Annual Financial Report 2022
BANK OF CYPRUS GROUP
Annual Financial Report
for the year ended 31 December 2022
Annual Financial Report 2022
Contents
Board of Directors and Executives
Forward Looking Statements and Notes
Management Report of Bank of Cyprus Public Company Limited
Risk and Capital Management Report
ESG Disclosures
Consolidated Financial Statements of Bank of Cyprus Group
Independent Auditor’s Report to the Members of Bank of Cyprus Public Company Limited on the
Consolidated Financial Statements
Financial Statements of Bank of Cyprus Public Company Limited
Independent Auditor's Report to the Members of Bank of Cyprus Public Company Limited on the
Separate Financial Statements
Alternative Performance Measures Disclosures
Page
1
2
3
42
76
117
306
317
464
474
BANK OF CYPRUS GROUP
Board of Directors and Executives
as at 31 March 2023
Annual Financial Report 2022
Board of Directors of Bank of Cyprus
Public Company Limited
Efstratios-Georgios Arapoglou
CHAIRMAN
Executive Committee
Lyn Grobler
VICE-CHAIRPERSON
Panicos Nicolaou
Arne Berggren
Constantine Iordanou
Eliza Livadiotou
Ioannis Zographakis
Maria Philippou
Nicolaos Sofianos
Paula Hadjisotiriou
Panicos Nicolaou
CHIEF EXECUTIVE OFFICER
Dr. Charis Pouangare
DEPUTY CHIEF EXECUTIVE OFFICER & CHIEF OF BUSINESS
Eliza Livadiotou
EXECUTIVE DIRECTOR FINANCE & LEGACY
Demetris Th. Demetriou
CHIEF RISK OFFICER
Irene Gregoriou
EXECUTIVE DIRECTOR PEOPLE & CHANGE
George Kousis
EXECUTIVE DIRECTOR TECHNOLOGY & OPERATIONS
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 Stasinou Street
Ayia Paraskevi, Strovolos
CY 2002 Nicosia
Cyprus
1
BANK OF CYPRUS GROUP
Forward Looking Statements and Notes
Annual Financial Report 2022
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 rate 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. The Russian invasion of Ukraine has led to heightened volatility across
global markets and to the coordinated implementation of sanctions on Russia, Russian entities and
nationals. The Russian invasion of Ukraine has caused significant population displacement, and if the conflict
continues, the disruption will likely increase. The scale of the conflict and the extent of sanctions, as well as
the uncertainty as to how the situation will develop, may have significant adverse effects on the market and
macroeconomic conditions, including in ways that cannot be anticipated. This creates significantly greater
uncertainty about forward-looking statements. 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 Limited's (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 are 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 ‘Alternative Performance Measures Disclosures’ on pages 474 to 487
of the Annual Financial Report for the year ended 31 December 2022 for further information, reconciliations
with Consolidated Financial Statements and calculations of non-IFRS performance measures included
throughout this document and their reconciliation to the most directly comparable IFRS measures.
The Annual Financial Report for the year ended 31 December 2022 is available on the Group’s website
www.bankofcyprus.com (Group/Investor Relations) (the Group's website).
2
MANAGEMENT REPORT
FOR THE YEAR
2022
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Annual Financial Report 2022
The Board of Directors submits to the shareholders of Bank of Cyprus Public Company Limited (‘the Company’ or
‘BOC PCL’) 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 2022.
The Annual Financial Report relates to the Company and together with its subsidiaries the Group.
Activities
The principal activities of BOC PCL and its subsidiary companies involve the provision of banking, financial, and
insurance services and the management and disposal of property predominately acquired in exchange of debt.
All Group companies and branches are set out in Note 51 to the Consolidated Financial Statements. The Group
has established branches in Greece. There were no acquisitions of subsidiaries and no material disposals of
subsidiaries during the year ended 31 December 2022. Information on Group companies and acquisitions and
disposals during the year are detailed in Note 51 to the Consolidated Financial Statements.
4
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Annual Financial Report 2022
Group financial results on the underlying basis
The main financial highlights for the year ended 31 December 2022 are set out below:
Unaudited Consolidated Income Statement on the underlying basis
€ million
Net interest income
Net fee and commission income
Net foreign exchange gains and net gains on financial instruments
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
Staff costs
Other operating expenses
Special levy on deposits and other levies/contributions
Total expenses
Operating profit
Loan credit losses
Impairments of other financial and non-financial assets
Provisions for pending litigations, regulatory and other matters (net of reversals)
Total loan credit losses, impairments and provisions
Profit before tax and non-recurring items
Tax
Profit attributable to non-controlling interests
Profit after tax and before non-recurring items (attributable to the owners of
the Company)
Advisory and other restructuring costs-organic
Profit after tax - organic (attributable to the owners of the Company)
Provisions/net profit/(loss) relating to NPE sales3
Restructuring and other costs relating to NPE sales3
Restructuring costs - Voluntary Staff Exit Plan (VEP)
Profit after tax (attributable to the owners of the Company)
20221
20211,2
(restated)
371
192
36
71
13
17
700
(190)
(153)
(38)
(381)
319
(47)
(33)
(11)
(91)
228
(36)
(3)
189
(11)
178
1
(3)
(104)
72
296
172
25
61
13
14
581
(202)
(148)
(36)
(386)
195
(66)
(36)
2
(100)
95
(5)
(2)
88
(22)
66
(7)
(16)
(16)
27
1The financial information is derived from and should be read in conjunction with the accompanied Consolidated Financial Statements.
2 Comparative information was restated following a reclassification of approximately €1 million loss relating to disposal/dissolution of subsidiaries
and associates from ‘Net foreign exchange gains and net gains/(losses) on financial instruments’ to ‘Other income’. More information is provided
in Note 2.1 of the Consolidated Financial Statements.
3 ‘Provisions/net profit/(loss) relating to NPE sales’ refer to the net profit/(loss) on transactions completed during the year, whilst 'Restructuring
and other costs relating to NPE Sales' refer mainly to the costs relating to these trades.
5
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Annual Financial Report 2022
Group financial results on the underlying basis (continued)
Unaudited Consolidated Income Statement on the underlying basis (continued)
Key Performance Ratios4
Net interest margin
Cost to income ratio
Cost to income ratio excluding special levy on deposits and other levies/contributions
Operating profit return on average assets
Basic earnings per share attributable to the owners of the Company (€ cent)
Basic earnings after tax and before non-recurring items per share attributable to the
owners of the Company (€ cent)5
Return on tangible equity (ROTE) after tax and before non-recurring items6
Return on tangible equity (ROTE)
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
Net loans and advances to Group companies8
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
Customer deposits
Debt securities in issue
Subordinated liabilities
Other liabilities
Total liabilities
Shareholders’ equity
Other equity instruments
Total equity excluding non-controlling interests
Non-controlling interests
Total equity
Total liabilities and equity
2022
2021
1.65%
1.45%
54%
49%
1.2%
0.75
1.98
11.4%
4.3%
66%
60%
0.8%
0.29
0.93
5.4%
1.7%
20227
20217
9,567
205
2,703
9,953
9
1,041
85
1,880
-
25,443
508
1,977
18,998
298
304
1,254
23,339
1,862
220
2,082
22
2,104
25,443
9,231
292
2,139
9,836
-
1,112
118
1,876
359
24,963
457
2,970
17,531
303
342
1,281
22,884
1,837
220
2,057
22
2,079
24,963
4Including the NPE portfolios classified as 'Non-current assets and disposal groups held for sale', where relevant.
5As of 30 June 2021, management monitors ‘Basic earnings per share attributable to the owners of the Company’ calculated using ‘Profit/(loss)
after tax and before non-recurring items (attributable to the owners of the Company)’, rather than ‘Profit/(loss) after tax – organic (attributable
to the owners of the Company)’ which was previously the case, as management believes it is a more appropriate measure of monitoring recurring
performance, as it excludes ‘Advisory and other restructuring costs – organic’ which do not relate to the underlying or recurring business of the
Group.
6Return on tangible equity (ROTE) after tax and before non-recurring items’ is calculated as the profit after tax and before non-recurring items
divided by the quarterly average shareholders’ equity minus intangible assets at each quarter end.
7The financial information is derived from and should be read in conjunction with the accompanied Consolidated Financial Statements.
8Net loans and advances to Group companies of €9 million as at 31 December 2022 (2021: nil) have been separately presented on the
Consolidated Balance Sheet on the underlying basis since they relate to balances with Group companies and thus are not taken into consideration
in the calculation of the relevant key ratios and metrics referring to loans and advances with customers throughout this Management Report.
6
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Annual Financial Report 2022
Group financial results on the underlying basis (continued)
Unaudited Consolidated Balance Sheet on the underlying basis (continued)
Key Balance Sheet figures and ratios
Gross loans and advances to customers (€ million)
Allowance for expected loan 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)10
Total capital ratio
Risk weighted assets (€ million)
2022
20219
10,217
282
18,998
52%
4.0%
69%
7.5%
15.5%
20.6%
10,117
10,856
792
17,531
57%
12.4%
59%
7.5%
15.1%
20.0%
10,686
Commentary on underlying basis
The financial information presented above provides an overview of the Group financial results for the year ended
31 December 2022 on the ‘underlying basis’ which management believes best fits the true measurement of the
performance and position of the Group, as this presents separately the exceptional and one-off (non-recurring)
items. Reconciliations between the statutory basis and the underlying basis are included in section ‘Unaudited
Reconciliation of the Consolidated Income Statement for the year ended 31 December 2022 between the statutory
and underlying basis’ below and in ‘Alternative Performance Measures Disclosures’ of the Annual Financial Report
for the year ended 31 December 2022, to facilitate the comparability of the underlying basis to the statutory
information.
Certain figures in this Management report have been rounded in million to present them more clearly. Percentages
presented throughout the Management Report are calculated on the underlying figures in thousands and so may
differ from the percentage calculated on the rounded numbers presented. Similarly, capital ratios presented have
been rounded for ease of presentation to one decimal place.
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 NPE portfolios completed in the year, as well as to sale transactions for
which an agreement existed at the end of the year.
Project Helix 3: Project Helix 3 refers to the agreement the Group reached in November 2021 with funds affiliated
with Pacific Investment Management Company LLC (‘PIMCO’), for the sale of a portfolio of loans with gross book
value of €555 million (of which €551 million relate to non-performing exposures), as well as real estate properties
with book value of €88 million as at 30 September 2022. Project Helix 3 was completed in November 2022.
9 Including the NPE portfolios classified as 'Non-current assets and disposal groups held for sale', where relevant.
10The CET1 fully loaded ratio as at 31 December 2022 amounts to 14.7%, compared to 13.7% and 14.3% pro forma for HFS as at 31
December 2021.
7
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Annual Financial Report 2022
Group financial results on the underlying basis (continued)
Unaudited Consolidated Balance Sheet on the underlying basis (continued)
Project Sinope: Project Sinope refers to the agreement the Group reached in December 2021 for the sale of a
portfolio of loans with gross book value of €12 million, as well as properties in Romania with carrying value of
€0.6 million, as at 31 December 2021, the reference date. Project Sinope was completed in August 2022.
Any references to pro forma figures and ratios as at 31 December 2021 refer to Projects Helix 3 and Sinope (as
explained in the paragraphs above). Where numbers are provided on a pro forma basis, this is stated and referred
to as ‘Pro forma for held for sale’ or ‘Pro forma for HFS’.
Further details of the Project Helix 3 and Project Sinope transactions are provided in ‘Loan portfolio quality’ under
the 'Balance Sheet Analysis' section below.
Unaudited Reconciliation of the Consolidated Income Statement for the year ended 31 December 2022
between the statutory and underlying basis
€ million
Net interest income
Net fee and commission income
Net foreign exchange gains and net gains on financial
instruments
Net gains on derecognition of financial assets measured at
amortised cost
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 pending litigations, regulatory and other
provisions (net of reversals)
Credit losses on financial assets and impairment net of reversals
of non-financial assets
Profit before tax and non-recurring items
Tax
Profit attributable to non-controlling interests
Profit after tax and before non-recurring items
(attributable to the owners of the Company)
Advisory and other restructuring costs - organic
Profit after tax - organic* (attributable to the owners of
the Company)
Provisions/net profit relating to NPE sales
Restructuring and other costs relating to NPE sales
Restructuring costs – Voluntary Staff Exit Plans (VEP)
Profit after tax (attributable to the owners of the
Company)
Underlying
basis
NPE
Sales
Other
Statutory
basis
371
192
36
-
71
13
17
700
(381)
319
(47)
(33)
(11)
-
228
(36)
(3)
189
(11)
178
1
(3)
(104)
72
-
-
-
-
-
-
-
-
(3)
(3)
1
-
-
-
-
-
5
5
-
-
-
10
(126)
(116)
46
33
11
(89)
(2)
(115)
-
-
-
-
(2)
(115)
-
11
(2)
(104)
(1)
3
-
-
-
-
104
-
371
192
41
5
71
13
17
710
(510)
200
-
-
-
(89)
111
(36)
(3)
72
-
72
-
-
-
72
*This is the profit after tax (attributable to the owners of the Company), before the provisions/net profit relating to NPE sales, related
restructuring and other costs, and restructuring costs related to Voluntary Staff Exit Plans (VEP).
8
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Annual Financial Report 2022
Group financial results on the underlying basis (continued)
Unaudited Reconciliation of the Consolidated Income Statement for the year ended 31 December 2022
between the statutory and underlying basis (continued)
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 under the statutory basis include restructuring costs of €3 million relating to the agreements
for the sale of portfolios of NPEs and are presented within ‘Restructuring and other costs relating to NPE
sales ' under the underlying basis.
Loan credit losses under the statutory basis include a reversal of loan credit losses relating to Project Helix
3 of approximately €1 million and are disclosed within ‘Provisions/net profit relating to NPE sales’ under
the underlying basis.
Other reclassifications
Net gains on loans and advances to customers at FVPL of €4 million included in ‘Loan credit losses’ under
the underlying basis are included in ‘Net gains on financial instruments’ under the statutory basis. Their
classification under the underlying basis is done to align their presentation with the loan credit losses on
loans and advances to customers at amortised cost.
‘Net gains on derecognition of financial assets measured at amortised cost’ of €5 million under the statutory
basis comprise of the below items which are reclassified accordingly under the underlying basis as follows:
€6 million net gains on derecognition of loans and advances to customers included in ‘Loan credit
losses’ under the underlying basis as to align to the presentation of the loan credit losses arising
from loans and advances to customers.
Net losses on derecognition of debt securities measured at amortised cost of approximately €1 million
included in ‘Net foreign exchange gains and net gains on financial instruments’ under the underlying
basis in order to align their presentation with the gains/(losses) arising on financial instruments.
Provisions for pending litigations, regulatory and other provisions (net of reversals) amounting to
approximately €11 million included in ‘Total expenses’ under the statutory basis, are separately presented
under the underlying basis in conjunction with loan credit losses and impairments.
Advisory and other restructuring costs of approximately €11 million included in 'Other operating expenses'
under the statutory basis are separately presented under the underlying basis since they comprise mainly
fees to external advisors in relation to the transformation programme and other strategic projects of the
Group.
Total expenses under the statutory basis include restructuring costs relating to Voluntary Staff Exit Plans
(VEP) of €104 million and are separately presented under the underlying basis, since they represent one-
off items.
‘Credit losses on financial assets' and 'Impairment net of reversals of non-financial assets’ under the
statutory basis include: i) credit losses to cover credit risk on loan and advances to customers of €56
million, which are included in ‘Loan credit losses’ under the underlying basis, and ii) credit losses of other
financial instruments of €3 million and impairment net of reversals of non-financial assets of €30 million
which are included in ‘Impairments of other financial and non-financial assets’ under the underlying basis,
as to be presented separately from loan credit losses.
9
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Annual Financial Report 2022
Group financial results on the underlying basis (continued)
Balance Sheet Analysis
Capital Base
Total equity excluding non-controlling interests totalled €2,082 million as at 31 December 2022 compared to
€2,057 million at 31 December 2021. Shareholders’ equity totalled €1,862 million as at 31 December 2022
compared to €1,837 million at 31 December 2021.
The Common Equity Tier 1 capital (CET1) ratio on a transitional basis stood at 15.5% as at 31 December 2022,
compared to 15.1% as at 31 December 2021 (and 15.7% pro forma for held for sale portfolios (referred to as
‘pro forma for HFS’)). During the year ended 31 December 2022, CET1 ratio was positively affected by pre-
provision income and the reduction in risk weighted assets (mainly as a result of the completion of Project Helix
3), and negatively affected mainly by the phasing-in of IFRS 9 and other transitional arrangements on 1 January
2022, provisions and impairments, the cost of the Voluntary Staff Exit Plan, the payment of AT1 coupon, the
movement of the fair value through OCI reserves and other movements.
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, with the impact being fully phased-in (100%) by 1 January 2023. The final phasing-
in of the impact of the impairment amount from the initial application of IFRS 9 is approximately 65 bps on the
CET1 ratio on 1 January 2023. In addition, a prudential charge in relation to the onsite inspection on the value
of the Group’s foreclosed assets is being deducted from own funds since June 2021, the impact of which is 26
bps on Group’s CET1 ratio as at 31 December 2022, decreased from 32bps on 31 December 2021 mainly due to
impairment recognised during the year.
The CET1 ratio on a fully loaded basis amounted to 14.7% as at 31 December 2022 compared to 13.7% as at 31
December 2021 (and 14.3% pro forma for HFS).
The CET1 ratio including the final impact of IFRS 9 phasing-in on 1 January 2023 and also pro-forma for the €50
million dividend relating to IFRS 17 (refer to section further below), distributed to BOC PCL in February 2023 is
estimated at 15.3%.
The Total Capital ratio stood at 20.6% as at 31 December 2022, compared to 20.0% as at 31 December 2021
(and 20.8% pro forma for HFS).
The Group’s capital ratios are above the Supervisory Review and Evaluation Process (SREP) requirements.
The Group’s minimum phased-in CET1 capital ratio requirement as at 31 December 2022 was set at 10.10%
comprising a 4.50% Pillar I requirement, a 1.83% Pillar II requirement, the Capital Conservation Buffer of 2.50%,
the O-SII Buffer of 1.25% and the Countercyclical Buffer (CcyB) of 0.02%. The Group’s minimum phased-in Total
Capital ratio requirement as at 31 December 2022 was set at 15.03% comprising an 8.00% Pillar I requirement,
of which up to 1.50% can be in the form of AT1 capital and up to 2.00% in the form of T2 capital, a 3.26% Pillar
II requirement, the Capital Conservation Buffer of 2.50%, the O-SII Buffer of 1.25% and the CcyB of 0.02%. The
Pillar II included an add-on of 0.26% relating to the ECB’s prudential provisioning expectations as per the 2018
ECB Addendum and subsequent ECB announcements and press release in July 2018 and August 2019. Pillar II
add-on capital requirements derive from the SREP, which is a point in time assessment, and are therefore subject
to change over time. The ECB had also provided revised lower non-public guidance for an additional Pillar II CET1
buffer (P2G) for 2022.
BOC PCL has been designated as an Other Systemically Important Institution (O-SII) by the Central Bank of
Cyprus (CBC) in accordance with the provisions of the Macroprudential Oversight of Institutions Law of 2015, and
since November 2021 the O-SII buffer has been revised to 1.50%. This buffer is being phased-in gradually,
having started from 1 January 2019 at 0.50%. The O-SII buffer as at 31 December 2022 stood at 1.25% and
has been fully phased-in on 1 January 2023.
Own funds held for the purposes of 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.
10
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Annual Financial Report 2022
Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
Following the annual SREP performed by the ECB in 2022 and based on the final SREP decision received in
December 2022, effective from 1 January 2023, the Pillar II requirement has been revised to 3.08%, compared
to the previous level of 3.26%. The Pillar II requirement includes a revised Pillar II requirement add-on of 0.33%
relating to ECB’s prudential provisioning expectations. When disregarding the Pillar II add-on relating to ECB’s
prudential provisioning expectations, the Pillar II requirement has been reduced from 3.00% to 2.75%.
The Group’s minimum phased-in CET1 capital ratio and Total Capital ratio requirements were reduced when
disregarding the phasing-in of the Other Systemically Important Institution Buffer. The Group’s minimum phased-
in CET1 capital ratio is set at 10.25%, comprising a 4.50% Pillar I requirement, a 1.73% Pillar II requirement,
the Capital Conservation Buffer of 2.50%, the O-SII Buffer of 1.50% and the CcyB of 0.02%. The Group’s
minimum phased-in Total Capital ratio requirement is set at 15.10%, comprising an 8.00% Pillar I requirement,
of which up to 1.50% can be in the form of AT1 capital and up to 2.00% in the form of T2 capital, a 3.08% Pillar
II requirement, the Capital Conservation Buffer of 2.50%, the O-SII Buffer of 1.50% and the CcyB of 0.02%. The
ECB has also maintained the non-public guidance for an additional Pillar II CET1 buffer (P2G) unchanged.
On 30 November 2022, the CBC, following the revised methodology described in its macroprudential policy,
decided to increase the CcyB from 0.00% to 0.50% of the total risk exposure amounts in Cyprus of each licensed
credit institution incorporated in Cyprus. The new rate of 0.50% must be observed as from 30 November 2023.
Based on the above, the CcyB for the Group is expected to increase.
Based on the SREP decision, the Bank of Cyprus Holdings Public Limited Company (‘BOCH’) and BOC PCL were
under a regulatory prohibition for equity dividend distribution and hence no dividends were declared or paid
during 2021-2022. 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 BOCH or BOC PCL. Based on the final 2021 SREP Decision, the previous
restriction on variable pay was lifted.
Following the 2022 SREP decision effective from 1 January 2023, the equity dividend distribution prohibition was
lifted for both BOCH and BOC PCL, with any dividend distribution being subject to regulatory approval.
Other equity instruments
At 31 December 2022, the Group’s other equity instruments amounted to €220 million, flat compared to the prior
year, and relate to Additional Tier 1 Capital Securities (the ‘AT1 securities’).
The AT1 securities constitute unsecured and subordinated obligations of the Company. They carry a coupon of
12.50% per annum, payable semi-annually in arrears and resettable every five years. The AT1 securities are
perpetual and can be redeemed at the option of the Company on the fifth anniversary of the issue date (i.e., 19
December 2023) and each subsequent fifth anniversary, subject to applicable regulatory consents. If the AT1
securities are not called, the coupon will reset on the fifth anniversary of the issue date (i.e., 19 December 2023).
The Group continues to monitor opportunities for the optimisation of its capital position.
Voluntary Staff Exit Plan
In July 2022, the Group completed a Voluntary Staff Exit Plan, resulting in a negative impact of approximately
95 bps both on the Group’s CET1 and Total Capital ratios as at 30 September 2022. For further information please
refer to ‘Total expenses’ under the ‘Income Statement Analysis’ section below.
Project Helix 3
In November 2022, Project Helix 3 was completed resulting in a positive capital impact of approximately 50 bps
on the Group’s CET1 ratio mainly from the release of risk weighted assets on completion. For further information
please refer to section ‘Loan portfolio quality’.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific deferred tax assets (DTA) into deferred tax credits
(DTC) became effective in March 2019. The legislative amendments cover the utilisation of income tax losses
transferred from Laiki Bank to BOC PCL in March 2013. The introduction of the Capital Requirements Regulation
(CRR) and Capital Requirements Directive (CRD) IV in January 2014 and its subsequent phasing-in led to a more
capital-intensive treatment of this DTA for BOC PCL. With this legislation, institutions are allowed to treat such
DTAs as ‘not relying on profitability’, according to CRR/CRD IV and as a result not deducted from CET1, hence
improving a credit institution’s capital position.
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 has proceeded with the adoption of modifications to
the Law, including requirements for an additional annual fee over and above the 1.5% annual guarantee fee
already provided for in the Law, to maintain the conversion of such DTAs into tax credits. In May 2022, the Cyprus
Parliament voted these amendments which became effective at that time. As prescribed by the amendments in
the Law, the annual fee is to be determined by the Cyprus Government on an annual basis, providing however
that such fee to be charged is set at a minimum fee of 1.5% of the annual instalment and can range up to a
maximum amount of €10 million per year, and also allowing for a higher amount to be charged in the year the
amendments are effective (i.e. in 2022).
In anticipation of modifications to the Law, the Group has in prior years acknowledged that such increased annual
fee may be required to be recorded on an annual basis until expiration of such losses in 2028. The Group estimates
that such fees could range up to approximately €5 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. An amount of €4.8 million was recorded during the year ended 31 December 2022 in relation to the
annual guaranteed fee for year 2022.
Regulations and Directives
The 2021 Banking Package (CRR III and CRD VI and BRRD)
In October 2021, the European Commission adopted legislative proposals for further amendments to the Capital
Requirements Regulation (CRR), CRD IV and the BRRD (the ‘2021 Banking Package’). Amongst other things, the
2021 Banking Package would implement certain elements of Basel III that have not yet been transposed into EU
law. The 2021 Banking Package is subject to amendment in the course of the EU’s legislative process; and its
scope and terms may change prior to its implementation. In addition, in the case of the proposed amendments
to CRD IV and the BRRD, their terms and effect will depend, in part, on how they are transposed in each member
state. The European Council's proposal on CRR and CRD was published on 8 November 2022. During 2023, the
finalisation of European Parliament’ position is expected, which will be followed by the trilogue process that will
eventually result in the final versions of the directives and regulations. It is expected that the 2021 Banking
Package is enter into force on 1 January 2025; and certain measures are expected to be subject to transitional
arrangements or to be phased in over time.
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 was required to be transposed into national
law. BRRD II was transposed and implemented in Cyprus law in early May 2021. 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.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Regulations and Directives (continued)
Bank Recovery and Resolution Directive (BRRD) (continued)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL) (continued)
In February 2023, BOC PCL received notification from the Single Resolution Board (SRB) of the final decision for
the binding minimum requirement for own funds and eligible liabilities (MREL) for BOC PCL, determined as the
preferred resolution point of entry. As per the decision, the final MREL requirement was set at 24.35% of risk
weighted assets and 5.91% of Leverage Ratio Exposure (LRE) (as defined in the CRR) and must be met by 31
December 2025. Furthermore, the binding interim requirement of 1 January 2022 set at 14.94% of risk weighted
assets and 5.91% of LRE must continue to be met. The own funds used by BOC PCL to meet the Combined Buffer
Requirement (CBR) are not eligible to meet its MREL requirements expressed in terms of risk-weighted assets.
BOC PCL must comply with the MREL requirement at the consolidated level, comprising BOC PCL and its
subsidiaries.
The MREL ratio of BOC PCL as at 31 December 2022, calculated according to the SRB’s eligibility criteria currently
in effect and based on BOC PCL’s internal estimate, stood at 21.4% of risk weighted assets (RWA) and at 10.1%
of LRE. As at 1 January 2023, the MREL ratio stood at 20.5% of RWAs and 9.8% of LRE, calculated on the same
basis. The MREL ratio expressed as a percentage of risk weighted assets does not include capital used to meet
the CBR amount, which stands at 3.77% since 1 January 2022 and is expected to increase to 4.02% on 1 January
2023 and will further increase on 30 November 2023 following increase in CcyB from 0.00% to 0.50% of the total
risk exposure amounts in Cyprus as announced by the CBC. Throughout the Annual Financial Report, the MREL
ratios as at 31 December 2022 include audited profits for the year ended 31 December 2022.
BOC PCL will continue to evaluate opportunities to advance the build-up of its MREL liabilities.
Funding and Liquidity
Funding
Funding from Central Banks
At 31 December 2022, BOC PCL’s funding from central banks amounted to €1,977 million, which relates to ECB
funding, comprising solely of funding through the Targeted Longer-Term Refinancing Operations (TLTRO) III,
compared to €2,970 million as at 31 December 2021.
BOC PCL had borrowed an overall amount of €3 billion under TLTRO III by June 2021, despite its comfortable
liquidity position, given the favourable borrowing terms, in combination with the relaxation of collateral
requirements. Following the changes in the terms of the TLTRO III announced by the ECB in October 2022, and
given BOC PCL’s strong liquidity position, BOC PCL proceeded with the repayment of €1 billion TLTRO III funding
in December 2022.
BOC PCL exceeded the benchmark net lending threshold in the period 1 March 2020 - 31 March 2021 and qualified
for the beneficial rate of -1% for the period from June 2020 to June 2021. The NII benefit from its TLTRO III
borrowing for the period from June 2020 to June 2021 stood at approximately €7 million and was recognised over
the respective period in the income statement.
In addition, BOC PCL exceeded the benchmark net lending threshold in the period 1 October 2020 - 31 December
2021 and qualified for a beneficial rate for the period from June 2021 to June 2022. The NII benefit from its
TLTRO III borrowing for the period from June 2021 to June 2022 stood at approximately €15 million and was
recognised over the respective period in the income statement.
The Group recognised an additional net NII benefit of approximately €8 million from the TLTRO III borrowing for
the period 24 June 2022 to 22 November 2022, of which approximately €5 million was recognised in the income
statement during the fourth quarter of 2022.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Funding and Liquidity (continued)
Funding (continued)
Deposits
Customer deposits totalled €18,998 million at 31 December 2022, compared to €17,531 million at 31 December
2021, increased by 8% since the previous year end.
BOC PCL’s deposit market share in Cyprus reached 37.2% as at 31 December 2022, compared to 34.8% as at
31 December 2021. Customer deposits accounted for 75% of total assets and 81% of total liabilities at 31
December 2022 (compared to 70% of total assets and 77% of total liabilities at 31 December 2021).
The net loans to deposits (L/D) ratio stood at 52% as at 31 December 2022, compared to 57% as at 31 December
2021 on the same basis, reflecting the increase in customer deposits in the year and the derecognition of Helix
3 portfolio following completion.
Subordinated liabilities
At 31 December 2022, the carrying amount of the Group’s subordinated liabilities (including accrued interest)
amounted to €304 million, compared to €342 million at 31 December 2021, and relate to unsecured subordinated
Tier 2 Capital Notes (‘T2 Notes’).
The T2 Notes were priced at par with a fixed coupon of 6.625% per annum, payable annually in arrears and
resettable on 23 October 2026. The maturity date of the T2 Notes is 23 October 2031. The Company will have
the option to redeem the T2 Notes early on any day during the six-month period from 23 April 2026 to 23 October
2026, subject to applicable regulatory approvals.
Debt securities in issue
At 31 December 2022, the carrying amount of the Group’s debt securities in issue (including accrued interest)
amounted to €298 million, compared to €303 million at 31 December 2021, and relate to senior preferred notes
(the ‘SP Notes’).
In June 2021, BOC PCL executed its inaugural MREL transaction issuing €300 million of SP Notes. The SP Notes
were priced at par with a fixed coupon of 2.50% per annum, payable annually in arrears and resettable on 24
June 2026. The maturity date of the SP Notes is 24 June 2027 and BOC PCL may, at its discretion, redeem the
SP Notes on 24 June 2026, subject to meeting certain conditions as specified in the Terms and Conditions,
including applicable regulatory consents. The SP Notes comply with the criteria for MREL and contribute towards
BOC PCL’s MREL requirements.
Liquidity
At 31 December 2022, the Group Liquidity Coverage Ratio (LCR) stood at 291%, compared to 298% at 31
December 2021, well above the minimum regulatory requirement of 100%. The LCR surplus as at 31 December
2022 amounted to €7.2 billion, compared to €6.3 billion at 31 December 2021, well positioned to benefit from
further interest rate increases. The increase in liquidity surplus during the year ended 31 December 2022 reflects
primarily the increase in customer deposits and the cash consideration received with Helix 3 completion.
At 31 December 2022, the Group Net Stable Funding Ratio (NSFR) stood at 168%, compared to 147% at 31
December 2021, well above the minimum regulatory requirement of 100%.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loans and advances to customers
Group gross loans totalled €10,217 million at 31 December 2022, compared to €10,856 million at 31 December
2021, (inclusive of those classified as held for sale), reduced by 6% since the beginning of the year attributed
mainly to the completion of Project Helix 3.
New lending granted in Cyprus reached €2,092 million during the year ended 31 December 2022, compared to
€1,792 million for the year ended 31 December 2021, up by 17% yoy, whilst maintaining strict lending criteria.
The yearly increase is driven by the increase in lending activity across all sectors, with corporate being the main
driver.
At 31 December 2022, the Group net loans and advances to customers totalled €9,953 million, compared to
€9,836 million at 31 December 2021, excluding those classified as held for sale as at 31 December 2021,
increased by 1% since the beginning of the year.
BOC PCL is the largest credit provider in Cyprus with a market share of 40.9% at 31 December 2022, compared
to 38.8% at 31 December 2021, an increase compared to prior year despite the derecognition of Helix 3 portfolio
following completion.
Loan portfolio quality
The Group has continued to make steady progress across all asset quality metrics. As the balance sheet de-
risking is largely complete, the Group’s priorities remain unchanged; maintaining high quality new lending with
strict underwriting standards and preventing asset quality deterioration following the ongoing macroeconomic
uncertainty.
The loan credit losses totalled €47 million (excluding ‘Provisions/net (loss)/profit relating to NPE sales’) for the
year ended 31 December 2022, compared to €66 million for the year ended 31 December 2021. Further details
regarding loan credit losses are provided in section ‘Profit before tax and non-recurring items’ under the ‘Income
Statement Analysis’ section below.
The elevated inflation combined with the rising interest rate environment are expected to weigh on the purchasing
power of BOC PCL’s customers. Despite these persisting pressures there are no signs of asset quality deterioration
to date. While defaults have been limited, the additional monitoring and provisioning for sectors vulnerable to
the deteriorated macroeconomic environment remain in place to ensure that potential difficulties in the repayment
ability are identified at an early stage, and appropriate solutions are provided to viable customers.
Non-performing exposures reduction
During 2022 non-performing exposures (NPEs) as defined by the European Banking Authority (EBA) were reduced
by €932 million to €411 million at 31 December 2022 (compared to €1,343 million at 31 December 2021). The
reduction during the year ended 31 December 2022 is mainly driven by the completion of Project Helix 3 (of €551
million as at 30 September 2022) and net organic reduction taken place in the year.
As a result, the NPEs account for 4.0% of gross loans as at 31 December 2022, compared to 12.4% as at 31
December 2021.
The NPE coverage ratio stands at 69% at 31 December 2022, compared to 59% as at 31 December 2021. When
taking into account tangible collateral at fair value, NPEs are fully covered.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loan portfolio quality (continued)
Project Helix 3
In November 2022, the Group completed Project Helix 3, that refers to the sale of a portfolio of loans with a gross
book value of €555 million (of which €551 million relate to non-performing exposures), as well as real estate
properties with a book value of €88 million as at 30 September 2022, to funds managed by Pacific Investment
Management Company LLC, the agreement for which was announced in November 2021.
The gross consideration amounted to approximately €366 million (including deposit received), reflecting
adjustments resulting from, inter alia, loan repayments received on the Portfolio since the reference date of 31
May 2021.
Project Helix 3 represented a milestone in the successful delivery of one of the Group’s strategic priorities of
improving asset quality through the reduction of NPEs with the NPE ratio reducing below 5%.
Project Sinope
In December 2021, BOC PCL entered into an agreement for the sale of a portfolio of NPEs, with a contractual
balance of €146 million and a gross book value of €12 million as at 31 December 2021, as well as properties in
Romania with carrying value €0.6 million as at 31 December 2021 (known as ‘Project Sinope’). Project Sinope
was completed in August 2022.
Overall, since the peak in 2014 and following the completion of Helix 3, the stock of NPEs has been reduced by
€14.6 billion or 97% to €0.4 billion and the NPE ratio by 59 percentage points, from 63% to 4%.
Fixed income portfolio
Fixed income portfolio amounts to €2,500 million as at 31 December 2022, compared to €1,925 million as at 31
December 2021, increased by 30% since the beginning of the year. The portfolio represents 10% of total assets
and comprises €2,046 million (82%) carrying value measured at amortised cost and €454 million (18%) at fair
value through other comprehensive income (‘FVOCI’).
During the year ended 31 December 2022 the Group recognised fair value losses of approximately €10 million
directly to Group’s equity for the fixed income portfolio measured at FVOCI.
The fixed income portfolio measured at amortised cost is held to maturity and therefore no fair value gains/losses
are recognised in the Group’s income statement or equity. This bond portfolio has low average duration of
approximately two years and high average rating at A2 or at Aa3 when Cyprus government bonds are excluded.
The fair value of the amortised cost fixed income portfolio as at 31 December 2022 amounts to €1,953 million.
Despite the recent volatility in the financial markets, the fair value of the amortised cost fixed income portfolio
relative to its carrying value has not changed materially.
Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) is focused on the disposal of on-boarded properties resulting from
debt for asset swaps. Cumulative sales since the beginning of 2017 amount to €1.5 billion and exceed properties
on-boarded in the same period of €1.4 billion.
The Group completed disposals of €162 million during the year ended 31 December 2022 (compared to €140
million in the year ended 31 December 2021), resulting in a profit on disposal of €16 million for the year ended
31 December 2022 (compared to a profit of €14 million for the year ended 31 December 2021). Asset disposals
are across all property classes, with half of sales by value in the year ended 31 December 2022 relating to land.
During the year ended 31 December 2022, the Group executed sale-purchase agreements (SPAs) for disposals
of 674 properties with contract value of €184 million, compared to SPAs for disposals of 703 properties, with
contract value of €149 million for the year ended 31 December 2021.
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Group financial results on the underlying basis (continued)
Real Estate Management Unit (REMU) (continued)
In addition, the Group had a strong pipeline of €70 million by contract value as at 31 December 2022, of which
€47 million related to SPAs signed (compared to a pipeline of €109 million as at 31 December 2021, of which €47
million related to SPAs signed).
REMU on-boarded €86 million of assets in the year ended 31 December 2022, compared to additions of €34
million in the year ended 31 December 2021, via the execution of debt for asset swaps and repossessed
properties.
The carrying value of assets held by REMU that were classified as ‘non-current assets and disposal groups held
for sale’ since 2021 and amounting to €88 million as at 30 September 2022 (comprising stock of properties of
€83 million and investment properties of €5 million) were derecognised with the completion of Project Helix 3.
As at 31 December 2022, assets held by REMU had a carrying value of €1,116 million (comprising properties of
€1,041 million classified as ‘Stock of property’ and €75 million as ‘Investment properties’), compared to €1,215
million as at 31 December 2021 (excluding assets classified as held for sale, comprising properties of €1,112
million classified as ‘Stock of property’ and €103 million as ‘Investment properties’).
In addition to assets held by REMU, properties classified as ‘Investment properties’ with carrying value of €10
million as at 31 December 2022, compared to €15 million as at 31 December 2021, are not managed by REMU.
Income Statement Analysis
Total income
Net interest income (NII) for the year ended 31 December 2022 amounted to €371 million (including NII of
approximately €12 million relating to Helix 3 which was completed in November 2022), compared to €296 million
for the year ended 31 December 2021. The yearly increase of 25% reflects positive gearing to higher rates and
to a lesser extent, the growth of the performing loan book and fixed income portfolio, notwithstanding the
foregone NII on the Helix 2 portfolio (approximately €15 million in the year ended 31 December 2021).
Average interest earning assets (AIEA) for the year ended 31 December 2022 amounted to €22,488 million, up
by 10% compared to the year ended 31 December 2021, driven by the increase in liquid assets as a result of the
increase in deposits by approximately €1.5 billion since 31 December 2021 and the increase in the fixed income
portfolio by approximately €0.6 billion compared to 31 December 2021.
Net interest margin (NIM) for the year ended 31 December 2022 amounted to 1.65%, compared to 1.45% for
the year ended 31 December 2021, supported by the rising interest rate environment.
