains/(losses)
Net gains/(losses) on financial instrument transactions and
on 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
65,524
11,484
622
-
-
-
-
66,953
36,579
125,818
26,162
7,364
220
3,966
-
-
-
8,570
37,370
540
1,856
-
-
-
-
-
-
-
-
8,229
105
(360)
-
-
-
17,410
50,222
5,686
-
-
-
-
Other income
3
3
12
133
118
2
151
2,280
(14,364)
2,791
2,949
-
-
-
-
-
-
-
-
(1,038)
7,542
6,624
(12)
(6,896)
-
(183)
1,735
5,545
11,828
337,995
(7,979)
330,016
23,695
144,564
110
144,674
46
17,569
(1,034)
16,535
250
808
(1,078)
3,586
(1,865)
1,721
54,744
292
-
175
-
-
-
-
-
-
416
5,482
54,744
1,319
56,063
(746)
7,958
12,703
(753)
(1,499)
231
2,254
8,189
14,957
Staff costs
Staff costs–voluntary exit plan and other termination
benefits
Special levy on deposits of credit institutions and other
levies
Other operating (expenses)/income (excluding advisory
and other restructuring costs)
Other operating (expenses)/income - advisory and other
restructuring costs
Net (losses)/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
77,633
78,506
45,701
165,177
34,254
73,320
8,171
(1,236)
48,553
7,905
40,389
578,373
(7,717)
570,656
(5,070)
(2,719)
(5,766)
(60,267)
(15,929)
(11,993)
(2,251)
(2,703)
(9,939)
(1,517)
(76,338)
(194,492)
(735)
(195,227)
(149)
(79)
(400)
(3,521)
(1,021)
(252)
(30)
(50)
-
-
-
-
-
-
-
-
-
-
(217)
(106)
(5,825)
-
(33,656)
(33,656)
-
-
(5,825)
(33,656)
(13,647)
(9,455)
(16,097)
(96,609)
(27,922)
(19,443)
(3,399)
(5,155)
(8,808)
(12,211)
45,748
(166,998)
(5,970)
(172,968)
-
-
(117)
-
(14,437)
-
-
(1,106)
-
-
171
(15,489)
-
(15,489)
58,767
66,253
23,321
4,780
(25,055)
41,632
2,491
(10,250)
29,806
(6,040)
(23,792)
161,913
(14,422)
147,491
(460)
2,137
692
(916)
1,103
41
(8,669)
(17,523)
(1,096)
(4,378)
(228,980)
(779)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
147
496
-
-
-
-
-
(412)
(34,328)
-
-
-
-
-
186
2,930
19
2,949
(905)
(261,834)
(13,246)
(275,080)
(87)
(3,625)
(48)
(4,172)
(413)
(4,585)
-
-
-
-
-
69
(34,328)
(3,258)
(37,586)
69
-
69
49,638
50,867
(6,205)
(6,358)
22,917
(2,865)
(514)
(252,932)
64
31,616
40,894
(5,112)
3,134
(44,990)
29,719
(9,665)
(24,490)
(135,422)
(31,320)
(166,742)
(392)
5,624
(4,379)
1,208
(20,577)
(7,376)
(544)
(7,920)
43,433
44,509
20,052
(450)
(221,316)
35,782
2,742
(39,366)
25,340
(8,457)
(45,067)
(142,798)
(31,864)
(174,662)
-
-
-
-
-
-
-
-
-
-
3,251
3,251
-
3,251
Profit/(loss) after tax attributable to the owners of
the Company
43,433
44,509
20,052
(450)
(221,316)
35,782
2,742 (39,366)
25,340
(8,457) (41,816)
(139,547)
(31,864)
(171,411)
92
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
6.
Segmental analysis (continued)
Analysis by business line (continued)
Annual Financial Report 2020
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
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
Other income
8
2
12
120
196
2
1
6,242
3,709
(12,823)
57
(8)
(6,486)
1,299
1,934
(2,416)
374,739
(8,751)
365,988
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 of credit institutions 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
classifications as held for sale
Share of profit from associates
Profit/(loss) before tax
Income tax
Profit/(loss) after tax
Non-controlling interests-loss
74,641
60,283
46,429
191,977
77,934
90,465
9,130
20,813
51,053
23,625
48,502
694,852
(6,900)
687,952
(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)
38,398
(187,642)
(8,453)
(196,095)
(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
(31,769)
111,044
(16,166)
94,878
3,423
1,086
368
251
897
326
12,473
20,291
9,418
(4,860)
(272,592)
1,213
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
117
328
-
-
-
-
-
-
(911)
(18,530)
-
-
-
-
-
-
1,667
8,135
52
8,187
119
(233,610)
1,159
(232,451)
(63)
4,411
(31)
3,406
(8,196)
(4,790)
-
-
-
-
-
-
-
(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
(50,444)
(149,985)
(30,702)
(180,687)
(31)
1,614
(2,983)
(2,194)
101,095
113,527
(691)
112,836
57,006
59,077
26,764
(26,003)
(270,197)
41,168
216
(11,296)
20,799
15,357
50,651
(36,458)
(31,393)
(67,851)
-
-
-
-
-
-
-
-
-
-
(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
48,114
(38,995)
(31,393)
(70,388)
93
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
6.
Segmental analysis (continued)
Analysis of total revenue
Annual Financial Report 2020
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.
2020
Revenue from third parties
Inter-segment
(expense)/revenue
Revenue between Cyprus and
other countries
Total revenue
2019
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
79,822
84,858
44,666
130,841
83,940
58,921
6,754
13,167
48,078
(15,393)
33,841
569,495
1,161
570,656
(2,189)
(6,352)
1,035
34,336
(49,686)
14,399
1,417
(14,403)
475
23,298
(2,330)
-
-
-
-
-
-
-
-
-
-
-
-
8,878
8,878
(8,878)
-
-
77,633
78,506
45,701
165,177
34,254
73,320
8,171
(1,236)
48,553
7,905
40,389
578,373
(7,717)
570,656
79,926
69,971
47,047
127,837
163,351
57,262
4,410
33,636
56,562
1,718
42,251
683,971
3,981
687,952
(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
48,502
694,852
(6,900)
687,952
The revenue from 'Overseas segment' mainly relates to banking and financial services for 2020 and 2019 from operations that are being run down.
Analysis of assets and liabilities
2020
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
1,918,726
2,043,938
1,079,633
3,798,897
1,354,964
132,900
30,865 1,499,032
935,705
7,736,802
1,312,805 21,844,267
137,349
21,981,616
Inter-segment assets
-
-
-
-
-
-
-
-
(18,334)
-
(47,656)
(65,990)
-
(65,990)
Assets between Cyprus and
overseas operations
Total assets
1,918,726 2,043,938
1,079,633
3,798,897
1,354,964
132,900
30,865 1,499,032
917,371 7,736,802 1,265,149 21,778,277
137,349
21,915,626
(401,412)
21,514,214
94
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
6.
Segmental analysis (continued)
Analysis of assets and liabilities (continued)
Annual Financial Report 2020
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
1,398,232 21,483,305
161,378
21,644,683
Inter-segment assets
-
-
-
-
-
-
-
-
(32,448)
-
(57,862)
(90,310)
-
(90,310)
Assets between Cyprus and
overseas operations
Total assets
2020
Liabilities
Liabilities
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 1,340,370 21,392,995
161,378
21,554,373
(431,668)
21,122,705
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
1,037,430
607,467
832,576
10,525,819
58,389
3,180,061
291,470
747,410
1,721,601
485,240 19,487,463
420,129
19,907,592
Inter-segment liabilities
-
-
-
-
-
-
-
-
(65,990)
-
(65,990)
-
(65,990)
Liabilities between Cyprus and overseas
operations
Total liabilities
2019
Liabilities
Liabilities
1,037,430
607,467
832,576
10,525,819
58,389
3,180,061
291,470
747,410 1,655,611
485,240 19,421,473
420,129
19,841,602
(402,537)
19,439,065
1,117,222
691,550
770,655
10,140,920
97,290
3,543,315
330,579
696,033
1,062,156
457,323 18,907,043
450,164
19,357,207
Inter-segment liabilities
-
-
-
-
-
-
-
-
(90,310)
-
(90,310)
-
(90,310)
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
457,323 18,816,733
450,164
19,266,897
(432,793)
18,834,104
Segmental analysis of customer deposits and loans and advances to customers is presented in Notes 31 and 45.2 and 45.6 respectively.
95
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
6.
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 12)
(Losses)/gains of investment properties and stock of properties
Other income
2020
€000
436,727
151,091
16,535
176,706
(30,903)
14,957
2019
€000
508,189
171,715
26,596
172,243
2,907
28,938
765,113
910,588
The analysis of '(Losses)/gains of investment properties and stock of properties' is provided in the table
below:
Net (losses)/gains from revaluation and disposal of investment properties
Net gains on disposal of stock of property
Impairment of stock of property (Note 16)
7.
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
Negative interest on funding from central banks
Income similar to interest income
Loans and advances to customers at FVPL
Derivative financial instruments
2020
€000
(1,499)
8,189
(37,593)
(30,903)
2019
€000
2,249
25,952
(25,294)
2,907
2020
€000
2019
€000
355,395
416,422
1,467
10,710
16,319
5,306
5,412
12,120
21,055
-
389,197
455,009
2020
€000
13,216
34,314
47,530
2019
€000
15,690
37,490
53,180
96
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
8.
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
9.
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
2020
€000
2019
€000
14,034
1,573
23,329
3,784
18,782
489
61,991
40,395
2,542
23,325
9,397
17,448
386
93,493
2020
€000
2019
€000
44,720
48,708
2020
€000
40,782
81,105
2,170
3,381
966
22,687
151,091
2019
€000
50,647
81,706
11,933
3,111
926
23,392
171,715
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
€19,806 thousand (2019: €27,323 thousand). Other banking commissions include commissions from
payment orders amounting to €26,659 thousand (2019: €29,764 thousand) and account maintenance fees
of €20,089 thousand (2019: €21,144 thousand).
Fee and commission expense
Banking commissions
Mutual funds and asset management fees
Brokerage commissions
10.
Net foreign exchange gains
2020
€000
2019
€000
5,848
274
295
6,417
9,277
314
230
9,821
Net foreign exchange gains comprise of 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.
97
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
11.
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 (Note 22)
Revaluation of financial instruments designated as fair value hedges:
- hedging instruments (Note 21)
- hedged items (Note 21)
Net losses on financial liabilities at FVPL
(Loss)/gain on disposal/dissolution of subsidiaries and associates
2020
€000
2019
€000
(747)
215
(3,311)
1,006
2,865
3,606
11,418
1,652
-
2,891
(5,205)
(4,588)
5,760
(34)
(2,219)
1,721
3,696
(495)
3,886
18,675
The loss on disposal/dissolution of subsidiaries for 2020 mainly arises on the agreement signed between the
Group's life insurance subsidiary and NN Hellenic Life Insurance Company S.A. for the disposal of the
portfolio of the life insurance subsidiary's branch in Greece and the dissolution of the subsidiary Bank of
Cyprus (Channel Islands) Ltd (Note 51). The gain on disposal/dissolution of subsidiaries for 2019 relates to
the gain on disposal of Nicosia Mall Holdings (NMH) Limited and its subsidiaries (NMH group) (Note 52.4.2).
12.
Insurance income net of claims and commissions
2020
2019
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
114,805
(87,544)
27,261
138,139
(105,509)
32,630
51,605
(22,803)
166,410
(110,347)
28,802
56,063
51,522
(26,492)
189,661
(132,001)
25,030
57,660
Life insurance
business
Non-life
insurance
business
Income
Gross premiums
Reinsurance premiums
Net premiums
Change in provision for unearned premiums
Total net earned premiums
Investment income and other income
Commissions from reinsurers and other
income
Change in value of in-force business before
tax (Note 26)
2020
2019
Life
insurance
€000
101,740
Non-life
insurance
€000
74,966
(16,143)
(33,749)
85,597
41,217
-
85,597
12,594
7,071
105,262
-
41,217
-
10,388
51,605
Life insurance
€000
96,168
(15,382)
80,786
-
80,786
49,286
6,867
136,939
Non-life
insurance
€000
76,075
(34,362)
41,713
(441)
41,272
23
10,227
51,522
9,543
-
1,200
-
114,805
51,605
138,139
51,522
98
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
12.
Insurance income net of claims and commissions (continued)
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
2020
2019
Life
insurance
€000
(49,464)
Non-life
insurance
€000
(26,277)
4,455
(29,463)
10,857
(2,605)
Life insurance
€000
(53,269)
5,551
(47,464)
Non-life
insurance
€000
(33,922)
13,799
(774)
1,150
2,198
1,023
984
(14,222)
(6,976)
(11,350)
(6,579)
(87,544)
(22,803)
(105,509)
(26,492)
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
13.
Other income
2020
2019
Life
insurance
€000
Non-life
insurance
€000
Life insurance
€000
Non-life
insurance
€000
(129)
(34)
(121)
(13)
(1,077)
(5,312)
-
836
(4,813)
-
(6,934)
(2,591)
(277)
(5,407)
(1,379)
(7,959)
1,695
(4,787)
(2,111)
(2,821)
Dividend income
Loss 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
2020
€000
2019
€000
294
(90)
5,720
835
2,121
6,077
14,957
361
(99)
8,255
1,427
13,673
5,321
28,938
The income from hotel, golf and leisure activities primarily relates to activities of subsidiaries acquired in
debt satisfaction as part of loan restructuring activity.
14.
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
99
2020
€000
156,263
26,582
12,382
195,227
5,825
201,052
2019
€000
182,053
28,432
15,062
225,547
81,166
306,713
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
14.
Staff costs (continued)
The number of persons employed by the Group as at 31 December 2020 was 3,573. The number of persons
employed by the Group as at 31 December 2019 was 3,672 and included 100 persons relating to Project
Helix, whose transfer to the buyer was concluded in January 2020.
In December 2020, the Group proceeded with a targeted voluntary exit plan for its employees in Cyprus,
with a cost amounting to €5,825 thousand. In total, 27 employees accepted the targeted voluntary exit plan
and left the Group early in 2021. 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 late 2019 and early 2020.
The following table shows the analysis per geographical location of the Group’s average number of
employees (full time) and analysis of the average number of employees in Cyprus per business line for 2020
and 2019.
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
2020
2019
91
67
107
1,127
304
248
39
23
56
189
1,322
3,573
1
19
120
43
109
1,408
435
322
53
26
54
203
1,256
4,029
1
23
3,593
4,053
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
2020
€000
592
11,790
12,382
2019
€000
115
14,947
15,062
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 8% (2019: 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.
100
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
14.
Staff costs (continued)
Retirement benefit plan costs (continued)
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, when these employees were paid out. As at 31 December 2020 the
remaining retirement benefit obligation in Greece related to Group subsidiaries.
United Kingdom
The Group 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 34)
2020
€000
2019
€000
9,568
9,212
One of the plans has a funded status surplus of €2,759 thousand (2019: €2,927 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 movement in the net defined benefit
obligation for the years ended 31 December 2020 and 2019 are presented below:
101
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
14.
Staff costs (continued)
Retirement benefit plan costs (continued)
1 January 2020
Current service cost
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
Total amount recognised in the consolidated OCI
Exchange differences
Contributions:
Employer
Plan participants
Benefits paid from the plans
31 December 2020
Annual Financial Report 2020
Present value of
obligation
Fair value of
plan assets
Net amount
before impact of
asset ceiling
€000
€000
€000
Impact of
minimum
funding
requirement/
asset ceiling
€000
Net defined
benefit liability
€000
6,285
2,927
9,212
89,726
501
1,560
(83,441)
-
(1,469)
2,061
(1,469)
501
91
592
-
-
-
-
-
-
-
(168)
(168)
-
-
-
-
501
91
592
(6,105)
9,692
(133)
129
(168)
3,415
(374)
(3,277)
-
-
(6,105)
(6,105)
-
-
-
-
(6,105)
3,587
(3,277)
(180)
4,682
9,692
(133)
129
-
3,583
(374)
(3,277)
-
-
(86,203)
6,809
2,759
9,568
-
9,692
(133)
129
-
9,688
(3,961)
-
180
(4,682)
93,012
102
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
14.
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)
Annual Financial Report 2020
Impact of
minimum
funding
requirement/
asset 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)
1,083
467
(402)
50
115
(7,426)
10,837
(915)
624
-
5,000
8,120
333
(2,962)
(2,962)
(195)
2,543
-
(83,441)
-
-
(404)
6,285
467
(402)
2,068
2,133
-
10,837
(915)
624
-
-
10,546
3,350
-
195
(2,543)
(404)
89,726
103
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
14.
Staff costs (continued)
Retirement benefit plan costs (continued)
The actual return on plan assets for year 2020 was a gain of €7,574 thousand (2019: gain of €9,444
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 increases 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
2020
2019
%48
%47
%5
%100
%48
%45
%7
%100
The assets held by the funded plans include equity securities issued by BOCH the fair value of which as at
31 December 2020 is €41 thousand (2019: €67 thousand).
The Group expects to make additional contributions to defined benefit plans of €3,621 thousand during
2021.
At the end of the reporting period, the average duration of the defined benefit obligation was 18.5 years
(2019: 19.0 years).
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 2020 and 2019 are
set out below:
104
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
14.
Staff costs (continued)
Retirement benefit plan costs (continued)
2020
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
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
Cyprus
0.33%
1.50%
2.00%
2.00%
23.5 years M
29.6 years F
n/a
0.93%-1.11%
1.75%
2.25%
2.00%
23.5 years M
29.6 years F
n/a
Greece
UK
0.70%
1.50%
1.75%
n/a
n/a
n/a
1.30%
1.75%
2.00%
n/a
n/a
n/a
1.45%
2.85%
n/a
2.75%
n/a
22.5 years M
24.9 years F
2.05%
2.80%
n/a
2.70%
n/a
22.5 years M
24.9 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
17% 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 83% 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.
The impact of significant assumptions' fluctuations on the defined benefit obligation as at 31 December
2020 and 2019 is presented below:
Variable
Discount rate
Inflation growth rate
Salary growth rate
Pension growth rate
Life expectancy
2020
2019
Change
+0.5%
Change
-0.5%
Change
+0.5%
Change
-0.5%
%-9.0
%6.1
%1.1
%9.7
%-5.7
%-1.1
%0.1
%-0.1
Plus 1 year Minus 1 year
%-2.8
%2.8
%-9.2
%6.3
%1.2
%0.1
Plus 1 year
%2.7
%9.9
%-5.7
%-1.1
%-0.1
Minus 1 year
%-2.7
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.
105
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
15.
Other operating expenses
Repairs and maintenance of property and equipment
Other property-related costs
Consultancy and other professional services fees
Insurance
Advertising and marketing
Depreciation of property and equipment (Note 25)
Amortisation of intangible assets (Note 26)
Communication expenses
Provisions for pending litigations, claims, regulatory and other matters
(Note 39.4)
Printing and stationery
Cash transfer expenses
Other operating expenses
Advisory and other restructuring costs
2020
€000
2019
€000
31,701
12,907
12,409
5,740
8,036
19,224
18,263
6,852
30,897
1,953
2,526
22,460
172,968
15,489
188,457
29,763
17,735
16,390
5,806
11,531
20,118
16,161
8,486
28,851
2,905
3,038
35,311
196,095
46,657
242,752
Advisory and other restructuring costs comprise mainly fees to external advisors in relation to: (i) customer
loan restructuring activities which are not part of the effective interest rate and (ii) the disposal of
operations and non-core assets.
During the year ended 31 December 2020, the Group recognised €355 thousand relating to rent expense
for short term leases, included within 'Other property-related costs (2019: €358 thousand) and €8,855
thousand relating to the depreciation of right-of-use assets, included within 'Depreciation of property and
equipment' (2019: €8,839 thousand) (Note 43).
Within total other operating expenses an amount of €1,037 thousand (2019: €1,152 thousand) relates to
investment property that generated rental income.
The special 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, reduces the payment of the Special Levy up to the level of
the total annual Special Levy charge. The Special levy on deposits of credit institutions in Cyprus and
contribution to Single Resolution Fund amounted to €24,727 thousand (2019: €24,854 thousand) and is
presented on the face of the consolidated income statement, together with the guarantee fee on annual
deferred tax credit amounting to €3,445 thousand (2019: €18,755 thousand) (Note 17) and the
contribution to the Deposit Guarantee Fund of €5,484 thousand (2019: nil).
As from 1 January 2020 and until 3 July 2024 the Company 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 covered deposits by 3 July 2024.
106
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
15.
Other operating expenses (continued)
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
1,602
1,502
2020
€000
2019
€000
Other assurance services
Tax compliance and advisory services
Other non-audit services
368
211
385
732
225
338
2,566
2,797
Other assurance services include fees related to the interim review.
16.
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
45.9)
Recoveries of loans and advances to customers previously written off
Changes in expected cash flows
Financial guarantees and commitments (Notes 45.8.1 and 45.8.2)
Credit losses of other financial instruments
Amortised cost debt securities (Note 20)
FVOCI debt securities (Note 20)
Loans and advances to banks (Note 19)
Other financial assets
Impairment/(reversal of impairment) of non-financial assets
Stock of property (Note 27)
Other non-financial assets
2020
€000
2019
€000
284,969
(20,621)
12,866
(2,134)
260,114
(25,627)
3,537
(5,573)
275,080
232,451
54
78
6
4,447
4,585
37,593
(7)
37,586
(36)
101
(659)
5,384
4,790
25,294
787
26,081
Changes in expected cash flows for the year ended 31 December 2020 relate mainly to gross modification
loss arising as a result of the modification to loan terms offered pursuant to the moratorium (Note 5.2) as a
result of the COVID-19 pandemic.
107
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
17.
Income tax
Current tax:
- Cyprus
- Overseas
Cyprus special defence contribution
Deferred tax charge/(credit)
Prior years’ tax adjustments
Other tax charges
2020
€000
2019
€000
3,934
93
136
1,611
838
1,308
7,920
5,040
143
318
(113,436)
(4,909)
8
(112,836)
The Group's share of income tax from associates for 2020 amounted to €nil (2019: €703 thousand).
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
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
- deferred tax charge/(reversal of previously recognised deferred tax)
- losses on which deferred tax was not recognised
Prior years' tax adjustments
Other tax charges
2020
€000
(166,742)
2019
€000
(180,687)
(20,706)
(22,267)
23,899
(11,504)
30,788
(25,749)
2,593
2,890
45
(113,610)
11,447
20,014
5,774
838
1,308
7,920
(107,934)
(4,910)
8
(112,836)
Income tax in Cyprus is calculated at the rate of 12.5% on taxable income (2019: 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% (2019: 3%) and on interest income from
activities outside the ordinary course of business at a rate of 30% (2019: 30%).
The Group’s profits from overseas operations are taxed at the rates prevailing in the respective countries,
which for 2020 were: Greece 24% (2019: 28%), Romania 16% (2019: 16%), Russia 20% (2019: 20%)
and UK 19% (2019: 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 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.
108
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
17.
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
Deferred tax recognised in the consolidated statement of comprehensive
income
Transfer to current tax receivables following conversion into tax credit
31 December
2020
€000
(10,820)
(14,188)
(2,847)
341,182
(15,772)
(2,177)
295,378
2019
€000
(10,371)
(15,975)
(2,847)
379,091
(14,579)
(2,208)
333,111
2020
€000
341,360
(45,982)
295,378
2019
€000
379,126
(46,015)
333,111
2020
€000
333,111
(1,611)
1,787
(37,909)
295,378
2019
€000
257,496
113,436
88
(37,909)
333,111
The Group offsets income tax assets and liabilities only if it has a legally enforceable right to set-off current
income tax assets and current income tax liabilities.
The analysis of the net deferred tax charge/(credit) recognised in the consolidated income statement is set
out below:
Difference between capital allowances and depreciation
Write-back of deferred tax assets
Value of in-force life insurance business
Other temporary differences
2020
€000
449
-
1,193
(31)
1,611
2019
€000
1,643
(115,228)
150
(1)
(113,436)
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
109
2020
€000
2019
€000
1,787
88
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
17.
Income tax (continued)
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 could 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 expired.
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. 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 credit in the relevant year is 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.
The Company has DTA that meets the requirements of the Law relating to income tax losses transferred to
the Company 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 the Company paid a consideration as part of
the respective acquisition. Under the Law, the Company can convert up to an amount of €3.3 billion tax
losses to tax credits (which led to the creation of DTA amounting to €417 million), with the conversion being
based on the tax rate applicable at the time of conversion. As a result, a reversal of previously recognised
DTA impairment of €115 million was recognised during the year ended 31 December 2019. Following the
amendment of the Law, the period of utilisation of the tax losses which may be converted into tax credits
remains unchanged (i.e. by end of 2028).
During the year ended 31 December 2020, an amount of €37,909 thousand has been reclassified from the
DTA to current tax receivables (2019: €37,909 thousand) being the annual conversion into tax credit.
As a result of the above Law, the Group has deferred tax assets amounting to €341,182 thousand as at 31
December 2020 (2019: €379,091 thousand) that meet the requirements under this Law, the recovery of
which is guaranteed.
The DTA subject to the Law is accounted for on the same basis, as described in Note 2.13.
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, 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.
110
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
17.
Income tax (continued)
The Group, in anticipation of modifications in the Law, acknowledges that such increased annual fee may be
required to be recorded on an annual basis until expiration of such losses in 2028. The determination and
conditions of such amount will be prescribed in the Law to be amended and the amount determined by the
Government on an annual basis. Amendments to the Law will need to be adopted by the Cyprus Parliament
and published in the Official Gazette of the Republic for the amendments to be effective. The Group,
however, understands that contemplated amendments to the Law may provide that the minimum fee to be
charged will be 1.5% of the annual instalment and can range up to a maximum amount of €10,000
thousand per year. The Group estimates that such increased fees could range up to €5,300 thousand per
year (for each tax year in scope i.e. since 2018) although the Group understands that such fee may
fluctuate annually as to be determined by the Ministry of Finance. To this respect, an amount of €3,445
thousand has been recorded in 2020 (Note 15) to bring the total amount provided for years 2018-2020 to
€15,900 thousand, being the maximum expected increased amount for these years (2019: €18,755
thousand of which €12,500 thousand related to the additional expected increased amount).
Accumulated income tax losses
The accumulated income tax losses are presented in the table below:
2020
Expiring within 5 years
Total income
tax losses
€000
648,401
Income tax
losses for
which a
deferred tax
asset was
recognised
€000
Income tax
losses for
which no
deferred tax
asset was
recognised
€000
-
648,401
Utilisation in annual instalments up to 2028
2,729,454
2,729,454
-
3,377,855
2,729,454
648,401
2019
Expiring within 5 years
Utilisation in annual instalments up to 2028
520,988
3,032,727
3,553,715
-
520,988
3,032,727
3,032,727
-
520,988
In relation to the tax losses that were transferred to the Company in 2013, the income tax authorities in
Cyprus issued their tax assessments in March and April 2019. On the basis of these assessments the
quantum of Laiki Bank tax losses were approximately €5 billion and lower than the initial amount of €7.4
billion estimated in 2013.
The tax losses in excess of the €3.3 billion transferred from Laiki Bank to the Company in March 2013
cannot be utilised by the Company, 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.
18.
Earnings per share
Basic and diluted loss per share attributable to the owners of the
Company
2020
2019
Loss for the year attributable to the owners of the Company (€ thousand)
(171,411)
(70,388)
Weighted average number of shares in issue during the year (thousand)
9,597,945
9,483,903
Basic and diluted loss per share (€ cent)
(1.8)
(0.7)
111
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
19.
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
2020
€000
139,686
2019
€000
151,555
5,513,629
4,908,487
5,653,315
5,060,042
2020
€000
402,862
(78)
2019
€000
320,953
(72)
402,784
320,881
An analysis of the movement of the gross carrying amount of balances with central banks is presented in
the table below:
Gross carrying amount
1 January
Net increase
Transfer to disposal groups held for sale
31 December
2020
€000
4,908,487
673,567
(68,425)
2019
€000
4,456,768
451,719
-
5,513,629
4,908,487
Balances with central banks are classified as Stage 1.
There was no ECL allowance on balances with central banks for the years 2020 and 2019.
An analysis of the movement of the gross carrying amount and ECL of loans and advances to banks is
presented in the table below:
2020
2019
Gross carrying
amount
€000
ECL
€000
1 January
Net increase /(decrease)
Disposal/dissolution of subsidiaries
Changes to models and inputs used for ECL
calculation (Note 16)
Foreign exchange adjustments
31 December
320,953
83,380
(398)
-
(1,073)
402,862
All loans and advances to banks are classified as Stage 1.
Gross
carrying
amount
€000
473,263
(149,899)
(2,825)
-
414
320,953
(72)
-
-
(6)
-
(78)
ECL
€000
(731)
-
-
659
-
(72)
Balances with central banks include obligatory deposits for liquidity purposes as at 31 December 2020 which
amount to €158,031 thousand (2019: €160,048 thousand) (Note 42).
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 45.13.
Loans and advances to banks earn interest based on the interbank rate of the relevant term and currency.
112
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
20.
Investments
Investments
Investments mandatorily measured at FVPL
Investments at FVOCI
Investments at amortised cost
2020
€000
207,943
658,232
1,009,834
2019
€000
176,106
701,704
805,059
1,876,009
1,682,869
During 2020, the Group has proceeded to invest in debt securities, as part of its investing strategy which
mainly related to the acquisition of treasury bills and Cyprus Government bonds.
The amounts pledged as collateral are shown below:
Investments pledged as collateral
Investments at FVOCI
Investments at amortised cost
2020
€000
14,069
23,036
37,105
2019
€000
199,916
23,045
222,961
The decrease in investments pledged as collateral during 2020 related mainly to the maturity of
investments pledged as collateral by the Group as well as to the maturity of repurchase agreements for
which investments were pledged as collateral. Encumbered assets are disclosed in Note 47.
As at 31 December 2020 there are no investments pledged as collateral under repurchase agreements as
no repurchase agreements remained outstanding. As at 31 December 2019 all investments pledged as
collateral under repurchase agreements could be sold or repledged by the counterparty.
The maximum exposure to credit risk for debt securities is disclosed in Note 45.1 and the debt securities
price risk sensitivity analysis is disclosed in Note 46.
There were no reclassifications of investments during the years 2020 and 2019.
The credit rating analysis of investments is disclosed in Note 45.13.
113
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
20.
Investments (continued)
Investments at fair value through profit or loss
Debt securities
Equity securities
Mutual funds
Debt securities
Banks and other corporations
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
2020
€000
€000
19,118
3,277
185,548
207,943
24,093
2,484
149,529
176,106
19,118
19,118
24,093
24,093
2,155
626
496
3,277
1,607
777
100
2,484
131,771
53,777
185,548
108,760
40,769
149,529
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 22.
Investments at FVOCI
Debt securities
Equity securities (including preference shares)
Mutual funds
2020
€000
656,856
14,835
610
2019
€000
885,810
15,202
608
672,301
901,620
114
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
20.
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
2020
€000
382,742
41,235
232,879
656,856
2,983
653,873
656,856
382,742
51,784
90,226
10,364
121,740
656,856
1,483
81
13,271
14,835
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
An analysis of the movement of debt instruments before ECL and the changes on the ECL are presented in
the table below:
1 January
New assets acquired in the year
Assets derecognised and redeemed in the year
(Note 16)
Interest accrued and amortisation
Foreign exchange adjustments
Changes to models and input used for ECL
calculations (Note 16)
Change in fair value
31 December
2020
2019
Gross debt
securities
€000
886,509
61,983
(263,335)
(4,170)
(17,410)
-
(5,944)
657,633
ECL
€000
(699)
7
-
-
-
(85)
-
(777)
Gross debt
securities
€000
820,346
135,042
(89,707)
(1,841)
3,250
-
19,419
886,509
ECL
€000
(598)
-
-
-
-
(101)
-
(699)
All debt securities measured at FVOCI are classified as Stage 1.
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 €14,835 thousand at 31
December 2020 and is equal to their fair value (2019: €15,202 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 €223 thousand has been received and recognised for 2020 in other income
(2019: €306 thousand).
During 2020 and 2019 no equity investments measured at FVOCI have been disposed of. There were no
transfers from OCI to retained earnings during the year.
115
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
20.
Investments (continued)
The fair value of the financial assets that have been reclassified out of FVPL to FVOCI on transition to IFRS
9, amounts to €12,134 thousand at 31 December 2020 (2019: €12,098 thousand). The fair value gain that
would have been recognised in the consolidated income statement in 2020 if these financial assets had not
been reclassified as part of the transition to IFRS 9, amounts to €28 thousand (2019: gain of €158
thousand). The effective interest rate of these instruments is 1.6%-5.0% (2019: 1.6%-5.0%) per annum
and the respective interest income during the year 2020 amounts to €304 thousand (2019: €346
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
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
Interest accrued and amortisation
Foreign exchange adjustments
31 December
Stage 1
€000
779,770
513,655
(294,756)
644
(2,289)
(12,285)
2020
Stage 2
€000
49,130
-
-
Total
€000
828,900
513,655
Stage 1
€000
482,229
318,187
(294,756)
(25,143)
(123)
(26)
521
(2,315)
-
(12,285)
1,038
1,062
2,397
2019
Stage 2
€000
48,982
-
-
182
(33)
(1)
984,739
48,981 1,033,720
779,770
49,130
828,900
116
2020
€000
2019
€000
1,032,870
828,104
440,983
132,267
292,918
166,702
1,032,870
318,141
714,729
1,032,870
143,644
161,090
333,313
190,057
828,104
48,654
779,450
828,104
440,983
143,644
49,870
33,671
25,646
184,804
135,302
162,594
1,032,870
51,846
38,349
30,082
271,587
107,012
185,584
828,104
Total
€000
531,211
318,187
(25,143)
1,220
1,029
2,396
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
20.
Investments (continued)
An analysis of changes on the ECL is presented in the table below:
1 January
Assets derecognised or redeemed
(Note 16)
Change to models and inputs used
for ECL calculation (Note 16)
31 December
Stage 1
€000
2020
Stage 2
€000
Total
€000
Stage 1
€000
2019
Stage 2
€000
Total
€000
(320)
(476)
(796)
(142)
(690)
(832)
12
-
(237)
(545)
171
(305)
12
(66)
(850)
-
(178)
(320)
-
214
(476)
-
36
(796)
21.
Derivative financial instruments
The contract amount and fair value of the derivative financial instruments is set out below:
2020
Fair value
2019
Fair value
Contract
amount
€000
Assets
Liabilities
€000
€000
Contract
amount
€000
Assets
Liabilities
€000
€000
37,912
970,645
92,305
2,628
527,883
834
4,458
271
72
83
346
21,939
2,832 1,170,915
597
302
263,159
1,800
25 1,684,871
165
775
315
10
772
111
5,897
551
296
-
1,631,373
5,718
4,102 3,142,684
2,037
6,855
877,783
18,907
39,720 1,068,926
19,542
43,727
84,588
962,371
2,593,744
2
2,156
96,821
18,909
24,627
41,876 1,165,747
45,978 4,308,431
1,481
21,023
23,060
11
43,738
50,593
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
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 and exchange rates. 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 significantly smaller amount compared to the
derivatives’ notional amount. 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 46. The interest rate risk is managed through the use of own balance
sheet solutions such as 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 46. 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.
117
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
21.
Derivative financial instruments (continued)
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.
Interest rate caps/floors protect the buyer 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 and foreign exchange rates in accordance with the terms of the
relevant contract. The aggregate net fair value of derivatives may fluctuate significantly over time.
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, subordinated loan stock 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 2020, deposits, and forward and swap exchange rate contracts amounting to €9,988
thousand and €84,588 thousand respectively (2019: €10,667 thousand and €96,821 thousand respectively)
have been designated as hedging instruments and have given rise to a loss of €23,756 thousand (2019:
gain of €10,927 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.
118
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
21.
Derivative financial instruments (continued)
2020
Derivatives qualifying for hedge accounting
Fair value hedges
-interest rate swaps
Net investments
-forward exchange rate contracts
Total
2019
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
5,760
(5,205)
(555)
25,236
30,996
(25,236)
(30,441)
-
(555)
3,696
(4,588)
(11,462)
(7,766)
11,462
6,874
892
-
892
The accumulated fair value adjustment arising from the hedging relationships is presented in the table
below:
2020
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
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
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
712,925
-
21,084
-
272,152
434
84,154
-
-
713,359
356,306
21,084
-
(1,374)
(2,158)
(3,532)
909,868
-
16,331
-
-
272,170
-
(1,596)
2,472
94,349
(2)
912,340
366,519
16,329
1,472
(124)
For assets hedged using fair value hedges the fixed rate is 2.35% and the floating rate is 1.03% (2019:
2.76% and 1.4% respectively). For liabilities hedged using fair value hedges, the fixed rate is 9.25% and
the floating rate is 8.93% (2019: 9.25% and 8.95% respectively).
The maturity of the Group's contract amount of the derivatives is presented in the table below:
119
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
21.
Derivative financial instruments (continued)
2020
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
17,125
791,644
44,069
2,628
-
15,510
178,227
5,277
774
-
-
23,970
14,169
10,097
-
-
-
-
-
527,883
855,466
217,707
20,220
537,980
-
-
-
-
-
-
37,912
970,645
92,305
2,628
527,883
1,631,373
-
-
30,358
653,925
193,500
877,783
66,849
66,849
17,739
17,739
-
-
-
84,588
30,358
653,925
193,500
962,371
Total
922,315
235,446
50,578
1,191,905
193,500 2,593,744
120
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
21.
Derivative financial instruments (continued)
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
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
-
96,821
96,821
-
-
-
188,505
646,921
233,500 1,068,926
-
-
-
96,821
188,505
646,921
233,500 1,165,747
Total
1,278,992
11,589
1,985,627
798,723
233,500 4,308,431
Interest rate benchmark reform
As at 31 December 2020 and 2019 the interest rate benchmarks to which the Company's hedge
relationships are exposed to, are Euro Interbank Offered Rate (Euribor) and US Dollar London Interbank
Offered Rate (Libor) for the cash flows of the hedging instruments. 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 Interbank Offered Rate (IBOR) are expected to have broadly equivalent
cash flows upon the transition of the contracts 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 the Company manages through hedging relationships.
Interest Rate Swaps
Euribor (3 months)
Libor USD (3 months)
Total
2020
€000
699,831
177,952
2019
€000
865,431
203,495
877,783
1,068,926
As at 31 December 2020, the Group's assessment regarding the on-going transition to the new risk-free
rates (RFRs) indicates a not significant impact on the hedging relationships and in value terms. Further
details in relation to interest rate benchmark reform are disclosed in Note 46.
121
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
22.
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
Funding from central banks and deposits by
banks
Repurchase agreements
Derivative financial liabilities
Customer deposits
Subordinated loan stock
Other financial liabilities and lease liabilities
2020
2019
Carrying
value
€000
Fair value
€000
5,653,315
5,653,315
Carrying
value
€000
5,060,042
Fair value
€000
5,060,042
402,784
207,943
672,301
402,979
207,943
672,301
1,032,870
1,050,271
24,627
24,627
320,881
176,106
901,620
828,104
23,060
319,852
176,106
901,620
844,795
23,060
9,886,047
9,687,663
10,721,841
10,720,292
462,977
561,462
102,211
462,977
561,462
102,211
447,172
25,929
146,596
447,172
25,929
146,596
19,006,537
18,825,749
18,651,351
18,665,464
1,386,643
1,325,538
-
-
45,978
45,978
533,404
168,129
50,593
475,792
170,816
50,593
16,533,212
16,535,842
16,691,531
16,692,463
272,152
282,510
274,414
282,510
272,170
255,125
293,623
255,125
18,520,495
18,464,282
17,970,952
17,938,412
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 market observable data.
For assets and liabilities that are recognised in the Consolidated Financial Statements at fair value, the
Group determines whether transfers have occurred between levels in the hierarchy by re-assessing
categorisation at the end of each reporting period.
The following is a description of the determination of fair value for financial instruments which are recorded
at fair value on a recurring and on a non-recurring basis and for financial instruments which are not
measured at fair value but for which fair value is disclosed, using valuation techniques. These incorporate
the Group’s estimate of assumptions that a market participant would make when valuing the instruments.
Derivative financial instruments
Derivative financial instruments valued using a valuation technique with market observable inputs are
mainly interest rate swaps, currency swaps, currency rate options, forward foreign exchange rate contracts
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.
122
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
22.
Fair value measurement (continued)
Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA)
The CVA and DVA are incorporated into derivative valuations to reflect the impact on fair value of
counterparty risk and the Company'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
the 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 the Company. The fair value
of deposits repayable on demand and deposits protected by the Deposit Protection Guarantee Scheme are
approximated by their carrying values.
Repurchase agreements
Repurchase agreements are collateralised bank takings. Given that the collateral provided by the Group is
greater than the amount borrowed, the fair value calculation of these repurchase agreements takes into
account the time value of money.
Loans and advances to banks
Loans and advances to banks with maturity over one year are discounted using an appropriate risk free rate
plus the appropriate credit spread. For short-term lending, the fair value is approximated by the carrying
value.
Deposits by banks and funding from central banks
Deposits by banks and funding from central banks with maturity over one year are discounted using an
appropriate risk free rate plus the appropriate credit spread. For short-term lending, the fair value is
approximated by the carrying value.
Subordinated loan stock
The current issue of the Company is traded in an active market with quoted prices.
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.
123
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
22.
Fair value measurement (continued)
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.
The following table presents the fair value measurement hierarchy of the Group's financial and non-financial
assets and liabilities recorded at fair value and financial assets and financial liabilities for which fair value is
disclosed, by level of the fair value hierarchy:
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
2020
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
Manufacturing and industrial
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
834
4,458
271
72
83
5,718
18,907
2
18,909
53,347
2,984
16,735
57,041
35,326
626
18,360
16,735
57,041
35,326
626
18,360
128,088
128,088
1,248
1,248
202,146
202,146
10,408
10,408
289,861
289,861
-
-
-
-
-
-
-
-
-
19,678
13,504
834
4,458
271
72
83
5,718
18,907
2
18,909
207,943
672,301
Investments mandatorily measured at FVPL
Investments at FVOCI
134,918
655,813
Other financial assets not measured at
fair value
Loans and advances to banks
Investments at amortised cost
Loans and advances to customers
790,731
80,958
664,933
1,536,622
-
695,666
-
402,979
321,612
-
402,979
32,993
1,050,271
-
9,397,802
9,397,802
695,666
724,591
9,430,795
10,851,052
124
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
22.
Fair value measurement (continued)
For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discount
factor by 10% would result in a decrease of €5,027 thousand in their fair value and a decrease in the
discount factor by 10% would result in an increase of €1,681 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 20) with a carrying amount of €18,618 thousand as of 31
December 2020, a change in the market value by 10% would result in a change in the value of the debt
securities by €1,862 thousand.
For additional disclosures on sensitivity analysis of equity securities refer to Note 46.
The fair value measurement hierarchy for life insurance business assets attributable to policy holders is
disclosed in Note 24.
2020
Liabilities measured at fair value
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
Other financial liabilities not measured
at fair value
Funding from central banks
Deposits by banks
Customer deposits
Subordinated loan stock
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
274,414
346
2,832
597
302
25
4,102
39,720
2,156
41,876
45,978
992,494
333,044
-
-
-
-
-
-
-
-
-
-
-
-
-
-
346
2,832
597
302
25
4,102
39,720
2,156
41,876
45,978
992,494
333,044
16,535,842
16,535,842
-
274,414
274,414
1,325,538
16,535,842
18,135,794
125
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
22.
Fair value measurement (continued)
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
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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 20) with a carrying amount of €23,593 thousand as at 31
December 2019, a change in the conversion factor by 10% would result in a change in the value of the debt
securities by €2,359 thousand.
126
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
22.
Fair value measurement (continued)
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
The cash and balances with central banks are financial instruments whose carrying value is a reasonable
approximation of fair value, because they are mostly short-term in nature or are repriced to current market
rates frequently. The carrying value of other financial assets and other financial liabilities and assets
classified as held for sale is a close approximation of their fair value and they are categorised as Level 3.
During the year ended 31 December 2020 and 2019 there were no significant transfers between Level 1 and
Level 2.
127
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
22.
Fair value measurement (continued)
Annual Financial Report 2020
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:
2020
2019
Investment
properties
€000
136,197
2,649
(6,674)
Investment
properties
held for sale
€000
-
-
-
Own use
properties
€000
235,277
303
(159)
-
-
-
Own use
properties
held for sale
€000
Loans and
advances to
customers
€000
Financial
instruments
Investment
properties
€000
€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
369,293
38,507
128,006
152,348
236,405
88,022
395,572
23,146
20,669
-
1,719
-
(13,909)
(152,348)
1 January
Additions
Disposals
Transfers from investment
properties/own use properties to non-
current assets and disposal groups
held for sale (Note 29)
Transfers from/(to) stock of property
(Note 27)
Transfers to Level 2
Depreciation charge for the year
Fair value (losses)/gains
Net gains on loans and advances to
customers measured at FVPL
(Note 11)
Derecognition of loans
Interest on loans (Note 7)
(1,248)
1,248
(10,408)
10,408
74
-
-
(2,055)
-
-
-
-
-
-
-
-
-
-
-
(21,805)
-
(2,612)
1,550
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,006
-
-
(4,109)
(302)
3,606
(96,254)
13,216
-
-
-
-
-
-
-
(1,216)
727
-
-
(234)
-
(2,613)
-
-
-
-
-
235,277
(88,022)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,891
(44,860)
15,690
-
6,529
(473)
-
-
(22)
-
9,327
-
-
-
-
369,293
38,507
Foreign exchange adjustments
(855)
31 December
128,088
1,248
202,146
10,408
289,861
33,182
136,197
128
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
22.
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:
129
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
22.
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
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
Estimated
building cost
per m2
Yield
Estimated fair
value per m2
Estimated
land value per
m2
Land
Building area
€29-€86
€134-€1,370
n/a
€380-€2,206
€110-€900
89-1,203
m2
m2
19-1,356
€3-€86
€136-€2,132
2.14%-9.91%
€45-€1,455
€3-€1,176
4-5,147
44-825
2020
€000
13,013
3,722
16,735
52,021
€26-€250
n/a
4%-8% €550-€7,103
€550-€1,050
150-35,413
16-9,369
4,774
246
57,041
26,908
9,627
39
36,574
626
€15-€259
€157-€3,483
5.31%-10.07%
€52-€1,842
€19-€259
5-8,582
6-4,692
n/a
€19-€448
n/a
€10-€153
€2-€70
1,460-26,046
212-15,898
€21-€67
€448
5%-6% €350-€1,602
n/a
1,593-15,965
421-7,340
€1-€37
€80-€603
1.79%-10.57%
€13-€396
€3-€302
56-34,495
349-5,858
n/a
€8-€357
n/a
€5-€185
€5-€86
2,162-10,500
304-1,246
n/a
€324
n/a
€324
n/a
n/a
7,436
18,095
n/a €1,000-€1,250
n/a
€524-€1,002
€524-€1,002
2,316-29,398
49
216
18,360
129,336
€1
n/a
n/a
n/a
6.43%
n/a
€12
€13
€12
€13
3,988
58,600
n/a
n/a
n/a
Age of
building
Years
6-130
12-63
10-75
16-62
n/a
8-36
11-82
n/a
15
n/a
n/a
n/a
130
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
22.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of own use properties and own use properties held for sale
Annual Financial Report 2020
Type and country
2020
Offices and other commercial properties
Cyprus
Total
€000
212,554
212,554
Estimated
rental value
per m2 per
annum
Estimated
building
cost per m2
Yield
Estimated
fair value
per m2
Estimated
land value
per m2
Land
m2
Building
area
Age of
building
m2
Years
€23-€277 €750-€1,855
5%-6% €14-€6,163 €70-€3,171
390-598,767 122-11,233
13-78
131
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
22.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of investment properties and investment properties held for sale
Type and country
2019
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
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
€000
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
m2
71-1,203
4-5,147
m2
8-1,356
44-825
n/a
n/a
€225-€633
n/a
€51-€297
€9-€38
800-1,573
198-1,186
4,835
631
19,841
53,086
€11-€500
n/a
€250-€900
5%-9% €120-€8,921 €120-€2,000
140-35,413
25-9,423
€12-€239
0.7%-2.9% €151-€3,400
0%-9.3% €71-€3,400
€25-€106
282-8,582
6-4,087
n/a
n/a
€26-€461
n/a
€23-€461
€3-€93
1,460-5,545
261-3,288
€25-€67
n/a
€278-€765
6%-6.5% €120-€1,484
€60-€550
2,202-15,965
744-7,180
€4-€39
0.9%-2.9% €84-€1,318
0%-11% €13-€416
€3-€10
57-34,495
349-5,858
n/a
n/a
€11-€475
n/a
€8-€247
€7-€115
2,162-29,538
304-8,874
n/a
n/a
€1
n/a
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
4,885
1,081
59,052
26,646
9,736
512
36,894
1,701
18,155
56
498
18,709
136,197
132
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 GROUP
Notes to the Consolidated Financial Statements
22.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of own use properties and own use properties held for sale
Annual Financial Report 2020
Type and country
2019
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
Offices and other
commercial properties
Cyprus
Total
€000
235,277
€26-€277
235,277
n/a
€821-€1,895
5%-6% €14-€6,557 €140-€3,381
390-598,767 122-11,233
12-77
m2
m2
Years
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.
133
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
23.
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
45.9)
Loans and advances to customers measured at FVPL
2020
€000
10,400,603
2019
€000
12,008,146
(804,417)
(1,655,598)
9,596,186
10,352,548
289,861
369,293
9,886,047
10,721,841
Loans and advances to customers pledged as collateral are disclosed in Note 47.
Gross loans comprise of gross loans and advances to customers measured at amortised cost (reported after
the residual fair value adjustment on initial recognition as detailed in Note 45.6).
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 45.
24.
Life insurance business assets attributable to policyholders
Equity securities
Debt securities
Mutual funds
Bank deposits and other receivables
Property
2020
€000
898
43,064
378,511
40,504
462,977
11,210
474,187
2019
€000
1,162
39,418
360,692
45,900
447,172
11,680
458,852
Financial assets of life insurance business attributable to policyholders are classified as investments at FVPL.
Bank deposits and other receivables include other financial receivables of €3,074 thousand (2019: €3,128
thousand).
In addition to the above assets, the life insurance subsidiary of the Group holds shares of BOCH, as part of
the assets attributable to policyholders with a carrying value as at 31 December 2020 of €101 thousand
(2019: €167 thousand). Such shares are presented in the Consolidated Financial Statements of BOCH as
treasury shares (Note 35).
The analysis of the financial assets of life insurance business attributable to policyholders measured at fair
value by level is presented below:
2020
Equity securities
Debt securities
Mutual funds
2019
Equity securities
Debt securities
Mutual funds
Level 1
€000
Level 2
€000
Level 3
€000
-
5,991
698
6,689
-
-
-
-
-
20,295
3,140
23,435
-
22,261
3,385
25,646
898
16,778
374,673
392,349
1,162
17,157
357,307
375,626
134
Total
€000
898
43,064
378,511
422,473
1,162
39,418
360,692
401,272
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
24.
Life insurance business assets attributable to policyholders (continued)
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
Unrealised losses recognised in the consolidated income statement
31 December
2020
€000
25,646
(2,211)
23,435
2019
€000
28,489
(2,843)
25,646
During years 2020 and 2019 there were no significant transfers between Level 1 and Level 2.
25.
Property and equipment
2020
Net book value at 1 January
Additions
Revaluation
Transfers to stock of property (Note 27)
Transfers to non-current assets and disposal groups held for
sale (Note 29)
Re-assessment of RoU Asset (Note 43)
Derecognition of RoU Asset (Note 43)
Disposals and write-offs
Depreciation charge for the year (Note 15)
Net book value at 31 December
1 January 2020
Cost or valuation
Accumulated depreciation
Net book value
31 December 2020
Cost or valuation
Accumulated depreciation
Net book value
Property
€000
Equipment
€000
267,684
1,896
1,550
(21,805)
(10,408)
26,936
(2,399)
(191)
(12,240)
251,023
20,370
8,225
-
-
-
-
-
(160)
(6,984)
21,451
Total
€000
288,054
10,121
1,550
(21,805)
(10,408)
26,936
(2,399)
(351)
(19,224)
272,474
317,994
(50,310)
267,684
140,681
458,675
(120,311)
(170,621)
20,370
288,054
305,645
(54,622)
251,023
139,495
445,140
(118,044)
(172,666)
21,451
272,474
135
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
25.
Property and equipment (continued)
2019
Net book value at 1 January
Recognition of RoU asset upon adοption of IFRS 16
Balance at 1 January following adoption of IFRS 16
Additions
Transfers to stock of property (Note 27)
Transfer from non-current assets and disposal groups 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 15)
(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
The net book value of the Group's property comprises:
Freehold property
Improvements on leasehold property
RoU asset (Note 43)
Total
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
2020
€000
202,146
2,807
46,070
2019
€000
235,277
2,019
30,388
251,023
267,684
Freehold property includes land amounting to €81,221 thousand (2019: €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 2020. 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 22.
As at 31 December 2020 there are no charges against freehold property of the Group (2019: €20,879
thousand). The freehold property against which charges existed as at 31 December 2019 has been
transferred to stock of property as at 31 December 2020.
The net book value of freehold property, on a cost less accumulated depreciation basis, as at 31 December
2020 would have amounted to €135,657 thousand (2019: €179,501 thousand).
136
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
26.
Intangible assets
2020
Net book value at 1 January
Additions
Increase in value of in-force life insurance business
(Note 12)
Disposals and write-offs
Amortisation charge for the year (Note 15)
Computer
software
€000
In-force life
insurance
business
€000
62,313
15,129
-
(99)
(18,263)
116,633
-
9,543
-
-
Total
€000
178,946
15,129
9,543
(99)
(18,263)
Net book value at 31 December
59,080
126,176
185,256
1 January 2020
Cost
Accumulated amortisation and impairment
Net book value
31 December 2020
Cost
Accumulated amortisation and impairment
Net book value
2019
Net book value at 1 January
Additions
Increase in value of in-force life insurance business (Note
12)
Disposals and write-offs
Amortisation charge for the year (Note 15)
Net book value at 31 December
1 January 2019
Cost
Accumulated amortisation and impairment
Net book value
31 December 2019
Cost
Accumulated amortisation and impairment
Net book value
Valuation of in-force life insurance business
209,692
(147,379)
116,633
326,325
-
(147,379)
62,313
116,633
178,946
224,722
(165,642)
126,176
350,898
-
(165,642)
59,080
126,176
185,256
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)
62,313
116,633
178,946
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
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
2020
10.0%
5.0%
3.5%
2019
10.0%
5.0%
3.5%
137
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
27.
Stock of property
The carrying amount of stock of property is determined as the lower of cost and net realisable value.
Impairment is recognised if the net realisable value is below the cost of the stock of property. During 2020
an impairment loss of €37,593 thousand (2019: €25,294 thousand) was recognised in 'Impairment of non-
financial assets' in the consolidated income statement. At 31 December 2020, stock of €523,927 thousand
(2019: €310,573 thousand) is carried at net realisable value. Additionally, at 31 December 2020 stock of
property with a carrying amount of €104,149 thousand (2019: €122,305 thousand) is carried at
approximately its fair value less costs to sell.
The stock of property includes residential properties, offices and other commercial properties,
manufacturing and industrial properties, hotels, land (fields and plots) and properties under construction.
There is no stock of property pledged as collateral for central bank funding facilities under Eurosystem
monetary policy operations.
The carrying amount of the stock of property is analysed in the tables below:
Net book value at 1 January
Additions
Disposals
Transfers to investment properties (Note 22)
Transfers of stock of property of Serbian entities to non-current assets held
for sale
Transfers from own use properties (Note 25)
Transfers to disposal group (Note 29)
Impairment (Note 16)
Foreign exchange adjustments
Net book value at 31 December
2020
€000
1,377,453
2019
€000
1,426,857
121,168
176,688
(75,478)
(193,526)
(74)
(1,006)
-
21,805
(57,525)
(37,593)
(147)
(2,427)
234
(3,816)
(25,294)
(257)
1,349,609
1,377,453
There were no costs of construction during the years 2020 and 2019.
As at 31 December 2020 there are charges against stock of property of the Group with carrying value
€21.805 thousand (2019: nil).
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
2020
€000
2019
€000
83,667
219,478
(75,478)
(193,526)
8,189
25,952
Analysis by type and country
2020
Residential properties
Offices and other commercial properties
Manufacturing and industrial properties
Hotels
Land (fields and plots)
Total
Cyprus
€000
Greece
€000
Romania
€000
144,915
189,172
47,647
24,684
868,615
20,214
21,302
19,839
465
5,694
Total
€000
165,238
215,609
67,535
25,149
109
5,135
49
-
1,769
876,078
1,275,033
67,514
7,062
1,349,609
138
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
27.
Stock of property (continued)
Analysis by type and country
2019
Residential properties
Offices and other commercial properties
Manufacturing and industrial properties
Hotels
Land (fields and plots)
Total
Cyprus
€000
Greece
€000
Romania
€000
167,330
147,568
46,703
24,286
906,980
21,300
24,013
22,754
494
7,286
Total
€000
188,746
177,326
69,507
24,780
116
5,745
50
-
2,828
917,094
1,292,867
75,847
8,739
1,377,453
28.
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 32)
Current tax receivable
Prepaid expenses
Other assets
2020
€000
2019
€000
-
39,011
4,706
58,494
53,354
39,663
5,102
48,477
102,211
146,596
53,479
48,198
469
45,603
147,749
249,960
50,609
10,335
1,020
35,253
97,217
243,813
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:
2020
1 January
Net (decrease)/increase
31 December
2019
1 January
Net increase/(decrease)
31 December
Stage 1
Stage 2
Stage 3
€000
102,098
(20,590)
81,508
€000
€000
23,779
(23,779)
-
33,724
1,307
35,031
Simplified
method
€000
14,197
(332)
Total
€000
173,798
(43,394)
13,865
130,404
80,865
21,233
102,098
30,846
(7,067)
23,779
31,323
2,401
33,724
14,856
(659)
14,197
157,890
15,908
173,798
139
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
28.
Prepayments, accrued income and other assets (continued)
An analysis of the changes on the ECL of the above financial assets is presented in the table below:
2020
1 January
Changes to models and
inputs used for ECL
calculations
31 December
2019
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
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
28,464
980
29,444
908
29,372
83
991
1,063
30,435
19,022
912
19,934
9,442
28,464
68
980
9,510
29,444
Financial assets amounting to €2,242 thousand (2019: €2,242 thousand) are measured at FVPL.
As at 31 December 2019, the remaining receivable relating to the disposal of operations in the UK
amounted to €29,575 thousand. Half of the consideration was received upon completion of the transaction,
an amount was repaid in November 2019 and the remaining receivable was repaid in November 2020. As at
31 December 2019, the receivable relating to the disposal of the Ukrainian operations in 2014, amounted to
€23,779 thousand and the deferred consideration was due to be paid to the Company under a repayment
programme which had been extended from June 2019 to December 2022. The receivable was fully secured.
The receivable was fully repaid in February 2020.
During 2020, credit losses of €991 thousand were recognised in relation to prepayments, accrued income
and other assets. During 2019 credit losses amounted to €5,384 thousand, which included ECL of €9,510
thousand and net reversal of impairments amounting to €4,126 thousand (Note 16).
29.
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
2020 and 2019:
Disposal group 1
Disposal group 2
Disposal group 3
Freehold property (Note 25)
Other exposures held by Serbian subsidiary
2020
€000
387,990
224,476
7,769
10,408
288
2019
€000
-
-
25,929
-
288
630,931
26,217
140
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
29.
Non-current assets and disposal groups held for sale (continued)
Gross loans and advances to customers
Allowance for ECL for impairment of loans
and advances to customers (Note 45.9)
Stock of property (Note 27)
Investment property (Note 22)
Cash (Note 19)
31 December
Disposal
Group 1
€000
820,429
2020
Disposal
Group 2
€000
488,777
Disposal
Group 3
€000
2019
Disposal
Group 3
€000
32,049
173,881
(510,310)
(313,628)
(24,280)
(147,952)
310,119
32,490
-
45,381
175,149
7,769
25,929
25,035
1,248
23,044
-
-
-
-
-
-
387,990
224,476
7,769
25,929
Disposal group 1 - Helix 2A
Disposal group 1 comprises a portfolio of loans and advances to customers (the 'Portfolio 2A') and other
assets (comprising stock of property and cash already received since the reference date of Portfolio 2A
being 30 September 2019) known as Project Helix 2A ('Project Helix 2A') as described below. The disposal
group has been classified as held for sale since 30 June 2020 as management is committed to sell it and
has proceeded with an active programme to complete this plan. The sale is expected to be completed within
12 months from the reporting date.
In August 2020, the Group reached an agreement for the sale of the Portfolio 2A. The Portfolio 2A will be
transferred to a licensed Cypriot Credit Acquiring Company (the ‘CyCAC’) by the Company. The shares of
the CyCAC will then be acquired by certain funds affiliated with Pacific Investment Management Company
LLC ('PIMCO'), the purchaser of the Portfolio 2A.
The gross consideration for Helix 2A amounts to €422 million before transaction and other costs, of which
35% is payable at completion and the remaining 65% is deferred without any conditions attached. The
deferred component is payable in three broadly equal instalments over 48 months from completion. The
consideration can be increased through an earnout arrangement, depending on the performance of the
Portfolio. An amount of €21,100 thousand was received as a deposit shortly after the signing of the
agreement (Note 34).
Disposal group 2 - Helix 2B
Disposal group 2 comprises a portfolio of loans and advances to customers (the 'Portfolio 2B') and other
assets (comprising stock of property, investment property and cash already received since the reference
date of Portfolio 2B being 30 September 2019) known as Project Helix 2B ('Project Helix 2B') as described
below. The disposal group has been classified as held for sale since 31 December 2020 as management is
committed to sell it and has proceeded with an active programme to complete this plan. The sale is
expected to be completed within 12 months from the reporting date.
In January 2021, the Group reached an agreement for the sale of the Portfolio 2B. The Portfolio 2B will be
transferred to the CyCAC by the Company, along with Portfolio 2A, and the shares of the CyCAC will then be
acquired by certain funds affiliated with PIMCO, the purchaser of both Portfolios Helix 2A and 2B. The
parties amended and restated the agreement executed in August 2020 for Helix 2A to incorporate the
transaction of Helix 2B.
The gross consideration for Helix 2B amounts to €243 million before transaction and other costs, of which
50% is payable at completion and the remaining 50% is deferred up to December 2025 without any
conditions attached. The consideration can be increased through an earnout arrangement, depending on the
performance of the Portfolio 2B.
The completion of the sale of Helix 2B is planned to occur together with the completion of Helix 2A
transaction, currently estimated in the second half of 2021 and remains subject to a number of conditions,
including required customary regulatory and other approvals.
141
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
29.
Non-current assets and disposal groups held for sale (continued)
Disposal group 3
Disposal group 3 comprises loans and advances to customers of Project Helix tail (31 December 2019:
Disposal group 3 comprised loans and advances to customers of Projects Helix tail and Velocity 2) as further
analysed below. The disposal groups were first classified as held for sale as at 31 December 2019 as
management was committed to sell them and had proceeded with an active programme to complete this
plan.
Project Helix tail relates to a portfolio of credit facilities related to Project Helix (a portfolio of loans and
advances to customers for which the sale was completed in June 2019) with a carrying value of €7,769
thousand and €11,998 thousand as at 31 December 2020 and 31 December 2019 respectively. The sale is
expected to be completed within 2021.
Velocity 2 related to a portfolio of unsecured loans and advances to customers with a net book value of
€13,931 thousand as at 31 December 2019 for which an agreement to sell was reached in January 2020
and completed in May 2020. Loans were derecognised giving rise to no gain or loss upon completion of the
sale. On completion, the portfolio comprised of gross loans and advances to customers amounting to
€125,525 thousand with a net book value of €13,555 thousand.
Further analysis of the loans and advances to customers, included in these disposal groups, is disclosed in
Note 45.6.
Freehold property
Freehold property classified as held for sale as at 31 December 2020 are properties which management is
committed to sell and proceeded with an active programme to complete this plan. The disposal is expected
to be completed within 12 months from the classification date. Freehold property classified as held for sale
is measured at fair value less cost to sell.
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 2020 and 31 December 2019. These properties are still classified as non-current assets held for
sale and are expected to be disposed of during 2021.
30.
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 IΙI)
2020
€000
2019
€000
994,694
-
As at 31 December 2020, ECB funding amounted to €1 billion and was borrowed from the fourth TLTRO III
(2019: €nil).
The interest rate that will be applicable to the TLTRO III funding will depend on the eligible net lending
during the specified periods laid out in the terms of the ECB operation.
In recognition of the challenging credit environment during the pandemic period, the Governing Council of
the ECB has announced that the interest rate on all outstanding TLTRO III operations for the periods from
24 June 2020 to 23 June 2021 and 24 June 2021 to 23 June 2022 will be 50 basis points below the average
rate applicable in the Eurosystem’s main refinancing operations over the same period. The interest rate on
the main refinancing operations is currently at 0%. For the counterparties whose eligible net lending
reaches the lending performance thresholds, the interest rate applied over the periods from 24 June 2020
to 23 June 2021 and 24 June 2021 to 23 June 2022 on all TLTRO III operations outstanding will be 50 basis
points below the average interest rate on the deposit facility prevailing over the same period, and in any
case not higher than minus 1% which is currently the expected rate. The deposit facility rate is currently
minus 0.5%. In calculating the interest the Company follows a discrete approach by applying the relevant
interest rate applicable for each period.
142
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
30.
Funding from central banks (continued)
The maturity of TLTRO III is three years from the settlement of each operation but there is an option
available to repay the amounts borrowed under TLTRO III one year from the settlement of each operation
starting in September 2021.
Details on encumbered assets related to the above funding facilities are disclosed in Note 47.
31.
Customer deposits
By type of deposit
Demand
Savings
Time or notice
By geographical area
Cyprus
2020
€000
2019
€000
8,149,688
1,970,975
6,412,549
7,595,231
1,567,344
7,528,956
16,533,212
16,691,531
16,533,212
16,691,531
Deposits by geographical area are based on the originator country of the deposit.
By currency
Euro
US Dollar
British Pound
Russian Rouble
Swiss Franc
Other currencies
By customer sector
Corporate
Global corporate
SMEs
Retail
Restructuring
– Corporate
– SMEs
– Retail other
Recoveries
– Corporate
International banking services
Wealth management
2020
€000
2019
€000
14,929,662
15,009,828
1,199,069
288,102
28,618
9,901
77,860
1,286,292
288,289
30,113
10,803
66,206
16,533,212
16,691,531
1,037,430
1,117,222
607,467
832,576
691,550
770,655
10,525,819
10,140,920
27,889
16,688
10,561
52,421
28,222
10,507
3,251
3,180,061
291,470
6,140
3,543,315
330,579
16,533,212
16,691,531
143
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
32.
Insurance liabilities
Gross
€000
2020
Reinsurers'
share
€000
Net
€000
Gross
€000
2019
Reinsurers'
share
€000
Net
€000
608,591
(29,775)
578,816
579,128
(28,625)
550,503
26,178
(9,250)
16,928
26,656
(9,728)
16,928
Life insurance
Life insurance contract
liabilities
Non-life insurance
Provision for unearned
premiums
Other liabilities
Claims outstanding
36,756
(14,454)
22,302
34,155
(12,256)
Unexpired risks reserve
Non-life insurance contract
liabilities
78
-
78
74
-
63,012
671,603
(23,704)
(53,479)
39,308
60,885
618,124
640,013
(21,984)
(50,609)
21,899
74
38,901
589,404
Reinsurers' share of insurance contract liabilities and other reinsurance balances receivable are included in
'Prepayments, accrued income and other assets' (Note 28).
Life insurance contract liabilities
The movement of life insurance contract liabilities and reinsurance assets during the year is analysed as
follows:
Gross
€000
579,128
13,811
2020
Reinsurers'
share
€000
(28,625)
(3,367)
Net
€000
550,503
10,444
Gross
€000
531,640
11,045
2019
Reinsurers'
share
€000
Net
€000
(27,601)
(1,128)
504,039
9,917
15,652
2,217
17,869
36,443
104
36,547
608,591
(29,775)
578,816
579,128
(28,625)
550,503
1 January
New business
Change in existing
business
31 December
Non-life insurance contract liabilities
The movement in non-life insurance contract liabilities and reinsurance assets for the year is analysed as
follows:
Liabilities for unearned
premium
1 January
Premium income
Earned premiums
31 December
Gross
2020
Reinsurers'
share
€000
€000
Net
€000
Gross
€000
2019
Reinsurers'
share
€000
26,656
74,966
(75,444)
26,178
(9,728)
(33,749)
34,227
(9,250)
16,928
41,217
25,962
76,075
(41,217)
(75,381)
16,928
26,656
(9,475)
(34,362)
34,109
(9,728)
Net
€000
16,487
41,713
(41,272)
16,928
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.
144
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
32.
Insurance liabilities (continued)
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
Gross
€000
2020
Reinsurers'
share
€000
Net
€000
Gross
€000
2019
Reinsurers'
share
€000
Net
€000
34,155
(12,256)
21,899
33,397
(11,272)
22,125
(26,277)
10,857
(15,420)
(33,922)
13,799
(20,123)
28,878
36,756
34,683
2,073
36,756
(13,055)
(14,454)
(13,510)
(944)
(14,454)
15,823
22,302
21,173
1,129
22,302
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.
Subordinated loan stock
Subordinated Tier 2 Capital Note with
nominal value of €250 million
Contractual interest rate
2020
€000
2019
€000
9.25% up to 19 January 2022
272,152
272,170
The Company maintains a Euro Medium Term Note (ΕΜΤΝ) Programme with an aggregate nominal amount
up to €4,000 million.
In January 2017, the Company issued a €250 million unsecured and subordinated Tier 2 Capital Note (the
Note) under the Company'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. The Company 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 2020 is disclosed in Note 22.
34.
Accruals, deferred income, other liabilities and other provisions
Income tax payable and related provisions
Special defence contribution payable
Retirement benefit plans liabilities (Note 14)
Provisions for financial guarantees and commitments (Notes 45.8.1 and 45.8.2)
Liabilities for investment-linked contracts under administration
Accrued expenses and other provisions
Deferred income
Items in the course of settlement
Lease liabilities (Note 43)
Advances received for disposal group held for sale (Note 29)
Other liabilities
2020
€000
2019
€000
8,977
971
9,568
19,658
18,747
63,697
13,411
66,217
45,955
21,100
91,579
5,019
2,065
9,212
22,112
9,237
89,556
13,611
49,975
29,704
-
93,664
359,880
324,155
The ECL allowance for financial guarantees and commitments is analysed by stage in the table below:
Stage 1
Stage 2
Stage 3
2020
€000
2019
€000
168
1,120
18,370
19,658
51
157
21,904
22,112
145
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
35.
Share capital
Authorised
2020
2019
Number of
shares
(thousand)
€000
Number of
shares
(thousand)
€000
Ordinary shares of €0.10 each
47,677,593
4,767,759
47,677,593
4,767,759
Issued
1 January
Issue of shares (Note 36)
31 December
Authorised and issued share capital
9,597,945
959,794
8,922,945
-
-
675,000
9,597,945
959,794
9,597,945
892,294
67,500
959,794
There were no changes to the authorised share capital during the year ended 31 December 2020 and 2019.
2020
There were no changes to the issued share capital in the year ended 31 December 2020.
2019
During 2019, the Company issued 675,000 thousand ordinary shares of a nominal value of €0.10 each in
the form of a scrip dividend.
All issued ordinary shares carry the same rights.
Share premium reserve
The share premium reserve is maintained pursuant to the provisions of section 55 of the Companies Law,
Cap. 113 and is not available for distribution to equity holders in the form of a dividend.
2020
The Company, having obtained approval by its shareholders the ECB and the Court of Cyprus, implemented
a capital reduction process in October 2020, which resulted in a reclassification of €619 million of the
Company's share premium balance as distributable reserves (retained earnings). Such reduction of capital
did not have any impact on regulatory capital or the total equity position of the Company.
2019
The share premium increased by €67,500 thousand through the issuance of 675,000 thousand ordinary
shares of a nominal value of €0.10 each at a premium of €0.10 per share (Note 36).
The share premium was created in 2014 and 2015 by the issuance of 4,167,234 thousand shares of a
nominal value of €0.10 each of a subscription price of €0.24 each, and was reduced by the relevant
transaction costs of €30,794 thousand.
Treasury shares of the Company
There were no treasury shares of the Company as at 31 December 2020 and 2019.
Share-based payments - share options
Following the incorporation of BOCH and its introduction as the new holding company of the Company in
January 2017, the Long-Term Incentive Plan was replaced by the Share Option Plan which operates at the
level of BOCH. The Share Option Plan is identical to the Long-Term Incentive Plan except that the number of
shares in BOCH 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 BOCH and the Share Option Plan remains frozen. Any shares related to the
Share Option Plan carry rights with regards to control of BOCH that are only exercisable directly by the
employee.
146
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
35.
Share capital (continued)
Other equity instruments
Reset Perpetual Additional Tier 1 Capital Securities
2020
€000
220,000
2019
€000
220,000
In December 2018 BOCH issued €220 million Subordinated Fixed Rate Reset Perpetual Additional Tier 1
Capital Securities (the BOCH AT1). On the same date, the Company and BOCH entered into an agreement
pursuant to which BOCH lent to the Company the entire €220 million proceeds of the issue of the BOCH AT1
(the AT1 Loan) on terms substantially identical to the terms and conditions of the BOCH AT1. The AT1 Loan
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 2020, two coupon payments to AT1 holders
were made of a total amount of €27,500 thousand and have been recognised in retained earnings (2019:
€27,199 thousand). The Company 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 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.
36.
Dividends
Based on the 2019 SREP decision which remains in effect during 2021 following relevant communication by
the ECB, the Company and BOCH are under a regulatory prohibition for equity dividend distribution, similar
to prior years. 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 dividends were declared
or paid during years 2020 and 2019, except as described below.
No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company
and BOCH.
On 14 December 2018, the Board of Directors of the Company 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 ordinary shares of a nominal value of €0.10 per share to be issued at a premium of €0.10 per
share to BOCH, out of the Company’s profits for the financial year of 2016. The scrip dividend was paid on
27 March 2019 through the issue of 675,000 thousand ordinary shares of a total issue price of €0.20 per
share to BOCH (Note 35).
37.
Retained earnings
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. From 1 March 2019, the deemed dividend distribution is subject to 1.70% contribution to the
National Health System, increased to 2.65% from 1 March 2020, with the exemption of April 2020 until
June 2020 when the 1.70% rate was applicable.
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 2020 no special defence contribution on deemed dividend distribution was paid by the Company.
During 2019, dividend distribution was made by the Company via the issuance of new ordinary shares.
147
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
38.
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 2020 amounted to €1,266,399 thousand (2019: €1,320,195 thousand).
39.
Pending litigation, claims, regulatory and other matters
The Group, in the ordinary course of business, is subject to enquiries and examinations, requests for
information, audits, investigations, legal and other proceedings by regulators, governmental and other
public bodies, actual and threatened, relating to the suitability and adequacy of advice given to clients or
the absence of advice, lending and pricing practices, selling and disclosure requirements, record keeping,
filings and a variety of other matters. In addition, as a result of the deterioration of the Cypriot economy
and banking sector in 2012 and the subsequent restructuring of the Company in 2013 as a result of the
bail-in Decrees, the Company 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 are 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 (Note 5.4). 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 2020 and hence it is not believed that such matters, when
concluded, will have a material impact upon the financial position of the Group.
39.1
Pending litigation and claims
Investigations and litigation relating to securities issued by the Company
A number of institutional and retail customers have filed various separate actions against the Company
alleging that the Company is guilty of misselling in relation to securities issued by the Company 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 the Company 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).
The Company 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 Company's officers 'persuaded' them to proceed with
the purchase and/or purported to offer 'investment advice', the Company may face significant difficulties. To
date, a number of cases have been tried in Greece. The Company 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.
So far the first two capital securities cases to reach the Areios Pagos (Supreme Court of Greece) have been
adjudged in favour of the Company, ruling in effect that the Company can rely on the defence of frustration
(i.e. intervening event out of the control of the Company, in this case the Company’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 cases will be retried by the
Court of Appeal 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 the Company’s position is that the Company will, most
probably, win the cases.
148
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
39.
Pending litigation, claims, regulatory and other matters (continued)
39.1
Pending litigation and claims (continued)
In Cyprus six judgments have been issued so far with regards to the Company capital securities. Five of the
said judgments have been issued in favour of the Company (dismissing the plaintiffs’ claims) and one of
them against the Company. The Company has filed an appeal with regards to the case where the judgment
was issued against it. In two of the five cases that the Company won, the plaintiffs have filed an appeal. It
remains to be seen whether the plaintiffs will file appeals in the two most recent cases that the Company
won as the time for filing an appeal has not elapsed.
Provision has been made based on management's best estimate of probable outflows for capital securities
related litigation.
Bail-in related litigation
Depositors
A number of the Company's depositors, who allege that they were adversely affected by the bail-in, filed
claims against the Company and other parties (such as the CBC and the Ministry of Finance of Cyprus)
including against the Company 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. The Company is defending these actions.
The Bank has won a case with regards to bail-in related litigation for the first time in June 2020. The
specifics of the case concerned alleged failure to follow instructions prior to the bail-in. The plaintiffs have
filed an appeal with respect to this judgment.
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. The Company
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 the Company (as regards the way and
methodology whereby such Decrees have been implemented), or that the Company failed to follow
instructions promptly prior to the bail-in coming into force. The Company intends to contest all of these
claims.
Legal position of the Group
All of the 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 the Company claiming €70 million allegedly owed as part of the Company'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 the Company to predict the resolution of this matter, including the timing or any possible
impact on the Company.
Employment litigation
Former senior officers of the Company have instituted one claim for unfair dismissal and one claim for
Provident Fund entitlements against the Company and the Trustees of the Provident Fund. The action with
respect to the Provident Fund entitlements has been dismissed by the court in November 2020 and the
plaintiff has not appealed. The Company does not consider that the case which is still pending will have a
material impact on its financial position.
149
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
39.
Pending litigation, claims, regulatory and other matters (continued)
39.1
Pending litigation and claims (continued)
Additionally, a number of former employees have filed claims against the Company contesting entitlements
received relating to the various voluntary exit plans. As at the reporting 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 the UK
Α number of actions have been instituted against the Company by borrowers who obtained loans in foreign
currencies (mainly Swiss Francs). The central allegation in these cases is that the Company misled these
borrowers and/or misrepresented matters, in violation of applicable law. The Company is contesting the said
proceedings. The Group does not expect that these actions will have a material impact on its financial
position.
UK property lending claims
The Company is the defendant in certain proceedings alleging that the Company 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 UK are currently stayed in order for the parties to have time to negotiate possible
settlements. The Group does not expect that these negotiations will lead to outflows for the Group.
Banking business cases
There is a number of banking business cases where the amounts claimed are significant. These cases
primarily concern allegations as to the Company's standard policies and procedures allegedly resulting to
damages and other losses for the claimants. Further several other banking business cases claims where
amounts involved are not as significant have been assessed by management and appropriate provisions
have been taken. Management has assessed the probability of loss as remote and does not expect any
future outflows with respect to these cases to have a material impact on the financial position of the Group.
Such matters arise as a result of the Group’s activities and management appropriately assesses the facts
and the risks of each case accordingly.
In addition, the Company has received claims in relation to alleged breaches of various provisions for
warranties and indemnities relating to the disposal process of certain operations of the Group. Management
views this matter to be at an early stage and cannot determine the outcome, however it is assessing the
relevant risks and taking appropriate actions and where necessary has set up appropriate provisions.
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. The Company 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 the Company relating to the reclassification of Greek Government Bonds in April 2010. No
charges were instituted against the Company in this case. On 19 March 2020, the Assize Court of Nicosia
discontinued the criminal case and discharged all accused, including the current officers of the Company,
who had been charged with various criminal offences relating to events occurring before the financial crisis
of 2013 and the bail-in of the Company. 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 related to potentially overstated and/or fictitious claims settled 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 is expected to seriously prejudice
the outcome of the investigation and/or the possible taking of legal action. Based on the information
available at present, management considers 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, also taking into account that it is virtually certain that compensations will be received from a
relevant insurance coverage, upon the settlement of any obligation that may arise.
150
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
39.
Pending litigation, claims, regulatory and other matters (continued)
39.2
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 the Company'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
investors regarding the Company'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.
During 2020, HCMC imposed two fines on the Company, an approximately €5 thousand fine regarding the
sale of Greek Government Bonds on behalf of the Greek Government and an approximately €4 thousand
fine regarding the failure of the Company to comply with certain articles of the HCMC.
Labour Inspection Body of Greece
As for other potential matters involving the exposure of the Company to losses, twelve fines have been
imposed by the Labour Inspection Body of Greece relating to the years prior to 2013, which amount in total
to €84 thousand.
The Cyprus Securities and Exchange Commission (CySEC) Investigations
As at 31 December 2020 and 31 December 2019 there were no pending CySEC investigations against the
Company.
Central Bank of Cyprus (CBC)
In June 2020 the Company has won the recourse that it had filed before the Administrative Court with
regards to the decision and fine that was imposed in September 2013 upon the Company by CBC
concerning the selling practices that the Company used during the 2009 capital securities issuance.
The CBC has carried out certain investigations to assess compliance of the Company under the anti-money
laundering (AML) legislation which was in place during years 2008-2015 and 2016-2018.
Following the investigations and the on-site audit findings, the CBC concluded on 27 January 2021 that in
the case of AML legislation 2008-2015 the Company was in breach of certain articles of the said legislation
and for the investigation relating to the years 2016-2018 the Company prima facie, failed to act in
accordance with certain provisions of the AML/counter terrorism financing (CTF) Law and the CBC AML/CTF
Directive.
With respect to the above investigations a fine may be imposed upon the Company. According to the CBC
AML Directive, the maximum fine that may be imposed amounts to €5 million or 10% of the annual
turnover of the Company for each investigation. The fine is expected to be in the region of €30 thousand for
each investigation, as per the current assessment of the Group. The Company will file representations
towards mitigation of the fine. If a fine is imposed upon the Company, the Company can file a recourse
before the Administrative Court.
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 (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, the
Company and JCC Payment Systems Ltd (JCC), a card processing business currently 75% owned by the
Company. The Company is expecting the final conclusion of this matter and has provided for it accordingly.
151
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
39.
Pending litigation, claims, regulatory and other matters (continued)
39.2
Regulatory matters (continued)
There was also an allegation concerning the Company's arrangements with American Express, namely that
such exclusive arrangements violated Cypriot and EU competition law. On both matters, the CPC has
concluded that the Company (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 the Company and the Company 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 the Company’s position and cancelled the decision as well as the fine imposed upon the Company.
During 2018, the Attorney General has filed an appeal before the Supreme court with respect to such
decision. Until a judgment is issued by the Supreme Court, the decision of the CPC remains annulled and
there is no subsisting fine upon the Company. The said appeal is still pending as at the year end.
In 2019 the CPC initiated an ex officio investigation with respect to unfair contract terms and into the
contractual arrangements/facilities offered by the Company for the period from 2012 to 2016. To date no
charges have been put forward nor has any formal proceedings been instituted against the Company in this
case. This investigation is currently at a very early stage to predict its outcome and no formal process has
been initiated.
CPC has ruled in March 2020 that there is breach of competition law in relation to the Company's
participation in the shareholding of Fairways Ltd. A €5 thousand fine has been imposed upon the Company
following submission of the Company’s written address on mitigation. The said fine has been paid.
Consumer Protection Service
In July 2017, the Consumer Protection Service (CPS) has imposed a fine of €170 thousand upon the
Company after concluding an ex officio investigation regarding some terms in both the Company's and
Marfin Popular Bank's loan documentation, that were found to constitute unfair commercial practices.
Decisions of the CPS (according to rulings of the Administrative Court) are not binding but merely an
expression of opinion. Against this decision, The Company has filed an application before the Administrative
Court which has not yet issued its judgement. The case is set for Directions in April 2021.
In March 2020 the Company 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
Company to cease the use of a number of terms in the contracts of the Company which are deemed to be
unfair under the said order. The said terms relate to contracts that had been signed during 2006-2007.
Furthermore, the said application seeks for an order ordering the Company to undertake measures to
remedy the situation. The case is set for Directions in April 2021. The Company will take all necessary steps
for the protection of its interests.
In March 2021, the Company was served with an application (79/2021) filed by the Cyprus Consumers’
Association for the issuance of a court order prohibiting the use of a number of contractual terms included
in the Company’s consumer contracts and the amendment of any such contracts (present and future) so as
to remove such terms deemed as unfair. The said contractual terms were determined as unfair pursuant to
the decisions issued by the Consumer Protection Service of the Ministry of Energy, Commerce, Industry and
Tourism against the Company in 2016 and 2017. The Company will take all necessary steps for the
protection of its interests.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these
matters, is unknown.
Data Protection Commissioner (DPC)
A customer of the Company complained to the Office of the Commissioner for Personal Data Protection that
the Company violated certain provisions of the General Data Protection Regulation (GDPR). The
Commissioner’s Office imposed a fine on the Company of €15 thousand. The said fine has been paid.
UK regulatory matters
The provision outstanding as at 31 December 2020 is €548 thousand (2019: €1,645 thousand). As part of
the agreement for the sale of Bank of Cyprus UK Ltd, a liability with regards to UK regulatory matters
remains an obligation for settlement by the Group. The level of the provision represents the best estimate
of all probable outflows arising from customer redress based on information available to management.
152
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
39.
Pending litigation, claims, regulatory and other matters (continued)
39.2
Regulatory matters (continued)
Romanian Competition Council
An investigation has been initiated by the Romanian Competition Council in October 2019 on all leasing
companies in Romania. All leasing companies were members of the professional association ALB (Asociatia
Societatilor Financiare din Romania) and the Romanian Competition Council is alleging that there was an
illegal exchange of information between them. BOC Asset Management Romania S.A. was included in the
said investigation due to the fact that it is a member of the said association. This investigation has been
concluded in October 2020 and no fine has been imposed upon BOC Asset Management Romania S.A.
39.3
Οther matters
Other matters include among others, provisions for various other open examination requests by
governmental and other public bodies, legal matters and provisions for warranties and indemnities related
to the disposal process of certain operations of the Group.
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’.
39.4
Provisions for pending litigation, claims, regulatory and other matters
2020
1 January
Increase of provisions including unwinding of
discount (Note 15)
Utilisation of provisions
Release of provisions (Note 15)
Foreign exchange adjustments
31 December
Provisions expected to be settled within 12
months post reporting date
2019
1 January
Increase of provisions including unwinding of
discount (Note 15)
Utilisation of provisions
Release of provisions (Note 15)
Transfer to income tax payable
Foreign exchange adjustments
31 December
Provisions expected to be settled within 12
months post reporting date
Regulatory
matters
(Note 39.2)
Other matters
(Note 39.3)
Total
€000
€000
70,075
13,691
24,328
€000
108,094
46,596
(15,274)
(15,699)
(102)
271
(1,555)
-
(102)
12,305
21,417
(1,013)
(861)
-
43,871
123,615
548
-
16,343
Regulatory
matters
(Note 39.2)
Other matters
(Note 39.3)
Total
Pending
litigation and
claims
(Note 39.1)
€000
24,908
(12,706)
(14,838)
-
67,439
15,795
Pending
litigation and
claims
(Note 39.1)
€000
€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)
-
€000
116,951
35,312
(32,894)
(6,461)
(4,859)
45
70,075
13,691
24,328
108,094
16,333
1,600
-
17,933
Some information required by the IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' is not
disclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation or the
outcome of the negotiation in relation to provisions for warranties and indemnities related to the disposal
process of certain operations of the Group.
153
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
39.
Pending litigation, claims, regulatory and other matters (continued)
39.4
Provisions for pending litigation, claims, regulatory and other matters (continued)
The net increase in provisions for pending litigation and claims for the year 2020 was primarily driven by
the progressed status of the pending investigations and litigations relating to securities issued by the
Company in Greece. With regards to other matters, additional provisions were taken for matters in relation
to the disposal process of certain of the Group's operations as elements of those processes are ongoing.
An increase by 5% in the probability of loss rate for pending litigation and claims (2019: 5%) with all other
variables held constant, would lead to an increase in the actual provision by €6,956 thousand at 31
December 2020 (2019: increase by €5,848 thousand).
40.
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 45.8).
40.1
Capital commitments
Capital commitments for the acquisition of property, equipment and intangible assets as at 31 December
2020 amount to €19,420 thousand (2019: €26,341 thousand).
40.2.
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 recognised, based on management’s best estimate of probable outflows, where it was
assessed that such an outflow is probable.
154
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
41.
Net cash flow from operating activities
Loss before tax
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
(Reversal of impairment)/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 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 losses on financial liabilities at FVPL
Net gains on disposal of investments in debt securities
Share of profit from associates
Profit from revaluation of debt securities designated as fair value hedges
Loss/(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
Negative interest on funding from 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
Net cash flow (used in)/from operating activities
2020
€000
2019
€000
(166,742)
(180,687)
272,131
224,264
19,224
18,263
(7)
4,585
(27,029)
90
(556)
2,055
(294)
34
(2,865)
(69)
(5,239)
2,219
(8,189)
37,593
18,782
(5,306)
23,329
(9,543)
-
489
-
20,118
16,161
787
4,790
(33,175)
99
(2,551)
302
(361)
495
-
(5,513)
(5,539)
(3,886)
(25,952)
25,294
17,448
-
23,325
(1,200)
25,943
386
13,077
172,955
113,625
13,648
(141,455)
2,017
(158,319)
16,255
(118,500)
79,432
(23,571)
747
34,837
(26,059)
(6,182)
(31,837)
(168,129)
81,917
(272,244)
(1,259)
(273,503)
26,150
101,462
2,627
(152,027)
(7,331)
(178,414)
26,279
9,440
2,030
22,334
17,714
13,304
(23,633)
(80,816)
219,478
112,222
(2,475)
109,747
155
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
41.
Net cash flow from operating activities (continued)
Non-cash transactions
2020
Repossession of collaterals
During 2020, the Group acquired properties by taking possession of collaterals held as security for loans
and advances to customers of €123,817 thousand (2019: €197,209 thousand) (Note 45.10).
Recognition of RoU asset and lease liabilities
During 2020 the Group recognised RoU assets and corresponding lease liabilities of €24,388 thousand
(2019: €39,227 thousand).
2019
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 29).
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 52.4.2.
Net cash flow from operating activities - interest and dividends
Interest paid
Interest received
Dividends received
Changes in liabilities arising from financing activities
2020
1 January
Cash flows
Other non-cash movements
31 December
2019
1 January
Cash flows
Other non-cash movements
31 December
2020
€000
(119,321)
443,589
294
2019
€000
(161,447)
733,623
361
324,562
572,537
Funding from
central banks
(Note 30)
€000
Subordinated
loan stock
(Note 33)
€000
-
1,000,000
(5,306)
272,170
(23,329)
23,311
Total
€000
272,170
976,671
18,005
994,694
272,152
1,266,846
830,000
270,930
1,100,930
(830,000)
(23,325)
(853,325)
-
-
24,565
24,565
272,170
272,170
Further information relating to the change in lease liabilities is disclosed in Note 43.
156
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
42.
Cash and cash equivalents
Cash and cash equivalents comprise:
Cash and non-obligatory balances with central banks
Cash and non-obligatory balances with central banks classified as held for
sale (Note 29)
Loans and advances to banks with original maturity less than three months
2020
€000
5,495,284
2019
€000
4,899,994
68,425
326,426
-
230,869
5,890,135
5,130,863
Analysis of cash and balances with central banks and loans and advances to banks
Cash and non-obligatory balances with central banks
Obligatory balances with central banks (Note 19)
Total cash and balances with central banks (Note 19)
Loans and advances to banks with original maturity less than three months
Restricted loans and advances to banks
Other loans and advances to banks
Total loans and advances to banks (Note 19)
2020
€000
5,495,284
2019
€000
4,899,994
158,031
160,048
5,653,315
5,060,042
326,426
76,358
-
230,869
88,712
1,300
402,784
320,881
Restricted loans and advances to banks include collaterals under derivative transactions of €34,032
thousand (2019: €41,104 thousand) which are not immediately available for use by the Group, but are
released once the transactions are terminated.
43.
Leases
The Group is a lessee for commercial properties such as office and branch buildings. 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 functions. The basic terms for
new lease contracts and the current practise are substantially the same with those for lease contracts of
branches.
During the year ended 31 December 2020, the lease liability was remeasured due to changes in future lease
payments and re-assessment of the lease term of existing contracts using the assumptions as detailed in
Note 5.13.
157
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
43.
Leases (continued)
The carrying amounts of the Group’s RoU assets and lease liabilities and the movement during the year
ended 31 December 2020 and the year ended 31 December 2019 is presented in the table below:
2020
1 January
Assets derecognised (Note 25)
Depreciation charge for the year (Note 15)
Interest expense (Note 8)
Remeasurement of lease liability
Cash outflows-payments
31 December
2019
1 January - Impact on adoption of IFRS 16
Additions
Assets derecognised
Restoration liability - disclosed within other liabilities
Depreciation charge for the year (Note 15)
Interest expense (Note 8)
Cash outflows-payments
31 December
RoU asset
(Note 25)
€000
30,388
(2,399)
(8,855)
-
Lease
Liabilities
(Note 34)
€000
(29,704)
2,399
-
(489)
26,936
(26,787)
-
8,626
46,070
(45,955)
RoU asset
(Note 25)
€000
37,474
2,476
(723)
-
(8,839)
-
-
Lease
Liabilities
(Note 34)
€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, disclosed in Note 25.
Cash outflows relate to lease payments made during the year.
The analysis of lease liabilities based on remaining contractual maturity is disclosed in Note 47.
158
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
44.
Analysis of assets and liabilities by expected maturity
Less than
one year
€000
2020
Over one
year
€000
Total
€000
Less than
one year
€000
2019
Over one
year
€000
Total
€000
5,495,284
158,031
5,653,315
4,899,994
160,048
5,060,042
326,426
5,556
76,358
19,071
402,784
24,627
232,169
3,217
88,712
19,843
320,881
23,060
371,953
1,541,161
1,913,114
446,293
1,459,537
1,905,830
1,369,576
8,516,471
9,886,047
1,521,642
9,200,199
10,721,841
15,078
459,109
474,187
14,528
444,324
458,852
144,115
105,845
249,960
341,698
1,007,911
1,349,609
37,909
303,451
341,360
192,295
582,878
37,909
-
25,244
457,730
102,844
457,730
128,088
-
2,462
2,462
14
-
-
51,518
794,575
341,217
466,986
136,197
243,813
1,377,453
379,126
467,000
136,197
2,393
2,393
630,931
-
630,931
26,217
-
26,217
8,763,770 12,750,444 21,514,214
7,957,156
13,165,549
21,122,705
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
Funding from central banks
Repurchase agreements
82,250
-
-
309,699
994,694
-
391,949
994,694
-
203,406
329,998
533,404
-
168,129
11,839
-
-
38,754
-
168,129
50,593
Derivative financial liabilities
6,805
39,173
45,978
Customer deposits
5,242,058 11,291,154 16,533,212
5,327,735
11,363,796
16,691,531
Insurance liabilities
Accruals, deferred income
and other liabilities and
pending litigation, claims,
regulatory and other matters
Subordinated loan stock
Deferred tax liabilities
91,467
580,136
671,603
88,796
551,217
640,013
258,653
172,152
-
224,842
100,000
45,982
483,495
272,152
45,982
273,823
-
-
158,426
272,170
46,015
432,249
272,170
46,015
5,853,385 13,585,680 19,439,065
6,073,728
12,760,376
18,834,104
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.
Performing loans and advances to customers in Cyprus are classified based on the contractual repayment
schedule. Overdraft accounts are classified in the ‘Over one year’ time band. The Stage 3 Loans are
classified in the ‘Over one year’ time band except cash flows from expected receipts which are included
within time bands, according to historic amounts of receipts in the recent months.
Stock of property is classified in the relevant time band based on expectations as to its realisation.
A percentage of customer deposits maturing within one year is classified in the ‘Over one year’ time band,
based on the observed behavioural analysis.
159
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
44.
Analysis of assets and liabilities by expected maturity (continued)
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.
45.
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 credit risk assessment of 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.
The Market Risk department assesses the credit risk relating to exposures to Credit Institutions and
Governments and other debt securities. Models and limits are presented to and approved by the Board of
Directors, through the relevant authority based on the authorisation level limits.
45.1
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
2020
€000
18,214,537
2019
€000
17,890,028
38,546
45,382
18,253,083
17,935,410
2,573,197
2,563,718
52,145
58,290
2,625,342
2,622,008
160
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.1
(continued)
Maximum exposure to credit risk and collateral and other credit enhancements
Total on and off-balance sheet
Cyprus
Other countries
2020
€000
20,787,734
2019
€000
20,453,746
90,691
103,672
20,878,425
20,557,418
The Group offers guarantee facilities to its customers under which the Group may be required to make
payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs.
Letters of credit and guarantee facilities (including standby letters of credit) commit the Group to make
payments on behalf of customers in the event of a specific act, generally related to the import or export of
goods. Such commitments expose the Group to risks similar to those of loans and advances and are
therefore monitored by the same policies and control processes.
Loans and advances to customers
The Credit Risk Management department determines the amount and type of collateral and other credit
enhancements required for the granting of new loans to customers.
The main types of collateral obtained by the Group are mortgages on real estate, cash collateral/blocked
deposits, bank guarantees, government guarantees, pledges of equity securities and debt instruments of
public companies, fixed and floating charges over corporate assets, assignment of life insurance policies,
assignment of rights on certain contracts and personal and corporate guarantees.
The Group’s management regularly monitors the changes in the market value of the collateral and, where
necessary, requests the pledging of additional collateral in accordance with the relevant agreement.
Other financial instruments
Collateral held as security for financial assets other than loans and advances to customers is determined by
the nature of the financial instrument. Debt securities and other eligible bills are generally unsecured with
the exception of asset-backed securities and similar instruments, which are secured by pools of financial
assets. In addition, some debt securities are government-guaranteed.
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.
161
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
45.
Risk management - Credit risk (continued)
45.1
Maximum exposure to credit risk and collateral and other credit enhancements (continued)
Annual Financial Report 2020
2020
Balances with central banks (Note 19)
Loans and advances to banks (Note 19)
FVPL debt securities (Note 20)
Debt securities classified at amortised cost and
FVOCI (Note 20)
Derivative financial instruments (Note 21)
Loans and advances to customers (Note 23)
Loans and advances to customers classified as
held for sale (Note 29)
Cash and non-obligatory balances with central
banks classified as held for sale (Note 29)
Debtors (Note 28)
Reinsurers' share of insurance contract
liabilities (Note 28)
Other assets (Note 28)
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
Maximum
exposure to
credit risk
€000
Cash
€000
5,513,629
402,784
19,118
1,689,726
24,627
-
1,190
-
-
-
Fair value of collateral and credit enhancements held by the Group
Securities
Letters of credit/
guarantee
Property
Other
Surplus collateral Net collateral
Net exposure to
credit risk
€000
€000
€000
€000
€000
€000
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,190
-
-
-
5,513,629
401,594
19,118
1,689,726
24,627
946,924
9,886,047
440,034
582,867
158,765
14,005,567
1,517,072
(7,765,182)
8,939,123
493,037
806
271
6,121
1,229,782
50,263
(807,942)
479,301
13,736
68,425
39,011
53,479
63,200
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
68,425
39,011
53,479
63,200
18,253,083
442,030
583,138
164,886
15,235,349
1,567,335
(8,573,124)
9,419,614
8,833,469
4,655
619,530
277
110,304
14,866
1,854
1,986,291
2,625,342
20,878,425
26,194
138,629
580,659
2
2,305
169
643
3,119
-
1,332
3,869
123,283
507
43,154
-
4,992
815
1,479
2,811
372,670
504,814
54,996
99,472
-
-
-
-
-
4,655
280,378
-
339,152
7,830
7,036
455,982
1,530,309
748,845
1,876,497
586,257
167,697
15,740,163
1,666,807
(8,573,124)
10,168,459
10,709,966
162
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
45.
Risk management - Credit risk (continued)
Annual Financial Report 2020
45.1
Maximum exposure to credit risk and collateral and other credit enhancements (continued)
2019
Balances with central banks (Note 19)
Loans and advances to banks (Note 19)
FVPL debt securities (Note 20)
Debt securities classified at amortised cost and FVOCI
(Note 20)
Derivative financial instruments (Note 21)
Loans and advances to customers (Note 23)
Loans and advances to customers classified as held for
sale (Note 29)
Receivable relating to disposal of operations (Note 28)
Debtors (Note 28)
Reinsurers' share of insurance contract liabilities (Note
28)
Other assets (Note 28)
On-balance sheet total
Contingent liabilities
Fair value of collateral and credit enhancements held by the Group
Maximum
exposure to
credit risk
€000
4,908,487
320,881
24,093
1,713,914
23,060
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
-
470
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
23,816
29,276
48,900
15,704
44,270
(31,293)
(93,207)
14,654
23,779
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,275
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
Acceptances and endorsements
5,816
447
-
-
4,471
Guarantees
Commitments
683,084
127,078
2,045
3,132
137,509
175
34,527
Documentary credits
Undrawn formal stand-by facilities, credit lines and
other commitments to lend
Off-balance sheet total
11,767
1,993
-
-
5,429
618
1,921,341
28,653
2,622,008
158,171
6,087
8,132
1,590
345,199
4,722
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
20,557,418
593,651
646,613
199,502 16,078,096
1,534,281
(8,650,443)
10,401,700
10,155,718
The contingent liabilities and commitments include exposures relating to loans and advances to customers classified as held for sale amounting to €2,188
thousand (2019: €1.579 thousand), which largely relate to the Cyprus geographical area.
163
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.2
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.
The credit risk concentration, which is based on industry (economic activity) and business line
concentrations, as well as geographical concentration, is presented below. The geographical concentration,
for credit risk concentration purposes, is based on the Group’s Country Risk Policy which is followed for
monitoring the Group's exposures. Market Risk is responsible for analysing the country risk of exposures.
ALCO reviews the country risk of exposures on a quarterly basis and the Board, through its Risk Committee,
reviews the country risk of exposures and any breaches of country risk limits on a regular basis and at least
annually. In accordance with the Group’s policy, exposures are analysed by country of risk based on the
country of residency for individuals and the country of registration for companies.
The below geographical concentration presents separately countries with high concentration of risk and all
other countries with low concentration of risk, are presented within 'Other countries' as per Group policy.
2020
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other
services
Other sectors
2020
By business line
Corporate
Global corporate
SMEs
Retail
Cyprus
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
1,014,445
350,403
875,572
613,895
717
389
252
177
35,989
34,736
8,689
123
1,899
3,767
704
504
2,786
33,484
7,291
1,399
-
741
-
867,601
127,342
4,670,357
8,024
163,613
1,202
48,361
Other
countries
€000
Gross loans at
amortised cost
€000
112
1,026,584
31,717
40,185
234
41,223
84,830
384,789
986,986
626,468
1,071,549
4,976,387
652,928
432,569
407
13
5,711
219
3,968
23,074
39,933
838
5
168,175
726,021
601,819
9,477,770
181,570
206,730
47,253
80,871
406,409
10,400,603
Cyprus
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
Other
countries
€000
Gross loans at
amortised cost
€000
1,922,810
8,949
94
605
18,913
2,760
1,954,131
1,344,983
163,153
41,334
1,081,773
708
2,881
35,546
2,393
9,308
4,361
302,734
1,897,058
2,337
1,094,453
- housing
- consumer, credit cards and
other
Restructuring
2,862,802
3,052
57,627
884,151
1,286
1,507
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking
services
Wealth management
175,386
86,644
130,661
94,560
20,388
87,276
364,775
327,637
68,923
25,001
-
189
182
13
-
9
326
34
524
1,633
2,849
127
-
275
73,460
6,157
2,905
18,262
764
-
623
196
-
-
130
-
7,592
-
160
4
4
-
6,051
25,622
2,955,777
256
2,061
889,457
-
263
219
-
-
5,324
133
1,703
12
23
1,465
1,728
18,511
30,042
355
2,076
21,169
24,075
-
5,779
181,234
88,862
135,744
94,712
28,003
90,753
487,274
336,263
135,338
31,544
9,477,770
181,570
206,730
47,253
80,871
406,409
10,400,603
164
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.2
Credit risk concentration of loans and advances to customers (continued)
2019 (restated)
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other
services
Other sectors
2019 (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
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
1,315,261
416,263
806,009
817,816
1,019
677
905
69
34,169
36,914
8,433
160
3,319
3,843
1,309
731
3,007
38,311
Other
countries
€000
Gross loans at
amortised cost
€000
416
1,329,223
34,461
38,016
397
454,692
915,839
830,839
7,779
1,913
-
1,026
943,141
128,955
672
25,798
1,140,196
5,374,482
8,589
221,924
1,370
64,391
112,662
5,783,418
728,704
532,594
1,016
54
6,901
241
5,155
38,310
36,183
986
31
203,764
816,269
737,670
10,934,270
182,912
270,433
54,712
114,122
451,697
12,008,146
Cyprus
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
Other
countries
€000
Gross loans at
amortised cost
€000
1,937,940
7,924
2,932
780
22,269
2,970
1,334,054
163,332
42,776
40,654
19,588
299,345
1,095,447
785
3,657
2,509
5,847
2,059
1,974,815
1,899,749
1,110,304
2,687,248
2,615
65,241
890,112
768
1,904
303,960
313,550
337,344
177,841
73,656
423,326
656,974
614,137
62,938
25,743
298
218
150
25
-
155
648
1,797
7,710
919
-
3,798
2,312
109,237
362
11,053
3,941
18,759
27
2
710
210
-
-
-
-
9,444
-
357
38
10
-
6,958
29,915
2,792,687
382
2,468
895,844
-
565
977
17
16,219
1,147
4,353
243
-
1,481
7,507
4,818
29,588
46,189
2,375
5,566
24,074
23,930
1
4,968
321,125
317,277
350,534
179,045
90,607
433,578
844,657
633,531
133,652
30,741
10,934,270
182,912
270,433
54,712
114,122
451,697
12,008,146
In 2019 Consolidated Financial Statements the concentration analysis by industry and business line
concentration was presented by geographical analysis which allocated industry and business lines exposures
to the country where the loans and advances to customers are being managed. For the purposes of this
note the geographical analysis has been replaced with geographical concentration based on the country of
residency for individuals and the country of registration for companies.
As a result, for 2019, an amount of loans and advances to customers of €988,236 thousand relates to loans
managed in ‘Cyprus’ and presented within 'Cyprus' in the respective note in 2019 Consolidated Financial
Statements, which relates to customers resident/registered in the following countries by country of risk:
€182,701 thousand in Greece, €269,742 thousand in UK, €17,679 thousand in Romania, €66,417 thousand
in Russia and €451,697 thousand in 'Other countries' and have been allocated accordingly to the aforesaid
countries in the 2019 tables as restated above.
Similarly an amount of loans and advances to customers €85,640 thousand managed in 'Other Countries' as
at 31 December 2019 relate to customers resident in/registered in the following countries by country of
risk: €211 thousand in Greece, €691 thousand in UK, €37,033 thousand in Romania and €47,705 thousand
in Russia and have been allocated accordingly to the aforesaid countries in the 2019 tables as restated
above.
165
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.2
Credit risk concentration of loans and advances to customers (continued)
The loans and advances to customers include lending exposures in Cyprus with collaterals in Greece with a
carrying value as at 31 December 2020 of €85,424 thousand (2019: €80,324 thousand).
45.3
Credit risk concentration of loans and advances to customers classified as held for sale
Industry, geographical and business lines concentrations of Group loans and advances to customers at
amortised cost classified as held for sale are presented in the table below.
2020
By economic activity
Trade
Manufacturing
Hotels and restaurants
Construction
Real estate
Private individuals
Professional and other services
Other sectors
2020
By business line
SMEs
Retail
- housing
- consumer, credit cards and other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
Cyprus
Greece
€000
€000
United
Kingdom
€000
Russia
€000
Other
countries
€000
Gross loans at
amortised cost
€000
137,088
49,724
30,266
151,907
68,685
712,742
85,933
58,845
-
84
-
-
-
-
305
496
8
-
-
-
-
26
-
-
560
29
76
314
1,423
16,225
10,004
14,969
199
-
62
-
1,093
-
192
-
137,088
50,673
30,791
152,017
68,999
755,363
87,479
58,845
1,295,190
1,706
17,096
11,123
16,140
1,341,255
Cyprus
Greece
€000
€000
United
Kingdom
€000
Russia
€000
Other
countries
€000
Gross loans at
amortised cost
€000
3
40
23
65,947
117,541
21,584
39,998
132,494
365,829
298,136
253,595
-
-
-
-
-
-
-
149
1,305
251
-
-
-
-
-
-
-
-
1
1,734
163
402
137
1,164
2,993
9,019
1,647
-
-
3,552
842
5,705
861
-
-
-
-
368
76
160
2,918
1,842
7,492
3,284
3
40
23
65,947
119,807
22,062
40,295
140,128
371,655
321,657
259,638
1,295,190
1,706
17,096
11,123
16,140
1,341,255
2019 (restated)
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other
services
Other sectors
Cyprus
Greece
United
Kingdom
Romania
Russia
Other
countries
€000
€000
€000
€000
€000
€000
Gross loans
at amortised
cost
€000
18,037
6,327
5,135
10,588
1,263
-
-
-
-
4
-
-
14
-
-
108,043
1,779
441
15,930
5,252
80
3
11
-
170,575
1,866
466
-
-
-
-
-
35
-
-
35
2
-
-
-
-
56
1
-
59
-
-
15
-
-
309
556
-
880
18,039
6,327
5,164
10,592
1,263
110,663
16,578
5,255
173,881
166
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.3
(continued)
Credit risk concentration of loans and advances to customers classified as held for sale
2019 (restated)
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
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
Other
countries
€000
Gross loans at
amortised cost
€000
710
5
330
7,618
1,155
923
39,832
17,640
20,662
3,244
78,391
-
-
-
-
-
204
45
-
-
1,317
300
65
-
170,575
1,866
-
-
-
-
-
-
179
-
-
191
96
-
466
-
-
-
-
-
-
-
-
-
-
35
-
35
-
-
-
-
-
-
11
-
-
-
48
-
59
-
-
-
-
-
-
45
-
29
-
804
2
880
710
5
330
7,618
1,155
1,127
40,112
17,640
20,691
4,752
79,674
67
173,881
As explained in Note 45.2, the 2019 Consolidated Financial Statements presented the above analysis by
geographical analysis. All loans and advances to customers classified as held for sale were presented within
'Cyprus' in the geographical analysis as all loans were managed in Cyprus.
45.4
Currency concentration of loans and advances to customers
Gross loans at amortised cost
Euro
US Dollar
British Pound
Russian Rouble
Romanian Lei
Swiss Franc
Other currencies
2020
€000
9,833,176
344,446
91,213
14,957
344
108,198
8,269
2019
€000
11,282,192
406,139
85,925
20,537
669
198,260
14,424
10,400,603
12,008,146
45.5
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.
Gross loans at amortised cost
Euro
US Dollar
British Pound
Swiss Franc
Other currencies
2020
€000
2019
€000
1,285,894
170,050
7,023
709
42,964
4,665
55
2
2,422
1,352
1,341,255
173,881
167
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.6
Analysis of loans and advances to customers by staging
2020
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
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
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
6,681,481
2,148,946
1,380,926
335,852
10,547,205
(72,591)
(25,815)
(9,376)
(38,820)
(146,602)
6,608,890
2,123,131
1,371,550
297,032
10,400,603
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
Loans and advances to customers classified as held for sale
2020
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
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
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
6,177
21,801
1,138,587
221,365
1,387,930
(41)
397
(7,650)
(39,381)
(46,675)
6,136
22,198
1,130,937
181,984
1,341,255
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
176
-
176
807
153,608
30,373
184,964
13
(3,402)
(7,694)
(11,083)
820
150,206
22,679
173,881
Residual fair value adjustment
The residual fair value adjustment mainly relates to the loans and advances to customers acquired as part
of the acquisition of certain operations of Laiki Bank in 2013. In accordance with the provisions of IFRS 3,
this adjustment decreased the gross balance of loans and advances to customers. The residual fair value
adjustment is included within the gross balances of loans and advances to customers as at each balance
sheet date. However, for credit risk monitoring, the residual fair value adjustment as at each balance sheet
date is presented separately from the gross balances of loans and advances, as shown in the tables above.
168
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.6
Analysis of loans and advances to customers by staging (continued)
The following tables present the Group’s gross loans and advances to customers at amortised cost by
staging, by business line concentration and geographical analysis. In this note and the remaining notes of
Note 45, Risk management - Credit risk, geographical analysis refers to the country where loans are being
managed.
2020
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
Stage 1
€000
1,519,663
1,393,025
740,305
Stage 2
€000
Stage 3
€000
POCI
€000
362,199
367,147
325,412
37,635
102,881
17,731
34,634
34,005
11,005
Total
€000
1,954,131
1,897,058
1,094,453
2,223,620
651,980
68,644
11,533
2,955,777
588,339
251,022
33,095
17,001
889,457
29,545
12,418
2,237
1,586
-
-
-
224
76,160
21,768
65,166
28,321
8,144
5,888
-
-
-
13
49,222
8,617
70,190
39,398
120,558
84,047
19,185
82,317
405,052
280,872
9,767
178
16,333
8,725
4,805
3,191
8,818
8,436
82,222
55,154
189
981
181,234
88,862
135,744
94,712
28,003
90,753
487,274
336,263
135,338
31,544
6,608,890
2,123,131
1,371,550
297,032
10,400,603
6,608,309
2,123,131
1,306,992
297,032
10,335,464
581
-
64,558
-
65,139
6,608,890
2,123,131
1,371,550
297,032
10,400,603
169
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.6
Analysis of loans and advances to customers by staging (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
Cyprus
Other countries
Stage 1
€000
1,624,886
1,456,080
837,825
Stage 2
€000
Stage 3
€000
POCI
€000
247,501
258,425
221,977
61,917
149,464
40,219
40,511
35,780
10,283
Total
€000
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
6,944,083
1,503,368
2,937,364
537,692
11,922,507
786
-
84,853
-
85,639
6,944,869
1,503,368
3,022,217
537,692
12,008,146
170
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.6
Analysis of loans and advances to customers by staging (continued)
Loans and advances to customers classified as held for sale
The following tables present the Group’s gross loans and advances to customers at amortised cost classified
as held for sale by staging, business line concentration and geographical analysis.