Non-interest income for the year ended 31 December 2022 amounted to €329 million (compared to €285 million
for the year ended 31 December 2021, up by 16% yoy), comprising net fee and commission income of €192
million, net foreign exchange gains and net gains on financial instruments of €36 million, net insurance income
of €71 million, net gains from revaluation and disposal of investment properties and on disposal of stock of
properties of €13 million and other income of €17 million. The yoy increase is driven by higher net fee and
commission income, higher insurance income net of claims and commissions and higher net foreign exchange
gains and net gains on financial instruments.
Net fee and commission income for the year ended 31 December 2022 amounted to €192 million, (compared to
€172 million for the year ended 31 December 2021, up by 12% compared to the prior year), driven by the
introduction of a revised price list in February 2022 and the extension of liquidity fees to a wider customer group
in March 2022. Liquidity fees were fully abolished in December 2022. Net fee and commission income for the
year ended 31 December 2022 includes an amount of approximately €6 million relating to a NPE sale-related
servicing fee, for a transitional period ending in the first quarter of 2023.
Net foreign exchange gains and net gains on financial instruments amounted to €36 million for the year ended
31 December 2022 (comprising net foreign exchange gains of €31 million and net gains on financial instruments
of €5 million), compared to €25 million for the year ended 31 December 2021 (comprising net foreign exchange
gains of €16 million and net gains on financial instruments of €9 million). The increase of 45% compared to the
prior year reflects higher foreign exchange gains through FX swaps. Net foreign exchange gains and net gains on
financial instruments are volatile profit contributors.
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Group financial results on the underlying basis (continued)
Income Statement Analysis (continued)
Total income (continued)
Net insurance income amounted to €71 million for the year ended 31 December 2022, compared to €61 million
for the year ended 31 December 2021, mainly due to increased new business and the positive changes in
valuation assumptions, partially offset by higher insurance claims.
Net gains from revaluation and disposal of investment properties and on disposal of stock of properties for the
year ended 31 December 2022 amounted to €13 million (comprising net gains on disposal of properties of €16
million, and net losses from revaluation of investment properties of €3 million), broadly flat compared to the
previous year.
Total income for the year ended 31 December 2022 amounted to €700 million, compared to €581 million for the
year ended 31 December 2021, up by 21% compared to the prior year, mainly driven by the increase in the net
interest income, net fee and commission income and insurance income net of claims and commissions as
explained above.
Total expenses
Total expenses for the year ended 31 December 2022 were €381 million (compared to €386 million for the year
ended 31 December 2021), down 1% yoy, 50% of which related to staff costs (€190 million), 40% to other
operating expenses (€153 million) and 10% to special levy on deposits and other levies/contributions (€38
million). The yearly decrease relates to the decrease in staff costs offset by the increase in other operating
expenses as explained further below.
Staff costs for the year ended 31 December 2022 were €190 million, compared to €202 million for the year ended
31 December 2021, down by 6% compared to the prior year, resulting from the Voluntary Staff Exit Plans that
took place during 2022, partially offset by the impact of the collective agreement and the introduction of a new
pay grading structure and long-term incentive plan. The VEPs led to the reduction of the Group’s full time
employees by 16%, at a total cost of €104 million. Following the completion of the VEP, the gross annual savings
are estimated at approximately €37 million or 19% of staff costs with a payback period of 2.7 years. The estimated
savings of the VEP are expected to be partially offset by the renewal of the collective agreement in 2023.
The Group employed 2,889 persons as at 31 December 2022 compared to 3,438 persons as at 31 December
2021.
In July 2021, BOC PCL reached agreement with the Cyprus Union of Bank Employees for the renewal of the
collective agreement for the years 2021 and 2022. The agreement related to certain changes including the
introduction of a new pay grading structure linked to the value of each position of employment, and of a
performance-related pay component as part of the annual salary increase, both of which have been long-standing
objectives of BOC PCL and are in line with market best-practice. The impact of the renewal was an increase in
staff costs for 2022 by 3-4% per annum, in line with the impact of renewals in previous years.
During December 2022 the Group has granted to eligible employees share awards under a long-term incentive
plan (‘2022 LTIP’). The 2022 LTIP involves the granting of an award in the form of shares of BOCH and is driven
by scorecard achievement, with measures and targets set to align pay outcomes with the delivery of the Group’s
strategy. The employees eligible for the 2022 LTIP are the members of the Extended EXCO. The 2022 LTIP
stipulates that performance will be measured over a 3-year period and financial and non-financial objectives to
be achieved. At the end of the performance period, the performance outcome will be used to assess the
percentage of the awards that will vest. These share awards will then normally vest in six tranches, with the first
tranche (40%) vesting the year following the end of the year the performance period ends and thereafter on an
annual basis in equal tranches (12%) with the last tranche vesting on the fifth anniversary of the first vesting
date. For the year ended 31 December 2022, the Group recognised in the Consolidated Income Statement an
expense of less than €0.5 million regarding the 2022 LTIP. Based on the fair value of these awards on the grant
date, the expense deferred to future periods is estimated at approximately €1.1 million. Actual amounts to be
expensed in future periods may be lower, e.g., due to forfeiture of awards.
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Group financial results on the underlying basis (continued)
Income Statement Analysis (continued)
Total expenses (continued)
Other operating expenses for the year ended 31 December 2022 were €153 million, compared to €148 million
for the year ended 31 December 2021, up by 4% compared to the previous year, driven by inflationary pressures.
Special levy on deposits and other levies/contributions for the year ended 31 December 2022 amounted to €38
million (compared to €36 million for the year ended 31 December 2021) up by 6% yoy, driven by the increase in
deposits of approximately €1.5 billion yoy. Special levy on deposits and other levies/contributions for 2022 include
a levy in the form of an annual guarantee fee relating to the revised Income Tax legislation of €4.8 million
compared to €5.3 million in 2021 (see section ‘Capital Base’ under ‘Balance Sheet Analysis’ section above) and
the contribution of BOC PCL to the Deposit Guarantee Fund (DGF) of €6 million (2021: €6 million).
As from 1 January 2020 and until 3 July 2024 BOC PCL is subject to a 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 on deposits and other levies/contributions for the year ended 31
December 2022 was 49%, compared to 60% for the year ended 31 December 2021. The decrease is driven by
the higher total income.
The cost to income ratio excluding special levy on deposits and other levies/contributions for 2023 is expected to
decrease to mid-40s, reflecting management’s ongoing focus on efficiency and cost discipline in an inflationary
environment. This target includes a commitment of maintaining total operating expenses of a range between
€350-360 million, reflecting some upward pressure on costs from investments in transformation and digitalisation
and the renewal of the collective agreement in 2023. The cost to income ratio excluding special levy on deposits
and other levies/contributions for 2024 is expected to remain at around similar levels to 2023.
Profit before tax and non-recurring items
Operating profit amounted to €319 million for the year ended 31 December 2022, compared to €195 million for
the year ended 31 December 2021, an increase of 64%, driven mainly by the significant increase in net interest
income.
Loan credit losses for the year ended 31 December 2022 totalled €47 million, compared to €66 million for the
year ended 31 December 2021, down by 30% compared to the prior year.
The annualised loan credit losses charge (cost of risk) for the year ended 31 December 2022 was 44 bps,
compared to a cost of risk of 57 bps for the year ended 31 December 2021, down by 13 bps reflecting strong
asset quality performance in 2022.
At 31 December 2022, the allowance for expected loan credit losses, including residual fair value adjustment on
initial recognition and credit losses on off-balance sheet exposures (please refer to ‘Alternative Performance
Measures Disclosures’ of the Annual Financial Report for definition) amounted to €282 million, compared to €792
million at 31 December 2021, and accounted for 2.8% of gross loans (compared to 7.3% (4.5% pro forma for
HFS) of gross loans at 31 December 2021).
Impairments of other financial and non-financial assets for the year ended 31 December 2022 amounted to €33
million, compared to €36 million for the year ended 31 December 2021, down by 9% compared to the previous
year.
Provisions for pending litigations, claims, regulatory and other matters (net of reversals) for the year ended 31
December 2022 amounted to €11 million, compared to a reversal of €2 million for the year ended 31 December
2021. The net increase in provisions for pending litigations, claims regulatory and other matters (net of reversals)
for the year ended 31 December 2022 was primarily driven by a one-off charge of approximately €5.5 million in
relation to a revised approach on pending litigation fees.
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Group financial results on the underlying basis (continued)
Income Statement Analysis (continued)
Profit before tax and non-recurring items (continued)
Profit before tax and non-recurring items for the year ended 31 December 2022 totalled €228 million, compared
to €95 million for the year ended 31 December 2021.
Profit after tax and before non-recurring items (attributable to the owners of the Company)
The tax charge for 2022 is €36 million compared to €5 million for 2021.
Profit after tax and before non-recurring items (attributable to the owners of the Company) for the year ended
31 December 2022 amounted to €189 million, compared to €88 million for the year ended 31 December 2021.
Return on Tangible Equity (ROTE) before non-recurring items calculated using ‘Profit after tax and before non-
recurring items (attributable to the owners of the Company)’ amounts to 11.4% (‘Recurring ROTE’) for the year
ended 31 December 2022, compared to 5.4% for the year ended 31 December 2021.
Advisory and other restructuring costs – organic for the year ended 31 December 2022 amounted to €11 million,
compared to €22 million for the year ended 31 December 2021, down by 48% compared to the previous year,
mainly due to ad-hoc costs related to the tender offer for Existing Tier 2 Capital Notes amounting to €12 million
in the year ended 31 December 2021. Advisory and other restructuring costs – organic for the year ended 31
December 2022 relate to the transformation program and other strategic projects of the Group.
Profit after tax arising from the organic operations (attributable to the owners of the Company) for the year ended
31 December 2022 amounted to €178 million, compared to €66 million for the year ended 31 December 2021.
Provisions/net profit/(loss) relating to NPE sales for the year ended 31 December 2022 amounted to a profit of
approximately €1 million, compared to a loss of €7 million for the year ended 31 December 2021 (relating to
Helix 2 and Helix 3).
Restructuring and other costs relating to NPE sales for the year ended 31 December 2022 was €3 million,
compared to €16 million for the year ended 31 December 2021 (relating to the agreements for the sale of
portfolios of NPEs).
Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) amounted to €104 million for the year ended
31 December 2022, compared to €16 million for the year ended 31 December 2021. For further details please
refer to section ‘Total expenses’.
Profit after tax attributable to the owners of the Company for the year ended 31 December 2022 amounted to
€72 million, compared to a profit of €27 million for the year ended 31 December 2021. Return on Tangible Equity
(ROTE) amounts to 4.3% for the year ended 31 December 2022, compared to 1.7% for the year ended 31
December 2021.
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Operating Environment
According to the IMF's revised World Economic Outlook published at the end of January, the global economy is
expected to slow in 2023 before picking up again in 2024. Growth will remain weak by historical standards as a
result of tighter monetary conditions in the fight against inflation and the negative impact of the war in Ukraine.
Global growth is expected to slow from 3.4% in 2022 to 2.9% in 2023, before recovering to 3.1% in 2024. In the
euro area, despite signs of resilience to the energy crisis, a mild winter and generous fiscal support, growth is
expected to be around 0.7% in 2023 resulting from tighter monetary conditions, a negative terms-of-trade shock
from higher energy prices and increased uncertainty as the war in Ukraine is expected to escalate further.
As expected, the ECB continued to raise interest rates at the start of 2023. At the most recent Governing Council
meeting on 8 February 2023, the ECB raised its main refinancing operations rate by 50 basis points to 3%. The
ECB raised its marginal lending facility to 3.25% and its deposit facility to 2.5%. Rising inflation and a more
aggressive monetary policy stance by the U.S. Federal Reserve are expected to force the ECB to take a more
aggressive approach. The ECB began raising interest rates in July 2022, when the main refinancing operations
rate was zero and the deposit facility was at -0.5%. Financing conditions are expected to tighten further in 2023
and interest rates to remain high throughout the year.
Harmonised inflation in Cyprus fell from 10.6% in July 2022 to 7.6% in December 2022. The annual average was
8.1% in Cyprus and 8.4% in the euro area. Average inflation was higher in the EU, reflecting strong inflation
increases in some Member States, mainly in Central and Eastern Europe. In Cyprus, energy contributed 2.6
percentage points and food 0.5 percentage points to total harmonised inflation. Other influences accounted for 5
percentage points. Cyprus does not use gas for energy consumption or electricity production and is entirely
dependent on oil, the price of which has not risen as much as that of natural gas.
In a challenging international environment, the Cypriot economy has shown considerable resilience. The
contraction of 4.4% in 2020 was modest compared to other southern countries. The economy rebounded strongly
in 2021, with real GDP growing by 6.6%. Growth remained strong in 2022 averaging 5.6% which is well above
the euro area average. In the fourth quarter of 2022, economic growth stood at 4.5%. However, growth is
expected to decelerate in 2023, towards 3%, according to the Ministry of Finance.
On the fiscal side, the recovery in 2021 is underpinned by a significant increase in general government revenue
and a relative decline in government expenditure. As a result, the budget deficit narrowed to 1.7% of GDP from
a deficit of 5.8% of GDP in 2020, reflecting government measures to support the economy in the midst of a deep
recession induced by the COVID-19 pandemic. Developments in 2022 were favourable for public finances.
Revenues grew by 16.7% in the first three quarters of the year, while expenditures increased by 1.3%, indicating
a significant surplus in the period. Part of the increase in revenues is a windfall related to the energy crisis, but
overall, the current state of public finances is positive. Public debt is sustainable and firmly on a downward path.
With a budget surplus in 2022 and inflation at around 8.1%, the debt-to-GDP ratio is expected to fall towards
87%, according to the Ministry of Finance. In the longer term, public debt dynamics will depend on interest rate
developments, inflation, and growth.
On the supply side, growth in the first three quarters of the year for which data is available, was almost entirely
driven by services. Trade, transport, and accommodation services accounted for more than half of the growth
over the period. Information and communications and professional and administrative services also made
significant contributions. In the industrial sector, growth came from the utilities, electricity, and water sectors,
with only a marginal contribution from manufacturing. Construction activity declined slightly and made a negative
contribution.
On the demand side, growth in the first three quarters was driven by private consumption and investment,
especially inventory accumulation, while the external sector made a negative contribution due to faster growth
in imports. Total investment includes transport equipment, which includes ship registrations.
Tourist activity recovered strongly during the year. Arrivals reached 3.2 million persons, or 80% of the
corresponding arrivals in 2019. Receipts reached an estimated €2.4 billion in the year, or 90% of corresponding
receipts in 2019. The increase in arrivals was mainly due to increases from the United Kingdom and, to a lesser
extent, from other European countries and Israel. Travel from Russia and Ukraine has been affected by the war
and sanctions.
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Operating Environment (continued)
Rising energy costs, exacerbated by the war in Ukraine, are affecting both consumers and businesses. The
government has taken initial steps to mitigate the impact. The government lowered VAT rates on electricity and
reduced excise duties on petrol and diesel for a limited period until June 2022. The latter remained in force until
the end of January 2023. In September 2022, the government introduced a graduated system of subsidies for
electricity consumption to replace the reduced VAT.
Cyprus received the first disbursement from the European Commission’s Recovery and Resilience Facility of €157
million in September 2021, following the approval of the National Recovery Plan in July of the previous year. This
was a pre-financing of 13% of the total disbursements for the period 2021-2026. Furthermore, the European
Commission disbursed the first payment of €85 million to Cyprus under the Recovery and Resilience Facility, in
December 2022 following the passage of conditional legislation in parliament. The release of the funds is
conditional on the strict implementation of the reforms agreed in the National Recovery Plan. The funds will be
used, among other things, to increase investment in the digital and green transition and to improve the efficiency
of public and local administrations, and of the judicial system.
The banking sector has undergone significant restructuring since the financial crisis of 2013. Banks have reduced
their foreign exposures, significantly shrunk their balance sheets, increased their capital buffers, and restructured
and refocused their domestic operations. Prudential supervision has been strengthened and a new legal
framework for private debt restructuring, including the sale of loans, is now in place. Total non-performing
exposures (NPEs) at the end of November 2022 amounted to €2.7 billion, or 10.5% of gross loans. NPEs at the
end of 2021 amounted to €3 billion or 11.1% of gross loans. 47.8% of total NPEs at the end of November 2022
were restructured facilities and the coverage ratio was 52.2%. Private debt has continued to decline since mid-
2012, shrinking by more than half by the end of December 2022. The decline reflects the long process of
deleveraging since the start of the financial crisis and includes the sale or transfer of non-performing loans in
recent years. Private debt, as measured by loans to residents excluding the government, stands at 80% of
nominal GDP at the end of December 2022. Pure new business lending, which excludes renegotiated amounts,
reached €3.2 billion in 2022 as a whole, exactly the same level as pure new lending in 2019. Cypriot banks are
excessively liquid, and the bulk of these excess deposits are held overnight at the ECB.
Cyprus' current account deficit narrowed from 10.1% of GDP in 2020 to 6.8% in 2021 and is estimated at 9.6%
in 2022 according to the European Commission's autumn forecast. From 2023 onwards, the deficit is expected to
gradually narrow as services revenues recover and EU recovery and resilience funds are credited to the secondary
income account. However, the current account deficit will remain higher than pre-pandemic levels in the medium
term, partly due to strong import growth linked to higher energy prices and EU investment plans, which will weigh
on the trade balance. The size of the country's deficit is partly structural, a consequence of special purpose
vehicles domiciled in Cyprus.
Recent developments
Recent developments in financial markets in March 2023, particularly in the United States but also in Europe to
a lesser extent have been unprecedented. The failures of the two banks in the United States, the California-based
Silicon Valley Bank and the New York-based Signature Bank, prompted the forceful intervention of the authorities
to pre-empt the risk of financial instability in the banking system. Since 10 March 2023, the US Federal Deposit
Insurance Corporation (the ‘FDIC’) and state regulators have taken control of the two banks.
The US authorities have also taken additional measures to prevent a broader run-on bank deposits. This included
invoking a systemic risk clause that allowed the US authorities to guarantee all deposits in the two banks beyond
the $250,000 insured cap guarantee by the FDIC. The US Federal Reserve also established a new lending facility
that provides banks access to liquidity against eligible collateral but without the need to take a haircut.
In Switzerland, Credit Suisse was exposed to the same sort of concerns as global banks; Credit Suisse was bought
by UBS, another Swiss bank, after a deal brokered by the Swiss government, which included liquidity assistance
from the Swiss National Bank and partial losses guarantees from the government. Following the Credit Suisse
deal, the Single Resolution Board, the European Banking Authority and the ECB Banking Supervision issued a
statement welcoming the comprehensive set of actions taken by the Swiss authorities in order to ensure financial
stability and noting that the European banking sector is resilient, with robust levels of capital and liquidity.
The Group is closely monitoring developments.
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Operating Environment (continued)
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved considerably in recent years reflecting reduced
banking sector risks, and improvements in economic resilience and consistent fiscal outperformance. Cyprus
demonstrated policy commitment to correcting fiscal imbalances through reform and restructuring of its banking
system. Public debt remains high in relation to GDP but large-scale asset purchases from the ECB ensure
favourable funding costs for Cyprus and ample liquidity in the sovereign bond market.
Most recently, in March 2023, Fitch Ratings upgraded Cyprus’ Long-Term Issuer Default rating at investment
grade BBB and stable outlook. The upgrade reflects the country's fiscal outperformance, improvement in
government indebtedness, and macroeconomic resilience, among others.
In October 2022, DBRS Morningstar affirmed the Republic of Cyprus’ Long-Term Foreign and Local Currency –
Issuer Ratings at BBB (low) and maintained the trend stable. The affirmation is supported by a stable political
environment, the government’s sound fiscal and economic policies and the favourable government debt profile.
The stable outlook balances recent favourable fiscal dynamics against downside risks for the economic outlook
(including further escalation of the crisis in Ukraine).
In September 2022, S&P Global Ratings upgraded Cyprus’ investment grade rating of BBB/A-2 and has changed
the outlook from positive to stable. The upgrade reflects the resilience of the Cypriot economy to recent external
shock (including the COVID-19 pandemic). The stable outlook balances risks from the crisis in Ukraine and the
economy’s diversified structure and the expectation that the government’s fiscal position will continue to improve.
In August 2022, Moody's Investors Service affirmed the Government of Cyprus’ long-term issuer and senior
unsecured ratings to Ba1 and changed the outlook from stable to positive. The key drivers reflecting the
affirmation are the strong reduction in Cyprus’ public debt ratio in 2022, stronger-than expected economic
resilience to Russia’s invasion of Ukraine and the COVID-19 pandemic as well the ongoing strengthening of the
banking sector. In a credit assessment that was published in December 2022, Moody’s investors service affirmed
a new Cyprus’ credit profile.
Business Overview
Credit ratings
The Group’s financial performance is highly correlated to the economic and operating conditions in Cyprus. In
December 2022, Fitch Ratings upgraded BOC PCL’s long-term issuer default rating to B+ from B-, whilst
maintaining the positive outlook. The two-notch upgrade reflects the improved asset quality of BOC PCL,
supported by the completion of Project Helix 3 together with the organic reduction of impaired assets. The
upgrade is also underpinned by Fitch's view of the resilience of the Cypriot economy, even in light of growing
economic uncertainties. In October 2022, Moody’s Investors Service upgraded BOC PCL’s long-term deposit rating
to Ba2 from Ba3, maintaining the positive outlook. The main drivers for this upgrade are the resilience of the
Cypriot economy, that is supporting the operating conditions of the banking system to external shocks and the
gradual improvement in credit conditions. In September 2022, S&P Global Ratings raised the long-term issuer
credit rating of BOC PCL to BB- from B+ and revised the outlook to stable from positive. The upgrade reflects the
improvement in asset quality and easing economic risks.
Upgrade of financial targets
The Group is a diversified, leading, financial and technology hub in Cyprus. During 2022 the Group delivered
positive financial results and exceeded its 2022 financial targets, confirming the sustainability of its business
model with well-diversified revenues and disciplined cost containment despite inflationary pressures. Overall the
Group achieved a recurring ROTE of 11.4% for the year. The positive performance is expected to continue in
2023, leading to an upgrade of targeted ROTE to over 13% from over 10% facilitated by the Group’s positive
gearing to rising interest rates, improved efficiencies, healthy loan portfolio and robust capital position. Therefore,
the intention to commence meaningful dividend distributions from 2023 onwards, subject to regulatory approval
and market conditions, is reiterated. The Group expects to achieve ROTE over 13% for 202411, on the back of
stabilising margins and growth of the loan portfolio.
11 Based on market forward rates as at 23 January 2023; average ECB deposit rate for 2023 assumed at 2.8%.
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Business Overview (continued)
Favourable interest rate environment
The structure of the Group’s balance sheet is geared towards higher interest rates facilitating immediate growth
in net interest income. As at 31 December 2022, cash balances with ECB (excluding TLTRO of approximately €2.0
billion) amounted to approximately €7.6 billion, well positioned to benefit from further interest rate rises. The
repricing of the reference rates gradually benefits the interest income on loans, as over 95% of the Group’s loan
portfolio is variable rate as at 31 December 2022. The Group benefited from the steep and fast increase of interest
rates in 2022. The net interest income for the year ended 31 December 2022 stood at €371 million, reflecting an
increase of 25% yoy. Factoring in the expectations for the evolution of the interest rates, the net interest income
guidance for 2023 is upgraded and the net interest income is now expected to grow by 40-50% yoy. This
incorporates assumptions on evolution of interest rates (based on market forward rates as at 23 January 2023;
average ECB deposit rate for 2023 assumed at 2.8%), of continuing to rebuild the fixed income portfolio,
increased costs of funding, gradual increase in cost of deposits (increase time deposits pass-through to
approximately 50%) and gradual change in deposit mix towards time deposits (from 30% as at 31 December
2022 to approximately 45% in December 2023). Following the completion of Project Helix 3 and the end of TLTRO
III favourable terms, an overall amount of approximately €28 million, net interest income, will not be repeated
in 2023. The growth in the fixed income portfolio is expected to broadly offset foregone net interest income from
TLTRO III and higher wholesale funding costs.
Growing revenues in a more capital efficient way
The Group remains focused on growing revenues in a more capital efficient way. The Group aims to continue to
grow its high-quality new lending, drive growth in niche areas for further market penetration and diversify through
non-banking services, such as insurance and digital products.
The Group has continued to provide high quality new lending in the year ended 31 December 2022 via prudent
underwriting standards. Growth in new lending in Cyprus has been focused on selected industries in line with the
BOC PCL's target risk profile.
During the year ended 31 December 2022, new lending amounted to €2.092 million, up by 17% yoy, returning
to pre-pandemic levels. The increase is driven by increased activity across all sectors, with corporate being the
main driver. As a result, the net performing loan book expanded to €9.6 billion up by 3% yoy, despite
uncertainties in the macroeconomic environment. However, due to the continuing interest rate rises, demand for
new loans is expected to slow down in 2023. In the short-term, net interest income is expected to be supported
primarily by asset repricing and higher investments in securities.
As at 31 December 2022, the fixed income portfolio of the Group amounted to €2.5 billion, up by 30% on the
prior year and represents 10% of total assets. The portfolio comprises highly rated fixed rate bonds with low
average duration, giving the Group the flexibility to take advantage of rising interest rates. The completion of the
balance sheet de-risking and the Group’s comfortable liquidity position is expected to allow the Group to continue
expanding the fixed income portfolio in 2023, subject to market conditions.
The fixed income portfolio consists of €2,046 million measured at amortised cost and €454 million measured at
FVOCI. During the year ended 31 December 2022 the Group recognised fair value losses of approximately €10
million directly to Group’s equity for the fixed income portfolio measured at FVOCI. The fixed income portfolio
measured at amortised cost are held to maturity and therefore no fair value gains/losses are recognised in the
Group’s income statement or equity. This bond portfolio has low average duration of approximately two years
and high average rating at A2 or at Aa3 when Cyprus government bonds are excluded. The fair value of the
amortised cost fixed income portfolio as at 31 December 2022 amounts to €1,953 million. Despite the recent
volatility in the financial markets, the fair value of the amortised cost fixed income portfolio relative to its carrying
value has not changed materially.
Separately, the Group focuses to continue improving revenues through multiple less capital-intensive initiatives,
with a focus on fees and commissions, insurance and non-banking opportunities, leveraging on the Group’s digital
capabilities. In the first quarter of 2022, a revised price list for charges and fees was implemented and liquidity
fees were extended to a wider customer group. The net fee and commission income for the year ended 31
December 2022 remained strong at €192 million, reflecting an increase of 12% yoy. The net fee and commission
income for the year ended 31 December 2022 included approximately €16 million from the liquidity fees which
were fully abolished in December 2022 and approximately €6 million of servicing fee relating to an NPE portfolio
sale that will be phased out in the first quarter of 2023.
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Business Overview (continued)
Growing revenues in a more capital efficient way (continued)
Net fee and commission income is also enhanced by transaction fees from the Group’s subsidiary, JCC Payment
Systems Ltd (JCC), a leading player in the card processing business and payment solutions, 75% owned by BOC
PCL. JCC’s net fee and commission income contributed 8% of total non-interest income and amounted to €27
million in the year ended 31 December 2022, up 22% compared to the previous year, backed by strong
transaction volume.
The Group’s insurance companies, EuroLife Ltd (Eurolife) and Genikes Insurance of Cyprus Ltd (GI) are
respectively leading players in the life and general insurance business in Cyprus, and have been providing
recurring and improving income, further diversifying the Group’s income streams. The insurance income net of
claims and commissions for the year ended 31 December 2022 contributed 22% of non-interest income and
amounted to €71 million, up 17% yoy, driven by exceptionally strong new business in life insurance and the
positive changes in valuation assumptions, partially offset by higher insurance claims. Specifically, Eurolife
increased its total regular income by 17% yoy, whilst GI increased its gross written premiums by 11% yoy.
Following the adoption of IFRS 17, total profits of an insurance contract will remain unchanged over its life.
However, the new standard will impact the timing of when profits emerge, improving the predictability of profit
over the long-term and is expected to result in a modest annual negative impact on the contribution to Group’s
profits from the Group’s insurance business in the near term. For information on IFRS 17 please refer to the
relevant subsection below.
Finally, the Group through the Digital Economy Platform (Jinius) (the ‘Platform’) aims to generate new revenue
sources over the medium term, leveraging on BOC PCL’s market position, knowledge and digital infrastructure.
The Platform aims to bring stakeholders together, link businesses with each other and with consumers and to
drive opportunities in lifestyle banking and beyond. The Platform is expected to allow BOC PCL to enhance the
engagement of its customer base, attract new customers, optimise the cost of BOC PCL’s own processes, and
position BOC PCL next to the customer at the point and time of need. Currently, around 1,500 companies were
registered in the platform.
Lean operating model
Striving for a lean operating model is a key strategic pillar for the Group in order to deliver shareholder value,
without constraining funding its digital transformation and investing in the business.
The efficiency actions of the Group in 2022 to maintain operating expenses under control in an inflationary
environment included further branch footprint optimisation and substantial streamline of workforce. In July 2022,
the Group successfully completed a Voluntary Staff Exit Plan (VEP) through which 16% of the Group’s full-time
employees were approved to leave at a total cost of €101 million. Following the completion of the VEP, the gross
annual savings were estimated at approximately €37 million or 19% of staff costs with a payback period of 2.7
years. Additionally, in January 2022 one of BOC PCL’s subsidiaries completed a small-scale targeted Voluntary
Staff Exit Plan (VEP), through which a small number of full-time employees were approved to leave at a total cost
of €3 million. In relation to branch restructuring, during 2022 the Group reduced the number of branches by 20
to 60, a reduction of 25%. Through these successful initiatives, the Group has delivered ahead of schedule on its
commitment to reduce its workforce by approximately 15% and its number of branches by 25%. As a result, the
cost to income ratio excluding special levy on deposits and other levies/contributions for the year ended 31
December 2022 was reduced to 49%, 11 p.p. down compared to previous year, surpassing the Group’s target of
low-50s for 2022.
During December 2022 the Group has granted to eligible employees share awards under a long-term incentive
plan (‘2022 LTIP’). The 2022 LTIP involves the granting of an award in the form of shares of BOCH and is driven
by scorecard achievement, with measures and targets set to align pay outcomes with the delivery of the Group’s
strategy. The employees eligible for the 2022 LTIP are the members of the Extended EXCO. The 2022 LTIP
stipulates that performance will be measured over a 3-year period and financial and non-financial objectives to
be achieved. At the end of the performance period, the performance outcome will be used to assess the
percentage of the awards that will vest.
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Business Overview (continued)
Lean operating model (continued)
These share awards will then normally vest in six tranches, with the first tranche (40% of the award) vesting the
year following the end of the year the performance period ends and the remaining 60% vesting in equal annual
tranches (12%) with the last tranche vesting on the fifth anniversary of the first vesting date. For the year ended
31 December 2022, the Group recognised in the Consolidated Income Statement an expense of less than €0.5
million regarding the 2022 LTIP. Based on the fair value of these awards on the grant date, the expense deferred
to future periods is estimated at approximately €1.1 million. Actual amounts to be expensed in future periods
may be lower, e.g., due to forfeiture of awards.
The cost to income ratio excluding special levy on deposits and other levies/contributions for 2023 is expected to
decrease to mid-40s, reflecting management’s ongoing focus on efficiency and cost discipline in an inflationary
environment. This target includes a commitment of maintaining total operating expenses of a range between
€350-360 million, reflecting some upward pressure on costs from investments in transformation and digitalisation
and the renewal of the collective agreement in 2023. The cost to income ratio excluding special levy on deposits
and other levies/contributions for 2024 is expected to remain at around similar levels to 2023.
Transformation plan
The Group continues to focus to deepen the relationship with its customers as a customer centric organisation. A
transformation plan is already in progress and aims to enable the shift to modern banking by digitally transforming
customer service, as well as internal operations. The holistic transformation aims to (i) shift to a more customer-
centric operating model by defining customer segment strategies, (ii) redefine distribution model across existing
and new channels, (iii) digitally transform the way the Group serves its customers and operates internally, and
(iv) improve employee engagement through a robust set of organisational health initiatives.
Digital transformation
BOC PCL’s digital transformation focuses on developing digital services and products that improve the customer
experience, streamlining internal processes, and introducing new ways for improving the workplace environment.
During the fourth quarter of 2022, BOC PCL continued to enrich and improve its digital portfolio with new
innovative services to its customers. The introduction of the QuickLoan new lending products available through
the Group’s digital channels (Mobile App and Internet Banking), further differentiates BOC PCL within the Cypriot
market and enhances its status as a digital leader in banking. The introduction of QuickLoan allows BOC PCL’s
retail customers to apply for a loan and have an instant update of the approval status of their application.
The adoption of digital products and services continued to grow and gained momentum in the fourth quarter of
2022 and beyond. As at the end of December 2022, 93.9% of the number of transactions involving deposits,
cash withdrawals and internal/external transfers were performed through digital channels (up by 27.5 p.p. from
66.4% in September 2017 when the digital transformation programme was initiated). In addition, 81.7% of
individual customers were digitally engaged (up by 21.5 p.p. from 60.2% in September 2017), choosing digital
channels over branches to perform their transactions. As at the end of December 2022, active mobile banking
users and active QuickPay users have grown by 12.8% and 31.3% respectively over the last 12 months. The
highest number of QuickPay users to date was recorded in December 2022 with 169 thousand active users.
Likewise, the highest number of QuickPay payments was recorded in December 2022 with 565 thousand
transactions.
Asset quality
Balance sheet de-risking was largely completed in 2022, marked by the completion of Project Helix 3 which refers
to the sale of non-performing exposures with gross book value of €550 million as at 30 September 2022. Project
Helix 3 represents a further milestone in the delivery of one of the Group’s strategic priorities of improving asset
quality through the reduction of NPEs. Overall, since the beginning of 2022, and including organic NPE reductions
of approximately €360 million, the Group reduced its NPEs by 69% and its NPE ratio from 12.4% to 4.0%
delivering the 2022 NPE ratio target of sub-5%. As a result, the Group’s priorities remain intact, maintaining high
quality new lending with strict underwriting standards and preventing asset quality deterioration in this uncertain
outlook.
The cost of risk target and NPE ratio target display conservative assumptions on both NPE inflows and provisioning
to weather the ongoing macroeconomic uncertainty. Although there are currently no signs of asset quality
deterioration, the cost of risk target of 50-80 bps and NPE ratio target of sub 5% remain unchanged for 2023.
The cost of risk is expected to start normalising from 2024 onwards to around 40-50 bps.
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Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental, Social and Governance) agenda
Climate change and transition to a sustainable economy is one of the greatest challenges. As part of its vision to
be the leading financial hub in Cyprus, the Group is determined to lead the transition of Cyprus to a sustainable
future. The Group continuously evolves towards its ESG agenda and continues to progress towards building a
forward-looking organisation embracing ESG in all aspects of business as usual. In 2022, the Company received
a rating of AA (on a scale of AAA-CCC) in the MSCI ESG Ratings assessment.
The ESG strategy formulated in 2021 is continuously expanding. The Group is maintaining its leading role in the
Social and Governance pillars and focus on increasing the Group’s positive impacts on the Environment by
transforming not only its own operations, but also the operations of its customers.
The Group has committed to the following primary ESG targets, which reflect the pivotal role of ESG in the Group’s
strategy:
● Become carbon neutral by 2030
● Become Net Zero by 2050
● Steadily increase Green Asset Ratio
● Steadily increase Green Mortgage Ratio
● ≥30% women in Group’s management bodies (defined as the Executive Committee (EXCO) and the
Extended EXCO) by 2030
For the Group to articulate the delivery of its primary ESG targets and address regulatory expectations, a
comprehensive ESG working plan has been established in 2022. The ESG working plan is closely monitored by
the Sustainability Committee, Executive Committee and the Board of Directors at frequent intervals.
Environmental Pillar
The Group has estimated the Scope 1 and Scope 2 emissions of 2021 greenhouse gas (‘GHG’) relating to own
operations in order to set the baseline for carbon neutrality target. BOC PCL being the main contributor of GHG
emissions of the Group, designed in 2022 the strategy to meet the carbon neutrality target by 2030 and progress
towards Net Zero target of 2050. BOC PCL plans to invest in energy efficient installations and actions and replace
fuel intensive machineries and vehicles from 2023 to 2025, which would lead to approximately 5-10% reduction
in Scope 1 and Scope 2 emissions by 2025 compared to 2021. The Group expects that the Scope 2 emissions will
be reduced further when the energy market in Cyprus shifts further towards renewable energy. The Group
through installation of solar panels and other energy efficiency actions performed in 2021 and 2022 achieved a
reduction in electricity consumption of 1.8 million KWh (11% reduction) in the year ended 31 December 2022
compared to the baseline year of 2021.
BOC PCL is the first bank in Cyprus to join the Partnership for Carbon Accounting Financials (PCAF) in October
2022 and is following the recommended methodology for the estimation of the Financed Scope 3 emissions. BOC
PCL has estimated Financed Scope 3 GHG emissions relating to the loan portfolio based on PCAF standard and
proxies. Following the estimation of Financed Scope 3 GHG emissions derived from loan portfolio and in
conjunction with the materiality assessment’s results on climate and environmental risks, BOC PCL will be able
to identify the carbon-concentrated areas so as to take the necessary actions to minimise the environmental and
climate impact associated with the loan portfolio by offering targeted climate friendly products and engaging with
its customers. In 2023, following the identification of carbon-concentrated sectors and asset classes, BOC PCL is
expected to set decarbonisation targets aligned with 1.5C climate scenario (Science Based Targets) which will
assist in the formulation of BOC PCL’s strategy going forward.
In 2022 BOC PCL launched a low emission vehicle loan product (either hybrid or electric) and intends to further
expand its range of environmentally friendly products that are expected to be launched in 2023. In addition, the
Group has set up a Sustainable Finance Framework which will facilitate the issuance of Green, Social or
Sustainable bonds. The proceeds from such bonds will be allocated to eligible activities and products as designated
in the Sustainable Finance Framework.
Moreover, BOC PCL is making substantial progress in further integrating climate risk considerations into its risk
management approach, as it tries to integrate climate related risk into its risk culture. BOC PCL, within the context
of underwriting processes, is currently in the process of incorporating the assessment of ESG and climate matters
and amending its policies and procedures in such a way that potential impact from ESG and climate is reflected
in the fundamental elements of the creditworthiness assessment.
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Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental, Social and Governance) agenda
(continued)
This exercise includes the design of ESG questionnaires per sector, which will then be leveraged for deriving an
ESG classification. In addition, BOC PCL is in the process to enhance the risk quantification methodology to assess
how the portfolio is affected by C&E risks and will be incorporating the above elements into the stress testing
infrastructure.
During 2022, in order to enhance the awareness and skillset towards the ESG, the Group performed several
trainings to the Board of Directors, Senior Management and employees. In addition, the internal communication
channels are enhanced by establishing an ESG internal portal and launching Green@work which provides tips on
energy efficiency actions at work. Early in 2023, BOC PCL launched a campaign on new Visa Debit cards produced
from recyclable plastic extracted from the ocean. The campaign aims to inform the public on the level of water
contamination from plastic and the impact on life below water.
Social Pillar
At the centre of the Group’s leading social role lie its investments in the Bank of Cyprus Oncology Centre (with
an overall investment of approximately €70 million since 1998, whilst 60% of diagnosed cancer cases in Cyprus
are being treated at the Centre), the work of SupportCY Network, which was developed in 2020, the contribution
of the Bank of Cyprus Cultural Centre in promoting the cultural heritage of the island, and the Work of IDEA
Innovation Centre. The Cultural Centre undertook a number of innovative projects such as ‘AISTHISEIS’ - Multi
sensory museum experience for people with disabilities and Faneromeni Arts Festival promoting youth. The IDEA
Innovation Centre provided education to 7,000 entrepreneurs, invested approximately €4 million in start-up
business creation and supported the creation of 82 new companies to date. Staff have continued to engage in
voluntary initiatives to support charities, foundations, people in need and initiatives to protect the environment.
The Group has continued to upgrade its staff’s skillset by providing training and development opportunities to all
staff, and capitalising on modern delivery methods. In 2022, the Group heightened its emphasis on staff wellness
by offering webinars, team building activities and family events with sole purpose to enhance mental, physical,
financial and social health, attended by 1,424 employees through its ‘Well at Work program’.
Governance Pillar
The Group continues to operate successfully within a complex regulatory framework of a holding company which
is registered in Ireland, listed on two stock exchanges and run in compliance with a number of rules and
regulations. Its governance and management structures enable it to achieve present and future economic
prosperity, environmental integrity and social equity across its value chain. The Group operates within a
framework of prudent and effective controls, which enable risk assessment and risk management based on the
relevant policies under the leadership of the Board of Directors. The Group has set up a robust Governance
Structure to oversee its ESG agenda. Progress on the implementation and evolution of the Group’s ESG strategy
is monitored by the Sustainability Committee and the Board of Directors. The Sustainability Committee is a
dedicated executive committee set up in early 2021 to oversee the ESG agenda of the Group, review the evolution
of the Group’s ESG strategy, monitor the development and implementation of the Group's ESG objectives and
the embedding of ESG priorities in the Group’s business targets. The Group’s ESG Governance structure will
continue to evolve, so as to better address its evolving ESG needs. The Group’s regulatory compliance continues
to be an undisputed priority.
The Board composition of the Company is diverse, with 40% of the Board members being female as at 31
December 2022. The Board displays a strong skillset stemming from broad international experience. Moreover,
BOC PCL aspires to achieve a representation of at least 30% women in Group’s management bodies (Defined as
the EXCO and the Extended EXCO) by 2030. As at 31 December 2022, there is a 27% representation of women
in Group’s management bodies and a 39% representation of women at key positions below the Extended EXCO
level (defined as positions between Assistant Manager and Manager).
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Business Overview (continued)
IFRS 17
IFRS 17, is effective from 1 January 2023, and impacts the phasing of profit recognition for insurance contracts.
The Group's insurance-related retained earnings will be restated and the reporting of insurance new business
revenue will be spread over time, as the Group provides service to its policyholders (versus recognised up-front
under the accounting standards applied up until 2022), with the quantum and timing of the impact dependent
on, inter alia, the amount and mix of new business and extent of assumption changes in any given year following
implementation.
Under IFRS 17, there will be no present value of in-force life insurance contracts ('PVIF') asset recognised.
Instead, the estimated future profit will be included in the measurement of the insurance contract liability
as the contractual service margin (‘CSM’) and this will be gradually recognised in revenue as services are
provided over the duration of the insurance contract. While the profit over the life of an individual contract
will be unchanged, its emergence will be later under IFRS 17.
IFRS 17 requires the increased use of current market values in the measurement of insurance assets and
liabilities hence insurance liabilities and related assets will be adjusted to reflect IFRS 17 measurement
requirements.
In accordance with IFRS 17, directly attributable costs will be incorporated in the CSM and will be
presented as a deduction to reported revenue. This will result in a reduction in operating expenses.
The Group has made significant progress on the implementation of IFRS 17 and assessing the impact on the
financial statements.
On transition the following impact has been estimated:
a) the removal of the value of in-force from the life insurance business (including associated deferred tax liability)
of approximately €101 million as per the Group’s consolidated balance sheet as at 31 December 2022, which
will reduce Group accounting equity by a respective amount (with no impact on the Group regulatory capital
or tangible equity), and
b) the remeasurement of insurance assets and liabilities and the creation of a contractual service margin (CSM)
liability is estimated to result in an increase in the equity of the insurance business of the Group (predominantly
relating to the life insurance business of the Group) in the range of €70-80 million as at 1 January 2022, which
is a consequence of life insurance products. The estimated effect on equity of the insurance business of the
Group as at 1 January 2023 (roll forwarding the impact on 2022 profits and taking into consideration other
movements in reserves in 2022) is an increase in the range of €50-60 million, compared to the closing equity
as at 31 December 2022 as reported under the previous accounting standard, IFRS 4.
As a result of the benefit arising from IFRS 17 on 1 January 2023 as referred to in (b) above, the life insurance
subsidiary distributed €50 million as dividend to BOC PCL in February 2023, which benefited Group regulatory
capital by an equivalent amount on the same date, enhancing CET1 ratio by approximately 50 bps.
The adoption of IFRS 17 is expected to result in a modest annual negative impact on the contribution to Group’s
profits by the Group’s insurance business in the near term.
Ukrainian crisis
The economic environment has evolved rapidly since February 2022 following Russia’s invasion of Ukraine. In
response to the war in Ukraine, the EU, the UK and the US, in a coordinated effort joined by several other
countries imposed a variety of financial sanctions and export controls on Russia, Belarus and certain regions of
Ukraine as well as various related entities and individuals. As the war is prolonged, geopolitical tension persists
and inflation remains elevated, impacted by the soaring energy prices and disruptions in supply chains. This high
inflation weighs on business confidence and consumers’ purchasing power. In this context the Group is closely
monitoring the developments, utilising dedicated governance structures including a Crisis Management
Committee as required and has assessed the impact the crisis has on the Group’s operations and financial
performance.
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Business Overview (continued)
Ukrainian crisis (continued)
Direct impact
The Group does not have any banking operations in Russia or Ukraine, following the sale of its operations in
Ukraine in 2014 and in Russia in 2015. The Group has run down its legacy net exposure to less than €1 million
as at 31 December 2022 in Russia through write-offs and provisions.
The Group has no exposure to Russian bonds or banks which are subject to sanctions.
The Group has limited direct exposure to loans related to Ukraine, Russia and Belarus, representing 0.4% of total
assets or approximately 1% of net loans as at 31 December 2022. The net book value of these loans stood at
€108 million as at 31 December 2022, of which €98 million are performing, whilst the remaining were classified
as NPEs well before the current crisis. The portfolio is granular and secured mainly by real estate properties in
Cyprus.
Customer deposits related to Ukrainian, Russian and Belarusian customers account for only 6% of total customer
deposits as at 31 December 2022. This exposure is not material, given the Group’s strong liquidity position. The
Group operates with a significant surplus liquidity of €7.2 billion (LCR ratio of 291%) as at 31 December 2022.
Indirect impact
Although the Group’s direct exposure to Ukraine, Russia or Belarus is limited, the crisis in Ukraine had a negative
impact on the Cypriot economy, mainly arising from the tourism and professional services sectors, increasing
energy prices fuelling inflation and disruptions to global supply chains. During 2022 the performance of the
tourism sector was strong despite challenges and represented 80% of 2019 levels, despite the sizeable loss of
tourist arrivals from Russia and Ukraine. The Group continues to monitor exposures in sectors likely impacted by
the prolonged geopolitical uncertainty and persistent inflationary pressures and remains in close contact with
customers to offer solutions as necessary.
Cyprus has no energy dependence on Russia as it imports oil from Greece, Italy and the Netherlands; however it
is indirectly affected by pricing pressures in the international energy markets. The focus on renewable energy
sources increases, marked by a steady improvement in contribution at 18% in 2022 (compared to 16% in 2021).
Professional services account for approximately 10% of GDP (based on year 2021) of which some relate to Russia
or Ukraine and thus expected to be adversely impacted. There is however no credit risk exposure as the sector
is not levered.
Between 2018-2020, Cyprus recorded net foreign direct investment (FDI) outflow to Russia. While Russian gross
FDI flows in and out of Cyprus may be quite large, these often reflect the typical set-up of Special Purpose
Entities, with limited actual impact on the Cypriot economy, hence likely to have limited impact on domestic
activity levels.
Overall, the Group expects limited impact from its direct exposure, while any indirect impact depends on the
duration and severity of the crisis and its impact on the Cypriot economy.
The Group continues to closely monitor the situation, taking all necessary and appropriate measures to minimise
the impact on its operations and financial performance, as well as to manage all related risks and comply with
the applicable sanctions.
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Strategy and Outlook
The strategic objectives for the Group are to become a stronger, safer and a more efficient institution with a
sustainable and well-diversified business model committed to deliver sustainable shareholder returns.
The key pillars of the Group’s strategy are to:
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
Strengthen asset quality; maintaining high quality new lending, completing legacy de-risking, normalising
cost of risk and reducing (other) impairments
Enhance organisational resilience and ESG (Environmental, Social and Governance) agenda; by continuing
to work towards building a forward-looking organisation with a clear strategy supported by effective
corporate governance aligned with ESG agenda priorities
KEY STRATEGIC PILLARS
ACTION TAKEN IN THE YEAR
ENDED 31 DECEMBER 2022
AND TO DATE
Growing 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)
Improving operating efficiency; by
achieving leaner operations through
digitisation and automation
• A revised price list for charges and
fees was implemented in February
2022
• Liquidity fees were extended to a
wider customer group in March
2022 and abolished in December
2022 following interest rate rises
• Net performing loan book grew to
€9.6 billion, an increase of 3% in
the year ended 31 December 2022,
despite macroeconomic uncertainty
• Fixed income portfolio grew to €2.5
billion, an increase of 30% in the
year ended 31 December 2022
• For further information, please refer
to section ‘Loan portfolio quality’
and section ‘Business Overview’
• Completion of a VEP in July 2022,
which led to the reduction of full
time employees by 16% in the year
ended 31 December 2022;
estimated gross annual saving of
approximately €37 million (19%) of
staff costs
• Rationalisation of branch footprint
as 20 branches closed down in
2022, a reduction of 25%
• Completion of a small-scale
targeted VEP in the first quarter of
2022, by one of BOC PCL’s
subsidiaries, through which a small
number of the Group’s employees
were approved to leave
• Further developments in the
Transformation Plan and the
digitisation of BOC PCL
31
PLAN OF ACTION
• The structure of the Group’s balance
sheet is geared towards higher
interest rates facilitating immediate
growth in net interest income
• Grow performing book and increase
through high quality new lending
over the medium term
• Expand fixed income portfolio in
2023, subject to market conditions,
to take advantage of the rising
yields
• 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 BOC PCL’s strong
franchise and customer base for
more targeted cross selling enabled
by digital transformation
• Committed to maintain cost
discipline in an inflationary
environment
• Effectively eliminate restructuring
costs as de-risking is largely
complete
• Enhance procurement control
• Committing to maintain total
operating expenses for 2023 to a
range of €350-€360 million
The cost to income ratio excluding
special levy on deposits and other
levies/contributions for 2023 is
expected to decrease to mid-40s
and to remain around similar levels
in 2024
BANK OF CYPRUS PUBLIC COMPANY LIMITED
Management Report
Annual Financial Report 2022
Strategy and Outlook (continued)
KEY STRATEGIC PILLARS
Strengthening asset quality
Enhancing organisational resilience and
ESG (Environmental, Social and
Governance) agenda; by continuing to
work towards building a forward-
looking organisation with a clear
strategy supported by effective
corporate governance aligned with ESG
agenda priorities
PLAN OF ACTION
Prevent asset quality deterioration in
an uncertain outlook
Maintain strict discipline on new
business
NPE ratio target of <5% for 2023
remains unchanged
Cost of risk target of 50-80 bps for
2023 remains unchanged, starting
to normalise to 40-50 bps from
2024 onwards
• Set decarbonisation targets on
specific sectors and asset classes
• Establish ESG questionnaire and
•
ESG scorecard in the loan
origination process
Incorporate loan decarbonisation
targets in the business strategy of
the Group
• Evolution of the ESG strategy with a
continued focus on the climate and
environmental risks
• Continue to embed ESG in the
Group’s culture
• Continuous enhancement of
structure and corporate governance
Invest in people and promote talent
•
ACTION TAKEN IN THE YEAR
ENDED 31 DECEMBER 2022
AND TO DATE
• Completion of Project Helix 3 in
November 2022 (sale of NPE
portfolio with gross book value of
€0.55 billion)
• Balance sheet de-risking continued
in the year ended 31 December
2022 with further organic NPE
reduction of approximately €360
million
• NPE ratio reduced to 4.0% as at 31
December 2022, delivering the
2022 NPE ratio target of sub-5%
• For further information, please refer
to section ‘Loan portfolio quality’
and section ‘Business Overview’
• First bank in Cyprus joining the
Partnership for Carbon Accounting
Financials (PCAF) which enable BOC
PCL to initiate the estimation of
financed emissions (Scope 3)
derived from loan portfolio
Initiated the development of ESG
questionnaire and ESG scorecard
that will be introduced in loan
origination process
•
• Concluded on the materiality
assessment and identification of
climate and environmental risks
• Determined the decarbonisation
strategy for Scope 1 and Scope 2
emissions
• Launch of low emission vehicle loan
product (hybrid or electric)
• Finalised the Sustainable Finance
Framework which will enable the
issue of Green/Social/Sustainable
bonds
• Provision of ESG training to the
•
Board of Directors, Senior
Management and all staff to increase
awareness and skills
Introduced the ESG internal portal
communication as well as
Green@Work which enable the
employees to take energy efficient
actions at work
• Launched ‘AISTHISEIS’ - Multi
•
sensory museum experience for
people with disabilities
Introduction of a new visa debit card
made from recycled plastic collected
from the ocean
• For further information, please refer
to section ‘Business Overview’
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Strategy and Outlook (continued)
During 2022 the Group delivered strong financial results, exceeding its 2022 financial targets. This was marked
by the recovery of revenues driven by the expansion in net interest income, lower operating expenses despite
inflationary pressures and strong performance in asset quality, delivering NPE ratio of sub-5%. As a result, the
Group achieved a double-digit recurring ROTE in 2022, building momentum throughout the year.
In 2023 the momentum is expected to continue, leading to an upgrade of targeted ROTE to over 13% from over
10% facilitated by the positive gearing to rising interest rates, improved efficiencies, healthy loan portfolio and
robust capital position. This lays the foundations to commence meaningful dividend distributions from 2023
onwards, subject to regulatory approval and market conditions. The Group expects to achieve ROTE over 13%
for 2024, on the back of stabilising margins and growth of the loan portfolio.
Key Metrics
2022 Guidance
YEAR ENDED 31
DECEMBER 2022
FY2023 Previous
guidance
FY20233 Updated
guidance
Date
NII
November 2022
November 2022
February 2023
>€350 million
€371 million
€450-€470 million
40-50% yoy
(€520-550 million)
Cost to income ratio1
Low-50s
49%
approximately 50%
mid-40s
Return on Tangible
Equity (ROTE)2
approximately 10%
(recurring)
4.3%
11.4% (recurring)
>10%
>13%
NPE ratio
<5.0%
4.0%
<5%
<5%
Cost of risk
Mid-40 bps
44 bps
50-80 bps
50-80 bps
1. Calculated using total operating expenses which comprise staff costs and other operating expenses. Total
operating expenses do not include the special levy on deposits or other levies/contributions and do not include
any advisory or other restructuring costs.
2. Return on Tangible Equity (ROTE) is calculated as Profit after Tax (annualised) divided by the quarterly average
Shareholders’ equity minus intangible assets.
3. Based on market forward rates as at 23 January 2023.
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Going concern
The Directors have made an assessment of the ability of the Group and BOC PCL to continue as a going concern
for a period of 12 months from the date of approval of the Consolidated Financial Statements.
The Directors have concluded that there are no material uncertainties which would cast significant doubt over the
ability of the Group, the Company and BOC PCL to continue to operate as a going concern for a period of 12
months from the date of approval of the Consolidated Financial Statements.
In making this assessment, the Directors have considered a wide range of information relating to present and
future conditions, including projections of profitability, cash flows, capital requirements and capital resources,
taking also into consideration, the Group’s Financial Plan approved by the Board in February 2023 (the ‘Plan’)
and the operating environment (as set out in section ‘Operating Environment’ in the Management Report). The
Group has sensitised its projection to cater for a downside scenario and has used reasonable economic inputs to
develop its medium-term strategy. The Group is working towards materialising its Strategy.
Capital
The Directors and Management have considered the Group’s forecasted capital position, including the potential
impact of a deterioration in economic conditions. The Group has developed capital projections under a base and
an adverse scenario and the Directors believe that the Group has sufficient capital to meet its regulatory capital
requirements throughout the period of assessment.
Funding and liquidity
The Directors and Management have considered the Group’s funding and liquidity position and are satisfied that
the Group has sufficient funding and liquidity throughout the period of assessment. The Group continues to hold
a significant liquidity buffer at 31 December 2022 that can be easily and readily monetised in a period of stress.
Principal risks and uncertainties - Risk management and mitigation
As part of its business activities, the Group faces a variety of risks. The Group monitors, manages and mitigates
these risks through various control mechanisms. Credit risk, liquidity and funding risk, market risk (arising from
adverse movements in foreign currency exchange rates, interest rates, security prices and property prices) and
insurance and re-insurance risk, are some of the key significant risks the Group faces. In addition, key risks
facing the Group include operational risk which includes also compliance, legal and reputational risk, regulatory
risk, information security and cyber risk, digital transformation and technology risk as well as business model
and strategic risk.
Information relating to the principal risks the Group faces and risk management is set out in Notes 45 to 48 of
the Consolidated Financial Statements and in the ‘Risk and Capital Management Report’, both of which form part
of the Annual Financial Report for the year ended 31 December 2022. In addition, in relation to legal risk arising
from litigations, investigations, claims and other matters, further information is disclosed in Note 39 of the
Consolidated Financial Statements.
Additionally, the Group is exposed to the risk of changes in the 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 for
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.
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 and
changes in the macroeconomic conditions and geopolitical developments as described in the ‘Risk and Capital
Management Report' which forms part of the Annual Financial Report for the year ended 31 December 2022.
In addition, details of the significant and other 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.
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Principal risks and uncertainties - Risk management and mitigation (continued)
The invasion of Russia in Ukraine and the sanctions imposed on Russia raised new challenges for the Group and
the developments are closely monitored. The Group's direct exposure is limited, however any indirect impact will
depend on the duration and severity of the crisis in Ukraine and its impact on the Cypriot economy, mainly due
to a negative impact on the tourism sector, the increasing energy prices resulting in inflationary pressures and
disruptions to global supply chains. Further disclosures are provided in 'Business Overview' and 'Operating
Environment' sections of this Management Report.
The risk factors discussed above and in the reports referenced above should not be regarded as a complete and
comprehensive statement of all potential risks and uncertainties. There may be risks and uncertainties of which
the Group is not aware or which the Group does not consider significant, but which may become significant. The
challenging conditions in global markets arise due to factors including the Ukraine-Russian war, high interest rate
environment, inflationary pressures, COVID-19, the growing threat from cyberattacks and other unknown risks.
As a result the precise nature of all risks and uncertainties that the Group faces cannot be predicted as many of
these risks are outside of the Group’s control.
Details of the financial instruments and hedging activities of the Group are set out in Note 21 of the Consolidated
Financial Statements. Further information on financial instruments is also presented in Notes 45-46 of the
Consolidated Financial Statements.
Events after the reporting date
No significant non-adjusting events have taken place since 31 December 2022. With respect to the recent
developments in financial markets reference is made in section ‘Operating Environment’ above.
Capital base
Total equity excluding non-controlling interests totalled €2,082 million at 31 December 2022, compared to €2,057
million at 31 December 2021. The CET1 ratio (transitional) stood at 15.5% at 31 December 2022 and at 15.1%
at 31 December 2021. During the year ended 31 December 2022, the CET1 ratio was positively affected mainly
by pre-provision income and the reduction in risk-weighted assets (RWA), mainly as a result of the completion
of Project Helix 3, and negatively affected mainly by the phasing-in of IFRS 9 and other transitional arrangements
on 1 January 2022, provisions and impairments, the cost of the Voluntary Staff Exit Plan, the payment of AT1
coupon, the movement of the fair value through OCI reserves and other movements. The Total Capital ratio
(transitional) at 31 December 2022 stood at 20.6% (2021: 20.0%).
Additional information on the regulatory capital is disclosed in the 'Risk and Capital Management Report' which
forms part of this Annual Financial Report.
Share capital
As at 31 December 2022, 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 2022 and 2021 is disclosed in Note 35 to the
Consolidated Financial Statements.
Share-based payments - share awards
During the Annual General Meeting of the shareholders of BOCH which took place on 20 May 2022, a special
resolution was approved for the establishment and implementation of the share-based Long-Term Incentive Plan
of Bank of Cyprus Holdings Public Limited Company (the ‘2022 LTIP’).
The 2022 LTIP is a share-based compensation plan for executive directors and senior management of the Group.
The 2022 LTIP provides for an award in the form of ordinary shares of Bank of Cyprus Holdings Public Limited
Company based on certain non-market performance and service vesting conditions. Performance will be
measured over a 3-year period. The performance conditions are set by the Human Resources & Remuneration
Committee (HRRC) each year and may be differentiated to reflect the Group’s strategic targets and employee's
personal performance, at its discretion. Performance will be assessed against an evaluation scorecard consistent
with the Group’s Medium Term Strategic Targets containing both financial and non-financial objectives, and
including targets in the areas of: (i) Profitability; (ii) Asset quality; (iii) Capital adequacy; (iv) Risk control &
compliance; and (v) Environmental, Social and Governance ('ESG') targets. The awards ordinarily vest in six
tranches, with 40% vesting in the year following the year the performance period ends and the remaining 60%
vesting in tranches of 12% on each annual anniversary following date of the first vesting date. For any award to
vest the employee must be in employment of the Group up until the date of the vesting of such an award.
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Share-based payments - share awards (continued)
The pre-existing Share Option Plan, which was operating at the level of BOCH, has been superseded by the 2022
LTIP.
Treasury shares of the Company
There were no treasury shares of the Company as at 31 December 2022 and 2021.
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 following a bid, but the Company is party to a number of funding agreements that may
allow the counterparties to alter or terminate the agreements following a change of control. These agreements
were not as at 31 December 2022 deemed to be significant in terms of their potential effect on the Group as a
whole given the liquidity position of the Group at the time, but the extent of their significance could vary
depending on the liquidity position at the time of the change of control.
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 2022 and 2021 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 including those of the Market Abuse Regulation and applicable takeover legislation. 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, including sanctions relating to events
in Ukraine as applicable. The Group’s policy is to comply with all applicable laws, including sanctions and other
restrictive measures that apply at all times, and the Group may from time to time request individual shareholders
to refrain from exercising certain rights to facilitate compliance with such measures or related compliance issues.
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 2021 SREP decision BOCH and the Company were under a regulatory prohibition on equity dividend
distribution in 2022, similar to prior years, and therefore no dividends were declared or paid during years 2022
and 2021. 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.
Following the 2022 SREP decision, effective from 1 January 2023, the equity dividend distribution prohibition was
amended, for both BOCH and BOC PCL, so that any dividend distribution, shall be subject to regulatory approval.
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, ESG and risk strategy and internal governance.
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Preparation of periodic reporting (continued)
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 and the Risk 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 Financial 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 Financial 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 one of the Executive Directors in office as at 31 December 2022 includes a clause for
termination, by service of six months’ notice to that effect by the Executive Director but provided there is a
change of control of BOC PCL as this is defined in the service agreement. In such an event, the Executive Director
will be entitled to compensation as this is determined in the service contract. The terms of employment of the
other Executive Director are mainly based on the provisions of the collective agreement in place, which provides
for notice or compensation by BOC PCL based on years of service and for a four-month prior written notice by
the Executive Director, in the event of a voluntary resignation.
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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.
Following the shareholders’ vote that took place during the Annual General Meeting on 20 May 2022, Mr. Maksim
Goldman and Dr. Michael Heger have not been re-appointed to the Board of Directors of the Company.
On 17 February 2023 the Board of Directors nominated Mrs Monique Hemerijck as a new member to the Board
of Directors and her official appointment is subject to approval by the ECB.
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 to the Consolidated Financial Statements.
Auditors
The Auditors, PricewaterhouseCoopers (PwC) Certified Public Accountants and Registered Auditors, were
re-appointed as Auditors at the last Annual General Meeting held on 20 May 2022.
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ESG Disclosures
As a recognised leader of the sustainability agenda in Cyprus, the Group is committed to building long-term
resilience and sustainability for our business, the economy and society. With key ambitions and targets set across
our sustainability agenda, the Group’s focus is on implementation and delivery, including investing in our
corporate sustainability reporting and meeting disclosure obligations. We believe transparency is at the heart of
corporate sustainability, and in this section, we demonstrate our commitment to principles of openness and
accountability through the publication of a range of non-financial corporate sustainability and ESG disclosures.
These disclosures provide a basis for us to consider our commitments, while also imposing additional discipline
on the Group to make further progress and to use our influence to advocate for sustainability across our range
of stakeholders.
Our non-financial reporting disclosures are provided in the ‘ESG Disclosures’ section of this Annual Financial
Report and are comprised of the Task Force on Climate-related Financial Disclosures (TCFD), the EU Taxonomy
Disclosures and the Non-Financial Statement, a requirement under the Non-Financial Reporting Directive (NFRD).
Task Force on Climate-related Financial Disclosures
The Group’s disclosures are in line with the TCFD Recommendations and Recommended Disclosures which are
structured in the core elements of how organisations operate – governance, strategy, risk management and
metrics and targets.
The Group is cognisant that the preparation of comprehensive TCFD aligned disclosures is an ongoing process
and anticipates that a number of key actions will be necessary in 2023 to further advance our TCFD disclosures,
including:
i.
ii.
iii.
iv.
setting of Science Based Targets aligned with a climate scenario relating to the loan portfolio, enabling
the Group to incorporate further climate-related objectives and targets into the Group’s business
strategy;
incorporating ESG questionnaires per sector in the loan origination process, which will then be leveraged
for deriving an ESG classification and gather ESG and climate related data;
further developing our tracking and data capabilities to facilitate regular and transparent reporting on our
progress; further leverage our climate-related opportunities, in particular in relation to the development
of the Group’s sustainable finance propositions; and
continuing to address feedback from the ECB on the Group’s Climate Risk Implementation Plan.
The Company acknowledges the importance of the TCFD requirements for reporting on climate-related risks and
opportunities. We have undertaken a comprehensive review of our climate-related risks and opportunities, taking
into account the potential impact of climate change on our business environment, and we have been making
progress in integrating these considerations into our overall risk management framework. Disclosures have been
made for all TCFD Recommendations and Recommended Disclosures, providing information on relevant decisions
and on how these were taken. We have made disclosures consistent with the 11 TCFD Recommendations and
Recommended Disclosures save for certain items, which we summarise below:
Pillar II – Strategy: Recommendation ‘(b) Describe the impact of climate-related risks and opportunities on the
organisation's businesses, strategy and financial planning’ and ‘(c) Describe the resilience of the organisation's
strategy, taking into consideration different climate-related scenarios, including a 2oC or lower scenario’:
We disclose qualitatively the impact associated with the identified C&E risks and opportunities.
The scenario analysis, C&E risk quantification exercise and climate risk stress testing are methods which
assist in evaluating and managing the possible effects in the business strategy and financial planning
decisions. BOC PCL is currently developing its stress testing methodology which will further help to assess
the implications of physical and transition risks on the portfolios, and to inform the business strategy,
financial planning and capital planning.
BOC PCL is currently developing ESG questionnaires and ESG scorecards to incorporate within its loan
origination process which will allow it to identify ESG risks, including C&E risks, more granularly. The ESG
questionnaires will assist in gathering more accurate data which will then be embedded in the business
strategy, financial planning and net-zero strategy.
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ESG Disclosures (continued)
Task Force on Climate-related Financial Disclosures (continued)
BOC PCL has recently joined the Partnership for Carbon Accounting Financials (PCAF) and estimated
Financed Scope 3 GHG emissions associated with the loan portfolio. The Group is in the process to set
decarbonization targets on specific sectors and asset classes aligned with specific climate scenarios that
will be reflected in the business strategy and financial planning and indicate how the strategy should be
updated to address C&E risks and opportunities. As new data and modelling capabilities become available,
the Group will continue to build upon the transition and physical risk scenario analyses to indicate the
resilience of the strategy and financial plan under these scenarios.
Pillar III – Risk Management: Recommendation ‘(c) Describe how processes for identifying, assessing, and
managing climate-related risks are integrated into the organization’s overall risk management’:
The Group is making substantial progress in further integrating climate risk considerations into its risk
management approach, as it continues to integrate climate related risk into its risk culture.
BOC PCL is currently in the process of incorporating the assessment of ESG and climate matters in the
loan origination process, so that the potential impact from ESG and climate risks is reflected in the
fundamental elements of the creditworthiness assessment i.e., in Repayment Capacity and Collateral
Assessment.
As part of the risk assessment in the loan origination process, BOC PCL is currently developing ESG
questionnaires per sector which will then be leveraged for deriving an ESG classification through an ESG
Scorecard. The classification will then be factored in the decision-making process in the form of potential
pricing amendment, setting of specific covenants etc.
The Group is in the process to enhance its Risk Quantification capabilities regarding ESG and climate risks
in both the economic and normative perspective with the aim to assess the impact on capital.
The above-mentioned activities are expected to be implemented to a large extent by the end of 2023.
Pillar IV - Metrics and Targets: Recommendation ‘(c) Describe the targets used by the organization to manage
climate-related risks and opportunities and performance against targets’:
The Group has set several primary KPIs and corresponding targets in its current ESG and climate strategy.
The Group discloses its targets regarding Scope 1 and Scope 2 GHG emissions as well as its progress
against the targets. However, for Financed Scope 3 GHG emissions, the Group is currently in the process
to set decarbonisation targets on specific sectors and asset classes, such as on its mortgage portfolio,
that will be aligned with a climate scenario.
BOC PCL has recently joined the Partnership for Carbon Accounting Financials (PCAF). BOC PCL estimated
and disclosed Financed Scope 3 GHG emissions relating to c.88% of Gross Loans and Advances portfolio.
BOC PCL aims to continuously enhance the data quality used for the estimation of Financed Scope 3 GHG
emissions and eliminate the current data gaps as the local market becomes more mature, in order to be
in a position to set more accurate targets.
Future disclosure on Financed Scope 3 GHG emissions, and related risks is reliant on our customers
publicly disclosing their GHG emissions and related risks. Currently, there is low availability of relevant
public data within the Cyprus market due to the fact that the majority of companies are considered SMEs
and will not fall under any regulatory disclosure requirements until 2027.
Significant progress is expected in the target setting process in 2023.
All the current and future actions are comprehensively reported within our TCFD disclosures under each different
pillar of the reporting recommendations.
The Group is committed to providing transparent and consistent climate-related disclosures to its stakeholders,
including investors, customers, and employees, and will regularly review and update its disclosure practices in
line with evolving regulatory requirements and best practices.
The Group is committed to the principles of the TCFD and will continue to engage with stakeholders and
collaborate with industry peers to advance the adoption of climate-related disclosure practices across the business
community.
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The Risk and Capital Management Report relates to the Company and together with its subsidiaries the Group.
One of the Group’s main priorities is to continually improve its risk management framework so as to be able to
respond to the ever changing environment in an appropriate manner. Effective risk management is critical to
the success of the Group, and as such the Group maintains a risk management framework designed to ensure
the safety and soundness of the institution, protect the interests of depositors and shareholders and comply
with regulatory requirements. Clearly defined lines of authority and accountability are in place as well as the
necessary infrastructure and analytics so as to allow the Group to identify, assess, monitor and control risk.
1.
Risk Management Framework (RMF)
The Board of Directors, through the Risk Committee, is responsible to ensure that a coherent and comprehensive
Risk Management Framework (the ‘framework’ or ‘RMF’) for the identification, assessment, monitoring and
controlling of all risks is in place. The framework ensures that material and emerging risks are identified,
including, but not limited to, risks that might threaten the Group’s business model, future performance, liquidity,
and solvency. Such risks are taken into consideration in defining the Group’s overall business strategy ensuring
alignment with the Group’s risk appetite. In setting its risk appetite, the Group ensures that its risk bearing
capacity is considered so that the appropriate capital levels are always maintained.
The RMF is supported by a strong governance structure and is comprised by several components that are
analysed in the sections below. The RMF is reviewed, updated and approved by the Board at least annually to
reflect any changes to the Group’s business or for the consideration of external regulations, corporate
governance requirements and industry best practices.
1.1
Risk Governance
The responsibility for the governance of risk at the Group lies with the Board of Directors (the ‘Board’) which
is ultimately accountable for the effective management of risks and for the system of internal controls in the
Group. The Board is assisted in its risk governance responsibilities by the Board Risk and Board Audit Committees
(RC and AC respectively) and at executive level by the Executive Committee (EXCO), Asset and Liability
Committee (ALCO), Asset Disposal Committee (ADC), Technology Committee (TC), Sustainability Committee
(SC) and the Credit Committees.
The RC supports the Board on risk oversight matters including the monitoring of the Group’s risk profile and of
all risk management activities whilst the AC supports the Board in relation to the effectiveness of the system of
internal controls. In addition, discussion and escalation processes are in place through both Board and Executive
Committees that provide for a consistent approach to risk management and decision-making.
Discussion around risk management is supported by the appropriate risk information submitted by the Risk
Management Division (RMD) and Executive Management. The Chief Risk Officer (CRO) or his representatives
participate in all such key committees to ensure that the information is appropriately presented, and that RMD’s
position is clearly articulated.
Furthermore, certain roles within the Group are critical as they carry specific responsibilities with respect to risk
management. These include:
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1.
1.1
Risk Management Framework (continued)
Risk Governance (continued)
Chief Executive Officer (CEO)
The CEO is accountable for leading the development of the Group’s strategy and business plans in a manner
that is consistent with the approved risk appetite and for managing and organising Executive Management to
ensure these are executed. It is the CEO’s responsibility to manage the Group’s financial and operational
performance within the approved risk appetite.
Chief Risk Officer (CRO)
The CRO leads an independent RMD across the Group including its subsidiaries. The CRO is responsible for the
execution of the Risk Management Framework and the development of risk management strategies. The CRO is
expected to challenge business strategy and overall risk taking and risk governance within the Group and
independently submit his findings, where necessary, to the RC. The CRO reports to the RC and for administrative
purposes has a dotted line to the CEO.
Accountability and Authority
The RMD operates independently and this is achieved through:
-
-
-
-
-
Organisational independence from the activities assigned to be controlled
Unrestricted and direct access to Executive Management and the Board, either through the RC or directly
Direct and unconditional access to all business lines that have the potential to generate material risk to
the Group. Front Line managers are required to cooperate with the RMD managers and provide access to
all records and files of the Group as well as any other information necessary
A separate budget submitted to the RC for approval
The CRO is a member of the EXCO and holds voting or veto presence in key executive committees as well
as operational committees
Furthermore, this independence is also ensured as:
-
-
The CRO is assessed annually by the RC that is jointly responsible with Human Resources & Remuneration
Committee
The CRO maintains a close working relationship with both the RC and its Chairperson which includes
regular and frequent communication both during official RC meetings as well as unofficial meetings and
discussions
1.2
Organisational Model
The RMD is the business function set up to manage the risk management process of the Group on a day-to-day
basis. The risk management process is integrated into BOC PCL’s internal control system. The RMD is organized
into several departments, each of which is specialized in one or several categories of risks. The organization of
RMD reflects the types of risks inherent in the Group.
The RMD organisational model is structured so as to:
- Define risk appetite and report regularly on the status of the risk profile
-
Ensure that all material and emerging risks have proper ownership, management, monitoring and clear
reporting
Promote proper empowerment in key risk areas that will assist in the creation of a robust risk culture.
Provide tools and methodologies for risk management to the business units
Report losses from risks identified to the EXCO, the RC and Board and, where necessary, to the
Regulatory Authorities
Collect and monitor Key Risk Indicators (KRIs)
-
-
-
-
RMD is responsible for the risk management across the Group companies.
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1.
1.3
Risk Management Framework (continued)
Risk Identification
The risk identification process is comprised of two simultaneous but complementary approaches, namely, the
top-down and the bottom-up approaches. The top-down process is led by Senior Management and focuses on
identifying the Group’s material risks whilst the bottom-up approach risks are identified and captured through
several methods such as the Risk and Control Self-Assessment (RCSA) process, incident capture, fraud events
capture, regulatory audits, direct engagement with specialized units and other. The risks captured by these
processes are compiled during the annual ICAAP process and its quarterly updates and form the Groups’ material
risks.
To ensure a complete and comprehensive identification of risks the Group has integrated several key processes
into its risk identification process, including the:
Internal Capital Adequacy Assessment Process (ICAAP)
Internal Liquidity Adequacy Assessment Process (ILAAP)
Stress testing
-
-
-
- Group Financial Plan compilation process
-
Regulatory, internal and external reviews and audits
1.4
Three Lines of Defence
The Group complies with the regulatory guidelines for corporate governance and has established the "Three
Lines of Defence" model as a framework for effective risk and compliance management and control. The three
lines of defence model defines the responsibilities in the risk management process ensuring adequate
segregation in the oversight and assurance of risk.
First Line of Defence
The first line of defence lies with the functions that own and manage risks as part of their responsibility for
achieving objectives and are responsible for implementing corrective actions to address process and control
deficiencies. It comprises of management and staff of business lines and support functions who are directly
aligned with the delivery of products and/or services.
Second Line of Defence
The second line of defence includes functions that oversee the compliance of the first line management and staff
with the regulatory framework and risk management principles. It comprises of the RMD, Information Security
and Compliance functions. The second line of defence sets the corporate governance framework of the Group
and establishes policies and guidelines that the business lines and support functions, Group entities and staff
should operate within. The second line of defence also provides support, as well as independent oversight of the
risk profile and risk framework.
Third Line of Defence
The third line of defence is the Internal Audit Division (IA) which provides independent assurance to the Board
and the EXCO on the design adequacy and operating effectiveness of the Group’s internal control framework,
corporate governance and risk management processes (including ESG risks) for the management of risks
according to the risk appetite set by the Board. Findings are communicated to the Board through the committees
and senior management and other key stakeholders, with remediation plans monitored for progress against
agreed completion dates.
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1.
1.4
Risk Management Framework (continued)
Three Lines of Defence (continued)
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1.
1.5
Risk Management Framework (continued)
Risk Appetite Framework (RAF)
The objective of the Risk Appetite Framework (RAF) is to set out the level of risk that the Group is willing to
take in pursuit of its strategic objectives, outlying the key principles and rules that govern the risk appetite
setting. It comprises the Risk Appetite Statement (RAS), the associated policies and limits where appropriate,
as well as the roles and responsibilities for the implementation and monitoring of the RAF.
The RAF has been developed in order to be used as a key management tool to better align business strategy
with financial and non-financial targets with risk management, and it should be perceived as the focal point for
all relevant stakeholders within the Group, as well as the supervisory bodies, for the assessment of whether the
undertaken business activities are consistent with the set risk appetite.
The RAF is one of the main elements of the Risk Management Framework which includes, among others, a
number of frameworks, policies and circulars that address the principal risks of the Group. Separate RAFs are
in place for all operating subsidiaries which are subject to each subsidiary’s board approval.
Risk Appetite Statement (RAS)
The RAS is the articulation, in written form, of the aggregate level and types of risk that the Group is willing to
accept in the course of executing its business objectives and strategy. It includes qualitative statements as well
as quantitative measures expressed relative to capital, liquidity, earnings, funding and other risks.