2020
By business line
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
Cyprus
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
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
-
-
-
-
4,126
652
1,358
-
-
-
-
6,136
6,136
-
40
2
948
15,085
3,279
2,844
-
-
-
-
-
-
21
63,465
96,757
17,083
33,298
115,320
322,729
277,084
205,180
3
-
-
1,534
3,839
1,048
2,795
24,808
48,926
44,573
54,458
3
40
23
65,947
119,807
22,062
40,295
140,128
371,655
321,657
259,638
22,198
1,130,937
181,984
1,341,255
22,198
1,130,937
181,984
1,341,255
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
-
-
139
20
7
4
6
-
-
-
-
-
176
176
360
-
47
410
1
2
-
-
-
-
-
-
820
820
350
2
144
6,162
952
1,119
36,549
14,543
15,392
3,954
71,020
19
150,206
150,206
-
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
22,679
22,679
17,640
20,691
4,752
79,674
67
173,881
173,881
171
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.6
Analysis of loans and advances to customers by staging (continued)
The movement of the gross loans and advances to customers at amortised cost by staging, including the
loans and advances to customers classified as held for sale, is presented in the tables below:
2020
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 Velocity 2
portfolio derecognised or
repaid (excluding write offs)
Changes to contractual cash
flows due to modifications
Disposal of Velocity 2
portfolio
Stage 1
€000
6,945,045
Stage 2
€000
1,504,188
Stage 3
€000
3,172,423
POCI
€000
560,371
Total
€000
12,182,027
551,657
(528,094)
(23,563)
(1,180,335)
1,319,619
(139,284)
(20,831)
(28,251)
49,082
-
-
-
-
-
-
10
(1,496)
(2)
(805)
(4,951)
4
(4,939)
(359,257)
(36,872)
(398,430)
132,740
65,383
202,795
39,674
440,592
1,157,886
42,276
41,778
183
1,242,123
(971,374)
(224,760)
(321,136)
(72,354)
(1,589,624)
1,724
(4,225)
(2,998)
1,133
(4,366)
-
-
(112,402)
(13,123)
(125,525)
31 December
6,615,026
2,145,329
2,502,487
479,016
11,741,858
For overlays performed in the content of COVID-19 resulting in transfers of loans and advances to
customers in Stage 2 refer to Note 5.2.
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 1 portfolios
derecognised or repaid
(excluding write offs)
Changes to contractual cash
flows due to modifications
Disposal of Helix and Velocity
1 portfolios
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)
31 December
6,945,045
1,504,188
3,172,423
560,371
12,182,027
For revolving facilities, overdrafts and credit cards the net positive change in balance by stage excluding
write-offs is reported in ‘New loans originated’ and the net negative change is reported as ‘Loans
derecognised or repaid'.
172
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.6
Analysis of loans and advances to customers by staging (continued)
The movement of gross loans and advances to customers at amortised cost, 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 tables below:
2020
1 January
Transfers (out)/in of business line
Interest accrued, foreign exchange and other adjustments
Write offs
New loans originated or purchased
Loans other than Velocity 2 portfolio derecognised or repaid
(excluding write offs)
Changes to contractual cash flows due to modifications not
resulting to derecognition
31 December
2019
1 January
Transfers (out)/in of business line
Corporate
€000
1,953,170
(3,162)
52,673
(1,165)
319,385
Global
corporate
€000
1,845,777
22,046
24,402
(19,191)
261,281
Retail
€000
3,688,137
(11,783)
90,158
(4,026)
508,773
(380,501)
(271,581)
(428,755)
(5,094)
(4,397)
2,058
1,935,306
1,858,337
3,844,562
Corporate
€000
3,323,801
(8,718)
Global
corporate
€000
-
Retail
€000
3,769,872
8,867
(167,414)
Transfer (to)/in Global corporate business line
(1,367,371)
1,487,391
Interest accrued, foreign exchange and other adjustments
Write offs
New loans originated or purchased
Loans other than Velocity 2 portfolio derecognised or repaid
(excluding write offs)
Changes to contractual cash flows due to modifications not
resulting to derecognition
Disposal of Helix and Velocity portfolios
31 December
69,113
(12,740)
489,068
62,841
(545)
644,947
(3)
108,655
(7,637)
524,813
(528,094)
(356,620)
(540,004)
2,776
(14,665)
(1,104)
-
(18)
(127)
1,953,170
1,845,777
3,688,137
45.7
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 the Company. These portfolios 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 and their credit quality, in
order to provide further input on managing 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 credit quality for each independent acquisition or account
management action, leading to an automated decision or guidance for an adjudicator. Credit scoring
enhances the credit decision quality and facilitates risk-based pricing where feasible.
Borrower score defines the rating of the borrower from a range of 1-8 where 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.
173
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.7
(continued)
Credit quality of loans and advances to customers based on the internal credit rating
Unrated loans for corporate are assessed using the Group's in-house behavioural scorecard model for
corporate legal entities. 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 fourth quarter of 2020 in order to include additional recent
historical observations (before the COVID-19 pandemic) and incorporate the latest scorecard models.
Overall there is an evident increase both across ratings and portfolios PDs due to the integration of COVID-
19 driven forward looking economic outlook in the IFRS 9 PDs.
2020
Rating
1
2
3
4
5
6
7
2019
Rating
1
2
3
4
5
6
7
Corporate legal entities
%
3.77
5.93
6.30
9.22
13.65
15.08
29.50
Corporate legal entities
%
0.89
1.55
1.59
2.53
3.51
4.16
8.63
12-month PD
Retail individuals
%
2.24
2.37
4.15
7.48
13.14
22.44
53.47
12-month PD
Retail individuals
%
1.15
1.75
3.08
7.29
12.72
19.21
43.82
SME legal entities
%
0.82
1.66
4.32
11.75
21.80
29.92
63.00
SME legal entities
%
0.34
0.81
2.30
7.46
13.11
18.16
41.82
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 show the gross loans and advances to customers at amortised cost in Cyprus, using the
corporate legal entities, SMEs legal entities and retail individuals definition as per the internal rating of the
Company. Loans and advances to customers classified based on the internal credit rating grades include
€38,721 thousand (2019: €53,972 thousand) managed in Cyprus but originated in other countries.
174
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.7
(continued)
Credit quality of loans and advances to customers based on the internal credit rating
Corporate legal entities
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
Stage 1
€000
713,090
2020
Stage 2
€000
65,056
Total
€000
778,146
Stage 1
€000
455,089
269,133
53,533
322,666
307,934
610,596
119,729
730,325
663,727
471,544
178,093
649,637
503,200
708,462
219,873
928,335
559,043
130,600
98,869
229,469
170,365
9,767
19,187
28,954
34,075
140,432
174,507
59,916
88,175
2019
Stage 2
€000
28,855
43,602
41,449
44,019
78,257
58,189
42,488
240,389
New customers
221,325
2,588
223,913
581,894
65,999
Total Stage 3 and POCI
3,168,592
897,360 4,065,952 3,389,343
398,726
643,247
4,464,678
Retail individuals
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
Stage 1
€000
693,768
2020
Stage 2
€000
96,548
Total
€000
790,316
Stage 1
€000
372,733
743,838
136,888
880,726
878,683
2019
Stage 2
€000
32,921
93,604
615,175
163,727
778,902
968,991
146,123
1,115,114
432,447
211,631
644,078
340,375
110,972
141,377
133,226
274,603
201,829
139,552
83,489
46,760
143,947
227,436
114,183
160,943
-
2,715
2,715
72,163
22,411
-
New customers
269,584
15,502
285,086
249,288
Total Stage 3 and POCI
1,075,211
5,120,016
3,026,438 1,018,367 4,044,805 3,106,473
700,634
97,418
52,736
3,284
24,024
2019
Stage 2
€000
17,969
35,365
14,584
14,430
14,639
18,698
23,431
14,658
5,713
59,538
31,598
19,863
14,724
9,176
-
47,522
448,267
159,487
Stage 1
€000
133,876
2020
Stage 2
€000
29,345
Total
€000
163,221
Stage 1
€000
121,507
150,155
58,282
208,437
144,339
50,690
15,347
8,195
4,456
2,301
-
48,259
33,370
28,751
18,347
15,392
12,125
9,241
2,551
413,279
207,404
84,060
44,098
26,542
19,848
14,426
9,241
50,810
620,683
168,808
789,491
175
Total
€000
483,944
351,536
705,176
547,219
637,300
228,554
102,404
328,564
647,893
4,032,590
839,728
4,872,318
Total
€000
405,654
972,287
451,347
341,381
169,581
75,147
3,284
273,312
3,807,107
2,220,743
6,027,850
Total
€000
139,476
179,704
74,122
46,028
34,502
33,422
32,607
14,658
53,235
607,754
468,411
1,076,165
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
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.7
(continued)
Credit quality of loans and advances to customers based on the internal credit rating
Loans and advances to customers classified as held for sale
An analysis of gross loans and advances to customers classified as held for sale, as per the internal rating
system of the Company is disclosed in the tables below.
Corporate legal entities
Rating 3
Rating 5
Rating 6
Unrated
Total Stage 3 and POCI
Retail legal entities
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
New customers
Total Stage 3 and POCI
SMEs legal entities
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Total Stage 3 and POCI
Stage 1
€000
2020
Stage 2
€000
Total
€000
Stage 1
€000
2019
Stage 2
€000
Total
€000
31
-
-
-
193
363
106
485
31
1,147
224
363
106
485
1,178
267,609
268,787
-
-
20
-
20
-
-
-
769
769
-
-
20
769
789
12,910
13,699
Stage 1
€000
2020
Stage 2
€000
Total
€000
Stage 1
€000
2019
Stage 2
€000
Total
€000
23
105
108
568
942
126
70
70
43
583
1,985
3,749
93
175
151
1,151
2,927
3,875
2,585
11,460
14,045
-
58
58
4,457
18,018
22,475
801,289
823,764
-
-
15
45
53
2
3
-
118
-
-
-
10
3
10
-
-
23
-
-
15
55
56
12
3
-
141
125,377
125,518
Stage 1
€000
2020
Stage 2
€000
Total
€000
Stage 1
€000
2019
Stage 2
€000
Total
€000
161
19
65
50
760
593
1,648
-
8
226
146
156
2,497
3,033
161
27
291
196
916
3,090
4,681
244,023
248,704
-
-
38
-
-
-
38
10
-
-
14
4
-
28
10
-
38
14
4
-
66
34,598
34,664
176
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.8
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.
45.8.1 Contingent liabilities
An analysis of changes in the outstanding nominal amount of exposures and the corresponding ECLs are
disclosed in the tables below:
2020
Exposures
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net decrease
31 December
2019
Exposures
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net increase/(decrease)
31 December
2020
ECL
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Charge/(credit) for the year*
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
430,293
6,146
(187,975)
(4)
(40,050)
208,410
159,924
(5,376)
217,131
(4,011)
(4,649)
98,683
(770)
(29,156)
4,015
688,900
-
-
-
(20,016)
(64,715)
363,019
52,756
624,185
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
21
10
(200)
-
211
42
12
30
42
70
(8)
305
(3,500)
3,828
695
287
408
695
21,904
21,995
(2)
(105)
3,500
(6,927)
18,370
18,366
4
18,370
-
-
-
(2,888)
19,107
18,665
442
19,107
177
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.8
Contingent liabilities and commitments (continued)
45.8.1 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
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
* The charge for the year mainly relates to changes to inputs and net exposure.
The outstanding contingent liabilities by geography are disclosed in the table below:
2020
Cyprus
Other countries
Total
2019
Cyprus
Other countries
Total
Stage 1
€000
Stage 2
€000
Stage 3
€000
208,410
-
329,940
33,079
33,690
19,066
Total
€000
572,040
52,145
208,410
363,019
52,756
624,185
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
The credit quality of contingent liabilities as per the internal rating system of the Company 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
Stage 1
2020
Stage 2
€000
€000
Total
€000
70,922
8,074
71,675
39,532
73,874
20,784
164
52,371
8,050
59,503
37,000
70,690
18,556
164
79,731
110,409
2,830
87,983
Stage 1
2019
Stage 2
€000
€000
Total
€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
18,551
24
12,172
2,532
3,184
2,228
-
30,678
85,153
154,522
328,895
483,417
44,625
528,042
376,131
112,720
488,851
79,600
568,451
178
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.8
Contingent liabilities and commitments (continued)
45.8.1 Contingent liabilities (continued)
Stage 1
€000
2020
Stage 2
€000
Total
€000
Stage 1
€000
2019
Stage 2
€000
22,858
5,667
1,540
430
53
18
163
-
23,159
53,888
3,407
2,790
590
254
178
122
1,871
10,390
170
19,772
26,265
8,457
2,130
684
231
140
2,034
10,390
23,329
73,660
7,692
81,352
24,343
4,881
3,197
464
330
85
451
-
20,411
54,162
3,989
2,919
400
43
276
26
1,770
14,165
51
23,639
Stage 1
€000
-
-
2020
Stage 2
€000
14,352
14,352
2019
Stage 2
€000
23,565
23,565
-
-
Total
€000
Stage 1
€000
14,352
14,352
439
14,791
Total
€000
28,332
7,800
3,597
507
606
111
2,221
14,165
20,462
77,801
18,450
96,251
Total
€000
23,565
23,565
633
24,198
SME legal entities
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New customers
Total Stage 3
Retail individuals
Unrated
Total Stage 3
45.8.2 Commitments
An analysis of changes in the outstanding exposures and the corresponding ECLs are disclosed in the tables
below:
2020
Exposure
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net increase/(decrease)
31 December
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
1,291,393
508,861
132,854
1,933,108
133,657
(132,525)
(399,593)
(1,280)
122,785
413,026
(2,753)
(11,445)
(1,132)
(13,433)
4,033
(43,291)
-
-
-
68,049
1,146,962
775,164
79,031
2,001,157
179
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.8
Contingent liabilities and commitments (continued)
45.8.2 Commitments (continued)
2019
Exposure
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net decrease
31 December
2020
ECL
1 January
Transfers to stage 1
Transfers to stage 2
Charge for the year*
31 December
Individually assessed
Collectively assessed
2019
ECL
1 January
Transfers to stage 1
Transfers to stage 2
(Credit)/charge for the year*
31 December
Individually assessed
Collectively assessed
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
30
34
(128)
190
126
36
90
126
87
(34)
168
204
425
111
314
425
Stage 1
€000
Stage 2
€000
Stage 3
€000
1,012
3
(11)
(974)
30
6
24
30
1,782
(3)
20
(1,712)
87
8
79
87
-
-
(40)
40
-
-
-
-
-
-
(9)
9
-
-
-
-
117
-
-
434
551
147
404
551
Total
€000
2,794
-
-
(2,677)
117
14
103
117
*The charge in the year mainly relates to changes to inputs.
Commitments by geography are presented in the table below:
2020
Cyprus
Total
2019
Cyprus
Other countries
Total
Stage 1
€000
1,146,962
Stage 2
€000
Stage 3
€000
Total
€000
775,164
79,031
2,001,157
1,146,962
775,164
79,031
2,001,157
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
180
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.8
Contingent liabilities and commitments (continued)
45.8.2 Commitments (continued)
The credit quality of commitments, as per the internal rating system of the Company 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
2020
Stage 2
€000
€000
Total
€000
Stage 1
2019
Stage 2
€000
€000
Total
€000
270,107
299,680
22,488
322,168
241,799
19,069
64,983
30,570
27,382
3,093
28
19,947
92,936
28,308
57,360
74,480
57,489
50,681
16,443
61
76,429
139,463
88,059
78,063
19,536
89
118,931
138,878
398
93,334
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
134
43,107
499,807
404,151
Stage 1
€000
204,597
44,967
12,287
3,585
1,168
385
125
-
8,710
2020
Stage 2
€000
43,683
21,932
10,000
5,402
2,635
756
807
12,301
618
275,824
98,134
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
903,958
50,700
954,658
Total
€000
248,280
66,899
22,287
8,987
3,803
1,141
932
12,301
9,328
373,958
20,607
394,565
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
181
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.8
Contingent liabilities and commitments (continued)
45.8.2 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
179,709
58,949
25,306
14,508
4,893
2,422
199
-
85,345
2020
Stage 2
€000
99,239
58,456
46,873
28,034
16,434
9,759
4,036
7,567
2,481
371,331
272,879
Total
€000
278,948
117,405
72,179
42,542
21,327
12,181
4,235
7,567
Stage 1
€000
106,440
121,923
89,794
49,897
13,786
5,894
721
-
87,826
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
644,210
7,724
651,934
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
182
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.9
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:
2020
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
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 Velocity 2
portfolio
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
16,665
11,956
(3,751)
(1,347)
25,380
(6,058)
23,562
(1,393)
(4,008)
4,868
-
-
Stage 3
€000
1,493,892
(5,898)
(19,811)
2,740
6,097
(628)
POCI
€000
Total
€000
206,166
1,742,103
-
-
-
-
-
-
(191)
6,766
(81)
(709)
(1,496)
(807)
(337,024)
(36,872)
(376,199)
-
5,431
(672)
1,032
-
-
73,647
9,939
83,586
-
-
5,431
(902)
812
(28,597)
19,848
(4,206)
(34,377)
6,509
28,201
2,176
1,418
221,473
34,648
259,715
(3,367)
2,247
5,458
(101)
4,237
-
22,619
5,801
16,818
22,619
-
(100,764)
(11,334)
(112,098)
49,127
1,330,433
204,477
1,606,656
10,715
38,412
45,813
6,967
69,296
1,284,620
197,510
1,537,360
49,127
1,330,433
204,477
1,606,656
* Individual components of the ‘Impairment loss net of reversals on loans and advances to customers’
The main driver for the increase in the impairment loss for the year is due to the component 'Changes to
models and inputs used for ECL calculations'. The key driver is the LGD input which has impacted mainly
Stage 3 and POCI loans due to additional credit losses recorded in the year ended 31 December 2020 in
relation to NPE reduction envisaged sale transactions, of approximately €120 million. In addition, the impact
of the updated macroeconomic scenarios and overlays performed in the context of COVID-19 and PD
calibration (as disclosed in Note 5.2) is also reflected within line item 'models and inputs used for ECL
calculations' and has impacted the ECL charge for all Stages. Further for Stage 3 loans, in addition to the
impairment loss recognised as a result of the NPE reduction initiatives, another key driver for the
impairment loss is the assumptions on the LGD component (disclosed in Note 5.2).
183
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2020
Other countries
1 January
Impact on transfer between
stages during the year*
Foreign exchange and other
adjustments
Write offs
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*
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
61,447
920
(3,505)
(22,231)
(4,728)
37
10,802
3,237
45,979
43,842
2,137
45,979
Total
€000
61,447
920
(3,505)
(22,231)
(4,728)
37
10,802
3,237
45,979
43,842
2,137
45,979
-
-
-
-
-
-
-
-
-
-
-
-
*Individual components of the ‘Impairment loss net of reversals on loans and advances to customers’
184
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2020
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
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 Velocity 2
portfolio
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
16,665
11,956
(3,751)
(1,347)
25,380
(6,058)
23,562
(1,393)
Stage 3
€000
1,555,339
(5,898)
(19,811)
2,740
POCI
€000
Total
€000
206,166
1,803,550
-
-
-
-
-
-
(4,008)
4,868
7,017
(191)
7,686
-
-
(4,133)
(81)
(4,214)
(1,496)
(807)
(359,255)
(36,872)
(398,430)
-
5,431
(672)
1,032
-
-
68,919
9,939
78,858
-
-
5,431
(902)
812
(28,560)
30,650
(4,206)
(34,340)
6,509
39,003
2,176
1,418
224,710
34,648
262,952
(3,367)
2,247
5,458
(101)
4,237
-
22,619
5,801
16,818
22,619
-
(100,764)
(11,334)
(112,098)
49,127
1,376,412
204,477
1,652,635
10,715
38,412
89,655
6,967
113,138
1,286,757
197,510
1,539,497
49,127
1,376,412
204,477
1,652,635
*Individual components of the ‘Impairment loss net of reversals on loans and advances to customers’ (Note
16).
185
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
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
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
26,233
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 on loans and advances to customers’
186
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.9
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
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 on loans and advances to customers’
187
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.9
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
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 on loans and advances to customers’ (Note
16).
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.
The movement of credit losses of loans and advances to customers for 2020 and 2019 includes credit losses
relating to loans and advances to customers classified as held for sale. Their balance by staging and
geographical area is presented in the table below:
2020
Cyprus
Total
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
848,218
721,470
111,234
721,470
111,234
848,218
721,470
111,234
848,218
3,260
3,260
3,260
12,254
12,254
12,254
188
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2019
Cyprus
Total
Individually assessed
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
The credit losses of loans and advances, including the loans and advances to customers held for sale, by
business line is presented in the table below:
2020
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
Total
€000
3,652
4,375
2,352
4,616
3,551
286
2,383
401
923
-
-
-
3
67
10
6,003
5,600
4,263
6,947
7,731
3,993
9,979
1,742
2,200
-
-
-
-
658
11
21,811
38,758
7,182
12,259
9,741
58,438
62,891
51,358
57,810
96,183
254,462
360,331
343,302
1,707
179
624
1,076
363
437
925
3,294
3,802
2,034
2,688
22,286
31,585
66,721
68,158
5
479
32,090
49,809
14,160
24,259
21,948
66,011
79,055
55,535
63,621
118,469
286,047
427,052
411,463
2,437
679
22,619
49,127
1,376,412
204,477
1,652,635
189
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
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
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
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:
2020
1 January
Transfer out 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 Velocity 2
Corporate
€000
Global
corporate
€000
Retail
€000
15,354
(1,170)
(298)
(1,165)
197
620
(609)
16
911
327
2,512
(113)
33,982
(1,909)
(132)
(19,191)
1,052
2,568
2,108
769
7,196
(1,340)
977
-
49,257
(7,706)
(300)
(4,026)
620
1,456
(632)
2,178
2,530
1,313
1,040
-
31 December
16,582
26,080
45,730
190
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2019
1 January
Transfer (out of Corporate)/in Global corporate business line
Transfer out 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
Global
corporate
€000
Retail
€000
107,869
(56,374)
(8,110)
(410)
(12,740)
268
528
(2,541)
572
-
56,576
(1,351)
-
(545)
2,381
1,400
(4,977)
1
70,476
-
(19,793)
(1,260)
(8,436)
931
979
(1,900)
4,586
(1,777)
(11,679)
3,169
25
(2,092)
(9,864)
15,354
-
(7,824)
-
33,982
2,436
(1,806)
(125)
49,257
* Individual components of the 'Impairment loss net of reversal on loans and advances to customers'
During the year ended 31 December 2020 the total non-contractual write-offs recorded by the Group
amounted to €294,932 thousand (2019: €235,181 thousand). The contractual amount outstanding on
financial assets that were written off during the year and that are still subject to enforcement activity is
€1,062,224 thousand (2019: €626,171 thousand).
Assumptions have been made about the future changes in property values, as well as the timing for the
realisation of collateral, taxes and expenses on the repossession and subsequent sale of the collateral as
well as any other applicable haircuts. Indexation has been used as the basis to estimate updated market
values of properties supplemented by management judgement where necessary given the difficulty in
differentiating between short term impacts and long term structural changes and the shortage of market
evidence for comparison purposes, while assumptions were made on the basis of macroeconomic scenario
for future changes in property prices, and are capped accordingly in case of any future projected increase,
where any future projected decrease is taken into consideration.
At 31 December 2020 the weighted average haircut (including liquidity haircut and selling expenses) used in
the collectively assessed provision calculation for loans and advances to customers excluding those
classified as held for sale is approximately 32% under the baseline scenario (2019: approximately 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 (2019: average of seven years), excluding those classified as held for sale.
For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the
haircuts used are based on the specific facts and circumstances of each case.
For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with
50%, 30% and 20% probability respectively.
191
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
For Stage 3 customers, the base scenario focuses on the following variables, which are based on the specific
facts and circumstances of each customer: the operational cash flows, the timing of recovery of collaterals
and the haircuts from the realisation of collateral. The base scenario is used to derive additional scenarios
for either better or worse cases. Under the adverse scenario operational cash flows are decreased by 50%,
applied haircuts on real estate collateral are increased by 50% and the timing of recovery of collaterals is
increased by 1 year with reference to the baseline scenario. Under the favourable scenario, applied haircuts
are decreased by 5%, with no change in the recovery period with reference to the baseline scenario.
Assumptions used in estimating expected future cash flows (including cash flows that may result from the
realisation of collateral) reflect current and expected future economic conditions and are generally
consistent with those used in the Stage 3 collectively assessed exposures. In the case of loans held for sale
the Group has taken into consideration the timing of expected sale and the estimated sale proceeds in
determining the ECL. Amounts previously written off which are expected to be recovered through sale are
included in 'Recoveries of loans and advances to customers previously written off' in Note 16.
The above assumptions are also influenced by the ongoing regulatory dialogue the Company 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 2020.
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
2020
€000
2019
€000
3,599
2,702
(3,658)
21,904
(18,746)
42,769
(36,934)
8,718
(7,824)
(2,682)
42,064
(42,200)
81,569
(75,148)
5,486
(5,632)
A number 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:
192
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.9
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
Increase on
the ECL
carrying value
of
Stage 2
facilities
2019
€000
4,160
7,030
9,390
11,370
2,400
3,960
5,080
5,950
No sensitivity analysis is performed for the year ended 31 December 2020, as the Group has developed a
behavioural maturity model applying an expected lifetime for revolving facilities during the year, as
explained in Note 5.2.
45.10
Collateral and other credit enhancements obtained
The carrying value of assets obtained during 2020 and 2019 by taking possession of collateral held as
security, was as follows:
Residential property
Commercial and other property
2020
€000
33,059
90,758
123,817
2019
€000
69,134
128,075
197,209
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 2020 amounted to
€1,484,292 thousand (2019: €1,483,167 thousand).
The disposals of repossessed assets during 2020 amounted to €81,840 thousand (2019: €212,501
thousand).
45.11
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.
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.
193
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.11
Forbearance (continued)
Rescheduled loans and advances are those facilities for which the Group has modified the repayment
programme (provision of a grace period, suspension of the obligation to repay one or more instalments,
reduction in the instalment amount and/or elimination of overdue instalments relating to capital or interest)
and current accounts/overdrafts for which the credit limit has been increased with the sole purpose of
covering an excess.
For an account to qualify for rescheduling it must meet certain criteria including that the client’s business
must be considered to be viable. The extent to which the Group reschedules accounts that are eligible
under its existing policies may vary depending on its view of the prevailing economic conditions and other
factors which may change from year to year. In addition, exceptions to policies and practices may be made
in specific situations in response to legal or regulatory agreements or orders.
The forbearance characteristic contributes in two specific ways for the calculation of lifetime ECL for each
individual facility. Specifically, it is taken into consideration in the scorecard development where if this
characteristic is identified as statistically significant it affects negatively the rating of each facility. The
second contribution of the forbearance flag is in the construction of the through the cycle probability of
default curve, where when feasible a specific curve for the forborne products is calculated and assigned
accordingly.
Forbearance activities may include measures that restructure the borrower's business (operational
restructuring) and/or measures that restructure the borrower’s financing (financial restructuring).
Restructuring options may be of a short or long-term nature or a combination thereof. The Group has
developed and deployed sustainable restructuring solutions, which are suitable for the borrower and
acceptable for the Group.
Short-term restructuring solutions are defined as restructured repayment solutions of duration of less than
two years. In the case of loans for the construction of commercial property and project finance, a short-
term solution may not exceed one year.
Short-term restructuring solutions can include the following:
Interest only: during a defined short-term period, only interest is paid on credit facilities and no
principal repayment is made.
Reduced payments: decrease of the amount of repayment instalments over a defined short-term
period in order to accommodate the borrower’s new cash flow position.
Arrears and/or interest capitalisation: the capitalisation of arrears and/or of accrued interest arrears;
that is forbearance of the arrears and capitalisation of any unpaid interest to the outstanding
principal balance for repayment under a rescheduled program.
Grace period: an agreement allowing the borrower a defined delay in fulfilling the repayment
obligations usually with regard to the principal.
Long-term restructuring solutions can include the following:
Interest rate reduction: permanent or temporary reduction of interest rate (fixed or variable) into a
fair and sustainable rate.
Extension of maturity: extension of the maturity of the loan which allows a reduction in instalment
amounts by spreading the repayments over a longer period.
Additional security: when additional liens on unencumbered assets are obtained as additional
security from the borrower in order to compensate for the higher risk exposure and as part of the
restructuring process.
Forbearance of penalties in loan agreements: waiver, temporary or permanent, of violations of
covenants in the loan agreements.
Rescheduling of payments: the existing contractual repayment schedule is adjusted to a new
sustainable repayment program based on a realistic, current and forecasted, assessment of the cash
flow generation of the borrower.
Strengthening of the existing collateral: a restructuring solution may entail the pledge of additional
security for instance, in order to compensate for the reduction in interest rates or to balance the
advantages the borrower receives from the restructuring.
194
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.11
Forbearance (continued)
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 that were forborne during the year amounted to €44,823 thousand (2019:
€206,007 thousand). Their related modification loss amounted to €10,133 thousand (2019: €2,141
thousand) (the modification mainly relates to credit-related reasons).
Previously classified Stage 2 and Stage 3 customers that have facilities modified during the year and are
classified as Stage 1 at 31 December 2020 amount to €347,966 thousand (2019: €13,221 thousand) and
their corresponding ECL amount to €2,732 thousand (2019: €37 thousand). The modification for the
majority of these facilities reflects the modification due to moratorium.
Facilities that reverted to Stage 2 and Stage 3 having once cured during the year amount to €109,663
thousand (2019: €66,215 thousand) and their corresponding ECL amounts to €2,591 thousand (2019:
€1,431 thousand) as at 31 December 2020.
45.12 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 geographical analysis). The
rescheduled loans related to loans and advances classified as held for sale as at 31 December 2020
amounts to €754,795 thousand (2019: €42,803 thousand).
2020
1 January
New loans and advances rescheduled in the year
Loans no longer classified as rescheduled and repayments
Applied in writing off rescheduled loans and advances
Interest accrued on rescheduled loans and advances
Foreign exchange adjustments
Disposal of Velocity 2 portfolio
31 December
Cyprus
€000
2,469,566
64,520
(484,169)
(126,412)
52,150
(444)
(30,824)
Other
countries
€000
Total
€000
33,367
11,019
2,502,933
75,539
(873)
(485,042)
(3,909)
(130,321)
1,484
(3,650)
53,634
(4,094)
-
(30,824)
1,944,387
37,438
1,981,825
195
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.12 Rescheduled loans and advances to customers (continued)
2019
1 January
New loans and advances rescheduled in the year
Loans no longer classified as rescheduled and repayments
Applied in writing off rescheduled loans and advances
Interest accrued on rescheduled loans and advances
Foreign exchange adjustments
Disposal of Helix and Velocity 1 portfolios
31 December
Cyprus
€000
4,566,470
146,422
(830,137)
(136,135)
91,281
2,490
Other
countries
€000
Total
€000
48,806
4,615,276
-
146,422
(683)
(830,820)
(13,634)
(149,769)
(5,509)
4,387
85,772
6,877
(1,370,825)
-
(1,370,825)
2,469,566
33,367
2,502,933
The classification as forborne loans is discontinued when all EBA criteria for the discontinuation of the
classification as forborne exposure are met. These are set out in the 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.
2020
Stage 1
Stage 2
Stage 3
POCI
2019
Stage 1
Stage 2
Stage 3
POCI
Cyprus
€000
199,090
242,493
649,609
98,400
Other
countries
€000
103
-
37,335
-
Total
€000
199,193
242,493
686,944
98,400
1,189,592
37,438
1,227,030
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
196
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.12 Rescheduled loans and advances to customers (continued)
Fair value of collateral
2020
Stage 1
Stage 2
Stage 3
POCI
2019
Stage 1
Stage 2
Stage 3
POCI
Cyprus
€000
161,346
225,402
531,741
88,925
Other
countries
€000
103
-
18,617
-
Total
€000
161,449
225,402
550,358
88,925
1,007,414
18,720
1,026,134
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
The fair value of collateral presented above has been computed based on the extent that the collateral
mitigates credit risk.
Credit risk concentration
2020
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other services
Other sectors
Cyprus
€000
Other
countries
€000
81,973
30,185
46,145
68,785
80,918
763,593
85,061
32,932
5,842
1,168
-
403
20,571
130
9,324
-
Total
€000
87,815
31,353
46,145
69,188
101,489
763,723
94,385
32,932
1,189,592
37,438
1,227,030
197
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.12 Rescheduled loans and advances to customers (continued)
2020
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
2020
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
Total
€000
68,413
114,822
58,753
14,168
20,571
2,581
54,245
94,251
56,172
222,078
70,805
83,804
58,374
102,312
56,788
15,678
47,654
208,916
103,395
14,015
1,105
-
118
222,078
70,923
-
-
-
-
-
-
-
-
-
-
83,804
58,374
102,312
56,788
15,678
47,654
208,916
103,395
14,015
1,105
1,189,592
37,438
1,227,030
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
19,359
69,789
23,041
26,319
18,908
22,750
20,618
26,125
11,504
2,117
-
1,458
Total
€000
68,413
114,822
58,753
55,086
108,175
54,892
3,925
222,078
17,391
27,694
22,962
2,876
70,923
6,162
5,993
1,388
234
-
-
-
-
750
-
13,406
14,556
4,350
2,565
-
-
-
-
3,770
-
49,380
31,049
93,962
52,588
8,238
42,885
176,025
87,162
9,376
178
14,856
6,776
2,612
1,401
7,440
4,769
32,891
16,233
119
927
83,804
58,374
102,312
56,788
15,678
47,654
208,916
103,395
14,015
1,105
199,193
242,493
686,944
98,400
1,227,030
198
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.12 Rescheduled loans and advances to customers (continued)
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
199
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.12 Rescheduled 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
ECL allowances
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
3,901
26,658
1,811
239
17,843
28,055
3,077
443
-
-
-
-
-
-
-
-
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
2020
Stage 1
Stage 2
Stage 3
POCI
2019
Stage 1
Stage 2
Stage 3
POCI
Cyprus
€000
4,317
9,729
261,784
37,888
Other
countries
€000
-
-
25,404
-
313,718
25,404
Cyprus
€000
4,391
9,595
638,308
78,088
Other
countries
€000
-
-
22,379
-
730,382
22,379
Total
€000
4,317
9,729
287,188
37,888
339,122
Total
€000
4,391
9,595
660,687
78,088
752,761
200
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.13
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
2020
€000
165,489
89,692
45,641
2019
€000
62,550
76,916
101,093
5,517,033
4,909,533
13,830
5,309
45,672
33,747
7,553
5,968
15,284
50,471
5,916,413
5,229,368
All balances with central banks and loans and advances to banks are classified as Stage 1 (Note 19).
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
2020
Aaa - Aa3
A1 - A3
Baa1 - Baa3
Ba1 - Ba3
Unrated
2020
€000
727,289
98,397
26,047
823,724
33,387
2019
€000
1,044,585
75,161
35,901
542,047
40,313
1,708,844
1,738,007
823,725
173,502
711,617
542,048
389,928
806,031
1,708,844
1,738,007
19,118
656,856
1,032,870
24,093
885,810
828,104
1,708,844
1,738,007
FVOCI
Stage 1
€000
Stage 1
€000
Amortised cost
Stage 2
€000
244,767
463,904
28,347
1,000
382,742
-
70,050
25,047
392,306
32,887
-
-
-
48,676
-
Total
€000
463,904
70,050
25,047
440,982
32,887
656,856
984,194
48,676
1,032,870
201
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
45.
Risk management - Credit risk (continued)
45.13
customers - analysis by rating agency designation (continued)
Credit quality of Group assets exposed to credit risk other than loans and advances to
2019
Aaa - Aa3
A1 - A3
Baa1 - Baa3
Ba1 - Ba3
Unrated
FVOCI
Stage 1
€000
Stage 1
€000
Amortised cost
Stage 2
€000
448,296
572,696
28,259
10,851
398,404
-
46,902
25,050
94,989
39,813
-
-
-
48,654
-
Total
€000
572,696
46,902
25,050
143,643
39,813
885,810
779,450
48,654
828,104
46.
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 on financial instruments 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 1 Year 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.
202
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
46.
Risk management - Market risk (continued)
Impact on Net Interest
Income in €000
2020
(50 bps for
Euro and 60
bps for US
Dollar)
2019
(50 bps for
Euro and 60
bps for US
Dollar)
27,592
(23,627)
(15,184)
22,494
26,310
28,446
(33,117)
(24,875)
21,023
27,010
(22,790)
(32,076)
26,093
(21,042)
(12,898)
21,424
24,886
27,577
(30,735)
(23,857)
21,225
26,401
(20,267)
(29,958)
1,499
(2,585)
(2,286)
1,070
1,424
869
(2,382)
(1,018)
(202)
609
(2,523)
(2,118)
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
203
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
46.
Risk management - Market risk (continued)
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.
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
2020
(50 bps for
Euro and 60
bps for US
Dollar)
2019
(50 bps for
Euro and 60
bps US
Dollar)
174
42,736
50,082
51,093
6,044
47,392
(1,760)
90,207
101,292
101,893
8,897
99,812
3,867
(2,367)
(564)
293
3,191
(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
(2,514)
(2,588)
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)
2020
+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
686
(541)
1,496
541
204
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
46.
Risk management - Market risk (continued)
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)
3,120
(1,041)
1,041
Interest rate benchmark reform
The LIBOR and the EURIBOR (collectively referred to as IBORs) are the subject of 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.
EURIBOR reform has been completed and EURIBOR now complies with the EU Benchmark Regulation
following a new hybrid methodology calculation. The Group expects EURIBOR to continue as a benchmark
interest rate for the foreseeable future and, therefore, does not consider that Group’s exposure to EURIBOR
is affected by the BMR reform as at 31 December 2020.
Regarding LIBOR reform, industry working groups are working to identify alternative rates to transition to.
On 5 March 2021 the Financial Conduct Authority (FCA) has confirmed that all LIBOR settings will either
cease to be provided by any administrator or no longer be representative:
immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen
settings, and the 1-week and 2-month US dollar settings; and
immediately after 30 June 2023, in the case of the remaining US dollar settings
The Company is in process of adopting phase 2 of IBOR reform. In July and October 2020, the Company
performed settlements with derivatives clearing organisations so as to switch from Euro Overnight Index
Average (EONIA) to Euro short-term rate (ESTR) (Euro denominated financial instruments) and from Fed
Fund rate (USD denominated financial instruments) to Secure Overnight Financing Rate (SOFR) risk-free
rates (RFR) respectively.
The Company has established a project to manage the transition to alternative interest rate benchmarks
whereby the Director of Treasury is the project owner and with oversight from a dedicated Benchmark
Steering Committee. The main divisions involved in the project at the highest level are the Legal
Department, Treasury, Risk Management, Finance, Information Technology (IT) and Operations and the
business lines. The Assets and Liabilities Committee (ALCO) monitors the project on a monthly basis.
The Steering Committee has been working towards minimising the potential disruption to business and
mitigating operational and conduct risks and possible financial losses. It has identified that areas most
significantly impacted and risks arising from IBORS’ transition to alternative interest rate benchmarks are:
updating systems and processes affected from the transition, reviewing and amending legal IBORS’
referencing contracts, market risk profile changes due to IBOR transition, and financial and accounting
matters including among other hedge accounting issues and mismatches in timing of derivatives and loans
transitioning from IBORS.
For the legacy derivatives exposures, the Group has adhered to the International Swaps and Derivatives
Association (ISDA) protocol which came into effect in January 2021, while for cleared derivatives, the Bank
will adopt the market-wide standardised approach to be followed by the relevant clearing house.
The Company has in place an action plan in order to facilitate the transition to alternative rates, including a
plan to engage into amending credit facilities contracts. The Company continues to work on technology and
business process changes to ensure operational readiness in preparation for LIBOR cessation and transition
to alternative RFRs in line with official sector expectations and milestones.
205
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
46.
Risk management - Market risk (continued)
The Group is actively preparing for the transition, including the assessment of appropriate fallback
provisions for LIBOR-linked contracts and transition mechanisms in its floating rate assets and liabilities
with maturities after 2021, when most IBORs are expected to cease to be published. The Group will
continue to assess, monitor and dynamically manage risks, and implement specific mitigating controls when
required, progressing towards an orderly transition to alternative benchmarks.
The following table summarises the significant non-derivative exposures impacted by interest rate
benchmark reform as at 31 December 2020:
Non-derivative financial
assets
Loans and advances to
customers
Investments
Loans and advances to banks
Total
Non-derivative financial
liabilities
Deposits by banks
Total
EURIBOR
GBP
LIBOR
USD
LIBOR
CHF
LIBOR
Other
Total
€000
€000
€000
€000
€000
€000
4,463,730
89,523
331,684
36,967
4,102 4,926,006
32,993
69,405
-
-
-
-
32,993
1,858
69,326
4,968
9,420
154,977
4,566,128
91,381
401,010
41,935
13,522 5,113,976
154,435
154,435
1,110
1,110
1,074
1,074
-
-
4,668
161,287
4,668
161,287
For derivatives in hedging relationships subject to IBOR reform refer to Note 21.
Currency risk
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates.
In order to manage currency risk, the ALCO has approved open position limits for the total foreign exchange
positions. 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.
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.
206
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
46.
Risk management - Market risk (continued)
Change in foreign
exchange rate
%
Impact on loss after
tax
€000
Impact on equity
€000
2020
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
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
Price risk
Change in foreign
exchange rate
%
Impact on loss after
tax
€000
Impact on equity
€000
+15
+25
+10
+10
+10
+10
+10
-15
-25
-10
-10
-10
-10
-10
4,032
2,594
-
1,923
389
118
13
(2,980)
(1,556)
-
(1,422)
(318)
(96)
(11)
+10
+10
+10
+10
+10
+10
+10
-10
-10
-10
-10
-10
-10
-10
2,717
995
-
460
420
44
(14)
(2,223)
(814)
-
(376)
(344)
(36)
11
-
27,556
133
-
(1,110)
-
-
-
(16,534)
(109)
-
909
-
-
-
10,483
(275)
-
(1,185)
-
-
-
(8,577)
225
-
969
-
-
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.
207
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
46.
Risk management - Market risk (continued)
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.
2020
Cyprus Stock Exchange
Athens Exchange
Other stock exchanges and
unlisted
Cyprus Stock Exchange
Athens Exchange
Other stock exchanges and
unlisted
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
+20
+30
+20
-20
-30
-20
447
188
140
(447)
(188)
(140)
294
-
2,670
(294)
-
(2,670)
Change in index
%
Impact on loss before
tax
€000
Impact on equity
€000
+15
+20
+15
-15
-20
-15
248
94
884
(248)
(94)
(884)
305
-
2,023
(305)
-
(2,023)
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 2020 was Baa1 (2019: A2). The average rating excluding the Cyprus Government
bonds and non-rated transactions as at 31 December 2020 was Aa1 (2019: Aa2). Further information on
ratings of debt securities is disclosed in Note 45.13.
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.
2020
+3.0% for Aa3 and above rated bonds
+3.5% for A3 and above rated bonds
+4.0% for Baa3 and above rated bonds
+4.3% for Cyprus Government bonds
-3.0% for Aa3 and above rated bonds
-3.5% for A3 and above rated bonds
-4.0% for Baa3 and above rated bonds
-4.3% for Cyprus Government bonds
Impact on loss before
tax
€000
Impact on equity
€000
2,627
905
51
-
(2,627)
(905)
(51)
-
7,287
981
39
16,322
(7,287)
(981)
(39)
(16,322)
208
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
46.
Risk management - Market risk (continued)
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
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)
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.
2020
Other (non-equity instruments)
Other (non-equity instruments)
2019
Other (non-equity instruments)
Other (non-equity instruments)
Change in index
%
Impact on loss before
tax
€000
Impact on equity
€000
+25
-25
+15
-15
4,596
(4,596)
3,539
(3,539)
-
-
-
-
47.
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 at
frequent intervals 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, the adequacy of the liquid assets and
takes the necessary actions to ensure a comfortable liquidity position.
209
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
47.
Risk management - Liquidity risk and funding (continued)
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)
(ii)
(iii)
(iv)
(v)
(vi)
Risk appetite: established Group Risk Appetite together with the appropriate limits for the
management of all risks including liquidity risk.
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) of the key objectives of the RP are
to set key Recovery and Early Warning Indicators so as to monitor these 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. The historical summary results of
this report, is made available to ALCO and to members of the Risk Division, Treasury and Financial Control
department. 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 the Company to survive a twelve-month stress
period, including capacity to raise funding under all scenarios.
Moreover, an intraday liquidity stress test takes place to ensure that the Group maintains sufficient liquidity
buffer in immediately accessible form, to enable it to meet the stressed intraday payments.
The liquidity buffer is made up of: Banknotes, CBC balances (excluding the Minimum Reserve Requirements
(MRR)), unpledged cash and nostro current accounts, as well as money market placements up to the stress
horizon, available ECB credit line and market value net of haircut of unencumbered/available liquid bonds.
These bonds are High Quality Liquid Assets (HQLA) as per the LCR definitions and/or ECB Eligible bonds.
The designing of the stress tests followed guidance and was based on the liquidity risk drivers which are
recognised internationally by both the Prudential Regulation Authority (PRA) and EBA. In addition, it takes
into account SREP recommendations as well as the Annual Risk Identification Process of the Group. The
stress tests assumptions are included in the Group Liquidity Policy which is reviewed on an annual basis and
approved by the Board. However, whenever it is considered appropriate to amend the assumptions during
the year, approval is requested from ALCO and the Board Risk Committee. The main items shocked in the
different scenarios are: deposit outflows, wholesale funding, loan repayments, off balance sheet
commitments, marketable securities, own issue covered bond, additional credit claims, interbank takings
and cash collateral for derivatives and repos.
210
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
47.
Risk management - Liquidity risk and funding (continued)
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) and concentration of funding and collateral
details. It concludes on the overall liquidity position of the Company and describes the measures
implemented and to be implemented in the short-term to improve liquidity position.
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.
Annually
The Group prepares on an annual basis its report on ILAAP. The ILAAP report provides a holistic view of the
Group’s liquidity adequacy under normal and stress conditions. Within ILAAP, the Group evaluates its
liquidity risk within the context of established policies, the processes for the identification, measurement,
management and monitoring of liquidity implemented by the institution.
As part of the Group’s procedures for monitoring and managing liquidity risk, there is a Group Liquidity
Contingency Plan (LCP) for handling liquidity difficulties. The LCP details the steps to be taken in the event
that liquidity problems arise, which escalate to a special meeting of the extended ALCO. The LCP sets out
the members of this committee and a series of the possible actions that can be taken. The LCP, which forms
a part of the Group’s Liquidity Policy, is reviewed by ALCO at least annually, during the ILAAP review. The
ALCO submits the updated Liquidity Policy with its recommendations to the Board through the Board Risk
Committee for approval. The approved Liquidity Policy is notified to the SSM.
Liquidity ratios
The Group LCR is calculated based on the Delegated Regulation (EU) 2015/61. It is designed to establish a
minimum level of high-quality liquid assets sufficient to meet an acute stress lasting for 30 calendar days.
Τhe minimum requirement is 100%.
Main sources of funding
As at 31 December 2020 the Group’s main sources of funding were its deposit base and central bank
funding, through the Eurosystem monetary policy operations.
In June 2020, ECB funding of €1,000 million was raised under the TLTRO III given the favourable borrowing
rate, in combination with the relaxation of collateral terms (lower haircuts and widening of eligibility of
credit claims), all being part of the ECB’s COVID-19 aid package. In 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.
211
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
47.
Risk management - Liquidity risk and funding (continued)
Funding to subsidiaries
The funding provided by the Company 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 the Company, provided that
they are not in breach of their regulatory capital and liquidity requirements. Certain subsidiaries have a
recommendation from their regulator to avoid any dividend distribution at this point in time.
Collateral requirements and other disclosures
Collateral requirements
The carrying values of the Group's encumbered assets as at 31 December 2020 and 2019 are summarised
below:
Cash and other liquid assets
Investments
Loans and advances
2020
€000
78,831
37,105
2019
€000
90,437
222,961
2,842,941
2,537,031
2,958,877
2,850,429
Cash is mainly used to cover collateral required for (i) derivatives and repurchase transactions and (ii) trade
finance transactions and guarantees issued. It may also be used as part of the supplementary assets for the
covered bond.
Investments are mainly used as collateral for supplementary assets for the covered bond and repurchase
transactions with commercial banks. As at 31 December 2019, investments were mainly used as collateral
for repurchase transactions with commercial banks. As at 31 December 2020, no investments were used as
collateral for repurchase transactions with commercial banks as these matured within 2020.
Loans and advances indicated as encumbered as at 31 December 2020 and 2019 are mainly used as
collateral for available funding from the ECB and the covered bond.
Loans and advances to customers include mortgage loans of a nominal amount of €1,017 million as at 31
December 2020 (2019: €1,000 million) in Cyprus, pledged as collateral for the covered bond issued by the
Company in 2011 under its Covered Bond Programme. Furthermore as at 31 December 2020 housing loans
of a nominal amount of €1,827 million (2019: €1,498 million) in Cyprus, are pledged as collateral for
funding from the ECB (Note 30).
The Company 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, the Company 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 the Company. The covered bonds are eligible collateral for the Eurosystem credit operations and are
placed as collateral for accessing funding from the ECB.
Other disclosures
Deposits by banks as shown in the table further below which discloses contractual maturities include
balances of €44,220 thousand as at 31 December 2020 (2019: €51,934 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 €88,963
thousand as at 31 December 2020 (2019: €93,668 thousand).
212
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
47.
Risk management - Liquidity risk and funding (continued)
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.
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.
213
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
47.
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
Over five years
Total
€000
€000
€000
5,606,343
18,276
25,430
1,886
1,380
5,653,315
322,874
207,383
3,229
-
249
-
76,358
60
74
500
402,784
207,943
1,349,563
198,647
783,138
3,176,677
4,378,022
9,886,047
4,857
4,737
470,112
74,148
522
178
19,018
52
24,627
28,209
300,124
1,089,668
282,433
1,705,171
773
15,255
2,756
8,110
9,046
2,678
78,775
2,020
561,462
102,211
8,040,017
264,911
1,119,985
4,375,391
4,743,256 18,543,560
Funding from central banks
-
-
-
Customer deposits
11,846,823
1,916,872
2,717,157
40,311
24,966
19,375
23,125
-
-
4,930
815
179,006
998
1,374
20,473
877
6,193
27,571
166,712
979,666
58,496
92,500
23,138
26,364
5,281
148,593
-
-
399,957
979,666
16,539,348
296,250
411,875
16,035
11,320
2,691
45,978
46,066
235,022
2020
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
Subordinated loan stock
Fair value of derivative
liabilities
Lease liabilities
Other liabilities
Net financial
(liabilities)/assets
12,095,010
1,964,683
2,771,173
1,352,157
474,889 18,657,912
(4,054,993) (1,699,772) (1,651,188)
3,023,234
4,268,367
(114,352)
214
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
47.
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
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
19,511
333
23,060
64,401
327,718
999,274
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
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
Financial liabilities
Deposits by banks
Repurchase agreements
-
-
170,503
-
Customer deposits
10,931,766
2,292,781
3,353,357
132,036
-
-
159,078
28,581
18,759
147,378
194,118
547,914
170,503
16,709,940
Subordinated loan stock
Fair value of derivative
liabilities
Lease liabilities
Other liabilities
Net financial
(liabilities)/assets
23,125
6,244
946
213,879
-
71
1,535
6,319
-
92,500
319,375
435,000
5,524
6,884
3,943
13,194
22,075
-
25,560
-
50
50,593
31,440
224,191
11,335,038
2,329,287
3,558,970
407,183
539,103 18,169,581
(3,690,665) (1,960,114) (2,392,186) 3,874,238
4,203,325
34,598
2020
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
504,655
36,127
(499,949)
(35,502)
4,706
625
565,613
175,348
(570,353)
(175,907)
(4,740)
(559)
3,193
(3,148)
45
2,858
(2,888)
(30)
-
-
-
-
-
-
-
-
-
-
-
-
543,975
(538,599)
5,376
743,819
(749,148)
(5,329)
215
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
47.
Risk management - Liquidity risk and funding (continued)
2020
Contingent liabilities and
commitments
Contingent liabilities
Acceptances and
endorsements
Guarantees
Commitments
Documentary credits
Undrawn formal standby
facilities, credit lines and
other commitments to lend
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
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
2,801
1,542
312
-
-
4,655
101,769
105,057
264,089
123,140
25,475
619,530
2,482
5,591
4,957
676
1,160
14,866
1,986,291
-
-
-
-
1,986,291
2,093,343
112,190
269,358
123,816
26,635
2,625,342
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
48.
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
largely random and therefore unpredictable.
216
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
48.
Risk management - Insurance risk (continued)
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 largely 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 coverage, 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,
pandemics 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.
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 unit growth +0.25%
Change in expenses +10%
Change in lapsation rates +10%
Change in mortality rates +10%
2020
€000
2019
€000
97
(2,451)
(480)
(6,457)
80
(2,351)
(665)
(6,196)
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.
217
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
48.
Risk management - Insurance risk (continued)
Non-life insurance contracts
Non-life insurance business is concentrated in Cyprus and the main claims during 2020 and 2019 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 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 in the period in which they arise.
The principal assumptions underlying the estimates for each claim are based on experience and market
trends, taking 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.
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, their severity and
their evolution 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.
49.
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 capital adequacy framework, as in force, was incorporated through the CRR and Capital Requirements
Directive IV (CRD IV) and came into effect on 1 January 2014 with certain specified provisions implemented
gradually. 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
including
remuneration, board composition and transparency. Unlike the CRR, member states were required to
transpose the CRD IV into national law and national regulators were allowed to impose additional capital
buffer requirements.
internal governance arrangements
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
Common Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) 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.
218
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
49.
Capital management (continued)
Moreover, in June 2020 Regulation (EU) 2020/873 came into force which provides for certain amendments
in response to the COVID-19 pandemic, bringing forward some of the capital relieving measures that were
due to come into force at a later stage and introducing modifications as part of the wider efforts of
competent authorities to provide the support necessary to the institutions. The main adjustments affecting
the Group’s own funds as at 31 December 2020 relate to the acceleration of the implementation of the new
SME discount factor under CRR II introduced in June 2020 instead of June 2021 (lower RWAs), extending
the IFRS 9 transitional arrangements and introducing further relief measures to CET1 allowing to fully add
back to CET1 any increase in ECL recognised in 2020 and 2021 for non-credit impaired financial assets and
phasing in this starting from 2022. In addition, the amendments, introduce temporary treatment of
unrealized gains and losses on exposures to central governments, to regional governments or to local
authorities measured at fair value through other comprehensive income which the Group elected to apply
and implemented in the third quarter of 2020. Lastly changes on the application of prudential treatment of
software assets as amended by CRR II came into force in December 2020 advancing the implementation to
2020 instead of 2021.
The Group and the Company 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 2020. The regulated investment firm (CIF) of
the Group, The Cyprus Investment and Securities Corporation Ltd (CISCO) was behind the minimum initial
capital requirement and the additional capital conservation buffer as at 31 December 2019. In 2020, CISCO
took the necessary steps, restored its regulatory capital and complied with the minimum capital adequacy
ratio requirements.
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).
219
21,870
22,227
21,968
22,536
2,515
19,453
21,968
710
3
257
461
2,017
2,801
4,818
3
3,247
19,289
22,536
179
3
179
902
1,896
4,979
6,875
4
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
50.
Related party transactions
Aggregate amounts outstanding at year end and additional transactions
2019
2020
Number of directors
2020
€000
2019
€000
9
11
98
309
Loans and advances to members of the
Board of Directors and connected
persons
- less than 1% of the Group's net assets per
director
Loans and advances to other key
management personnel and connected
persons
Total loans and advances as at 31
December
Loans and advances as at 31 December:
- members of the Board of Directors and
other 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
Deposits at 31 December:
- members of the Board of Directors and other key management personnel
- connected persons
Interest expense on deposits for the year
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
2,013
9,827
10,087
17,941
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 €57 thousand (2019: €78 thousand).
There were also contingent liabilities and commitments to other key management personnel and their
connected persons amounting to €3,007 thousand (2019: €1,367 thousand).
The total unsecured amount of the loans and advances and contingent liabilities and commitments to
members of the Board of Directors, key management personnel and other connected persons, using forced-
sale values for tangible collaterals and assigning no value to other types of collaterals, at 31 December
2020 amounted to €1,197 thousand (2019: €1,216 thousand).
At 31 December 2020 the Group has a deposit of €4,081 thousand (2019: €2,848 thousand) with Piraeus
Bank SA, in which Mr Arne Berggren is a non-executive Director. The Group has also provided certain
indemnities to Piraeus Bank SA as part of the disposal of Kyprou Leasing SA in 2015.
220
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
50.
Related party transactions (continued)
During the year ended 31 December 2020 premiums of €26 thousand (2019: €40 thousand) and claims of
€15 thousand (2019: €784 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 2020 and the year ended 31
December 2019 with connected persons of the current members of the Board of Directors or with any
members who resigned during the year.
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 Company.
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 Company's employees and their connected persons on the
same terms as those of customers.
Fees and emoluments of members of the Board of Directors and other key management
personnel
Director emoluments
Executives
Salaries and other short term benefits
Termination benefits
Employer's contributions
Retirement benefit plan costs
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
2020
€000
2019
€000
708
450
49
55
1,910
-
100
152
1,262
2,162
3,363
3,013
-
241
155
3,759
5,021
186
170
131
3,500
5,662
Fees and benefits are included for the period that they serve as members of the Board of Directors.
The termination benefits of the executive directors relate to compensation paid to an executive director who
left the Group on 31 October 2020. The retirement benefit plan costs relate to contributions paid for defined
contribution plan.
The termination benefits for other key management personnel during 2019 relate to compensation paid to a
member of the Executive Committee who left the Group under the voluntary exit plan.
221
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
50.