The RAS considers both principal and other risks (financial and non-financial), which indicatively include the
following:
Financial Risks
Non-Financial Risks
Transaction Processing & Execution Risk
Capital
Earnings
Credit Risk
Market Risk
Interest Rate Risk in the Banking Book
(IRRBB)
Concentration Risk
Compliance Risk
Reputational Risk
Legal Risk
Information Security and Cyber Risk
Technology Risk
Funding & Liquidity Risk
Outsourcing/3rd Party Risk
Climate & Environmental (C&E) risks
Business Continuity Risk
Risk appetite and Financial Plan interaction
The RAS is subject to an annual review process during the period in which the Group’s Financial Plan as well as
the divisional strategic plans are being devised. The interplay between these processes provides for an iterative
cycle of feedback during which RAS indicators, with minimum regulatory requirements, act as a backstop to the
Financial Plan while for other indicators the Financial Plan provides input for risk tolerance setting. Furthermore,
every revision of the Group Financial Plan (as well as different scenarios run under the Group Financial Plan)
and/or Reforecast exercises run, are tested to ensure it is within the Group’s risk appetite.
Risk Appetite Dashboard monitoring
To ensure that the risk profile of the Group is within the approved risk appetite a consolidated risk report and a
risk appetite dashboard are regularly reviewed and discussed by the Board and the RC.
Where a breach occurs, the Risk Appetite Framework provides the necessary escalation process to analyse the
materiality and nature of the breach, notify the appropriate authorities, and decide the necessary remediation
actions.
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1.
1.6
Risk Management Framework (continued)
Risk Taxonomy
In order to ensure that all risks the Group may face are identified and managed, a risk taxonomy is in place
which is a key component of the Internal Capital Adequacy Assessment Process (ICAAP) and the Internal
Liquidity Adequacy Assessment Process (ILAAP). The taxonomy ensures that the coverage of risks is
comprehensive and identifies potential linkages between risks.
1.7
Risk measurement and reporting
The RMD uses several systems and models to support key business processes and operations, including stress
testing, credit approvals, fraud risk and financial reporting. The RMD has established a model governance and
validation framework to help address risks arising from model use.
Additionally, the RMD:
-
-
-
-
-
Maintains a categorization and definitions of risks and terminologies which are used throughout the Group
Collates reports of Key Risk Indicators (KRIs) and other relevant risk information. When limit violations
occur, escalation and reporting procedures are in place.
Checks that risk information provided by management is complete and accurate and management has
made all reasonable endeavour to identify and assess all key risks
Ensures that the risk information submitted to the RC and the Board by RMD and management is
appropriate and enables monitoring and control of all the risks faced by the Group
Discloses risk information externally and prepares reports on significant risks in line with internal and
external regulatory requirements.
Stress testing
Stress testing is a key risk management tool used by the Group to provide insights on behaviour of different
elements of the Group in a crisis scenario and assess Group’s resilience and capital and liquidity adequacy,
through the use of a range of scenarios, based on variations of market, economic and other operating
environment conditions. Stress tests are performed for both internal and regulatory purposes and serve an
important role in:
- Understanding the risk profile of the Group
-
Evaluating whether there is sufficient capital or adequate liquidity under stressed conditions (ICAAP and
ILAAP) and put in place the appropriate mitigants
Evaluating of the Group’s strategy
Establishing or revising limits
Assisting the Group to understand the events that might push the Group outside its risk appetite
-
-
-
The Group carries out the stress testing process through a combination of bottom-up and top-down approaches.
Scenario and sensitivity analysis follow a bottom-up approach, whereas reverse stress testing follows through
a top-down approach.
If the stress testing scenarios reveal vulnerability to a given set of risks, management makes recommendations
to the Board, through RC, for remedial measures or actions.
The Group’s stress testing programme embraces a range of forward-looking stress tests and takes all the Group’s
material risks into account. These key internal exercises include:
ICAAP stress testing undertaken in support of the Internal Capital Adequacy Assessment Process.
Quarterly ICAAP reviews are also undertaken.
ILAAP stress testing applied to the funding and liquidity plan to formally assess the Group’s liquidity
risks. Quarterly ILAAP reviews are also undertaken.
Ad hoc stress testing as and if required, including in response to regulatory requests.
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1.
1.7
Risk Management Framework (continued)
Risk measurement and reporting (continued)
Other business and risk type specific stress tests
The Market Risk Department performs additional stress tests, which include the following:
-
-
-
-
Monthly stress testing for interest rate risk (2% shock on Net Interest Income (NII) and Economic Value
(EV))
Quarterly stress testing for interest rate risk (based on the six predefined Basel interest rate scenarios
which involve flattening, steepening, short up, short down, parallel up, parallel down shocks)
Quarterly stress testing on items that are marked to market: impact on profit/loss and reserves is
indicated from changes in interest rates and prices of bonds and equities
Liquidity stress testing on cash flows (one month horizon)
The Group participated in the ECB’s inaugural climate risk stress test in 2022
The exercise served as a learning exercise for banks to introduce climate risk into risk management as a
qualitative part of the Supervisory Review and Evaluation Process (SREP).
The Group will be participating in the 2023 SSM Stress Test as one of the “Other SSM Significant
Institutions”
The Stress Test was officially launched on 31 January 2023 and is expected to be completed by the end of July
2023. The exercise will assess EU banks' resilience to an adverse economic shock and inform the 2023 SREP.
The stress test results will be used to update each bank’s Pillar 2 Guidance in the context of the Supervisory
Review and Evaluation Process (SREP). Qualitative findings on weaknesses in the Group’s stress testing practices
could also affect Pillar 2 Requirements and inform other supervisory activities.
ICAAP
The ICAAP is a process whose main objective is to assess the Group’s capital adequacy in relation to the level
of underlying material risks that may arise from pursuing the Group’s strategy or from changes in its operating
environment. More specifically, the ICAAP analyses, assesses and quantifies the Group’s risks, establishes the
current and future capital needs for the material risks identified and assesses the Group’s absorption capacity
under both the baseline scenario and stress testing conditions, aiming to demonstrate that the Group has
sufficient capital, under both the base and stress case scenarios, to support its business and achieve its strategic
objectives as per its Board-approved Risk Appetite and Strategy.
The Group undertakes quarterly reviews of its ICAAP results considering the latest actual and forecasted
information. The quarterly review identifies whether the Group has adequate capital levels to withstand stress
conditions. The quarterly ICAAP reviews of 2022 have indicated that the Group has sufficient capital and
available mitigants to support its risk profile, its business and to enable it to meet its regulatory requirements,
both in base and stress conditions.
The 2022 ICAAP is due for submission to the ECB on 31 March 2023. The 2022 ICAAP indicated that the Group
has sufficient capital and available mitigants to support its risk profile and its business and to enable it to meet
its regulatory requirements, both under a baseline and stress conditions scenarios.
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1.
1.7
ILAAP
Risk Management Framework (continued)
Risk measurement and reporting (continued)
The ILAAP is a process whose main objective is to assess whether the volume and capacity of liquidity resources
available to the Group are adequate to support its business model, to achieve its strategic objectives under both
the base and severe stress scenarios, and to meet regulatory requirements including the LCR and the NSFR.
The Group undertakes quarterly reviews of its ILAAP through quarterly stress tests reviews. Any material
changes since the year-end are assessed in terms of liquidity and funding. The quarterly review identifies
whether the Group has an adequate liquidity buffer to cover the stress outflows. The quarterly ILAAP reviews of
2022 indicated that BOC PCL’s liquidity position is at a very comfortable level and that BOC PCL maintains
liquidity resources which are adequate to ensure its ability to meet obligations as they fall due under ordinary
and stressed conditions.
The 2022 ILAAP is due for submission to the ECB on 31 March 2023. The 2022 ILAAP indicated that the Group
maintains liquidity resources which are adequate to ensure its ability to meet obligations as they fall due under
ordinary and stressed conditions scenarios.
2.
Recovery and resolution planning
The Group’s recovery plan sets out the arrangements and measures that the Group could adopt in the event of
severe financial stress to restore the Group to long term viability. A suite of indicators and options are included
in the Group’s recovery plan, which together present the identification of stress events and the tangible
mitigating actions available to the Group to restore viability. The Group’s recovery plan is approved by the Board
on the recommendation of RC and ALCO.
The Group resolution plan is prepared by the Single Resolution Board in cooperation with the National Resolution
Authority (Central Bank of Cyprus). The resolution plan describes the Preferred Resolution Strategy (PRS), in
addition to ensuring the continuity of the Group’s critical functions and the identification and addressing of any
impediments to the Group’s resolvability. The PRS for the Group is a single point of entry bail-in via BOC PCL.
The resolution authorities also determine the Minimum Requirements for own funds and Eligible Liabilities
(MREL) corresponding to the loss absorbing capacity necessary to execute the resolution.
3.
Risk Culture
A robust risk culture is a substantial determinant of whether the Group will be able to successfully execute its
strategy within its defined risk appetite. An action plan towards the implementation of a firm-wide risk culture
is in place across the Group and RMD has a leading role in it. The action plan includes, among other, the
measurement of risk culture, both at bank wide and divisional level, through a specific Risk Culture Dashboard,
the communication of a series of topics aiming at re-enforcing risk culture and the provision of specific training
for areas such as credit underwriting and other risk management related topics.
The Group enhances its risk control culture and increases the awareness of its employees on risk issues through
ongoing staff training (both through physical workshops and through e-learning).
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4.
Principal Risks
As part of its business activities, the Group faces a variety of risks, the most significant of which include Credit
risk, Market risk, Liquidity and Funding risk, and Operational risk. Additionally, further risks are also faced by
the Group. The principal and other risks faced by the Group are described below as well as the way these are
identified, assessed, managed and monitored by the Group, including the available mitigants. The risks
described below, should not be regarded as a complete and comprehensive statement of all potential risks,
uncertainties or mitigants as other factors either not yet identified or not currently material, may also adversely
affect the Group.
4.1
Credit Risk
Credit risk is defined as the current or prospective risk to earnings and capital arising from an obligor’s failure
to meet the terms of any contract with the Group (actual, contingent or potential claims both on and off balance
sheet) or failure to perform as agreed. Within the general definition of credit risk, the Group identifies and
manages the following types of risk:
Counterparty credit risk (CCR): the Group’s credit exposure with other counterparties.
Settlement risk: the risk that a counterparty fails to deliver the terms of a contract with the Group.
Issuer risk: the risk to earnings arising from a credit deterioration of an issuer of instruments in which
the Group has invested.
Concentration risk: the risk that arises from the uneven distribution of exposures (i.e., credit
concentration) to individual borrowers or by industry, collateral, product, currency, economic sector or
geographical region.
Country risk: the Group’s credit exposure arising from lending and/or investment or the presence of
the Group to a specific country.
Further information and analysis relating to credit risk is set out in Note 45 of the Consolidated Financial
Statements. Furthermore, the Group’s significant judgements, estimates and assumptions regarding the
determination of the level of provisions for impairment/expected credit losses (ECLs) are set out in Note 5
‘Significant and other judgements, estimates and assumptions’ of the Consolidated Financial Statements for the
year ended 31 December 2022 (the Consolidated Financial Statements) included within the Annual Financial
Report for 2022.
In order to manage these risks the Group has a Credit Risk Management function within RMD that:
-
-
-
-
-
Develops policies, guidelines and approval limits necessary to manage and control or mitigate the
credit and concentration risk in the Group. These documents are reviewed and updated at least
annually, or earlier if deemed necessary, to reflect any changes in the Group’s risk appetite and
strategy and consider the market environment or any other major changes from external or internal
factors that come into effect
Assesses credit applications before their submission for approval to Credit Committees / the RC / the
Board from an independent credit risk perspective and prepares recommendations with suggestions to
improve credit proposals and mitigate credit risk.
Participates in the Credit Committees of BOC PCL
Sets KRIs for monitoring the loan portfolio quality and adopts a proactive monitoring approach for such
risks
Measures the expected credit losses in a prudent way in order to have a fair representation of the loan
book in the financial statements of the Group
The Group sets and monitors Risk Appetite limits around credit risk. Furthermore, a Limits framework is in place
in relation to the credit granting process and its structure and also the general rules are documented in the
Group’s Lending Policy. Relevant circulars and guidelines are in place that provide limits and parameters for the
approval of credit applications and related credit limits. The Group currently has Credit Committees which are
comprised of members from various Group divisions outside RMD to ensure independence of opinion.
Applications falling outside the approval limits of these Credit Committees are submitted to the RC or the Board,
depending on the total exposure of the customer group.
51
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4.
4.1
Principal Risks (continued)
Credit Risk (continued)
The Group has adopted methodologies and techniques for credit risk identification. These methodologies are
revised and modified whenever deemed necessary to reflect changes in the financial environment and adjusted
to be in line with the Group’s overall strategy and its short-term and long-term objectives.
The Group dedicates considerable resources to assess credit risk and to correctly reflect the value of its on-
balance and off-balance sheet exposures in accordance with regulatory and accounting guidelines. This process
can be summarised in the following stages:
Analysing performance and asset quality
Measuring exposures and concentrations
Raising allowances for impairment
Furthermore, post-approval monitoring is in place to ensure adherence to both, terms and conditions set in the
approval process and Credit Risk policies and procedures. A key aspect of credit risk is credit risk concentration
which is defined as the risk that arises from the uneven distribution of exposures to individual borrowers, specific
industry or economic sectors, geographical regions, product types or currencies. The monitoring and control of
concentration risk is achieved by limit setting (e.g., sector and name limits) and reporting them to senior
management.
Approved policies and procedures are in place for the approval of Credit and Settlement Limits per counterparty
based on the business needs, current exposures and investment plans. Counterparty credit and settlement limits
for Treasury transactions are monitored real-time through the Treasury front to back system. In the case of a
breach, an automatic e-mail is sent to the dealers and Market & Liquidity Risk officers.
With the aim of identifying credit risk at an early stage, a number of key reports are prepared for the EXCO and
/ or the Board. Indicatively, these include a credit quality dashboard which analyses, among others, the overall
loan book performance, forborne facilities, the performance of new lending, specific products or portfolios, new
forbearances and modifications and other portfolio quality KPIs.
Country Risk
Country Risk refers to the possibility that borrowers of a particular country may be unable or unwilling to fulfill
their foreign obligations for reasons beyond the usual risks which arise in relation to all lenders. Country risk
affects the Group via its operation in other countries and also via investments in other countries (Money Market
(MM) placements, bonds, shares, derivatives, etc.). In addition, the Group is indirectly affected by credit facilities
provided to customers for their international operations or due to collateral in other countries. In this respect,
country risk is considered in the risk assessment of all exposures, both on-balance sheet and off-balance sheet.
Country risk exposures are the aggregation of the various on-balance sheet and off-balance sheet exposures
including investments in bonds, money market placements, loans by or guarantees to residents of a country,
letters of credit, properties etc.
The Group monitors country risk on a quarterly basis by reporting to ALCO country exposures compared to
country limits. The Board, through the RC is also informed on a regular basis and at least annually, on any limit
breaches. The country limits are allocated based on the CET1 capital of the Group, the country's credit rating
and internal scoring.
52
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Risk and Capital Management Report
Annual Financial Report 2022
4.
4.1
Principal Risks (continued)
Credit Risk (continued)
Credit Risk Mitigation
The fundamental lending principle of the Group is to approve applications and provide credit facilities only when
the applicant has the ability to pay and where the terms of these facilities are consistent with the customers’
income and financial position, independent of any collateral that may be assigned as security and in full
compliance with all external laws, regulations, guidelines, internal codes of conduct and other internal policies
and procedures. The value of collateral is not a decisive factor in the Group’s assessment and approval of any
credit facility since collaterals may only serve as a secondary source of repayment in case of default.
Collaterals are used for risk mitigation. Collaterals are considered as an alternative means of debt recovery in
case of default. Collateral by itself is not a predominant criterion for approving a loan, with the exception of
when the loan agreement envisages that the repayment of the loan is based on the sale of the property pledged
as collateral or liquid collateral provided.
Credit risk mitigation is also implemented through a number of policies, procedures, guidelines circulars and
limits. Policies are approved by the RC and include the:
Lending Policy
Write-off policy
Concentration Risk Policy
Valuation Policy
Credit Risk Monitoring Policy
Systems
The effective management of the Group’s credit risk is achieved through a combination of training and
specialisation as well as appropriate credit risk assessment (risk rating) systems. The Group aims to continuously
upgrade the systems and models used in assessing the creditworthiness of Group customers. Additionally, the
Group continuously upgrades the systems and models for the assessment of credit risk aiming to correctly
reflect the value of its on-balance and off-balance sheet exposures in accordance with regulatory and accounting
guidelines.
The analysis of loans and advances to customers in accordance with the EBA standards is presented
below.
53
BANK OF CYPRUS GROUP
Risk and Capital Management Report
Annual Financial Report 2022
4.
4.1
Principal Risks (continued)
Credit Risk (continued)
The tables below present the analysis of loans and advances to customers in accordance with the EBA standards.
31 December 2022
Loans and advances to customers
General governments
Other financial corporations
Non-financial corporations
Of which: Small and Medium sized
Enterprises3 (SMEs)
Of which: Commercial real estate3
Non-financial corporations by sector
Construction
Wholesale and retail trade
Accommodation and food service activities
Real estate activities
Manufacturing
Other sectors
Households
Of which: Residential mortgage loans3
Of which: Credit for consumption3
Total on-balance sheet
Gross loans and advances to customers
Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
Group gross
customer
loans and
advances1,2
Of which:
NPEs
Of which exposures with
forbearance measures
Total exposures
with forbearance
measures
Of which:
NPEs
Accumulated
impairment,
accumulated
negative changes in
fair value due to
credit risk and
provisions
Of which:
NPEs
Of which exposures with forbearance
measures
Total exposures
with forbearance
measures
Of which:
NPEs
€000
€000
€000
€000
€000
€000
€000
€000
39,766
186,281
5,134,784
3,492,414
-
3,202
144,522
84,493
3,975,290
120,445
-
11,665
950,499
449,891
895,971
-
2,825
91,100
33,140
80,980
549,921
909,438
1,164,979
1,108,581
392,843
1,009,022
4,770,863
3,785,834
547,490
10,131,694
11,949
20,783
20,824
20,281
9,429
61,256
260,629
220,354
37,622
408,353
290,556
253,794
42,719
1,252,720
143,140
125,994
21,235
237,065
25
6,008
100,265
53,939
76,385
13,319
15,907
9,543
19,738
4,033
37,725
72,144
45,805
20,355
-
2,332
69,212
33,882
58,414
54,643
37,616
14,628
178,442
126,187
-
2,453
53,940
17,643
47,047
-
2,250
44,957
11,683
41,152
37,362
29,759
8,543
93,755
32,087
25,751
7,486
79,294
1 Excluding loans and advances to central banks and credit institutions.
2 The residual fair value adjustment on initial recognition (which relates mainly to loans acquired from Laiki Bank and is calculated as the difference between the outstanding contractual amount
and the fair value of loans acquired and bears a negative balance) is considered as part of the gross loans, therefore decreases the gross balance of loans and advances to customers.
3 The analysis shown in lines ‘non-financial corporations’ and ‘households’ is non-additive across all categories as certain customers could be in both categories.
54
BANK OF CYPRUS GROUP
Risk and Capital Management Report
Annual Financial Report 2022
4.
4.1
Principal Risks (continued)
Credit Risk (continued)
31 December 2021
Loans and advances to customers
General governments
Other financial corporations
Non-financial corporations
Of which: Small and Medium sized
Enterprises6 (SMEs)
Of which: Commercial real estate6
Non-financial corporations by sector
Construction
Wholesale and retail trade
Accommodation and food service activities
Real estate activities
Manufacturing
Other sectors
Households
Of which: Residential mortgage loans6
Of which: Credit for consumption6
Loans and advances to customers
classified as held for sale
Total on-balance sheet
Gross loans and advances to customers
Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
Group gross
customer
loans and
advances4,5
Of which:
NPEs
Of which exposures with
forbearance measures
Total exposures
with forbearance
measures
Of which:
NPEs
€000
€000
€000
€000
Accumulated
impairment,
accumulated
negative changes in
fair value due to
credit risk and
provisions
€000
Of which:
NPEs
Of which exposures with forbearance
measures
Total exposures
with forbearance
measures
Of which:
NPEs
€000
€000
€000
45,357
127,889
5,209,599
4,052,571
3,968,375
512,952
964,891
1,137,443
1,210,664
326,535
1,057,114
4,755,100
3,734,448
581,197
10,137,945
555,789
-
4,771
277,309
123,558
171,215
28,418
40,457
4,323
106,841
14,354
82,916
434,040
369,147
54,238
716,120
553,620
-
12,759
1,009,094
734,362
900,697
-
4,487
215,157
71,269
136,257
430,007
372,141
61,824
1,451,860
245,452
238,066
208,387
31,165
457,710
243,495
701,205
10,693,734
1,269,740
1,697,312
29
3,393
144,252
83,757
100,301
21,224
28,586
3,351
31,821
8,094
51,176
153,865
112,711
28,824
301,539
305,419
606,958
-
1,909
115,869
60,892
82,872
136,902
105,764
22,167
254,680
304,665
559,345
-
1,948
86,847
39,263
69,309
70,667
56,145
13,290
159,462
118,094
277,556
-
1,658
79,329
32,499
64,282
64,589
52,219
11,430
145,576
117,377
262,953
4 Excluding loans and advances to central banks and credit institutions.
5 The residual fair value adjustment on initial recognition (which relates mainly to loans acquired from Laiki Bank and is calculated as the difference between the outstanding contractual amount
and the fair value of loans acquired and bears a negative balance) is considered as part of the gross loans, therefore decreases the gross balance of loans and advances to customers.
6 The analysis shown in lines ‘non-financial corporations’ and ‘households’ is non-additive across all categories as certain customers could be in both categories.
55
BANK OF CYPRUS GROUP
Risk and Capital Management Report
Annual Financial Report 2022
4.
4.2
Principal Risks (continued)
Market Risk
Market Risk is defined as the current or prospective risk to earnings and capital arising from adverse movements
in interest rates, currency / foreign exchange rates and from any other changes in market prices. The main
types of market risk to which the Group is exposed to are listed below:
a. Interest Rate Risk (IRR);
b. Currency / foreign exchange risk;
c. Securities price risk (bonds, equities);
d. Properties risk;
Each of the risks above is defined and further analysed in the subsections below. Furthermore, additional
information relating to Market risk is set out in Note 46 of the Consolidated Financial Statements.
Interest Rate Risk in the Banking Book
Interest rate risk in the banking book (“IRRBB”) is the current or prospective risk to both the earnings and
capital of the Group as a result of adverse movements in interest rates. The four components of interest rate
risk are: repricing risk, yield curve risk, basis risk and option risk. Repricing risk is the risk of loss of net interest
income or economic value as a result of timing mismatch in the repricing of assets, liabilities and off balance
sheet items. Yield curve risk arises from changes in the slope and the shape of the yield curve. Basis risk is the
risk of loss of net interest income or economic value as a result of imperfect correlation between two different
variable reference rates. Option risk arises from options, including embedded options, e.g., consumers
redeeming fixed rate products when market rates change.
The Group does not operate any trading book and thus all interest rate exposure arises from the banking book.
In order to manage interest rate risk, the Group sets a one-year limit on the maximum reduction of the net
interest income. Limits are set as a percentage of Group capital and as a percentage of Group net interest
income (when positive). There are different limits for Euro and USD. Whilst limit breaches must be avoided at
all times, any such occurrence is reported to the relevant authorities (ALCO and / or RC) and mitigating actions
are put in place. Monthly monitoring is provided to the Group ALCO.
Group Treasury is responsible for managing the interest rate exposure of the Group. Corrective actions are
taken by Treasury with a view of minimizing the risk exposure and in any event to restrict exposure within limits
(unless an ALCO/RC approval is obtained).
Currency / foreign exchange risk
Currency/foreign exchange 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 limit the risk of loss from adverse fluctuations in foreign exchange rates, overall Intraday and
Overnight open currency position limits have been set. These internal limits are small compared to the maximum
permissible by the CBC. Internal limits serve as a trigger to management for avoiding regulatory limit breaches.
Due to the fact that there is no Foreign Exchange Trading Book, VaR (Value at Risk) is calculated on a monthly
basis on the position reported to the CBC. Intraday and overnight FX position limits are monitored daily and the
open foreign currency position or any breaches are reported to ALCO and to the RC on a monthly basis.
56
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Risk and Capital Management Report
Annual Financial Report 2022
4.
4.2
Principal Risks (continued)
Market Risk (continued)
Group Treasury is responsible for managing the foreign currency open position of the Group emanating from its
balance sheet. The foreign currency position emanating from customer transactions is managed by the Treasury
Sales Unit of Global Markets & Treasury Sales Department. Treasury is also responsible for the hedging for the
foreign currency open positions of the foreign non-banking units of the Group.
Equities Price Risk
The risk of loss from changes in the price of equity securities arises when there is an unfavorable change in the
prices of equity securities held by the Group as investments.
The Group has an outstanding equity and fund portfolio in its books. The equity portfolio mainly relates to
certain legacy positions acquired through loan restructuring activity and specifically through debt for equity
swaps, whereas the fund portfolio mainly relates to the insurance operations of the Group. The policy is to
manage the current equity portfolio with the intention to run it down by selling all positions for which there is
a market. No new purchases of equities are allowed without ALCO approval. Nevertheless, new equities may
be obtained from repossessions of collateral for loans. Analysis of equity and fund holdings are reported to
ALCO on a quarterly basis. The RC is also updated on a quarterly basis. Analysis of the positions the Group
maintains as at 31 December 2022 is presented in Note 20 of the Consolidated Financial Statements.
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 issuers changes and/or as the interest rates
of fixed rate securities change.
The Group invests a significant part of its liquid assets in debt securities. 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. Debt securities classified as HTC are held
at amortised cost.
Debt security investment limits exist at RAS level governing the level of riskiness of the overall portfolio. Credit
limits per issuer are also in place. Market and Liquidity Risk Department is responsible for setting and calibrating
bond related limits. Limit monitoring is performed on a daily basis. Any breaches are reported following the
escalation process depending on the limit breach.
The debt security portfolio is management by Group Treasury and governed by the Bond Investment Policy.
The annual bond investment strategy is proposed by Treasury and approved by ALCO. Treasury proceeds with
bond investment amounts approved through the Financial Plan, within the Bond Investment Policy and within
limits and parameters set in the various policies and frameworks. Analysis of the positions the Group
maintains as at 31 December 2022 is presented in Note 20 of the Consolidated Financial Statements.
Property Price Risk
Property price risk is the risk that the value of property will decrease, either as a result of:
˗ Changes in the demand for, and prices of, Cypriot real estate; or
˗ Regulatory requests which may increase the capital requirements for stock of property
The Group is exposed to the risk of changes in the fair value of property which is held either for own use or, as
stock of property or as investment property. Stock of property is predominately acquired in exchange of debt
and is intended to be disposed off in line with the Group’s strategy.
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Risk and Capital Management Report
Annual Financial Report 2022
4.
4.2
Principal Risks (continued)
Market Risk (continued)
The Group has in place a number of actions to manage and monitor the exposure to property risk as indicated
below:
˗
It has an established Real Estate Management Unit (REMU), a specialised division to manage the
repossessed portfolio including employing appropriate disposal strategies.
It has placed great emphasis on the efficient and quick disposal of on-boarded properties and in their
close monitoring and regular reporting. RAS indicators and other KPIs are in place monitoring REMU
properties in terms of value and sales levels.
It assesses and quantifies property risk as one of the material risks for ICAAP purposes under both the
normative and economic perspective.
It 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.
As part of the valuation process, assumptions are 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.
For the valuation of properties owned by the Group judgement is exercised which takes into account all
available reference points, such as expert valuation reports, current market conditions and application
of appropriate illiquidity haircuts where relevant.
˗
˗
˗
˗
˗
4.3
Liquidity and Funding Risk
Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its commitments as
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.
Funding risk is the risk that the Group does not have sufficiently stable sources of funding or access to sources
of funding may not always be available at a reasonable cost and thus the Group may fail to meet its obligations,
including regulatory ones (e.g., MREL).
Further information relating to Group risk management in relation to liquidity and funding risk is set out in Note
47 of the Consolidated Financial Statements. Additionally, information on encumbrance and liquidity reserves is
provided below.
4.3.1
Encumbered and unencumbered assets
Asset encumbrance arises from collateral pledged against secured funding and other collateralised obligations.
An asset is classified as encumbered if it has been pledged as collateral against secured funding and other
collateralised obligations and, as a result, is no longer available to the Group for further collateral or liquidity
requirements. The total encumbered assets of the Group amounted to €3,631,269 thousand as at 31 December
2022 (2021: €4,489,424 thousand).
An asset is classified as unencumbered if it has not been pledged as collateral against secured funding and other
collateralised obligations. Unencumbered assets are further analysed into those that are available and can
potentially be pledged and those that are not readily available to be pledged. As at 31 December 2022, the
Group held €19,468,233 thousand (2021: €17,468,507 thousand) of unencumbered assets that can potentially
be pledged and can be used to support potential liquidity funding needs and €659,311 thousand (2021:
€1,324,118 thousand) of unencumbered assets that are not readily available to be pledged for funding
requirements in their current form.
58
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Risk and Capital Management Report
Annual Financial Report 2022
4.
4.3
Principal Risks (continued)
Liquidity and Funding Risk (continued)
4.3.1
Encumbered and unencumbered assets (continued)
The table below presents an analysis of the Group’s encumbered and unencumbered assets and the extent to
which these assets are currently pledged for funding or other purposes. The carrying amount of such assets is
disclosed below:
31 December 2022
Encumbered
Unencumbered
Pledged as
collateral
Which can
potentially be
pledged
Which are not
readily available to
be pledged
Total
€000
€000
€000
€000
Cash and other liquid assets
Investments
73,557
284,343
9,391,365
2,393,796
307,147
9,772,069
25,564
2,703,703
Loans and advances to customers
3,273,369
6,397,745
282,138
9,953,252
Property
-
1,285,327
44,462
1,329,789
Total on-balance sheet
3,631,269
19,468,233
659,311
23,758,813
31 December 2021
Cash and other liquid assets
102,463
8,958,427
461,625
9,522,515
Investments
1,260,158
859,383
19,622
2,139,163
Loans and advances to customers
3,126,803
6,248,132
461,470
9,836,405
Non-current assets held for sale
Property
-
-
-
358,951
358,951
1,402,565
22,450
1,425,015
Total on-balance sheet
4,489,424
17,468,507
1,324,118
23,282,049
Encumbered assets primarily consist of loans and advances to customers and investments in debt securities.
These are mainly pledged for the funding facilities of the European Central Bank (ECB) and for the covered bond
(Notes 30 and 47 of the Consolidated Financial Statements for the year ended 31 December 2022 respectively).
Encumbered assets include cash and other liquid assets placed with banks as collateral under ISDA agreements
which are not immediately available for use by the Group but are released once the transactions are terminated.
Cash is mainly used to cover collateral required for (i) derivatives and (ii) trade finance transactions and
guarantees issued. It may also be used as part of the supplementary assets for the covered bond.
BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the
Covered Bonds Directive of the Central Bank of Cyprus (CBC). Under the Covered Bond Programme, BOC PCL
has in issue covered bonds of €650 million secured by residential mortgages originated in Cyprus. The covered
bonds have a maturity date on 12 December 2026 and interest rate of 3-months Euribor plus 1.25% payable
on a quarterly basis. On 9 August 2022, BOC PCL proceeded with an amendment to the terms and conditions
of the covered bonds following the implementation of Directive (EU) 2019/2162 in Cyprus. The covered bonds
are listed on the Luxemburg Bourse and have a conditional Pass-Through structure. All the bonds are held by
BOC PCL. The covered bonds are eligible collateral for the Eurosystem credit operations and are placed as
collateral for accessing funding from the ECB.
Unencumbered assets which can potentially be pledged include debt securities and Cyprus loans and advances
which are less than 90 days past due. Balances with central banks are reported as unencumbered and can be
pledged, to the extent that there is excess available over the minimum reserve requirement. The minimum
reserve requirement is reported as unencumbered not readily available to be pledged.
59
BANK OF CYPRUS GROUP
Risk and Capital Management Report
Annual Financial Report 2022
4.
4.3
Principal Risks (continued)
Liquidity and Funding Risk (continued)
4.3.1
Encumbered and unencumbered assets (continued)
Unencumbered assets that are not readily available to be pledged primarily consist of loans and advances which
are prohibited by contract or law to be encumbered or which are more than 90 days past due or for which there
are pending litigations or other legal actions against the customer, a proportion of which would be suitable for
use in secured funding structures but are conservatively classified as not readily available for collateral.
Properties whose legal title has not been transferred to the Company or a subsidiary are not considered to be
readily available as collateral. Non-current assets held for sale are also reported as not readily available to be
pledged.
Insurance assets held by Group insurance subsidiaries are not included in the table above or below as they are
primarily due to the insurance policyholders.
The carrying and fair value of the encumbered and unencumbered investments of the Group as at 31 December
2022 and 2021 are as follows:
31 December 2022
Carrying value
of
encumbered
investments
Fair value of
encumbered
investments
Carrying value of
unencumbered
investments
Fair value of
unencumbered
investments
€000
€000
€000
€000
Equity securities
Debt securities
-
-
194,841
194,841
284,343
265,696
2,224,519
2,150,383
Total investments
284,343
265,696
2,419,360
2,345,224
31 December 2021
Equity securities
Debt securities
-
-
1,260,158
1,267,666
208,775
670,230
208,775
668,201
Total investments
1,260,158
1,267,666
879,005
876,976
4.3.2
Liquidity regulation
The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR) under CRD IV/CRR (as
supplemented by Delegated Regulations (EU) 2015/61), with the limit set at 100%. The Group has to also
comply with the Net Stable Funding Ratio (NSFR) calculated as per the Capital Requirements Regulation II (CRR
II), with the limit set at 100%.
The LCR is designed to promote the short-term resilience of a Group’s liquidity risk profile by ensuring that it
has sufficient high-quality liquid resources to survive an acute stress scenario lasting for 30 days. The NSFR has
been developed to promote a sustainable maturity structure of assets and liabilities.
As at 31 December 2022, the Group was in compliance with all regulatory liquidity requirements. As at 31
December 2022, the LCR stood at 291% for the Group (compared to 298% at 31 December 2021) and was in
compliance with the minimum regulatory requirement of 100%. As at 31 December 2022 the Group’s NSFR was
168% (compared to 147% at 31 December 2021) and was in compliance with the minimum regulatory
requirement of 100%.
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4.
4.3
Principal Risks (continued)
Liquidity and Funding Risk (continued)
4.3.3
Liquidity reserves
The below table sets out the Group’s liquidity reserves:
31 December 2022
31 December 2021
Composition of the
liquidity reserves
Internal
Liquidity
Reserves
Liquidity reserves as
per LCR Delegated
Regulation (EU)
2015/61 LCR eligible
Level 1
Level
2A & 2B
Internal
Liquidity
Reserves
Liquidity reserves as
per LCR Delegated
Regulation (EU)
2015/61 LCR eligible
Level
2A & 2B
Level 1
€000
€000
€000
€000
€000
€000
Cash and balances with
central banks
9,379,888 9,379,888
Placements with banks
55,825
-
-
-
9,064,840
9,064,840
118,752
-
-
-
Liquid investments
1,827,698 1,344,032 214,800
500,930
304,758
147,562
Available ECB Buffer
147,844
-
-
80,786
-
-
Total
11,411,255 10,723,920 214,800
9,765,308
9,369,598
147,562
Internal Liquidity Reserves present the total liquid assets as defined in BOC PCL’s Liquidity Policy. Liquidity
reserves as per LCR Delegated Regulation (EU) 2015/61 present the liquid assets as per the definition of the
aforementioned regulation i.e., High-Quality Liquid Assets (HQLA).
Under Liquidity reserves as per LCR, balances in Nostro accounts and placements with banks are not included,
as they are not considered HQLA (they are part of the LCR Inflows).
Liquid investments under the Liquidity reserves as per LCR are shown at market values reduced by standard
weights as prescribed by the LCR regulation. Liquid investments under Internal Liquidity Reserves include
additional unencumbered liquid bonds and are shown at market values net of haircuts based on ECB
methodology and haircuts.
Current available ECB buffer is not part of the Liquidity reserves as per LCR.
In March 2022, the ECB announced the steps for the gradual phasing out of the temporary pandemic collateral
easing measures implemented during COVID-19 breakout. The gradual phasing out is scheduled to be concluded
in three steps having started from July 2022 and will be completed by March 2024 and gives banks time to
adapt to the adjustments to the collateral framework. In the first step in July 2022, the ECB halved the
temporary reduction in collateral valuation haircuts across all assets from the previous 20% adjustment to 10%.
In the second step, in June 2023, the ECB expects to implement a new valuation haircut schedule based on its
pre-pandemic risk tolerance level for credit operations, phasing out the temporary reduction in collateral
valuation haircuts completely. In the third and final step, in March 2024, the ECB will, in principle, phase out
the remaining pandemic collateral easing measures.
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4.
4.4
Principal Risks (continued)
Operational Risk
Operational risk is defined as the risk of direct or indirect impact/loss resulting from inadequate or failed internal
processes, people, and systems or from external events. The Group includes in this definition compliance, legal
and reputational risk.
The Group recognises that the control of operational risk is directly related to effective and efficient management
practices and high standards of corporate governance. To that effect, the management of operational risk is
geared towards maintaining a strong internal control governance framework and managing operational risk
exposures through a consistent set of management processes that drive risk identification, assessment, control
and monitoring.
The Group also maintains adequate insurance policies to cover for unexpected material operational losses.
Operational Risk Management (ORM) Framework
The Group has established an Operational Risk Management Framework which addresses the following
objectives:
-
-
-
-
Raising operational risk awareness and building the appropriate risk culture,
Providing effective risk monitoring and reporting to the Group’s management at all levels in relation to
the operational risk profile, so as to facilitate decision making for risk control activities,
Mitigating operational risk to ensure that operational losses do not cause material damage to the Group’s
franchise and that the impact on the Group’s profitability and corporate objectives is contained, and
Maintaining a strong system of internal controls to ensure that operational incidents do not cause material
damage to the Group’s franchise and have a minimal impact on the Group’s profitability and reputation.
Operational risks can arise from all business lines and from all activities carried out by the Group and are thus
diverse in nature.
To enable effective management of all material operational risks, the operational risk management framework
adopted by the Group is based on the three lines of defence model, through which risk ownership is dispersed
throughout the organisation.
The key components of the Operational Risk Management Framework include the following:
Risk Appetite
A defined Operational RAS is in place, which forms part of the Group RAS. Thresholds are applied for conduct
and other operational risk related losses.
Risk Control Self-Assessment (RCSA)
A RCSA methodology is established across the Group. According to the RCSA methodology, business owners are
requested to identify risks that arise primarily from the risk areas under a full Risk Taxonomy.
Updating/enriching the risk register in terms of existing and potential new risks identified and their mitigation
is an on-going process, sourced from RCSAs, but also from other risk and control assessments (RCAs)
performed.
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4.
4.4
Principal Risks (continued)
Operational Risk (continued)
Incident recording and analysis
An operational risk event is defined as any incident where through the failure or lack of a control, the Group
could actually or potentially have incurred a loss including circumstances whereby the Group could have incurred
a loss, but in fact made a gain, as well as, incidents resulting in potential reputational or regulatory impact.
Operational risk loss events are classified and recorded in the Group’s Risk and Compliance Management System
(RCMS) system, which serves as an enterprise tool integrating all risk-control data (e.g., risks, loss incidents,
KRIs) to provide a holistic view with regards to risk identification, corrective action and statistical analysis.
During the year ended 31 December 2022, 466 loss events with gross loss equal to or greater than €1,000 each
were recorded including incidents of prior years (mostly legal cases) for which losses materialised in 2022 (2021:
323 loss events).
Key Risk Indicators (KRIs)
These are operational or financial variables, which track the likelihood and/or impact of a particular operational
risk. KRIs serve as a metric, which may be used to monitor the level of particular operational risks.