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 - resigned on
31 October 2020)
2020
€000
2019
€000
-
506
202
708
1,510
168
232
1,910
The retirement benefit plan costs for 2020 amounting to €55 thousand (2019: €152 thousand) relate to Mr
Panicos Nicolaou €40 thousand (2019: €15 thousand since the date of his appointment), Dr Christodoulos
Patsalides €15 thousands up to the date of his resignation (2019: €20 thousand) and for 2019 Mr John
Patrick Hourican up to the date of his resignation €117 thousand.
Non-executive Directors
Non-executive director fees are reflected as an expense of BOCH and as a result no non-executive director
fees are disclosed. However, these are recharged by the holding company back to the Company and the
recharge cost is included within ‘Other operating expenses’.
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).
51.
Group companies
The main subsidiary companies and branches included in the Consolidated Financial Statements of the
Group, their country of incorporation, their activities and the percentage held by the Company (directly or
indirectly) as at 31 December 2020 are:
Company
Country
Activities
Bank of Cyprus Public Company Ltd
The Cyprus Investment and Securities
Corporation Ltd (CISCO)
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
JCC Payment Systems Ltd
CLR Investment Fund Public Ltd
Auction Yard Ltd
BOC Secretarial Company Ltd
S.Z. Eliades Leisure Ltd
BOC Asset Management Ltd
Bank of Cyprus Public Company Ltd (branch
of the Company)
BOC Asset Management Romania S.A.
Romania
MC Investment Assets Management LLC
Fortuna Astrum Ltd
Russia
Serbia
222
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Commercial bank
Investment banking and brokerage
Non-life insurance
Life insurance
Property trading and development
Property trading and development
Cyprus
UCITS Fund
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Greece
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
Percentage
holding
(%)
100
100
100
100
100
100
58
67
75
20
100
100
70
100
n/a
100
100
100
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
51.
Group companies (continued)
In addition to the above companies, at 31 December 2020 the Company 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, Noleta Properties Ltd, Tolmeco Properties Ltd,
Arlona Properties Ltd, Dilero Properties Ltd, Ensolo Properties Ltd, Folimo Properties Ltd, Pelika Properties
Ltd, Cobhan Properties Ltd, Innerwick Properties Ltd, Ramendi 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, Colar Properties Ltd, Irisa Properties Ltd, Provezaco Properties Ltd,
Hillbay Properties Ltd, Ofraco Properties Ltd, Forenaco Properties Ltd, Hovita 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, Olivero Properties Ltd, Jaselo Properties Ltd, Elosa Properties Ltd, Flona Properties Ltd,
Toreva Properties Ltd, Resoma Properties Ltd, Mostero Properties Ltd, Helal Properties Ltd, Yossi Properties
Ltd, Pendalo Properties Ltd, Frontyard Properties Ltd, Bonsova Properties Ltd, Garmozy Properties Ltd,
Palmco Properties Ltd, Thermano Properties Ltd, Venicous Properties Ltd, Lorman Properties Ltd, Eracor
Properties Ltd, Rulemon Properties Ltd, Thelemic Properties Ltd, Maledico Properties Ltd, Dentorio
Properties Ltd, Valioco Properties Ltd, Bascone Properties Ltd, Balasec Properties Ltd, Bendolio Properties
Ltd, Diafor Properties Ltd, Kartama Properties Ltd, Paradexia Properties Ltd, Paramina Properties Ltd,
Nouralia Properties Ltd, Resocot Properties Ltd, Soblano Properties Ltd, Talamon Properties Ltd, Weinar
Properties Ltd, Zemialand Properties Ltd, Asianco Properties Ltd, Cimonia Properties Ltd, Coeval Properties
Ltd, Comenal Properties Ltd, Finevo Properties Ltd, Intelamon Properties Ltd, Mazima Properties Ltd, Nesia
Properties Ltd, Nigora Properties Ltd, Riveland Properties Ltd, Rosalica Properties Ltd, Secretsky Properties
Ltd, Senadaco Properties Ltd, Tasabo Properties Ltd, Venetolio Properties Ltd, Zandexo Properties Ltd,
Flymoon Properties Ltd, Meriaco Properties Ltd, Odolo Properties Ltd, Calandomo Properties Ltd, Molemo
Properties Ltd, Nivamo Properties Ltd, Edilia Properties Ltd, Icazo Properties Ltd, Limoro Properties Ltd,
Rofeno Properties Ltd, Samilo Properties Ltd, Jalimo Properties Ltd, Sendilo Properties Ltd, Baleland
Properties Ltd, Vemoto Properties Ltd, Prodino Properties Ltd and Zenoplus 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 2020 the Company 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.
At 31 December 2020 the Company had 100% shareholding in the companies listed below which are
reserved to accept property:
Cyprus: Tavoni Properties Ltd, Amary Properties Ltd, Holstone Properties Ltd, Alepar Properties Ltd,
Cramonco Properties Ltd, Monata Properties Ltd, Aktilo Properties Ltd, Alezia Properties Ltd, Aparno
Properties Ltd, Enelo Properties Ltd, Mikosa Properties Ltd, Stormino Properties Ltd, Stevolo Properties Ltd,
Lomenia Properties Ltd, Vertilia Properties Ltd, Carilo Properties Ltd, Gelimo Properties Ltd, Rifelo Properties
Ltd, Avaleto Properties Ltd, Midelox Properties Ltd, Ameleto Properties Ltd, Orilema Properties Ltd, Montira
Properties Ltd, Larizemo Properties Ltd and Olisto Properties Ltd.
In addition, the Company 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.
223
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
51.
Group companies (continued)
The Company also holds 100% of the following companies which are inactive:
Cyprus: Birkdale Properties Ltd, Laiki Bank (Nominees) Ltd, Thames Properties Ltd, Paneuropean Ltd,
Philiki Ltd, Cyprialife Ltd, Imperial Life Assurances Ltd, Philiki Management Services Ltd, Nelcon Transport
Co. Ltd, Weinco Properties Ltd, Iperi Properties Ltd, Finerose Properties Ltd, CYCMC II Ltd, CYCMC III Ltd,
CYCMC IV Ltd and BOC Terra AIF V.C.I Plc.
Greece: Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki (branch of General Insurance of Cyprus
Ltd), Kyprou Commercial SA and Kyprou Properties SA.
All Group companies are accounted for as subsidiaries using the full consolidation method. All companies
listed above, except for Global Balanced Fund of Funds Salamis Variable Capital Investment Company PLC
which is a UCITS Fund, have share capital consisting of ordinary shares.
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 Ltd, Axxel Ventures Ltd and CLR Private Equity Ltd) through control of the members of the Board of
Directors and is exposed to variable returns through its holding.
Restructuring of investment of banking and brokerage activities
On 19 November 2020, the Group proceeded with a restructuring of its investment banking and brokerage
activities through the acquisition by CISCO of LCP Holdings and Investments Public Ltd and CLR Investment
Fund Public Ltd. This was achieved by an increase in the share capital of CISCO to the Company in exchange
of the shares held by the Company in both companies. In particular 67% of LCP Holdings and Investments
Public Ltd and 20% in CLR Investment Fund Public Ltd are owned by CISCO as at 31 December 2020. In
January 2021, CISCO also proceeded with the acquisition of BOC Asset Management Ltd from the Company.
The above restructuring did not have an impact on the results of the Group.
Dissolution and disposal of subsidiaries
As at 31 December 2020, the following subsidiaries were in the process of dissolution or in the process of
being struck off: Renalandia Properties Ltd, Crolandia 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 Ltd, Nivoco Properties Ltd, Bramwell Properties 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, Unknownplan Properties Ltd,
Battersee Real Estate SRL and Trecoda Real Estate SRL.
Bank of Cyprus (Channel Islands) Ltd, Bocaland Properties SRL, Selilar Properties SRL and Tantora
Properties SRL were dissolved during the year ended 31 December 2020. Legamon Properties Ltd, Ligisimo
Properties Ltd, Syniga Properties Ltd, Badrul Properties Ltd, Marisaco Properties Ltd and Gozala Properties
Ltd were disposed of during the year ended 31 December 2020.
52.
Acquisitions and disposals of subsidiaries
52.1
Acquisitions during 2020
There were no acquisitions during 2020.
52.2
Disposals during 2020
There were no material disposals during 2020.
52.3
Acquisitions during 2019
There were no acquisitions during 2019.
224
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
52.
Acquisitions and disposals of subsidiaries (continued)
52.4
Disposals during 2019
52.4.1 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 Company'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
€000
7,980
133,401
141,381
(314)
141,067
The final purchase consideration amounted to €141,139 thousand. The disposal resulted in a gain of €72
thousand disclosed within 'Net losses from revaluation and disposal of investment properties'.
The net cash flows of Cyreit were as follows:
Net cash inflow for the year from operating activities
There were no cash equivalents as at the date of disposal.
52.4.2 Disposal of NMH group
2019
€000
1,330
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 were as follows:
Operating
Investing
Financing
Net cash inflow for the year
The cash and cash equivalents as at the date of disposal amounted to €1,936 thousand.
225
2019
€000
(1,148)
(33)
1,181
-
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
53.
Investments in associates and joint venture
Carrying value of the investments in associates and joint venture
Percentage
holdings
(%)
2020
€000
2019
€000
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
Fairways Automotive Holdings Ltd
34.2
30.0
33.3
33.3
50.0
15.0
45.0
Share of pre-tax profit from associates
CNP Cyprus Insurance Holdings Ltd
Apollo Global Equity Fund of Funds Variable Capital
2,462
2,393
-
-
-
-
-
-
-
-
-
-
-
-
2,462
2,393
2020
€000
2019
€000
n/a
69
69
5,312
201
5,513
The share of profit from associate 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 - Disposed in 2019
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 the Company signed a binding agreement to sell its
entire shareholding to CNP Assurances S. A. who owned the remaining 50.1% and was the controlling party.
The investment was classified as held for sale as at 30 June 2019 and prior to this classification it was
remeasured at fair value less cost to sell; a loss of €25,943 thousand was recognised in the consolidated
income statement for the year ended 31 December 2019. The sale was completed in October 2019 and the
sale consideration of €97,500 thousand was payable in cash on completion. There was no accounting loss
on the sale.
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 are presented in the table below:
Interest expense paid by the Group
Other expenses paid by the Group
Other income received by the Group
2019
€000
62
46
3
Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc (Apollo)
The Group holds effectively 34.2% (2019: 34.1%) 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.
226
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
53.
Investments in associates and joint venture (continued)
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 the Company 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 2020 and 2019 had €nil
accounting value as the net assets of the associate had a negative balance.
Aris Capital Management LLC
The Group’s holding in Aris Capital Management LLC of 30.0% was transferred to the Group following the
acquisition of certain operations of Laiki Bank in 2013. The investment is considered to be fully impaired
and its value is restricted to zero.
M.S. (Skyra) Vassas Ltd
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.
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.
227
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
54.
Country by country reporting
Annual Financial Report 2020
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 2020:
Total operating
income/(expense)
Average number
of employees
Profit/(loss)
before tax
Accounting tax
expense/(income)
on profit/(loss)
€000
Corporation tax
paid/(refunded)
Public subsidies
received
€000
€000
Country
Cyprus
Russia
United Kingdom
Romania
Greece
Total
€000
571,462
(29)
19
(1,236)
440
570,656
3,573
5
1
6
8
€000
(155,765)
(1,909)
35
(1,181)
(7,922)
5,765
476
-
4
64
3,593
(166,742)
6,309
1,185
476
-
17
(419)
1,259
-
-
-
-
-
-
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 51.
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 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 2020.
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 2020 for corporation tax (including insurance premium taxes) and Cyprus special
defence contribution.
228
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2020
55.
Events after the reporting period
55.1
TLTRO III
In December 2020 the ECB announced the extension of the period over which more favourable terms will
apply to the third series of targeted longer-term refinancing operations (TLTRO III) by twelve months, to
June 2022 and also announced that three additional TLTRO III operations will be conducted between June
and December 2021.
The Company already participated in 2020 in TLTRO III by borrowing €1,000 million, which may benefit
from the favourable terms for a further 12 months following the announcement by the ECB in December
2020, provided it meets the lending threshold set by the ECB. In addition, in March 2021 the Company
borrowed additional €1,700 million under the new TLTRO III operation.
55.2
Project Helix 2B
In January 2021, the Group reached an agreement for the sale of a portfolio (the ‘Portfolio 2B’) of loans and
advances to customers (known as ‘Project Helix 2B’). The Portfolio 2B will be transferred to a CyCAC by the
Company and the shares of the CyCAC will then be acquired by certain funds affiliated with PIMCO, the
purchaser of both Portfolios Helix 2A and 2B. The parties amended and restated the agreement executed in
August 2020 for Helix 2A to incorporate the transaction of Helix 2B.
As at 31 December 2020, the Portfolio 2B including stock of property and cash, had a net book value of
€224,476 thousand (Note 29). The gross consideration for Project Helix 2B amounts to €243 million before
transaction and other costs, of which 50% is payable at completion and the remaining 50% is deferred up
to December 2025 without any conditions attached. The consideration can be increased through an earnout
arrangement, depending on the performance of the Portfolio 2B.
The completion of the sale of Helix 2B portfolio is planned to occur together with the completion of Helix 2A
portfolio, currently estimated in the second half of 2021 and remains subject to a number of conditions,
including required, customary regulatory and other approvals.
229
Independent Auditor’s Report
To the Members of Bank of Cyprus Public Company Limited
Report on the Audit of the Consolidated Financial Statements
Our opinion
In our opinion, the accompanying consolidated financial statements of Bank of Cyprus Public
Company Limited (the “Company”) and its subsidiaries (together the “Group”) give a true and fair
view of the consolidated financial position of the Group as at 31 December 2020, and of its
consolidated financial performance and its consolidated cash flows for the year then ended in
accordance with International Financial Reporting Standards (IFRSs) as adopted by the European
Union and the requirements of the Cyprus Companies Law, Cap. 113.
What we have audited
We have audited the consolidated financial statements which are presented in pages 40 to 229 and
comprise:
●
●
●
●
●
●
the consolidated balance sheet as at 31 December 2020;
the consolidated income statement for the year then ended;
the consolidated statement of comprehensive income for the year then ended;
the consolidated statement of changes in equity for the year then ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated financial statements, which include a summary of significant
accounting policies.
The financial reporting framework that has been applied in the preparation of the consolidated
financial statements is International Financial Reporting Standards as adopted by the European
Union and the requirements of the Cyprus Companies Law, Cap. 113.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated 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 throughout the period of our appointment in accordance
with the International Ethics Standards Board for Accountants’ International Code of Ethics for
Professional Accountants (including International Independence Standards) (IESBA Code)
together with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Cyprus and we have fulfilled our other ethical responsibilities in accordance with
these requirements and the IESBA Code.
Our audit approach
Overview
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the consolidated financial statements. In particular, we considered where the
Board of 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 among other matters, consideration of whether there was evidence of bias that
represented a risk of material misstatement due to fraud.
● Overall group materiality: €16.5 million, which
represents approximately 0.9% of the Group’s net assets
as presented on the consolidated balance sheet by line
item ‘Equity attributable to the owners of the Company’.
● We audited the complete financial information of 3
●
components, all in Cyprus, assessed as significant
components.
In addition, for components not assessed as significant,
audit work over specific financial statement lines was
performed.
● Our audit scope addressed approximately 96% of the
Group’s revenues and approximately 98% of the Group’s
total assets.
We have identified the following key audit matters:
Impairment of loans and advances to customers.
●
● Going concern.
● Litigation provisions and regulatory and other
claims.
● Valuation of stock of properties.
● Privileged user access.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to
obtain reasonable assurance whether the consolidated financial statements are free from material
misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions
of users taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for
materiality, including the overall group materiality for the consolidated financial statements as a
whole as set out in the table below. These, together with qualitative considerations, helped us to
determine the scope of our audit and the nature, timing and extent of our audit procedures and to
evaluate the effect of misstatements, both individually and in aggregate on the consolidated
financial statements as a whole.
Overall group materiality
€16.5 million.
How we determined it
Rationale for the
materiality benchmark
applied
Based on approximately 0.9% of the Group’s net assets as
presented on the consolidated balance sheet by line item
‘Equity attributable to the owners of the Company’.
We chose net assets as the benchmark, because in our view, it
is reflective of the Group’s Common Equity Tier 1 (“CET1”)
capital position, which is the benchmark against which the
performance of the Group is most commonly measured by the
users of the consolidated financial statements. We chose
0.9%, which in our experience is an acceptable quantitative
threshold for this materiality benchmark.
We agreed with the Audit Committee that we would report to them misstatements identified during
our audit above €823 thousand as well as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
How we tailored our group audit scope
Bank of Cyprus Public Company Limited is the parent of a group of companies. The financial
information of this Group is included in the consolidated financial statements of Bank of Cyprus
Public Company Limited.
Considering our ultimate responsibility for the opinion on the Group’s consolidated financial
statements we are responsible for the direction, supervision and performance of the group audit. In
this context, we tailored the scope of our audit and determined the nature and extent of the audit
procedures for the components of the Group to ensure that we perform sufficient work to enable us
to provide an opinion on the consolidated financial statements as a whole, taking into account the
structure of the Group, the significance and/or risk profile of the group entities or activities, the
accounting processes and controls, and the industry in which the Group operates.
The Group is structured into separate units, with the most significant being the Banking and the
Insurance operations, both of which operate primarily in Cyprus. The Banking operations comprise
one component, being Bank of Cyprus Public Company Limited. The Insurance operations
comprise two components, being EuroLife Limited and General Insurance of Cyprus Limited. Full
scope audit procedures were performed in respect of these components.
For other group business reporting units additional substantive audit procedures were carried out
in order to achieve the desired appropriate audit evidence. The consolidated financial statements
are a consolidation of all the reporting units.
Taken together, our audit scope addressed approximately 96% of the Group’s revenues and
approximately 98% of the Group’s total assets.
Where the work was performed by component auditors, we as group auditors determined the level
of involvement we needed to have in the audit work of those components 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. Our involvement in that work included, amongst
others, the instructing of the component auditors with respect to matters pertaining to the risk
assessment process as well as our review of detailed memorandums prepared by the component
auditors delineating the results of audit procedures performed. Further, on the basis of frequent
communications with component audit teams in relation to the nature, timing and extent of the
work impacting the Group audit opinion we ensured that our audit plan was appropriately
executed. The group consolidation and consolidated financial statement disclosures are audited by
the group engagement team.
By performing the procedures above at component level, combined with the additional procedures
at group level, we have obtained sufficient and appropriate audit evidence regarding the
consolidated financial information of the Group as a whole to provide a basis for our audit opinion
on the consolidated financial statements.
Key audit matters incorporating the most significant risks of material misstatements,
including assessed risk of material misstatements due to fraud
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the consolidated financial statements of the current period. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
Impairment of 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 23, “Loans and
advances to customers” and Note 45, “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 individually significant or which
meet specific criteria determined by
management.
We determined this to be a key audit matter
due to the significant judgement exercised by
management and the complexity in making the
estimate including:
How our audit addressed the Key Audit
Matter
We obtained an understanding of controls
relevant to the audit, evaluated their design
and also tested the operating effectiveness of
such 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
Joint Audit & Risk committee.
We assessed the appropriateness of the key
assumptions used in the methodologies and
models developed by 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. As part of this, we considered staging
overlays, in particular those applied by
management with respect to moratorium
customers, where applicable.
We tested the completeness and accuracy of
data inputs to the ECL model by tracing on a
sample basis, relevant data fields to source
● The interpretations and assumptions
required to build the models, including
the segmentation employed;
documents (such as loan agreements and
collateral valuations) and the performance of
data validation tests.
● The allocation of loans and advances to
customers within Stages 1, 2 or 3
including consideration of relevant
overlays, where applicable;
● The increased complexity of identifying
‘Significant Increase in Credit Risk’
during a period of repayment moratorium
due to the reduced availability of arrears
data; and
● The inputs, assumptions and probability
weights assigned to multiple economic
scenarios as used by the Group.
We tested, with the assistance of PwC credit
risk experts, 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 (e.g.,
Exposure at Default, Loss Given Default and
Probability 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 2020 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 through
disposals of certain loan portfolios comprising
primarily Stage 3 loans and determined
whether the related ECL charge is reasonable.
We assessed, with the assistance of PwC credit
risk experts, 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
Going concern
Refer to Note 3 “Going Concern” to the
consolidated financial statements.
The Directors are required to prepare the
consolidated financial statements on a going
concern basis unless it is inappropriate to
presume that the Group will continue in
business.
The Directors have determined that it is
appropriate to prepare the consolidated
financial statements using the going concern
assumption and that no material uncertainties
exist relating to events or conditions that,
individually or collectively, may cast
significant doubt on the Group’s ability to
continue as a going concern. In making their
assessment, the Directors have considered a
period of at least twelve months from the date
of approval of the consolidated financial
statements.
As part of its assessment, the Group has
considered a number of macroeconomic
scenarios and then assessed the resulting
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
during 2020 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 the capital
adequacy for the Group, the uncertainties
involved in the delivery of the Group’s
Financial Plan and the increased risks
presented by the continuing COVID-19
pandemic.
relation to these matters in the consolidated
financial statements were appropriate.
We obtained the Directors’ going concern
assessment and assessed whether events and
conditions exist that create material
uncertainty that may cast significant doubt on
the Group’s ability to continue as a going
concern.
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.
We considered the Group’s 4-year Financial
Plan approved by the Board in November
2020. We compared the Group’s CET1 and
other capital and liquidity ratios as included in
management’s going concern assessment
versus regulatory reporting submissions of the
Group.
We evaluated the Group’s assessment of the
impact of COVID-19 and other factors 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 policies
implemented by the Cypriot
government in response to
COVID-19 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,
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 macroeconomic scenarios
under consideration.
We noted the capital and liquidity relief
measures as announced by the ECB during
2020 and the implied capital release, for a
period at least to the end of 2022, 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
consolidated financial statements and assessed
whether they reflected the basis of the
conclusions of the Directors’ assessment.
We concluded that the judgements made by
the Directors in preparing the consolidated
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.
We obtained an understanding of controls
relevant to the audit, evaluated their design
and tested the operating effectiveness of
certain controls relating to elements of
recognising and measuring litigation
provisions and regulatory and other matters.
We obtained and evaluated management’s
assessment of individual cases. For a sample of
cases, we assessed management’s proposed
provisions against information contained in
case files and information obtained from
external legal advisors. Where deemed
necessary 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
Litigation provisions and regulatory
and other claims
Refer to Note 2.36 “Provisions for pending
litigation, claims regulatory and other matters”
within Note 2 “Summary of significant
accounting policies”, Note 5.4 “Provisions for
pending litigation, claims, regulatory and other
matters” within Note 5 “Significant and other
judgements, estimates and assumptions” and
Note 39 “Pending litigation, claims, regulatory
and other matters”, to the consolidated
financial statements.
The Group is subject to various legal claims,
investigations and other proceedings.
Management together with the Group’s
compliance and legal departments and, where
necessary, the risk management department,
review all existing and potential legal cases,
prepare an assessment of potential outcomes
for each individual case and assess the
probability of economic outflow from the
Group.
We have 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 judgements relate to the probability of
obligating events requiring an outflow of
resources to settle the obligation and the
estimation of the extent of any related
economic outflow.
Valuation of stock of properties
Refer to Note 2.31 “Stock of property”, within
Note 2 “Summary of significant accounting
policies”, Note 5.3, “Stock of property -
estimation of net realisable value” within Note
5 “Significant and other judgements, estimates
and assumptions” and Note 27 “Stock of
properties”.
The Group has acquired a significant number
of properties as a result of restructuring
agreements with customers. These properties
are accounted for as stock of property at the
lower of their cost or net realisable value in
accordance with IAS 2.
Valuations obtained from reputable external
valuers are a key input to determine the
appropriate carrying amount.
performed sensitivity analysis on key
assumptions used by management.
We inspected the minutes of 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 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 for both provisions and
contingencies as at 31 December 2020.
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.
We obtained an understanding of controls
relevant to the audit, evaluated their design
and also tested the operating effectiveness of
such key controls across processes that are
relevant to the valuation of stock of properties.
We focused on the key inputs and assumptions
underlying the valuation of the properties
accounted for in accordance with IAS 2.
We evaluated the competence, capability and
objectivity of management’s external experts
(property valuers).
For a sample of properties, we 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
In light of the large volume of properties held
and the uncertainty around market conditions
(including those reflecting the COVID-19
pandemic) when estimating the carrying
amount, we determined this to be a key audit
matter.
used with the assistance of PwC valuation
experts.
For a sample of newly-onboarded properties,
we tested “cost’’ by reference to signed “debt-
for-asset” agreements entered into with Group
borrowers, and we tested the “net realisable
value’’ by reference to external valuation
reports.
We performed look-back procedures by
comparing the price achieved for disposals
during 2020 to the carrying amounts for those
assets at 31 December 2019.
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 stock of properties
were reasonable and the disclosures made in
relation to these matters in the consolidated
financial statements were appropriate.
Privileged user access
The Group’s financial reporting is heavily
reliant on IT systems which have been in place
for a number of years and which are inherently
complex, thereby creating an elevated risk to
financial reporting.
The Group relies on privileged user access
controls which are critical to ensuring that
changes to the applications and underlying
data are made in an appropriate manner such
that the risk of potential fraud or errors as a
result of changes to application functionality
and data is mitigated.
We determined privileged user access 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.
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 deficiencies in privileged user access
controls were identified we sought to identify
and test other compensating controls. Where
compensating controls or other mitigating
factors and circumstances were not identified,
we performed additional audit procedures in
respect of user access rights. 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 Group’s user access tool that
supports the management of user
access, for the provision, deprovision,
and recertification of privileged access;.
● Extracted the list of privileged users on
the Group’s data warehouse and
considered the appropriateness of access
during 2020;
● Extracted the list of developers from the
production IT systems and release tools
for those applications where system
functionality is managed in-house and
reviewed 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.
After evaluating the results of these additional
audit procedures, where necessary our team
performed further audit procedures such that,
we concluded that any residual audit risk was
reduced to an acceptable level.
Reporting on other information
The Board of Directors is responsible for the other information. The other information comprises
the information included in the Consolidated Management Report and the Definitions and
explanations on Alternative Performance Measures Disclosures, but does not include the
consolidated financial statements and our auditor’s report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we
do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read
the other information identified above and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. 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 in this regard.
Responsibilities of the Board of Directors and those charged with governance for
the Consolidated Financial Statements
The Board of Directors is responsible for the preparation of the consolidated financial statements
that give a true and fair view in accordance with International Financial Reporting Standards as
adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and
for such internal control as the Board of Directors determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the consolidated financial statements, the Board of Directors is responsible for
assessing the Group’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 Board of
Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative
but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting
process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s 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 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 consolidated financial
statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain
professional scepticism throughout the audit. We also:
●
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
● Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Board of Directors.
● Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue as a going concern.
● Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves a true and fair view.
● Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with those charged with governance, we determine those matters
that were of most significance in the audit of the consolidated financial statements of the current
period and are therefore the key audit matters.
Report on Other Legal and Regulatory Requirements
Pursuant to the requirements of Article 10(2) of the EU Regulation 537/2014 we provide the
following information in our Independent Auditor’s Report, which is required in addition to the
requirements of International Standards on Auditing.
Appointment of the Auditor and Period of Engagement
We were first appointed as auditors of the Company on 2 April 2019 by the shareholder of the
Company through an extraordinary general meeting for the audit of the consolidated financial
statements for the year ended 31 December 2019. Our appointment has been renewed annually by
shareholder resolution representing a total period of uninterrupted engagement appointment of 2
years.
Consistency of the Additional Report to the Audit Committee
We confirm that our audit opinion on the consolidated financial statements expressed in this report
is consistent with the additional report to the Audit Committee of the Company, which we issued on
29 March 2021 in accordance with Article 11 of the EU Regulation 537/2014.
Provision of Non-audit Services
We declare that no prohibited non-audit services referred to in Article 5 of the EU Regulation
537/2014 and Section 72 of the Auditors Law of 2017 were provided. In addition, there are no non-
audit services which were provided by us to the Group and which have not been disclosed in the
consolidated financial statements or the consolidated management report.
Other Legal Requirements
Pursuant to the additional requirements of the Auditors Law of 2017, we report the following:
●
●
In our opinion, based on the work undertaken in the course of our audit, the consolidated
management report has been prepared in accordance with the requirements of the Cyprus
Companies Law, Cap. 113, and the information given is consistent with the consolidated
financial statements.
In light of the knowledge and understanding of the Group and its environment obtained
in the course of the audit, we are required to report if we have identified material
misstatements in the consolidated management report. We have nothing to report in this
respect.
Other Matter
This report, including the opinion, has been prepared for and only for the Company’s members as a
body in accordance with Article 10(1) of the EU Regulation 537/2014 and Section 69 of the Auditors
Law of 2017 and for no other purpose. We do not, in giving this opinion, accept or assume
responsibility for any other purpose or to any other person to whose knowledge this report may
come to.
The engagement partner on the audit resulting in this independent auditor’s report is George C.
Kazamias.
George C. Kazamias
Certified Public Accountant and Registered Auditor
for and on behalf of
PricewaterhouseCoopers Limited
Certified Public Accountants and Registered Auditors
PwC Central, 43 Demostheni Severi Avenue
CY-1080 Nicosia Cyprus
29 March 2021
Financial Statements 2020
BANK OF CYPRUS PUBLIC COMPANY LTD
Financial Statements - Contents
for the year ended 31 December 2020
Contents
Page
Income Statement
Statement of Comprehensive Income
Balance Sheet
Statement of Changes in Equity
Statement of Cash Flows
Corporate information
Summary of significant accounting policies
Notes to the Financial Statements
1.
2.
3. Going concern
4. Operating environment
5.
6.
7.
Significant and other judgements, estimates and
assumptions
Interest income and income similar to interest
income
Interest expense and expense similar to interest
expense
Fee and commission income and expense
8.
9. Net foreign exchange gains
10. Net losses on financial instrument transactions and
disposal/dissolution of subsidiaries and associates
11. Other income
12. Staff costs
13. Other operating expenses
14. Credit losses of financial instruments and
impairment of non-financial assets
15. Income tax
16. Earnings per share
17. Cash, balances with central banks and loans and
advances to banks
18. Investments
19. Derivative financial instruments
20. Fair value measurement
21. Loans and advances to customers
22. Balances and transactions with Group companies
23. Investments in associates
24. Property and equipment
25. Intangible assets
26. Stock of property
27. Prepayments, accrued income and other assets
28. Non-current assets and disposal groups held for
sale
29. Funding from central banks
30. Customer deposits
31. Subordinated loan stock
32. Accruals, deferred income, other liabilities and
other provisions
33. Share capital
34. Dividends
35. Retained earnings
36. Fiduciary transactions
37. Pending litigation, claims, regulatory and other
matters
38. Contingent liabilities and commitments
39. Net cash flow from operating activities
40. Cash and cash equivalents
41. Leases
42. Analysis of assets and liabilities by expected
maturity
43. Risk management - Credit risk
44. Risk management - Market risk
45. Risk management - Liquidity risk and funding
46. Capital management
47. Related party transactions
48. Subsidiary companies
49. Acquisitions and disposals of subsidiaries
50. Events after the reporting period
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BANK OF CYPRUS PUBLIC COMPANY LTD
Income Statement
for the year ended 31 December 2020
Annual Financial Report 2020
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 losses on financial instrument transactions and disposal/dissolution of
subsidiaries and associates
Dividend income from subsidiaries and associates
Net 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 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 tax
Income tax
Loss after tax for the year
Basic and diluted loss per share (€ cent)
Notes
2020
€000
2019
€000
654,468
390,740
71,844
(61,362)
(44,720)
356,502
141,247
(10,091)
19,631
780,164
468,985
81,210
(92,358)
(48,708)
409,129
161,797
(12,521)
38,247
(29,715)
(30,743)
25,567
(1,043)
7,888
5,281
22,267
3,234
11,828
5,055
515,267
608,293
(180,248)
(280,414)
(33,656)
(166,170)
135,193
2,949
(43,609)
(213,425)
70,845
8,901
(274,163)
(234,573)
(8,744)
(17,588)
(38,683)
(16,653)
(162,353)
(210,163)
(818)
(163,171)
118,253
(91,910)
(1.7)
(1.0)
6
6
7
7
8
8
9
10
22
26
11
12
13
13
14
14
14
15
16
* The Company's turnover as presented on the Income statement is analysed in Note 6 of the Consolidated
Financial Statements of the Bank of Cyprus Group.
245
BANK OF CYPRUS PUBLIC COMPANY LTD
Statement of Comprehensive Income
for the year ended 31 December 2020
Annual Financial Report 2020
Notes
2020
€000
(163,171)
2019
€000
(91,910)
(6,891)
(3,653)
(10,544)
14,923
-
14,923
(564)
1,771
(11,108)
16,694
73
449
1,054
2,057
3,111
-
56
56
(2,655)
(1,542)
529
(10,579)
(1,037)
15,657
(173,750)
(76,253)
Loss for the year
Other comprehensive income (OCI)
OCI that may be reclassified in the income statement in subsequent
periods
Fair value reserve (debt instruments)
Net (losses)/gains on investments in debt instruments measured at fair
value through OCI (FVOCI)
Transfer to the income statement on disposal
Foreign currency translation reserve
(Loss)/profit on translation of net investments in foreign branches and
subsidiaries
Total OCI that may be reclassified in the income statement in
subsequent periods
OCI not to be reclassified in the income statement in subsequent
periods
Fair value reserve (equity instruments)
Net gains on investments in equity instruments designated at FVOCI
Property revaluation reserve
Fair value gain before tax
Deferred tax
Actuarial losses on the defined benefit plans
Remeasurement losses on defined benefit plans
Total OCI not to be reclassified in the income statement in
subsequent periods
Other comprehensive (loss)/income for the year net of taxation
Total comprehensive loss for the year
24
15
12
246
BANK OF CYPRUS PUBLIC COMPANY LTD
Statement of Changes in Equity
for the year ended 31 December 2020
1 January 2020
Loss for the year
Other comprehensive (loss)/income after tax for the year
Total comprehensive (loss)/income after tax for the year
Transfer of realised profits on disposal of properties
Reduction of share premium (Note 33)
Payment of coupon to AT1 holders (Note 33)
31 December 2020
959,794
Attributable to shareholders of the Company
Share capital
(Note 33)
Share
premium
(Note 33)
Retained
earnings
(Note 35)
Property
revaluation
reserve
Financial
instruments fair
value reserve
€000
959,794
€000
618,868
-
-
-
-
-
-
-
-
-
-
(618,868)
-
-
€000
146,412
(163,171)
(2,655)
(165,826)
€000
56,507
-
3,111
3,111
3,021
(3,021)
618,868
(27,500)
-
-
€000
28,171
-
(10,471)
(10,471)
-
-
-
Annual Financial Report 2020
Foreign
currency
translation
reserve
Other equity
instruments
(Note 33)
Total equity
€000
(2,701)
€000
€000
220,000
2,027,051
-
(564)
(564)
-
-
-
-
-
-
-
-
-
(163,171)
(10,579)
(173,750)
-
-
(27,500)
574,975
56,597
17,700
(3,265)
220,000
1,825,801
248
BANK OF CYPRUS PUBLIC COMPANY LTD
Statement of Changes in Equity
for the year ended 31 December 2020
Annual Financial Report 2020
Share capital
(Note 33)
Share
premium
(Note 33)
Retained
earnings
(Note 35)
Property
revaluation
reserve
Financial
instruments fair
value reserve
€000
€000
€000
€000
€000
Foreign
currency
translation
reserve
€000
Other equity
instruments
(Note 33)
Total equity
€000
€000
1 January 2019
Loss for the year
Other comprehensive (loss)/income after tax
for the year
Total comprehensive (loss)/income after tax
for the year
Issue of share capital (Note 33)
Payment of coupon to AT1 holders (Note 33)
Transfer of realised profits on disposal of
properties
31 December 2019
892,294
551,368
-
-
-
-
-
-
67,500
67,500
-
-
-
-
401,833
(91,910)
(1,542)
(93,452)
(135,000)
(27,199)
230
959,794
618,868
146,412
56,681
12,799
(4,472)
220,000
2,130,503
-
56
56
-
-
(230)
56,507
-
-
15,372
1,771
15,372
1,771
-
-
-
-
-
-
-
-
-
-
-
-
(91,910)
15,657
(76,253)
-
(27,199)
-
28,171
(2,701)
220,000
2,027,051
249
BANK OF CYPRUS PUBLIC COMPANY LTD
Statement of Cash Flows
for the year ended 31 December 2020
Net cash flow (used in)/from operating activities
Cash flows from investing activities
Purchases of debt securities and equity securities
Proceeds on disposal/redemption of investments:
- debt securities
Interest received from debt securities
Dividend income received
Proceeds on disposal of subsidiaries and associates
Net proceeds on disposal of the Helix and Velocity portfolios
Proceeds on disposals of assets held for sale
Purchases of property and equipment
Purchases of intangible assets
Proceeds on disposals of investment properties
Proceeds on disposals of property and equipment and intangible
assets
Net cash from investing activities
Cash flow from financing activities
Net proceeds/(repayment) of funding from central banks
Interest on subordinated loan stock
Interest on funding from central banks
Payments of principle element of lease liabilities
Payment of AT1 coupon
Net cash from/(used in) 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
Details on the non-cash transactions are presented in Note 39.
Annual Financial Report 2020
Notes
39
2020
€000
(319,651)
2019
€000
90,090
(573,648)
(428,233)
557,303
33,514
25,790
53,354
13,409
21,100
(7,188)
(12,722)
4,940
131,864
33,992
27,935
241,467
1,154,982
-
(6,956)
(20,672)
14,059
337
293
116,189
1,148,731
1,000,000
(830,000)
(23,329)
(18,782)
(7,962)
(27,500)
922,427
718,965
(23,325)
(17,448)
(8,659)
(27,199)
(906,631)
332,190
5,099,877
4,771,570
29,615
718,965
(3,883)
332,190
5,848,457
5,099,877
24
25
40
250
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
1.
Corporate information
Bank of Cyprus Public Company Limited (the Company) is the holding company of the Bank of Cyprus Group
(the Group). The principal activities of the Company involve the provision of banking, financial services and
management and disposal of property predominately acquired in exchange of debt.
The Company is a significant credit institution for the purposes of the SSM Regulation and has been
designated by the CBC as an 'Other Systemically Important Institution' (O-SII). The Company is subject to
joint supervision by the ECB and the CBC for the purposes of its prudential requirements.
The Company is a limited liability company incorporated in 1930 under the Cyprus Companies Law.
The shares of the parent company Bank of Cyprus Holdings Public Limited Company (BOCH), a company
incorporated in Ireland, are listed and trading on the London Stock Exchange (LSE) and the Cyprus Stock
Exchange (CSE). The Company remains a public company for the purposes of the Cyprus Income Tax Laws.
The financial statements are available at the Bank of Cyprus Public Company Ltd registered office (51
Stassinos Street, Ayia Paraskevi, Strovolos, P.O. Box 24884, 1398 Nicosia, Cyprus) and on the website
www.bankofcyprus.com (Investor Relations).
The Annual Report of Bank of Cyprus Holdings Public Limited Company Group is available on the website
www.bankofcyprus.com (Investor Relations).
Financial Statements
The Financial Statements of the Bank of Cyprus Public Company Ltd for the year ended 31 December 2020
(the Financial Statements) were authorised for issue by a resolution of the Board of Directors on 29 March
2021.
2.
2.1
Summary of significant accounting policies
Basis of preparation
The Financial Statements have been prepared on a historical cost basis, except for properties held for own
use and investment properties, investments at fair value through other comprehensive income (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.
Presentation of the Financial Statements
The Financial Statements are presented in Euro (€) and all amounts are rounded to the nearest thousand,
except where otherwise indicated. A comma is used to separate thousands and a dot is used to separate
decimals.
The Company 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 42.
The Financial Statements include the branch of the Company in Greece.
Statement of compliance
The Financial Statements have been prepared in accordance with the International Financial Reporting
Standards (IFRSs) as adopted by the European Union (EU) and the requirements of the Cyprus Companies
Law, Cap. 113.
251
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
2.
2.2
Summary of significant accounting policies (continued)
Accounting policies and 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
2020.
In addition the following policies are adopted:
Investments in subsidiaries, associates and joint ventures
Investments in subsidiaries, associates and joint ventures are measured at cost less impairment.
The Company periodically evaluates the recoverability of the investment in subsidiary companies whenever
indicators of impairment are present. Indicators of impairment include such items as declines in revenues,
earnings or cash flows of the subsidiaries or material adverse changes in the economic or political stability
of the country that the subsidiaries operate, which may indicate that the carrying amount of the investment
in subsidiary companies is not recoverable. If facts and circumstances indicate that investment in subsidiary
companies may be impaired, the recoverable amount of each subsidiary would be compared to the carrying
amount of the investment in the subsidiary in the Company’s financial statements to determine if
impairment of the investment is necessary. An impairment loss is recognised equal to the excess of the
carrying amount of the investment in the subsidiary over its recoverable amount.
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 2.2.1 of the Consolidated
Financial Statements of the Group for the year ended 31 December 2020.
2.3
Comparative information
Comparative information was restated in relation to the presentation of Credit risk concentration of loans
and advances to customers as detailed in Notes 43.2 and 43.3.
The changes did not have an impact on the results for the year or the equity of the Company.
3.
Going concern
The Directors have made an assessment of the Company's and the Group’s ability to continue as a going
concern for a period of 12 months from the date of approval of these Financial Statements. The Directors
believe that the Group is taking all necessary measures to continue in operation and the development of its
business in the current economic environment.
The Group has developed a Financial Plan which was approved by the Board in November 2020 (the
‘Plan’).The Plan incorporates the impact of the COVID-19 pandemic and considers the disruption it has
caused to the Group’s customers, suppliers and staff. It remains unclear how the COVID-19 pandemic will
evolve through 2021 and beyond, which from a commercial, regulatory and risk perspective could be
significantly different to past crises and persist for a prolonged period. The Group’s Financial Plan
considered factors that may inform the impact of the COVID-19 pandemic, including (amongst other
things), changing macroeconomic variables, further waves of the pandemic and successful deployment of
vaccines. This included the development of macroeconomic scenarios, base and adverse. The scenarios
developed take into consideration the following drivers and implications:
Impact on relevant economic variables, the most significant of which include residential and
commercial property prices, national output and lending volumes.
Impact on employment levels and relevant unemployment rates.
Government guidance and policy response to the crisis.
Capital and liquidity relief measures.
252
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
3.
Going concern (continued)
Other considerations such as the prudential charge that the Company will need to take in order to
address the findings of the onsite inspection and review on the value of the Group’s foreclosed
assets completed by the ECB with reference date 30 June 2019.
Expected formation of NPEs following the exit from the moratorium at the end of December 2020
as well as expected resolution over the period of the Financial Plan.
Due to the dynamic nature of COVID-19, the full impact on the future profitability is difficult to estimate.
The government response to curtail the virus and changing customer behaviours may impact the future
performance. The Group has sensitised its projection to cater for downside scenarios and has used
conservative economic inputs to develop its medium-term strategy. The Plan adverse scenarios have
considered the capital forecast for the Group, and its ability to withstand adverse scenarios such as the
economic environment in Cyprus deteriorating.
The Directors have concluded that there are no material uncertainties which would cast significant doubt
over the ability of the Group, the Company and BOCH to continue to operate as a going concern for a period
of 12 months from the date of approval of these Financial Statements.
Capital
The following items have been considered in relation to the Group’s capital adequacy throughout the period
of the going concern assessment:
The Common Equity Tier 1 (CET1) ratio and the Total Capital ratio on a transitional basis at 31
December 2020 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 Financial Plan.
The capital relief measures announced by the ECB, the EBA, the CBC, the Cyprus Government
and the Eurogroup in order to allow banks to absorb the impact of the COVID-19 outbreak and
support the real economy.
The agreement for the Helix 2 transaction in August 2020 and January 2021 which, along with
the organic and inorganic reduction over the last years led to a significant decrease in NPEs.
Funding and liquidity
The following items have been considered in relation to the Group’s liquidity position throughout the period
of the going concern assessment:
The Group is in compliance with the Liquidity Coverage Ratio (LCR) and is significantly above the
minimum requirements.
The Group is monitoring its liquidity position and is considering ways to further reduce the
deposits cost.
The various measures of regulators which aim to mitigate the impact of the COVID-19 outbreak.
Economic environment
As the Cypriot operations account for 99% of gross loans and 100% of customer deposits, the
Group’s financial performance is highly correlated to the economic and operating conditions in
Cyprus. The sovereign risk ratings of the Cyprus Government improved considerably in recent
years, reflecting expectations of a sustained decline in public debt as a ratio to GDP, expected
further declines in non-performing exposures and a more stable price environment following a
protracted period of deflation and low inflation. The risk profile of the country deteriorated in
2020 as a result of the coronavirus pandemic and measures to mitigate its impact on the
economy, but the rating outlook remains stable to positive reflecting expectations of a return to
growth and stabilising underlying dynamics in public finances. Following the severe recession in
2020 there will be recovery in 2021, which will be partial, and it will take until 2022 for real GDP
to return to its pre-crisis levels.
253
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
3.
Going concern (continued)
In March 2021, S&P affirmed its rating (BBB-) and its outlook to stable, balancing the risks from
the pandemic's protracted adverse impact on growth, fiscal, and banking sector performance
against benefits of the EU's Recovery and Resilience Facility (RRF) transfers, as well as further
improvement in the government's debt profile. In January 2021, Moody’s issued a credit opinion
for the Cyprus Government, according to which Moody’s expect the economy to return to growth
rates from 2021 (GDP growth rate for 2021 expected at 3.5% following a contraction of 5.5% in
2020).
With respect to the Company’s ratings, Moody's affirmed the Company's long-term deposit rating
of 'B3' (positive outlook) in November 2020. In July 2020, S&P affirmed their long-term issuer
credit rating on the Company of ‘B+’ and the short-term issuer credit rating of ‘B’, with a stable
outlook, expressing the view that the enhanced capital reserves and the good liquidity position of
the Company will allow it to withstand the current shock and absorb the effects of the increasing
pressure on revenues and credit losses. In January 2021, Fitch Ratings affirmed their long-term
issuer credit rating of the Company of 'B-' and outlook of the Company to negative. Negative
outlook reflecting that risks remain skewed to the downside in the medium-term, if recession
proves deeper or the recovery weaker than Fitch's forecasts.
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. Adverse developments
regarding growth, fiscal policy, unemployment, tourism and real estate prices, could have a
negative impact on the Group’s capital adequacy and its liquidity. Management closely monitors
the developments and the impact they may have on the Group’s operations and financial
performance.
4.
4.1
Operating environment
Regulatory capital ratios
Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2019 the
Group’s minimum phased in CET1 capital ratio and Total Capital Ratio remained unchanged for 2020
compared to 2019, when ignoring the phasing in of the Other Systemically Important Institution (O-SII)
buffer.
The Group is 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.
The Group’s minimum phased in CET1 capital ratio for 2020 was set to 11.0% (2019: 10.5%), comprising a
4.5% Pillar I requirement, a 3.0% Pillar II requirement (P2R), the Capital Conservation Buffer (CCB) of
2.5% (fully phased in as of 1 January 2019) and the O-SII buffer of 1.0% (2019: 0.5%). The Group’s Total
Capital requirement is 14.5% (2019: minimum phased in Total capital ratio of 14.0%), comprising an 8.0%
Pillar I requirement (of which up to 1.5% could be in the form of Additional Tier 1 (AT1) capital and up to
2.0% in the form of Tier 2 (T2) capital), a 3.0% P2R, the CCB of 2.5% and the O-SII buffer of 1.0% (2019:
0.5%). The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer.
In April 2020, and following ECB and EBA announcements on 12 March 2020 in response to the COVID-19
outbreak, the Company received an amending SREP decision from the ECB amending the composition of the
Pillar II additional own funds requirement, allowing it to use AT1 capital and T2 capital to meet P2R and not
only by CET1, compared to the 2019 final SREP decision received in December 2019 which required P2R to
be met in full with CET1. This decision became effective from 12 March 2020. This brings forward a measure
that was scheduled to come into force in January 2021 with CRD V. As a result of this amending decision,
the minimum phased in CET1 requirement of the Group decreased to 9.7%, comprising a 4.5% Pillar I
requirement, a 1.7% P2R, 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.
254
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
4.
4.1
Operating environment (continued)
Regulatory capital ratios (continued)
Moreover, on 12 March 2020, the ECB and the EBA also announced that banks are temporarily allowed to
operate below the level of capital defined by P2G, the CCB and the CCyb. In July 2020, the ECB committed
to allow banks to operate below P2G and the combined buffer requirement (CCB, CCyb and O-SII buffer)
until at least the end of 2022, without automatically triggering supervisory actions.
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 (P2G) cannot be used to meet any other capital requirements (Pillar I, Pillar II requirements or
the combined buffer requirement), and therefore cannot be used twice. In line with the final 2019 SREP
decision, these new provisions became effective from 1 January 2020.
The CBC, in accordance with the Macroprudential Oversight of Institutions Law of 2015, sets, on a quarterly
basis, the Countercyclical Capital Buffer (CCyB) level in accordance with the methodology described in this
law. The CBC has set the level of the CCyB for Cyprus at 0% for the years 2020 and 2019 and the six
months up to June 2021.
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. The Company has been designated as an O-SII and the CBC set the O-SII buffer for the Company
and the Group at 2.0%.
This buffer is being phased in gradually, having started from 1 January 2019 at 0.5% and increasing by
0.5% every year thereafter, until being fully implemented (2.0%). 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.
In November 2020, the Group received communication from the ECB according to which no SREP decision
will be issued for the 2020 SREP cycle and the 2019 SREP decision will remain in force, hence leaving the
Group’s capital requirements unchanged as well as other requirements established by the 2019 SREP
decision (as amended in March 2020). The communication follows relevant announcement by the ECB
earlier in the year that ECB will be taking a pragmatic approach towards the SREP for the 2020 cycle.
The above minimum ratios apply for both the Company and the Group. The Company is 100% subsidiary of
Bank of Cyprus Holdings Public Limited Company.
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 is currently in the process of updating its NPE Strategy plan which is to be submitted to the ECB
by 31 March 2021. The NPE Strategy is expected to be in line with the NPEs evolution as per the Group’s
Financial Plan.
4.3
Liquidity
Company customer deposits totalled €16,533 million at 31 December 2020, compared to €16,692 million at
31 December 2019. At 31 December 2020 and 31 December 2019 all deposits were in Cyprus. As at 31
December 2020 Company customer deposits accounted for 80% of total assets (31 December 2019: 83%)
and 88% of total liabilities (31 December 2019: 92%).
255
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
4.
4.3
Operating environment (continued)
Liquidity (continued)
As at 31 December 2020 and 31 December 2019, the Group was in compliance with all regulatory liquidity
requirements. As at 31 December 2020 and 31 December 2019 the Group's LCR was in compliance with the
minimum regulatory requirements of 100%. In addition the Group monitors 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
Management has considered the potential impact of pending litigation and claims, investigations, regulatory
and other matters against the Company which include the bail-in of depositors and the absorption of losses
by the holders of equity and debt instruments of the Company. The Company has obtained legal advice in
respect of these claims.
Despite the fact that the Company 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, in relation to such
matters but also for other litigation claims, regulatory and matters, management does not expect these to
have a material adverse impact on the financial position and capital adequacy of the Company. 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 37.
5.
Significant and other judgements, estimates and assumptions
The preparation of the 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 Financial Statements and the accompanying disclosures, as well as the disclosures of contingent
liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets or liabilities affecting future periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities are described below. The Company based its assumptions and estimates on parameters available
when the 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
Company. Such changes are reflected in the assumptions when they occur.
The most significant judgements, estimates and assumptions relate to the classification of financial
instruments and the calculation of expected credit losses (ECL), the estimation of the net realisable value of
stock of property and the 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 5.10.
5.1
Classification of financial assets
The Company 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 Company exercises judgement in
determining the effect of sales of financial instruments on its business model assessment.
The Company 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.
256
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
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
Company’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 Company 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
a significant increase in credit risk has occurred is based on statistical metrics and could be subject to
management judgement. The relevant thresholds are set, monitored and updated on a yearly basis by the
Risk Management Division and endorsed by the Group Provisions Committee.
Determining the probability of default (PD) at initial recognition requires management estimates. In the
case of exposures existing prior to the adoption of IFRS 9, a retrospective calculation of the PD is made in
order to quantify the risk of each exposure at the time of the initial recognition. In certain cases estimates
about the date of initial recognition might be required.
For the retail portfolio, the Company uses a PD at origination incorporating behavioural information (score
cards) whereas, for the corporate portfolio, the Company 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.
Scenarios and macroeconomic factors
The Company 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 other external factors could significantly impact ECL.
Macroeconomic inputs and weights per scenario are monitored by the Economic Research department based
on internal model analysis after considering external market data supplemented by expert judgement.
The outlook for the global economy has deteriorated markedly in 2020 as a result of the COVID-19
pandemic and the lockdown measures to contain it that led to significant disruptions in economic activity.
Worst outcomes were avoided by aggressive and excessively expansive monetary and fiscal policies. As a
result, the Company updated its forward-looking scenarios, factoring in updated macroeconomic
assumptions and other monetary and fiscal developments at the national and the EU level, for mitigating
the consequences of the pandemic. While the outlook for 2021 and the medium term is now positive, the
risk profile of the country has deteriorated. This has been the result of a combination of political, policy,
cyclical and structural factors, and by the uncertainties in the external environment which remain high. The
strength and shape of the economic recovery will depend on the upside and downside risks. The most
serious downside risk is how prolonged the pandemic will be and potential complications regarding
vaccination programmes.
The Company uses three different economic scenarios in the calculation of default probabilities and
provisions.
257
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
The tables below indicate the most significant macroeconomic variables as well as the scenarios used by the
Company as at 31 December 2020 and 2019 respectively. The Company has used the 30-50-20 probability
structure for the adverse, base and favourable scenarios respectively compared to the 25-50-25 structure
derived using the method described in Note 2.19.5 of the Consolidated Financial Statements of the Group
for the year ended 31 December 2020. This reflects the management's view of specific characteristics of the
Cyprus economy that render it more vulnerable to external and internal shocks. Despite the more positive
outlook for 2021, given the added uncertainties and downside risks in the global economy as well as the
local economy, related to the COVID-19 pandemic, management decided to maintain an elevated weight on
the adverse scenario.
The economy continues to face financial and macroeconomic risks, including high public debt ratio and a
relatively high level of NPEs that together maintain elevated vulnerabilities and limit the policy reaction
space thus sustaining conditions, which can lead to a deeper recession in response to shocks than under
normal times.
In the banking sector, there has been a steady and significant progress since the crisis of 2013-2014.
Private indebtedness and non-performing exposures have declined sharply. However, the end of the
moratoria on interest and principal payments that were implemented to mitigate the impact of the COVID-
19, may lead to pressures that may give rise to an increase in non-performing exposures especially if the
travel related sectors (most hit by the coronavirus pandemic) take longer to recover. Also, there is a
significant economic structural risk given a very large external sector and high concentration to
geographical areas. These factors, render the economy more susceptible to external shocks and weaken its
resilience, and may, in management's view not be fully captured in the weights as calculated using the
method described in Note 2.19.5 of the Consolidated Financial Statements of the Group for the year ended
31 December 2020. Hence management has decided to increase the weight of the adverse scenario to 30%,
and correspondingly reduce the weight of the favourable scenario to 20%.
31 December 2020
Year
Scenario
Weight
%
Real GDP
(% change)
Unemployment
rate (% of
labour force)
2021
2022
2023
2024
2025
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
9.6
7.4
6.4
8.7
6.2
5.8
7.4
5.7
5.6
6.7
5.7
5.6
6.6
5.7
5.5
-0.6
4.0
4.8
4.3
3.9
4.4
4.0
3.4
3.5
3.5
3.0
3.0
2.7
2.7
2.7
258
Consumer
Price Index
(average
% change)
-2.2
-0.8
-0.1
-1.1
0.8
1.4
0.3
1.4
1.4
0.8
1.6
1.6
1.5
1.9
2.0
RICS House
Price Index
(average
% change)
-4.0
-2.3
-0.8
-2.3
0.3
2.4
2.5
4.1
5.2
5.3
5.3
5.9
5.8
5.5
6.1
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
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
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
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
The December 2019 scenarios were constructed before the outbreak of the coronavirus pandemic and did
not incorporate its impact in the underlying assumptions. The December 2020 scenarios were constructed
incorporating the impact of the pandemic on the economy in 2020. The adverse scenario for 2021 in the
December 2020 exercise incorporated the steep contraction in 2020 that was not anticipated at the time of
the December 2019 forecast exercises and hence growth in the later years is higher in the 2020 scenarios.
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.
The baseline scenario was updated for the December 2020 reporting, considering available information and
relevant developments until then and after the second wave of the pandemic had given rise to lockdown
measures as from October 2020. Economic activity had dropped sharply in the second quarter and
continued to decline in the third and fourth quarters on a year-on-year basis but at a considerably slower
pace. The second wave and associated lockdown measures were less economically damaging given their
lower severity and an increased competence of the economy to cope with the pandemic-related disruption.
Real GDP contracted by 5.1% in the year on average according to the latest estimates of the Cyprus
Statistical Service. This is better than initially anticipated and was driven by the strength of fiscal measures
at the national level and the coherent policy reaction at the EU level. Economic activity is expected to
remain weak in the first quarter of 2021 due to the continued implementation of lockdown measures.