Operational Risk Capital Requirements and ICAAP
Regulatory and economic capital requirements for operational risk are calculated using the Standardised
Approach. Additional Pillar II Regulatory capital is calculated for operational risk on a scenario-based approach.
Scenarios are built after taking into consideration the Key Risk Drivers, which are identified using a combination
of methods and sources, through top-down and bottom-up approaches.
Training and awareness
The Group strives to continuously enhance its risk control culture and increase the awareness of its employees
on operational risk issues through ongoing staff training (both through physical workshops and through e-
learning).
Reporting
Important operational risks identified and assessed through the various tools/methodologies of the Operational
Risk Management Framework, are regularly reported to top management, as part of overall risk reporting. More
specifically, the CRO reports on risk to the EXCO and the RC on a monthly basis, while annual risk reports are
submitted to the Regulators. Ad-hoc reports are also submitted to management, as needed.
4.4.1
Fraud Risk Management
Ongoing activities/initiatives towards further enhancements of Operational Risk Management (ORM), involved
inter alia the following: (i) provision of a fraud risk awareness seminar to staff and top-management, (ii)
establishment of the specialised Fraud Risk Assessment Framework, going beyond the current Risk Control Self-
Assessment (RCSA) process, and (iii) ongoing reviews and enhancements of the internal ORM policies and
procedures as well as the ORM database. As a result of the customers’ accelerated shift towards digital channels,
the Fraud Risk Management unit further strengthened the Group’s current external fraud prevention controls
and framework.
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4.
4.4
Principal Risks (continued)
Operational Risk (continued)
4.4.2
Third-Party Risk Management
Third-Party and Outsourcing risk can arise from a third party's failure to perform as expected due to reasons
such as inadequate capacity, technological failure, human error, unsatisfactory quality of service, unsatisfactory
continuity of service and/or financial failure.
The Group has a dedicated unit under the ORM Function, the Third-Party Risk Management unit, which is
responsible to perform risk assessments on all outsourcing, strategic and intragroup arrangements of the Group.
As part of the risk assessment, the team identifies and monitors the effective handling of any potential
gaps/weaknesses. The risk assessment occurs prior to signing an outsourcing, strategic or intragroup
arrangement as well as prior to their renewal or annually.
5.
5.1
Other principal risks
Business Model and Strategic Risk
Business model and strategic risk arises from changes in the external environment including economic trends
and competition. The Group faces competition from domestic banks, international banks and financial technology
companies operating in Cyprus and in other parts of Europe and insurance companies offering savings, insurance
and investment products. A continuing deterioration of the macroeconomic environment stemming from the
impact of high inflation and the resultant interest hikes or other factors could lead to adverse financial
performance which could deplete capital resources.
Furthermore, the Group's business and performance are materially dependent on the economic conditions in,
and future economic prospects of, Cyprus where the Group's operations and earnings are predominantly based
and generated. The Group is also dependent on the economic conditions and prospects of countries of the main
counterparties with whom it conducts business with.
The Group has a clear strategy with key objectives to enable delivery and operates within defined risk appetite
limits which are calibrated to be within the Group’s Risk bearing capacity. The strategy is monitored closely on
a regular basis. Furthermore, the Group remains ready to explore opportunities that complement its strategy
including diversification of income. As the Group’s business model is pivotal to strategic risk, it has to be viable
and sustainable and produce results that are consistent with its annual targets.
The Group manages business model risk within its Risk Appetite Framework, by setting limits in respect of
measures such as financial performance, portfolio performance and concentration and capital levels. At a more
operational level, the risk is mitigated through periodic monitoring of variances to the Financial Plan. During the
year, periodic forecast updates for the full year financial outcome are produced. The frequency of forecast
updates during each year will be determined based on prevailing business and economic conditions.
Performance against plan is monitored at a Group and business line level on a monthly basis and reported to
the EXCO and the Board.
The Group also closely monitors the risks and impact of changing macroeconomic conditions on its lending
portfolio, strategy and objectives and takes mitigating actions were necessary. An internal stress testing
framework (ICAAP) is in place to provide insights and to assess capital resilience to shocks.
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5.
5.2
Other principal risks (continued)
Geopolitical Risk
Cyprus is a small, open, services-based economy, with a large external sector and high reliance on tourism and
international business services. As a result, external factors which are beyond the control of the Group, including
developments in the European Union and in the global economy, or in specific countries with which Cyprus
maintains close economic and investment links can have a significant impact on domestic economic activity. A
number of macro and market related risks, including weaker economic activity, the interest rate environment
and higher competition in the financial services industry, could negatively affect the Group’s business
environment, results and operations. The continued war in Ukraine and related increases in global inflationary
pressures due to higher energy prices as well as supply chain disruptions have led to a downward revision in
global growth forecasts for 2023 and 2024. Major central banks have responded by tightening monetary policy
and market interest rates increased significantly during 2022 amid periods of very high market volatility.
In Cyprus, financial sector exposure to foreign markets has been reduced since the 2013 banking crisis.
Although, there have been distinct improvements in Cyprus’ risk profile after the banking crisis, substantial risks
remain. Cyprus’ overall country risk is a combination of sovereign, currency, banking, political and economic
structure risk, influenced by external developments with substantial potential impact on the domestic economy.
Given the above, the Group recognises that unforeseen political events can have negative effects on the Group’s
activities, operating results and position.
The March 2023 developments in the financial markets, particularly in the US but also in Europe to a lesser
extent, have been unprecedented. However, the forceful intervention of the US authorities to pre-empt the risk
of financial instability in the banking system in response to the failures of the Silicon Valley Bank and the
Signature Bank, as well as the Credit Suisse deal brokered by the Swiss government, have reassured the
markets. Following the Credit Suisse deal, the Single Resolution Board, the European Banking Authority and the
ECB Banking Supervision issued a statement welcoming the comprehensive set of actions taken by the Swiss
authorities in order to ensure financial stability and noting that the European banking sector is resilient, with
robust levels of capital and liquidity.
The Group is continuously monitoring the current affairs and the impact of the forecasted macroeconomic
conditions on the Group’s strategy. Where necessary, bespoke solutions are offered to the affected exposures
and close monitoring on those is maintained. Furthermore, the Group includes related events in its stress testing
scenarios in order to gain a better understanding of the potential impact.
5.3
Legal Risk
The Group may, from time to time, become involved in legal or arbitration proceedings which may affect its
operations and results. Litigation risk arises from pending or potential legal proceedings and regulatory
investigations against the Group (Note 39 of the Consolidated Financial Statements for the year ended 31
December 2022). In the event that legal issues are not properly dealt with by the Group, this may result in
financial and/or reputational loss to the Group.
The Group has procedures in place to ensure effective and prompt management of Legal risk including, among
others, the risk arising from regulatory developments, new products and internal policies.
The Legal Services department (LSD) monitors the pending litigation against the Group and assesses the
probability of loss for each legal action against the Group based on International Accounting Standards. It also
estimates the amount of potential loss where it is deemed as probable. Additionally, it reports pending litigation
and latest developments to the EXCO and the Board.
5.4
Technology Risk
Technology risk arises from system downtimes impacting customer service which may be due to inadequate,
failed, or unavailable systems, use of outdated, obsolete and unsupported systems, or systems which do not
fully support the requirements of business.
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5.
5.4
Other principal risks (continued)
Technology Risk (continued)
The Group has in place a Technology strategy designed to support Business strategy and customer centric
view. The strategy includes investments in skills and technology to minimize system downtimes and security
risks, modernization of legacy applications, a risk-based approach to leverage the benefits of Cloud technologies,
and investments in new and innovative applications to support business requirements. The Group implements
a collaborative operating model to implement the technology initiatives that support Business strategy and
Digital Transformation. The Operating Model involves setting up cross-functional teams that combine Technical,
Business and Risk skills for accelerated results. Where necessary, the Group engages with appropriate external
experts to augment capacity and meet peak demand for technical initiatives while always maintaining good
levels of internal skills and capacity.
The Group’s policies, standards, governance and controls undergo ongoing review to ensure continued alignment
with the Group’s Technology strategy, compliance with regulation and effective management of the associated
risks.
5.5
Digital Transformation Risk
Digital transformation risk arises as banking models are rapidly evolving both locally and globally and available
technologies have resulted in the customers’ accelerated shift towards digital channels. Money transmission,
data driven integrated services and Digital Product Sales are also forecast to rapidly evolve in the coming years.
How the Group adapts to these developments could impact the realisation of its market strategies and financial
plans.
In the context of the overall business strategy, the Group assesses and develops its Digital Strategy and
maintains a clear roadmap that provides for migration of transactions to the Digital Channels, full Digital and
Digital Assisted Product Sales, and Self-service banking support services. The Group’s emphasis on the Digital
Strategy is reflected in the Operating Model with a designated Chief Digital Officer supported by staff with the
appropriate skills that work closely with Technology and Control functions to execute the strategy.
The Group’s policies, standards, governance and controls undergo ongoing review to ensure continued alignment
with the Group’s strategy for digital transformation and effective management of the associated risk.
5.6
Information security and cyber risk
Information security and cyber-risk is a significant inherent risk, which could cause a material disruption to the
operations of the Group. The Group’s information systems have been and will continue to be exposed to an
increasing threat of continually evolving cybercrime and data security attacks. Customers and other third parties
to which the Group is significantly exposed, including the Group's service providers (such as data processing
companies to which the Group has outsourced certain services), face similar threats.
Current geopolitical tensions have also led to increased risk of cyber-attack from foreign state actors.
The Group has an internal specialized Information Security team which constantly monitors current and future
cyber security threats (either internal or external, malicious or accidental) and invests in enhanced cyber security
measures and controls to protect, prevent, and appropriately respond against such threats to Group systems
and information.
The Group also collaborates with industry bodies, the National Computer Security Incident Response Team
(CSIRT) and intelligence-sharing working groups to be better equipped with the growing threat from cyber
criminals. In addition, the Group maintains insurance coverage which covers certain aspects of cyber risks, and
it is subject to exclusion of certain terms and conditions.
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5.
5.7
Other Principal Risks (continued)
Regulatory Compliance Risk
The Group conducts its business subject to on-going regulation and the associated regulatory risk, including the
effects of changes in the laws, regulations, policies, voluntary codes of practice and interpretations. Regulatory
compliance risk is the risk of impairment to the organization’s business model, reputation and financial condition
from failure to meet laws and regulations, internal standards and policies, and expectations of key stakeholders
such as shareholders, customers, employees and society. Failure to comply with regulatory framework
requirements could lead to, amongst other things, increased costs for the Group, limitation on BOC PCL’s
capacity to lend and could have a material adverse effect on the business, financial condition, results of
operations and prospects of the Group.
There is strong commitment by the management of the Group for an on-going and transparent dialogue with
the Regulators (joint supervised by the ECB and the CBC and others, such as CySec and CSE). The Regulatory
Steering Group, chaired by the CEO and consisting of executive management, monitors the regulatory agenda,
through the Regulatory Affairs Department, to ensure that all regulatory matters are brought to the attention
of management in a timely manner.
Regulatory compliance risks are identified and assessed using a combination of methods and sources as these
are incorporated in the Group Compliance Policy which sets out the compliance framework that applies within
BOC PCL and its subsidiaries in Cyprus and abroad. It sets out the business and legal environment applicable to
the Group as well as the objectives, principles, and responsibilities for compliance and how these responsibilities
are allocated and carried out at Group and Entity level. Furthermore, this Policy ensures that there are proper
procedures in place for BOC PCL to comply with the requirements of the CBC Internal Governance Directive and
the EBA Guidelines on Internal Governance.
The Compliance Risk Assessment Methodology sets out the principles to assess compliance risks. The
Compliance function identifies and communicates new and/or amended regulations, within the regulatory
compliance universe to the relevant business areas for impact assessment and/or a regulatory gap analysis with
the Compliance function as second line of defence to review and challenge.
Appropriate tools and mechanisms are in place for monitoring, escalating and reporting compliance activities
which, inter alia, include:
˗
˗
˗
˗
˗
˗
˗
The assessment of periodic reports submitted by the network of its compliance liaisons,
The use of aggregated risk measurements such as risk indicators,
The use of reports warranting management attention, documenting material deviations between actual
occurrences and expectations (an exceptions report) or situations requiring resolution (an issues log),
Targeted trade surveillance, observation of procedures, desk reviews and/or interviewing relevant staff,
Conducting periodic onsite/offsite reviews with applicable laws, rules, regulations and standards and
providing recommendations / advise to management on measures to be taken to ensure compliance,
Investigating possible breaches of the compliance policy and regulatory framework and/or conducting
investigations thereof, as requested by competent authorities with the assistance, if deemed necessary,
of experts from within the institution such as experts from the Internal Audit function, Legal Services
Department, Information Security Department or Fraud Risk Management unit.
Investigating and reporting to competent authorities’ incidents of non-compliance with the CBC Directive
within one month of identification and mitigating actions to prevent a recurrence of similar incidents
within two months of identification of the incident.
Regulatory compliance risks are reported promptly to senior management and the management body in
accordance with the guidelines of the CBC Directive.
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5.
5.8
Other Principal Risks (continued)
Insurance risk and re-insurance risk
The Group, through its subsidiaries EuroLife Ltd (‘EuroLife’) and General Insurance of Cyprus Ltd (‘GIC’),
provides life insurance and non-life insurance services, respectively, and is exposed to certain risks specific to
these businesses. Insurance events are unpredictable and the actual number and amount of claims and benefits
will vary from year to year from the estimate established using actuarial and statistical techniques. Insurance
risk therefore is the risk that an insured event under an insurance contract occurs and uncertainty over the
amount and the timing of the resulting claim exists.
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
and reinsurance arrangements are monitored and reviewed to ensure their adequacy as per the reinsurance
policy. In addition, counterparty risk assessment is performed on a frequent basis.
Both EuroLife and GIC perform their annual stress tests (ORSA) which aim to ensure, among others, the
appropriate identification and measurement of risks, an appropriate level of internal capital in relation to each
company’s risk profile, and the application and further development of suitable risk management and internal
control systems.
5.9
Climate Risk
Climate risk is a growing consideration for financial institutions given the increasing effects of climate change
globally and the sharp regulatory focus on addressing the resultant risks. The Group’ s businesses, operations
and assets could be affected by climate-related and environmental (C&E) risks over the short, medium and long
term. The Group is committed to integrate C&E risk considerations into all relevant aspects of the decision-
making, governance, strategy and risk management and has taken the necessary steps to achieve this.
The Group applies the definition used in the Task Force on Climate-related Financial Disclosures (TCFD) for C&E
risks whereby climate-related risks are divided into two major categories: (1) risks related to the transition to
a lower-carbon economy (transition risks) and (2) risks related to the physical impacts of climate change
(physical risks).
˗
˗
Physical risk refers to the financial impact of a changing climate, including more frequent extreme
weather events and gradual changes in climate, as well as of environmental degradation, such as air,
water and land pollution, water stress, biodiversity loss and deforestation. Physical risk is categorised
as “acute” when it arises from extreme events, such as droughts, floods and storms, and “chronic” when
it arises from progressive shifts, such as increasing temperatures, sea-level rises, water stress,
biodiversity loss, land use change, habitat destruction and resource scarcity. This can directly result in,
for example, damage to property or reduced productivity, or indirectly lead to subsequent events, such
as the disruption of supply chains.
Transition risk refers to an institution’s financial loss that can result, directly or indirectly, from the
process of adjustment towards a lower-carbon and more environmentally sustainable economy. This
could be triggered, for example, by a relatively abrupt adoption of climate and environmental policies,
technological progress or changes in market sentiment and preferences.
Accelerating climate change could lead to sooner than anticipated physical risk impacts to the Group and the
wider economy and there is uncertainty in the scale and timing of technology, commercial and regulatory
changes associated with the transition to a low carbon economy.
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5.
5.9
Other Principal Risks (continued)
Climate Risk (continued)
The Group has put in place targets which set transparent ambitions on its climate strategy and decarbonization
of its operations and portfolio aiming to achieve the transition to a net zero economy by 2050. An overall ESG
strategy and working plan is thus in place to facilitate these ambitions and address ECB expectations.
A dedicated ESG team, RMD as well as other resources have been mobilised across the Group and are engaged
in various streams of work such as the measuring of the own and financed emissions, the integration of C&E
risk in the risk management framework and the enhancement of green products offering.
Further information on C&E risks and its risk management is provided in the ESG Disclosures 2022 that form
part of the Group’s Annual Financial Report for 2022, within part A ‘Task Force on Climate-related Financial
Disclosures (TCFD)’.
6.
Emerging Risks
The Group defines emerging risks as new risks or existing risks that may manifest in a different way, with the
potential to threaten the execution of our strategy or operations over a medium-term horizon. The internal and
external risk environment of the Group as well as macro-themes are assessed to identify such emerging risks
that may require escalation and implementation of suitable mitigation actions. Quarterly reporting of emerging
risks to the RC and the EXCO are performed to ensure all significant risks are escalated effectively for discussion
and action. Currently, the main emerging risks considered by the Group are the following:
6.1
Banking industry transformation risks
The rapid and increasing pace of change of the banking industry landscape, from new fintech competitors to the
increase in sophistication of cyber threats, present a challenge to the Group’s operations, client-base and growth
potential. The Group is on a digital transformation journey through investment in IT, training, automation,
monitoring of industry standards and continual assessment of new initiatives.
6.2
Geopolitical, macroeconomic and environmental risks
Global and regional tensions have heightened with the potential to further deteriorate, impacting the economic
stability of the region. Monetary and fiscal policy changes as seen by the increase in interest rates by central
banks across the globe can have significant and far-reaching consequences for our clients and the Group.
Continuous monitoring of geopolitical and economic developments along with scenario analyses help the Group
assess risk appetite on a rolling basis in light of the changing factors.
6.3
Regulatory risks
Failure to properly and timely align with the ever-changing regulatory environment presents an emerging risk
to the Group. New and existing regulations impacting the Group are Basel IV, ESG and climate risk related
regulation, DORA (Digital Operational Resilience Act) and IRRBB (interest rate risk in the banking book).
Proactive planning, project management as well as training will help meet future regulatory requirements. The
Group continues to actively engage with regulatory and industry bodies to stay abreast of changes and to be
able to help drive the industry reaction.
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7.
Capital management
The primary objective of the Group’s capital management is to ensure compliance with the relevant regulatory
capital requirements and to maintain healthy capital adequacy ratios to cover the risks of its business and
support its strategy and maximise shareholders’ value.
The capital adequacy framework, as in force, was incorporated through the Capital Requirements Regulation
(CRR) and Capital Requirements Directive (CRD) which came into effect on 1 January 2014 with certain specified
provisions implemented gradually. The CRR and CRD 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. It is directly applicable in all EU member states. CRD
governs access to deposit-taking activities and internal governance arrangements including remuneration, board
composition and transparency. Unlike the CRR, member states were required to transpose the CRD into national
law and national regulators were allowed to impose additional capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (Regulation (EU) 2019/876 (CRR II) and Directive
(EU) 2019/878 (CRD V)) came into force. As an amending regulation, the existing provisions of CRR apply,
unless they are amended by CRR II. Certain provisions took immediate effect (primarily relating to Minimum
Requirement for Own Funds and Eligible Liabilities (MREL)), but most changes became effective as of June 2021.
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 (as defined in the CRR) and a Net Stable Funding Ratio (NSFR).
The amendments that came into effect on 28 June 2021 are in addition to those introduced in June 2020 through
Regulation (EU) 2020/873, which among other, brought forward certain CRR II changes in light of the COVID-
19 pandemic. The main adjustments of Regulation (EU) 2020/873 that had an impact on the Group’s capital
ratio relate to the acceleration of the implementation of the new SME discount factor (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 (phasing in at 25% in 2022) and advancing the application of prudential treatment of
software assets as amended by CRR II (which came into force in December 2020). In addition, Regulation (EU)
2020/873 introduced a 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 from the third quarter of 2020. This
temporary treatment was in effect till 31 December 2022.
In October 2021, the European Commission adopted legislative proposals for further amendments to CRR, CRD
and the BRRD (the ‘2021 Banking Package’). Amongst other things, the 2021 Banking Package would implement
certain elements of Basel III that have not yet been transposed into EU law. The 2021 Banking Package includes:
a proposal for a Regulation (sometimes known as ‘CRR III’) to make amendments to CRR with regard
to (amongst other things) requirements on credit risk, credit valuation adjustment risk, operational
risk, market risk and the output floor;
a proposal for a Directive (sometimes known as ‘CRD VI’) to make amendments to CRD with regard
to (amongst other things) requirements on supervisory powers, sanctions, third-country branches and
ESG risks; and
a proposal for a Regulation to make amendments to CRR and the BRRD with regard to (amongst other
things) requirements on the prudential treatment of G-SII groups with a multiple point of entry
resolution strategy and a methodology for the indirect subscription of instruments eligible for meeting
the MREL requirements.
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7.
Capital management (continued)
The 2021 Banking Package is subject to amendment in the course of the EU’s legislative process; and its scope
and terms may change prior to its implementation. In addition, in the case of the proposed amendments to CRD
and the BRRD, their terms and effect will depend, in part, on how they are transposed in each member state.
The European Council's proposal on CRR and CRD was published on 8 November 2022. During 2023, the
finalisation of the European Parliament’s position is expected, which will be followed by the trilogue process that
will eventually result in the final versions of the directives and regulations. It is expected that the 2021 Banking
Package will enter into force on 1 January 2025; and certain measures are expected to be subject to transitional
arrangements or to be phased in over time.
The CET1 ratio of the Group as at 31 December 2022 stands at 15.5% and the Total Capital ratio at 20.6% on
a transitional basis. The ratios as at 31 December 2022 include profits for the year ended 31 December 2022.
Minimum CET1 Regulatory Capital Requirements
Pillar I – CET1 Requirement
Pillar II – CET1 Requirement
Capital Conservation Buffer (CCB)*
Other Systematically Important Institutions (O-SII) Buffer
Countercyclical Buffer (CcyB)
Minimum CET1 Regulatory Requirements
Minimum Total Capital Regulatory Requirements
Pillar I – Total Capital Requirement
Pillar II – Total Capital Requirement
Capital Conservation Buffer (CCB)*
Other Systematically Important Institutions (O-SII) Buffer
Countercyclical Buffer (CcyB)
2022
4.50%
1.83%
2.50%
1.25%
0.02%
10.10%
2022
8.00%
3.26%
2.50%
1.25%
0.02%
2021
4.50%
1.69%
2.50%
1.00%
0.00
9.69%
2021
8.00%
3.00%
2.50%
1.00%
0.00
Minimum Total Capital Regulatory Requirements
15.03%
14.50%
* Fully phased in as of 1 January 2019
The minimum Pillar I total capital requirement ratio of 8.00% may be met, in addition to the 4.50% CET1
requirement, with up to 1.50% by AT1 capital and with up to 2.00% by T2 capital.
The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital
requirements (Pillar II add-ons). Applicable Regulation allows a part of the said Pillar II Requirements (P2R) to
be met also with AT1 and T2 capital and does not require solely the use of CET1.
In the context of the annual SREP conducted by the ECB in 2021 and based on the final 2021 SREP decision
received in February 2022, effective from 1 March 2022, the P2R was set at 3.26%, compared to the previous
level of 3.00%. The additional P2R add-on of 0.26% relates to ECB’s prudential provisioning expectations as per
the 2018 ECB Addendum and subsequent ECB announcements and press release in July 2018 and August 2019.
This component of the P2R add-on takes into consideration Project Helix 3. It is dynamic and can vary on the
basis of in-scope NPEs and level of provisioning. The ECB has also provided revised lower non-public guidance
for an additional Pillar II CET1 buffer (P2G).
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7.
Capital management (continued)
Following the annual SREP performed by the ECB in 2022 and based on the final SREP decision received in
December 2022 effective from 1 January 2023, the P2R has been revised to 3.08%, compared to the previous
level of 3.26%. The revised P2R includes a revised P2R add-on of 0.33% relating to ECB’s prudential provisioning
expectations. When disregarding the P2R II add-on relating to ECB’s prudential provisioning expectations, the
P2R is reduced from 3.00% to 2.75%. As a result, the Group’s minimum phased in CET1 capital ratio and Total
Capital ratio requirements were reduced when disregarding the phasing in of the O-SII Buffer. The Group’s
minimum phased-in CET1 capital ratio requirement was set at 10.25%, comprising a 4.50% Pillar I requirement,
a P2R of 1.73%, the CCB of 2.50%, the O-SII Buffer of 1.50% (fully phased in on 1 January 2023) and the CcyB
of 0.02%. The Group’s minimum phased-in Total Capital requirement was set at 15.10%, comprising an 8.00%
Pillar I requirement, of which up to 1.50% can be in the form of AT1 capital and up to 2.00% in the form of T2
capital, a P2R of 3.08%, the CCB of 2.50%,the O-SII Buffer of 1.50% and the CcyB of 0.02%. The ECB has also
maintained the P2G unchanged.
The Group is subject to a 3% Pillar I Leverage Ratio requirement.
The above minimum ratios apply for both BOC PCL and the Group.
The capital position of the Group and BOC PCL as at 31 December 2022 exceeds both their Pillar I and their
Pillar II add-on capital requirements. However, the Pillar II add-on capital requirements are a point-in-time
assessment and therefore are subject to change over time.
The CBC, in accordance with the Macroprudential Oversight of Institutions Law of 2015, sets, on a quarterly
basis, the CcyB rates in accordance with the methodology described in this law. The CBC has set the level of
the CcyB rate for risk weighted exposures in Cyprus at 0.00% for the years 2021 and 2022. The CcyB for the
Group as at 31 December 2022 has been calculated at c.0.02%.
On 30 November 2022, the CBC, following the revised methodology described in its macroprudential policy,
decided to increase the countercyclical buffer rate from 0.00% to 0.50% of the total risk exposure amount in
Cyprus of each licensed credit institution incorporated in Cyprus. The new rate of 0.50% must be observed as
from 30 November 2023. Based on the above, the CcyB for the Group is expected to increase.
In accordance with the provisions of this law, the CBC is also the responsible authority for the designation of
banks that are Other Systemically Important Institutions (O-SIIs) and for the setting of the O-SII Buffer
requirement for these systemically important banks. BOC PCL has been designated as an O-SII and since
November 2021 the O-SII buffer has been set to 1.50%. This buffer is being phased in gradually, having started
from 1 January 2019 at 0.50%. The O-SII buffer as at 31 December 2022 stood at 1.25% and has been fully
phased-in on 1 January 2023.
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7.
Capital management (continued)
The EBA final guidelines on SREP and supervisory stress testing and the Single Supervisory Mechanism’s (SSM)
2018 SREP methodology provide that the own funds held for the purposes of Pillar II Guidance (P2G) cannot be
used to meet any other capital requirements (Pillar I requirement, P2R or the combined buffer requirement),
and therefore cannot be used twice.
The capital position of the Group and BOC PCL as at the reporting date (after applying the transitional
arrangements) is presented below:
Regulatory capital
Transitional Common Equity Tier 1
(CET1) 3
Transitional Additional Tier 1 capital
(AT1)
Tier 2 capital (T2)
Transitional
Capital
Risk weighted assets – credit risk4
Risk weighted assets – market risk
Risk weighted assets – operational risk
Regulatory
Total
Group
BOC PCL
31 December
20221
€000
31 December
20212
€000
31 December
20221
€000
31 December
20212
€000
1,566,360
1,617,445
1,531,366
1,592,455
220,000
300,000
220,000
300,000
220,000
220,000
300,000
300,000
2,086,360
2,137,445
2,051,366
2,112,455
9,104,933
-
1,011,639
9,678,758
-
1,007,438
9,150,831
-
997,720
9,697,351
-
995,450
Total risk weighted assets
10,116,572
10,686,196
10,148,551
10,692,801
Transitional Common Equity Tier 1
ratio
Transitional Total Capital ratio
Leverage ratio
%
%
%
%
15.5
20.6
7.1
15.1
20.0
7.4
15.1
20.2
7.0
14.9
19.8
7.3
1 Includes profits for the year ended 31 December 2022.
2 As per 2021 Annual Financial Report for the year ended December 2021.
3 CET1 includes regulatory deductions, comprising, amongst others, intangible assets amounting to €30,421 thousand for the Group and €25,445 thousand for BOC PCL as at 31
December 2022 (31 December 2021: €30,032 thousand for the Group and €26,452 thousand for BOC PCL). As at 31 December 2022 an amount of €12,934 thousand is considered
prudently valued for CRR purposes and it is not deducted from CET1 (31 December 2021: €15,394 thousand).
4 Includes Credit Valuation Adjustments (CVA).
The capital ratios of the Group and BOC PCL as at the reporting date on a fully loaded basis are presented
below:
Fully loaded
Common Equity Tier 1 ratio
Total capital ratio
Leverage ratio
Group
BOC PCL
31 December
20221,2
31 December
20211,3
31 December
20221
31 December
20211,3
%
%
%
%
14.7
19.9
6.8
13.7
18.7
6.8
14.3
19.5
6.6
13.5
18.4
6.7
1.IFRS 9 and application of the temporary treatment of certain FVOCI instruments in accordance with Article 468 of CRR fully loaded.
2. Includes profits for the year ended 31 December 2022.
3.As per 2021 Annual Financial Report for the year ended December 2021.
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7.
Capital management (continued)
During the year ended 31 December 2022 CET1 ratio was negatively affected mainly by the phasing in of IFRS
9 and other transitional adjustments on 1 January 2022, provisions and impairments, the cost of VEP, the
payment of AT1 coupon, the movement in the fair value through OCI reserves and other movements and was
positively affected by pre-provision income and the decrease in risk-weighted assets mainly as a result of the
completion of Project Helix 3. As a result, the CET1 ratio has increased by approximately 30 bps during the year
ended 31 December 2022.
The ECB, as part of its supervisory role, 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 which will
decrease based on BOC PCL’s progress in disposing the properties in scope. As a result of the prudential charge
deducted from own funds as at 31 December 2022, the impact on the Group’s CET1 ratio is 26 bps.
In April 2021, Bank of Cyprus Holdings Public Limited Company (‘BOCH’) issued €300 million unsecured and
subordinated Tier 2 Capital Notes (the ‘New T2 Notes’) and immediately after, BOCH and BOC PCL entered into
an agreement pursuant to which BOCH on-lent to BOC PCL the entire €300 million proceeds of the issue of the
New T2 Notes on terms substantially identical to the terms and conditions of the New T2 Notes. At the same
time, BOC PCL invited the holders of its €250 million Fixed Rate Reset Tier 2 Capital Notes due January 2027
(the ‘Old T2 Notes’) to tender their Old T2 Notes for purchase by BOC PCL, after which Old T2 Notes of €43
million remained outstanding.
At a meeting held on 30 November 2021, the Board of Directors resolved to exercise BOC PCL’s option to redeem
the remaining nominal amount outstanding of the Old T2 Notes. The outstanding Old T2 Notes were redeemed
on 19 January 2022.
Transitional arrangements
The Group has elected in prior years to apply the ‘static-dynamic’ approach in relation to the transitional
arrangements for the initial application of IFRS 9 for regulatory capital purposes, where the impact on the
impairment amount from the initial application of IFRS 9 on the capital ratios is phased in gradually. The ‘static-
dynamic’ approach allows for recalculation of the transitional adjustment periodically on Stage 1 and Stage 2
loans, to reflect the change of the ECL provisions within the transition period. The Stage 3 ECL remains static
over the transition period as per the impact upon initial recognition.
The amount added each year for the ‘static component’ 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, with the impact being fully phased-in
(100%) by 1 January 2023. The cumulative impact on the capital position as at 31 December 2021 was 50%
and as at 31 December 2022 at 75%, with the impact being fully phased-in (100%) by 1 January 2023.
Following the June 2020 amendments to the CRR in relation to the dynamic component a 100% add back of
IFRS 9 provisions was allowed for the years 2020 and 2021, reducing to 75% in 2022, to 50% in 2023 and to
25% in 2024. This will be fully phased in (100%) by 1 January 2025. The calculation at each reporting period is
against Stage 1 and Stage 2 provisions as at 1 January 2020, instead of 1 January 2018.
In relation to the temporary treatment of unrealized gains and losses for certain exposures measured at fair
value through other comprehensive income, Regulation EU 2020/873 allows institutions to remove from their
CET1 the amount of unrealized gains and losses accumulated since 31 December 2019, excluding those of
financial assets that are credit-impaired. The relevant amount was removed at a scaling factor of 100% from
January to December 2020, reduced to 70% from January to December 2021 and to 40% from January to
December 2022. The Group applies the temporary treatment from the third quarter of 2020.
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7.
Capital management (continued)
Capital requirements of subsidiaries
The insurance subsidiaries of the Group, the General Insurance of Cyprus Ltd and Eurolife Ltd, comply with the
requirements of the Superintendent of Insurance including the minimum solvency ratio. The regulated
investment firm (CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd (CISCO), complies
with the minimum capital adequacy ratio requirements. From 2021 the new prudential regime for Investment
Firms (‘IFs’) as per the Investment Firm Regulation (EU) 2019/2033 (‘IFR’) on the prudential requirements of
IFs and the Investment Firm Directive (EU) 2019/2034 (‘IFD’) on the prudential supervision of IFs came into
effect. Under the new regime CISCO has been classified as Non-Systemic ‘Class 2’ company and is subject to
the new IFR/IFD regime in full. The regulated UCITS management company of the Group, BOC Asset
Management Ltd, complied with the regulatory capital requirements of the Cyprus Securities & Exchange
Commission (CySEC) laws and regulations. In February 2023, the activities of BOC Asset Management Ltd were
absorbed by CISCO and BOC Asset Management Ltd was dissolved. The payment services subsidiary of the
Group, JCC Payment Services Ltd, complies with the regulatory capital requirements.
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 was required to be transposed into
national law. BRRD II was transposed and implemented in Cyprus law in early May 2021. 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 2023, BOC PCL received notification from the SRB and CBC of the final decision for the binding
MREL for BOC PCL, determined as the preferred resolution point of entry. As per the decision, the final MREL
requirement is set at 24.35% of risk weighted assets and 5.91% of Leverage Ratio Exposure (LRE) (as defined
in the CRR) and must be met by 31 December 2025. Furthermore, BOC PCL must comply since 1 January 2022
with an interim requirement of 14.94% of risk weighted assets and 5.91% of LRE. The own funds used by BOC
PCL to meet the Combined Buffer Requirement (CBR) are not eligible to meet its MREL requirements expressed
in terms of risk weighted assets. BOC PCL must comply with the MREL requirement at the consolidated level,
comprising BOC PCL and its subsidiaries. The decision is subject to annual review by the competent authorities,
updated also as changes in capital requirements become effective.
As at 31 December 2022, the MREL ratio calculated according to the SRB’s eligibility criteria currently in effect,
and based on internal estimate, stood at 21.4% of RWAs and at 10.1% of LRE. As at 1 January 2023, the MREL
ratio stood at 20.5% of RWAs and 9.8% of LRE, calculated on the same basis. The ratios as at 31 December
2022 and 1 January 2023, include profits for the year ended 31 December 2022. The MREL ratio expressed as
a percentage of RWAs does not include capital used to meet the CBR amount, which stood at 3.77% as at 31
December 2022 and increased to 4.02% on 1 January 2023 and will further increase on 30 November 2023
following increase in CcyB from 0.00% to 0.50% of the total risk exposure amounts in Cyprus as announced by
the CBC.
BOC PCL will continue to evaluate opportunities to advance the build-up of its MREL liabilities.
75
ESG DISCLOSURES
2022
BANK OF CYPRUS PUBLIC COMPANY LIMITED
ESG Disclosures
Annual Financial Report 2022
The ESG Disclosures Report relates to the Company and together with its subsidiaries the Group.
PART A:
Task Force on Climate-related Financial Disclosures (TCFD)
Climate change is one of the greatest challenges. The global focus, in 2022, was on environmental-related issues
with events such as Conference of Parties (COP) 27 on climate change and COP 15 on nature and biodiversity,
keeping these topics to the forefront of public and political discourse. As part of its vision to be the leading
financial hub in Cyprus, the Group is determined to lead the transition of Cyprus to a sustainable future. The
Group systematically moves forward to the alignment with sustainable banking and continues to embed
Environmental, Social and Governance (‘ESG’) in its infrastructure, strategies and policies. The Group’s
commitment to integrate climate risk considerations into all relevant aspects of the decision-making, governance,
strategy and risk management highlights the Group’s aspiration to be a frontrunner in the climate space in Cyprus.
This is the first TCFD report published by the Company, presenting the current activities and future plans in the
climate field.
TCFD Recommendations
Governance
Board’s oversight of climate-related risks and opportunities
Management’s role in assessing and managing climate-related
risks and opportunities
Climate-related risks and opportunities (short, medium and long
term)
Strategy
Impact of climate-related risks and opportunities on business,
strategy and financial planning
Resilience of strategy, considering different climate-related
scenarios, including a 2°C or lower scenario
Processes for identifying and assessing climate-related risks
Risk Management
Processes for managing climate-related risks
Integration of processes for identifying, assessing and managing
climate-related risks into overall risk management
Pages in our
disclosures
78–81,
83-84, 101
79, 82,
84-85
86-99
94-97,
99-101
88-89,
99-101,
106-107
92-98
99
99-102
Metrics to assess climate-related risks and opportunities in line
with strategy and risk management process
102-110
Metrics and targets
Scope 1, 2 and 3 GHG emissions and the related risks
102-110
Targets used to manage climate-related risks and opportunities
and performance against targets
102-110
77
BANK OF CYPRUS PUBLIC COMPANY LIMITED
ESG Disclosures
Annual Financial Report 2022
Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar I - Governance
The Group considers climate action as one of its key priorities. To reflect this strong commitment, climate-related
risks and opportunities are integrated into the governance structure. The Group is committed to high standards
of governance that are consistent with regulatory expectations and evolving best practices.
Organisational structure of the governance
The following climate change and net zero-related governance diagram illustrates how the Group’s governance
is currently structured.
BOC PCL’s governance structure comprises of the following statutory bodies:
The Board of Directors (the ‘Board’)
Board Committees
Senior Management Committees
78
BANK OF CYPRUS PUBLIC COMPANY LIMITED
ESG Disclosures
Annual Financial Report 2022
Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar I - Governance (continued)
Organisational structure of the governance (continued)
79
BANK OF CYPRUS PUBLIC COMPANY LIMITED
ESG Disclosures
Annual Financial Report 2022
Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar I - Governance (continued)
Board of Directors and Board Committees
Oversight and approval of Group’s climate strategy and how it manages climate-related and environmental (‘C&E’)
risks and opportunities.
Board
Committee
Role and Responsibilities
Risk Committee
The Risk Committee (‘RC’) has been delegated authority by the Board and consists of 3 non-
executive members of the Board, who possess appropriate knowledge, skills and expertise to
understand and monitor the strategy regarding the risk appetite of the Group.
The main purpose of the RC is to review, on behalf of the Board, the aggregate Risk Profile of
the Group, including performance against Risk Appetite for all risk types and ensure both Risk
Profile and Risk Appetite remain appropriate.
The RC is responsible for the following:
Identify, assess, control and monitor financial/economic risks and non-financial risks
(including operational, technological, tax, legal, reputational, and compliance, and
ESG including C&E risks) which the Group faces in cooperation with the responsible
Board Committees.
Ensure that the Group's overall Risk Profile and Risk Appetite remain appropriate given
the evolving external environment, the key issues and themes impacting the Group
and the internal control environment.
Ensure effective and on-going monitoring and review of the Group's management or
mitigation of risk, including the Group's control processes, training and culture,
information and communication systems and processes for monitoring and reviewing
their continuing effectiveness.
Report to the Board any current or emerging topics relating to ESG risks and matters,
including C&E risks and matters, that are expected to materially affect the business,
operations, performance, or public image of the Group or are otherwise pertinent to
it and its stakeholders and if appropriate, detail actions taken in relation to the same.
Determine the principles that should govern the management of risks (including ESG
and C&E risks), through the establishment of appropriate Risk Policies.
Review and discuss with management the overall ESG strategy including the strategy
to manage C&E risks, and whether the Company should initiate any additional actions
or engage with any stakeholders regarding potential key ESG matters, including C&E
matters.
Review and monitor key enterprise wide ESG including C&E metrics, targets, KPIs,
KRIs and related goals and monitor the progress towards achieving targets and
benchmarks.
80
BANK OF CYPRUS PUBLIC COMPANY LIMITED
ESG Disclosures
Annual Financial Report 2022
Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar I - Governance (continued)
Board of Directors and Board Committees (continued)
Board
Committee
Role and Responsibilities
The Nominations and Corporate Governance Committee (‘NCGC’) has been delegated authority by the
Board and consists of 4 non-executive members of the Board, who possess appropriate knowledge,
skills and expertise to provide oversight to the Group’s sustainability strategy aimed at achieving
present and future economic prosperity, environmental integrity, climate stability and social equity
for the Group and its stakeholders.
Nominations
and Corporate
Governance
Committee
The NCGC is responsible for the following:
Develop a strategy for ESG, including C&E matters, focusing on Environmental, Climate,
Ethical, Social, and Economic pillars and ensure it is embedded throughout the operations of
the Group.
Advise, support and guide the Chief Executive Officer (‘CEO’) and Executive Management
Team in formulating and implementing a business strategy geared to the sustainable
development of the Group taking into account ESG, including C&E impacts.
Oversee the Sustainability Committee’s (‘SC') implementation and progress of the ESG
Human
Resources and
Remuneration
Committee
Audit
Committee
working plan.
Review the institution’s response and plan of action to the objectives set out under
international agreements.
Review and approve the ESG targets and KPIs, including C&E targets and KPIs, and monitor
their performance.
Review and approve the non-financial disclosures presented by the SC.
Review and approve the ESG and Environmental Policy and Sustainable Finance Framework
which enables BOCH and/or BOC PCL to issue Green/Social or Sustainable bonds.
The Human Resources and Remuneration Committee (‘HRRC’) has been delegated authority by the
Board and consists of 3 non-executive members of the Board, who possess appropriate knowledge,
skills and expertise to oversee the implementation of Strategic HR initiatives which promote and are
objectives.
aligned
ambition,
strategy
Group’s
with
ESG
and
the
The HRRC reviews at least annually the appropriate structure of the remuneration system and whether
the total amount of variable compensation has been set in accordance with the Remuneration
Framework of the Central Bank Directive on Governance. Therefore, any enhancements to the
Remuneration Policy to incorporate ESG and climate criteria are approved by the HRRC.
The Audit Committee (‘AC’) has been delegated authority by the Board and consists of 3 non-executive
members of the Board, who possess appropriate knowledge, skills and expertise to assess the
soundness of the methodologies and policies that the management of the Group uses to develop ESG,
including C&E metrics and other disclosures and to assess the key vendors’ plans about sustainability.
The AC is responsible for the following:
Ensure the ESG frameworks/standards, including C&E frameworks/standards, used are
proper and relevant climate-related financial disclosures are investor grade.
Consider materiality in terms of how ESG issues, including C&E issues, impact the Group’s
financial performance and ability to create long-term value (Financial materiality) and how
the Group’s actions impact people and the planet (Social materiality).
Review material public reporting disclosures with respect to ESG, including C&E matters and
discuss with management the Group’s engagement with stakeholders on key ESG matters,
including C&E matters, including in response to any proposals or other concerns that have
been submitted to BOCH and/or BOC PCL or the Board.
Ensure that Internal audit incorporates ESG, including C&E risks, in its Risk and Audit
Universe (which comprises the auditable areas as assessed according to the primary risks
which may impair their functionality).
81
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ESG Disclosures
Annual Financial Report 2022
Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar I - Governance (continued)
Management Committees
Oversight and responsibility for providing strategic direction and implementation regarding climate-related goals,
risks and disclosures.
Management
Committee
Role and Responsibilities
Sustainability
Committee
Executive
Committee
(‘EXCO’)
The SC is an executive level committee chaired by the CEO and has as a primary role the oversight of
the ESG agenda of the Group aiming to lead the Group towards a cleaner, fairer, healthier, and safer
world. This will be achieved by helping its customers manage risks in a long-term sustainable and
equitable way and aims for the Group to be an employer of choice in Cyprus.
The SC is responsible for the following:
Monitor and review the development of the Group's ESG strategy for managing ESG risks, including
C&E risks.
Oversee the implementation of the Group's ESG & Climate strategy.
Review the institution’s response and plan of action to the objectives set out under international
agreements.
Review ESG targets and KPIs, including C&E targets and KPIs.
Review the incorporation of ESG including C&E targets, KPIs and KRIs in the business strategy.
Monitor progress against the Group’s ESG working plan including the implementation of the ECB
Guide on C&E risks.
Oversee the degree of the Group’s alignment with regulatory ESG including C&E related guidance,
rules (such as EU Taxonomy, SFDR, NFRD and TCFD) and ECB expectations.
Oversee the establishment of environmentally friendly products and Sustainable Finance
Framework.
Review policies relating to ESG matters and risks, including C&E matters and risks, to ensure that
they are in line with the needs of the Group and the Group’s ESG strategy and that they comply
with applicable legal and regulatory requirements.
Review non-financial disclosures including but not limited to the TCFD, relevant ESG disclosures in
Pillar III and the annual Sustainability Report.
Monitor the external ESG and C&E trends affecting the formulation of ESG policies, strategies and
objectives.
The EXCO is responsible for the following:
Consider the overall financial performance and progress of the Group per line of business, including,
but not limited to, the Group’s capital and liquidity position, the Group profitability, the NPE and the
REMU portfolio.
Consider the market conditions and strategic initiatives.
Monitor the recovery and early warning indicators and assess the need to escalate for further action
to the RC and the Board.
Consider the Risk Report.
Consider and approve budgets, business strategies/risk strategy to be presented to the Board for
approval.
Consider and approve the Group’s Risk Appetite Statement to be presented to the RC and Board for
approval.
Consider and approve the Group’s Financial Plan to be presented to the RC and the Board for
approval.
Consider the Compliance Reports/Matters and progress.
Consider the Internal Audit Reports/Matters and progress.
Consider the HR/People Management/Matters and progress.
Consider the Corporate Affairs Report/Matters and progress.
Approve all matters escalated to EXCO within its delegated authorities and/or recommend matters
requiring escalation to the Board.
Consider all other matters escalated for discussion by any member of the EXCO or any other
Committee/Forum.
Monitor the Board and Board Committees pending decision lists.
Note the minutes of the Acquisition & Disposal Committee (ADC), Group Asset & Liability Committee
(ALCO), the Regulatory Steering Group (RSG) and the Business Development Committee (BDC).
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar I - Governance (continued)
Board Oversight
The Board has ultimate oversight of the identification, assessment and integration of C&E risks and opportunities
throughout the organisation. The Board is informed about the performance of the targets as well as the progress
of the ESG working plan through NCGC and RC regular update.
The Terms of Reference of each committee dictate the responsibilities regarding ESG matters, including C&E
matters. All C&E matters that are submitted to the Board Committees are in the form of formal documentation
describing clearly the purpose and scope of the paper, the methodology applied, any considerations conducted
during the process and the conclusions/results reached. The papers are presented to the Board Committees by
the responsible division/department. The relevant Board Committee enquires and challenges the responsible
division/department in order to approve the relevant paper.
The Group has compiled in 2022 an ESG working plan which is monitored by Investor Relations & ESG Department
(‘IR&ESG’), Risk Management Division (‘RMD'), the SC and ultimately by NCGC and RC. The ESG working plan is
structured in workstreams which are designed to articulate delivery of Group’s ESG strategic objectives and are
aligned with ECB expectations, LSE Disclosure requirements and other regulatory disclosure requirements. Each
workstream is associated with specific activities designed to meet relevant reporting and regulatory requirements
and achieve the Group’s targets and objectives. For the successful delivery of the Group’s ESG strategic objectives
the Group has formed an ESG working group comprising of experts from various departments assigned with
specific activities under the ESG working plan. Each activity completed by the ESG working group, is reviewed by
the IR&ESG and RMD. The progress, status and output of activities is communicated to SC, as it has the
responsibility for the oversight of all ESG activities and SC recommends output for activities relating to ESG policy,
strategy and disclosures to EXCO for approval (except those activities relating to ESG and C&E risks). Following
EXCO approval those activities are recommended to NCGC for approval (except for those activities relating to
ESG and C&E risks).
Specifically, the process through which the Board Committees are informed on environmental and climate-related
issues is presented below:
SC reviews policies relating to ESG matters, including C&E matters, to ensure that they are in line with
the needs of the Group and the Group’s ESG strategy and that they comply with applicable legal and
regulatory requirements. The SC recommends approval of policies to EXCO (excluding ESG and C&E risks
related policies). Following EXCO approval, the policies relating to ESG including C&E matters (excluding
ESG and C&E risks related policies) are recommended to NCGC for approval.
SC discusses and advises the RMD regarding ESG and C&E risks related matters and policies, such as
ESG and C&E risks identification, quantification, materiality assessment and establishment of ESG and
C&E criteria in the loan origination process. The RMD then submits to the RC for approval the ESG and
C&E risks related matters and policies, also notifying the EXCO.
SC reviews the institution’s response and plan of action towards the objectives set out under international
agreements and makes recommendation of the plan of actions for approval to the EXCO. Following EXCO
approval and recommendation, the plan of actions is submitted to NCGC for approval.
SC monitors and reviews the development of the Group's ESG strategy for managing ESG, including C&E
risks, and recommends to EXCO for approval. Following EXCO approval and recommendation, it is
submitted to NCGC for approval.
SC reviews BOC PCL’s annual non-financial disclosures including, but not limited to the TCFD, relevant
ESG disclosures in Pillar III and the annual Sustainability Report and recommends to NCGC for approval,
also notifying the EXCO.
SC reports to the EXCO. The NCGC and RC are updated of the progress of ESG working plan on a regular
basis.
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar I - Governance (continued)
Board Oversight (continued)
The NCGC was informed about C&E matters in March 2022 when it received an update relating to the ESG agenda,
decarbonisation strategy for Scope 1 and Scope 2 greenhouse gas (‘GHG’) emissions as well as data gap analysis.
NCGC approved the Corporate Sustainability report of 2021, at the end of June 2022. In November 2022, the
NCGC approved the decarbonisation strategy relating to Scope 1 and Scope 2 GHG emissions as well as the
compilation of a comprehensive ESG working plan. Following the compilation and approval of the ESG working
plan, the implementation of which is monitored by the SC, the NCGC will monitor progress of the ESG working
plan and C&E issues on a quarterly basis. In 2022, the RC discussed and approved the risk identification and
materiality assessment of the Group. In addition, it was updated on the progress of the ESG agenda twice during
2022. Following the compilation and approval of the ESG working plan, the implementation of which is monitored
by the SC, the RC will monitor progress of the ESG working plan and C&E issues on a quarterly basis.
Management Oversight
The Group’s management, led by the CEO, consists of executives who have many years of experience and
extensive knowledge of the modern banking sector. The governance structure is flexible and functional in order
to serve in the best possible way, shareholders and customers.
The CEO is responsible for implementing the enterprise climate strategy (a pillar within the ESG strategy).
In 2021, the Group formed the executive SC whose members, working together, take a coordinated enterprise
approach to accelerate the Group’s climate ambitions, targets and public engagement, working with a broad set
of Group leaders to ensure full alignment and coordination on our climate strategy and actions.
The processes in which the EXCO and SC are involved in regards to the decisions taken on climate and
environmental matters has been described in ‘Board Oversight’ and ‘Management Committees’ sections above.
Following the compilation of the ESG strategy in 2021 and the ESG working plan in 2022, specific accountabilities
are assigned to the Group’s Executives and Directors. The C&E responsibilities assigned to key Executives and
Directors of the Group are summarised in the table below:
Responsible
person
Chief Executive
Officer
Executive Director
Finance & Legacy
Chief Risk Officer
C&E related responsibilities
The ‘CEO’ governs the sustainability performance of the Group, driving focus on ESG and
climate stewardship and tracking progress made across the business to meet the Group’s ESG
and climate ambitions through the long-term ESG working plan. The CEO is involved in the
identification of sustainable finance growth opportunities for the Group and promoting the
development of these in tackling climate change.
The Executive Director Finance & Legacy is responsible for the successful integration of ESG
into the Group’s core business operations, in cooperation with business lines Directors, and
long-term business strategy as well as the oversight of the progress of the ESG working plan
for the implementation of ESG and climate strategy and Sustainability reporting. In addition,
the Executive Director Finance & Legacy is responsible for the oversight of the estimation of
Scope 1, Scope 2 and Scope 3 GHG emissions of the Group and the establishment of C&E
decarbonisation targets and strategy, in cooperation with Deputy Chief Executive Officer and
Chief Risk Officer.
The Chief Risk Officer is responsible and accountable for the process of effectively managing
C&E risks of the Group. This includes the responsibility of overseeing the implementation of
the ESG working plan which supports the C&E risk identification, measurement, assessment,
stress-testing and limit setting, as well as the supporting governance. The role further
encompasses the responsibility of reviewing risk appetite and C&E risk appetite metrics.
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar I - Governance (continued)
Management Oversight (continued)
Investor Relations and ESG Department (‘IR&ESG’)
The Group’s IR&ESG department is developing and implementing the ESG and climate Strategy. The IR&ESG
main responsibilities are to:
-
-
-
-
-
-
-
compile the ESG working plan and monitor its progress;
develop the action plan for the implementation of the ESG and climate strategy;
establish the ESG and climate targets and KPIs and monitor their progress;
prepare ESG and climate-related reporting;
coordinate the activities and deadlines of the ESG Working Group;
review in cooperation with RMD the activities completed by the ESG Working Group; and
report to the SC in frequent intervals and Board Committees in line with the Terms of Reference.
Risk Management Division:
The RMD is responsible for the identification, quantification and monitoring of ESG risks, including C&E risks, for
own operations and clients. The main responsibilities are to:
-
-
-
-
-
-
incorporate ESG risks, including C&E risks, in the Risk Management Framework, policies and
procedures;
incorporate ESG and climate criteria in the loan origination process;
review in cooperation with IR&ESG the activities completed by the ESG Working Group;
comply with ECB guide on C&E risks;
establish the ESG and climate targets and KPIs in cooperation with IR&ESG; and
establish the C&E Key Risk Indicators (KRIs) through the ESG and climate targets and KPIs set.
The Executive Director of Finance & Legacy and the Chief Risk Officer monitor the progress of the ESG working
plan on a bi-weekly basis.
Remuneration policy
The Group has taken necessary steps in embedding its ESG strategic goals within the remuneration policy,
adhering to the importance of connecting the performance of its personnel to ESG and climate matters as a way
of incorporating ESG culture within the organisation. The remuneration policy promotes - and is consistent with
- sound and effective risk management, is in line with the Group’s ESG and climate strategy and does not
encourage excessive risk taking that exceeds the level of risk tolerated by the Group.
Performance criteria (financial and/or not financial), set to measure the performance of Senior Management,
contain KPIs that relate to the implementation of the Group's ESG strategy, reflecting the Group’s emphasis on
achieving its climate related objectives, in accordance with the role and responsibility of each Senior Manager in
relation to the ESG Strategy. Performance criteria include incentives set to manage ESG risks, including C&E
risks, related objectives and/or limits to ensure that green washing practices are avoided. These are expected to
be cascaded down to staff, through the performance appraisal system, in line with the staff’s respective roles and
responsibilities, so as to continuously enhance the Group's ESG culture, elicit the right behaviours and align
individual results with ESG Strategy.
Group-wide performance relating to ESG and climate targets are included in the performance scorecard of any
applicable Long-Term and/or Short-Term Incentive Plans, at the time of the design and approval of a plan.
The long-term incentive plan (‘2022 LTIP’) that has been approved by the Company’s shareholders, incorporates
measurement of performance against an evaluation scorecard consistent with the Group’s Medium-Term Strategic
Targets, which include ESG targets. The evaluation scorecards used in the abovementioned scheme include KPIs
on External ESG ratings. External ESG ratings are granted based on an external assessment performed on ESG
aspects of the Group.
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar II - Strategy
Moving to a sustainable economy is the challenge of our time. Ever-increasing GHG emissions are warming the
planet, changing the climate and threatening human life. Averting this requires deep and sustained cuts to GHG
emissions. To keep warming to 1.5°C, cuts of 45% are required by 2030, with global GHG emissions reaching
‘net zero’ by 2050. This means GHG emissions need to decline now. The transition to this low carbon economy
requires a transformation of assets and behaviours, for which trillions of dollars in finance are required.
To assist this transition, European Regulators have put in place an EU action plan for sustainable growth that
includes several new regulatory disclosure standards, as well as expectations that are bound to become
requirements in the near future. Following the developments and having set a ‘Beyond Banking’ approach and a
vision to create a stronger, safer, and future-focused organisation, the Group is determined to continue working
towards a better Cyprus and a better world for today and future generations. Consequently, the Group further
aspires to increase its positive impact on environment and maintain its leading role in the social and governance
pillars by transforming not only its own operations, but also the operations of its customers.
The Group continues to broaden and strengthen its efforts to identify climate-related risks and opportunities, the
key first step in the Group’s climate strategy. Once identified, the Group assesses how the risks can be better
managed, reduced or mitigated in line with its risk management framework.
The Group’s approach to climate action is evolving over time and has progressively been embedded into the
Group’s activities and actions. The Group is determined to create a stronger, safer, and future-focused
organisation. Consequently, the Group focuses on creating lifelong partnerships with customers, as well as guiding
and supporting them in a changing world by financing projects which bear a positive climate impact. Underpinning
the Group’s Climate Strategy (a pillar within its ESG strategy), there are three strategic areas where, moving
forward, the Group will focus our climate action:
Reinforcing the impact of climate financing;
• Building resilience to climate change; and
Further integrating climate change considerations across all of Group’s standards, methods and processes.
The commitments made by the Group in its ESG Strategy focus on the following key objectives:
Become carbon neutral by 2030;
Become Net Zero by 2050;
Steadily increase Green Asset Ratio; and
Steadily increase Green Mortgage Ratio.
Climate-related Risks
The Group’s Climate Strategy is continuously evolving as the Group improves the tools and expands the resources
available to grow its understanding of the interconnection between the climate, its business, operations, clients
and communities. The Group seeks to identify and advance the initiatives that will enhance its operational
resilience, decision-making and planning to mitigate climate-related risks and capitalise upon climate-related
opportunities. The Group’s strategy and risk management initiatives are interdependent and adapt as needed
based on the performance against established metrics and targets. The Group is working to advance its climate
knowledge base and resilience to climate-related shocks.
The Group views climate risk as a cross-cutting risk which manifests itself through or amplifies existing risk
categories within the Group’s Risk Taxonomy, as described further in the ‘Pillar III - Risk Management’ section of
these ESG Disclosures. These transition and physical risks can manifest themselves differently across risk
categories in the short, medium, and long term. The time horizons considered are described here for reference.
As the Group is in the process of setting up a holistic net-zero strategy, it is expected that it will be in a position
to set more granular timeframes moving forward to efficiently capture the decarbonisation targets that will be
set.
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar II – Strategy (continued)
Climate-related Risks (continued)
Time
horizon
label
Start
Year
End
Year
Rationalisation
Short-
term
(1-3
years)
Medium-
term
(4-7
years)
Long-
term
(8-27
years)
2023
2026
2027
2030
2031
2050
The Corporate Sustainability Reporting Directive (‘CSRD’) is expected to be a major
disruption and a milestone for climate change activation. As CSRD will first be
applied in January 2025 (for FY 2024) for EU listed companies, and every year
thereafter up until 2028 to include certain SMEs and large companies (Years 1-3),
the Group considers the first three years as its first-time horizon. Furthermore, the
Group is committed to become carbon neutral by 2030 by reducing Scope 1 and
Scope 2 GHG emissions from own operations. The Group has focused its main
decarbonisation actions in the short-term up to 2026 in order to lead the
decarbonisation efforts, lead by example and also to benefit from any government
subsidies that will be announced as part of the Recovery and Resilience Facility
(‘RRF’) of the European Union. As a result, the risk horizon the Group focuses for
short term is between 1-3 years.
As 2030 is the year set by the EU for the goal of ‘Fit for 55’ (i.e., a 55% reduction
of GHG emissions below 1990 levels), the Group has also set 2030 as the medium-
term risk horizon for the identification of C&E risks and opportunities. Therefore,
the time horizon for medium term is between 4-7 years. In addition, the Group is
committed to become carbon neutral by 2030 by reducing Scope 1 and Scope 2
GHG emissions by 2030, therefore C&E risks should be identified and managed in
a horizon of 4-7 years in order to achieve the target set.
The Group considers a time horizon of over 8 years for chronic physical risks to
manifest. Additionally, the Group has set a target to become net zero by 2050,
following its commitment to the Paris Agreement, which indicates that Scope 1,
Scope 2 and Scope 3 GHG emissions should be reduced by 2050 to zero. For Scope
1 and Scope 2 own operations the reduction target is relevant for all time horizons.
However, the climate related risks associated with Financed Scope 3 GHG
emissions depend also on the useful life of the assets, which for the majority of the
current loan portfolio of the Group this translates to a maturity beyond 8 years. As
such a long-term time horizon has been set to 8–27 years to cover both the risks
as well as the strategic aspects of climate related risks within the organisation.
As new data and modelling capabilities become available, the Group continues to build upon the transition and
physical risk scenario analyses. The Group’s ambition is to use various models and programmes within its risk
assessment process to guide the climate strategy, by allowing it to quantify further the financial impacts of such
risks on its portfolios. Furthermore, it is expected that managing the portfolio to net zero should also help to
substantially mitigate transition risk. On physical risks, the Group considers that raising the awareness of its
customers on acute and chronic physical risks can assist both parties in identifying the best adaptation
mechanisms to support a resilience to adverse scenarios through the right products.
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar II – Strategy (continued)
Climate-related Risks (continued)
In particular, in order to assess the financial impact of transition risks on the loan portfolio, a sensitivity analysis
on the Financial Plan is to be carried out to reflect the potential impact of a short-term disorderly scenario
according to which a set of policies would be frontloaded. Under such a scenario, it would be expected that fuels
costs and energy use become more expensive and thus would push the operating margins of corporates
downwards as a result of absorbing a part of these costs. At the same time, the increased cost of energy would
increase the living costs for households and thus on the grounds of affordability assessment, certain households
would face challenges which would be reflected in their cost of risk. Considering the specific composition of the
Group’s portfolio, such policies would most likely affect customers in the Construction and Real Estate sectors
and customers with mortgage loans granted prior to 2010 implying thus less energy-efficient properties.
Further details on how the Group identifies and assesses climate-related risks are provided under ’Pillar III - Risk
management’ section of these TCFD.
Net Zero Strategy
The Group, as disclosed in the 2021 Sustainability Report has resolved to align with the target set by the Paris
agreement, the EU Green Deal and the Cyprus Government for a Net Zero goal by 2050.
Beyond the initiatives focusing on introducing the financing of sustainable products and services, and designing
and embedding environmental procedures in the lending process, the Group monitors closely internal operations
in order to reduce and eliminate GHG emissions.
As a first step, the Group’s Scope 1, Scope 2 and material non-Financed Scope 3 GHG1 emissions were calculated
for 2021, using a widely accepted methodology and bringing the Group in a position where it can set a feasible
roadmap of actionable tasks to reduce its carbon footprint and achieve its decarbonisation goals.
Given the fact that BOC PCL is the main contributor of GHG emissions of the Group, BOC PCL has formulated a
decarbonisation plan to reduce its own carbon footprint relating to Scope 1 and Scope 2 GHG emissions and
ultimately reach its Carbon Neutral target by 2030.
BOC PCL plans to invest in energy efficient installations and actions and replace fuel intensive machineries and
vehicles from 2023 to 2025, leading to approximately 5-10% reduction in Scope 1 and Scope 2 GHG emissions
by 2025 compared to 2021. BOC PCL expects that the Scope 2 GHG emissions will be reduced further when the
energy market in Cyprus shifts further towards renewable energy. The actions planned by BOC PCL between 2023
to 2025 include:
Photovoltaic (PV) installations
Air-conditioning systems replacements
Boiler replacements
Roof insulation
CO2 sensors installation
Heat recovery installation
Similar energy efficiency actions are planned for the other operating subsidiaries of the Group.
Currently the Group does not plan to set specific targets for the material non-Financed Scope 3 GHG emissions
as the vast majority of its Scope 3 GHG emissions relate to Financed Scope 3 GHG emissions derived from its
loan portfolio.
BOC PCL has also recently become a member of the Partnership for Carbon Accounting Financials (PCAF) and
estimated Financed Scope 3 GHG emissions derived from its loan portfolio based on PCAF standard and proxies.
In 2023, the Group plans to estimate Financed Scope 3 GHG emissions associated with its investments and
insurance portfolios. BOC PCL is currently in the process to set decarbonisation targets in specific sectors and
asset classes of the loan portfolio as described in the ’Pillar IV - Metrics and Targets‘ section of these TCFD. The
decarbonisation targets that will be set in 2023 associated with the loan portfolio will also be embedded in the
Group’s Financial Plan.
1 The non-Financed Scope 3 GHG emissions of the Group comprise of GHG emissions from the business travel, waste disposal, purchased
good & services, employee commuting and transport and distribution categories.
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar II – Strategy (continued)
Net Zero Strategy (continued)
As a means to enhance not only its climate risk framework but also its ability to identify future opportunities BOC
PCL is in the process of introducing new ESG scorecards within its credit granting process which will allow it to
more granularly identify ESG risks but at the same time it will open a communication line with its clients to better
prepare them to comply with upcoming EU legislation on disclosure, such as the CSRD, which will eventually be
reflected within the Group’s own net-zero strategy by providing more accurate data and targets.
In terms of stress testing and climate scenario analysis, BOC PCL is currently building the necessary modelling
approaches to conduct climate-related stress testing through a bottom-up methodology, as further described in
the ’Pillar III - Risk management’ section of these TCFD. Developing stress testing will further help to assess the
implications of physical and transition risks in the portfolios, and to inform the business strategy and capital
planning.
Green Asset Ratio2 and Green Mortgage Ratio3
As BOC PCL falls under the Non-Financial Reporting Directive it is mandatory to also comply with the EU Taxonomy
regulation for financial institutions. As such, BOC PCL is taking necessary actions and measures to estimate and
disclose its Green Asset Ratio, which presents the proportion of the share of a credit institution’s assets financing
and invested in EU Taxonomy-aligned economic activities as a share of total covered assets, such as those
consistent with the European Green Deal and the Paris agreement goals. However, it is important to note that
financial institutions are currently required to disclose only the EU Taxonomy eligible activities as a share of total
covered assets. EU Taxonomy required disclosures are provided in Part B of the ‘ESG Disclosures’.
BOC PCL has committed within its strategy to improve its Green Asset Ratio not only as part of its dedication to
the EU Green Deal and the Paris Agreement, but also because, through its increase it will significantly reduce its
exposure to transition risk and potential capital impact, which consequently will also have a positive impact
towards investors’ interest and will further establish BOC PCL as a market leader in the sustainability space.
BOC PCL has approved a high-level Green Lending Policy based on the Green Loan Principles (‘GLPs’), and its
purpose is to provide the framework for the procedures and the requirements that BOC PCL will implement for
the creation of ‘green’ loan products and ultimately the development of a green loan portfolio. The Green Lending
Policy provides instructions regarding the information that BOC PCL should require from borrowers so to ascertain
whether an application for a green loan product can be considered for approval and adopts an indicative list of
eligible categories for green project financing.
BOC PCL, under its existing Environmental and Social Policy prohibits finance to certain sectors (thermal coal
mining, coal-fired electricity generation, upstream oil exploration, upstream oil development) which are included
in its ‘Exclusion and Referral Sectors’ list with negative environmental impact.
BOC PCL offers a range of environmentally friendly products to manage transition risk and help its customers
become more sustainable. For example, a number of loan products are offered under the Fil-eco Product Scheme.
BOC PCL offers Environmentally friendly Car Hire Purchase addressed to anyone who wants to buy a new hybrid
or electric car, providing its customers the opportunity to buy a new electric vehicle and to move away from
transport options reliant on fossil fuels. Moreover, an environmentally friendly loan for home renovation is offered
to customers who want to renovate and upgrade the energy efficiency of their privately owned primary residence
or holiday home and achieve a higher energy efficiency rating. Further, the customers may benefit from an Energy
Loan for the installation of energy saving systems for home use. This product is addressed to customers who
seek financing for the installation of photovoltaic systems for home use and other home energy-saving systems.
Looking forward, in 2023 the Group will continue to build out its green product offering further. The Group expects
to discuss ESG and climate matters with its clients at the point of loan origination.
2 Green Asset Ratio: The proportion of the share of the credit institution’s assets financing and invested in EU Taxonomy-
aligned economic activities as a share of total covered assets.
3 Green Mortgage Ratio: The proportion of the share of the credit institution’s assets financing EU Taxonomy-aligned
mortgages (acquisition, construction or renovation of buildings) as a share of total mortgages assets.
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar II – Strategy (continued)
Sustainable Development Goals (‘SDGs’)
The Group has also identified, through several multi-stakeholder dialogue, numerous material areas of impact
that contribute to specific SDGs. As sustainability reporting is now a major source of information for investors,
combined with the fact that regulatory bodies are also increasing the requirements of aligned disclosures,
transparent reporting of SDGs is of high importance for the Group.
Due to its expertise and business model, the Group has selected to focus on the following SDGs:
These goals are the ones where the Group can have an impact based on its business environment and its
customers. These include the commitment to the Paris Agreement, which is an overarching commitment.
Committing to climate change mitigation means to actively support responsible tourism and consumption,
innovation in the local infrastructure, and supporting sustainable cities and communities.
Further information on the actions and list of KPIs can be found in the annual Sustainability Report.
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar II – Strategy (continued)
Climate-related Opportunities
Climate-related opportunities have been identified across business segments and are informed by the
understanding of climate-related risks. They include strategies, products, services and advice to support clients
in the low-carbon transition, and to capture new areas of business growth, such as sustainable finance. The Group
has also identified opportunities in its operations to mitigate climate change, while improving efficiency and
resilience as can be shown in the table below.
Opportunity
Type
Climate-Related
Opportunities
Time Horizon
Identified Impactful Activities
Use of more efficient modes
of transport
Medium/Long
Upgrade of car fleet with net-
zero cars
Awareness of personnel and
regarding
change
less polluting
culture
efficient and
modes of transport
Enhance the recycling actions of
Use of recycling
Short/Medium/Long
the organisation
Resource
Efficiency
Move to more efficient
buildings
Short/Medium/Long
Reduce water usage and
consumption
Short/Medium/Long
Use of lower-emission
sources of energy
Short/Medium/Long
Energy
Systems
Shift toward decentralized
energy generation
Medium/Long
Products
and
Services
Development and/or
expansion of low emission
products and services
Short/Medium/Long
Use of public-sector
incentives
Short/Medium/Long
Markets
The development of new
revenue streams from
new/emerging environmental
markets and products
Medium/Long
Support circular economy
Energy efficiency upgrades of
owned buildings
Transfer
to more
energy
Increase
efficient leased buildings
for
the
efforts
reduction of water usage within
the Group’s premises
More
strict
procurement
specifications for new hardware
and electronics
Installation of photovoltaics on
owned premises
Enter
into Power Purchase
Agreements with providers of
renewable energy
Expand the range of sustainable
friendly
and environmentally
products and services. Refer to
current environmentally friendly
offerings reported under ‘Pillar
II - Strategy’ section of these
TCFD
in
Identify public funding schemes
stemming from the RRF in order
to further support interested
the
parties and assist
acceleration of transition efforts
Through the net-zero strategy
sectoral
exercises
decarbonisation
and
develop new products to assist
the clients to achieve their own
net-zero targets
identify
needs
Improved ratings by
sustainability/ESG indexes
Short/Medium/Long
Continuously improve internal
procedures and disclosures in
order to acquire better ESG
ratings
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar III - Risk Management
BOC PCL – as one of the systematic banks in Cyprus - is exposed to potential climate related risks and as such
has taken the necessary steps to commit in managing these possible risks. To pursue that, a comprehensive and
prudent climate risk management framework will be integrated in the existing risk management framework, in
line with the applicable regulatory requirements and following best banking practises.
The Group follows the definition of the TCFD for C&E risks as can be shown below.
Climate-related risks fall into two major categories: (1) risks relating to the transition to a lower-carbon economy
(transition risks) and (2) risks relating to the physical impacts of climate change (physical risks).4
Physical
risks
Acute physical risks, which arise from specific weather-related events such as storms,
floods, wildfires or heatwaves.
These extreme weather events may damage production facilities and disrupt value chains.
Chronic physical risks, which arise from longer-term changes in the climate, such as
temperature changes, rising sea levels, reduced water availability, biodiversity loss and
changes in land and soil productivity.
Physical risks cause damages to assets and disrupt operations and supply chains.
Policy risk results from policy and regulatory actions seeking to limit global warming or
promote adaptation to climate change.
Legal risk stems from climate-related litigation claims as organisations fail to mitigate
impacts of climate change, to adapt to climate change or to provide sufficient disclosure
around material financial risks.
Transition
risks
Technology risk arises from new technologies making old systems prematurely obsolete,
thus having a disruptive impact.
Market risk is caused by supply and demand shifts for certain commodities, products and
services taking into account climate considerations.
Reputational risk comes from changing perceptions of an organisation’s impact on climate.
4 E06 - Climate related risks and opportunities.pdf (tcfdhub.org)
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar III - Risk Management (continued)
Methodology - Climate Risk Identification and Assessment
As part of the overall risk management process of C&E risks, a risk identification analysis and assessment exercise
has been carried out for the consideration of the impact of climate change on its financed portfolio for different
time buckets. The identified risks are assessed on an on-going basis to ensure that these remain up to date given
the developments in the business environment and the mitigating actions taken by the Group.
The risk identification process comprised the following:
Exposures identification
To identify the exposures that are vulnerable to transition risks, we employed the Climate Policy Relevant Sectors
(CPRS) approach. This approach is a classification of activities whose revenues could be affected positively or
negatively in a disorderly low-carbon transition. It allows the assessment of the economic and financial risk when
firms are misaligned with the climate and decarbonisation targets specified in the Paris Agreement or with other
defined policy objectives.
CPRS are identified considering their:
- direct and indirect contribution to GHG emissions;
-
-
role in the energy value chain;
relevance for climate policy implementation (i.e., their cost sensitivity to climate policy or regulatory
change, e.g., the Carbon Leakage Regulation); and
business model (input substitutability of fossil fuel).
Risk identification
Several sources were examined, the key to which are presented below, in order to identify the risks that can
have a financial impact on the Group. The process involved a rigorous analysis of several risks and possible
impacts they could have on a number of high transition sectors within the CPRS framework, marking which
combination of risks and impacts were relevant to Cyprus, the local market and finally BOC PCL itself. The analysis
revealed over a hundred relevant impacts across the 22 physical/transition risks. As part of this process, the
materialisation time frame as well as the transmission to traditional risks were also identified.
Key Sources of Risk Identification
Transition risks
1. Blackrock’s study paper with title ‘Development of Tools and Mechanisms for the Integration of
ESG Factors into the EU Banking Prudential Framework and into Banks' Business Strategies and
Investment Policies’.
2. ECB’s paper with title ‘Climate risk stress test – SSM stress test 2022’.
Physical risks
1. The Intergovernmental Panel on Climate Change (IPCC) paper with title ‘AR6 Climate Change
2021: The Physical Science Basis’.
2. The Cyprus Government’s Ministry of Agriculture, Rural Development and Environment in the
Department of Environment report with title ‘The Cyprus Climate Change Risk Assessment
Evidence Report’.
Other Sources
1. UNEPFI Impact Analysis Tool
2. The Cyprus Government’s Ministry of Agriculture, Rural Development and Environment in the
Department of Environment report with title ‘Report on The State of the Environment in Cyprus
2020’
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar III - Risk Management (continued)
Risk identification (continued)
Following the risk identification process as presented above, a qualitative assessment was carried out of over a
hundred identified relevant impacts. The assessment methodology included the vulnerability assessment of each
NACE sector to the 22 identified risks in order to consider the relevance and potential impact on BOC PCL’s
portfolio. Following this, the Group proceeded to the qualitative assessment of the risks based on specific criteria.
The tables below provide the four primary risks, which are affected by C&E risks (both transition and physical),
and set out the possible impacts and the transmission mechanism. Furthermore, across the previously defined
time horizons, climate change may affect, to different degrees, these primary risks (i.e., Credit, Liquidity &
Funding, Market and Operational Risk).
Traditional
Risks
Transition
Risks
Transmission Mechanisms
Examples
Credit Risk
-
-
-Impact on repayment ability
through:
-
increased operating costs
for compliance and/or
lower revenues
increased capital
expenditures to comply
with regulatory standards
decrease in value of
collateral and/or costs to
monetise
to
- Vulnerability
increasing energy
costs/dependence on single energy
provider (Market, Policy and Legal)
- Corporate carbon reporting has become
increasingly
all
common,
companies will need to comply (Policy
and Legal)
and
- Substitution of existing aged products
and services will impact sectors like real
estate
stock
(Technology)
especially
existing
Liquidity &
Funding Risk
Market Risk
Operational /
Reputational
Risk
- Inability to raise funding
due to lack of climate
change action by the
organisation
- Depletion of deposits to
address increase
operational costs or
mitigate transition risks
- Impact on the price of
marketable debt
instruments (bonds) and to
Real Estate assets
- Reputational risks due to
inability to meet
stakeholders’ demands or
due to financing of
environmentally harmful
projects
- Litigation risks due to
financing of
environmentally harmful
projects
- Manufacturing companies will need to
find alternatives for packaging which
will increase costs (Technology)
- Carbon pricing on carbon intensive
materials will increase the cost of the
raw components needed for building a
new structure such as steel, concrete,
plastic, agricultural products, fuels etc.
(Market)
- Mandates to reduce polluting waste,
encourage cyclical economy and reduce
GHG emissions will have an impact to
several sectors of the economy (Policy
and Legal)
- Impact on the BOC PCL’s valuation if it
does not reduce its GHG emissions
and/or increase its Green Asset Ratio
(Market)
- Impact on debt instruments and
collateral values held in cases these
are exposed to C&E risks (Market)
- Impact on BOC PCL’s valuation
stemming from reputational risks in
cases where its GHG emissions are not
reduced (Reputational)
- Reputational impact if the Group fails
to introduce greener products
(Reputational)
- Litigation action against BOC PCL or its
customers where environmentally
harmful projects are financed or
pursued (Policy and Legal)
94
Time
Horizon
Short to
medium
term
Short to
medium
term
Medium
term
Short to
medium
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar III - Risk Management (continued)
Risk identification (continued)
Traditional
Risks
Physical
Risks
Transmission Mechanisms
Examples
Time
Horizon
-Impact on repayment ability
through:
-
increased operating costs
due to retrofitting and/or
damage/substitution of
assets
increase in insurance costs
lower revenues due to
reduced productivity
Credit Risk
-
-
- decrease in value of
collateral and/or costs to
monetise
Liquidity
Risk
- Depletion of deposits to
address increase
operational costs or
mitigate transition risks
- Wildfires resulting from extreme
temperature spells are highly destructive
on property (Acute & Chronic)
- Strong storms and extreme rainfall could
often result in flooding and costly damage
to property and disrupt operations and
supply chains if facilities are flooded
(Acute)
- Sea level rise is expected to reduce the
island's coastline by 80% in a hot house
scenario. In the absence of adaptation,
more intense and frequent extreme sea
level events, together with trends in
coastal development will increase
expected annual flood damages by 2-3
orders of magnitude by 2100 based on
projections by IPCC.