Recovery is expected to accelerate from the second quarter onwards. Real GDP is expected to increase by
4% in 2021. Inflation will remain subdue as long as wages remain subdued and energy prices are unlikely
to rise significantly. The unemployment rate may edge a little higher as government support is withdrawn
and businesses cut costs. Likewise, property prices may drop slightly as demand remains relatively weak.
259
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
The adverse scenario is consistent with assumptions for the COVID-19 related disruptions under the
baseline scenario but to a higher degree of severity. The Cypriot economy relies on services, particularly on
tourism and travel. This makes the economy more exposed than other countries to travel restrictions and
quarantine measures that have been adopted in Cyprus and across the globe. The hit to the Cyprus
economy from falling external demand for travel and tourism services and the knock-on effects to related
sectors will be significantly more severe than under the baseline scenario. The accommodation and food
services sector continues to be the most highly impacted and also manufacturing and construction that are
more highly correlated with travel. Real GDP is expected to continue to contract in 2021, under the adverse
scenario, but marginally by 0.6% given the steep contraction of the year before. In the labour market the
unemployment rate rises more steeply to 9.6% as the government withdraws fiscal support and banks limit
their lending to riskier sectors. Property prices will be affected more severely and drop by about 4% as
foreign demand drops, and domestic housing demand slows also.
Since 1 January 2018, the Company has reassessed the key economic variables used in the ECL models
consistent with the implementation of IFRS9. The Company uses actual values for the input variables. These
values are sourced from the Cyprus Statistical Service, the Eurostat and the Central Bank of Cyprus for the
residential property price index and the European Central Bank for interest rates. Interest rates are also
sourced from Bloomberg. In the case of property prices the Company additionally uses actual values from
the Royal Institute of Chartered Surveyors. For the forward reference period, the Company uses the
forecast values for the same variables, as prepared by the Bank’s Economic Research Department. The
results of the internal forecast exercises are consistent with publicly available forecasts from official sources
including the European Commission, the International Monetary Fund, the European Central Bank and the
Ministry of Finance of the Republic of Cyprus.
Qualitative adjustments or overlays are occasionally made when inputs calculated do not capture all the
characteristics of the market. These are reviewed and adjusted, if considered necessary, by the Risk
Management Division and endorsed by the Group Provisions Committee. Qualitative adjustments or
overlays were applied to the positive future property value capping it to 0% for all scenarios and to all loans
and advances to customers which are secured by property collaterals.
The RICS indices, which are considered for the purposes of determining the real estate collateral value on
realisation date have been used as the basis to estimate updated market values of properties supplemented
by management judgement where necessary given the difficulty in differentiating between short term
impacts and long term structural changes and the shortage of market evidence for comparison purposes
and are capped accordingly in case of any future projected increase, whereas any future projected decrease
is taken into account.
For Stage 3 customers, the calculation of individually assessed provisions is the weighted average of three
scenarios: base, adverse and favourable. The base scenario focuses on the following variables, which are
based on the specific facts and circumstances of each customer: the operational cash flows, the timing of
recovery of collaterals and the haircuts from the realisation of collateral. The base scenario is used to derive
additional either more favourable or more adverse scenarios. Under the adverse scenario operational cash
flows are decreased by 50%, applied haircuts on real estate collateral are increased by 50% and the timing
of recovery of collaterals is increased by 1 year with reference to the baseline scenario, whereas under the
favourable scenario applied haircuts are decreased by 5%, with no change in the recovery period with
reference to the baseline scenario. Assumptions used in estimating expected future cash flows (including
cash flows that may result from the realisation of collateral) reflect current and expected future economic
conditions and are generally consistent with those used in the Stage 3 collectively assessed exposures.
For collectively assessed customers the calculation is also the weighted average of three scenarios: base,
adverse and favourable.
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.
260
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
Assumptions have been made about the future changes in property values, as well as the timing for the
realisation of collateral, taxes and expenses on the repossession and subsequent sale of the collateral as
well as any other applicable haircuts. Indexation has been used as the basis to estimate updated market
values of properties supplemented by management judgement where necessary given the difficulty in
differentiating between short term impacts and long term structural changes and the shortage of market
evidence for comparison purposes, while assumptions were made on the basis of a macroeconomic scenario
for future changes in property prices, and are capped accordingly in case of any future projected increase,
whereas any future projected decrease is taken into consideration.
At 31 December 2020 the weighted average haircut (including liquidity haircut and selling expenses) used in
the collectively assessed provisions calculation for loans and advances to customers excluding those
classified as held for sale is approximately 32% under the baseline scenario (31 December 2019:
approximately 32%).
The timing of recovery from real estate collaterals used in the collectively assessed provisions calculation for
loans and advances to customers has been estimated to be on average seven years under the baseline
scenario (31 December 2019: average of seven years), excluding those classified as held for sale.
For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the
haircuts used are based on the specific facts and circumstances of each case. For specific cases judgement
may also be exercised over staging during the individual assessment including cases where no specific
model has been developed.
The above assumptions are also influenced by the ongoing regulatory dialogue the Company 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 a variance between assumptions made and actual results could result
in significant changes in the amount of required credit losses of loans and advances.
Expected lifetime of revolving facilities
A behavioural maturity model for revolving facilities has been developed during 2020 based on the
Company's available historical data, where an expected maturity for each revolving facility based on the
customer's profile is assigned. The impact from the implementation of the behavioural maturity model had
an increase in ECL of €5 million. Prior to the introduction of the model, the lifetime of such facilities was set
by reference to their next review date.
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 is exercised in the form of
management overlay by applying adjustments on the modelled parameters. Governance of these models
lies with the Risk Management Division, where a strong governance process is in place around the
determination of the impairment measurement methodology including inputs, assumptions and overlays.
Any management overlays are prepared by the Risk Management Division, endorsed by the Provisions
Committee and approved by the joint Risk and Audit Committee.
ECL allowances also include off-balance sheet credit exposures represented by guarantees given and by
irrevocable commitments to disburse funds. Off-balance sheet credit exposures of the individually assessed
assets require assumptions on the probability, timing and amount of cash outflows. For the collectively
assessed off-balance sheet credit exposures, the allowance for provisions is calculated using the Credit
Conversion Factor (CCF) model.
261
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
Overlays in the context of COVID-19
Following the COVID-19 pandemic, the Company considered the complexities of governmental support
programmes and regulatory guidance on treatment of customer payment breaks by the ECL models. In this
context, management has considered the data and measurement limitations arising from the extraordinary
impact of COVID-19 and addressed them through management overlays in relation to the significant credit
risk deterioration, behavioural ratings and PD.
SICR adjustment
The initial granting of customer relief does not automatically trigger a migration to Stage 2 or Stage 3 for
the customers that have applied for the moratorium. Following an assessment performed for SICR for these
customers as at 31 December 2020, a management overlay was applied, in order to capture any bias
introduced in the customer’s credit ratings by defining collective rules that can assess Stage 1 and Stage 2
misclassified customers, due to unrepresentative outlook of the idiosyncratic risk. The exercise carried out
compared the observed with the expected score/rating (excluding days past due and arrears elements that
are unavailable for moratorium customers) movement and assessed if any customers exhibit severe
deterioration/improvement. A staging overlay was then applied on these customers in order to classify them
accordingly to Stage 2 or Stage 1. The isolated impact of this overlay resulted in a transfer of loans of €157
million from Stage 1 to Stage 2 and a transfer of loans of €2 million from Stage 2 to Stage 1. These
overlays had an impact on the ECL of €517 thousand.
Additionally, customers that were identified as having experienced a SICR resulting in a migration of €354
million of loans from Stage 1 to Stage 2 during the first, second or third quarter of 2020 were not allowed
to migrate back to Stage 1 during 2020. The impact on the ECL (no reversal of ECL) was €2 million.
SICR overlays also include transfers of moratorium loans of €56 million that have incurred missed payments
in the first week of January 2021 and €63 million of moratorium loans for which their review was not
completed by 31 December 2020 based on quantitative characteristics from Stage 1 to Stage 2. These
overlays had an impact on the ECL of €754 thousand.
Probability of default and behavioural ratings adjustment
A PD overlay was applied in order to avoid extreme values in the model predictions whilst ensuring that the
moratorium will not cause a timeline misalignment between the model projected and observed 2021
defaults. Specifically, model projected default rates from first quarter of 2020 onwards have been shifted
and distributed equally throughout the year. The isolated impact of this overlay resulted in an ECL impact of
€11 million.
The second PD overlay relates to behavioural ratings, where a prudent logic was applied in order to prevent
any moratorium-biased ratings to reflect an improved asset quality. To this end, an overlay was applied
which did not allow any moratorium facilities to have improved ratings when compared to their
corresponding February 2020 rating. The isolated impact of this overlay resulted in an ECL increase of €5
million.
The purpose of these overlays is to minimise potential cliff effects with the end of the moratorium, by
assessing the customers’ long-term recovery ability, utilising short-term behavioural signals.
Portfolio segmentation
The individual assessment is performed not only for individually significant assets but also for other
exposures meeting specific criteria determined by management. The selection criteria for the individually
assessed exposures are based on management judgement and are reviewed on a quarterly basis by the
Risk Management Division and are adjusted or enhanced, if deemed necessary. During 2020, in response
to the COVID-19 pandemic, the selection criteria were expanded to include significant Stage 1 exposures
within highly impacted sectors to assess potential increase in credit risk and significant exposures which
transitioned from Stage 1 to Stage 2 to assess potential indications for unlikeliness to pay.
262
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
In addition to individually assessed assets the Company also assesses assets collectively. The collectively
assessed portfolio includes all loans which are not individually assessed. The Company categorises the
exposures into sufficiently granular portfolio 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 43.
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 where considered necessary and any other relevant
parameters. Selling expenses are deducted from the realisable value. Depending on the value of the
underlying asset and available market information, the determination of costs to sell may require
professional judgement which involves a high degree of uncertainty due to the relatively low level of market
activity.
More details on the stock of property are presented in Note 26.
5.4
Provisions for pending litigation, claims, regulatory and other matters
The accounting policy for provisions is described in Note 2.36 of the Consolidated Financial Statements of
the Group for the year ended 31 December 2020. Judgement is required 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 Company 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 Company 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 Company 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 37.
5.5
Tax
The Company, other than Cyprus, is subject to tax in the countries that it has run-down operations mainly
in Greece and Romania. Estimates are required in determining the provision for taxes at the reporting date.
The Company 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 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
pursuant to amendments in the Income Tax Law effected in March 2019 which provides for the
recoverability of tax assets arising from transfer of tax losses following resolution of a credit institution,
within the framework of 'The Resolution of Credit and Other Institutions', to be guaranteed (Note 15), the
Company 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, the Company had determined that this
asset should be accounted for on the basis of IAS 12 principles relating to deferred tax assets.
263
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
5.
5.5
Significant and other judgements, estimates and assumptions (continued)
Tax (continued)
For further details on such deferred tax assets refer to Note 15.
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 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 20.
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 Company’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 Company’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 12.
264
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
5.
5.8
Significant and other judgements, estimates and assumptions (continued)
Classification of properties
The Company 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 Company, nor for sale in the ordinary course of business, but are held primarily
to earn rental income and/or 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).
5.9
Fair value of properties held for own use and investment properties
The Company’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 internationally accepted valuation
standards.
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 information, 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.
Further information on inputs used is disclosed in Note 20.
5.10
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 of the Consolidated Financial Statements of the Group for
the year ended 31 December 2020, inherently involves significant judgement. The IBR used was based on
the Cyprus Government yield curve, with no further adjustment, as a fair proxy for the Company’s secured
borrowing cost, for a time horizon in accordance to the lease term. The sensitivity analysis on the yield
curve performed by the Company 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 and
subsequently updated where considered appropriate based on the horizon used in the Group’s
business plan. The current medium term business plan assessment is for a duration of 4 years. The
lease term was therefore based on an assessment of either 4 years (being the medium time
horizon) or 8 years (being an assessment of a longer time horizon).
For non-cancellable leases, the lease term has been assessed to be the non-cancellable period.
265
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
5.
Significant and other judgements, estimates and assumptions (continued)
5.10
Leases (continued)
For leases with an option for renewal, the Company’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 Company has exercised judgement in determining the threshold of low value assets which was set at
€5,000.
Further details on the leases are disclosed in Note 41.
6.
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
Negative interest on funding from central banks
Income similar to interest income
Loans and advances to customers at FVPL
Derivative financial instruments
2020
€000
2019
€000
356,938
430,412
1,467
10,710
16,319
5,306
5,398
12,120
21,055
-
390,740
468,985
2020
€000
2019
€000
37,530
34,314
71,844
43,720
37,490
81,210
266
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
7.
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
8.
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
Other commissions
2020
€000
2019
€000
13,485
1,573
23,329
3,784
18,782
409
61,362
39,297
2,542
23,325
9,397
17,448
349
92,358
2020
€000
2019
€000
44,720
48,708
2020
€000
2019
€000
48,481
85,700
2,170
2,460
2,436
59,413
86,141
11,933
2,137
2,173
141,247
161,797
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
€27,505 thousand (2019: €33,919 thousand). Other banking commissions include commissions from
payment orders amounting to €26,659 thousand (2019: €29,764 thousand) and account maintenance fees
of €20,089 thousand (2019: €21,144 thousand).
Fee and commission expense
Banking commissions
Mutual funds and asset management fees
9.
Net foreign exchange gains
2020
€000
2019
€000
9,790
301
10,091
12,177
344
12,521
Net foreign exchange gains comprise of 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.
267
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
10.
and associates
Net losses 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 losses on balances with Group companies
Net gains on loans and advances to customers at FVPL (Note 20)
Revaluation of financial instruments designated as fair value hedges:
- hedging instruments (Note 19)
- hedged items (Note 19)
Net gains/(losses) on disposal/dissolution of subsidiaries and associates
2020
€000
2019
€000
(747)
215
(1,947)
236
2,865
(34,292)
3,606
(5,205)
5,760
9
6,254
167
-
(37,414)
2,891
(4,588)
3,696
(1,964)
(29,715)
(30,743)
Net losses on balances with Group companies for 2020 of €34,292 thousand relate to fair value losses on
receivables from Group property companies in Cyprus of €30,438 thousand and net losses from settlement
of balances with Group property companies of €3,854 thousand. Net losses on balances with Group
companies for 2019 of €37,414 thousand relate to fair value losses on receivables from Group property
companies in Cyprus of €39,881 thousand and net gains from settlement of balances with Group property
companies of €2,467 thousand.
The loss on disposal/dissolution of subsidiaries for 2019 primarily relates to loss on disposal of Cyreit
Variable Capital Investment Company PLC (Cyreit) (Note 49.4.1), gain on disposal of associate CNP Cyprus
Insurance Holdings Ltd (Note 23) and gain on disposal of subsidiaries whose activity is the ownership and
management of immovable property.
11.
Other income
Dividend income
Loss on sale and write-off of property and equipment and intangible assets
Rental income from investment properties
Rental income from stock of property
Other income
Dividend income relates to Cyprus operations.
2020
€000
2019
€000
223
(93)
2,678
26
2,447
5,281
306
(108)
3,612
-
1,245
5,055
268
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
12.
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
2020
€000
2019
€000
139,142
24,108
11,173
174,423
5,825
180,248
163,635
25,932
14,206
203,773
76,641
280,414
The number of persons employed by the Company as at 31 December 2020 was 3,141. The number of
persons employed by the Company as at 31 December 2019 was 3,235 and included 100 persons relating
to Project Helix, whose transfer to the buyer was concluded in January 2020.
In December 2020, the Company proceeded with a targeted voluntary exit plan, with a cost amounting to
€5,825 thousand. In total, 27 employees accepted the targeted voluntary exit plan and left the Company
early in 2021. In October 2019, the Company proceeded with a voluntary exit plan with a cost amounting to
€76,641 thousand. In total, 451 employees accepted the voluntary exit plan and left the Company in late
2019 and early 2020.
Retirement benefit plan costs
In addition to the employer's contributions to state social insurance, the Company operates plans for the
provision of additional retirement benefits as described below:
Defined benefit plans
Defined contribution plans
2020
€000
2019
€000
76
11,097
11,173
43
14,163
14,206
Cyprus
The main retirement plan for the Company’s permanent employees in Cyprus (99% of total Company
employees) is a defined contribution plan. This plan provides for employer contributions of 8% (2019: 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.
Greece
Following the disposal of the Greek operations in March 2013, a small number of employees of the
Company’s Greek Branch, who left the Company's employment before March 2013, continued to be
members of the defined benefit plans until June 2019, when these employees were paid out.
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.
269
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
12.
Staff costs (continued)
Retirement benefit plan costs (continued)
Analysis of the results of the actuarial valuations for the defined benefit plans
Amounts recognised in the balance sheet
Liabilities (Note 32)
2020
€000
2019
6,561
7,052
One of the plans has a funded status surplus of €2,759 thousand (2019: €2,927 thousand) that is not
recognised as an asset on the basis that the Company has no unconditional right to future economic
benefits either via a refund or a reduction in future contributions.
The amounts recognised in the balance sheet and the movement in the net defined benefit obligation for the
years ended 31 December 2020 and 2019 are presented below:
270
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
12.
Staff costs (continued)
Retirement benefit plan costs (continued)
1 January 2020
Net interest expense/(income)
Total amount recognised in the 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
Total amount recognised in OCI
Exchange differences
Contributions:
Employer
Benefits paid from the plans
31 December 2020
Annual Financial Report 2020
Impact of
minimum
funding
requirement/
asset ceiling
€000
2,927
-
-
-
-
-
-
(168)
(168)
-
-
-
2,759
Net defined
benefit liability
€000
7,052
76
76
(6,182)
9,121
(133)
17
(168)
2,655
(378)
(2,844)
-
6,561
Present value of
obligation
Fair value of
plan assets
Net amount
before impact of
asset ceiling
€000
€000
€000
(70,831)
(1,350)
(1,350)
(6,182)
-
-
-
-
(6,182)
3,587
(2,844)
3,343
(74,277)
4,125
76
76
(6,182)
9,121
(133)
17
-
2,823
(378)
(2,844)
-
3,802
74,956
1,426
1,426
-
9,121
(133)
17
-
9,005
(3,965)
-
(3,343)
78,079
271
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
12.
Staff costs (continued)
Retirement benefit plan costs (continued)
1 January 2019
Net interest expense/(income)
Total amount recognised in the 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 OCI
Exchange differences
Contributions:
Employer
Benefits paid from the plans
Benefits paid directly by the employer
31 December 2019
Annual Financial Report 2020
Impact of
minimum
funding
requirement/
asset ceiling
€000
7,694
-
-
-
-
-
-
(4,767)
-
(4,767)
-
-
-
-
2,927
Net defined
benefit liability
€000
8,033
43
43
(7,166)
9,200
(915)
190
(4,767)
5,000
1,542
332
(2,495)
-
(403)
7,052
Present value of
obligation
Fair value of
plan assets
Net amount
before impact of
asset ceiling
€000
€000
€000
(63,130)
(1,793)
(1,793)
339
43
43
(7,166)
(7,166)
-
-
-
-
5,000
(2,166)
(3,018)
(2,495)
1,771
-
(70,831)
9,200
(915)
190
-
5,000
6,309
332
(2,495)
-
(403)
4,125
63,469
1,836
1,836
-
9,200
(915)
190
-
-
8,475
3,350
-
(1,771)
(403)
74,956
272
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
12.
Staff costs (continued)
Retirement benefit plan costs (continued)
The actual return on plan assets for year 2020 was a gain of €7,532 thousand (2019: gain of €8,959
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 Company is exposed to a number of risks as outlined
below:
Interest rate risk
Changes in bond yields
Inflation risk
Asset volatility
The Company 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 Company 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 increases 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
2020
2019
%53
%45
%2
%100
%54
%44
%2
%100
The Company expects to make additional contributions to defined benefit plans of €3,003 thousand during
2021.
At the end of the reporting period, the average duration of the defined benefit obligation was 19.3 years
(2019: 19.8 years).
273
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
12.
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 Company during 2020 and 2019
are set out below:
2020
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
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
Cyprus
0.33%
1.50%
2.00%
2.00%
23.5 years M
29.6 years F
n/a
1.11%
1.75%
2.25%
2.00%
23.5 years M
29.6 years F
n/a
Greece
UK
n/a
n/a
n/a
n/a
n/a
n/a
1.30%
1.75%
2.00%
n/a
n/a
n/a
1.45%
2.85%
n/a
2.75%
n/a
22.5 years M
24.9 years F
2.05%
2.80%
n/a
2.70%
n/a
22.5 years M
24.9 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 Company’s plans in the Eurozone (Cyprus and Greece) which
comprise 1% of the defined benefit obligations, the Company adopted a full yield curve approach using AA-
rated corporate bond data from the iBoxx Euro Corporates AA10+ index. For the Company’s plan in the UK
which comprises 99% of the defined benefit obligations, the Company 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 Company, 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.
274
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
12.
Staff costs (continued)
Retirement benefit plan costs (continued)
The impact of significant assumptions' fluctuations on the defined benefit obligation as at 31 December
2020 and 2019 is presented below:
Variable
Discount rate
Inflation growth rate
Pension growth rate
Life expectancy
2020
2019
Change
+0.5%
Change
-0.5%
Change
+0.5%
Change
-0.5%
%-9.4
%6.0
%10.0
%-5.5
%0.1
%-0.1
Plus 1 year Minus 1 year
%-3.4
%3.4
%-9.6
%6.1
%0.1
Plus 1 year
%3.3
%10.3
%-5.5
%-0.1
Minus 1 year
%-3.3
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 balance sheet. The methods and types of assumptions used in preparing the sensitivity
analysis did not change compared to previous years.
13.
Other operating expenses
Repairs and maintenance of property and equipment
Other property-related costs
Consultancy and other professional services fees
Insurance
Advertising and marketing
Depreciation of property and equipment (Note 24)
Amortisation of intangible assets (Note 25)
Communication expenses
Provisions for pending litigations, claims, regulatory and other matters (Note
37.4)
Printing and stationery
Cash transfer expenses
Other operating expenses
Advisory and other restructuring costs
2020
€000
2019
€000
27,109
10,733
11,112
5,326
6,979
15,404
14,832
5,961
31,191
1,778
2,526
17,730
150,681
15,489
166,170
25,279
13,613
12,701
5,248
9,276
16,196
13,027
7,491
30,801
2,614
3,038
27,484
166,768
46,657
213,425
Advisory and other restructuring costs comprise mainly fees to external advisors in relation to: (i) customer
loan restructuring activities which are not part of the effective interest rate and (ii) the disposal of
operations and non-core assets.
During the year ended 31 December 2020, the Company recognised €217 thousand relating to rent expense
for short term leases, included within 'Other property-related costs' (2019: €358 thousand) and €8,269
thousand relating to the depreciation of right-of-use assets, included within 'Depreciation of property and
equipment' (2019: €8,804 thousand) (Note 41).
275
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
13.
Other operating expenses (continued)
Within the total other operating expenses an amount of €731 thousand (2019: €276 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, reduces the payment of 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 €24,727 thousand (2019: €24,854 thousand) and is
presented on the face of the income statement together with the guarantee fee on annual deferred tax
credit amounting to €3,445 thousand (2019: €18,755 thousand) (Note 15) and the contribution to the
Deposit Guarantee Fund of €5,484 thousand (2019: nil).
As from 1 January 2020 and until 3 July 2024 the Company 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 covered deposits by 3 July 2024.
Consultancy and other professional services fees and advisory and other restructuring costs include fees
(including taxes) to the independent auditors of the Company, for audit and other professional services
provided both in Cyprus and overseas, as follows:
Audit of the financial statements of the Company
Other assurance services
Tax compliance and advisory services
Other non-audit services
2020
€000
2019
€000
1,166
352
211
385
2,114
1,031
715
225
338
2,309
The following table discloses the fees (including taxes) to the independent auditors of the Company, for the
audit and other professional services provided both in Cyprus and overseas for the Group.
Audit of the financial statements of the Group and its subsidiaries
Other assurance services
Tax compliance and advisory services
Other non-audit services
Other assurance services include fees related to the interim review.
2020
€000
2019
€000
1,602
368
211
385
2,566
1,502
732
225
338
2,797
276
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
14.
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
43.9)
Recoveries of loans and advances to customers previously written off
Changes in expected cash flows
Financial guarantees and commitments (Notes 43.8.1 and 43.8.2)
Credit losses of other financial instruments
Amortised cost debt securities (Note 18)
FVOCI debt securities (Note 18)
Impairment of balances with Group companies (Note 22)
Loans and advances to banks (Note 17)
Other financial assets
Impairment of non-financial assets
Stock of property (Note 26)
Investments in subsidiaries (Note 48)
2020
€000
2019
€000
284,052
(20,621)
12,866
(2,134)
274,163
262,236
(25,627)
3,537
(5,573)
234,573
54
73
4,707
24
3,886
8,744
6,687
10,901
17,588
(36)
105
35,380
(686)
3,920
38,683
12,459
4,194
16,653
The impairment of investment in subsidiaries for 2020 amounts to €10,901 thousand (2019: €4,194
thousand) and represents the difference between the carrying value of the investment in the subsidiary
compared to its recoverable amount.
The impairment of balances with Group companies which are measured at amortised cost is computed
following the same ECL principles adopted by the Group in preparing the Consolidated Financial Statements
of the Group.
Changes in expected cash flows for the year ended 31 December 2020 relate mainly to gross modification
loss arising as a result of the modification to loan terms offered pursuant to the moratorium (Note 5.2) as a
result of the COVID-19 pandemic.
15.
Income tax
Current tax:
- Cyprus
Cyprus special defence contribution
Deferred tax charge/(credit)
Prior years’ tax adjustments
Other tax charges
2020
€000
2019
€000
-
41
45
-
732
818
831
76
(113,610)
(5,558)
8
(118,253)
277
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
15.
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
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
- deferred tax charge/(reversal of previously recognised deferred tax)
- losses on which deferred tax was not recognised
Prior years' tax adjustments
Other tax charges
2020
€000
(162,353)
2019
€000
(210,163)
(20,253)
(26,194)
15,597
(11,212)
858
45
15,051
86
-
732
818
25,231
(23,551)
2,006
(113,610)
23,415
(112,703)
(5,558)
8
(118,253)
Income tax in Cyprus is calculated at the rate of 12.5% on taxable income (2019: 12.5%).
Special defence contribution is payable on rental income at a rate of 3% (2019: 3%) and on interest income
from activities outside the ordinary course of business at a rate of 30% (2019: 30%).
The Company’s profits from overseas operations are taxed at the rates prevailing in the respective
countries, which for 2020 for: Greece were 24% (2019: 28%) and UK 19% (2019: 19%).
The Company is subject to income taxes in the various jurisdictions it operates and the calculation of the
Company’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 Company
has a number of open income tax returns with various income tax authorities and liabilities relating to these
open and judgemental matters 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.
Deferred tax
The net deferred tax assets arise from:
Difference between capital allowances and depreciation
Property revaluation
Unutilised income tax losses carried forward (guaranteed deferred tax asset)
Net deferred tax assets
2020
€000
(9,798)
(10,645)
341,182
320,739
2019
€000
(9,753)
(12,702)
379,091
356,636
278
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
15.
Income tax (continued)
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 income statement
Deferred tax recognised in the statement of comprehensive income
Transfer to current tax receivables following conversion into tax credit
31 December
2020
€000
341,182
(20,443)
320,739
2019
€000
379,091
(22,455)
356,636
2020
€000
356,636
(45)
2,057
(37,909)
320,739
2019
€000
280,879
113,610
56
(37,909)
356,636
The Company offsets income tax assets and liabilities only if it has a legally enforceable right to set-off
current income tax assets and current income tax liabilities.
The analysis of the net deferred tax charge/(credit) recognised in the income statement is set out below:
Difference between capital allowances and depreciation
Write-back of deferred tax assets
2020
€000
45
-
45
2019
€000
1,618
(115,228)
(113,610)
The analysis of the net deferred tax recognised in other comprehensive income in the statement of
comprehensive income is set out below:
Timing differences on property revaluation - income
2020
€000
2019
€000
2,057
56
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 could 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 expired.
279
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
15.
Income tax (continued)
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. 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 credit in the relevant year is
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.
The Company has DTA that meets the requirements of the Law relating to income tax losses transferred to
the Company 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 the Company paid a consideration as part of
the respective acquisition. Under the Law, the Company can convert up to an amount of €3.3 billion tax
losses to tax credits (which led to the creation of DTA amounting to €417 million), with the conversion being
based on the tax rate applicable at the time of conversion. As a result, a reversal of previously recognised
DTA impairment of €115 million was recognised during the year ended 31 December 2019. Following the
amendment of the Law, the period of utilisation of the tax losses which may be converted into tax credits
remains unchanged (i.e. by end of 2028).
During the year ended 31 December 2020, an amount of €37,909 thousand has been reclassified from the
DTA to current tax receivables (2019: €37,909 thousand) being the annual conversion into tax credit.
As a result of the above Law, the Company has deferred tax assets amounting to €341,182 thousand as at
31 December 2020 (2019: €379,091 thousand) that meet the requirements under this Law, the recovery of
which is guaranteed.
The DTA subject to the Law is accounted for on the same basis, as described in Note 2.13 of the
Consolidated Financial Statements of the Group for the year ended 31 December 2020.
The Company 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, 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.
280
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
15.
Income tax (continued)
The Company, in anticipation of modifications in the Law, acknowledges that such increased annual fee may
be required to be recorded on an annual basis until expiration of such losses in 2028. The determination
and conditions of such amount will be prescribed in the Law to be amended and the amount determined by
the Government on an annual basis. Amendments to the Law will need to be adopted by the Cyprus
Parliament and published in the Official Gazette of the Republic for the amendments to be effective. The
Company, however, understands that contemplated amendments to the Law may provide that the minimum
fee to be charged will be 1.5% of the annual instalment and can range up to a maximum amount of
€10,000 thousand per year. The Group estimates that such increased fees could range up to €5,300
thousand per year (for each tax year in scope i.e. since 2018) although the Company understands that such
fee may fluctuate annually as to be determined by the Ministry of Finance. To this respect, an amount of
€3,445 thousand has been recorded in 2020 (Note 13) to bring the total amount provided for years 2018-
2020 to €15,900 thousand, being the maximum expected increased amount for these years (2019: €18,755
thousand of which €12,500 thousand related to the additional expected increased amount).
Accumulated income tax losses
The accumulated income tax losses are presented in the table below:
2020
Expiring within 5 years
Utilisation in annual instalments up to 2028
2019
Expiring within 5 years
Utilisation in annual instalments up to 2028
Total income
tax losses
€000
647,712
Income tax
losses for
which a
deferred tax
asset was
recognised
€000
Income tax
losses for
which no
deferred tax
asset was
recognised
€000
-
647,712
2,729,454
2,729,454
-
3,377,166
2,729,454
647,712
520,603
3,032,727
3,553,330
-
3,032,727
3,032,727
520,603
-
520,603
In relation to the tax losses that were transferred to the Company in 2013, the income tax authorities in
Cyprus issued their tax assessments in March and April 2019. On the basis of these assessments the
quantum of Laiki Bank tax losses were approximately €5 billion and lower than the initial amount of €7.4
billion estimated in 2013.
The tax losses in excess of the €3.3 billion transferred from Laiki Bank to the Company in March 2013
cannot be utilised by the Company, 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.
16.
Earnings per share
Basic and diluted loss per share
Loss for the year (€ thousand)
Weighted average number of shares in issue during the year (thousand)
Basic and diluted loss per share (€ cent)
2020
(163,171)
2019
(91,910)
9,597,945
9,438,903
(1.7)
(1.0)
281
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
17.
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
2020
€000
2019
€000
139,667
151,547
5,513,476
4,908,334
5,653,143
5,059,881
361,347
(69)
361,278
288,801
(45)
288,756
An analysis of the movement of the gross carrying amount of balances with central banks is presented in
the table below:
Gross carrying amount
1 January
Net increase
Transfer to disposal groups held for sale
31 December
2020
€000
4,908,334
673,567
(68,425)
2019
€000
4,456,615
451,719
-
5,513,476
4,908,334
Balances with central banks are classified as Stage 1.
There was no ECL allowance on balances with central banks for the years 2020 and 2019.
An analysis of the movement of the gross carrying amount and ECL of loans and advances to banks is
presented in the table below:
1 January
Net increase/(decrease)
Changes to models and inputs used for ECL
calculation (Note 14)
31 December
2020
2019
Gross
carrying
amount
€000
288,801
72,546
-
361,347
ECL
€000
(45)
-
(24)
(69)
Gross
carrying
amount
€000
440,198
(151,397)
-
288,801
ECL
€000
(731)
-
686
(45)
All loans and advances to banks are classified as Stage 1.
Balances with central banks include obligatory deposits for liquidity purposes as at 31 December 2020 which
amount to €158,031 thousand (2019: €160,048 thousand) (Note 40).
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 43.13.
Loans and advances to banks earn interest based on the interbank rate of the relevant term and currency.
282
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
18.
Investments
Investments
Investments mandatorily measured at FVPL
Investments at FVOCI
Investments at amortised cost
2020
€000
13,384
640,008
1,009,834
2019
€000
16,318
684,932
805,059
1,663,226
1,506,309
During 2020, the Company has proceeded to invest in debt securities, as part of its investing strategy which
mainly related to the acquisition of treasury bills and Cyprus Government bonds.
The amounts pledged as collateral are shown below:
Investments pledged as collateral
Investments at FVOCI
Investments at amortised cost
2020
€000
14,069
23,036
37,105
2019
€000
199,916
23,045
222,961
The decrease in investments pledged as collateral during 2020 related mainly to the maturity of
investments pledged as collateral by the Company as well as to the maturity of repurchase agreements for
which investments were pledged as collateral. Encumbered assets are disclosed in Note 45.
As at 31 December 2020 there are no investments pledged as collateral under repurchase agreements, as
no repurchase agreements remained outstanding. As at 31 December 2019 all investments pledged as
collateral under repurchase agreements could be sold or repledged by the counterparty.
The maximum exposure to credit risk for debt securities is disclosed in Note 43.1 and the debt securities
price risk sensitivity analysis is disclosed in Note 44.
There were no reclassifications of investments during the years 2020 and 2019.
The credit rating analysis of investments is disclosed in Note 43.13.
283
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
18.
Investments (continued)
Investments at fair value through profit or loss
Debt securities
Equity securities
Mutual funds
Debt securities
Banks and other corporations
Unlisted
Equity securities
Listed on other stock exchanges
Mutual funds
Unlisted
Investments
mandatorily measured at
FVPL
2020
€000
2019
€000
12,292
15,455
626
466
472
391
13,384
16,318
12,292
12,292
15,455
15,455
626
626
466
466
472
472
391
391
The debt securities which are measured at FVPL are mandatorily classified because they failed to meet the
SPPI criteria.
The unlisted mutual funds are presented in Level 3 hierarchy in Note 20.
Investments at FVOCI
Debt securities
Equity securities (including preference shares)
2020
€000
644,196
9,881
654,077
2019
€000
875,040
9,808
884,848
284
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
18.
Investments (continued)
Debt securities
Cyprus government
Other governments
Banks and other corporations
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
2020
€000
376,908
41,235
226,053
644,196
2019
€000
394,482
228,838
251,720
875,040
644,196
875,040
376,908
51,784
89,226
10,364
115,914
644,196
1,477
81
8,323
9,881
394,482
232,662
104,684
10,743
132,469
875,040
1,360
137
8,311
9,808
An analysis of the movement of debt instruments before ECL and the changes on the ECL are presented in
the table below:
1 January
New assets acquired in the year
Assets derecognised and redeemed in the
year (Note 14)
Interest accrued and amortisation
Foreign exchange adjustments
Changes to models and input used for ECL
calculations (Note 14)
Change in fair value
31 December
2020
2019
Gross debt
securities
€000
ECL
€000
Gross debt
securities
€000
875,731
59,993
(263,335)
(4,170)
(17,410)
-
(5,849)
644,960
(691)
7
-
-
-
(80)
-
806,708
135,042
(86,721)
(1,841)
3,250
-
19,293
(764)
875,731
ECL
€000
(586)
-
-
-
-
(105)
-
(691)
All debt securities measured at FVOCI are classified as Stage 1.
The Company 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 €9,881 thousand at
31 December 2020 and is equal to their fair value (2019: €9,808 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.
285
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
18.
Investments (continued)
Dividend income amounting to €223 thousand has been received and recognised for 2020 in other income
(2019: €306 thousand).
During 2020 and 2019 no equity investments measured at FVOCI have been disposed of. There were no
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 €1,458 thousand at 31 December 2020 (2019: €1,328 thousand). The fair value gain that
would have been recognised in the income statement in 2020 if these financial assets had not been
reclassified as part of the transition to IFRS 9 amounts to €130 thousand (2019: €32 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
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 or
redeemed in the year
Fair value due to hedging
relationship
Interest accrued and
amortisation
Foreign exchange adjustments
31 December
Stage 1
€000
779,770
513,655
(294,756)
2020
Stage 2
€000
49,130
-
-
Total
€000
828,900
513,655
Stage 1
€000
482,229
318,187
(294,756)
(25,143)
644
(123)
521
1,038
(2,289)
(12,285)
(26)
(2,315)
-
(12,285)
1,062
2,397
2019
Stage 2
€000
48,982
-
-
182
(33)
(1)
984,739
48,981 1,033,720
779,770
49,130
828,900
286
2020
€000
1,032,870
2019
€000
828,104
440,983
132,267
292,918
166,702
1,032,870
318,141
714,729
1,032,870
143,644
161,090
333,313
190,057
828,104
48,654
779,450
828,104
440,983
143,644
49,870
33,671
25,646
184,804
135,302
162,594
1,032,870
51,846
38,349
30,082
271,587
107,012
185,584
828,104
Total
€000
531,211
318,187
(25,143)
1,220
1,029
2,396
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
18.
Investments (continued)
An analysis of changes on the ECL is presented in the table below:
1 January
Assets derecognised or
redeemed (Note 14)
Change to models and inputs
used for ECL calculation (Note
14)
31 December
Stage 1
€000
2020
Stage 2
€000
Total
€000
Stage 1
€000
2019
Stage 2
€000
Total
€000
(320)
(476)
(796)
(142)
(690)
(832)
12
-
12
-
-
-
(237)
(545)
171
(305)
(66)
(850)
(178)
(320)
214
(476)
36
(796)
19.
Derivative financial instruments
The contract amount and fair value of the derivative financial instruments is set out below:
2020
Fair value
Contract
amount
€000
Assets
Liabilities
€000
€000
Contract
amount
€000
2019
Assets
€000
Fair value
Liabilities
€000
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
Total
121,188
971,957
92,305
2,628
527,883
834
4,460
271
72
83
2,502
2,832
597
302
25
116,288
1,173,387
263,159
1,800
1,684,871
1,646
775
315
10
772
120
5,899
551
296
-
1,715,961
5,720
6,258
3,239,505
3,518
6,866
877,783
2,593,744
18,907
24,627
39,720
45,978
1,068,926
4,308,431
19,542
23,060
43,727
50,593
The use of derivatives is an integral part of the Company’s activities. Derivatives are used to manage the
Company’s own exposure to fluctuations in interest rates and exchange rates. 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 significantly smaller amount compared to the
derivatives' notional amount. In order to manage credit risk, the Company 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 44. The interest rate risk is managed through the use of own balance
sheet solutions such as plain vanilla interest rate swaps and interest rate options. In fair value hedges of
interest rate risk, the Company converts fixed rate assets/liabilities to floating. In cash flow hedging of
interest rate risk, the Company converts floating rate assets/liabilities to fixed.
287
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
19.
Derivative financial instruments (continued)
Currency risk is explained in Note 44. In order to eliminate the risk, the Company 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.
Interest rate caps/floors protect the buyer 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 Company’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 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 Company’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 and foreign exchange rates, in accordance with the terms of the
relevant contract. The aggregate net fair value of derivatives may fluctuate significantly over time.
Hedge accounting
The Company elected, as a policy choice permitted by IFRS 9, to continue to apply hedge accounting in
accordance with IAS 39. The Company implements the amended IFRS 7 hedge disclosure requirements.
The Company applies fair value hedge accounting using derivatives when the required criteria for hedge
accounting are met. The Company 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 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 income statement.
Fair value hedges
The Company 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, subordinated loan
stock and deposits.
288
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
19.
Derivative financial instruments (continued)
Hedges of net investments
The Company’s balance sheet is affected by foreign exchange differences between the Euro and all non-Euro
functional currencies of overseas branches. The Company 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 associates and joint ventures and forward exchange rate contracts.
As at 31 December 2020 deposits amounting to €9,988 thousand (2019: €10,667 thousand) have been
designated as hedging instruments.
2020
Derivatives qualifying for hedge accounting
Fair value hedges
-interest rate swaps
Total
2019
Derivatives qualifying for hedge accounting
Fair value hedges
-interest rate swaps
Total
Gains/(losses) attributable
to hedged risk
Hedged in-
effectiveness
Hedged
items
€000
Hedging
instrument
€000
€000
5,760
5,760
(5,205)
(5,205)
(555)
(555)
3,696
3,696
(4,588)
(4,588)
892
892
The accumulated fair value adjustment arising from the hedging relationships is presented in the table
below:
2020
Derivatives qualifying for hedge
accounting
Fair value hedges - interest rate swaps
-debt securities
-subordinated loan stock
Total
2019
Derivatives qualifying for hedge
accounting
Fair value hedges - interest rate swaps
-debt securities
-subordinated loan stock
Total
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
712,925
-
712,925
-
272,152
272,152
21,084
-
21,084
-
(1,374)
(1,374)
909,868
-
909,868
-
272,170
272,170
16,331
-
16,331
-
(1,596)
(1,596)
For assets hedged using fair value hedges the fixed rate is 2.35% and the floating rate is 1.03% (2019:
2.76% and 1.4% respectively). For liabilities hedged using fair value hedges, the fixed rate is 9.25% and
the floating rate is 8.93% (2019: 9.25% and 8.95% respectively).
289
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
19.
Derivative financial instruments (continued)
The maturity of the Company's contract amount of the derivatives is presented in the table below:
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
82,662
33,249
5,277
792,956
178,227
774
-
-
44,069
23,970
14,169
10,097
2,628
-
-
-
-
-
922,315
235,446
20,220
-
527,883
537,980
-
-
-
-
-
-
121,188
971,957
92,305
2,628
527,883
1,715,961
2020
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
-
-
-
-
Total
922,315
235,446
30,358
30,358
50,578
653,925
653,925
193,500
193,500
877,783
877,783
1,191,905
193,500
2,593,744
290
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
19.
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
105,248
10,369
1,173,144
-
600
-
671
223
-
-
146,228
116,931
20
-
1,200
-
-
-
1,650,000
34,871
1,278,992
11,589
1,797,122
151,802
-
-
-
-
-
-
116,288
1,173,387
263,159
1,800
1,684,871
3,239,505
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
Total
1,278,992
11,589
1,985,627
-
-
-
-
188,505
188,505
646,921
646,921
798,723
233,500
1,068,926
233,500
1,068,926
233,500
4,308,431
Interest rate benchmark reform
As at 31 December 2020 and 2019 the interest rate benchmarks to which the Company's hedge
relationships are exposed to, are Euro Interbank Offered Rate (Euribor) and US Dollar London Interbank
Offered Rate (Libor) for the cash flows of the hedging instruments. The Company has applied judgement in
relation to market expectations regarding hedging instruments. The key judgement is that the cash flows
for contracts currently indexing Interbank Offered Rate (IBOR) are expected to have broadly equivalent
cash flows upon the transition of the contracts 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 the Company manages through hedging relationships.
Interest Rate Swaps
Euribor (3 months)
Libor USD (3 months)
Total
2020
€000
699,831
177,952
877,783
2019
€000
865,431
203,495
1,068,926
As at 31 December 2020, the Company's assessment regarding the on-going transition to the new risk-free
rates (RFRs) indicates a not significant impact on the hedging relationships and in value terms. Further
details in relation to interest rate benchmark reform are disclosed in Note 44.
291
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
20.
Fair value measurement
The following table presents the carrying value and fair value of the Company'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
Balances with Group companies
Financial assets classified as held for sale
Other financial assets
Financial liabilities
Funding from central banks and deposits by
banks
Repurchase agreements
Derivative financial liabilities
Customer deposits
Balances with Group companies
Subordinated loan stock
Other financial liabilities and lease liabilities
2020
2019
Carrying
value
€000
5,653,143
361,278
13,384
654,077
Fair value
€000
5,653,143
361,440
13,384
654,077
1,032,870
1,050,271
24,627
24,627
Carrying
value
€000
5,059,881
Fair value
€000
5,059,881
288,756
16,318
884,848
828,104
23,060
287,806
16,318
884,848
844,795
23,060
9,882,154
9,683,771
10,715,402
10,713,509
740,931
561,462
58,023
740,931
561,462
58,023
749,490
25,929
106,213
749,490
25,929
106,213
18,981,949
18,801,129
18,698,001
18,711,849
1,383,387
1,322,354
-
-
45,978
45,978
531,190
168,129
50,593
473,935
170,816
50,593
16,533,212
16,535,842
16,691,531
16,692,463
71,806
272,152
223,845
71,806
274,414
223,845
99,967
272,170
211,639
99,967
293,623
212,869
18,530,380
18,474,239
18,025,219
17,994,266
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 Company 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 market observable data.
For assets and liabilities that are recognised in the Financial Statements at fair value, the Company
determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation
at the end of each reporting period.
The following is a description of the determination of fair value for financial instruments which are recorded
at fair value on a recurring and on a non-recurring basis and for financial instruments which are not
measured at fair value but for which fair value is disclosed, using valuation techniques. These incorporate
the Company’s estimate of assumptions that a market participant would make when valuing the
instruments.
292
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
20.
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,
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 the Company’s own credit quality respectively.
The Company calculates the CVA by applying the PD of the counterparty, conditional on the non-default of
the Company, to the Company’s expected positive exposure to the counterparty and multiplying the result
by the loss expected in the event of default. Conversely, the Company 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 the Company 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 Company 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 the Company. 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 Company
is greater than the amount borrowed, the fair value calculation of these repurchase agreements takes into
account the time value of money.
Loans and advances to banks
Loans and advances to banks with maturity over one year are discounted using an appropriate risk free rate
plus the appropriate credit spread. For short-term lending, the fair value is approximated by the carrying
value.
293
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
20.
Fair value measurement (continued)
Deposits by banks and funding from central banks
Deposits by banks and funding from central banks with maturity over one year are discounted using an
appropriate risk free rate plus the appropriate credit spread. For short-term lending, the fair value is
approximated by the carrying value.
Subordinated loan stock
The current issue of the Company is traded in an active market with quoted prices.
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.
294
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
20.
Fair value measurement (continued)
The following table presents the fair value measurement hierarchy of the Company's financial and non-
financial assets and liabilities recorded at fair value and financial assets and financial liabilities for which fair
value is disclosed, by level of the fair value hierarchy:
2020
Assets measured at fair value
Investment properties
Residential
Offices and other commercial properties
Manufacturing and industrial properties
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
Investments mandatorily measured at FVPL
Investments at FVOCI
Balances with Group companies
Other financial assets not measured at
fair value
Loans and advances to banks
Balances with Group companies
Investments at amortised cost
Loans and advances to customers
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
626
646,131
-
-
-
-
-
-
-
-
834
4,460
271
72
83
5,720
18,907
-
-
-
16,735
17,553
13,101
49
47,438
16,735
17,553
13,101
49
47,438
162,202
162,202
289,861
289,861
-
-
-
-
-
-
-
12,758
7,946
696,121
834
4,460
271
72
83
5,720
18,907
13,384
654,077
696,121
646,757
24,627
1,216,326
1,887,710
-
-
361,440
-
695,666
321,612
-
44,810
32,993
361,440
44,810
1,050,271
-
-
9,393,910
9,393,910
695,666
683,052
9,471,713
10,850,431
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 €5,027 thousand in their fair value and a decrease in the
discount factor by 10% would result in an increase of €1,681 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 18) with a carrying amount of €11,792 thousand as of 31
December 2020, a change in the market value by 10% would result in a change in the value of the debt
securities by €1,179 thousand.
For additional disclosures on sensitivity analysis of equity securities refer to Note 44.
295
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
20.
Fair value measurement (continued)
2020
Liabilities measured at fair value
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
Other financial liabilities not measured
at fair value
Funding from central banks
Deposits by banks
Customer deposits
Balances with Group companies
Subordinated loan stock
274,414
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
2,502
2,832
597
302
25
6,258
39,720
45,978
992,494
329,860
-
-
-
-
-
-
-
-
-
-
2,502
2,832
597
302
25
6,258
39,720
45,978
992,494
329,860
-
-
-
16,535,842
16,535,842
71,806
-
71,806
274,414
274,414
1,322,354
16,607,648
18,204,416
296
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
20.
Fair value measurement (continued)
2019
Assets measured at fair value
Investment properties
Residential
Offices and other commercial properties
Manufacturing and industrial properties
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
Investments mandatorily measured at FVPL
Investments at FVOCI
Balances with Group companies
Other financial assets not measured at
fair value
Loans and advances to banks
Balances with Group companies
Investments at amortised cost
Loans and advances to customers
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
472
876,845
-
-
-
-
-
-
-
-
1,646
775
315
10
772
3,518
19,542
-
-
-
19,210
19,365
13,475
56
52,106
19,210
19,365
13,475
56
52,106
184,412
184,412
369,293
369,293
-
-
-
-
-
-
-
15,846
8,003
700,945
1,646
775
315
10
772
3,518
19,542
16,318
884,848
700,945
877,317
23,060
1,330,605
2,230,982
-
-
751,326
-
287,806
-
53,523
-
48,545
39,946
287,806
48,545
844,795
-
10,344,216
10,344,216
751,326
341,329
10,432,707
11,525,362
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 18), with a carrying amount of €14,955 thousand as at 31
December 2019, a change in the conversion factor by 10% would result in a change in the value of the debt
securities by €1,496 thousand.
For additional disclosures on sensitivity analysis of equity securities refer to Note 44.
297
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
20.
Fair value measurement (continued)
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
Other financial liabilities not measured at
fair value
Deposits by banks
Repurchase agreements
Customer deposits
Balances with Group companies
Subordinated loan stock
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
293,623
293,623
120
5,899
551
296
6,866
43,727
50,593
473,935
170,816
-
-
-
-
-
-
-
-
-
120
5,899
551
296
6,866
43,727
50,593
473,935
170,816
-
-
-
16,692,463
16,692,463
99,967
-
99,967
293,623
644,751
16,792,430
17,730,804
The cash and balances with central banks are financial instruments whose carrying value is a reasonable
approximation of fair value, because they are mostly short-term in nature or are repriced to current market
rates frequently. The carrying value of other financial assets and other financial liabilities and assets
classified as held for sale is a close approximation of their fair value and they are categorised as Level 3.
During the year ended 31 December 2020 and 2019 there were no significant transfers between Level 1 and
Level 2.
298
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
20.
Fair value measurement (continued)
Annual Financial Report 2020
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 Company requires
significant unobservable inputs to calculate their fair value.
The movement in Level 3 assets which are measured at fair value is presented below:
1 January
Additions
Disposals
Transfers (to)/from stock of property (Note 26)
Net (losses)/gains on balances with Group
companies (Note 10)
Depreciation charge for the year
Fair value (losses)/gains
Net gains on loans and advances to customers
measured at FVPL (Note 10)
Derecognition of loans
Interest on loans
Foreign exchange adjustments
31 December
Investment
properties
Own use
properties
€000
€000
2020
Loans and
advances to
customers
€000
Financial
instruments
€000
Balances with
Group
Companies
€000
Investment
properties
Own use
properties
€000
€000
52,106
184,412
369,293
23,849
700,945
1,315
(4,384)
-
-
-
(1,599)
303
(159)
(21,805)
-
(1,603)
1,054
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,606
(96,254)
13,216
-
-
-
-
-
(1,929)
-
-
-
33,904
-
-
(30,438)
-
-
-
(32,604)
24,314
-
(1,216)
-
58,656
2,021
(11,889)
2,254
-
-
1,064
-
-
-
-
184,571
1,684
-
(234)
-
(1,609)
-
-
-
-
-
2019
Loans and
advances to
customers
€000
395,572
-
-
-
-
-
-
2,891
(44,860)
15,690
-
Financial
instruments
€000
10,619
6,529
-
-
-
-
6,701
-
-
-
-
Balances
with Group
Companies
€000
761,529
-
-
-
(39,881)
-
-
-
(20,703)
-
-
47,438
162,202
289,861
20,704
696,121
52,106
184,412
369,293
23,849
700,945
299
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
20.
Fair value measurement (continued)
Valuation policy and sensitivity analysis
Investment properties and own use properties
The valuation technique mainly applied by the Company is the market comparable approach, adjusted for
market and property specific conditions. In certain cases, the Company also utilises the income
capitalisation approach. The key inputs used for the valuations of the investment properties and own use
properties are presented in the tables below:
300
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
20.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of investment properties
Annual Financial Report 2020
Type and country
Residential
Cyprus
Greece
Offices and other commercial properties
Cyprus
Greece
Manufacturing and industrial
Cyprus
Greece
Land (fields and plots)
Greece
Total
Estimated
rental value
per m2 per
annum
Estimated
building
cost per m2
Yield
Estimated fair
value per m2
Estimated
land value
per m2
2020
€000
Land
Building
area
Age of
building
m2
m2
Years
13,013
€29-€86 €134-€1,370
n/a
€380-€2,206
€110-€900
89-1,203
19-1,356
6-130
€3-€86 €136-€2,132
2.14%-
9.91%
3,722
16,735
€45-€1,455
€3-€1,176
4-5,147
44-825
12-63
12,779
€26-€121
n/a
5%-6%
€550-€1,994
€550
150-1,480
25-2,083
10-75
€15-€259 €157-€3,483
5.31%-
10.07%
4,774
17,553
€52-€1,842
€19-€259
5-8,582
6-4,692
16-62
3,474
€21-€38
n/a
5%-6%
€547-€1,602
n/a 1,593-6,320
421-1,780
23
€1-€37
€80-€603
1.79%-
10.57%
€13-€396
€3-€302
56-34,495
349-5,858
11-82
€1
n/a
6.43%
€12
€12
3,988
n/a
n/a
9,627
13,101
49
49
47,438
301
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
20.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of own use properties
Type and country
2020
Offices and other commercial properties
Cyprus
Total
€000
162,202
162,202
Estimated
rental value
per m2 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
€23-€277 €750-€1,855
6% €550-€6,163 €140-€1,400 390-51,947 122-11,233
19-78
302
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
20.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of investment properties
Annual Financial Report 2020
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
2019
€000
Land
m2
14,375
€32-€104
n/a €131-€1,370
5.5%
€380-€1,925 €110-€1,110
71-1,203
4,835
19,210
€3-€84 0.9%-5.9% €134-€2,186 0-15.6%
€45-€2,186
€3-€2,763
4-5,147
Building
area
Age of
building
m2
8-1,356
44-825
Years
5-104
11-65
14,480
€27-€117
n/a
€250-€900
5%
€120-€2,665 €120-€2,000
140-3,371
25-2,440
€12-€239 0.7%-2.9% €151-€3,400 0%-9.3%
€71-€3,400
€25-€106
282-8,582
6-4,087
€36-€49
n/a
€278-€400
6%
€120-€1,484
€120-€450 2,202-6,513
744-1,608
€4-€39 0.9%-2.9% €84-€1,318 0%-11%
€13-€416
€3-€10
57-34,495
349-5,858
6-85
15-61
24
10-81
Type and country
Residential
Cyprus
Greece
Offices and other commercial
properties
Cyprus
Greece
Manufacturing and industrial
Cyprus
Greece
Land (fields and plots)
Greece
Total
4,885
19,365
3,739
9,736
13,475
56
52,106
€1
0.9%
n/a
5.4%
€14
€14
3,988
n/a
n/a
303
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
20.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of own use properties
Annual Financial Report 2020
Type and country
2019
Offices and other commercial
properties
Cyprus
Total
€000
184,412
184,412
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
Sensitivity analysis
Most of the Company’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.
304
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
21.
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 43.9)
Loans and advances to customers measured at FVPL
2020
€000
10,374,771
2019
€000
11,977,168
(782,478)
(1,631,059)
9,592,293
10,346,109
289,861
369,293
9,882,154
10,715,402
Loans and advances to customers pledged as collateral are disclosed in Note 45.
Gross loans comprise of gross loans and advances to customers measured at amortised cost (reported after
the residual fair value adjustment on initial recognition as detailed in Note 43.6).
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 43.
22.
Balances and transactions with Group companies
Receivable balances with Group companies
Name of Group company
Balances with Group companies at amortised cost
The Cyprus Investment and Securities Corporation Ltd (CISCO)
General Insurance of Cyprus Ltd
EuroLife Ltd
Finerose Properties Ltd
Hydrobius Ltd
BOC Asset Management Romania S.A.
MC Investment Assets Management LLC
JCC Payment Systems Ltd
S.Z. Eliades Leisure Ltd
Bank of Cyprus Holding Public Limited Company
Fortuna Astrum Ltd
Stamoland Properties Ltd
Balances with Group companies mandatorily measured at FVPL
Group property companies in Cyprus
Other Group companies in Cyprus
Total
2020
€000
2019
€000
3,233
4,035
1,410
1
8,830
11,205
2,631
1,306
5,826
127
2,512
3,694
2,522
2,373
961
1
14,737
12,561
2,631
-
5,630
257
2,620
4,252
44,810
48,545
695,015
1,106
696,121
740,931
699,273
1,672
700,945
749,490
305
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
22.