- Increases in temperature and failure to
adapt may bring about overheating in
buildings that, in turn, increases health
risks to the vulnerable portion of the
population and to indoor workers which
can also affect productivity. Assets that
have not been retrofitted will not be
marketable (Acute & Chronic)
- Climate change is expected to cause an
increase in the frequency, intensity and
duration of drought events. Studies
generally conclude that these events
substantially undermine property prices.
(Chronic)
Short to
longer
term
Market Risk
- Impact on the price of
- Properties located in areas of higher
marketable debt
instruments (bonds) and to
Real Estate assets
physical risks, such as flood and wildfire
risks, will be faced with the probability of
decrease in their price. (Acute & Chronic)
Operational
/
Reputational
Risk
- Increased operational costs
- Incurred damages due to acute physical
risks on the buildings can disrupt
operations as well as increased
operational costs for repairing damages
(Acute)
- Increased operational costs for cooling of
buildings (Acute & Chronic)
- Potential downtime of IT systems during
prolonged acute heatwaves (Acute)
- Decreased personnel productivity during
prolonged acute heatwaves (Acute &
Chronic)
Credit risk is one of the key risk categories considered to be most impacted by climate change, as seen in the
tables above.
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar III - Risk Management (continued)
Risk identification (continued)
Based on the analysis carried out the mapping to the sectors sensitive to C&E risks is presented below:
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar III - Risk Management (continued)
Risk identification (continued)
Furthermore, the below table presents the identified risks and possible impacts for the Retail Real Estate and
Commercial Real Estate as the Group has a high concentration within these sectors. For these sectors transition
risks are expected to materialise through the need of more energy efficient and net-zero buildings which could
translate into credit risk by affecting the repayment ability of the borrowers due to increased unexpected costs
or by decreasing the value of the asset. Physical risks need to be examined on an asset-by-asset basis and
factoring in also their location.
Risk
Driver
Impact
Timeframe Assessment
Change in
Temperature -
Change in average
temperature
Chronic
Change in
Temperature -
Change in average
temperature
Chronic
Change in
Temperature -
Extreme
temperature spells
Acute
Changing customer
behaviour
Market
Anticipated higher temperatures and lower average rainfall are
expected to increase the number of ‘very high’ and ‘extreme’ Forest
Fire Danger Index days. Land and buildings located near areas
deemed high risk may see a decrease in demand resulting in
reduced land prices.
Lack of attention to extreme heat events may bring about
overheating in buildings that, in turn, increases health risks to the
vulnerable portion of the population such as the elderly, the sick and
physically challenged, and the very young. High temperatures can
be ameliorated by air conditioning, although causing increased
energy consumption and therefore in most instances, GHG
emissions. Real Estate companies and Hotels may face increased
capital expenditure costs to retrofit air conditioning systems to
existing buildings or additional costs in including the systems in new
builds as well as additional operating expenditure to run the units.
This may have an adverse impact on property valuations.
In instances where it is projected that significant increases in
degradation rate are to arise, adaptations to the building fabric may
be required. For existing buildings, adaptation is a means to further
protect the existing building fabric, to enhance performance and
control the rate of degradation.
Climate change and sustainability is becoming an important factor
for many consumers and investors. Stakeholders are increasingly
pressuring companies to reduce their carbon footprints. Companies
that fail to adopt and respond to these changing attitudes and
behaviour could see themselves losing customers and becoming
stigmatised.
Changing customer
behaviour
Market
Climate change is expected to negatively impact housing prices and
demand in regions/areas that are more exposed to physical climate
risks. Sea level rise, more intense storms, higher risk of forest fires,
lower water quality, and increased frequency of drought events can
shift home owners and investors away from traditionally desirable
locations.
Furthermore, climate change and sustainability is becoming an
important factor for many consumers and investors. Houses will be
expected to be green or energy efficient and have less dependency
sources.
and
on
These impacts could decrease valuation for properties and rents.
traditional
energy
utility
other
Long-term
Medium
Long-term
Low
Short-term
Medium
Medium-
term
Medium
Medium-
term
Medium
Extreme weather -
Droughts -
Increased
intensity,
frequency and/or
duration of
droughts
Acute
Drought events would increase the risk of fires and reduce the ability
of safety teams to battle these fires due to water scarcity. Sectors
with immovable assets could be facing more damages due to fire
events and increasing cost to repair these damages.
Short-term
Medium
Shifts in consumer
preferences
Reputation
Energy efficient buildings achieve higher asset values through
securing higher rents, lower lease-up costs, higher occupancy levels,
lower operating costs and improved indoor air quality. Buildings that
do not take into account these additional preferences could face a
reduction in demand and the valuation of such properties could
decrease.
Medium-
term
Medium
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar III - Risk Management (continued)
UNEPFI Impact Analysis Tool
BOC PCL has employed the UNEP FI’s Impact Analysis Tool which provides for a two-step process to understand
and manage actual and potential positive and negative impacts of the financing it provides. As per the
methodology underpinning the tool (UNEP FI’s Holistic Impact Methodology) the impacts are analysed across the
spectrum of the three pillars of sustainable development articulated by the SDGs:
- Human needs (the social pillar – people)
-
-
Environmental conditions or constraints (the environmental pillar – planet)
Economic development (the economic pillar – prosperity)
The tool allows the selection of the industries that the Group has the biggest exposures to and following that it
maps which of them are particularly affected by sustainability trends. The impacts are then further broken down
as to deeply understand which SDGs are the most relevant for the Group.
For the Corporate portfolio, the impact analysis focussed on the fifty most important sub-sectors based on NACE
codes for a total of ten sectors, analysing €4.7 billion of exposures out of a total of €10.2 billion gross loan book
as at 31 December 2022. In terms of industries, Accommodation, Real Estate, Trade and Construction have the
highest share in the Group's portfolio. Sectors that are of less importance in terms of financed exposure but are
considered significant due to their impact on the SDGs, e.g., manufacturing, transportation and agriculture, were
also analysed. For Consumer banking, the impacts of the most prevailing banking products were examined
including credit cards, overdrafts, consumer loans, mortgage loans, student loans and vehicle loans.
Analysis
Corporate Portfolio
a)
Focusing on the negative impacts, the analysis indicates that all the activities of the financed portfolio can
potentially affect the entire environmental pillar as expressed through the three distinct impact areas of:
-
-
Circularity;
Biodiversity & healthy ecosystems; and
Climate stability.
Activities from the most prevailing financed sectors such as Construction and Real Estate are negatively
associated with:
Biodiversity;
Resource Intensity;
-
-
- Waste; and
-
Climate Stability.
This is mainly due to the fact that these sectors are associated with the use of natural resources, produce waste
during the construction/operation phase, affect the climate through the GHG emissions of the properties and in
addition, the land/area they are built on may have adverse effects on the local ecosystems.
Similarly, the manufacturing and the transportation sectors are mainly associated with the consumption of fossil
fuels and production of GHG emissions (through energy usage and mobility). Agriculture is a sector where it takes
up a lot of land whereas livestock production causes the emission of fairly large amounts of CO2. The
accommodation sector, which is of the largest sectors of the loan portfolio, it is not considered a key sector by
the UNEP FI tool. However, it is negatively associated with waste, pollution, and the cause of strain on land and
local ecosystems.
Consumer Banking - Households
b)
The analysis indicates that mortgage loans are negatively associated with ‘Climate Stability’ and ‘Resource
Intensity’ mainly due to the consumption of energy (GHG emissions). Similarly, vehicle loans are adversely related
to Climate stability and Resource intensity due to their GHG emissions.
Next Steps
The Group is constantly monitoring results and working on policies as to target specific industries and sectors
that will help it increase its positive impact (e.g., lending to renewable energy projects).
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar III - Risk Management (continued)
Process for managing climate risks
Changing regulatory and legal requirements, increased stakeholder concern, shifts in consumer preferences, and
the mandates on and regulation of existing products and services, are just a few ways that the Group can be
exposed to climate risk. The Group periodically reviews the risks it faces and considers how they may affect its
customers and operations.
The table below provides an overview of the actions to mitigate climate risk the Group intends to take or is
already taking. These actions relate to the previously identified C&E risks that affect the primary risk types.
Risk Type
Controls/ Mitigations Used
Credit
Transition Risks
Going forward, the Group intends to perform detailed analyses ('deep dives’) for
specific Corporate clients with large exposures, in order to carry out strategic
initiatives with respect to the following:
-Determination of financing terms for Corporate clients with different levels of
transition risk
-Financing of Corporate clients' ‘green’ transition
-Collection of additional information on Corporate clients' environmental
performance (e.g., GHG emissions data).
Physical Risk Assessment
In the context of further future actions, the Group intends to perform detailed
analyses (‘deep dives’) regarding its exposure to specific areas with high physical
risk vulnerabilities. This will be facilitated through the acquisition of detailed
geolocation data which will allow the Group to consider the physical risk of
collaterals during loan origination process, to appropriately adjust the underlying
financing.
Liquidity &
Funding
The 2022 ILAAP scenario considers increased outflows on climate sensitive areas of
the loan portfolio.
Market
The Group will consider the ESG rating of bonds purchased.
Operational
The Group, through its current policies and procedures within its BAU and Business
Continuity Plans is already addressing these risks. Furthermore, it plans to capture
these risks and mitigating actions through its third-party assessment procedures.
Integration of climate related and environmental risks into overall risk management
The Group is making substantial progress in further integrating climate risk considerations into its risk
management approach, as it tries to integrate climate related risk into its risk culture.
The Group is in the process of embedding climate related risks into its:
•
•
•
Risk Appetite Framework;
Climate risk assessment at loan origination;
Capital Adequacy Assessment and Stress Testing; and
Internal Risk Reporting.
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar III - Risk Management (continued)
Risk Management Framework
The Group has in place a coherent and comprehensive Risk Management Framework for the identification,
assessment, monitoring and controlling of risk within the Group. The Framework provides the infrastructure,
process and analytics needed to support effective risk management.
Risk Appetite Framework
The Group has set several primary KPIs and corresponding targets in its ESG strategy which are reflected in its
current Risk Appetite Statement. Shorter term targets will be set going forward following the estimation of
Financed Scope 3 GHG emissions.
Climate risk assessment at loan origination
Within the context of its loan underwriting processes BOC PCL is currently in the process of incorporating the
assessment of ESG and climate matters and amending its Policies and Procedures in such a way that potential
impact from ESG and climate is reflected in the fundamental elements of the creditworthiness assessment i.e.,
in Repayment Capacity and Collateral Assessment.
In doing so, BOC PCL is taking the necessary steps to develop an approach which will allow this impact to be
assessed both with new lending applications and within stress testing framework. The rationale of elaborating on
such an approach is that certain risks might be already affecting the fundamental parameters and are not
dependent on realisation of a scenario, whereas other risks are scenario dependent, and their impact would
materialise only in the case of the scenario being realised.
The exercise includes the design of ESG questionnaires per sector which will then be leveraged for deriving an
ESG classification. The amendment in policies and procedures will also account for the decision-making process
in the form of potential alteration of pricing, setting of specific covenants and monitoring requirements, etc.
Climate risk sensitivity and stress testing
Scenario analysis and climate risk stress testing are methods which assist in evaluating and managing the possible
effects of C&E risks, to the Group’s business strategy and financial planning decisions.
The Group is in the process to enhance the Risk Quantification capabilities regarding the quantification of ESG
and climate risks both in terms of an Economic perspective and Normative perspective. In doing so, the Group
will focus/take into consideration the below:
Incorporation of ESG and climate into its risk parameters (PD, LGD, etc.).
Development of methodology to quantify the ESG and climate risks on the basis of risk parameters.
Development of methodology to quantify the impact from specific scenarios, by considering whether the
said scenario would directly affect risk parameters, or the impact would be propagated via macro-
economic factors.
Following the above, the Group aims to assess the impact on capital in relation to the level of risks it is or might
be exposed to, under both normal and stress conditions from both the normative and economic perspectives.
Climate change risk will be considered in the risk identification process of the assessment. Where relevant,
outcomes from climate scenario analysis and stress tests will be reflected in the assessment documentation.
With the aim to integrate climate risk into the existing risk taxonomy and risk registry of the Group and inform
the various business processes, the Group will assess the potential need to capitalise climate risk, considering
regulatory and supervisory expectations.
The Group will also be carrying out sensitivity analysis on the vulnerable areas of its loan portfolio. Such analysis
is expected to be carried out on a top-down basis.
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar III - Risk Management (continued)
Internal Risk Reporting
The Group is working to introduce a new reporting framework to track its climate risk exposure. Currently, regular
reporting primarily consists of progress updates on the ESG Working Plan. This takes place through the SC mostly
on a monthly basis. Frequent updates (quarterly) are being provided to the NCGC and the RC. The RC also
receives separate updates on specific risk management related activities when needed.
Beyond the ESG Working Plan updates, during 2022 the following items were submitted to the appropriate Board
Committee:
-
The decarbonisation strategy relating to Scope 1 and Scope 2 GHG emissions. This was submitted to the
NCGC for approval.
The risk identification and materiality assessment. This was submitted to the RC for approval.
In addition, the Group is working on setting KRIs related to the environmental pillar in order to monitor C&E risks
and to prevent any negative impacts stemming from these risks. Internal reporting will also include the following
actions:
- Monitoring of the Energy Performance Certificates of the building stock of the Group’s collateral portfolio
-
(both for residential and commercial properties)
Levels of GHG emissions per sector
Level of financing on Renewable Energy Projects
Integration of climate related and environmental risks into the Group’s three lines of defence
framework
Three Lines of Defence
As per the three lines of defence model established by the Group, Control Functions have defined responsibilities
in terms of ESG and climate risks.
First Line of Defence
The first line of defence includes functions that own and manage risks as part of their responsibility for achieving
objectives and are responsible for implementing corrective actions to address process and control deficiencies.
Whilst not yet in place, the first line of defence will lead the interaction with the customers as part of the
incorporation of the ESG and climate criteria in the credit underwriting process through the ESG questionnaire
and scoring process. Furthermore, it will be requested to observe any sector limits being put in place as derived
from the science-based targets.
Second Line of Defence
The second line of defence includes functions that oversee compliance of the first line with the regulatory
framework and management of risk. It comprises of the RMD, Information Security and Compliance functions,
with the involvement as necessary of the support functions such as Human Resources (HR) and Legal Services
Department (LSD). In terms of ESG and climate, the second line of defence provides support and oversight of
risks through:
-
developing, maintaining and enhancing the risk management framework covering all operations of the Group
(including ESG and climate risks) and considering new risks or amendments to the existing ones;
developing and maintaining risk, information security and compliance policies within that framework ensuring
these are consistent with the Board’s risk appetite and the Group’s ESG Strategy; and
providing the necessary reporting on exposures affected by ESG risks and develop the necessary models and
tools to facilitate the climate risk assessment.
-
-
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar III - Risk Management (continued)
Integration of climate related and environmental risks into the Group’s three lines of defence
framework (continued)
Third Line of Defence
The third line of defence is the Internal Audit Division (IA) which provides independent assurance to the Board
and Executive Management on the design adequacy and operating effectiveness of the Group’s internal control
framework, corporate governance and risk management processes (including ESG and climate risks), for
managing significant risks according to the risk appetite set by the Board.
Pillar IV - Metrics and Targets
The Group has disclosed its performance on climate-related metrics and targets based on primary targets set
under the ESG strategy. The Group uses such metrics and targets to provide quantitative information on the
current status of climate strategy and performance. These figures are regularly assessed by Senior Management
through the governance arrangement as presented earlier in ‘Pillar I - Governance’ section of these TCFD. In the
upcoming pages, the Group summarises the operating and financial information to date to guide its progress
towards the established impact-reduction and financing goals and the net zero plan.
Reduction of scope 1 and 2 GHG emissions – Become Carbon neutral by 2030 and Net Zero by 2050
The Group aims to become carbon-neutral by 2030, by gradually eliminating its scope 1 and 2 GHG emissions.
The Group has estimated the Scope 1 and Scope 2 GHG emissions of 2021 relating to own operations in order to
set the baseline for carbon neutrality target. For the Group to meet the carbon neutrality target, the Scope 1 and
Scope 2 GHG emissions should be reduced by 42% (absolute target) by 2030. The absolute reduction target has
been set following the climate scenario of 1.5°C which is aligned with the Paris Agreement. BOC PCL in 2022,
designed the plan of actions to meet the carbon neutrality target by 2030 and progress towards Net Zero target
of 2050. The Group is in the process to design the decarbonization strategy for the reduction of Scope 1 and
Scope 2 GHG emissions of its subsidiaries.
For the purpose of the calculation of the 2021 and 2022 Carbon footprint, the Group has set its organisational
boundaries based on the operational control approach. The 2021 and 2022 carbon footprint for Scope 1 and
Scope 2 GHG emissions was estimated based on the methodologies described in the Greenhouse Gas Protocol
(‘GHG Protocol’) and ISO14064-1:2019 standard. The Group’s own carbon footprint will continue to be calculated
on an annual basis which will enable comparisons to be made and progress against decarbonisation targets to be
monitored.
In 2022, BOC PCL has formulated a plan of action to reduce Scope 1 and Scope 2 and meet carbon neutrality
target by 2030 and plans to invest in energy efficient installations and actions and replace fuel intensive
machineries and vehicles from 2023 to 2025, which would lead to approximately 5-10% reduction in Scope 1 and
Scope 2 GHG emissions by 2025 compared to 2021. The Group expects that the Scope 2 GHG emissions will be
reduced further when the energy market in Cyprus shifts further towards renewable energy.
A number of carbon reduction initiatives are already underway and contribute to the reduction of carbon footprint
in the immediate future. These energy and waste initiatives include:
installation of new solar panels;
implementation of Energy Management system;
installation of electric chargers for cars;
improvement of waste measurement;
increase initiatives for waste recycling; and
reduction of paper use.
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Annual Financial Report 2022
Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar IV - Metrics and Targets (continued)
Reduction of scope 1 and 2 GHG emissions – Become Carbon neutral by 2030 and Net Zero by 2050
(continued)
BOC PCL, being the main contributor of GHG emissions of the Group, has estimated Scope 1 and Scope 2 GHG
emissions for 2022 in order to monitor the progress on carbon neutrality target:
BOC PCL - Scope 1 and Scope 2 GHG emissions
)
r
a
e
y
r
e
p
s
e
n
n
o
t
e
2
O
C
(
s
n
o
i
s
s
i
m
E
↑27%
↑20%
138
175
164
197
↓15%
726
619
↓9%
11,423
10,414
↓8%
12,451
11,405
Scope 1 – Stationary
combustion of facilities
Scope 1 – Mobile
combustion of vehicles
Scope 1 – Fugitive
Emissions
Scope 2 – Purchased
Electricity
Total Scope 1 and
Scope 2
2021
2022
The Scope 1 and Scope 2 GHG emissions of the Subsidiaries of the Group and the non-Financed Scope 3 GHG
emissions of the Group will be reported in the Sustainability report of 2022 (the 2022 Sustainability report will
be available at the Group's website http://www.bankofcyprus.com (Group/Sustainability/Our Sustainability
Reports).
(Note: The 2021 estimated Scope 1 and 2 GHG emissions presented here are slightly different to those reported in the 2021 Sustainability Report due to the following
factors: the overestimation of certain Global Warming Potentials (GWP) for Scope 1 Stationary Combustion, re-estimation of Scope 1 Fugitive GHG emissions to include
all properties and reallocation of relevant GHG emissions between companies within the wider Group following revised ownership rights.)
Energy management
Energy consumption accounts for a large percentage of the GHG emissions of own operations. The Group works
to reduce consumption in all aspects of its operations. Optimising the amount of energy consumed helps reduce
both the Group’s environmental footprint and operational costs. The Group implements initiatives for its branches
and owned buildings across Cyprus as well as its Head Office, aiming to make a significant, positive impact on
the environment and reduce costs. Renewable energy from solar panels has been extremely important in
mitigating the Group’s climate change impacts. A reduction of approximately 9% in BOC PCL’ Scope 2 GHG
emissions has been observed in 2022 compared to 2021 following the installation of energy efficient lighting,
installation of Energy Management Systems, on-site photovoltaic systems at eight owned buildings and
replacement of old air conditioning units.
BOC PCL has managed to reduce its energy consumption by approximately1.8 million kWh in 2022 compared to
2021. In addition, BOC PCL invests continuously in updating its internal practices, and upgrading equipment and
technologies, adopting new standards, and complying with international best practices.
Mobile combustion has been increased by 20% due to the fact that COVID-19 measures were applicable in 2021
whilst no COVID-19 related circulation restrictions were effective in 2022 leading to increased consumption.
However, BOC PCL disposed of five passenger vehicles in 2022 and is in the process to establish a policy for all
vehicle replacements to be hybrid or electric.
103
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Annual Financial Report 2022
Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar IV - Metrics and Targets (continued)
Energy management (continued)
Scope 1 GHG emissions relating to Stationary combustion was increased by 27% due to the fact that in one of
the buildings the fuel intensive machinery was idle in 2021 but was fully utilised in 2022 for heating purposes
due to a mechanical failure on the electricity intensive heating machineries. In addition, fuel consumption was
increased in 2022 due to the fact that one building of the Group, which was idle from March 2020 onwards,
become fully operational in 2022. These two properties recorded zero stationary combustion GHG emissions in
2021 whilst led to 31.35 tonnes of GHG emissions in 2022.
The overall environmental impact relating to Scope 1 and Scope 2 GHG emissions reduced by 1,046 GHG
emissions tonnes in 2022 compared to 2021 which represents approximately 8% reduction.
Resource Management and Recycling
Throughout the year, the Group runs initiatives, environmental trainings, awareness sessions and internal
communication campaigns to increase environmental awareness, improve efficiency and performance, and reduce
resource consumption.
Initiatives focus on various environmental aspects, including energy consumption, paper consumption, printing,
use of A/C systems. The goal of this initiative was to motivate all employees to act and join the effort to become
more efficient when it comes to resource consumption.
BOC PCL - Paper Consumption (kgs)
66,283,631
51,203,197
50,855,267
44,849,252
↓23%
↓1%
↓12%
2019
2020
2021
2022
Reduction of all GHG emissions to become Net Zero by 2050
BOC PCL has joined the Partnership for Carbon Accounting Financials (PCAF) in October 2022 and is following the
recommended methodology for the estimation of the Financed Scope 3 GHG emissions. BOC PCL has estimated
Financed Scope 3 GHG emissions relating to the loan portfolio based on PCAF standard and proxies. The PCAF
Standard has been reviewed by the GHG Protocol and conforms with the requirements set forth in the Corporate
Value Chain (Scope 3) Accounting and Reporting Standard for category 15 investment activities. In addition,
PCAF provides a data quality ranking for the estimation of Financed Scope 3 GHG emissions based on data applied
in the estimation for each asset class. The scale is between 1-5 with 1 being the highest quality and 5 being the
lowest quality.
BOC PCL aims to continuously enhance the data quality used on the estimation of Financed Scope 3 GHG
emissions and eliminate the data gaps, therefore in 2023 a client questionnaire is expected to be launched to
gather the relevant data, where possible, as well as continue to enhance the loan origination process. BOC PCL
has already established a policy in the loan origination process to gather Energy Performance Certificates (ratings
and GHG emissions per square meters) for the financed properties and collateral properties. Additional data
gathering actions will be performed during 2023.
104
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Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar IV - Metrics and Targets (continued)
Reduction of all GHG emissions to become Net Zero by 2050 (continued)
For the initial estimation of Financed Scope 3 GHG emissions relating to the lending portfolio, the loan portfolio
was classified in the following PCAF asset classes which will facilitate the setting of decarbonisation targets in the
future:
PCAF Asset
class
Business loans
Commercial Real
Estate (CRE)
Mortgages
Motor vehicles
Definition
Business loans include all loans and lines of credit for general corporate purposes (i.e.,
with unknown use of proceeds as defined by the GHG Protocol) to businesses, non-profits,
and any other structure of organisation that are not traded on a market and are on the
balance sheet of the financial institution. Revolving credit facilities, overdraft facilities, and
business loans secured by real estate such as Commercial Real Estate-secured lines of
credit are also included. Any off-balance sheet loans and lines of credit are excluded.
This asset class includes on-balance sheet loans for specific corporate purposes, namely
the purchase and refinance of commercial real estate (CRE), and on-balance sheet
investments in CRE. This definition implies that the property is used for commercial
purposes, such as retail, hotels, office space, industrial, or large multifamily rentals. In all
cases, the building owner or investor leases the property to tenants to conduct income-
generating activities.
This asset class includes on-balance sheet loans for specific consumer purposes namely
the purchase and refinance of residential property, including individual homes and
multifamily housing with a small number of units. This definition implies that the property
is used only for residential purposes and not to conduct income-generating activities.
This asset class refers to on-balance sheet loans and lines of credit for specific (corporate
or consumer) purposes to businesses and consumers that are used to finance one or
several motor vehicles. Corporate loans for acquisition of vehicles for trade purposes were
classified as ‘Business Loans’.
105
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Annual Financial Report 2022
Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar IV - Metrics and Targets (continued)
Reduction of all GHG emissions to become Net Zero by 2050 (continued)
The Group estimated the Financed Scope 3 GHG emissions for approximately 88% of Gross Loans and advances
portfolio which fall under the above mentioned asset classes. The Group plans to estimate the Financed Scope 3
GHG emissions of its investment and insurance portfolio within 2023. More than approximately 97% of the
Group’s GHG emissions derived from Financed Scope 3 GHG emissions.
Financed Scope 3 GHG emissions (CO2e tonnes per year) – 2022 - Loan
Portfolio
DQS: 4.4
DQS: 5
55,864 28,360
DQS: 4.9
35,909
DQS: PCAF Data Quality Score
1,161,677
DQS: 5
Business loans
Commercial Real Estate (CRE)
Mortgages
Motor vehicles
In 2023, the Group is expected to set decarbonisation target on its Mortgage portfolio due to the fact that 91%5
of building stock in Cyprus was built before the implementation of minimum energy performance requirements.
Therefore, renovation of building stock in Cyprus is vital for reaching Net Zero by 2050. In 2023, the Group is
expected to estimate the Financed Scope 3 GHG emissions per square meter financed in Cyprus and set a
decarbonisation reduction target to 2030 using a 1.5°C climate scenario. The decarbonisation target will then
inform the Group’s strategy from 2023 onwards as it will impact the new mortgage lending strategy as well as
the incorporation in the new lending strategy of the provision of finance for improvement in energy performance
of residential buildings taking into account any government schemes.
5 Implementation-of-the-EPBD-in-Cyprus.pdf (epbd-ca.eu)
106
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Annual Financial Report 2022
Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar IV - Metrics and Targets (continued)
Reduction of all GHG emissions to become Net Zero by 2050 (continued)
Given that the majority of Financed Scope 3 GHG emissions derive from Business Loan asset class, the carbon
concentrated sectors under Business Loan asset class have been identified, based on PCAF definition, which are
the primary sectors for setting decarbonisation targets. The Group has initiated the process to set decarbonisation
targets aligned with a climate scenario for its loan portfolio in 2023. The primary sectors identified under Business
Loan asset class are Accommodation and food service activities (12%), Construction (20%), Manufacturing
(16%), Transportation and storage (24%) and Wholesale and retail trade (10%).
BOC PCL – Financed Scope 3 GHG emissions – Business loan asset class
NACE
Sector
H
F
C
I
G
M
D
A
Q
L
E
K
J
B
P
R
S
N
TRANSPORTATION AND STORAGE
CONSTRUCTION
MANUFACTURING
ACCOMMODATION AND FOOD SERVICE
ACTIVITIES
WHOLESALE AND RETAIL TRADE; REPAIR OF
MOTOR VEHICLES AND MOTORCYCLES
PROFESSIONAL, SCIENTIFIC AND TECHNICAL
ACTIVITIES
ELECTRICITY, GAS, STEAM AND AIR
CONDITIONING SUPPLY
AGRICULTURE, FORESTRY AND FISHING
HUMAN HEALTH AND SOCIAL WORK
ACTIVITIES
REAL ESTATE ACTIVITIES
WATER SUPPLY; SEWERAGE, WASTE
MANAGEMENT AND REMEDIATION
ACTIVITIES
FINANCIAL AND INSURANCE ACTIVITIES
INFORMATION AND COMMUNICATION
MINING AND QUARRYING
EDUCATION
ARTS, ENTERTAINMENT AND RECREATION
OTHER SERVICE ACTIVITIES
ADMINISTRATIVE AND SUPPORT SERVICE
ACTIVITIES
OS Loan
Amount
€million
275
318
360
770
785
262
48
42
86
685
4
135
33
12
44
15
18
24
Emissions (CO2 tonnes
per year) – 2022
281,389
236,487
189,249
135,124
119,988
46,021
48,527
22,734
19,882
17,325
10,541
10,353
8,013
5,004
3,202
2,876
2,696
2,266
Total Financed Scope 3 GHG emissions – Loan
portfolio
€3,916
1,161,677
107
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ESG Disclosures
Annual Financial Report 2022
Task Force on Climate-related Financial Disclosures (TCFD) (continued)
Pillar IV - Metrics and Targets (continued)
Steadily increase Green Asset and Green Mortgage Ratios
The Financial sector has an important role to play in addressing the climate crisis by providing the capital needed
to expedite the transition to a low-carbon economy that balances our world’s environmental, social and economic
needs. We are prepared to support the drastic changes needed in our business and in the world’s industrial
processes, land-use, buildings, transport and other infrastructure to align with the goals of the Paris Agreement.
A key metric to assess progress against this target is the proportion of the Group’s climate action financing as a
percentage of total financing. In Part B of these ‘ESG Disclosures’ the Taxonomy eligible exposures as a
percentage of the Group’s total assets are presented.
The Group has set up a Sustainable Finance Framework which will facilitate the issuance of Green, Social or
Sustainable bonds. The proceeds from such bonds will be allocated to eligible activities and products as designated
in the Sustainable Finance Framework.
To support this goal, the Group is working to develop a Green Lending Framework where it expects to use the EU
Taxonomy as the main consideration to inform criteria for green or transition loans. This framework is expected
to be reviewed annually and to evolve as the EU Taxonomy expands.
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PART B:
EU Taxonomy Disclosures in accordance with Article 8 of the Taxonomy Regulation
Contextual information including the scope of assets and activities covered by the KPIs, information
on data sources and limitations
In accordance with Article 8 of the Taxonomy Regulation and the related Climate Disclosures Delegated Act,
starting from year-end 2021, financial undertakings have to disclose the proportion of exposures to
Taxonomy-eligible and Taxonomy non-eligible economic activities related to the environmental objectives of
climate change adaptation and mitigation for 2022, for which screening criteria have been established under the
delegated acts as well as a number of key performance indicators related to the proportion of selected exposures
in their total assets. The primary indicator of alignment is the green asset ratio (GAR), which companies must
publish from 2024.
Eligibility-related disclosures of financial undertakings with regard to financial or non-financial undertakings in
scope of Article 8 of the Taxonomy Regulation shall be based on actual information provided by them. Given that
this information is due to be disclosed in course of 2022 after the issuing date of this Annual Financial Report,
the assessment of Taxonomy eligible economic activities of corporate undertakings based on the Climate
Disclosures Delegated Act is currently not fully possible.
Accordingly, the Group is reporting only household related exposures as Taxonomy eligible exposures for the
year-end 2022 and 2021. In the denominator, the Group includes local government financing, financial
corporations (FCs), non-financial corporations (NFCs), derivatives, on demand interbank loans, cash and
cash-related assets and other assets. The scope of activities covered includes the eligible activities under climate
change mitigation (CCM)1 and climate change adaptation (CCA)2. Total exposure for other assets not covered in
either denominator or numerator has been provided for central governments, central banks and supranational
issuers, and the trading portfolio.
The Complementary Climate Delegated Act including specific nuclear and gas energy activities published in July
2022, requires the Group to assess and disclose taxonomy-eligibility and non-eligibility of nuclear and fossil gas-
related activities at 31 December 2022. While the Group has no direct exposure to the specific nuclear activities
and fossil gas related activities, it has exposure to customers involved in the use of fossil gaseous fuels to facilitate
power generation activities.
Additional qualitative information with respect to the Group's environmentally friendly products, Green Lending
policy and Environmental and Social Policy are provided under ’Pillar II - Strategy’ section of Part A-TCFD of these
disclosures.
The following table outlines the breakdown of Taxonomy-eligible assets on the balance sheet with reference to
disclosure requirements for 2022. The Group will continue to develop its disclosures over the coming years as
requirements and data availability increase. This table is prepared on the prudential scope of consolidation per
FINREP. The below metrics are unaudited and have been prepared in line with available guidance to the best of
the Group’s ability.
1CCM: The process of holding the increase in the global average temperature to well below 2 C and pursuing
efforts to limit it to 1.5°C above pre-industrial levels, as laid down in the Paris Agreement.
2CCA: The process of adjustment to actual and expected climate change and its impacts.
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EU Taxonomy - Disclosures in accordance with Article 8 of the Taxonomy Regulation (continued)
Assets covered in both numerator and denominator
Households
Local government financing
Taxonomy eligible economic activities
31 December 2022
€million
% of total
assets
3,884
47
3,931
16%
0%
16%
Assets excluded from the numerator (covered only in the denominator)
Exposures & investments to NFCs not subject to NFRD
4,870
20%
Exposures & investments to FCs not subject to NFRD
On-demand inter-bank loans
Derivatives-non trading book
Properties (stock of properties and investment properties)
Exposures & investments to FCs subject to NFRD
Exposures & investments to NFCs subject to NFRD
Exposures to retail sector not included in the numerator
Other assets (own-use property approximately/assets held for sale etc.)
Taxonomy non-eligible activities
Total covered assets
Other assets not covered in either denominator or numerator
Exposures to Central Governments
Exposures to Central Banks
Sovereigns
Supranational Exposures
Trading book exposures
348
119
44
1,091
824
264
814
1,168
9,542
13,473
1,111
9,476
137
294
4
1%
1%
0%
5%
3%
1%
3%
5%
39%
55%
4%
39%
1%
1%
0%
Total assets not covered in either denominator or numerator
Total assets
11,021
24,494
45%
100%
Taxonomy eligible economic activities as a percentage of total assets amount to 16% for the year ended 31
December 2022, whereas non-eligible economic activities amount to 39% of total assets for the year ended 31
December 2022. Total derivative exposures as a % of total assets amount to less than 1% for 2022.
110
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ESG Disclosures
Annual Financial Report 2022
PART C:
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, environmental integrity, climate stability and a viable
economy are all among the Group’s key targets for 2022 and beyond.
The Group publishes its Annual Non-Financial Results based on the Global Reporting Initiative (GRI) and the
Sustainability Accounting Standards Board (SASB) guidelines and standards, which identify and include all the
above information. The Corporate Sustainability Report 2022 will be available at the Group's website
http://www.bankofcyprus.com (Group/Sustainability/Our Sustainability Reports).
Commitment to Sustainability
Climate change and transition to a sustainable economy is one of the greatest challenges. As part of its vision to
be the leading financial hub in Cyprus, the Group is determined to lead the transition of Cyprus to a sustainable
future. The Group continuously evolves towards its ESG agenda and continues to make progress towards building
a forward-looking organisation embracing ESG in all aspects of business as usual.
The Group acts with transparency and accountability, in line with its code of ethics, and aspires to lead in an era
characterised by exponential change, disruption and digitalisation through its innovative approach. The Group
remains consistent and committed towards all its stakeholders; investors, customers, shareholders, employees
and the society.
The ESG strategy formulated in 2021 is continuously expanding. The Group is maintaining its leading role in the
Social and Governance pillars and focus on increasing the Group’s positive impacts on the Environment by
transforming not only its own operations, but also the operations of its customers.
Employees
The Group recognises the significance of investing in employee empowerment and development.
Employee Engagement
As of 31 December 2022, the Group employed 2,889 employees compared to 3,438 persons as at 31 December
2021. 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 2022 is disclosed in Note 14 of the Consolidated
Financial Statements. BOC PCL has developed policies to safeguard gender equality, diversity and inclusion.
Policies, procedures, training and a series of tools are available to ensure the Group fosters a culture of
meritocracy and fairness. Following the agreement with the Cyprus Union of Bank Employees for the renewal of
the collective agreement for the years 2021 and 2022 a performance-based pay structure was introduced across
the Group to drive greater alignment with Group’s strategy and ambition.
In 2022, under the ‘Organisational Health’ project, the Group executed two Pulse check surveys. The Pulse checks
remain valuable tools to reassess peoples’ perspectives, management’s commitment and engagement around
the Group’s selected health priorities (Personal Ownership, Knowledge Sharing, Employee Involvement and
Career Opportunities). Following Pulse checks all practices were improved and dedicated Group and Divisional
action plans were designed.
BOC PCL has continued to upgrade its staff’s skill set by providing training and development opportunities to all
staff, and capitalising on modern delivery methods. In 2022, BOC PCL heightened its emphasis on staff wellness
by offering webinars, team building activities and family events with sole purpose to enhance mental, physical,
financial and social health, attended by 1,424 employees, through its ‘Well-at-Work program’.
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Annual Financial Report 2022
Non-financial information statement (continued)
Learning and Development
Under the Group's Learning and Development Policy, in 2022 the training programmes delivered were based on
the following training pillars:
Systems and data - Provide reskilling and upskilling opportunities to unlock people’s potentials and help
them to better cope with the ongoing changing professional needs and skills.
Capability building training - Evolve management skills of middle management to better manage, engage
with people and develop further senior management leadership styles to inspire people and drive change.
Business Driven training - Provide ongoing training opportunities to keep people up to date with
regulatory, compliance, information security etc. knowledge, to perform with integrity and
professionalism.
As the pandemic restrictions subsided during 2022, training programs offered to members of staff increased by
32% in 2022 in comparison to 2021 and total training hours offered increased by 35% in comparison to 2021. In
2022, 100% of employees received training, with a total of 67,326 training hours being offered. Further to the
provision of e-learnings and live webinars, the Group provided 75 physical trainings and programs totalling 13,603
hours during 2022.
Health and Safety
The Health and Safety (H&S) of employees, customers and associates is of primary responsibility for the Group.
The objective has always been to prevent work-related injuries and ensure H&S at the workplace through the
effective management of related risks.
In 2022 the Group H&S Policy and the internal procedures were revised so as to ensure compliance with the
new H&S regulations. Employees were trained on H&S issues and procedures through an e-learning course. In
addition, training sessions were conducted for the Presidents of the Safety Committees and key persons of the
H&S team, the Compliance Liaisons and the First Aiders. The Group conducts evacuation exercises once a year
nationwide for the emergency procedures, including earthquakes and fire. Identified risks through the risk
assessments have been properly addressed throughout the year. Our approach is to provide assurance that risks
are being properly managed and make our people feel safe. In 2022, BOC PCL continued emphasizing staff
wellness offering seminars on Healthy Eating and Mental Health in the workplace, through its ‘Well at Work
program’.
Society
The Group’s CSR Strategy and CSR Programme contribute to the Social Pillar of the ESG Strategy and support
the Group’s selected United Nations Sustainability Development Goals (SDGs). The Group’s CSR programme and
all relevant initiatives are compatible with its core business and enhance the Group’s overall strategy and vision.