Balances and transactions with Group companies (continued)
Stage 1
Stage 3
POCI
Total balances with Group Companies at
amortised cost
Balances with Group Companies measured at
FVPL
2020
2019
Gross
carrying
amount
€000
13,805
105,968
9,744
ECL
€000
-
83,301
1,406
Gross carrying
amount
€000
10,365
119,224
9,001
ECL
€000
-
89,294
751
129,517
84,707
138,590
90,045
696,121
825,638
-
84,707
700,945
839,535
-
90,045
The classification of the receivable balances with related companies depends on how these are managed as
part of the business model the Company operates under, and their contractual cash flow characteristics
(whether the cash flows represent solely payments of principle and interest (SPPI)). Balances with Group
companies which are measured at FVPL are mandatorily classified because they failed to meet the SPPI
criteria and represent in substance arrangements in which repayment of the balance is either contractually
or implicitly dependent on the performance of the underlying asset held by the subsidiary.
The Company holds these underlying assets for sale in its ordinary course of business. The cash flows for
repayment of the receivable balances are dependent on the disposal value of the underlying assets; hence
the exposure of the Company is to changes in market property prices that will affect the disposal price of
those underlying assets.
Interest on balances with Group companies measured at FVPL is recognised following the same policies
adopted by the Group in preparing the Consolidated Financial Statements of the Group.
Receivable balances with Group companies measured at amortised cost are denominated in Euro, except
from balances of a carrying value of €8,830 thousand as at 31 December 2020 which are denominated in
Russian Rouble (2019: €14,737 thousand). During the year ended 31 December 2020 an amount of €4,707
thousand (2019: €35,380 thousand) has been recognised as an impairment loss in relation to these
receivable balances, out of which €3,456 thousand (2019: €31,763 thousand) relate to Hydrobius Ltd. The
movement for Hydrobius Ltd for the year related to interest, foreign exchange fluctuations and impairment
in relation to further reduction in the recoverability of the net assets of the subsidiary.
The balances are uncollateralised. The location of the Group companies’ operations is disclosed in Note 48.
The net losses on balance with Group companies are disclosed in Note 10.
During 2019, an amount of €89,707 thousand has been received for the full settlement of existing facilities
of Nicosia Mall Holdings (NMH) Limited. The Company disposed of its entire holding in Nicosia Mall Holdings
(NMH) Ltd. Further information is disclosed in Note 49.4.2.
306
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
22.
Balances and transactions with Group companies (continued)
Payable balances with Group companies
Name of Group company
JCC Payment Systems Ltd
The Cyprus Investment and Securities Corporation Ltd (CISCO)
General Insurance of Cyprus Ltd
EuroLife Ltd
Kermia Properties & Investments Ltd
Kermia Ltd
Kyprou Zois (branch of EuroLife Ltd)
Kyprou Commercial S.A.
BOC Asset Management Romania S.A.
MC Investment Assets Management LLC
S.Z. Eliades Leisure Ltd
Bank of Cyprus Holdings Public Limited Company
Global Balanced Fund of Funds Salamis Variable Capital Investment
Company PLC
BOC Asset Management Ltd
Obafemi Holdings Ltd
Group property companies in Cyprus
Other Group companies in Cyprus
Total
Dividends received from subsidiary companies
Name of Group company
EuroLife Ltd
General Insurance of Cyprus Ltd
JCC Payment Systems Ltd
Kermia Properties & Investments Ltd
Group property companies in Cyprus
BOC Asset Management Ltd
Obafemi Holdings Ltd
Auction Yard Ltd
Transactions with Group companies
Interest income and income similar to interest income
Interest expense
Fee and commission income
Fee and commission expense
Other income
Other operating expenses
307
2020
€000
2019
€000
16,851
4,717
10,988
7,344
5,896
2,326
1,261
1,645
1,599
3,684
286
302
326
1,006
217
3,296
10,062
71,806
26,556
5,287
11,428
21,101
5,615
2,474
1,249
1,651
1,721
4,900
276
-
63
872
255
2,829
13,690
99,967
2020
€000
2019
€000
11,500
9,000
3,270
11
1,494
244
36
12
25,567
12,000
8,000
2,250
-
-
-
-
17
22,267
2020
€000
2019
€000
27,079
(100)
14,730
(3,986)
168
43,326
(238)
13,201
(2,946)
221
(4,823)
(3,474)
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
23.
Investments in associates
Carrying value of the investments in associates and joint venture
Percentage
holdings
(%)
2020
€000
2019
€000
Apollo Global Equity Fund of Funds Variable Capital
Investment Company Plc
Aris Capital Management LLC
Rosequeens Properties Limited
Rosequeens Properties SRL
M.S. (Skyra) Vassas Ltd
Fairways Automotive Holdings Ltd
32.9
30.0
33.3
33.3
15.0
45.0
2,191
2,191
-
-
-
-
-
-
-
-
-
-
2,191
2,191
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 the Company 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 sale was completed in October 2019 and the sale consideration of €97,500 thousand was payable in
cash on completion. The accounting profit on the disposal amounted to €2,432 thousand.
No information is provided regarding the financial highlights for 31 December 2019 since the investment in
the associate was disposed of in October 2019.
The transactions between CNP Cyprus Insurance Holdings Ltd and the Company during 2019, up to the date
of disposal are presented in the table below:
Interest expense paid by the Company
Other expenses paid by the Company
Other income received by the Company
2019
€000
62
46
3
Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc (Apollo)
The Company holds effectively 32.9% (2019: 32.8%) of the UCITS of Apollo due to gradual redemption of
the other holders of Apollo. The Company considers that it exercises significant influence over Apollo even
though no Board representation exists, because due to its UCITS holdings, it possesses the power to
potentially appoint members of the Board of Directors.
Rosequeens Properties Limited and Rosequeens Properties SRL
The Company 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 the
Company took part in a public auction for the settlement of customer loan balances amounting to
approximately €21 million. The Company’s share of net assets of the associate at 31 December 2020 and
2019 had nil accounting value as the net assets of the associate had a negative balance.
Aris Capital Management LLC
The Company’s holding in Aris Capital Management LLC of 30.0% was transferred to the Company 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.
308
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
23.
Investments in associates (continued)
M.S. (Skyra) Vassas Ltd
In the context of its loan restructuring activities, the Company 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 Company considers that it exercises significant
influence over the Skyra Vassas group as the Company 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 Company 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 income statement of the Company.
Fairways Automotive Holdings Ltd
In the context of its loan restructuring activities, the Company 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 Company considers that it
exercises significant influence over the company. The investment is considered to be fully impaired and its
value is restricted to zero.
24.
Property and equipment
2020
Net book value at 1 January
Additions
Revaluation
Transfers to stock of property (Note 26)
Re-assessment of RoU Asset (Note 41)
Derecognition of RoU Asset (Note 41)
Disposals and write-offs
Depreciation charge for the year (Note 13)
Net book value at 31 December
1 January 2020
Cost or valuation
Accumulated depreciation
Net book value
31 December 2020
Cost or valuation
Accumulated depreciation
Net book value
Property
€000
Equipment
€000
Total
€000
214,604
1,896
1,054
(21,805)
22,061
(2,337)
(191)
(10,541)
204,741
262,293
(47,689)
214,604
258,086
(53,345)
204,741
15,851
5,292
-
-
-
-
(140)
(4,863)
16,140
230,455
7,188
1,054
(21,805)
22,061
(2,337)
(331)
(15,404)
220,881
106,972
(91,121)
15,851
369,265
(138,810)
230,455
102,939
(86,799)
16,140
361,025
(140,144)
220,881
309
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
24.
Property and equipment (continued)
2019
Net book value at 1 January
Recognition of RoU asset upon adoption of IFRS 16
Balance at 1 January following adoption of IFRS 16
Additions
Transfers to stock of property (Note 26)
Disposals and write-offs
Depreciation charge for the year (Note 13)
Net book value at 31 December
1 January 2019
Cost or valuation
Accumulated depreciation
Net book value
31 December 2019
Cost or valuation
Accumulated depreciation
Net book value
The net book value of the Company's property comprises:
Freehold property
Improvements on leasehold property
Right-of-use asset (Note 41)
Total
186,572
37,989
224,561
2,031
(234)
(726)
(11,028)
214,604
223,559
(36,987)
186,572
262,293
(47,689)
214,604
16,305
-
16,305
4,925
-
(211)
(5,168)
15,851
202,877
37,989
240,866
6,956
(234)
(937)
(16,196)
230,455
106,122
(89,817)
16,305
329,681
(126,804)
202,877
106,972
(91,121)
15,851
369,265
(138,810)
230,455
2020
€000
162,202
2,625
39,914
204,741
2019
€000
184,412
1,733
28,459
214,604
Freehold property includes land amounting to €67,147 thousand (2019: €76,951 thousand) for which no
depreciation is charged.
The Company’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 Company
performed revaluations as at 31 December 2020. 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 20.
As at 31 December 2020 there are no charges against freehold property of the Company (2019: €20,879
thousand). The freehold property against which charges existed as at 31 December 2019 has been
transferred to stock of property as at 31 December 2020.
The net book value of freehold property, on a cost less accumulated depreciation basis, as at 31 December
2020 would have amounted to €115,147 thousand (2019: €133,138 thousand).
310
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
25.
Intangible assets
Computer software
Net book value at 1 January
Additions
Disposals and write-offs
Amortisation charge for the year (Note 13)
Net book value at 31 December
1 January
Cost
Accumulated amortisation and impairment
Net book value
31 December
Cost
Accumulated amortisation and impairment
Net book value
26.
Stock of property
2020
€000
48,463
12,722
(99)
(14,832)
46,254
2019
€000
41,006
20,672
(188)
(13,027)
48,463
182,027
161,543
(133,564)
(120,537)
48,463
41,006
194,650
182,027
(148,396)
(133,564)
46,254
48,463
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 2020
an impairment loss of €6,687 thousand (2019: €12,459 thousand) was recognised in 'Impairment of non-
financial assets' in the income statement. At 31 December 2020, stock of €140,950 thousand (2019:
€117,994 thousand) is carried at net realisable value. Additionally, at 31 December 2020 stock of property
with a carrying amount of €69,143 thousand (2019: €71,895 thousand) is carried at approximately its fair
value less costs to sell.
The stock of property includes residential properties, offices and other commercial properties,
manufacturing and industrial properties, hotels, land (fields and plots) and properties under construction.
There is no stock of property pledged as collateral for central bank funding facilities under Eurosystem
monetary policy operations.
The carrying amount of the stock of property is analysed in the tables below:
Net book value at 1 January
Additions
Disposals
Transfers to investment properties (Note 20)
Transfers from own use properties (Note 24)
Transfers to disposal group (Note 28)
Impairment (Note 14)
Net book value at 31 December
2020
€000
2019
€000
687,823
90,909
(57,899)
-
21,805
(57,525)
(6,687)
678,426
684,727
121,093
(99,702)
(2,254)
234
(3,816)
(12,459)
687,823
There were no costs of construction during the years 2020 and 2019.
As at 31 December 2020 there are charges against stock of property of the Company with carrying value
€21,805 thousand (2019: nil).
311
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
26.
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
Net gains on disposal of stock of property
Analysis by type and country
2020
Residential properties
Offices and other commercial properties
Manufacturing and industrial properties
Hotels
Land (fields and plots)
Total
2019
Residential properties
Offices and other commercial properties
Manufacturing and industrial properties
Hotels
Land (fields and plots)
Total
2020
€000
65,787
(57,899)
7,888
2019
€000
111,530
(99,702)
11,828
Cyprus
€000
Greece
€000
Total
€000
138,487
78,594
15,839
2,762
375,382
611,064
20,169
21,302
19,839
465
5,587
67,362
158,656
99,896
35,678
3,227
380,969
678,426
€000
€000
€000
153,618
62,926
12,686
2,154
380,749
612,133
21,255
24,013
22,754
494
7,174
75,690
174,873
86,939
35,440
2,648
387,923
687,823
27.
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
Current tax receivable
Prepaid expenses
Other assets
2020
€000
2019
€000
-
13
4,706
53,304
58,023
46,634
5
25,703
72,342
53,354
12
5,102
47,745
106,213
8,277
185
16,513
24,975
130,365
131,188
312
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
27.
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:
2020
1 January
Net (decrease)/increase
31 December
2019
1 January
Net increase/(decrease)
31 December
Stage 1
€000
Stage 2
€000
Stage 3
€000
74,932
(24,827)
50,105
62,946
11,986
74,932
23,779
(23,779)
-
30,846
(7,067)
23,779
32,884
895
33,779
31,323
1,561
32,884
Total
€000
131,595
(47,711)
83,884
125,115
6,480
131,595
An analysis of the changes on the ECL of the above financial assets is presented in the table below:
2020
1 January
Changes to models and inputs used for ECL
calculations
31 December
2019
1 January
Changes to models and inputs used for ECL
calculations
31 December
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
27,624
27,624
496
28,120
496
28,120
19,022
19,022
8,602
27,624
8,602
27,624
Financial assets amounting to €2,242 thousand (2019: €2,242 thousand) are measured at FVPL.
As at 31 December 2019, the remaining receivable relating to the disposal of operations in the UK
amounted to €29,575 thousand. Half of the consideration was received upon completion of the transaction,
an amount was repaid in November 2019 and the remaining receivable was repaid in November 2020. As at
31 December 2019, the receivable relating to the disposal of the Ukrainian operations in 2014, amounted to
€23,779 thousand and the deferred consideration was due to be paid to the Company under a repayment
programme which had been extended from June 2019 to December 2022. The receivable was fully secured.
The receivable was fully repaid in February 2020.
During 2020, credit losses of €496 thousand were recognised in relation to prepayments, accrued income
and other assets. During 2019 credit losses amounted to €3,920 thousand, which included ECL of €8,602
thousand and net reversal of impairments amounting to €4,682 thousand (Note 14).
313
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
28.
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
2020 and 2019:
Disposal group 1
Disposal group 2
Disposal group 3
2020
€000
387,990
223,228
7,769
618,987
2019
€000
-
-
25,929
25,929
Gross loans and advances to customers
Allowance for ECL for impairment of loans
and advances to customers (Note 43.9)
Stock of property (Note 26)
Cash
31 December
Disposal
Group 1
€000
2020
Disposal
Group 2
€000
Disposal
Group 3
€000
2019
Disposal
Group 3
€000
820,429
488,777
32,049
173,881
(510,310)
(313,628)
(24,280)
(147,952)
310,119
175,149
7,769
25,929
32,490
45,381
25,035
23,044
-
-
-
-
387,990
223,228
7,769
25,929
Disposal group 1-Helix 2A
Disposal group 1 comprises a portfolio of loans and advances to customers (the 'Portfolio 2A') and other
assets (comprising stock of property and cash already received since the reference date of Portfolio 2A
being 30 September 2019) known as Project Helix 2A ('Project Helix 2A') as described below. The disposal
group has been classified as held for sale since 30 June 2020 as management is committed to sell it and
has proceeded with an active programme to complete this plan. The sale is expected to be completed within
12 months from the reporting date.
In August 2020, the Group reached an agreement for the sale of the Portfolio 2A. The Portfolio 2A will be
transferred to a licensed Cypriot Credit Acquiring Company (the ‘CyCAC’) by the Company. The shares of
the CyCAC will then be acquired by certain funds affiliated with Pacific Investment Management Company
LLC ('PIMCO'), the purchaser of the Portfolio 2A.
The gross consideration for Helix 2A amounts to €422 million before transaction and other costs, of which
35% is payable at completion and the remaining 65% is deferred without any conditions attached. The
deferred component is payable in three broadly equal instalments over 48 months from completion. The
consideration can be increased through an earnout arrangement, depending on the performance of the
Portfolio. An amount of €21,100 thousand was received as a deposit shortly after the signing of the
agreement (Note 32).
Disposal group 2-Helix 2B
Disposal group 2 comprises a portfolio of loans and advances to customers (the 'Portfolio 2B') and other
assets (comprising stock of property, investment property and cash already received since the reference
date of Portfolio 2B being 30 September 2019) known as Project Helix 2B ('Project Helix 2B') as described
below. The disposal group has been classified as held for sale since 31 December 2020 as management is
committed to sell it and has proceeded with an active programme to complete this plan. The sale is
expected to be completed within 12 months from the reporting date.
314
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
28.
Non-current assets and disposal groups held for sale (continued)
In January 2021, the Group reached an agreement for the sale of the Portfolio 2B. The Portfolio 2B will be
transferred to the CyCAC by the Company, along with Portfolio 2A, and the shares of the CyCAC will then be
acquired by certain funds affiliated with PIMCO, the purchaser of both Portfolios Helix 2A and 2B. The
parties amended and restated the agreement executed in August 2020 for Helix 2A to incorporate the
transaction of Helix 2B.
The gross consideration for Helix 2B amounts to €243 million before transaction and other costs, of which
50% is payable at completion and the remaining 50% is deferred up to December 2025 without any
conditions attached. The consideration can be increased through an earnout arrangement, depending on the
performance of the Portfolio 2B.
The completion of the sale of Helix 2B is planned to occur together with the completion of Helix 2A
transaction, currently estimated in the second half of 2021 and remains subject to a number of conditions,
including required customary regulatory and other approvals.
Disposal group 3
Disposal group 3 comprises loans and advances to customers of Project Helix tail (2019: Disposal group 3
comprised loans and advances to customers of Projects Helix tail and Velocity 2) as further analysed below.
The disposal groups were first classified as held for sale as at 31 December 2019 as management was
committed to sell them and had proceeded with an active programme to complete this plan.
Project Helix tail relates to a portfolio of credit facilities related to Project Helix (a portfolio of loans and
advances to customers for which the sale was completed in June 2019) with a carrying value of €7,769
thousand and €11,998 thousand as at 31 December 2020 and 31 December 2019 respectively. The sale is
expected to be completed within 2021.
Velocity 2 related to a portfolio of unsecured loans and advances to customers with a net book value of
€13,931 thousand as at 31 December 2019 for which an agreement to sell was reached in January 2020
and completed in May 2020. Loans were derecognised giving rise to no gain or loss upon completion of the
sale. On completion, the portfolio comprised of gross loans and advances to customers amounting to
€125,525 thousand with a net book value of €13,555 thousand.
Further analysis of the loans and advances to customers, included in these disposal groups, is disclosed in
Note 43.6.
29.
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 III)
2020
€000
2019
€000
994,694
-
As at 31 December 2020, ECB funding amounted to €1 billion and was borrowed from the fourth TLTRO III
(2019: € nil).
The interest rate that will be applicable to the TLTRO III funding will depend on the eligible net lending
during the specified periods laid out in the terms of the ECB operation.
315
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
29.
Funding from central banks (continued)
In recognition of the challenging credit environment during the pandemic period, the Governing Council of
the ECB has announced that the interest rate on all outstanding TLTRO III operations for the periods from
24 June 2020 to 23 June 2021 and 24 June 2021 to 23 June 2022 will be 50 basis points below the average
rate applicable in the Eurosystem’s main refinancing operations over the same period. The interest rate on
the main refinancing operations is currently at 0%. For the counterparties whose eligible net lending
reaches the lending performance thresholds, the interest rate applied over the periods from 24 June 2020
to 23 June 2021 and 24 June 2021 to 23 June 2022 on all TLTRO III operations outstanding will be 50 basis
points below the average interest rate on the deposit facility prevailing over the same period, and in any
case not higher than minus 1% which is currently the expected rate. The deposit facility rate is currently
minus 0.5%. In calculating the interest, the Company follows a discrete approach by applying the relevant
interest rate applicable for each period.
The maturity of TLTRO III is three years from the settlement of each operation but there is an option
available to repay the amounts borrowed under TLTRO III one year from the settlement of each operation
starting in September 2021.
Details on encumbered assets related to the above funding facilities are disclosed in Note 45.
30.
Customer deposits
By type of deposit
Demand
Savings
Time or notice
By geographical area
Cyprus
Deposits by geographical area are based on the originator country of the deposit.
By currency
Euro
US Dollar
British Pound
Russian Rouble
Swiss Franc
Other currencies
2020
€000
2019
€000
8,149,688
1,970,975
6,412,549
7,595,231
1,567,344
7,528,956
16,533,212
16,691,531
16,533,212
16,691,531
2020
€000
2019
€000
14,929,662
15,009,828
1,199,069
1,286,292
288,102
288,289
28,618
9,901
77,860
30,113
10,803
66,206
16,533,212
16,691,531
316
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
30.
Customer deposits (continued)
By customer sector
Corporate
Global corporate
SMEs
Retail
Restructuring
– Corporate
– SMEs
– Retail other
Recoveries
– Corporate
International banking services
Wealth management
31.
Subordinated loan stock
1,037,430
1,117,222
607,467
832,576
691,550
770,655
10,525,819
10,140,920
27,889
16,688
10,561
52,421
28,222
10,507
3,251
6,140
3,180,061
3,543,315
291,470
330,579
16,533,212
16,691,531
Subordinated Tier 2 Capital Note with
nominal value of €250 million
Contractual interest rate
2020
€000
2019
€000
9.25% up to 19 January 2022
272,152
272,170
The Company maintains a Euro Medium Term Note (ΕΜΤΝ) Programme with an aggregate nominal amount
up to €4,000 million.
In January 2017, the Company issued a €250 million unsecured and subordinated Tier 2 Capital Note (the
Note) under the Company’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. The Company 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 2020 is disclosed in Note 20.
32.
Accruals, deferred income, other liabilities and other provisions
Income tax payable and related provisions
Special defence contribution payable
Retirement benefit plans liabilities (Note 12)
Provisions for financial guarantees and commitments (Notes 43.8.1 and
43.8.2)
Accrued expenses and other provisions
Deferred income
Items in the course of settlement
Lease liabilities (Note 41)
Advances received for disposal group held for sale (Note 28)
Other liabilities
2020
€000
2019
€000
7,770
971
6,561
19,658
52,951
15,807
66,217
39,894
21,100
45,478
276,407
4,123
2,065
7,052
22,112
79,013
18,414
49,975
27,723
-
56,923
267,400
317
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
32.
Accruals, deferred income, other liabilities and other provisions (continued)
The ECL allowance for financial guarantees and commitments is analysed by stage in the table below:
Stage 1
Stage 2
Stage 3
33.
Share capital
Authorised
Ordinary shares of €0.10 each
Issued
1 January
Issue of share capital (Note 34)
31 December
Authorised and issued share capital
2020
€000
2019
€000
168
1,120
18,370
19,658
51
157
21,904
22,112
2020
2019
Number of
shares
(thousand)
€000
Number of
shares
(thousand)
€000
47,677,593
4,767,759
47,677,593
4,767,759
9,597,945
959,794
8,922,945
-
-
675,000
9,597,945
959,794
9,597,945
892,294
67,500
959,794
There were no changes to the authorised share capital during the year ended 31 December 2020 and during
the year ended 31 December 2019.
2020
There were no changes to the issued share capital in the year ended 31 December 2020.
2019
During 2019, the Company issued 675,000 thousand ordinary shares of a nominal value of €0.10 each in
the form of a scrip dividend.
All issued ordinary shares carry the same rights.
318
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
33.
Share capital (continued)
Share premium reserve
The share premium reserve is maintained pursuant to the provisions of section 55 of the Companies Law,
Cap. 113 and is not available for distribution to equity holders in the form of a dividend.
2020
The Company, having obtained approval by its shareholders, the ECB and the Court of Cyprus, implemented
a capital reduction process in October 2020, which resulted in a reclassification of €619 million of the
Company's share premium balance as distributable reserves (retained earnings). Such reduction of capital
did not have any impact on regulatory capital or the total equity position of the Company.
2019
The share premium increased by €67,500 thousand through the issuance of 675,000 thousand ordinary
shares of a nominal value of €0.10 each at a premium of €0.10 per share (Note 34).
The share premium was created in 2014 and 2015 by the issuance of 4,167,234 thousand shares of a
nominal value of €0.10 each of a subscription price of €0.24 each, and was reduced by the relevant
transaction costs of €32,044 thousand.
Share-based payments - share options
Following the incorporation of the BOCH and its introduction as the new holding company of the Company in
January 2017, the Long-Term Incentive Plan was replaced by the Share Option Plan which operates at the
level of BOCH. The Share Option Plan is identical to the Long-Term Incentive Plan except that the number of
shares in the BOCH 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 BOCH 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 Loan Capital Security
2020
€000
2019
€000
220,000
220,000
In December 2018 BOCH issued €220 million Subordinated Fixed Rate Reset Perpetual Additional Tier 1
Capital Securities (the BOCH AT1). On the same date, the Company and BOCH entered into an agreement
pursuant to which BOCH on-lent to the Company the entire €220 million proceeds of the issue of the BOCH
AT1 (the AT1 Loan) on terms substantially identical to the terms and conditions of the BOCH AT1. The AT1
Loan 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 2020, two coupon payments to AT1 holders
were made of a total amount of €27,500 thousand and have been recognised in retained earnings (2019:
€27,199 thousand). The Company 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 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.
319
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
34.
Dividends
Based on the 2019 SREP decision which remains in effect during 2021 following relevant communications by
the ECB, the Company and BOCH are under a regulatory prohibition for equity dividend distribution, similar
to prior years. 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 dividends were declared
or paid during years 2020 and 2019, except as described below.
No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company
and BOCH.
On 14 December 2018, the Board of Directors of the Company 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 BOCH, out of the Company’s profits for the financial year of 2016. The scrip dividend was paid 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 BOCH (Note 33).
35.
Retained earnings
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. From 1 March 2019, the deemed dividend distribution is subject to 1.70% contribution to the
National Health System, increased to 2.65% from 1 March 2020, with the exception of April 2020 until June
2020 when the 1.70% rate was applicable.
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 2020 no special defence contribution on deemed dividend distribution was paid by the Company.
During 2019, dividend distribution was made by the Company via the issuance of new ordinary shares.
36.
Fiduciary transactions
The Company offers fund management and custody services that result in holding or investing financial
assets on behalf of its customers. The Company 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 balance sheet of the
Company unless they are placed with the Company. Total assets under management and custody at 31
December 2020 amounted to €1,056,782 thousand (2019: €1,092,171 thousand).
320
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
37.
Pending litigation, claims, regulatory and other matters
The Company, in the ordinary course of business, is subject to enquiries and examinations, requests for
information, audits, investigations, legal and other proceedings by regulators, governmental and other
public bodies, actual and threatened, relating to the suitability and adequacy of advice given to clients or
the absence of advice, lending and pricing practices, selling and disclosure requirements, record keeping,
filings and a variety of other matters. In addition, as a result of the deterioration of the Cypriot economy
and banking sector in 2012 and the subsequent restructuring of the Company in 2013 as a result of the bail
in Decrees, the Company 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 Company considers that none of these matters are material, either
individually or in aggregate. The Company 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 Company is able to
estimate probable losses (Note 5.4). 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 2020 and hence it is not believed that such matters, when
concluded, will have a material impact upon the financial position of the Company.
37.1
Pending litigation and claims
Investigations and litigation relating to securities issued by the Company
A number of institutional and retail customers have filed various separate actions against the Company
alleging that the Company is guilty of misselling in relation to securities issued by the Company 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 the Company 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).
The Company 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 the Company's officers 'persuaded' them to proceed
with the purchase and/or purported to offer 'investment advice', the Company may face significant
difficulties. To date, a number of cases have been tried in Greece. The Company 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.
So far the first two capital securities cases to reach the Areios Pagos (Supreme Court of Greece) have been
adjudged in favour of the Company, ruling in effect that the Company can rely on the defence of frustration
(i.e. intervening event out of the control of the Company, in this case the Company’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 cases will be retried by the
Court of Appeal 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 the Company’s position is that the Company will, most
probably, win the cases.
321
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
37.
Pending litigation, claims, regulatory and other matters (continued)
37.1
Pending litigation and claims (continued)
In Cyprus six judgments have been issued so far with regards to the Company capital securities. Five of the
said judgments have been issued in favour of the Company (dismissing the plaintiffs’ claims) and one of
them against the Company. The Company has filed an appeal with regards to the case where the judgment
was issued against it. In two of the five cases that the Company won, the plaintiffs have filed an appeal. It
remains to be seen whether the plaintiffs will file appeals in the two most recent cases that the Company
won as the time for filing an appeal has not elapsed.
Provision has been made based on management's best estimate of probable outflows for capital securities
related litigation.
Bail-in related litigation
Depositors
A number of the Company's depositors, who allege that they were adversely affected by the Bail-in, filed
claims against the Company and other parties (such as the CBC and the Ministry of Finance of Cyprus)
including against the Company 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. The Company is defending these actions.
The Bank has won a case with regards to Bail-in related litigation for the first time in June 2020. The
specifics of the case concerned alleged failure to follow instructions prior to the Bail-in. The plaintiffs have
filed an appeal with respect to this judgment.
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. The Company
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 the Company (as regards the way and
methodology whereby such Decrees have been implemented), or that the Company failed to follow
instructions promptly prior to the Bail-in coming into force. The Company intends to contest all of these
claims.
Legal position of the Company
All of the above claims are being vigorously disputed by the Company, in close consultation with the
appropriate state and governmental authorities. The position of the Company 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 the Company claiming €70 million allegedly owed as part of the Company'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 the Company to predict the resolution of this matter, including the timing or any possible
impact on the Company.
322
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
37.
Pending litigation, claims, regulatory and other matters (continued)
37.1
Pending litigation and claims (continued)
Employment litigation
Former senior officers of the Company have instituted one claim for unfair dismissal and one claim for
Provident Fund entitlements against the Company and the Trustees of the Provident Fund. The action with
respect to the Provident Fund entitlements has been dismissed by the court in November 2020 and the
plaintiff has not appealed. The Company does not consider that the case which is still pending will have a
material impact on its financial position.
Additionally, a number of former employees have filed claims against the Company contesting entitlements
received relating to the various voluntary exit plans. As at the reporting date no judgement has been issued
in any of the said claims. The Company does not expect that these actions will have a material impact on its
financial position.
Swiss Francs loans litigation in Cyprus and the UK
Α number of actions have been instituted against the Company by borrowers who obtained loans in foreign
currencies (mainly Swiss Francs). The central allegation in these cases is that the Company misled these
borrowers and/or misrepresented matters, in violation of applicable law. The Company is contesting the said
proceedings. The Company does not expect that these actions will have a material impact on its financial
position.
UK property lending claims
The Company is the defendant in certain proceedings alleging that the Company 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 UK are currently stayed in order for the parties to have time to negotiate possible
settlements. The Company does not expect that these negotiations will lead to outflows for the Company.
Banking business cases
There is a number of banking business cases where the amounts claimed are significant. These cases
primarily concern allegations as to the Company's standard policies and procedures allegedly resulting to
damages and other losses for the claimants. Further several other banking business cases claims where
amounts involved are not as significant have been assessed by management and appropriate provisions
have been taken. Management has assessed the probability of loss as remote and does not expect any
future outflows with respect to these cases to have a material impact on the financial position of the
Company. Such matters arise as a result of the Company’s activities and management appropriately
assesses the facts and the risks of each case accordingly.
In addition the Company has received claims in relation to alleged breaches of various provisions for
warranties and indemnities relating to the disposal process of certain operations of the Company.
Management views this matter to be at an early stage and cannot determine the outcome, however it is
assessing the relevant risks and taking appropriate actions and where necessary has set up appropriate
provisions.
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. The Company 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 Company 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 the Company relating to the reclassification of Greek Government Bonds in April 2010. No
charges were instituted against the Company in this case. On 19 March 2020, the Assize Court of Nicosia
discontinued the criminal case and discharged all accused, including the current officers of the Company,
who had been charged with various criminal offences relating to events occurring before the financial crisis
of 2013 and the bail in of the Company. 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.
323
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
37.
Pending litigation, claims, regulatory and other matters (continued)
37.2
Regulatory matters
The Hellenic Capital Market Commission (HCMC) Investigation
The HCMC is currently in the process of investigating matters concerning the Company's investment in
Greek Government Bonds from 2009 to 2011, including, inter alia, related non-disclosure of material
information in the Company'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
investors regarding the Company'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 Company.
During 2020, HCMC imposed two fines on the Company, an approximately €5 thousand fine regarding the
sale of Greek Government Bonds on behalf of the Greek Government and an approximately €4 thousand
fine regarding the failure of the Company to comply with certain articles of the HCMC.
Labour Inspection Body of Greece
As for other potential matters involving the exposure of the Company to losses, twelve fines have been
imposed by the Labour Inspection Body of Greece relating to the years prior to 2013, which amount in total
to €84 thousand.
The Cyprus Securities and Exchange Commission (CySEC) Investigations
As at 31 December 2020 and 31 December 2019 there were no pending CySEC investigations against the
Company.
Central Bank of Cyprus (CBC)
In June 2020 the Company has won the recourse that it had filed before the Administrative Court with
regards to the decision and fine that was imposed in September 2013 upon the Company by CBC
concerning the selling practices that the Company used during the 2009 capital securities issuance.
The CBC has carried out certain investigations to assess compliance of the Company under the anti-money
laundering (AML) legislation which was in place during years 2008-2015 and 2016-2018.
Following the investigations and the on-site audit findings, the CBC concluded on 27 January 2021 that in
the case of AML legislation 2008-2015 the Company was in breach of certain articles of the said legislation
and for the investigation relating to the years 2016-2018 the Company prima facie, failed to act in
accordance with certain provisions of the AML/counter terrorism financing (CTF) Law and the CBC AML/CTF
Directive.
With respect to the above investigations a fine may be imposed upon the Company. According to the CBC
AML Directive, the maximum fine that may be imposed amounts to €5 million or 10% of the annual
turnover of the Company for each investigation. The fine is expected to be in the region of €30 thousand for
each investigation, as per the assessment of the Company. The Company will file representations towards
mitigation of the fine. If a fine is imposed upon the Company, the Company can file a recourse before the
Administrative Court.
Commission for the Protection of Competition Investigations
In April 2014, following an investigation which began in 2010, the Cypriot Commission for the Protection of
Competition (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, the
Company and JCC Payment Systems Ltd (JCC), a card processing business currently 75% owned by the
Company. The Company is expecting the final conclusion of this matter and has provided for it accordingly.
324
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
37.
Pending litigation, claims, regulatory and other matters (continued)
37.2
Regulatory matters (continued)
There was also an allegation concerning the Company's arrangements with American Express, namely that
such exclusive arrangements violated Cypriot and EU competition law. On both matters, the CPC has
concluded that the Company (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 the Company and the Company 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 the Company’s position and cancelled the decision as well as the fine imposed upon the Company.
During 2018, the Attorney General has filed an appeal before the Supreme court with respect to such
decision. Until a judgment is issued by the Supreme Court, the decision of the CPC remains annulled and
there is no subsisting fine upon the Company. The said appeal is still pending as at the year end.
In 2019 the CPC initiated an ex officio investigation with respect to unfair contract terms and into the
contractual arrangements/facilities offered by the Company for the period from 2012 to 2016. To date no
charges have been put forward nor has any formal proceedings been instituted against the Company in this
case. This investigation is currently at a very early stage to predict its outcome and no formal process has
been initiated.
CPC has ruled in March 2020 that there is breach of competition law in relation to the Company's
participation in the shareholding of Fairways Ltd. A €5 thousand fine has been imposed upon the Company
following submission of the Company’s written address on mitigation. The said fine has been paid.
Consumer Protection Service
In July 2017, the Consumer Protection Service (CPS) has imposed a fine of €170 thousand upon the
Company after concluding an ex officio investigation regarding some terms in both the Company's and
Marfin Popular Bank's loan documentation, that were found to constitute unfair commercial practices.
Decisions of the CPS (according to rulings of the Administrative Court) are not binding but merely an
expression of opinion. Against this decision, the Company has filed an application before the Administrative
Court which has not yet issued its judgement. The case is set for Directions in April 2021.
In March 2020 the Company 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
Company to cease the use of a number of terms in the contracts of the Company which are deemed to be
unfair under the said order. The said terms relate to contracts that had been signed during 2006-2007.
Furthermore, the said application seeks for an order ordering the Company to undertake measures to
remedy the situation. The case is set for Directions in April 2021. The Company will take all necessary steps
for the protection of its interests.
In March 2021, the Company was served with an application (79/2021) filed by the Cyprus Consumers’
Association for the issuance of a court order prohibiting the use of a number of contractual terms included
in the Company’s consumer contracts and the amendment of any such contracts (present and future) so as
to remove such terms deemed as unfair. The said contractual terms were determined as unfair pursuant to
the decisions issued by the Consumer Protection Service of the Ministry of Energy, Commerce, Industry and
Tourism against the Company in 2016 and 2017. The Company will take all necessary steps for the
protection of its interests.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these
matters, is unknown.
Data Protection Commissioner (DPC)
A customer of the Company complained to the Office of the Commissioner for Personal Data Protection that
the Company violated certain provisions of the General Data Protection Regulation (GDPR). The
Commissioner’s Office, imposed a fine on the Company of €15 thousand. The said fine has been paid.
325
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
37.
Pending litigation, claims, regulatory and other matters (continued)
37.2
Regulatory matters (continued)
UK regulatory matters
The provision outstanding as at 31 December 2020 is €548 thousand (2019: €1,645 thousand). As part of
the agreement for the sale of Bank of Cyprus UK Ltd, a liability with regards to UK regulatory matters
remains an obligation for settlement by the Company. The level of the provision represents the best
estimate of all probable outflows arising from customer redress based on information available to
management.
37.3
Other matters
Other matters include among others, provisions for various other open examination requests by
governmental and other public bodies, legal matters and provisions for warranties and indemnities related
to the disposal process of certain operations of the Company.
37.4
Provisions for pending litigation, claims, regulatory and other matters
2020
1 January
Increase of provisions including unwinding of
discount (Note 13)
Utilisation of provisions
Release of provisions (Note 13)
Foreign exchange adjustments
31 December
Provisions expected to be settled within 12
months post reporting date
2019
1 January
Increase of provisions including unwinding of
discount (Note 13)
Utilisation of provisions
Release of provisions (Note 13)
Transfer to income tax payable
Foreign exchange adjustments
31 December
Provisions expected to be settled within 12
months post reporting date
Pending
litigation and
claims
(Note 37.1)
€000
Regulatory
matters
(Note 37.2)
Other matters
(Note 37.3)
Total
€000
€000
€000
64,761
11,892
24,143
100,796
24,910
(12,706)
(14,710)
-
62,255
271
(1,555)
-
(102)
10,506
21,417
(1,013)
(697)
-
46,598
(15,274)
(15,407)
(102)
43,850
116,611
15,795
548
-
16,343
69,115
26,290
9,901
105,306
16,268
(15,641)
(4,981)
-
-
413
(14,856)
-
-
45
19,101
-
-
(4,859)
-
35,782
(30,497)
(4,981)
(4,859)
45
64,761
11,892
24,143
100,796
16,333
1,600
-
17,933
Some information required by the IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' is not
disclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation or the
outcome of the negotiation in relation to provisions for warranties and indemnities related to the disposal
process of certain operations of the Company.
The net increase in provisions for pending litigation and claims for the year 2020 was primarily driven by
the progressed status of the pending investigations and litigations relating to securities issued by the
Company in Greece. With regards to other matters, additional provisions were taken for matters in relation
to the disposal process of certain of the Company's operations as elements of those processes are ongoing.
326
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
37.
Pending litigation, claims, regulatory and other matters (continued)
37.4
Provisions for pending litigation, claims, regulatory and other matters (continued)
An increase by 5% in the probability of loss rate for pending litigation and claims (2019: 5%) with all other
variables held constant, would lead to an increase in the actual provision by €6,956 thousand at 31
December 2020 (2019: increase by €5,848 thousand).
38.
Contingent liabilities and commitments
As part of the services provided to its customers, the Company 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 balance sheet, they do contain credit risk and
are therefore part of the overall credit risk exposure of the Company (Note 43.8).
38.1
Capital commitments
Capital commitments for the acquisition of property, equipment and intangible assets as at 31 December
2020 amount to €18,912 thousand (2019: €26,215 thousand).
38.2
Other contingent liabilities
The Company, 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 Company may be obliged to compensate the buyers in the event of a valid claim by the buyers
with respect to the above representations, warranties and indemnities.
A provision has been recognised, based on management’s best estimate of probable outflows, where it was
assessed that such an outflow is probable.
327
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
39.
Net cash flow from operating activities
Loss before tax
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
Special levy on deposits on credit institutions in Cyprus, contribution to Single Resolution Fund and
other levies
Credit losses of other financial instruments
Impairment of balances with Group companies
Amortisation of discounts/premiums, catch-up adjustment on debt securities and interest on debt
securities
Loss on sale and write-offs of property and equipment and intangible assets
Net gains on disposal of investment properties
Net losses/(gains) from revaluation of investment properties
Dividend income
Negative interest on funding from central banks
Net gains on disposal of investments in debt securities
Profit from revaluation of debt securities designated as fair value hedges
Net (gains)/losses on disposal/dissolution of subsidiaries and associates
Impairment of investment in subsidiaries
Net losses/(gains) on balances with Group companies
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
Interest expense on lease liability
Loans and advances to banks
Deposits by banks
Obligatory balances with central banks
Customer deposits
Debit balances with Group companies
Credit balances with Group companies
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 received/ (paid)
Net cash flow (used in)/from operating activities
328
2020
€000
2019
€000
(162,353)
(210,163)
271,214
15,404
14,832
-
4,037
4,707
(27,028)
93
(556)
1,599
(25,790)
(5,306)
(2,865)
(5,239)
(9)
10,901
30,438
(7,888)
6,687
18,782
23,329
409
165,398
12,330
(142,497)
2,017
225,672
16,196
13,027
13,077
3,303
35,380
(33,175)
108
(2,170)
(1,064)
(22,573)
-
-
(5,590)
1,964
4,194
39,881
(11,828)
12,459
17,448
23,325
349
119,820
27,478
102,374
2,627
(158,319)
(152,027)
(26,586)
(28,161)
(92,005)
79,432
(15,246)
180
17,601
(28,669)
(6,182)
2,934
(168,129)
65,787
(320,115)
464
(319,651)
92,105
(5,181)
(204,055)
26,279
632
11
25,003
17,600
13,304
(6,518)
(80,816)
111,530
90,166
(76)
90,090
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
39.
Net cash flow from operating activities (continued)
Non-cash transactions
2020
Repossession of collaterals
During 2020, the Company acquired properties by taking possession of collaterals held as security for loans
and advances to customers of €92,224 thousand (2019: €123,114 thousand) (Note 43.10).
Recognition of RoU and lease liabilities
During 2020 the Company recognised RoU assets and corresponding lease liabilities of €19,724 thousand
(2019: €37,263 thousand).
2019
Disposal of Project Helix
Upon the disposal of Project Helix, the Company participated in a senior debt in relation to the financing of
the Project Helix amounting to €45 million (Note 28).
Acquisition of equity investments
During 2019 the Company acquired equity investments amounting to €6,529 thousand as a result of its loan
restructuring activities. The Company 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 Company 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 49.4.2.
Net cash flow from operating activities - interest and dividends
Interest paid
Interest received
Dividends received
2020
€000
(116,649)
469,253
25,790
378,394
2019
€000
(162,234)
775,360
22,573
635,699
329
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
39.
Net cash flow from operating activities (continued)
Changes in liabilities arising from financing activities
2020
1 January
Cash flows
Other non-cash movements
31 December
2019
1 January 2019
Cash flows
Other non-cash movements
31 December 2019
Funding from
central banks
(Note 29)
€000
Subordinated
loan stock
(Note 31)
€000
-
1,000,000
(5,306)
272,170
(23,329)
23,311
Total
€000
272,170
976,671
18,005
994,694
272,152
1,266,846
830,000
(830,000)
-
-
270,930
(23,325)
24,565
272,170
1,100,930
(853,325)
24,565
272,170
Further information relating to the change in lease liabilities is disclosed in (Note 41).
40.
Cash and cash equivalents
Cash and cash equivalents comprise:
Cash and non-obligatory balances with central bank
Cash and non-obligatory balances with central banks classified as held for
sale (Note 28)
Loans and advances to banks with original maturity less than three months
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 17)
Total cash and balances with central banks (Note 17)
Loans and advances to banks with original maturity less than three months
Restricted loans and advances to banks
Total loans and advances to banks (Note 17)
2020
€000
5,495,112
2019
€000
4,899,833
68,425
284,920
-
200,044
5,848,457
5,099,877
2020
€000
5,495,112
158,031
2019
€000
4,899,833
160,048
5,653,143
5,059,881
284,920
76,358
361,278
200,044
88,712
288,756
Restricted loans and advances to banks include collaterals under derivative transactions of €34,032
thousand (2019: €41,104 thousand) which are not immediately available for use by the Company, but are
released once the transactions are terminated.
330
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
41.
Leases
The Company is a lessee for commercial properties such as office and branch buildings. 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 Company has the option to extend the tenancy for four further periods of
two years each. The Company 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 Company for the operation of administrative functions. The basic terms
for new lease contracts and the current practise are substantially the same with those for lease contracts of
branches.
During the year ended 31 December 2020, the lease liability was remeasured due to changes in future lease
payments and re-assessment of the lease term of existing contracts using the assumptions as detailed in
Note 5.10.
The carrying amounts of the Company’s RoU assets and lease liabilities and the movement during the year
ended 31 December 2020 and the year ended 31 December 2019 is presented in the table below:
2020
1 January
Assets derecognised (Note 24)
Remeasurement of lease liability
Depreciation charge for the year (Note 13)
Interest expense (Note 7)
Cash outflows-payments
31 December
2019
1 January - Impact on adoption of IFRS 16
Assets derecognised
Restoration liability - disclosed within other liabilities
Depreciation charge for the year (Note 13)
Interest expense (Note 7)
Cash outflows-payments
31 December
RoU
asset
(Note 24)
€000
Lease
liabilities
(Note 32)
€000
28,459
(2,337)
22,061
(8,269)
-
-
(27,723)
2,337
(22,061)
-
(409)
7,962
39,914
(39,894)
RoU
(Note 24)
€000
37,989
(726)
-
(8,804)
-
-
Lease
liabilities
(Note 32)
€000
(37,989)
726
1,230
-
(349)
8,659
28,459
(27,723)
RoU assets comprised of leases of buildings and are presented within Property, disclosed in Note 24.
Cash outflows relate to lease payments made during the year.
The analysis of lease liabilities based on remaining contractual maturity is disclosed in Note 45.
331
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
42.
Analysis of assets and liabilities by expected maturity
Less than
one year
€000
2020
Over one
year
€000
Total
€000
Less than
one year
€000
2019
Over one year
€000
Total
€000
5,495,112
158,031
5,653,143
4,899,833
160,048
5,059,881
284,920
5,556
76,358
19,071
361,278
200,044
24,627
3,217
88,712
19,843
288,756
23,060
343,379
1,356,952
1,700,331
430,191
1,299,079
1,729,270
1,365,942
8,516,212
9,882,154
1,515,521
9,199,881
10,715,402
575,323
165,608
740,931
86,426
663,064
749,490
57,362
149,709
37,909
73,003
528,717
303,273
130,365
678,426
341,182
112,068
261,000
37,909
19,120
426,823
341,182
131,188
687,823
379,091
-
267,135
267,135
7
278,911
278,918
11,691
-
-
35,747
2,191
47,438
2,191
97,609
97,609
-
-
-
52,106
2,191
52,106
2,191
108,177
108,177
618,987
-
618,987
25,929
-
25,929
8,945,890 11,599,907 20,545,797
7,572,145
12,659,137
20,231,282
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
Balances with Group
companies
Prepayments, accrued
income and other assets
Stock of property
Deferred tax assets
Property, equipment and
intangible assets
Investment properties
Investment in associates
Investments in Group
companies
Non-current assets and
disposal groups held for sale
Liabilities
Deposits by banks
Funding from central banks
Repurchase agreements
80,770
-
-
307,923
994,694
-
388,693
994,694
-
201,549
329,641
531,190
-
168,129
11,839
-
-
38,754
-
168,129
50,593
Derivative financial liabilities
6,805
39,173
45,978
Customer deposits
Balances with Group
companies
Accruals, deferred income
and other liabilities and
pending litigation, claims,
regulatory and other matters
Subordinated loan stock
Deferred tax liabilities
5,242,058 11,291,154 16,533,212
5,327,735
11,363,796
16,691,531
71,806
-
71,806
99,967
-
99,967
205,599
172,152
-
187,419
100,000
20,443
393,018
272,152
20,443
245,370
-
-
122,826
272,170
22,455
368,196
272,170
22,455
5,779,190 12,940,806 18,719,996
6,054,589
12,149,642
18,204,231
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.
332
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
42.
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 cash flows from expected receipts which are included
within time bands, according to historic amounts of receipts in the recent months.
Stock of property is classified in the relevant time band based on expectations as to its realisation.
A percentage of customer deposits 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.
43.
Risk management - Credit risk
In the ordinary course of its business the Company 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 Company.
The Credit Risk Management department sets the Company’s credit disbursement policies and monitors
compliance with credit risk policy applicable to each business line and the quality of the Company’s loans
and advances portfolio through the timely credit risk assessment of 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 Company’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.
The Market Risk department assesses the credit risk relating to exposures to Credit Institutions,
Governments and other debt securities. Models and limits are presented to and approved by the Board of
Directors, through the relevant authority based on the authorisation level limits.
333
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.1
Maximum exposure to credit risk and collateral and other credit enhancements
The Company'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
2020
€000
18,807,786
2019
€000
18,507,104
23,523
28,679
18,831,309
18,535,783
2,656,781
2,612,824
52,145
58,290
2,708,926
2,671,114
21,464,567
21,119,928
75,668
86,969
21,540,235
21,206,897
The Company offers guarantee facilities to its customers under which the Company 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 facilities (including standby letters of credit) commit the Company 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 Company 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 Company 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 Company’s management regularly monitors the changes in the market value of the collateral and,
where necessary, requests the pledging of additional collateral in accordance with the relevant agreement.
Other financial instruments
Collateral held as security for financial assets other than loans and advances to customers is determined by
the nature of the financial instrument. Debt securities and other eligible bills are generally unsecured with
the exception of asset-backed securities and similar instruments, which are secured by pools of financial
assets. In addition, some debt securities are government-guaranteed.
The Company 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.
334
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.1
(continued)
Maximum exposure to credit risk and collateral and other credit enhancements
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 Company 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.
335
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.1
Maximum exposure to credit risk and collateral and other credit enhancements (continued)
2020
Balances with central banks (Note 17)
Loans and advances to banks (Note 17)
FVPL debt securities (Note 18)
Debt securities classified at amortised cost and
FVOCI (Note 18)
Derivative financial instruments (Note 19)
Loans and advances to customers (Note 21)
Loans and advances to customers classified as
held for sale (Note 28)
Cash and non-obligatory balances with central
banks classified as held for sale (Note 28)
Debtors (Note 27)
Balances with group companies
Other assets (Note 27)
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
Maximum
exposure to
credit risk
€000
Cash
€000
5,513,476
361,278
12,292
1,677,066
24,627
-
1,190
-
-
-
Fair value of collateral and credit enhancements held by the Company
Securities
Letters of credit/
guarantee
Property
Other
Surplus collateral Net collateral
Net exposure to
credit risk
€000
€000
€000
€000
€000
€000
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,513,476
361,278
12,292
1,677,066
24,627
946,902
9,882,154
440,034
582,867
158,765
14,001,366
1,517,072
(7,764,852)
8,935,252
493,037
806
271
6,121
1,229,782
50,263
(807,942)
479,301
13,736
68,425
13
740,931
58,010
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
68,425
13
740,931
58,010
18,831,309
442,030
583,138
164,886
15,231,148
1,567,335
(8,572,794)
9,414,553
9,416,756
4,655
625,965
277
110,304
14,866
1,854
2,063,440
2,708,926
21,540,235
26,194
138,629
580,659
2
2,305
169
643
3,119
-
1,332
3,869
123,283
507
43,154
-
4,992
815
1,479
2,811
372,670
504,814
54,996
99,472
-
-
-
-
-
4,655
280,378
-
345,587
7,830
7,036
455,982
1,607,458
748,845
1,960,081
586,257
167,697
15,735,962
1,666,807
(8,572,794)
10,163,398
11,376,837
336
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.1
Maximum exposure to credit risk and collateral and other credit enhancements (continued)
2019
Balances with central banks (Note 17)
Loans and advances to banks (Note 17)
FVPL debt securities (Note 18)
Debt securities classified at amortised cost and FVOCI
(Note 18)
Derivative financial instruments (Note 19)
Loans and advances to customers (Note 21)
Loans and advances to customers classified as held for
sale (Note 28)
Receivable relating to disposal of operations (Note 27)
Debtors (Note 27)
Balances with group companies
Other assets (Note 27)
On-balance sheet total
Contingent liabilities
Fair value of collateral and credit enhancements held by the Company
Maximum
exposure to
credit risk
€000
4,908,334
288,756
15,455
1,703,144
23,060
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
-
470
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
470
-
-
-
4,908,334
288,286
15,455
1,703,144
23,060
10,715,402
434,870
637,792
170,711
15,499,199
1,387,683
(8,523,712)
9,606,543
1,108,859
25,929
53,354
12
749,490
52,847
25
689
-
-
-
-
-
-
-
-
253
23,816
29,276
48,900
15,704
44,270
(31,293)
(93,207)
14,654
23,779
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,275
29,575
12
749,490
52,847
18,535,783
435,365
638,481
194,780 15,577,375
1,447,657
(8,648,212)
9,645,446
8,890,337
Acceptances and endorsements
5,816
447
-
-
4,471
Guarantees
Commitments
689,394
127,078
2,045
3,132
137,509
175
34,527
Documentary credits
Undrawn formal stand-by facilities, credit lines and
other commitments to lend
Off-balance sheet total
11,767
1,993
-
-
5,429
618
1,964,137
28,653
2,671,114
158,171
6,087
8,132
1,590
345,199
4,722
492,608
51,128
86,448
-
-
-
-
-
5,093
304,291
723
385,103
8,040
3,727
432,657
1,531,480
750,081
1,921,033
21,206,897
593,536
646,613
199,502 16,069,983
1,534,105
(8,648,212)
10,395,527
10,811,370
The contingent liabilities and commitments include exposures relating to loans and advances to customers classified as held for sale amounting to €2,188
thousand (2019: €1,579 thousand), which largely relate to the Cyprus geographical area.
337
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.2
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 Company’s risk appetite statement imposes stricter
concentration limits and the Company is taking actions to run down those exposures which are in excess of
these internal limits over time.
The credit risk concentration, which is based on industry (economic activity) and business line
concentrations, as well as geographical concentration, is presented below. The geographical concentration,
for credit risk concentration purposes, is based on the Company’s Country Risk Policy which is followed for
monitoring the Company's exposures. Market Risk is responsible for analysing the country risk of exposures.
ALCO reviews the country risk of exposures on a quarterly basis and the Board, through its Risk Committee,
reviews the country risk of exposures and any breaches of country risk limits on a regular basis and at least
annually. In accordance with the Company’s policy, exposures are analysed by country of risk based on the
country of residency for individuals and the country of registration for companies.
The below geographical concentration presents separately countries with high concentration of risk and all
other countries with low concentration of risk, are presented within 'Other countries' as per Company policy.
2020
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other
services
Other sectors
2020
By business line
Corporate
Global corporate
SMEs
Retail
Cyprus
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
1,014,445
350,403
875,572
613,895
717
389
252
177
35,989
34,736
8,689
123
1,899
3,767
692
504
600
33,483
2
2
-
-
-
867,601
127,342
4,670,357
7,813
163,613
1,139
48,361
Other
countries
€000
Gross loans at
amortised cost
€000
112
1,019,295
31,717
40,185
234
41,223
84,830
383,378
986,986
623,543
1,071,548
4,976,113
652,928
432,569
407
13
5,711
219
3,773
838
9,337
39,933
5
168,175
712,089
601,819
9,477,770
181,359
206,730
44,796
57,707
406,409
10,374,771
Cyprus
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
Other
countries
€000
Gross loans at
amortised cost
€000
1,922,810
8,949
94
604
110
2,760
1,935,327
1,344,983
163,153
41,334
35,546
9,308
302,734
1,897,058
1,081,773
708
2,881
-
-
2,337
1,087,699
- housing
- consumer, credit cards and
other
Restructuring
2,862,802
3,052
57,627
884,151
1,075
1,507
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking
services
Wealth management
175,386
86,644
130,661
94,560
20,388
87,276
364,775
327,637
68,923
25,001
-
189
182
13
-
9
326
34
524
1,633
2,849
127
-
275
73,460
6,157
2,905
18,262
764
-
623
133
-
-
130
-
7,592
-
160
4
4
-
6,051
25,622
2,955,777
256
2,061
889,183
-
263
219
-
-
5,324
133
1,703
12
23
1,465
1,728
18,511
30,042
355
2,076
21,169
24,075
-
5,779
181,234
88,862
135,744
94,712
28,003
90,753
487,274
336,263
135,338
31,544
9,477,770
181,359
206,730
44,796
57,707
406,409
10,374,771
338
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.2
Credit risk concentration of loans and advances to customers (continued)
2019 (restated)
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other
services
Other sectors
2019 (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
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
1,315,261
416,263
806,009
817,816
1,019
677
905
69
34,169
36,914
8,433
160
3,319
3,843
1,297
731
740
38,214
12
-
-
40
672
943,141
128,955
Other
countries
€000
Gross loans at
amortised cost
€000
416
1,321,456
34,461
38,016
397
452,767
915,839
827,586
25,799
1,140,100
5,374,482
8,378
221,924
1,295
64,390
112,661
5,783,130
728,704
532,594
1,016
54
6,901
241
4,956
20,860
36,183
986
31
203,764
798,620
737,670
10,934,270
182,701
270,433
52,062
86,005
451,697
11,977,168
Cyprus
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
Other
countries
€000
Gross loans at
amortised cost
€000
1,937,940
7,924
2,932
715
-
2,968
1,334,054
163,332
42,776
40,654
19,588
299,345
1,095,447
785
3,657
-
-
2,059
1,952,479
1,899,749
1,101,948
2,687,248
2,615
65,241
890,112
557
1,904
303,960
313,550
337,344
177,841
73,656
423,326
656,974
614,137
62,938
25,743
298
218
150
25
-
155
648
1,797
7,710
919
-
3,798
2,312
109,237
362
11,053
3,941
18,759
27
2
710
135
-
-
-
-
9,444
-
357
38
9
-
6,958
29,915
2,792,687
382
2,468
895,558
-
565
977
17
16,219
1,147
4,353
243
-
1,481
7,507
4,818
29,588
46,189
2,375
5,566
24,074
23,931
-
4,969
321,125
317,277
350,534
179,045
90,607
433,578
844,657
633,531
133,652
30,741
10,934,270
182,701
270,433
52,062
86,005
451,697
11,977,168
In 2019 Financial Statements the concentration analysis by industry and business line concentration was
presented by geographical analysis which allocated industry and business lines exposures to the country
where the loans and advances to customers are being managed. For the purposes of this note the
geographical analysis has been replaced with geographical concentration based on the country of residency
for individuals and the country of registration for companies.
As a result, for 2019, an amount of loans and advances to customers of €988,236 thousand relates to loans
managed in ‘Cyprus’ and presented within 'Cyprus' in the respective note in 2019 Financial Statements,
which relates to customers resident/registered in the following countries by country of risk: €182,701
thousand in Greece, €269,742 thousand in UK, €17,679 thousand in Romania, €66,417 thousand in Russia
and €451,697 thousand in 'Other countries' and have been allocated accordingly to the aforesaid countries
in the 2019 tables as restated above.
339
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.2
Credit risk concentration of loans and advances to customers (continued)
Similarly an amount of loans and advances to customers €85,640 thousand managed in 'Other Countries' as
at 31 December 2019 relate to customers resident in/registered in the following countries by country of
risk: €211 thousand in Greece, €691 thousand in UK, €37,033 thousand in Romania and €47,705 thousand
in Russia and have been allocated accordingly to the aforesaid countries in the 2019 tables as restated
above.
The loans and advances to customers include lending exposures in Cyprus with collaterals in Greece with a
carrying value as at 31 December 2020 of €85,424 thousand (2019: €80,324 thousand).
43.3
Credit risk concentration of loans and advances to customers classified as held for sale
Industry, geographical and business lines concentrations of Company loans and advances to customers at
amortised cost classified as held for sale are presented in the table below.
2020
By economic activity
Trade
Manufacturing
Hotels and restaurants
Construction
Real estate
Private individuals
Professional and other services
Other sectors
2020
By business line
SMEs
Retail
- housing
- consumer, credit cards and other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
Cyprus
Greece
€000
€000
United
Kingdom
€000
Russia
€000
Other
countries
€000
Gross loans at
amortised cost
€000
137,088
49,724
30,266
151,907
68,685
712,742
85,933
58,845
-
84
-
-
-
-
305
496
8
-
-
-
-
26
-
-
560
29
76
314
1,423
16,225
10,004
14,969
199
-
62
-
1,093
-
192
-
137,088
50,673
30,791
152,017
68,999
755,363
87,479
58,845
1,295,190
1,706
17,096
11,123
16,140
1,341,255
Cyprus
Greece
€000
€000
United
Kingdom
€000
Russia
€000
Other
countries
€000
Gross loans at
amortised cost
€000
3
40
23
65,947
117,541
21,584
39,998
132,494
365,829
298,136
253,595
-
-
-
-
-
-
-
149
1,305
251
-
-
-
-
-
-
-
-
1
1,734
163
402
137
1,164
2,993
9,019
1,647
-
-
3,552
842
5,705
861
-
-
-
-
368
76
160
2,918
1,842
7,492
3,284
3
40
23
65,947
119,807
22,062
40,295
140,128
371,655
321,657
259,638
1,295,190
1,706
17,096
11,123
16,140
1,341,255
340
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.3
(continued)
Credit risk concentration of loans and advances to customers classified as held for sale
2019 (restated)
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other
services
Other sectors
2019 (restated)
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
Greece
United
Kingdom
Romania
Russia
Other
countries
€000
€000
€000
€000
€000
€000
Gross loans
at amortised
cost
€000
18,037
6,327
5,135
10,588
1,263
-
-
-
-
4
108,043
1,779
15,930
5,252
80
3
170,575
1,866
-
-
14
-
-
441
11
-
466
-
-
-
-
-
35
-
-
35
2
-
-
-
-
56
1
-
59
-
-
15
-
-
309
556
-
880
18,039
6,327
5,164
10,592
1,263
110,663
16,578
5,255
173,881
Cyprus
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
Other
countries
€000
Gross loans at
amortised cost
€000
710
5
330
7,618
1,155
923
39,832
17,640
20,662
3,244
78,391
-
-
-
-
-
204
45
-
-
1,317
300
65
-
170,575
1,866
-
-
-
-
-
-
179
-
-
191
96
-
466
-
-
-
-
-
-
-
-
-
-
35
-
35
-
-
-
-
-
-
11
-
-
-
48
-
59
-
-
-
-
-
-
45
-
29
-
804
2
880
710
5
330
7,618
1,155
1,127
40,112
17,640
20,691
4,752
79,674
67
173,881
As explained in Note 43.2, the 2019 Financial Statements presented the above analysis by geographical
analysis. All loans and advances to customers classified as held for sale were presented within 'Cyprus' in
the geographical analysis as all loans were managed in Cyprus.
43.4
Currency concentration of loans and advances to customers
Gross loans at amortised cost
Euro
US Dollar
British Pound
Russian Rouble
Romanian Lei
Swiss Franc
Other currencies
2020
€000
2019
€000
9,830,509
11,279,330
336,237
91,213
1
344
108,198
8,269
398,559
85,925
1
669
198,260
14,424
10,374,771
11,977,168
341
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.5
Currency concentration of loans and advances to customers classified as held for sale
The following tables present the currency concentration of the Company’s loans and advances at amortised
cost classified as held for sale.
Gross loans at amortised cost
Euro
US Dollar
British Pound
Swiss Franc
Other currencies
2020
€000
2019
€000
1,285,894
170,050
7,023
709
42,964
4,665
55
2
2,422
1,352
1,341,255
173,881
43.6
Analysis of loans and advances to customers by staging
2020
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
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
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
6,681,176
2,148,946
1,355,400
335,851
10,521,373
(72,591)
(25,815)
(9,376)
(38,820)
(146,602)
6,608,585
2,123,131
1,346,024
297,031
10,374,771
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
7,019,936
1,523,823
3,008,196
627,212
12,179,167
(75,508)
(20,455)
(16,516)
(89,520)
(201,999)
6,944,428
1,503,368
2,991,680
537,692
11,977,168
Loans and advances to customers classified as held for sale
2020
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
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
6,177
21,801
1,138,587
221,365
1,387,930
(41)
397
(7,650)
(39,381)
(46,675)
6,136
22,198
1,130,937
181,984
1,341,255
342
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.6
Analysis of loans and advances to customers by staging (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
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
176
-
176
807
13
820
153,608
30,373
184,964
(3,402)
(7,694)
(11,083)
150,206
22,679
173,881
Residual fair value adjustment
The residual fair value adjustment mainly relates to the loans and advances to customers acquired as part
of the acquisition of certain operations of Laiki Bank in 2013. In accordance with the provisions of IFRS 3,
this adjustment decreased the gross balance of loans and advances to customers. The residual fair value
adjustment is included within the gross balances of loans and advances to customers as at each balance
sheet date. However, for credit risk monitoring, the residual fair value adjustment as at each balance sheet
date is presented separately from the gross balances of loans and advances, as shown in the tables above.
The following tables present the Company’s gross loans and advances to customers at amortised cost by
staging, by business line concentration and geographical analysis. In this note and the remaining notes of
Note 43 Risk management - Credit risk, geographical analysis refers to the country where loans are being
managed.
2020
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
Stage 1
€000
1,519,663
1,393,026
739,999
Stage 2
€000
Stage 3
€000
POCI
€000
362,199
367,147
325,412
18,831
102,881
11,283
34,634
34,004
11,005
Total
€000
1,935,327
1,897,058
1,087,699
2,223,621
651,980
68,643
11,533
2,955,777
588,338
251,022
32,822
17,001
889,183
29,545
12,418
2,237
1,588
-
-
-
223
76,159
21,768
65,166
28,321
8,144
5,888
-
-
-
13
49,222
8,617
70,190
39,398
120,558
84,045
19,185
82,317
405,052
280,873
9,768
178
16,333
8,725
4,805
3,191
8,818
8,436
82,222
55,154
189
981
181,234
88,862
135,744
94,712
28,003
90,753
487,274
336,263
135,338
31,544
6,608,585
2,123,131
1,346,024
297,031
10,374,771
6,608,308
2,123,131
1,306,993
297,031
10,335,463
277
-
39,031
-
39,308
6,608,585
2,123,131
1,346,024
297,031
10,374,771
343
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.6
Analysis of loans and advances to customers by staging (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
Cyprus
Other countries
Stage 1
€000
1,624,819
1,456,080
837,450
Stage 2
€000
Stage 3
€000
POCI
€000
247,501
258,425
221,977
39,648
149,464
32,238
40,511
35,780
10,283
Total
€000
1,952,479
1,899,749
1,101,948
2,202,044
430,200
149,020
11,423
2,792,687
646,649
169,063
60,603
19,243
895,558
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
6,944,428
1,503,368
2,991,680
537,692
11,977,168
6,944,083
1,503,368
2,937,364
537,692
11,922,507
345
-
54,316
-
54,661
6,944,428
1,503,368
2,991,680
537,692
11,977,168
Loans and advances to customers classified as held for sale
The following tables present the Company’s gross loans and advances to customers at amortised cost
classified as held for sale by staging, business line concentration and geographical analysis.
2020
By business line
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
Cyprus
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
-
-
-
-
4,126
652
1,358
-
-
-
-
6,136
6,136
-
40
2
948
15,085
3,279
2,844
-
-
-
-
-
-
21
63,465
96,757
17,083
33,298
115,320
322,729
277,084
205,180
3
-
-
1,534
3,839
1,048
2,795
24,808
48,926
44,573
54,458
3
40
23
65,947
119,807
22,062
40,295
140,128
371,655
321,657
259,638
22,198
1,130,937
181,984
1,341,255
22,198
1,130,937
181,984
1,341,255
344
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.6
Analysis of loans and advances to customers by staging (continued)
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
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
-
-
139
20
7
4
6
-
-
-
-
-
176
176
360
-
47
410
1
2
-
-
-
-
-
-
820
820
350
2
144
6,162
952
1,119
36,549
14,543
15,392
3,954
71,020
19
3
-
-
1,026
195
4
3,555
3,097
5,299
798
8,654
48
710
5
330
7,618
1,155
1,127
40,112
17,640
20,691
4,752
79,674
67
150,206
150,206
22,679
22,679
173,881
173,881
The movement of the gross loans and advances to customers at amortised cost by staging, including the
loans and advances to customers classified as held for sale, is presented in the tables below:
2020
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 Velocity 2
portfolio derecognised or
repaid (excluding write offs)
Changes to contractual cash
flows due to modifications
Disposal of Velocity 2 portfolio
31 December
Stage 1
€000
6,944,604
551,657
(1,180,335)
(20,831)
Stage 2
€000
1,504,188
(528,094)
1,319,619
(28,251)
Stage 3
€000
3,141,886
(23,563)
(139,284)
49,082
POCI
€000
Total
€000
560,371
12,151,049
-
-
-
-
-
-
(17)
(1,496)
(2)
(805)
(18)
3
(34)
(359,206)
(36,872)
(398,379)
132,740
65,383
202,795
39,674
440,592
1,157,886
42,276
41,778
183
1,242,123
(971,211)
(224,760)
(321,109)
(72,354)
(1,589,434)
1,724
-
(4,225)
-
(2,998)
(112,402)
1,133
(4,366)
(13,123)
(125,525)
6,614,721
2,145,329
2,476,961
479,015
11,716,026
For overlays performed in the content of COVID-19 resulting in transfers of loans and advances to
customers in Stage 2 refer to Note 5.2.
345
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.6
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 1 portfolios
derecognised or repaid
(excluding write offs)
Changes to contractual cash
flows due to modifications
Disposal of Helix and Velocity
1 portfolios
31 December
Stage 1
€000
5,964,083
1,099,371
(616,576)
(98,708)
27
(3,351)
Stage 2
€000
1,991,921
(935,543)
776,129
(117,022)
Stage 3
€000
6,001,519
(163,828)
(159,553)
215,730
-
(106)
POCI
€000
1,111,891
Total
€000
15,069,414
-
-
-
-
-
-
-
(79)
(5,096)
(332,574)
(63,674)
(404,695)
47,600
216,036
258,631
67,757
590,024
1,801,886
49,540
67,220
798
1,919,444
(1,239,302)
(426,773)
(546,617)
(148,439)
(2,361,131)
487
72
(298)
(717)
(456)
(10,913)
(45,076)
(2,198,238)
(407,245)
(2,661,472)
6,944,604
1,504,188
3,141,886
560,371
12,151,049
For revolving facilities, overdrafts and credit cards the net positive change in balance by stage excluding
write-offs is reported in ‘New loans originated’ and the net negative change is reported as ‘Loans
derecognised or repaid'.
The movement of gross loans and advances to customers at amortised cost, 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 tables below:
2020
1 January
Transfers (out)/in of business line
Interest accrued, foreign exchange and other adjustments
Write offs
New loans originated or purchased
Loans other than Velocity 2 portfolio derecognised or repaid
(excluding write offs)
Changes to contractual cash flows due to modifications not
resulting to derecognition
31 December
Corporate
€000
1,953,170
(3,162)
52,673
(1,165)
319,385
Global
corporate
€000
1,845,777
22,046
24,402
(19,191)
261,281
Retail
€000
3,688,137
(11,783)
90,158
(4,026)
508,773
(380,501)
(271,581)
(428,755)
(5,094)
(4,397)
2,058
1,935,306
1,858,337
3,844,562
346
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.6
Analysis of loans and advances to customers by staging (continued)
2019
1 January
Transfers (out)/in of business line
Transfer (to)/in Global corporate business line
Interest accrued, foreign exchange and other adjustments
Write offs
New loans originated or purchased
Loans other than Velocity 2 portfolio derecognised or repaid
(excluding write offs)
Changes to contractual cash flows due to modifications not
resulting to derecognition
Disposal of Helix and Velocity portfolios
31 December
Corporate
€000
3,323,801
(8,718)
Global
corporate
€000
-
8,867
(1,367,371)
1,487,391
69,113
(12,740)
489,068
62,841
(545)
644,947
Retail
€000
3,769,872
(167,414)
(3)
108,655
(7,637)
524,813
(528,094)
(356,620)
(540,004)
2,776
(14,665)
(1,104)
-
(18)
(127)
1,953,170
1,845,777
3,688,137
43.7
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 the Company. These portfolios 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 and their credit quality in
order to provide further input on managing 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 credit quality for each independent acquisition or account
management action, leading to an automated decision or guidance for an adjudicator. Credit scoring
enhances the credit decision quality and facilitates risk-based pricing where feasible.
Borrower score defines the rating of the borrower from a range of 1-8 where 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 the Company's in house behavioural scorecard model for
corporate legal entities. 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 fourth quarter of 2020 in order to include additional recent
historical observations (before the COVID-19 pandemic) and incorporate the latest scorecard models.
Overall there is an evident increase both across ratings and portfolios PDs due to the integration of COVID-
19 driven forward looking economic outlook in the IFRS 9 PDs.
347
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.7
(continued)
Credit quality of loans and advances to customers based on the internal credit rating
2020
Rating
1
2
3
4
5
6
7
2019
Rating
1
2
3
4
5
6
7
Corporate legal entities
%
3.77
5.93
6.30
9.22
13.65
15.08
29.50
Corporate legal entities
%
0.89
1.55
1.59
2.53
3.51
4.16
8.63
12-month PD
Retail individuals
%
2.24
2.37
4.15
7.48
13.14
22.44
53.47
12-month PD
Retail individuals
%
1.15
1.75
3.08
7.29
12.72
19.21
43.82
SME legal entities
%
0.82
1.66
4.32
11.75
21.80
29.92
63.00
SME legal entities
%
0.34
0.81
2.30
7.46
13.11
18.16
41.82
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 show the gross loans and advances to customers at amortised cost in Cyprus, using the
corporate legal entities, SMEs legal entities and retail individuals definition as per the internal rating of the
Company. Loans and advances to customers classified based on the internal credit rating grades include
€38,721 thousand (2019: €53,972 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
713,090
2020
Stage 2
€000
65,056
Total
€000
778,146
Stage 1
€000
455,089
269,133
53,533
322,666
610,596
119,729
730,325
471,544
178,093
649,637
708,462
219,873
928,335
130,600
98,869
229,469
9,767
19,187
28,954
34,075
140,432
174,507
307,934
663,727
503,200
559,043
170,365
59,916
88,175
2019
Stage 2
€000
28,855
43,602
41,449
44,019
78,257
58,189
42,488
240,389
New customers
221,325
2,588
223,913
581,894
65,999
Total Stage 3 and POCI
3,168,592
897,360 4,065,952 3,389,343
398,726
643,247
4,464,678
Total
€000
483,944
351,536
705,176
547,219
637,300
228,554
102,404
328,564
647,893
4,032,590
839,728
4,872,318
348
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.7
(continued)
Credit quality of loans and advances to customers based on the internal credit rating
Retail individuals
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New customers
Total Stage 3 and POCI
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
Stage 1
€000
693,768
743,838
615,175
432,447
141,377
83,489
46,760
-
2020
Stage 2
€000
96,548
136,888
163,727
211,631
133,226
143,947
114,183
2,715
Total
€000
790,316
880,726
778,902
644,078
274,603
227,436
160,943
2,715
Stage 1
€000
372,733
878,683
968,991
340,375
201,829
72,163
22,411
-
269,584
15,502
285,086
249,288
2019
Stage 2
€000
32,921
93,604
146,123
110,972
139,552
97,418
52,736
3,284
24,024
3,026,438 1,018,367 4,044,805 3,106,473
700,634
Stage 1
€000
133,876
150,155
50,690
15,347
8,195
4,456
2,301
-
48,259
2020
Stage 2
€000
29,345
58,282
33,370
28,751
18,347
15,392
12,125
9,241
2,551
413,279
207,404
2019
Stage 2
€000
Total
€000
1,075,211
5,120,016
Total
€000
163,221
208,437
Stage 1
€000
121,507
144,339
17,969
35,365
14,584
14,430
14,639
18,698
23,431
14,658
5,713
59,538
31,598
19,863
14,724
9,176
-
47,522
448,267
159,487
84,060
44,098
26,542
19,848
14,426
9,241
50,810
620,683
168,808
789,491
Total
€000
405,654
972,287
1,115,114
451,347
341,381
169,581
75,147
3,284
273,312
3,807,107
2,220,743
6,027,850
139,476
179,704
74,122
46,028
34,502
33,422
32,607
14,658
53,235
607,754
468,411
1,076,165
Loans and advances to customers classified as held for sale
An analysis of gross loans and advances to customers classified as held for sale, as per the internal rating
system of the Company is disclosed in the tables below.
Corporate legal entities
Rating 3
Rating 5
Rating 6
Unrated
Total Stage 3 and POCI
Stage 1
€000
2020
Stage 2
€000
Total
€000
Stage 1
€000
2019
Stage 2
€000
31
-
-
-
193
363
106
485
31
1,147
224
363
106
485
1,178
267,609
268,787
-
-
20
-
20
-
-
-
769
769
Total
€000
-
-
20
769
789
12,910
13,699
349
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.7
(continued)
Credit quality of loans and advances to customers based on the internal credit rating
Retail legal entities
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
New customers
Total Stage 3 and POCI
SMEs legal entities
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Total Stage 3 and POCI
Stage 1
€000
2020
Stage 2
€000
Total
€000
Stage 1
€000
2019
Stage 2
€000
Total
€000
23
105
108
568
942
126
70
70
43
583
1,985
3,749
93
175
151
1,151
2,927
3,875
2,585
11,460
14,045
-
58
58
4,457
18,018
22,475
801,289
823,764
-
-
15
45
53
2
3
-
118
-
-
-
10
3
10
-
-
23
-
-
15
55
56
12
3
-
141
125,377
125,518
Stage 1
€000
2020
Stage 2
€000
Total
€000
Stage 1
€000
2019
Stage 2
€000
Total
€000
161
19
65
50
760
593
1,648
-
8
226
146
156
2,497
3,033
161
27
291
196
916
3,090
4,681
244,023
248,704
-
-
38
-
-
-
38
10
-
-
14
4
-
28
10
-
38
14
4
-
66
34,598
34,664
43.8
Contingent liabilities and commitments
The Company 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.
43.8.1 Contingent liabilities
An analysis of changes in the outstanding nominal amount of exposures and the corresponding ECLs are
disclosed in the tables below:
2020
Exposures
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net decrease
31 December
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
436,603
6,146
(187,975)
(4)
(39,925)
214,845
159,924
(5,376)
217,131
(4,011)
(4,649)
98,683
(770)
(29,156)
4,015
695,210
-
-
-
(20,016)
(64,590)
363,019
52,756
630,620
350
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.8
Contingent liabilities and commitments (continued)
43.8.1 Contingent liabilities (continued)
2019
Exposures
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net increase/(decrease)
31 December
2020
ECL
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Charge/(credit) for the year*
31 December
Individually assessed
Collectively assessed
2019
ECL
1 January
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
406,109
39,122
(29,376)
(2,776)
23,524
436,603
194,076
(28,885)
44,313
(3,495)
(46,085)
159,924
160,617
(10,237)
(14,937)
6,271
760,802
-
-
-
(43,031)
(65,592)
98,683
695,210
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
21
10
(200)
-
211
42
12
30
42
70
(8)
305
(3,500)
3,828
695
287
408
695
21,904
(2)
(105)
3,500
(6,927)
18,370
18,366
4
18,370
21,995
-
-
-
(2,888)
19,107
18,665
442
19,107
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
* The charge for the year mainly relates to changes to inputs and net exposure.
The outstanding contingent liabilities by geography are disclosed in the table below:
2020
Cyprus
Other countries
Total
2019
Cyprus
Other countries
Total
Stage 1
€000
Stage 2
€000
Stage 3
€000
214,845
-
329,940
33,079
214,845
363,019
33,690
19,066
52,756
Stage 1
€000
Stage 2
€000
Stage 3
€000
436,603
-
127,493
32,431
436,603
159,924
73,167
25,516
98,683
Total
€000
578,475
52,145
630,620
Total
€000
637,263
57,947
695,210
351
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.8
Contingent liabilities and commitments (continued)
43.8.1 Contingent liabilities (continued)
The credit quality of contingent liabilities as per the internal rating system of the Company 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
2020
SME legal entities
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New customers
Total Stage 3
Retail individuals
Unrated
Total Stage 3
Stage 1
2020
Stage 2
€000
€000
18,551
24
12,172
2,532
3,184
2,228
-
37,113
85,153
52,371
8,050
59,503
37,000
70,690
18,556
164
79,731
2,830
160,957
328,895
Total
€000
70,922
8,074
71,675
39,532
73,874
20,784
164
116,844
87,983
489,852
44,625
534,477
Stage 1
2019
Stage 2
€000
€000
Total
€000
99,978
8,548
68,485
16,230
68,600
5,257
15,561
36,025
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
127,836
-
63,757
382,441
112,720
495,161
79,600
574,761
Stage 1
€000
2020
Stage 2
€000
Total
€000
Stage 1
€000
2019
Stage 2
€000
Total
€000
22,858
5,667
1,540
430
53
18
163
-
23,159
3,407
2,790
590
254
178
122
1,871
10,390
170
53,888
19,772
24,343
4,881
3,197
464
330
85
451
-
20,411
3,989
2,919
400
43
276
26
1,770
14,165
51
54,162
23,639
26,265
8,457
2,130
684
231
140
2,034
10,390
23,329
73,660
7,692
81,352
Stage 1
€000
-
-
-
2020
Stage 2
€000
-
14,352
14,352
2019
Stage 2
€000
-
23,565
23,565
-
-
-
Total
€000
Stage 1
€000
-
14,352
14,352
439
14,791
28,332
7,800
3,597
507
606
111
2,221
14,165
20,462
77,801
18,450
96,251
Total
€000
-
23,565
23,565
633
24,198
352
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.8
Contingent liabilities and commitments (continued)
43.8.2 Commitments
An analysis of changes in the outstanding exposures and the corresponding ECLs are disclosed in the tables
below:
2020
Exposure
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net increase/(decrease)
31 December
2019
Exposure
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net decrease
31 December
2020
ECL
1 January
Transfers to stage 1
Transfers to stage 2
Charge for the year*
31 December
Individually assessed
Collectively assessed
2019
ECL
1 January
Transfers to stage 1
Transfers to stage 2
(Credit)/charge for the year*
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
1,334,151
508,899
133,657
(132,525)
(399,593)
(1,280)
157,148
413,026
(2,753)
(11,455)
132,854
(1,132)
(13,433)
4,033
(43,291)
1,975,904
-
-
-
102,402
1,224,083
775,192
79,031
2,078,306
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
1,353,216
615,502
204,396
(200,726)
(127,827)
(2,006)
(93,628)
144,188
(5,217)
(44,848)
165,538
(3,670)
(16,361)
7,223
2,134,256
-
-
-
(19,876)
(158,352)
1,334,151
508,899
132,854
1,975,904
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
30
34
(128)
190
126
36
90
126
87
(34)
168
204
425
111
314
425
Stage 1
€000
Stage 2
€000
Stage 3
€000
1,012
3
(11)
(974)
30
6
24
30
1,782
(3)
20
(1,712)
87
8
79
87
-
-
(40)
40
-
-
-
-
-
-
(9)
9
-
-
-
-
117
-
-
434
551
147
404
551
Total
€000
2,794
-
-
(2,677)
117
14
103
117
*The charge in the year mainly relates to changes to inputs.
353
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.8
Contingent liabilities and commitments (continued)
43.8.2 Commitments (continued)
Commitments by geography are presented in the table below:
2020
Cyprus
Total
2019
Cyprus
Other countries
Total
Stage 1
€000
1,224,083
1,224,083
Stage 2
€000
775,192
775,192
Stage 3
€000
79,031
Total
€000
2,078,306
79,031
2,078,306
Stage 1
€000
1,334,151
Stage 2
€000
Stage 3
€000
508,899
132,511
Total
€000
1,975,561
-
-
343
343
1,334,151
508,899
132,854
1,975,904
The credit quality of commitments, as per the internal rating system of the Company 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
2020
Stage 2
€000
€000
Stage 1
2019
Stage 2
€000
€000
Total
€000
347,228
76,429
139,463
88,059
78,063
19,536
89
28,308
57,360
74,480
57,489
50,681
16,443
61
342,438
32,741
89,930
32,658
55,968
1,237
906
13,133
42,973
318,920
19,069
64,983
30,570
27,382
3,093
28
19,947
92,936
Total
€000
364,964
37,701
114,596
34,493
70,663
5,100
1,089
22,526
4,960
24,666
1,835
14,695
3,863
183
118,959
138,906
398
93,334
139,064
152,197
134
43,107
576,928
404,179
Stage 1
€000
2020
Stage 2
€000
204,597
44,967
12,287
3,585
1,168
385
125
-
8,710
275,824
43,683
21,932
10,000
5,402
2,635
756
807
12,301
618
98,134
611,984
211,926
Stage 1
€000
2019
Stage 2
€000
174,415
52,230
15,215
4,952
1,970
521
138
-
14,784
54,779
12,724
6,448
4,691
3,418
940
1,777
12,942
176
264,225
97,895
981,107
50,700
1,031,807
Total
€000
248,280
66,899
22,287
8,987
3,803
1,141
932
12,301
9,328
373,958
20,607
394,565
823,910
98,942
922,852
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
354
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.8
Contingent liabilities and commitments (continued)
43.8.2 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
179,709
58,949
25,306
14,508
4,893
2,422
199
-
85,345
2020
Stage 2
€000
99,239
58,456
46,873
28,034
16,434
9,759
4,036
7,567
2,481
371,331
272,879
Stage 1
€000
2019
Stage 2
€000
106,440
121,923
89,794
49,897
13,786
5,894
721
-
69,487
36,537
65,694
32,207
15,709
9,285
6,258
4,755
23,998
4,635
457,942
199,078
Total
€000
278,948
117,405
72,179
42,542
21,327
12,181
4,235
7,567
87,826
644,210
7,724
651,934
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
355
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.9
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:
2020
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
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 Velocity 2 portfolio
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
16,665
11,956
(3,751)
(1,347)
(4,008)
-
(1,496)
-
5,431
(672)
1,032
Stage 3
€000
1,493,892
(5,898)
(19,811)
2,740
6,097
(669)
POCI
€000
206,166
Total
€000
1,742,103
-
-
-
(191)
(81)
-
-
-
6,766
(752)
(336,983)
(36,872)
(376,156)
73,647
9,939
83,586
-
-
5,431
25,380
(6,058)
23,562
(1,393)
4,868
(2)
(805)
-
-
(902)
812
(28,597)
19,848
(4,206)
6,509
(34,377)
28,201
2,176
1,418
221,473
34,648
259,715
(3,367)
-
22,619
5,801
16,818
22,619
2,247
-
5,458
(101)
4,237
(100,764)
(11,334)
(112,098)
49,127
1,330,433
204,477
1,606,656
10,715
38,412
45,811
1,284,622
6,966
69,293
197,511
1,537,363
49,127
1,330,433
204,477
1,606,656
* Individual components of the ‘Impairment loss net of reversals on loans and advances to customers’
The main driver for the increase in the impairment loss for the year is due to the component 'Changes to
models and inputs used for ECL calculations'. The key driver is the LGD input which has impacted mainly
Stage 3 and POCI loans due to additional credit losses recorded in the year ended 31 December 2020, in
relation to NPE reduction envisaged sale transactions, of approximately €120 million. In addition, the impact
of the updated macroeconomic scenarios and overlays performed in the context of COVID-19 and PD
calibration (as disclosed in Note 5.2) is also reflected within line item 'models and inputs used for ECL
calculations' and has impacted the ECL charge for all Stages. Further for Stage 3 loans, in addition to the
impairment loss recognised as a result of the NPE reduction initiatives, another key driver for the
impairment loss is the assumptions on the LGD component (disclosed in Note 5.2).
356
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2020
Other countries
1 January
Impact on transfer between
stages during the year*
Foreign exchange and other
adjustments
Write offs
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*
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36,908
3
(36)
(22,183)
(4,728)
37
10,802
3,237
24,040
21,903
2,137
24,040
Total
€000
36,908
3
(36)
(22,183)
(4,728)
37
10,802
3,237
24,040
21,903
2,137
24,040
-
-
-
-
-
-
-
-
-
-
-
-
*Individual components of the ‘Impairment loss net of reversals on loans and advances to customers’
357
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2020
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
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 Velocity 2 portfolio
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
16,665
11,956
(3,751)
(1,347)
(4,008)
-
(1,496)
-
5,431
(672)
1,032
Stage 3
€000
1,530,800
(5,898)
(19,811)
2,740
6,100
(705)
POCI
€000
206,166
Total
€000
1,779,011
-
-
-
(191)
(81)
-
-
-
6,769
(788)
(359,166)
(36,872)
(398,339)
68,919
9,939
78,858
-
-
5,431
25,380
(6,058)
23,562
(1,393)
4,868
(2)
(805)
-
-
(902)
812
(28,560)
30,650
(4,206)
6,509
(34,340)
39,003
2,176
1,418
224,710
34,648
262,952
(3,367)
-
22,619
5,801
16,818
22,619
2,247
-
5,458
(101)
4,237
(100,764)
(11,334)
(112,098)
49,127
1,354,473
204,477
1,630,696
10,715
38,412
67,714
1,286,759
6,966
91,196
197,511
1,539,500
49,127
1,354,473
204,477
1,630,696
*Individual components of the ‘Impairment loss net of reversals on loans and advances to customers’ (Note
14).
358
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
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
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
26,233
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
431,924
Total
€000
3,315,259
-
-
-
-
-
-
(18,450)
(569)
51,033
(128)
31,886
-
-
4,667
675
5,342
(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
(54,470)
46,020
5,430
5,595
(51,966)
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
1,357,523
8,983
156,786
197,183
1,585,317
25,380
1,493,892
206,166
1,742,103
*Individual components of the ‘Impairment loss net of reversals on loans and advances to customers’
359
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.9
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
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
Stage 3
€000
POCI
€000
Total
€000
135
(3)
-
-
-
(132)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
88,908
(35)
(67)
(2,360)
5,376
278
17
(444)
(54,765)
36,908
31,105
5,803
36,908
-
-
-
-
-
-
-
-
-
-
-
-
-
89,043
(38)
(67)
(2,360)
5,376
146
17
(444)
(54,765)
36,908
31,105
5,803
36,908
*Individual components of the ‘Impairment loss net of reversals on loans and advances to customers’.
360
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.9
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
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
2,872,140
(14,598)
(13,094)
19,701
POCI
€000
431,924
Total
€000
3,404,302
-
-
-
-
-
-
(18,453)
(569)
50,998
(128)
31,848
-
-
4,600
675
5,275
(3,991)
(3,888)
(333,599)
(63,216)
(404,694)
-
3,581
96
1,933
-
-
101,418
13,299
114,717
-
-
3,581
(3,154)
2,011
(54,192)
46,037
5,430
5,595
(51,820)
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
1,530,800
206,166
1,779,011
7,572
17,808
167,474
1,363,326
8,983
187,891
197,183
1,591,120
25,380
1,530,800
206,166
1,779,011
* Individual components of the ‘Impairment loss net of reversals on loans and advances to customers’ (Note
14).
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.
The movement of credit losses of loans and advances to customers for 2020 and 2019 includes credit losses
relating to loans and advances to customers classified as held for sale. Their balance by staging and
geographical area is presented in the table below:
2020
Cyprus
Total
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
111,234
111,234
Total
€000
848,218
848,218
721,470
721,470
721,470
111,234
848,218
3,260
3,260
3,260
12,254
12,254
12,254
361
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2019
Cyprus
Total
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€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
147,952
147,952
179
147,773
147,952
The credit losses of loans and advances, including the loans and advances to customers held for sale, by
business line is presented in the table below:
2020
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
Total
€000
3,652
4,375
2,352
4,616
3,551
286
2,383
401
923
-
-
-
3
67
10
6,003
5,600
4,263
6,947
7,731
3,993
9,979
1,742
2,200
-
-
-
-
658
11
6,321
38,758
1,008
12,259
9,466
58,438
62,891
51,358
57,810
96,183
254,462
360,331
343,302
1,707
179
624
1,076
363
437
925
3,294
3,802
2,034
2,688
22,286
31,585
66,721
68,158
5
479
16,600
49,809
7,986
24,259
21,673
66,011
79,055
55,535
63,621
118,469
286,047
427,052
411,463
2,437
679
22,619
49,127
1,354,473
204,477
1,630,696
362
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
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
Total
€000
2,134
3,447
1,525
2,871
2,247
232
2,904
1,052
173
-
-
-
2
73
5
846
5,016
1,940
4,720
3,077
2,834
4,695
1,445
251
-
-
-
-
546
10
11,720
60,175
5,087
676
1,908
334
15,376
70,546
8,886
19,499
413
27,503
15,549
1,104
21,977
80,347
72,663
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
1,530,800
206,166
1,779,011
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:
2020
1 January
Transfer out 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 Velocity 2
Corporate
€000
Global
corporate
€000
Retail
€000
15,354
(1,170)
(298)
(1,165)
197
620
(609)
16
911
327
2,512
(113)
33,982
(1,909)
(132)
(19,191)
1,052
2,568
2,108
769
7,196
(1,340)
977
-
49,257
(7,706)
(300)
(4,026)
620
1,456
(632)
2,178
2,530
1,313
1,040
-
31 December
16,582
26,080
45,730
363
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2019
1 January
Transfer (out of Corporate)/in Global corporate business line
Transfer out 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
Global
corporate
€000
Retail
€000
107,869
(56,374)
(8,110)
(410)
(12,740)
268
528
(2,541)
572
-
56,576
(1,351)
-
(545)
2,381
1,400
(4,977)
1
70,476
-
(19,793)
(1,260)
(8,437)
931
979
(1,900)
4,586
(1,777)
(11,679)
3,169
25
(2,092)
(9,864)
-
(7,824)
-
2,436
(1,806)
(125)
15,354
33,982
49,256
*Individual components of the 'Impairment loss net of reversal on loans and advances to customers'
During the year ended 31 December 2020 the total non-contractual write-offs recorded by the Company
amounted to €294,932 thousand (2019: €235,181 thousand). The contractual amount outstanding on
financial assets that were written off during the year and that are still subject to enforcement activity is
€1,062,224 thousand (2019: €626,171 thousand).
Assumptions have been made about the future changes in property values, as well as the timing for the
realisation of collateral, taxes and expenses on the repossession and subsequent sale of the collateral as
well as any other applicable haircuts. Indexation has been used as the basis to estimate updated market
values of properties supplemented by management judgement where necessary given the difficulty in
differentiating between short term impacts and long term structural changes and the shortage of market
evidence for comparison purposes, while assumptions were made on the basis of macroeconomic scenario
for future changes in property prices, and are capped accordingly in case of any future projected increase,
where any future projected decrease is taken into consideration.
At 31 December 2020 the weighted average haircut (including liquidity haircut and selling expenses) used in
the collectively assessed provision calculation for loans and advances to customers excluding those
classified as held for sale is approximately 32% under the baseline scenario (2019: approximately 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 (2019: average of seven years), excluding those classified as held for sale.
For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the
haircuts used are based on the specific facts and circumstances of each case.
For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with
50%, 30% and 20% probability respectively.
364
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.9
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
For Stage 3 customers, 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 Company has taken into consideration the timing of expected sale and the estimated sale proceeds in
determining the ECL. Amounts previously written off which are expected to be recovered through sale are
included in 'Recoveries of loans and advances to customers previously written off' in Note 14.
The above assumptions are also influenced by the ongoing regulatory dialogue the Company 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 Company has performed sensitivity analysis relating to the loan portfolio in Cyprus, which represents
99% of the total loan portfolio of the Company (excluding the loans and advances to customers classified as
held for sale) with reference date 31 December 2020.
The Company 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
2020
€000
2019
€000
3,599
2,702
(3,658)
21,904
(18,746)
42,769
(36,934)
8,718
(7,824)
(2,682)
42,064
(42,200)
81,569
(75,148)
5,486
(5,632)
A number 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:
365
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.9
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
Increase on
the ECL
carrying value
of
Stage 2
facilities
2019
€000
4,160
7,030
9,390
11,370
2,400
3,960
5,080
5,950
No sensitivity analysis is performed for the year ended 31 December 2020, as the Company has developed
a behavioural maturity model applying an expected lifetime for revolving facilities during the year, as
explained in Note 5.2.
43.10
Collateral and other credit enhancements obtained
The carrying value of assets obtained during 2020 and 2019 by taking possession of collateral held as
security, was as follows:
Residential property
Commercial and other property
2020
€000
33,055
59,169
92,224
2019
€000
51,072
72,042
123,114
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 Company as at 31 December 2020 amounted to
€756,548 thousand (2019: €734,167 thousand).
The disposals of repossessed assets during 2020 amounted to €62,090 thousand (2019: €111,591
thousand).
43.11
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 Company 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 Company.
The loans forborne continue to be classified as Stage 3 in the case they are performing forborne exposures
under probation for which additional forbearance measures are extended, or performing forborne exposures
under probation that present more than 30 days past due within the probation period.
Modifications of loans and advances that do not affect payment arrangements, such as restructuring of
collateral or security arrangements, are not regarded as sufficient to categorise the facility as credit
impaired, as by themselves they do not necessarily indicate credit distress affecting payment ability such
that would require the facility to be classified as NPE.
366
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.11
Forbearance (continued)
Rescheduled loans and advances are those facilities for which the Company 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 Company reschedules accounts that are eligible
under its existing policies may vary depending on its view of the prevailing economic conditions and other
factors which may change from year to year. In addition, exceptions to policies and practices may be made
in specific situations in response to legal or regulatory agreements or orders.
The forbearance characteristic contributes in two specific ways for the calculation of lifetime ECL for each
individual facility. Specifically, it is taken into consideration in the scorecard development where if this
characteristic is identified as statistically significant it affects negatively the rating of each facility. The
second contribution of the forbearance flag is in the construction of the through the cycle probability of
default curve, where when feasible a specific curve for the forborne products is calculated and assigned
accordingly.
Forbearance activities may include measures that restructure the borrower's business (operational
restructuring) and/or measures that restructure the borrower’s financing (financial restructuring).
Restructuring options may be of a short or long-term nature or a combination thereof. The Company has
developed and deployed sustainable restructuring solutions, which are suitable for the borrower and
acceptable for the Company.
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.
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.
367
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.11
Forbearance (continued)
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 Company 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 Company, with the remaining debt right-sized to the cash flows of the borrower to allow
repayment to the Company 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 Company and the borrower to voluntarily dispose of the
secured asset to partially or fully repay the debt. The asset may be acquired by the Company 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 Company 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 that were forborne during the year amounted to €44,823 thousand (2019:
€206,007 thousand). Their related modification loss amounted to €10,133 thousand (2019: €2,141
thousand) (the modification mainly relates to credit-related reasons).
Previously classified Stage 2 and Stage 3 customers that have facilities modified during the year and are
classified as Stage 1 at 31 December 2020 amount to €347,966 thousand (2019: €13,221 thousand) and
their corresponding ECL amount to €2,732 thousand (2019: €37 thousand). The modification for the
majority of these facilities reflects the modification due to moratorium.
Facilities that reverted to Stage 2 and Stage 3 having once cured during the year amount to €109,663
thousand (2019: €66,215 thousand) and their corresponding ECL amounts to €2,591 thousand (2019:
€1,431 thousand) as at 31 December 2020.
43.12 Rescheduled loans and advances to customers
The below table presents the movement of the Company’s rescheduled loans and advances to customers
measured at amortised cost including those classified as held for sale (by geographical analysis). The
rescheduled loans related to loans and advances classified as held for sale as at 31 December 2020
amounts to €754,795 thousand (2019: €42,803 thousand).
2020
1 January
New loans and advances rescheduled in the year
Loans no longer classified as rescheduled and repayments
Applied in writing off rescheduled loans and advances
Interest accrued on rescheduled loans and advances
Foreign exchange adjustments
Disposal of Velocity 2 portfolio
Cyprus
€000
2,469,566
64,520
(484,169)
(126,412)
52,150
(444)
(30,824)
Other
countries
€000
12,936
11,019
(873)
(3,909)
1,484
44
-
Total
€000
2,482,502
75,539
(485,042)
(130,321)
53,634
(400)
(30,824)
31 December
1,944,387
20,701
1,965,088
368
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.12 Rescheduled loans and advances to customers (continued)
2019
1 January
New loans and advances rescheduled in the year
Loans no longer classified as rescheduled and repayments
Applied in writing off rescheduled loans and advances
Interest accrued on rescheduled loans and advances
Foreign exchange adjustments
Disposal of Helix and Velocity 1 portfolios
Total
Cyprus
€000
4,566,470
146,422
(830,137)
(136,135)
91,281
2,490
(1,370,825)
2,469,566
Other
countries
€000
13,354
-
Total
€000
4,579,824
146,422
(683)
(830,820)
(30)
290
5
-
(136,165)
91,571
2,495
(1,370,825)
12,936
2,482,502
The classification as forborne loans is discontinued when all EBA criteria for the discontinuation of the
classification as forborne exposure are met. These are set out in the EBA Final draft Implementing Technical
Standards (ITS) on supervisory reporting and non-performing exposures.
The below tables present the Company’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.
2020
Stage 1
Stage 2
Stage 3
POCI
2019
Stage 1
Stage 2
Stage 3
POCI
Cyprus
€000
199,090
242,493
649,609
98,400
Other
countries
€000
103
-
20,598
-
Total
€000
199,193
242,493
670,207
98,400
1,189,592
20,701
1,210,293
Cyprus
€000
357,658
299,448
1,567,155
202,502
Other
countries
€000
Total
€000
114
-
357,772
299,448
12,822
1,579,977
-
202,502
2,426,763
12,936
2,439,699
369
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.12 Rescheduled loans and advances to customers (continued)
Fair value of collateral
2020
Stage 1
Stage 2
Stage 3
POCI
2019
Stage 1
Stage 2
Stage 3
POCI
Cyprus
€000
161,346
225,402
531,741
88,925
Other
countries
€000
103
-
15,198
-
Total
€000
161,449
225,402
546,939
88,925
1,007,414
15,301
1,022,715
Cyprus
€000
334,938
254,238
1,276,055
187,363
Other
countries
€000
Total
€000
114
-
335,052
254,238
10,875
1,286,930
-
187,363
2,052,594
10,989
2,063,583
The fair value of collateral presented above has been computed based on the extent that the collateral
mitigates credit risk.
Credit risk concentration
2020
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other services
Other sectors
Cyprus
€000
Other
countries
€000
Total
€000
81,973
30,185
46,145
68,785
80,918
763,593
85,061
32,932
-
-
-
-
20,571
130
-
-
81,973
30,185
46,145
68,785
101,489
763,723
85,061
32,932
1,189,592
20,701
1,210,293
370
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.12 Rescheduled loans and advances to customers (continued)
2020
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
Total
€000
54,245
94,251
56,172
222,078
70,805
83,804
58,374
102,312
56,788
15,678
47,654
208,916
103,395
14,015
1,105
-
20,571
12
-
118
-
-
-
-
-
-
-
-
-
-
54,245
114,822
56,184
222,078
70,923
83,804
58,374
102,312
56,788
15,678
47,654
208,916
103,395
14,015
1,105
2020
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
1,189,592
20,701
1,210,293
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
19,359
69,789
23,041
26,319
18,908
22,750
6,450
26,125
8,935
2,117
-
1,458
Total
€000
54,245
114,822
56,184
55,086
108,175
54,892
3,925
222,078
17,391
27,694
22,962
2,876
70,923
6,162
5,993
1,388
234
-
-
-
-
750
-
13,406
14,556
4,350
2,565
-
-
-
-
3,770
-
49,380
31,049
93,962
52,588
8,238
42,885
176,025
87,162
9,376
178
14,856
6,776
2,612
1,401
7,440
4,769
32,891
16,233
119
927
83,804
58,374
102,312
56,788
15,678
47,654
208,916
103,395
14,015
1,105
199,193
242,493
670,207
98,400
1,210,293
371
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.12 Rescheduled loans and advances to customers (continued)
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
-
-
-
-
12,793
142
-
1
Total
€000
187,008
67,568
80,704
281,820
174,422
1,428,046
145,220
74,911
2,426,763
12,936
2,439,699
Cyprus
€000
Other
countries
€000
Total
€000
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
-
12,794
19
-
123
-
-
-
-
-
-
-
-
-
-
106,889
185,718
104,290
322,880
99,096
181,986
226,447
269,648
111,534
46,299
191,847
376,391
196,431
17,017
3,226
2,426,763
12,936
2,439,699
372
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.12 Rescheduled 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
ECL allowances
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
32,875
104,634
40,025
49,897
68,291
33,453
21,369
12,793
28,202
2,748
-
2,610
Total
€000
106,889
185,718
104,290
118,262
71,835
128,167
4,616
322,880
27,597
20,901
48,059
2,539
99,096
3,901
26,658
1,811
239
-
-
-
-
17,843
28,055
3,077
443
-
-
-
-
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
1,579,977
202,502
2,439,699
2020
Stage 1
Stage 2
Stage 3
POCI
2019
Stage 1
Stage 2
Stage 3
POCI
Cyprus
€000
4,317
9,729
261,784
37,888
313,718
Cyprus
€000
4,391
9,595
638,308
78,088
730,382
Other
countries
€000
-
-
12,087
-
12,087
Other
countries
€000
-
-
7,676
-
7,676
Total
€000
4,317
9,729
273,871
37,888
325,805
Total
€000
4,391
9,595
645,984
78,088
738,058
373
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.13
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
2020
€000
165,488
89,692
39,877
2019
€000
62,399
76,916
94,566
5,513,501
4,909,533
1,195
3,054
28,200
33,747
-
2,818
387
50,471
5,874,754
5,197,090
All balances with central banks and loans and advances to banks are classified as Stage 1 (Note 17).
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
2020
Aaa - Aa3
A1 - A3
Baa1 - Baa3
Ba1 - Ba3
Unrated
2020
€000
716,585
96,448
25,047
817,890
33,388
2019
€000
1,032,067
73,204
34,890
538,125
40,313
1,689,358
1,718,599
817,891
173,502
697,965
538,126
389,928
790,545
1,689,358
1,718,599
12,292
644,196
1,032,870
15,455
875,040
828,104
1,689,358
1,718,599
FVOCI
Stage 1
€000
Stage 1
€000
Amortised cost
Stage 2
€000
Total
€000
240,890
26,398
-
376,908
-
463,904
70,050
25,047
392,306
32,887
-
-
-
48,676
-
463,904
70,050
25,047
440,982
32,887
644,196
984,194
48,676
1,032,870
374
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
43.
Risk management - Credit risk (continued)
43.13
customers - analysis by rating agency designation (continued)
Credit quality of Group assets exposed to credit risk other than loans and advances to
2019
Aaa - Aa3
A1 - A3
Baa1 - Baa3
Ba1 - Ba3
Unrated
FVOCI
Stage 1
€000
Stage 1
€000
Amortised cost
Stage 2
€000
Total
€000
444,416
26,302
9,840
394,482
-
572,696
46,902
25,050
94,989
39,813
-
-
-
48,654
-
572,696
46,902
25,050
143,643
39,813
875,040
779,450
48,654
828,104
44.
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 on financial instruments 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 Company's capital and earnings arising from
adverse movements in interest rates that affect the Company'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 1 Year 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 Company’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.
375
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
44.
Risk management - Market risk (continued)
Impact on Net Interest
Income in €000
2020
(50 bps for
Euro and 60
bps for US
Dollar)
2019
(50 bps for
Euro and 60
bps for US
Dollar)
27,592
(23,627)
(15,184)
22,494
26,310
28,446
(33,117)
(24,875)
21,023
27,010
(22,790)
(32,076)
26,093
(21,042)
(12,898)
21,424
24,886
27,577
(30,735)
(23,857)
21,225
26,401
(20,267)
(29,958)
1,499
(2,585)
(2,286)
1,070
1,424
(2,523)
869
(2,382)
(1,018)
(202)
609
(2,118)
Interest Rate Scenario
Parallel up
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
Currency
All
All
All
All
All
All
Euro
Euro
Euro
Euro
Euro
Euro
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
376
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
44.
Risk management - Market risk (continued)
The table below sets out the impact on the Company’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.
Currency
All
All
All
All
All
All
Euro
Euro
Euro
Euro
Euro
Euro
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
Interest Rate Scenario
Parallel up
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
2020
(50 bps for
Euro and 60
bps for US
Dollar)
2019
(50 bps for
Euro and 60
bps US
Dollar)
174
42,736
50,082
51,093
6,044
47,392
(1,760)
90,207
101,292
101,893
8,897
99,812
3,867
(2,367)
(564)
293
3,191
(2,514)
(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
(2,588)
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 Company is also affected by changes in market interest rates. The impact on the
Company’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 Company’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)
2020
+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
686
(328)
1,496
328
377
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
44.
Risk management - Market risk (continued)
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 profit
before tax
Impact on equity
€000
€000
(239)
3,120
(794)
794
Interest rate benchmark reform
The LIBOR and the EURIBOR (collectively referred to as IBORs) are the subject of 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.
EURIBOR reform has been completed and EURIBOR now complies with the EU Benchmark Regulation
following a new hybrid methodology calculation. The Group expects EURIBOR to continue as a benchmark
interest rate for the foreseeable future and, therefore, does not consider that Group’s exposure to EURIBOR
is affected by the BMR reform as at 31 December 2020.
Regarding LIBOR reform, industry working groups are working to identify alternative rates to transition to.
On 5 March 2021 the Financial Conduct Authority (FCA) has confirmed that all LIBOR settings will either
cease to be provided by any administrator or no longer be representative:
immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen
settings, and the 1-week and 2-month US dollar settings; and
immediately after 30 June 2023, in the case of the remaining US dollar settings
The Company is in process of adopting phase 2 of IBOR reform. In July and October 2020, the Company
performed settlements with derivatives clearing organisations so as to switch from Euro Overnight Index
Average (EONIA) to Euro short-term rate (ESTR) (Euro denominated financial instruments) and from Fed
Fund rate (USD denominated financial instruments) to Secure Overnight Financing Rate (SOFR) risk-free
rates (RFR) respectively.
The Company has established a project to manage the transition to alternative interest rate benchmarks
whereby the Director of Treasury is the project owner and with oversight from a dedicated Benchmark
Steering Committee. The main divisions involved in the project at the highest level are the Legal
Department, Treasury, Risk Management, Finance, Information Technology (IT) and Operations and the
business lines. The Assets and Liabilities Committee (ALCO) monitors the project on a monthly basis.
The Steering Committee has been working towards minimising the potential disruption to business and
mitigating operational and conduct risks and possible financial losses. It has identified that areas most
significantly impacted and risks arising from IBORS’ transition to alternative interest rate benchmarks are:
updating systems and processes affected from the transition, reviewing and amending legal IBORS’
referencing contracts, market risk profile changes due to IBOR transition, and financial and accounting
matters including among other hedge accounting issues and mismatches in timing of derivatives and loans
transitioning from IBORS.
For the legacy derivatives exposures, the Group has adhered to the International Swaps and Derivatives
Association (ISDA) protocol which came into effect in January 2021, while for cleared derivatives, the Bank
will adopt the market-wide standardised approach to be followed by the relevant clearing house.
The Company has in place an action plan in order to facilitate the transition to alternative rates, including a
plan to engage into amending credit facilities contracts. The Company continues to work on technology and
business process changes to ensure operational readiness in preparation for LIBOR cessation and transition
to alternative RFRs in line with official sector expectations and milestones.
378
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
44.
Risk management - Market risk (continued)
The Company is actively preparing for the transition, including the assessment of appropriate fall-back
provisions for LIBOR-linked contracts and transition mechanisms in its floating rate assets and liabilities
with maturities after 2021, when most IBORs are expected to cease to be published. The Group will
continue to assess, monitor and dynamically manage risks, and implement specific mitigating controls when
required, progressing towards an orderly transition to alternative benchmarks.
The following table summarises the significant non-derivative exposures impacted by interest rate
benchmark reform as at 31 December 2020:
Non-derivative financial
assets
Loans and advances to
customers
Investments
Loans and advances to
banks
Total
Non-derivative financial
liabilities
Deposits by banks
Total
EURIBOR
€000
GBP
LIBOR
€000
USD
LIBOR
€000
CHF
LIBOR
€000
Other
Total
€000
€000
4,463,730
89,523
331,684
36,967
4,102
4,926,006
32,993
-
-
-
-
32,993
69,405
1,858
69,326
4,968
9,420
154,977
4,566,128
91,381
401,010
41,935
13,522
5,113,976
154,435
154,435
1,110
1,110
1,074
1,074
-
-
4,668
4,668
161,287
161,287
For derivatives in hedging relationships subject to IBOR reform refer to Note 19.
Currency risk
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates.
In order to manage currency risk, the ALCO has approved open position limits for the total foreign exchange
positions. 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.
The Company does not maintain a currency trading book.
The table below sets out the Company'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.
379
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
44.
Risk management - Market risk (continued)
2020
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
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
Price risk
Change in foreign
exchange rate
%
Impact on loss after
tax
€000
Impact on equity
€000
+15
+25
+10
+10
+10
+10
+10
-15
-25
-10
-10
-10
-10
-10
+10
+10
+10
+10
+10
+10
+10
-10
-10
-10
-10
-10
-10
-10
4,032
2,594
-
1,923
389
118
13
(2,980)
(1,556)
-
(1,422)
(318)
(96)
(11)
2,717
995
-
460
420
44
(14)
(2,223)
(814)
-
(376)
(344)
(36)
11
-
27,556
133
-
(1,110)
-
-
-
(16,534)
(109)
-
909
-
-
-
10,483
(275)
-
(1,185)
-
-
-
(8,577)
225
-
969
-
-
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 but may be acquired in the context of
delinquent loan workouts. The Company monitors the current portfolio mostly acquired by the Company 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 Company as soon as practicable.
Changes in the prices of equity securities that are classified as investments at FVPL, affect the results of the
Company, whereas changes in the value of equity securities classified as FVOCI affect directly the equity of
the Company.
The table below shows the impact on the profit/loss before tax and on equity of the Company from a change
in the price of the equity securities held, as a result of reasonably possible changes in the relevant stock
exchange indices.
380
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
44.
Risk management - Market risk (continued)
2020
Cyprus Stock Exchange
Other stock exchanges and
unlisted
Cyprus Stock Exchange
Other stock exchanges and
unlisted
2019
Cyprus Stock Exchange
Other stock exchanges and
unlisted
Cyprus Stock Exchange
Other stock exchanges and
unlisted
Change in index
%
Impact on loss before
tax
€000
Impact on equity
€000
+20
+20
-20
-20
-
-
5
(5)
293
1,681
(293)
(1,681)
Change in index
Impact on profit
before tax
Impact on equity
+15
+15
-15
-15
-
59
-
(59)
200
1,228
(200)
(1,228)
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 Company. Debt security prices change as the credit risk of the issuer changes and/or as the
interest rate changes for fixed rate securities. The Company 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
Company as at 31 December 2020 was Baa1 (2019: A2). The average rating excluding the Cyprus
Government bonds and non-rated transactions as at 31 December 2020 was Aa1 (2019: Aa2). Further
information on ratings of debt securities is disclosed in Note 43.13.
Changes in the prices of debt securities classified as investments at FVPL, affect the profit or loss of the
Company, whereas changes in the value of debt securities classified as FVOCI affect directly the equity of
the Company.
The table below indicates how the profit/loss before tax and equity of the Company 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.
2020
+3.0% for Aa3 and above rated bonds
+3.5% for A3 and above rated bonds
+4.3% for Cyprus Government bonds
-3.0% for Aa3 and above rated bonds
-3.5% for A3 and above rated bonds
-4.3% for Cyprus Government bonds
Impact on loss before
tax
€000
Impact on equity
€000
-
-
-
-
-
-
7,171
914
16,073
(7,171)
(914)
(16,073)
381
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
44.
Risk management - Market risk (continued)
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
Impact on profit
before tax
€000
Impact on equity
€000
-
-
-
-
-
-
-
-
4,848
833
463
29,716
(4,848)
(833)
(463)
(29,716)
Other non-equity instruments price risk
The table below shows the impact on the profit/loss before tax and on equity of the Company 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.
2020
Other (non-equity instruments)
Other (non-equity instruments)
2019
Other (non-equity instruments)
Other (non-equity instruments)
Change in index
%
Impact on
profit/(loss) before
tax
€000
Impact on equity
€000
+25
-25
+15
-15
2,899
(2,899)
2,243
(2,243)
-
-
-
-
45.
Risk management - Liquidity risk and funding
Liquidity risk is the risk that the Company 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 Company 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 Company 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 Company
should operate.
The Board of Directors, through its Risk Committee, approves the Liquidity Policy Statement and reviews at
frequent intervals the liquidity position of the Group.
The ALCO is responsible for setting the policies for the effective management and monitoring of liquidity
across the Company.
The Treasury Division is responsible for liquidity management at Company level to ensure compliance with
internal policies and regulatory liquidity requirements and provide direction as to the actions to be taken
regarding liquidity needs. Treasury assesses on a continuous basis, the adequacy of the liquid assets and
takes the necessary actions to ensure a comfortable liquidity position.
382
(ii)
(iii)
(iv)
(v)
(vi)
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
45.
Risk management - Liquidity risk and funding (continued)
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 Company, 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.
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 Company. 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 Company has developed a Recovery Plan (RP) of the key objectives of the RP
are to set key Recovery and Early Warning Indicators so as to monitor these and to set in advance
a range of recovery options to enable the Company to be adequately prepared to respond to
stressed conditions and restore the Company’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 Company’s activities. Market risk prepares a daily report
analysing the internal liquidity buffer and comparing it to the previous day’s buffer. The historical summary
results of this report are made available to ALCO and to members of the Risk Division, Treasury and
Financial Control department. In addition, Treasury monitors daily and intraday the customer inflows and
outflows in the main currencies used by the Company.
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 the Company to survive a twelve-month stress
period, including capacity to raise funding under all scenarios.
Moreover, an intraday liquidity stress test takes place to ensure that the Company 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 Company. The
stress tests assumptions are included in the Group Liquidity Policy which is reviewed on an annual basis and
approved by the Board. However, whenever it is considered appropriate to amend the assumptions during
the year, approval is requested from ALCO and the Board Risk Committee. The main items shocked in the
different scenarios are: deposit outflows, wholesale funding, loan repayments, off-balance sheet
commitments, marketable securities, own issue covered bond, additional credit claims, interbank takings
and cash collateral for derivatives and repos.
383
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
45.
Risk management - Liquidity risk and funding (continued)
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) and concentration of funding and collateral
details. It concludes on the overall liquidity position of the Company and describes the measures
implemented and to be implemented in the short-term to improve liquidity position.
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.
Annually
The Company prepares on an annual basis its report on ILAAP. The ILAAP report provides a holistic view of
the Group’s liquidity adequacy under normal and stress conditions. Within ILAAP, the Company evaluates its
liquidity risk within the context of established policies, the processes for the identification, measurement,
management and monitoring of liquidity implemented by the institution.
As part of the Company’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 Company 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.
The minimum requirement is 100%.
Main sources of funding
As at 31 December 2020 the Company’s main sources of funding were its deposit base and central bank
funding, through the Eurosystem monetary policy operations.
In June 2020, ECB funding of €1,000 million was raised under the TLTRO III given the favourable borrowing
rate, in combination with the relaxation of collateral terms (lower haircuts and widening of eligibility of
credit claims), all being part of the ECB’s COVID-19 aid package. In 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.
384
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
45.
Risk management - Liquidity risk and funding (continued)
Funding to subsidiaries
The funding provided by the Company 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 the Company, provided that
they are not in breach of their regulatory capital and liquidity requirements. Certain subsidiaries have a
recommendation from their regulator to avoid any dividend distribution at this point in time.
Collateral requirements and other disclosures
Collateral requirements
The carrying values of the Company's encumbered assets as at 31 December 2020 and 2019 are
summarised below:
Cash and other liquid assets
Investments
Loans and advances
2020
€000
2019
€000
78,831
37,105
90,437
222,961
2,842,941
2,537,031
2,958,877
2,850,429
Cash is mainly used to cover collateral required for (i) derivatives and repurchase transactions and (ii) trade
finance transactions and guarantees issued. It may also be used as part of the supplementary assets for the
covered bond.
Investments are mainly used as collateral for supplementary assets for the covered bond and repurchase
transactions with commercial banks. As at 31 December 2019, investments were mainly used as collateral
for repurchase transactions with commercial banks. As at 31 December 2020, no investments were used as
collateral for repurchase transactions with commercial banks as these matured within 2020.
Loans and advances indicated as encumbered as at 31 December 2020 and 2019 are mainly used as
collateral for available funding from the ECB and the covered bond.
Loans and advances to customers include mortgage loans of a nominal amount of €1,017 million as at 31
December 2020 (2019: €1,000 million) in Cyprus, pledged as collateral for the covered bond issued by the
Company in 2011 under its Covered Bond Programme. Furthermore as at 31 December 2020 housing loans
of a nominal amount of €1,827 million (2019: €1,498 million) in Cyprus, are pledged as collateral for
funding from the ECB (Note 29).
The Company 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, the Company 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 the Company. The covered bonds are eligible collateral for the Eurosystem credit operations and are
placed as collateral for accessing funding from the ECB.
Other disclosures
Deposits by banks as shown in the table further below which discloses contractual maturities include
balances of €44,220 thousand as at 31 December 2020 (2019: €51,934 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 €88,963
thousand as at 31 December 2020 (2019: €93,668 thousand).
385
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
45.
Risk management - Liquidity risk and funding (continued)
Analysis of financial assets and liabilities based on remaining contractual maturity
The analysis of the Company'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.
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 Company 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 Company 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 Company after giving relevant notice to the customers.
Usually the customers do not fully utilise the limits granted to them.
386
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
45.
Risk management - Liquidity risk and funding (continued)
Funding from central banks
-
-
-
39,281
24,085
19,375
2020
Financial assets
Cash and balances with
central banks
Loans and advances to
banks
Investments at FVPL
Loans and advances to
customers
Balances with Group
companies
Fair value of derivative
assets
Non-trading investments
Financial assets classified as
held for sale
Other assets
Financial liabilities
Deposits by banks
Customer deposits
Balances with Group
companies
Subordinated loan stock
Fair value of derivative
liabilities
Lease liability
Other liabilities
Net financial
(liabilities)/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
5,606,327
18,120
25,430
1,886
1,380
5,653,143
283,871
12,884
726
-
249
-
76,358
-
74
500
361,278
13,384
1,349,533
198,638
783,099
3,176,419
4,374,465
9,882,154
61,829
4,857
4,121
470,112
51,689
44
522
513,450
161,659
3,949
740,931
178
19,018
52
24,627
28,209
297,140
1,085,844
271,633
1,686,947
773
1
2,756
1,618
9,046
2,678
78,775
2,037
561,462
58,023
7,845,223
247,033
1,623,920
4,532,908
4,732,865 18,981,949
11,846,823
1,916,872
2,717,157
58,369
23,125
4,930
729
139,188
8,123
-
998
1,246
13,202
5,314
-
877
5,608
23,763
165,298
979,666
58,496
-
148,656
-
-
-
396,695
979,666
16,539,348
71,806
92,500
296,250
411,875
23,138
23,096
5,281
16,035
9,326
2,640
45,978
40,005
184,074
12,112,445
1,964,526
2,772,094
1,347,475
472,907 18,669,447
(4,267,222) (1,717,493) (1,148,174)
3,185,433
4,259,958
312,502
387
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
45.
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
Balances with Group
companies
Fair value of derivative
assets
Non-trading investments
Financial assets classified as
held for sale
Other assets
Financial liabilities
Deposits by banks
Repurchase agreements
Customer deposits
Balances with Group
companies
Subordinated loan stock
Fair value of derivative
liabilities
Lease liabilities
Other liabilities
Net financial
(liabilities)/assets
2020
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
5,002,948
21,445
31,129
2,571
1,788
5,059,881
150,036
50,008
707
-
-
-
88,712
-
-
15,611
288,756
16,318
2,181,783
196,556
776,115
3,160,133
4,400,815 10,715,402
86,193
2,953
31,480
19,660
44,561
42
105
191
158
64,401
327,718
661,436
1,628
749,490
19,511
997,111
333
23,060
292,242
1,712,952
85
23,779
503
29,575
2,651
8,298
3,030
-
25,929
106,213
7,520,321
356,421
1,165,389
4,940,423
4,715,447 18,698,001
157,221
28,449
-
-
18,743
170,503
-
146,900
193,997
10,931,766
2,292,781
3,353,357
132,036
545,310
170,503
16,709,940
99,967
-
-
-
64,327
23,125
6,244
857
183,916
19,839
15,801
-
-
71
1,411
-
-
92,500
319,375
435,000
5,524
6,317
-
13,194
20,874
-
25,560
-
-
50,593
29,459
183,916
11,367,456
2,342,551
3,570,245
405,504
538,932 18,224,688
(3,847,135) (1,986,130) (2,404,856)
4,534,919
4,176,515
473,313
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
504,655
36,127
(499,949)
(35,502)
4,706
625
565,613
175,348
(570,353)
(175,907)
(4,740)
(559)
3,193
(3,148)
45
2,858
(2,888)
(30)
-
-
-
-
-
-
-
-
-
-
-
-
543,975
(538,599)
5,376
743,819
(749,148)
(5,329)
388
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
45.
Risk management - Liquidity risk and funding (continued)
2020
Contingent liabilities and
commitments
Contingent liabilities
Acceptances and
endorsements
Guarantees
Commitments
Documentary credits
Undrawn formal standby
facilities, credit lines and
other commitments to lend
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
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
2,801
1,542
312
-
-
4,655
101,769
105,057
270,524
123,140
25,475
625,965
2,482
5,591
4,957
676
1,160
14,866
2,023,440
-
-
-
40,000
2,063,440
2,130,492
112,190
275,793
123,816
66,635
2,708,926
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
88,796
2,373
521
-
-
5,816
117,436
283,802
156,313
43,047
689,394
3,217
4,002
2,403
985
1,160
11,767
1,964,137
-
-
-
-
1,964,137
2,059,072
123,811
286,726
157,298
44,207
2,671,114
46.
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.
389
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
46.
Capital management (continued)
The capital adequacy framework, as in force, was incorporated through the CRR and Capital Requirements
Directive IV (CRD IV) and came into effect on 1 January 2014 with certain specified provisions implemented
gradually. 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
including
remuneration, board composition and transparency. Unlike the CRR, member states were required to
transpose the CRD IV into national law and national regulators were allowed to impose additional capital
buffer requirements.
internal governance arrangements
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
Common Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) 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.
Moreover, in June 2020 Regulation (EU) 2020/873 came into force which provides for certain amendments
in response to the COVID-19 pandemic, bringing forward some of the capital relieving measures that were
due to come into force at a later stage and introducing modifications as part of the wider efforts of
competent authorities to provide the support necessary to the institutions. The main adjustments affecting
the Group’s own funds as at 31 December 2020 relate to the acceleration of the implementation of the new
SME discount factor under CRR II introduced in June 2020 instead of June 2021 (lower RWAs), extending
the IFRS 9 transitional arrangements and introducing further relief measures to CET1 allowing to fully add
back to CET1 any increase in ECL recognised in 2020 and 2021 for non-credit impaired financial assets and
phasing in this starting from 2022. In addition, the amendments, introduce temporary treatment of
unrealized gains and losses on exposures to central governments, to regional governments or to local
authorities measured at fair value through other comprehensive income which the Group elected to apply
and implemented in the third quarter of 2020. Lastly changes on the application of prudential treatment of
software assets as amended by CRR II came into force in December 2020 advancing the implementation to
2020 instead of 2021.
The Group and the Company have complied with the minimum capital requirements (Pillar I and Pillar II).
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).
390
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
47.
Related party transactions
Aggregate amounts outstanding at year end and additional transactions
Loans and advances to members of the
Board of Directors and connected
persons:
- less than 1% of the Company's net assets
per director
Loans and advances to other key
management personnel and connected
persons
Total loans and advances as at 31
December
Loans and advances as at 31 December:
- members of the Board of Directors and
other key management personnel
- connected persons
Interest income for the year
Commission income for the year
Insurance premium income for the year
Subscriptions and insurance expense for
the year
Deposits as at 31 December:
- members of the Board of Directors and
other key management personnel
- connected persons
Interest expense on deposits for the
year
Accruals and other liabilities as at 31
December:
- balances with entity providing key
management personnel services
Staff costs, consultancy restructuring
and other expenditure with entity
providing key management personnel
services
2020
2019
Number of directors
2020
€000
2019
€000
9
11
98
309
21,870
22,227
21,968
22,536
2,515
19,453
21,968
710
3
257
461
2,017
2,801
4,818
3
3,247
19,289
22,536
179
3
179
902
1,896
4,979
6,875
4
2,013
9,800
10,087
17,873
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 €57 thousand (2019: €78 thousand).
There were also contingent liabilities and commitments to other key management personnel and their
connected persons amounting to €3,007 thousand (2019: €1,367 thousand).
The total unsecured amount of the loans and advances and contingent liabilities and commitments to
members of the Board of Directors, key management personnel and other connected persons, using forced-
sale values for tangible collaterals, and assigning no value to other types of collaterals, at 31 December
2020 amounted to €1,197 thousand (2019: €1,216 thousand).
391
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
47.
Related party transactions (continued)
As at 31 December 2020 the Company has a deposit of €2,858 thousand (2019: €2,817 thousand) with
Piraeus Bank SA in which Mr Arne Berggren is a non-Executive Director. The Company has also provided
certain indemnities to Piraeus Bank SA as part of the disposal of Kyprou Leasing SA in 2015.
There were no other transactions during the years ended 31 December 2020 and 2019 with connected
persons of the current members of the Board of Directors or with any members who resigned during the
year.
All transactions with members of the Board of Directors and their connected persons are made on normal
business terms as for comparable transactions including interest rates with customers of a similar credit
standing. A number of loans and advances have been extended to other key management personnel on the
same terms as those applicable to the rest of the Company'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 Company.
Fees and emoluments of members of the Board of Directors and other key management
personnel
Director emoluments
Executives
Salaries and other short term benefits
Termination benefits
Employer's contributions
Retirement benefit plan costs
Total directors' emoluments
Other key management personnel emoluments
Salaries and other short term benefits
Employer's contributions
Retirement benefit plan costs
Total other key management personnel emoluments
Total
2020
€000
2019
€000
708
450
49
55
1,262
3,363
241
155
3,759
5,021
1,910
-
100
152
2,162
2,821
155
117
3,093
5,255
Fees and benefits are included for the period that they serve as members of the Board of Directors.
The termination benefits of the executive directors relate to compensation paid to an executive director who
left the Company on 31 October 2020. The retirement benefit plan costs relate to contributions paid for
defined contribution plan.
392
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
47.
Related party transactions (continued)
Fees and emoluments of members of the Board of Directors and other key management
personnel (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-resigned on 31
October 2020)
2020
€000
2019
€000
-
506
202
708
1,510
168
232
1,910
The retirement benefit plan costs for 2020 amounting to €55 thousand (2019: €152 thousand) relate to Mr
Panicos Nicolaou €40 thousand (2019: €15 thousand since the date of his appointment), Dr Christodoulos
Patsalides €15 thousand up to the date of his resignation (2019: €20 thousand) and for 2019 Mr John
Patrick Hourican up to the date of his resignation €117 thousand.
Non-executive Directors
Non-executive director fees are reflected as an expense of Bank of Cyprus Holdings Public Limited Company
and as a result no non-executive director fees are disclosed. However, these are recharged by the holding
company back to the Company and the recharge cost is included within ‘Other operating expenses’.
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).
393
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
48.
Subsidiary companies
The main subsidiary companies and branches of the Company, their country of incorporation, their activities
and the percentage held by the Company (directly or indirectly) as at 31 December 2020 are:
Company
Country
Activities
Percentage
holding
(%)
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Investment banking and
brokerage
Non-life insurance
Life insurance
Property trading and
development
Property trading and
development
Cyprus
UCITS Fund
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Greece
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
100
100
100
100
100
58
67
75
20
100
100
70
100
n/a
100
100
100
The Cyprus Investment and Securities
Corporation Ltd (CISCO)
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
JCC Payment Systems Ltd
CLR Investment Fund Public Ltd
Auction Yard Ltd
BOC Secretarial Company Ltd
S.Z. Eliades Leisure Ltd
BOC Asset Management Ltd
Bank of Cyprus Public Company Ltd (branch of
the Company)
BOC Asset Management Romania S.A.
Romania
MC Investment Assets Management LLC
Fortuna Astrum Ltd
Russia
Serbia
394
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
48.
Subsidiary companies (continued)
In addition to the above companies, at 31 December 2020 the Company 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, Noleta Properties Ltd, Tolmeco Properties Ltd,
Arlona Properties Ltd, Dilero Properties Ltd, Ensolo Properties Ltd, Folimo Properties Ltd, Pelika Properties
Ltd, Cobhan Properties Ltd, Innerwick Properties Ltd, Ramendi 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, Colar Properties Ltd, Irisa Properties Ltd, Provezaco Properties Ltd,
Hillbay Properties Ltd, Ofraco Properties Ltd, Forenaco Properties Ltd, Hovita 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, Olivero Properties Ltd, Jaselo Properties Ltd, Elosa Properties Ltd, Flona Properties Ltd,
Toreva Properties Ltd, Resoma Properties Ltd, Mostero Properties Ltd, Helal Properties Ltd, Yossi Properties
Ltd, Pendalo Properties Ltd, Frontyard Properties Ltd, Bonsova Properties Ltd, Garmozy Properties Ltd,
Palmco Properties Ltd, Thermano Properties Ltd, Venicous Properties Ltd, Lorman Properties Ltd, Eracor
Properties Ltd, Rulemon Properties Ltd, Thelemic Properties Ltd, Maledico Properties Ltd, Dentorio
Properties Ltd, Valioco Properties Ltd, Bascone Properties Ltd, Balasec Properties Ltd, Bendolio Properties
Ltd, Diafor Properties Ltd, Kartama Properties Ltd, Paradexia Properties Ltd, Paramina Properties Ltd,
Nouralia Properties Ltd, Resocot Properties Ltd, Soblano Properties Ltd, Talamon Properties Ltd, Weinar
Properties Ltd, Zemialand Properties Ltd, Asianco Properties Ltd, Cimonia Properties Ltd, Coeval Properties
Ltd, Comenal Properties Ltd, Finevo Properties Ltd, Intelamon Properties Ltd, Mazima Properties Ltd, Nesia
Properties Ltd, Nigora Properties Ltd, Riveland Properties Ltd, Rosalica Properties Ltd, Secretsky Properties
Ltd, Senadaco Properties Ltd, Tasabo Properties Ltd, Venetolio Properties Ltd, Zandexo Properties Ltd,
Flymoon Properties Ltd, Meriaco Properties Ltd, Odolo Properties Ltd, Calandomo Properties Ltd, Molemo
Properties Ltd, Nivamo Properties Ltd, Edilia Properties Ltd, Icazo Properties Ltd, Limoro Properties Ltd,
Rofeno Properties Ltd, Samilo Properties Ltd, Jalimo Properties Ltd, Sendilo Properties Ltd, Baleland
Properties Ltd, Vemoto Properties Ltd, Prodino Properties Ltd and Zenoplus 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 2020 the Company 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.
At 31 December 2020 the Company had 100% shareholding in the companies listed below which are
reserved to accept property.
Cyprus: Tavoni Properties Ltd, Amary Properties Ltd, Holstone Properties Ltd, Alepar Properties Ltd,
Cramonco Properties Ltd, Monata Properties Ltd, Aktilo Properties Ltd, Alezia Properties Ltd, Aparno
Properties Ltd, Enelo Properties Ltd, Mikosa Properties Ltd, Stormino Properties Ltd, Stevolo Properties Ltd,
Lomenia Properties Ltd, Vertilia Properties Ltd, Carilo Properties Ltd, Gelimo Properties Ltd, Rifelo Properties
Ltd, Avaleto Properties Ltd, Midelox Properties Ltd, Ameleto Properties Ltd, Orilema Properties Ltd, Montira
Properties Ltd, Larizemo Properties Ltd and Olisto Properties Ltd.
395
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
48.
Subsidiary companies (continued)
In addition, the Company 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.
The Company also holds 100% of the following companies which are inactive:
Cyprus: Birkdale Properties Ltd, Laiki Bank (Nominees) Ltd, Thames Properties Ltd, Paneuropean Ltd,
Philiki Ltd, Cyprialife Ltd, Imperial Life Assurances Ltd, Philiki Management Services Ltd, Nelcon Transport
Co. Ltd, Weinco Properties Ltd, Iperi Properties Ltd, Finerose Properties Ltd, CYCMC II Ltd, CYCMC III Ltd,
CYCMC IV Ltd and BOC Terra AIF V.C.I Plc.
Greece: Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki (branch of General Insurance of Cyprus
Ltd), Kyprou Commercial SA and Kyprou Properties SA.
All Group companies are accounted for as subsidiaries using the full consolidation method. All companies
listed above, except for Global Balanced Fund of Funds Salamis Variable Capital Investment Company PLC
which is a UCITS Fund, have share capital consisting of ordinary shares.
Control over CLR Investment Fund Public Ltd (CLR) and its subsidiaries without substantial
shareholding
The Company considers that it exercises control over CLR and its subsidiaries (Europrofit Capital Investors
Public Ltd, Axxel Ventures Ltd and CLR Private Equity Ltd) through control of the members of the Board of
Directors and is exposed to variable returns through its holding.
Restructuring of investment of banking and brokerage activities
On 19 November 2020, the Group proceeded with a restructuring of its investment banking and brokerage
activities through the acquisition by CISCO of LCP Holdings and Investments Public Ltd and CLR Investment
Fund Public Ltd. This was achieved by an increase in the share capital of CISCO to the Company in exchange
of the shares held by the Company in both companies. In particular 67% of LCP Holdings and Investments
Public Ltd and 20% in CLR Investment Fund Public Ltd are owned by CISCO as at 31 December 2020. In
January 2021, CISCO also proceeded with the acquisition of BOC Asset Management Ltd from the Company.
The above restructuring did not have an impact on the results of the Company.
396
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
48.
Subsidiary companies (continued)
Dissolution and disposal of subsidiaries
As at 31 December 2020, the following subsidiaries were in the process of dissolution or in the process of
being struck off: Renalandia Properties Ltd, Crolandia 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 Ltd, Nivoco Properties Ltd, Bramwell Properties 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, Unknownplan Properties Ltd,
Battersee Real Estate SRL and Trecoda Real Estate SRL.
Bank of Cyprus (Channel Islands) Ltd, Bocaland Properties SRL, Selilar Properties SRL and Tantora
Properties SRL were dissolved during the year ended 31 December 2020. Legamon Properties Ltd, Ligisimo
Properties Ltd, Syniga Properties Ltd, Badrul Properties Ltd, Marisaco Properties Ltd and Gozala Properties
Ltd were disposed of during the year ended 31 December 2020.
Carrying value of investments in subsidiaries
2020
€000
2019
€000
108,177
143
244
(54)
(10,901)
97,609
254,688
6,041
-
(148,358)
(4,194)
108,177
1 January
Contribution to subsidiaries
Issue of shares of subsidiary following scrip dividend
Disposals/dissolution of subsidiaries
Impairment of investments in subsidiaries (Note 14)
31 December
49.
Acquisitions and disposals of subsidiaries
49.1
Acquisitions during 2020
There were no acquisitions during 2020.
49.2
Disposals during 2020
There were no material disposals during 2020.
49.3
Acquisitions during 2019
There were no acquisitions during 2019.
49.4
Disposals during 2019
49.4.1 Disposal of Cyreit
In June 2019, the Company completed the sale of its entire holding of 88.2% in Cyreit.
The final purchase consideration amounts to €141,139 thousand. The disposal resulted in a loss of €7,219
thousand disclosed within 'Net losses on financial instrument transactions and disposal/dissolution of
subsidiaries and associates' (Note 10).
49.4.2 Disposal of NMH group
In December 2019, the Company completed the sale of its entire holding of 64% in NMH group. 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 derecognition of the existing facilities of €2,380 thousand
disclosed within 'Net gains on derecognition of financial assets measured at amortised cost’ in the Income
Statement.
397
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2020
50.
Events after the reporting period
50.1
TLTRO III
In December 2020 the ECB announced the extension of the period over which more favourable terms will
apply to the third series of targeted longer term refinancing operations (TLTRO III) by twelve months, to
June 2022 and also announced that three additional TLTRO III operations will be conducted between June
and December 2021.
The Company already participated in 2020 in TLTRO III by borrowing €1,000 million, which may benefit
from the favourable terms for a further 12 months following the announcement by the ECB in December
2020, provided it meets the lending threshold set by the ECB. In addition, in March 2021 the Company
borrowed additional €1,700 million under the new TLTRO III operation.
50.2
Project Helix 2B
In January 2021, the Group reached an agreement for the sale of a portfolio (the ‘Portfolio 2B’) of loans and
advances to customers (known as ‘Project Helix 2B’). The Portfolio 2B will be transferred to a CyCAC by the
Company and the shares of the CyCAC will then be acquired by certain funds affiliated with PIMCO, the
purchaser of both Portfolios Helix 2A and 2B. The parties amended and restated the agreement executed in
August 2020 for Helix 2A to incorporate the transaction of Helix 2B.
As at 31 December 2020, the Portfolio 2B including stock of property and cash held by the Company, had a
net book value of €223,228 thousand (Note 28). The gross consideration for Project Helix 2B amounts to
€243 million before transaction and other costs, of which 50% is payable at completion and the remaining
50% is deferred up to December 2025 without any conditions attached. The consideration can be increased
through an earnout arrangement, depending on the performance of the Portfolio 2B.
The completion of the sale of Helix 2B portfolio is planned to occur together with the completion of Helix 2A
portfolio, currently estimated in the second half of 2021 and remains subject to a number of conditions,
including required, customary regulatory and other approvals.
398
Independent Auditor’s Report
To the Members of Bank of Cyprus Public Company Ltd
Report on the Audit of the Financial Statements
Our opinion
In our opinion, the accompanying financial statements give a true and fair view of the financial
position of parent company Bank of Cyprus Public Company Ltd (the “Company”) as at 31
December 2020, and of its financial performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards (IFRSs) as adopted by the European
Union and the requirements of the Cyprus Companies Law, Cap. 113.
What we have audited
We have audited the financial statements which are presented in pages 245 to 398 and comprise:
●
●
●
●
●
●
the balance sheet as at 31 December 2020;
the income statement for the year then ended;
the statement of comprehensive income for the year then ended;
the statement of changes in equity for the year then ended;
the statement of cash flows for the year then ended; and
the notes to the financial statements, which include a summary of significant accounting
policies.
The financial reporting framework that has been applied in the preparation of the financial
statements is International Financial Reporting Standards as adopted by the European Union and
the requirements of the Cyprus Companies Law, Cap. 113.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s 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 Company throughout the period of our appointment in
accordance with the International Ethics Standards Board for Accountants’ International Code of
Ethics for Professional Accountants (including International Independence Standards) (IESBA
Code) together with the ethical requirements that are relevant to our audit of the financial
statements in Cyprus and we have fulfilled our other ethical responsibilities in accordance with
these requirements and the IESBA Code.
Our audit approach
Overview
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the financial statements. In particular, we considered where the Board of 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
among other matters, consideration of whether there was evidence of bias that represented a risk of
material misstatement due to fraud.
Materiality
Overall materiality: €16,5 million, which represents
approximately 0,9% of the Company’s net assets as presented
on the balance sheet by line item ‘Total equity’.
Key audit matters
We have identified the following key audit matters:
Impairment of loans and advances to customers.
●
● Going concern.
● Litigation provisions and regulatory and other claims.
● Valuation of stock of properties.
● Privileged user access.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an
opinion on the financial statements as a whole, taking into account the structure of the Company,
the accounting processes and controls, and the industry in which the Company operates.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to
obtain reasonable assurance whether the financial statements are free from material misstatement.
Misstatements may arise due to fraud or error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for
materiality, including the overall materiality for the financial statements as a whole as set out in the
table below. These, together with qualitative considerations, helped us to determine the scope of
our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Overall materiality
€16,5 million
How we determined it
Based on approximately 0.9% of the Company’s net assets as
presented on the balance sheet by line item ‘Total equity’.
Rationale for the
materiality benchmark
applied
We chose net assets as the benchmark, because in our view, it
is reflective of the Company’s Common Equity Tier 1 (“CET1”)
capital position, which is the benchmark against which the
performance of the Company is most commonly measured by
the users of the financial statements. We chose 0.9%, which in
our experience is an acceptable quantitative threshold for this
materiality benchmark.
We agreed with the Audit Committee that we would report to them misstatements identified during
our audit above €823 thousand as well as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
Key audit matters incorporating the most significant risks of material misstatements,
including assessed risk of material misstatements due to fraud
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial statements of the current period. These matters 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.
Key Audit Matter
How our audit addressed the Key Audit
Matter
Impairment of loans and advances to
customers
Refer to Note 5.2, “Calculation of expected credit
losses” within Note 5 “Significant and other
judgements, estimates and assumptions, Note 21,
“Loans and advances to customers” and Note 43, “Risk
management - credit risk”.
The Company 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 individually significant or
which meet specific criteria determined by
management.
We obtained an understanding of controls relevant to
the audit, evaluated their design and also tested the
operating effectiveness of such 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 Joint Audit & Risk
Committee.
We assessed the appropriateness of the key
assumptions used in the methodologies and models of
the Company 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
We determined this to be a key audit matter due to the
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 including
consideration of relevant overlays, where
applicable;
The increased complexity of identifying
‘Significant Increase in Credit Risk’ during a
period of repayment moratorium due to the
reduced availability of arrears data; and
The inputs, assumptions and probability
weights assigned to multiple economic
scenarios as used by the Company.
customers to Stages 1, 2 or 3 with reference to those
triggers. As part of this, we considered staging
overlays, in particular those applied by management
with respect to moratorium customers, where
applicable.
We tested the completeness and accuracy of data
inputs to the ECL model by tracing on a sample basis
relevant data fields to source documents (such as loan
agreements and collateral valuations) and the
performance of data validation tests.
We tested, with the assistance of PwC credit risk
experts, 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 (e.g. Exposure at
Default, Loss Given Default and Probability 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
Company’s own calculation.
We evaluated the Company’s individual assessments
for a sample of material Stage 3 exposures for
compliance with the Company’s policies, developments
during 2020 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 Company’s ECL
charge of expected realisation through disposals of
certain loan portfolios comprising primarily Stage 3
loans and determined whether the related ECL charge
is reasonable.
We assessed, with the assistance of PwC credit risk
experts, 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 Company’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 financial statements were
appropriate.
Going concern
Refer to Note 3 “Going Concern” to the financial
statements.
The Directors are required to prepare the financial
statements on a going concern basis unless it is
inappropriate to presume that the Company 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 relating to events or conditions
that, individually or collectively, may cast
significant doubt on the Company’s ability to
continue as a going concern. In making their
assessment, the Directors have considered a period
of at least twelve months from the date of approval
of the financial statements.
As part of its assessment, the Company has
considered a number of macroeconomic scenarios
and then assessed the resulting Company 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 during 2020 by the
European Central Bank (“ECB”). Where appropriate,
the Directors have identified relevant actions to
support the Company's capital and liquidity
positions.
We determined this to be a key audit matter due to
the ongoing focus on the capital adequacy for the
Company, the uncertainties involved in the delivery
of the Company’s Financial Plan and the increased
risks presented by the continuing COVID-19
pandemic.
We obtained the Directors’ going concern
assessment and assessed whether events and
conditions exist that create material uncertainty that
may cast significant doubt on the Company’s ability
to continue as a going concern.
We read correspondence with the relevant
regulators with regards to regulatory capital and
liquidity requirements of the Company, as well as
other correspondence such as the findings of the
ECB’s Supervisory Review and Evaluation Process
(SREP) which determines the Company’s required
Regulatory ratios.
We considered the Company’s 4 year Financial Plan
approved by the Board in November 2020. We
compared the Company’s CET1 and other capital
and liquidity ratios as included in management’s
going concern assessment versus regulatory
reporting submissions of the Company.
We evaluated the Company’s assessment of the
impact of COVID-19 and other factors on its
operations, liquidity and capital ratios for the period
of assessment. In particular, we:
●
●
●
●
Considered the Company’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 policies implemented by the
Cypriot government in response to COVID-
19 designed to support the economy.
Assessed the Company’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 Company’s estimates with
respect to projected liquidity in the context
of liquidity stress testing.
Assessed the Company’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 macroeconomic
scenarios under consideration.
We noted the capital and liquidity relief measures as
announced by the ECB during 2020 and the implied
capital release, for a period at least to the end of
2020, made available to the Company as a result of
those measures. We discussed a number of matters
with relevant regulatory authorities including the
nature of the relief measures, their availability to the
Company and their likely duration.
We also evaluated the disclosures made by the
Directors in the financial statements and assessed
whether they reflected the basis of 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
financial statements were appropriate.
Litigation provisions and regulatory and
other matters
Refer to Note 5.4 “Provisions for pending litigation,
claims, regulatory and other matters” within Note 5
“Significant and other judgements, estimates and
assumptions” and Note 37 “Pending litigation,
claims, regulatory and other matters”, to the
financial statements, which provide detailed
information on provisions for pending litigation,
claims, regulatory and other matters.
The Company is subject to various legal claims,
investigations and other proceedings.
Management together with the Company’s
compliance and legal departments and, where
necessary, the risk management department, review
all existing and potential legal cases, prepare an
assessment of potential outcomes for each
individual case and assess the probability of
economic outflow from the Company.
We have 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 judgements relate
to the probability of obligating events requiring an
outflow of resources to settle the obligation and the
estimation of the extent of any related economic
outflow.
We obtained an understanding of controls relevant
to the audit, evaluated their design and tested the
operating effectiveness of certain controls relating to
elements of recognising and measuring litigation
provisions and regulatory and other matters.
We obtained and evaluated management’s
assessment of individual cases. For a sample of
cases, we assessed management’s proposed
provisions against information contained in case
files and information obtained from external legal
advisors. Where deemed necessary we confirmed
case facts and judgements directly with external
legal advisors.
For cases where economic outflow was assessed as
probable and therefore a provision was recorded, we
recalculated the provision and performed sensitivity
analysis on key assumptions used by management.
We inspected the minutes of 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 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
Valuation of stock of properties
Refer to Note 5.3, “Stock of property - estimation of
net realisable value” within Note 5 “Significant and
other judgements, estimates and assumptions” and
Note 26 “Stock of properties”.
The Company has acquired a significant number of
properties as a result of restructuring agreements
with customers. These properties are accounted for
as stock of property at the lower of their cost or net
realisable value in accordance with IAS 2.
Valuations obtained from reputable external valuers
are a key input to determine the appropriate
carrying amount.
In light of the large volume of properties held and
the uncertainty around market conditions
(including those reflecting the COVID-19 pandemic)
when estimating the carrying amount, we
determined this to be a key audit matter.
their adequacy against the relevant accounting
standards for both provisions and contingencies as
at 31 December 2020.
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 financial statements were
appropriate.
We obtained an understanding of controls relevant
to the audit, evaluated their design and also tested
the operating effectiveness of such key controls
across processes that are relevant to the valuation of
stock of properties.
We focused on the key inputs and assumptions
underlying the valuation of the properties accounted
for in accordance with IAS 2 .
We evaluated the competence, capability and
objectivity of management’s external experts
(property valuers).
For a sample of properties, we obtained the
valuation reports used by the Company 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 experts.
For a sample of newly onboarded properties, we
tested “cost’’ with reference to signed “debt-for-
asset” agreements entered into with Company
borrowers, and subsequently compared this to the
“net realisable value’’ as determined via external
valuation reports.
We performed look-back procedures by comparing
the price achieved for disposals during 2020 to the
carrying amounts for those assets at 31 December
2019.
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
Privileged user access
The Company’s financial reporting is heavily reliant
on IT systems which have been in place for a
number of years and which are inherently complex,
thereby creating an elevated risk to financial
reporting.
The Company relies on privileged user access
controls which are critical to ensuring that changes
to the applications and underlying data are made in
an appropriate manner such that the risk of
potential fraud or errors as a result of changes to
application functionality and data is mitigated.
We determined privileged user access 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.
amount of stock of properties were reasonable and
the disclosures made in relation to these matters in
the financial statements were appropriate.
With the assistance of PwC IT audit specialists, we
obtained an understanding of the Company’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 deficiencies in privileged user access
controls were identified we sought to identify and
test other compensating controls. Where
compensating controls or other mitigating factors
and circumstances were not identified, we
performed additional audit procedures in respect
of user access rights. 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 Company’s user
access tool that supports the management of
user access, for the provision, deprovision,
and recertification of privileged access;.
● Extracted the list of privileged users on the
Company’s data warehouse and considered
the appropriateness of access during 2020;
● Extracted the list of developers from the
production IT systems and release tools for
those applications where system functionality
is managed in-house and reviewed the
appropriateness of developer access; and
● Considered the authentication controls of
applications and supporting IT infrastructure
to assess compliance with the Company’s
password policy requirements.
After evaluating the results of these additional
audit procedures, where necessary our team
performed further audit procedures such that, we
concluded that any residual audit risk was reduced
to an acceptable level.
Reporting on other information
The Board of Directors is responsible for the other information. The other information comprises
the information included in the Management Report and the Definitions and explanations on
Alternative Performance Measures Disclosures, but does not include the financial statements and
our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above 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, 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 in this regard.
Responsibilities of the Board of Directors and those charged with governance for
the Financial Statements
The Board of Directors is responsible for the preparation of the financial statements that give a true
and fair view in accordance with International Financial Reporting Standards as adopted by the
European Union and the requirements of the Cyprus Companies Law, Cap. 113, and for such
internal control as the Board of Directors determines 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 Board of Directors is responsible for assessing 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 Board of Directors either
intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s 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 auditor’s
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 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.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain
professional scepticism throughout the audit. We also:
●
Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control.
● Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Board of Directors.
● Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Company’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the financial statements
or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Company to cease to continue as a going concern.
● Evaluate the overall presentation, structure and content of the financial statements, including
the disclosures, and whether the financial statements represent the underlying transactions
and events in a manner that achieves a true and fair view.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with those charged with governance, we determine those matters
that were of most significance in the audit of the financial statements of the current period and are
therefore the key audit matters.
Report on Other Legal and Regulatory Requirements
Pursuant to the requirements of Article 10(2) of the EU Regulation 537/2014 we provide the
following information in our Independent Auditor’s Report, which is required in addition to the
requirements of International Standards on Auditing.
Appointment of the Auditor and Period of Engagement
We were first appointed as auditors of the Company on 2 April 2019 by the shareholder of the
Company through an extraordinary general meeting for the audit of the financial statements for the
year ended 31 December 2019. Our appointment has been renewed annually by shareholder
resolution representing a total period of uninterrupted engagement appointment of 2 years.
Consistency of the Additional Report to the Audit Committee
We confirm that our audit opinion on the financial statements expressed in this report is consistent
with the additional report to the Audit Committee of the Company, which we issued on 29 March
2021 in accordance with Article 11 of the EU Regulation 537/2014.
Provision of Non-audit Services
We declare that no prohibited non-audit services referred to in Article 5 of the EU Regulation
537/2014 and Section 72 of the Auditors Law of 2017 were provided. In addition, there are no non-
audit services which were provided by us to the Company and which have not been disclosed in the
financial statements or the management report.
Other Legal Requirements
Pursuant to the additional requirements of the Auditors Law of 2017, we report the following:
●
●
In our opinion, based on the work undertaken in the course of our audit, the management
report has been prepared in accordance with the requirements of the Cyprus Companies
Law, Cap. 113, and the information given is consistent with the financial statements.
In light of the knowledge and understanding of the Company and its environment
obtained in the course of the audit, we are required to report if we have identified
material misstatements in the management report. We have nothing to report in this
respect.
Other Matters
This report, including the opinion, has been prepared for and only for the Company’s members as a
body in accordance with Article 10(1) of the EU Regulation 537/2014 and Section 69 of the Auditors
Law of 2017 and for no other purpose. We do not, in giving this opinion, accept or assume
responsibility for any other purpose or to any other person to whose knowledge this report may
come to.
We have reported separately on the consolidated financial statements of the Company and its
subsidiaries for the year ended 31 December 2020.
The engagement partner on the audit resulting in this independent auditor’s report is George C.
Kazamias.
George C. Kazamias
Certified Public Accountant and Registered Auditor
for and on behalf of
PricewaterhouseCoopers Limited
Certified Public Accountants and Registered Auditors
PwC Central, 43 Demostheni Severi Avenue
CY-1080 Nicosia Cyprus
29 March 2021
BANK OF CYPRUS 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 (including residual fair value adjustment on initial recognition on loans
and advances to customers held for sale), (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 ‘Restructuring
costs – Voluntary Staff Exit Plan (VEP)) (on an underlying basis as reconciled in
the table further below), special levy on deposits and contributions to Single
Resolution Fund (SRF) and Deposit Guarantee Fund (DGF) (excluding Deferred
tax credit (DTC) levy) (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 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 as per the
underlying basis (as defined below).
Digitally engaged
customers ratio
Gross loans
This is the ratio of digitally engaged individual customers to the total number of
individual customers. Digitally engaged customers are the individuals who use
the digital channels of BOC PCL (mobile banking app, browser and ATMs) to
perform banking transactions, as well as digital enablers such as a bank-issued
card to perform online card purchases, based on an internally developed
scorecard.
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 mainly to loans acquired from Laiki Bank (calculated as the
difference between the outstanding contractual amount and the fair value of
loans acquired).
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 year.
411
BANK OF CYPRUS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
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 gross loans are calculated as the
average of the opening balance and the closing balance for the year.
Net fee and
commission income
over total income
Fee and commission income less fee and commission expense divided by total
income (as defined).
Net Interest Margin Net interest margin is calculated as the net interest income (per the underlying
basis) (annualised based on year to date days) divided by the quarterly average
interest earning assets (as defined). 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
Net loans and advances to customers comprise 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 disclosed on the balance
sheet within other liabilities).
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 disbursed amounts of the new and existing non-
revolving facilities (excluding forborne or re-negotiated accounts) as well as the
average year to date change (if positive) of the current accounts and overdraft
facilities between the balance at the beginning of the period and the end of the
period. Recoveries are excluded from this calculation since their overdraft
movement relates mostly to accrued interest and not to new lending.
Non-performing
exposures (NPEs)
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.
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.
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.
Material arrears/excesses are defined as follows: - Retail exposures: Total
arrears/excesses amount greater than €100 - Exposures other than retail: Total
412
BANK OF CYPRUS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
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 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 Staff Exit Plan (VEP) (iii)
Provisions/net loss relating to NPE sales, including restructuring expenses, (iv)
Deferred tax credit (DTC) Levy/reversal of impairment of deferred tax assets
(DTA) and impairment of other tax receivables and (v) Loss on remeasurement
of investment in associate upon classification as held for sale (CNP) net of share
of profit from associates (for the year ended 31 December 2019 only).
NPE coverage ratio
The NPE coverage ratio is calculated as the allowance for expected loan 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).
Operating profit
Operating profit (on an underlying basis) 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)/loss
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/(loss) 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 per the underlying basis comprises the 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 Director’s Report under
section ‘Group financial results per the underlying basis’.
413
BANK OF CYPRUS 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 2020.
1. (a) Reconciliation of Gross loans and advances to customers
2020
€000
2019
€000
Gross loans and advances to customers as per the underlying basis (as
defined above)
12,261,404
12,821,838
Reconciling items:
Residual fair value adjustment on initial recognition (Note 45.6)
(146,602)
(201,999)
Loans and advances to customers classified as held for sale
(Note 45.6)
Residual fair value adjustment on initial recognition on loans and
advances to customers classified as held for sale (Note 45.6)
Loans and advances to customers measured at fair value through profit or
loss (Note 23)
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 23)
(1,341,255)
(173,881)
(46,675)
(11,083)
(289,861)
(369,293)
(36,408)
(57,436)
10,400,603
12,008,146
1. (b) Reconciliation of Loans and advances to customers classified as held for sale
2020
€000
2019
€000
Loans and advances to customers classified as held for sale as per the
underlying basis
1,387,930
184,964
Reconciling items:
Residual fair value adjustment on initial recognition on loans and
advances to customers classified as held for sale (Note 45.6)
Loans and advances to customers classified as held for sale as per
the Consolidated Financial Statements (Note 29)
(46,675)
(11,083)
1,341,255
173,881
2.
(a) Reconciliation of Allowance for expected credit losses on loans and advances to
customers (ECL)
2020
€000
2019
€000
Allowance for expected credit losses on loans and advances to customers
(ECL) as per the underlying basis (as defined above)
1,901,978
2,096,180
Reconciling items:
Residual fair value adjustment on initial recognition (Note 45.6)
(146,602)
(201,999)
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 45.9)
Residual fair value adjustment on initial recognition on loans and
advances to customers classified as held for sale (Note 45.6)
(36,408)
(57,436)
(848,218)
(147,952)
(46,675)
(11,083)
Provisions for financial guarantees and commitments (Note 34)
(19,658)
(22,112)
Allowance for ECL for impairment of loans and advances to
customers as per the Consolidated Financial Statements (Note 23)
804,417
1,655,598
414
BANK OF CYPRUS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
2. (b) Reconciliation of Allowance for expected credit losses on loans and advances to
customers classified as held for sale (ECL)
Allowance for expected credit losses on loans and advances to customers
(ECL) classified as held for sale as per the underlying basis
Reconciling items:
Residual fair value adjustment on initial recognition on loans and
advances to customers classified as held for sale (Note 45.6)
Allowance for ECL for impairment of loans and advances to
customers classified as held for sale as per the Consolidated
Financial Statements (Note 29)
3. Reconciliation of NPEs
2020
€000
2019
€000
894,893
159,035
(46,675)
(11,083)
848,218
147,952
2020
€000
2019
€000
NPEs as per the underlying basis (as defined above)
3,085,646
3,879,508
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)
Loans and advances to customers measured at fair value through profit or
loss (NPEs)
POCI (NPEs) (Note 3 below)
Residual fair value adjustment on initial recognition on loans and
advances to customers (NPEs) classified as Stage 3 (Note 45.6)
Stage 3 gross loans and advances to customers at amortised cost
as per the Consolidated Financial Statements (Note 45.6)
(1,312,165)
(172,880)
(47,011)
(11,096)
(118,479)
(144,866)
(227,065)
(511,933)
(9,376)
(16,516)
1,371,550
3,022,217
NPE ratio
NPEs (as per table above) (€000)
3,085,646
3,879,508
Gross loans and advances to customers (as per table above) (€000)
12,261,404
12,821,838
Ratio of NPE/Gross loans (%)
25.2%
30.3%
Note 1: Gross loans at amortised cost after residual fair value adjustment on initial recognition
classified as held for sale include an amount of €1,130,937 thousand Stage 3 loans (2019: €150,206
thousand Stage 3 loans) and an amount of €181,228 thousand POCI – Stage 3 loans (out of a total of
€181,984 thousand POCI loans) (2019: €22,674 thousand POCI – Stage 3 loans (out of a total of
€22,679 thousand POCI loans) as disclosed in Note 45.6 of the Consolidated Financial Statements for
the year ended 31 December 2020.
Note 2: Residual fair value adjustment on initial recognition of loans and advances to customers
classified as held for sale includes an amount of €7,650 thousand for Stage 3 loans (2019: €3,402
thousand for Stage 3 loans) and an amount of €39,361 thousand for POCI – Stage 3 loans (out of a
total of €39,381 thousand POCI loans) (2019: €7,694 thousand for POCI – Stage 3 loans) as disclosed
in Note 45.6 of the Consolidated Financial Statements for the year ended 31 December 2020.
Note 3: Gross loans and advances to customers at amortised cost before residual fair value adjustment
on initial recognition include an amount of €227,065 thousand POCI – Stage 3 loans (out of a total of
€335,852 thousand POCI loans) (2019: €511,933 thousand POCI – Stage 3 loans (out of a total of
€627,212 thousand POCI loans)) as disclosed in Note 45.6 of the Consolidated Financial Statements for
the year ended 31 December 2020.
415
BANK OF CYPRUS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
4. Reconciliation of Gross Loans – Pro forma
Gross Loans (as per table 1 (a) above)
Reconciling items:
Gross loans and advances to customers classified as held for sale
(Project Helix 2, Portfolios A and B) (Note 29 – Disposal Group 1 and 2)
Residual fair value adjustment on initial recognition on loans and advances to customers
classified as held for sale (Project Helix 2, Portfolios A and B)
Gross loans and advances to customers – pro forma
5. Reconciliation of NPEs – Pro forma
NPEs (as per table 3 above)
Reconciling items:
Gross loans and advances to customers (NPEs) classified as held for sale (Project Helix
2, Portfolios A and B) (Note 1 below)
Residual fair value adjustment on initial recognition on loans and advances to customers
(NPEs) classified as held for sale (Project Helix 2, Portfolios A and B)
NPEs - Pro forma
2020
€000
12,261,404
(1,309,206)
(44,947)
10,907,251
2020
€000
3,085,646
(1,280,391)
(45,269)
1,759,986
Note 1: Gross loans of amortised cost after residual fair value adjustment on initial recognition
classified as held for sale include an amount of €1,106,816 thousand stage 3 loans and an amount of
€173,575 thousand POCI – stage 3 loans for project Helix 2, Portfolios A and B (out of a total
€1,130,937 thousand stage 3 loans classified as held for sale as disclosed in Note 45.6 of the
Consolidated Financial Statements for the year ended 31 December 2020 and €181,228 thousand POCI
– stage 3 loans classified as held for sale as disclosed in Note 1 of Table 3 in these ‘Definitions and
explanations of Alternative Performance Measures Disclosures’.
NPE ratio – Pro forma
NPEs - Pro forma (as per table above) (€000)
Gross loans and advances to customers - Pro forma (as per table above) (€000)
Ratio of NPE/Gross loans – Pro forma (%)
2020
€000
1,759,986
10,907,251
16.1%
416
BANK OF CYPRUS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
6. Reconciliation of Loan credit losses
2020
€000
2019
€000
Loan credit losses as per the underlying basis
148,504
145,498
Reconciling items:
Loan credit losses relating to NPE sales, disclosed under non-recurring
items within ‘Provisions/net loss relating to NPE sales, including
restructuring expenses’ 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 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 16)
Net gains on derecognition of financial assets measured at amortised
cost (Consolidated Income Statement)
120,021
87,481
-
(11,606)
268,525
221,373
275,080
232,451
(2,949)
(8,187)
Net gains on loans and advances to customers at FVPL (Note 11)
(3,606)
(2,891)
268,525
221,373
417
BANK OF CYPRUS 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 2020.
1. Net Interest Margin
Reconciliation of the various components of net interest margin between the underlying basis and the
statutory basis is provided below:
1.1.
Reconciliation of Net interest income
Net interest income as per the underlying basis
Reclassifications for:
Net interest income relating to the Helix portfolio, disclosed under non-
recurring items within 'Provisions/net loss relating to NPE sales, including
restructuring expenses' 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 related to a change in the method of amortising
arrangement fees
2020
€000
2019
€000
330,016
343,632
-
-
33,962
(11,606)
Net interest income as per the statutory basis
330,016
365,988
Net interest income used in the calculation of NIM
329,998
343,620
1.2.
Interest
earning
assets
31 December
2020
30 September
2020
€000
€000
30 June
2020
€000
31 March
2020
€000
31 December
2019
€000
Cash and balances with
central banks (Note 42)
Loans and advances to
banks (Note 42)
Loans and advances to
customers (Note 23)
Loans and advances to
customers held for sale
(Note 29)
Cash held for sale (Note
29)
Investments
5,653,315
5,506,401
5,276,398
4,398,781
5,060,042
402,784
529,393
621,960
455,284
320,881
9,886,047
10,046,718
10,104,240
10,596,536
10,721,841
493,037
349,381
361,652
23,700
25,929
68,425
-
-
-
-
Debt securities (Note 20)
1,708,844
1,824,720
1,804,290
1,781,992
1,738,007
(18,618)
(19,819)
(23,887)
(21,496)
(23,593)
18,193,834
18,236,794
18,144,653
17,234,797
17,843,107
Less: Investments which
are not interest bearing
Total
assets
interest earning
1.3.
Quarterly
average
interest
earning
assets
(€000)
- 2020
- 2019
17,930,637
18,050,705
418
BANK OF CYPRUS 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:
2.1.1. Reconciliation of Staff costs
Total Staff costs as per the underlying basis
Reclassifications for:
2020
€000
2019
€000
195,227
219,983
Staff costs relating to the Helix portfolio, reclassified under the underlying basis
to ‘Provisions/net loss relating to NPE sales, including restructuring expenses’
Staff costs – voluntary exit plan and other termination benefits, separately
presented under the underlying basis (Note 14)
Total Staff costs as per the statutory basis (Note 14)
-
5,564
5,825
81,166
201,052
306,713
2.1.2. Reconciliation of Other operating expenses
Other operating expenses as per the underlying basis
145,046
165,623
2020
€000
2019
€000
Reclassifications for:
Operating expenses relating to the portfolio under NPE sales, presented within
‘Provisions/net loss relating to NPE sales, including restructuring expenses’
under the underlying basis
Provisions for pending litigations, 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 NPE sales, presented within ‘Provisions/net
loss relating to NPE sales, including restructuring expenses’ under the
underlying basis
Other operating expenses as per the statutory basis
(Note 15)
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 ‘DTC levy/reversal of impairment of DTA and
impairment of other tax receivables’ under the underlying basis (Note
15)
Special levy on deposits on credit institutions in Cyprus, contribution to
Single Resolution fund and other levies per the statutory basis (Note
15)
20,720
20,021
7,202
10,451
10,284
21,590
5,205
25,067
188,457
242,752
2020
€000
2019
€000
30,211
24,854
3,445
18,755
33,656
43,609
419
BANK OF CYPRUS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
2.
Cost to income ratio (continued)
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:
2.2.1. Reconciliation of Net fee and commission income
Total Net fee and commission income as per the underlying basis
144,674
149,960
Reclassifications for:
Fee and commission income relating to the Helix portfolio, disclosed under non-
recurring items within ‘Provisions/net loss relating to NPE sales, including
restructuring expenses' per the underlying basis
-
11,934
Total net fee and commission income as per the statutory basis
144,674
161,894
2020
€000
2019
€000
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’ per the underlying basis
(Note 11)
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 (Note 11)
Total Net foreign exchange gains and Net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and associates as per the
statutory basis
2020
€000
2019
€000
14,650
38,494
3,606
2,891
-
3,886
18,256
45,271
16,535
26,596
1,721
18,675
18,256
45,271
420
BANK OF CYPRUS GROUP
Definitions and explanations of Alternative Performance Measures Disclosures
2.
Cost to income ratio (continued)
2.3 Total Income as per the underlying basis
Net interest income as per the underlying basis (as per table above)
330,016
343,632
Net fee and commission income as per the underlying basis (as per table above)
144,674
149,960
Net foreign exchange gains and Net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates as per the underlying basis
(as per table above)
14,650
38,494
Insurance income net of claims and commissions (as per the statutory basis)
56,063
57,660
2020
€000
2019
€000
Net gains from revaluation and disposal of investment properties and on
disposal of stock of properties (as per the statutory 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
Other income (as per the statutory basis)
Total Income as per the underlying basis
6,690
28,201
-
3,886
14,957
28,938
567,050
650,771
2020
€000
2019
€000
2.4 Total Expenses as per the underlying basis
Staff costs as per the underlying basis (as per table above)
195,227
219,983
Special levy on deposits on credit institutions in Cyprus, contribution to Single
Resolution Fund and other levies as per the underlying basis (as per table above)
30,211
24,854
Other operating expenses as per the underlying basis (as per table above)
145,046
165,623
Total Expenses as per the underlying basis
370,484
410,460
Cost to income ratio
Total expenses (as per table above) (€000)
Total income (as per table above) (€000)
Total expenses/Total income (%)
370,484
410,460
567,050
650,771
65%
63%
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
2020
30 September
2020
€000
€000
30 June
2020
€000
31 March
2020
€000
31 December
2019
€000
Total assets used in the
computation of the
operating profit return
on average assets/per
the Consolidated
Balance Sheet
Operating profit
Quarterly average total assets
21,514,214
21,515,586
21,370,663
20,430,892
21,122,705
2020
€000
2019
€000
196,566
240,311
21,190,812
21,589,062
421