The CSR Strategy clearly indicates the move from issuing a cheque and requesting logo placement, to examining,
contributing, engaging and finally, committing to the cause of support. 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.
The Group’s Social Programme responds when:
A compelling societal need exists.
The said need is not fully served by the public sector.
The proposed actions/strategies best serve all the Group’s stakeholders (investors, customers,
employees, shareholders, regulators etc.).
In 2022 the Group continued to undertake sustainable support to the local community with Health Pillar initiatives,
and Education Pillar initiatives, based on the relevant policy and strategy. Additionally, the Group continued to
develop initiatives that aimed to preserve local culture and history, through the Bank of Cyprus Cultural
Foundation and to enhance innovation and start-ups through the IDEA Innovation Centre. The Group successfully
continued and expanded the operation of the award winning SupportCY network of companies and NGOs.
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Non-financial information statement (continued)
Society (continued)
SupportCY was created in March 2020, in order to support public services performing frontline duties during the
COVID-19 pandemic, its actions led by BOC PCL expanded in supporting various societal needs. At the same time,
it continued to generate 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 2022, the
SupportCY network had more than 167 members, while the SupportCY Crises and Disasters Respond Center, the
SupportCY Volunteers Corps and SupportCY House, continue to operate and expand in order to satisfy and cover
even more needs of the Cyprus society, and beyond. By 31 December 2022, the SupportCY initiative contributed
to society, more than €880,000 worth in funds services and products with BOC PCL contributing most of the
monetary support.
To support all the above actions, BOC PCL contributed approximately €620,000 for the support and enhancement
of more than 90 NGOs, associations, charity organisations, municipalities, schools, sports federations, and sports
academies, while offering refurbished computers and other office equipment to schools, associations and NGOs
from BOC PCL’s stock.
The main sustainable support actions within the three pillars of Health, Environment and Education, are indicated
below.
Health pillar main actions:
More than 55,000 patients have been treated at the Bank of Cyprus Oncology Centre since its
establishment by BOC PCL and the Cyprus Government in 1998, while the Group continued offering
extensive support, financial and otherwise, towards the Centre. The cumulative contribution of the Group
to the Bank of Cyprus Oncology Centre is approximately €70 million.
The Group coordinated for one more year the 'Fight against Cancer' campaign with the Cyprus Anticancer
Society, customised to meet pandemic related social distancing and other rules. The campaign resulted
in fund raising of €446,000, recording an increase of around 36% relating to the past year.
In 2022, 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 work with, and support several Patient Associations.
Education pillar main actions:
the
the Foundation
institution’s social
is developing and upgrading
The Bank of Cyprus Cultural Foundation (‘the Foundation’) is a non-profit organisation established in
1984, protecting cultural heritage and supporting youth, curating two museums and five rare collections.
The main strategic objectives of the Foundation are the promotion of research, the study of Cypriot
culture in the fields of archaeology, history, art and literature, the preservation and dissemination of the
cultural and natural heritage of Cyprus, with particular emphasis on the international promotion of the
long-standing Greek culture on the island, the shift to research and development of cultural sustainability
through European grants and the upgrading and promotion of the educational role of the Foundation. In
addition,
for
vulnerable/disadvantaged groups, aiming at permanent changes/adaptations in its museums and actions
that promote and facilitate the participation of all vulnerable/disadvantaged groups in culture. The
Foundation has more than 250 Cyprological editions, has organised and participated in more than 60
exhibitions in Cyprus and abroad, 100 conferences and more than 10,000 children have participated in
its educational programmes since establishment.
In 2022 IDEA was recognised as a valuable partner by the State through the signing of a Memorandum
of Understanding with the Ministry of Research, Innovation & Digital Policy, thus materialising its strategic
pillar for Public-Private Sector cooperation. The Memorandum included a grant of €100,000 for two IDEA
start-ups, as well as joint activities to strengthen youth innovative entrepreneurship. IDEA’s cornerstone
is its Startup Programme, a comprehensive business creation training program, which hosts start-ups for
a period of nine months. Through its extensive panel of more than 80 high-profile mentors and trainers
working mostly pro-bono, start-ups work closely with industry experts to receive feedback, mentoring,
consultation and professional services. In 2022 IDEA has brought to life innovative businesses relating to
healthtec, greentec and tourism sectors, through its current five start-ups.
In 2022, the Group repeated the partnerships with various organisations to boost efforts around
education, innovation and ingenuity. Additionally, the Group awards excellence and creativity among
students, but also recognises students who stand out in international and local competitions, through
awards and prizes. The Group also awarded talented youth in sports, through sport associations and
academies.
role
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Non-financial information statement (continued)
Education pillar main actions: (continued)
Road Safety is one more sub-pillar in Education that the Group is actively involved, through the
organisation and support of campaigns such as friendly tire and mechanical inspections on vehicles, and
activities in schools on road safety education, in partnership with expert NGOs, the Police and the Ministry
of Transportation.
Environment
The Group aspires to increase its positive impact on environment and maintain its leading role in the social and
governance pillars by transforming not only its own operations, but also the operations of its customers. Further
details on the Group’s strategy and actions to deliver on the Group’s ambitions are disclosed in Part A - TCFD of
these ‘ESG Disclosures’ and in Section ‘Business Overview’ in the Directors’ Report.
During 2022, the Group initiated more environmental programmes in partnerships with expert Non-Governmental
Organisations (‘NGOs’) and other entities, focusing on climate change impacts and the prevention, response to
and recovery of forest fires, biodiversity and sea pollution.
Environmental pillar main actions:
The ‘Melissa Zoi’ Centre, a bee artificial insemination project for biodiversity, was inaugurated in June
2022, by BOC PCL and the Rotary Clubs of Cyprus. The initiative aims to revitalise the environment and
restore economic activity to areas where honey is produced, and which were devastated by wildfires. The
2021 wildfires affected about 75% of beehives so the project aims to revive the destroyed ecosystem,
revitalising the affected honey-producing communities. The goal is to provide the necessary support to
nature and to the communities that suffer environmentally, financially and professionally. The Centre’s
operation will benefit nine communities and 38 small and medium-sized honey-making businesses.
‘Seaμμαχία’, a joint Sea Venture, is a project funded by BOC PCL and includes the study and installation
of a pilot system for monitoring the quality of sea water in the area of the Ayia Napa Marina in Cyprus.
The purpose is to monitor and record important water quality parameters in real time. The main goal of
the project is the provision of early detection of pollution indices, which in turn will provide warnings for
necessary corrective actions to ensure environmental protection, not only for the Ayia Napa area, but
also other coasts of Cyprus thus creating a national sea water quality control system. The pilot program
will be implemented by the EMERGE research group of the Cyprus University of Technology in
collaboration with CYMEPA and the Ayia Napa Marina.
BOC PCL and SupportCY businesses and organizations joined forces and supported the Forest Department
in the prevention and protection of Cypriot forests. Prevention measures and actions related to public
awareness on the protection of forests, as well as fire protection programmes in the forests of Cyprus,
were launched in the summer of 2022. Based on official statistical surveys, prevention is the most
important factor in the protection of forests. A series of forest patrols has been programmed by the
SupportCY Volunteers Corps and the Crises and Disasters Centre. Concurrently, educational and
informative actions have been planned in shopping centres and rural municipalities with the collaboration
of the Forest Department.
‘Rescue 3 Europe’ has certified five members of BOC PCL’s SupportCY Volunteers Corps as ‘Swiftwater’
and ‘Flood First Responders’ after undergoing intense training in Greece. The certified members will be
mobilized to support and deal with the event of flood.
SupportCY's members, partnered organisations and state agencies planted 180 trees at Lourka Forest in
Geri in 2022. The tree planting locations are designated by the Department of Forests, partnered up with
BOC PCL and SupportCY for tree planting activities.
Human Rights and Equal Opportunities
The Group’s Code of Ethics sets out clearly the ethical moral principles and values upheld by the Group and
provides a framework for expected behaviour and guides the Group's workforce to appropriate conduct. The
Group acknowledges its responsibility to respect human rights as set out in the International Bill of Human Rights
and follows internationally acclaimed directives, principles and initiatives to protect human rights, such as the
Core Labour Conventions of the International Labour Organisation (ILO) and the Universal Declaration of Human
Rights (UDHR).
114
BANK OF CYPRUS PUBLIC COMPANY LIMITED
ESG Disclosures
Annual Financial Report 2022
Non-financial information statement (continued)
Human Rights and Equal Opportunities (continued)
The Group has policies to ensure gender equality, diversity and inclusion and operates based on objective criteria
related to ability, ethics and experience, regardless of colour, race, national/ethnic origin, disability, age, gender,
religion, sexual orientation or political opinion. Policies and procedures, as well as training and a range of tools
are available to ensure that the Group promotes a culture of equality. The zero-tolerance policy on discrimination,
harassment and bullying is designed to effectively manage and ultimately eliminate any form of harassment,
discrimination or unfair treatment.
In order to mitigate against human rights risk, or violations that may occur, BOC PCL has comprehensive due
diligence procedures in place, which include: the implementation of the Code of Conduct which defines specific
behaviours, practices, responsibilities and rules for staff of the Group to follow and uphold as staff members of
the Bank of Cyprus Group and a suite of reporting mechanisms to support the timely reporting of issues.
Combating bribery and issues related to corruption
The Group’s fundamental values and principles governing its business activities emphasise the importance of
ensuring ethical conduct at all times. Protecting the integrity of the financial system from financial crime risks
including money laundering, terrorist financing and bribery and corruption is of intrinsic importance to the Group.
The Group abides by a zero-tolerance policy on money laundering, tax evasion, funding of terrorist activity,
bribery, corruption fraud and market abuse. A strong anti-bribery policy, a gift registry, a conflict-of-interest
registry and frequent reminders contribute to achieving high-level compliance. Protecting money, privacy and
data of the Group’s customers is the key to its Anti-Bribery and Corruption Policy. Key Codes and policies in
managing such matters are the Group’s Code of Ethics, the Group’s Code of Conduct, the Group’s Anti-Bribery
and Corruption Policy, the Conflicts of Interest Group Policy, the Group Whistleblowing Policy and the Group Policy
Relating to the Prevention of Money Laundering and Terrorism Financing.
Training programs on anti-money laundering and anti-corruption policies and procedures are carried out by the
employees on an annual basis.
The Group maintains an Anti-Financial Crime Framework. An enhanced risk-based approach with regard to the
risk scoring of the customers is followed and this is reflected in BOC PCL’s Customer Acceptance Policy. Customers
are risk-scored for AML purposes, according to a set of parameters that take into account geographical factors,
products purchased, distribution channels, transactional behaviour and other risk indicating factors. Customers
go through the Group's due diligence process at the on-boarding stage and on an ongoing basis, which is driven
by the risk assessment of the customer. Some customers and beneficial owners present higher risk (e.g.,
politically exposed persons (PEPs) and/or customers established/residing in 'high-risk' third countries). For these
customers enhanced due diligence is applied. Further, the Group commits itself to safeguarding the personal data
of its customers, suppliers and partners. Customers retain control of their personal data and exercise their rights
as per the EU GDPR with regard to the way their personal data is collected, processed and secured. The Group
applies Data Protection Impact Assessment (DPIAs), to promptly identify and mitigate any privacy risks.
All employees and Directors are made aware of the Regulatory Compliance Policies and standards.
Diversity Report
The Group's diversity report is contained in the ‘Diversity’ section of the Corporate Governance Report.
Business Model
The business model of the Group is described in the ‘Business Overview’ and 'Strategy and Outlook' sections of
the ‘Directors' Report’ within the Annual Financial Report 2022.
115
BANK OF CYPRUS PUBLIC COMPANY LIMITED
ESG Disclosures
Annual Financial Report 2022
Non-financial information statement (continued)
Risk Management
A description of the principal risks, their impact on business activity, and the way they are managed is disclosed
in section 'Principal risks and uncertainties - Risk management and mitigation' of the ‘Directors' Report’ and
section 'Pillar III – Risk Management' of Part A - TCFD of these ‘ESG Disclosures’ and in the ‘Risk and Capital
Management Report’ all forming part of this Annual Financial Report.
The risks related to the Group’s corporate responsibility actions and the actions undertaken by the Group in order
to address them are covered within each pillar of responsibility.
Key Performance Indicators
An analysis of KPIs relevant to the Group is disclosed in the ‘Financial Results’ section of the Directors' Report.
Climate and Environmental KPIs are disclosed in the ‘Pillar IV – Metrics and Targets‘ section of Part A - TCFD of
these ‘ESG Disclosures’.
116
Consolidated Financial Statements for 2022
Annual Financial Report 2022
Funding from central banks
29. Non-current assets and disposal groups held for sale
30.
31. Customer deposits
32.
33. Debt securities in issue and Subordinated liabilities
34. Accruals, deferred income, other liabilities and other
Insurance liabilities
provisions
35. Share capital
36. Dividends
37. Retained earnings
38.
39. Provisions for pending litigation, claims, regulatory and
Fiduciary transactions
other matters
Leases
40. Contingent liabilities and commitments
41. Additional information on cash flow statement
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 and funding risk
48. Risk management - Insurance risk
49. Capital management
50. Related party transactions
51. Group companies
52.
53. Country by country reporting
54. Events after the reporting period
Investments in associates and joint venture
Page
225
226
227
228
229
230
231
231
232
232
232
239
239
240
241
242
243
274
282
289
291
293
300
302
304
305
BANK OF CYPRUS GROUP
Consolidated Financial Statements
for the year ended 31 December 2022
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 financial liabilities
Reclassification of financial assets and liabilities
2.16
2.17 Derecognition of financial assets and financial
liabilities
2.18 Modification of financial assets
2.19
Impairment of financial assets
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
Property and equipment
Investment properties
Stock of property
Non-current assets held for sale and discontinued
operations
Intangible assets
Share capital
Share-based compensation plans
2.32
2.33
2.34
2.35 Other equity instruments
Treasury shares
2.36
Provisions for pending litigation, claims, regulatory
2.37
and other matters
3.
4.
5.
Going concern
Economic and geopolitical 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/(losses) on financial instruments
12.
Income from assets and expenses from liabilities under
insurance and reinsurance contracts
13. Other income
14. Staff costs
15. Other operating expenses
16. Credit losses on financial instruments and impairment net
of reversals of non-financial assets
Income tax
17.
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
119
120
121
122
124
126
126
126
128
129
132
133
133
134
135
135
135
137
138
138
139
140
143
143
144
144
151
151
152
152
153
153
154
154
156
157
157
157
158
158
159
159
159
159
160
160
161
172
179
179
180
180
180
181
182
183
190
191
192
195
195
196
201
207
217
219
220
221
222
224
118
BANK OF CYPRUS GROUP
Consolidated Income Statement
for the year ended 31 December 2022
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/(losses) on financial instruments
Net gains on derecognition of financial assets measured at amortised cost
Income from assets under insurance and reinsurance contracts
Expenses from liabilities under insurance and reinsurance contracts
Net losses from revaluation and disposal of investment properties
Net gains on disposal of stock of property
Other income
Total operating income
Staff costs
Special levy on deposits and other levies/contributions
Provisions for pending litigations, regulatory and other provisions (net of reversals)
Other operating expenses
Operating profit before credit losses and impairment
Credit losses on financial assets
Impairment net of reversals on non-financial assets
Profit before tax
Income tax
Profit after tax for the year
Attributable to:
Owners of the Company
Non-controlling interests
Profit for the year
Annual Financial Report 2022
Notes
2022
€000
2021
(restated)
€000
6
7
7
8
8
9
9
10
11
12
12
6
27
13
14
15
39
15
16
16
17
904,640
429,276
22,119
(65,376)
(14,840)
371,179
202,583
(10,299)
31,291
10,052
5,235
114,681
(43,542)
(999)
13,970
16,681
710,832
(294,361)
(38,492)
(11,880)
754,652
360,947
27,621
(66,760)
(25,192)
296,616
180,212
(8,416)
16,503
(21,323)
3,859
205,861
(144,817)
(1,828)
13,296
14,244
554,207
(218,633)
(36,350)
523
(166,689)
(170,318)
199,410
(59,529)
(29,549)
110,332
(35,471)
74,861
71,995
2,866
74,861
129,429
(46,144)
(49,456)
33,829
(4,161)
29,668
27,500
2,168
29,668
Basic and diluted profit per share attributable to the owners of the Company
(€ cent)
18
0.8
0.3
119
BANK OF CYPRUS GROUP
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2022
Annual Financial Report 2022
Profit 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 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)/gain on hedging of net investments in foreign branches and
subsidiaries
Transfer to the consolidated income statement on dissolution/disposal of
foreign branches and subsidiaries
OCI not to be reclassified in the consolidated income statement in
subsequent periods
Fair value reserve (equity instruments)
Net (losses)/gains on investments in equity instruments designated at FVOCI
Property revaluation reserve
Fair value gain before tax
Deferred tax
Actuarial (losses)/gains on defined benefit plans
Remeasurement (losses)/gains on defined benefit plans
Other comprehensive (loss)/income for the year net of taxation
Total comprehensive income for the year
Attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive income for the year
Notes
2022
€000
2021
€000
74,861
29,668
(13,309)
(11,197)
(9,935)
(1,262)
(550)
(398)
(398)
-
(2,112)
(152)
1,967
(7,881)
21
25
17
14
(4,079)
-
(6,059)
(2,015)
(2,015)
-
244
-
244
(4,288)
(4,288)
(19,368)
55,493
52,627
2,866
55,493
7,797
(68)
6,475
789
789
-
535
408
127
5,151
5,151
5,925
35,593
33,440
2,153
35,593
120
BANK OF CYPRUS GROUP
Consolidated Statement of Changes in Equity
for the year ended 31 December 2022
Annual Financial Report 2022
Attributable to the owners of the Company
Share
capital
(Note 35)
Share
premium
(Note 35)
Other
capital
reserves
(Note 14)
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
€000
1 January 2022
Profit for the year
Other comprehensive (loss)/income after tax for
the year
Total comprehensive income/(loss) after tax for the
year
Decrease in value of in-force life insurance
business
Tax on decrease in value of in-force life insurance
business
Share-based benefits - cost
Payment of coupon to AT1 holders (Note 35)
Dividends paid to non-controlling interests
Transfers to retained earnings
31 December 2022
959,794
1,250
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
640,980
80,060
23,285
113,651
17,659
1,836,679
220,000
22,434
2,079,113
-
-
-
-
-
-
-
-
-
71,995
(4,288)
-
-
244
(13,212)
67,707
244
(13,212)
-
-
-
-
71,995
(2,112)
(19,368)
(2,112)
52,627
322
-
14,114
(1,764)
(27,500)
-
-
-
-
-
-
-
-
-
-
-
7,844
(6,134)
(2,931)
(14,114)
1,764
-
-
-
-
-
-
-
-
-
1,221
-
-
322
(27,500)
-
-
-
-
-
-
-
-
-
-
-
2,866
74,861
-
(19,368)
2,866
55,493
-
-
-
-
-
-
322
(27,500)
(3,000)
(3,000)
-
-
959,794
1,250
322
701,381
74,170
7,142
101,301
16,768
1,862,128
220,000
22,300
2,104,428
122
BANK OF CYPRUS GROUP
Consolidated Statement of Changes in Equity
for the year ended 31 December 2022
Annual Financial Report 2022
Attributable to the owners 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
1,250
639,079
79,515
22,894
110,401
17,806
1,830,739
220,000
24,410
2,075,149
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27,500
5,151
32,651
(3,714)
464
(27,500)
-
-
-
545
545
-
-
-
-
-
-
391
391
-
-
-
-
-
-
-
-
3,714
(464)
-
-
-
-
(147)
(147)
-
-
-
-
-
27,500
5,940
33,440
-
-
(27,500)
-
-
-
-
-
-
-
-
-
-
2,168
(15)
2,153
-
-
-
29,668
5,925
35,593
-
-
(27,500)
(2,110)
(2,110)
(2,019)
(2,019)
959,794
1,250
640,980
80,060
23,285
113,651
17,659
1,836,679
220,000
22,434
2,079,113
1 January 2021
Profit for the year
Other comprehensive income/(loss) after tax for
the year
Total comprehensive income/(loss) 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
Payment of coupon to AT1 holders (Note 35)
Dividends paid to non-controlling interests
Impact on NCI due to disposal of subsidiary
(Note 51)
31 December 2021
123
Annual Financial Report 2022
2022
Note
€000
2021
(restated)
€000
110,332
33,829
-
34,203
29,549
14,114
59,529
(5,235)
(21,344)
(940)
2,384
51,839
28,070
23,184
(18,418)
-
-
(15,886)
13
114
2,915
(137)
34,928
49,456
(3,714)
46,144
(3,859)
(20,102)
(1,774)
-
16,779
27,390
31,919
(25,094)
724
12,558
(14,251)
(7)
121
2,783
294,423
187,693
28,996
50,619
52,450
1,467,436
(46,773)
(231,946)
(11,615)
4,132
17,570
(57,783)
8,985
153,311
1,729,805
(6,375)
1,723,430
(23,955)
65,090
(8,956)
997,671
(13,012)
(236,965)
89,765
(46,671)
21,648
4,448
(2,103)
136,816
1,171,469
(1,984)
1,169,485
(1,101,030)
(619,379)
454,145
(20,686)
30,929
940
332,151
-
-
(6,752)
(17,347)
517
41,400
(285,733)
382,888
(23,924)
27,324
1,774
145,030
19,225
9,535
(6,287)
(16,053)
158
11,126
(68,583)
16
11
25
26
BANK OF CYPRUS GROUP
Consolidated Statement of Cash Flows
for the year ended 31 December 2022
Profit before tax
Adjustments for:
Share of profit from associates
Depreciation of property and equipment and amortisation of intangible assets
Impairment of stock of property and other non-financial assets
Change in value of in-force life insurance business
Credit losses on financial assets
Net gains on derecognition of financial assets measured at amortised cost
Amortisation of discounts/premiums and interest on debt securities
Dividend income
Net loss on disposal of investment in debt securities measured at FVOCI
Loss from revaluation of debt securities designated as fair value hedges
Interest on subordinated liabilities and debt securities in issue
Negative interest on loans and advances to banks and balances with central banks
Negative interest on funding from central banks
Loss on disposal/dissolution of subsidiaries and associates
Loss from buyback of subordinated loan stock
Net gains on disposal of stock of property and investment properties
Loss/(profit) on sale and write offs of property and equipment and intangible assets
Interest expense on lease liability
Net losses from revaluation of investment properties
Change in:
Loans and advances to banks
Deposits by banks
Obligatory balances with central banks
Customer deposits
Life insurance assets and liabilities
Loans and advances to customers
Prepayments, accrued income and other assets
Provisions for pending litigation, claims, regulatory and other matters
Accruals, deferred income, other liabilities and other provisions
Derivative financial instruments
Investments measured at FVPL
Stock of property
Tax paid
Net cash from operating activities
Cash flows from investing activities
Purchases of debt, treasury bills and equity securities
Proceeds on disposal/redemption of investments in debt and equity securities
Net exchange differences
Interest received from debt securities
Dividend income from equity securities
Proceeds on disposal of held for sale portfolios
Deposits on held for sale portfolios
Proceeds on disposal of subsidiaries and associates
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
Net cash used in investing activities
124
BANK OF CYPRUS GROUP
Consolidated Statement of Cash Flows
for the year ended 31 December 2022
Cash flow from financing activities
Payment of AT1 coupon
Net (repayments)/proceeds of funding from central banks
Proceeds from issue of subordinated liabilities
Repayments of subordinated liabilities
Proceeds from the issue of debt securities (net of costs)
Interest on subordinated liabilities
Interest on debt securities in issue
Negative interest on loans and advances to banks and balances with central banks
Principal elements of lease payments
Dividend paid by subsidiaries to non-controlling interests
Net cash (used in)/from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents 1 January
31 December
Annual Financial Report 2022
2022
Note
€000
2021
(restated)
€000
35
(27,500)
(979,389)
-
(35,605)
-
(23,334)
(7,858)
(23,184)
(6,884)
(3,000)
(1,106,754)
330,943
9,255,210
9,586,153
42
(27,500)
2,000,000
300,000
(231,596)
298,505
(33,570)
-
(31,919)
(7,637)
(2,110)
2,264,173
3,365,075
5,890,135
9,255,210
Additional information on the cash flow statement is provided in Note 41.
125
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
1.
Corporate information
Bank of Cyprus Public Company Ltd (the ‘Company’ or ‘BOC PCL’) is the holding company of Bank of Cyprus
Group (the 'Group'). The principal activities of the Company and its subsidiary companies involve the
provision of banking services, financial services, insurance services and the 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 Law.
The Consolidated Financial Statements are available at the Bank of Cyprus Public Company Ltd registered
office (51 Stassinos Street, Ayia Paraskevi, 2002 Strovolos, Nicosia, Cyprus) and on the Group's website
www.bankofcyprus.com (Group/Investors Relations/Financial Results) (the Group's website).
The Annual Financial Report of Bank of Cyprus Holdings Public Limited Company Group is available on the
Group's website.
Consolidated Financial Statements
The Consolidated Financial Statements of the Company for the year ended 31 December 2022 (the
Consolidated Financial Statements) were authorised for issue by a resolution of the Board of Directors on 31
March 2023.
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.
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.
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.
Comparative information
Comparative information was restated following certain changes in the presentation of the primary
statements for the year ended 31 December 2022 as described further below. The changes did not have an
impact on the results for the year or equity of the Group.
126
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
2.1
Summary of significant accounting policies (continued)
Basis of preparation (continued)
Reclassifications within the Consolidated Income Statement
‘Gains/(losses) on disposal/dissolution of subsidiaries and associates’, previously presented within ‘Net
(losses)/gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates’,
are now presented within ‘Other income’. 'Net gains/(losses) on financial instrument transactions' has been
renamed to 'Net gains/(losses) on financial instruments'. ‘Share of profit/(loss) from associates’ previously
presented separately in the Consolidated Income Statement is now presented within ‘Other income’ as well.
‘Provisions for pending litigations, regulatory and other provisions (net of reversals)’ previously presented
within ‘Other operating expenses’ is now presented separately on the Consolidated Income Statement. As a
result of these changes in the presentation of 'Other income' 'Turnover' is also restated as indicated below.
Insurance income and expense previously presented in a single line as insurance income net of claims and
commissions are now presented separately. Credit losses relating to financial assets, including loans and
advances to customers, is now presented in a single line. Analysis of the individual components included
within each line item is presented in the respective Notes.
Net losses on financial instrument transactions and
disposal/dissolution of subsidiaries and associates
Net losses on financial instruments
Share of profit from associate
Other income
Insurance income net of claims and commissions
Income from assets under insurance and reinsurance
contracts
Expenses from liabilities under insurance and
reinsurance contracts
Credit losses to cover credit risk on loans and
advances to customers
Credit losses of other financial instruments
Credit losses on financial assets
Other operating expenses
Provisions for pending litigations, regulatory and
other provisions (net of reversals)
31 December
2021 (as
previously
presented)
€000
Reclassifications
31 December
2021
(restated)
€000
€000
(22,047)
n/a
137
14,831
(7,079)
22,047
(21,323)
(137)
(587)
-
n/a
(21,323)
n/a
14,244
(7,079)
61,044
(61,044)
n/a
n/a
n/a
61,044
(40,341)
(5,803)
n/a
(46,144)
169,795
n/a
169,795
205,861
205,861
(144,817)
(144,817)
-
61,044
40,341
5,803
(46,144)
-
n/a
n/a
(46,144)
(46,144)
(523)
(170,318)
523
-
523
(169,795)
Turnover
755,239
(587)
754,652
127
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
2.1
Summary of significant accounting policies (continued)
Basis of preparation (continued)
Reclassifications within the Consolidated Balance Sheet
Investments are now presented by class on the face of the consolidated balance sheet and loan stock is now
presented in separate lines by type of liability issued.
Assets
Investments
Investments pledged as collateral
Investments at FVPL
Investments at FVOCI
Investments at amortised cost
Liabilities
Loan stock
Debt securities in issue
Subordinated liabilities
Reclassifications
31 December
2021
(restated)
€000
€000
31 December
2021 (as
previously
presented)
€000
879,005
1,260,158
n/a
n/a
n/a
(879,005)
(1,260,158)
199,194
748,695
1,191,274
2,139,163
-
644,928
n/a
n/a
644,928
(644,928)
302,555
342,373
-
n/a
n/a
199,194
748,695
1,191,274
2,139,163
n/a
302,555
342,373
644,928
The Consolidated Statement of Cash Flows for the year ended 31 December 2021 as well as respective
notes were restated to reflect the changes in the presentation of the Consolidated Income Statement and
Consolidated Balance Sheet described above.
In addition, comparative information was restated in relation to the presentation of segmental analysis as
detailed in Note 6. This change led to a respective restatement of Notes 6, 23, 31, 45.2, 45.3, 45.6 and
45.10.
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. The adoption of new and
amended standards and interpretations as explained in Note 2.2.1 did not have an impact on the Group.
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 2022 and which are explained below. The Group has not early
adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
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.
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.
128
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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 (continued)
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).
Annual Improvements to IFRS Standards 2018–2020 Cycle
Annual Improvements to IFRS Standards 2018–2020 Cycle makes amendments to the following standards:
i.
ii.
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.
iii. 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.
iv. 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.
These amendments and the annual improvements to IFRS Standards Cycle did not have a significant impact
on the Group during the year ended 31 December 2022.
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 17: Insurance Contracts
IFRS 17 ‘Insurance Contracts’ (IFRS 17) became effective on 1 January 2023 and applies retrospectively.
IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance
contracts, reinsurance contracts and investment contracts with discretionary participation features.
IFRS 17, is a comprehensive new accounting standard for insurance contracts which replaces IFRS 4
Insurance Contracts. In contrast to the requirements in IFRS 4, IFRS 17 provides a comprehensive model
(the general measurement model or ‘GMM’) for insurance contracts, supplemented by the variable fee
approach (‘VFA’) for contracts with direct participation features that are substantially investment-related
service contracts, and the premium allocation approach ('PAA') mainly for short duration insurance
contracts. The main features of the new accounting standard for insurance contracts are the following:
i.
The measurement of the present value of future cash flows, incorporating an explicit risk adjustment,
remeasured every reporting period (the fulfilment cash flows)
ii. A Contractual Service Margin (CSM) that is equal and opposite to any day one gain in the fulfilment
cash flows of a group of contracts. The CSM represents the unearned profitability of the insurance
contracts and is recognised in profit or loss over the service period (i.e. the coverage period)
iii. Certain changes in the expected present value of future cash flows are adjusted against the CSM and
thereby recognised in profit or loss over the remaining contractual service period
iv. The recognition of insurance revenue and insurance service expenses in the consolidated income
v.
statement based on the concept of services provided during the period
Insurance services results (earned revenue less incurred claims) are presented separately from the
insurance finance income or expense
vi. Extensive disclosures to provide information on the recognised amounts from insurance contracts
and the nature and extent of the risks arising from these contracts.
129
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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)
Insurance contracts measurement under IFRS 17
IFRS 17 prescribes the transition approaches that must be applied. On transition to IFRS 17, entities must
apply the fully retrospective approach (FRA), unless impracticable. When impracticable to apply the FRA,
such as when there is a lack of sufficient and reliable data, an entity has an accounting policy choice to use
either the modified retrospective approach (‘MRA’) or the fair value approach (‘FVA’). The application of
each approach by the Group is described further below.
Under IFRS 17 the carrying value of insurance contracts comprises of the present value of future cash flows
(separated into liability for remaining coverage and liability for incurred claims), a risk adjustment for non-
financial risk and the contractual service margin, which is calculated retrospectively and represents
expected future profits to be recognized over the lifetime of contracts. In estimating future cash flows, the
Group will incorporate, in an unbiased way, all reasonable and supportable information that is available at
the reporting date.
To identify groups of insurance contracts, individual contracts subject to similar dominant risks and
managed together are identified as a portfolio of insurance contracts. Each portfolio is further separated by
profitability group and issue date into periodic cohorts. The fulfilment cash flows comprise:
i.
ii.
the best estimates of future cash flows, including amounts expected to be collected from premiums
and payouts for claims, benefits and expenses, which are projected using assumptions based on
demographic and operating experience;
an adjustment for the time value of money and financial risks associated with the future cash flows;
and
iii. an adjustment for non-financial risk that reflects the uncertainty about the amount and timing of
future cash flows.
IFRS 17 requires the use of current market values for the measurement of insurance liabilities. The
shareholder’s share of the investment experience and assumption changes will be absorbed by the CSM and
released over time to profit or loss under the VFA. Under the GMM, the amount of CSM recognised in profit
or loss for services in a period will be determined by the allocation of the CSM remaining at the end of the
reporting period over the current and remaining expected coverage period of the group of insurance
contracts based on coverage units. Services provided will be estimated using coverage units, which reflect
the quantity of benefits and the coverage duration.
Changes in liability for incurred claims (LIC) and liability for remaining coverage (LRC) will be reflected in
insurance revenue, insurance service expense, insurance finance income and expense (IFIE), or adjust the
contractual service margin (CSM).
Under IFRS 17, operating expenses will be lower as directly attributable costs, which include both
acquisition and maintenance costs, will be incorporated in actual and estimated future cash flows and
recognised in the results of insurance services.
In contrast to the Group’s IFRS 4 accounting where profits are recognised upfront, the CSM will be
systematically recognised in revenue, as services are provided over the expected coverage period of the
group of contracts without any change to the overall profit of the contracts. Losses resulting from the
recognition of onerous contracts are recognised in the income statement immediately. The CSM is adjusted
depending on the measurement model of the group of insurance contracts. While the general measurement
model (‘GMM’) is the default measurement model under IFRS 17, the Group will apply also the variable fee
approach (‘VFA’), which is mandatory to apply for insurance contracts with direct participation features upon
meeting the eligibility criteria (this will apply primarily to insurance contracts in the unit linked life
portfolio). IFRS 17 provides also for a simplified approach, the Premium Allocation Approach (PAA). The PAA
can be used for contracts with coverage periods of one year or less, or as an approximation to the general
model and will primarily be applied by the Group to non-life insurance contracts and to non-individual life
insurance contracts.
Transition
For all non-life groups of contracts and non-individual life insurance groups of contracts the full
retrospective approach will be applied irrespective of issue date.
130
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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)
The Group will apply the modified retrospective approach for groups of life insurance contracts issued
between 2016 and 2021. The application of the full retrospective approach for these portfolios was
determined to be impracticable for the Group, as obtaining all required historical data for its existing
products from the actuarial valuation reports was not possible. Therefore, the Group will use reasonable and
supportable information from its existing reporting systems, to derive the closest outcome to the full
retrospective approach. For such groups of life insurance contracts, issued prior to 2016, the Group will
apply the fair value approach. In applying the fair value approach, the Group will determine the CSM of the
liability for remaining coverage at the transition date, as the difference between the fair value of the groups
of insurance contracts and the fulfilment cash flows measured as at that date. In determining fair value, the
Group will apply the requirements of IFRS 13 'Fair Value Measurement'.
Value of in-force (VIF)
In accordance with IFRS 17 there will be no VIF asset recognised given that the estimated future profits will
now be included in the measurement of the insurance contract liability as the CSM, representing unearned
profit, which will be gradually recognised over the duration of the contract. The removal of the VIF asset
and the recognition of the CSM, which is a liability, will reduce equity.
Implementation Programme status
The Group is at an advanced stage in the implementation of IFRS 17, having put in place accounting
policies, data and models, and made progress in calculating 2022 comparative data. The Group continues to
make progress with required changes to models and data, and assessing the impact on the Group’s financial
statements. The Group has divided its insurance products in terms of classification and measurement and
aggregation into portfolios, and made estimates using the three measurement models, including a
preliminary calculation of the CSM. The precise impact of adopting IFRS 17 is subject to change as:
The Group continues work to refine the new accounting processes and internal controls.
i.
ii. Although dry runs were carried out, the new systems and associated controls in place have not been
operational for an extensive period.
iii. The Group has not finalised the testing and assessment of controls over its new governance
frameworks and IT systems.
iv. The new accounting policies, assumptions, judgements, and estimation techniques employed are
subject to change until the Group finalises its first financial statements that include the date of initial
application.
Estimated financial impact of the adoption of IFRS 17
On transition the following impact has been estimated:
i.
ii.
the removal of value of in-force from the life insurance business (including associated deferred tax
liability) of approximately €101 million as per the Group’s consolidated balance sheet as at 31
December 2022, which will reduce Group accounting equity by a respective amount (with no impact
on the Group regulatory capital or tangible equity), and
the remeasurement of insurance assets and liabilities and the creation of a contractual service
margin (CSM) liability is estimated to result in an increase in the equity of the insurance business of
the Group (predominantly relating to the life insurance business of the Group) in the range of €70-80
million as at 1 January 2022, which is a consequence primarily of life insurance products.
The estimated effect on equity of the insurance business of the Group as at 1 January 2023 (roll forwarding
the impact on 2022 profits and taking into consideration other movements in reserves in 2022) is an
increase in the range of €50-60 million, compared to the closing equity as at 31 December 2022 as
reported under the previous accounting standard, IFRS 4.
As a result of the benefit arising from IFRS 17 on 1 January 2023 as referred to above, the life insurance
subsidiary distributed €50 million as dividend to BOC PCL in February 2023, which benefited Group
regulatory capital by an equivalent amount on the same date.
The adoption of IFRS 17 is expected to result in a modest annual negative impact on the contribution to
profits of the Group’s insurance business in the near term.
131
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
2.3
Summary of significant accounting policies (continued)
Standards and Interpretations that are issued but not yet effective (continued)
2.3.1
Standards and Interpretations issued by the IASB and adopted by the EU (continued)
IAS 1 Presentation of Financial Statements and IFRS Practice Statement 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 results and financial position.
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates
(amendments)
The amendments introduce the definition of accounting estimates and include 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.
IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction
(amendments)
The amendments require companies to recognise deferred tax on transactions that, on initial recognition,
give rise to equal amounts of taxable and deductible temporary differences. The proposed amendments will
typically apply to transactions such as leases for the lessee and decommissioning obligations. 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
results and financial position.
2.3.2
Standards and Interpretations issued by the IASB but not yet adopted by the EU
Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback (issued on 22 September 2022)
The amendment to IFRS 16 Leases specifies the requirements that a seller-lessee uses in measuring the
lease liability arising in a sale and leaseback transaction, to ensure the seller-lessee does not recognise any
amount of the gain or loss that relates to the right of use it retains. A sale and leaseback transaction
involves the transfer of an asset by an entity (the seller-lessee) to another entity (the buyer-lessor) and the
leaseback of the same asset by the seller-lessee. The amendment is intended to improve the requirements
for sale and leaseback transactions in IFRS 16. It does not change the accounting for leases unrelated to
sale and leaseback transactions. The amendment applies retrospectively to annual reporting periods
beginning on or after 1 January 2024. Earlier application is permitted. The Group does not expect these
amendments to have a material impact on its results and financial position.
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
and (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 annual periods beginning
on or after 1 January 2024, with earlier application permitted. The Group does not expect these
amendments to have a material impact on its results and financial position.
2.4
Basis of consolidation
The Consolidated Financial Statements comprise the Consolidated Financial Statements of the Group as at
and for the year ended 31 December 2022. The financial statements of the subsidiaries are prepared as of
the same reporting date as that of the Company, using consistent accounting policies.
132
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
2.4
Summary of significant accounting policies (continued)
Basis of consolidation (continued)
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:
i.
power over an investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee)
ii. exposure, or rights, to variable returns from its involvement with the investee
iii.
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 in cases 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.
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 policy decisions.
133
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
2.6
Summary of significant accounting policies (continued)
Investments in associates and joint ventures (continued)
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. Investments in associates and joint ventures are assessed at each reporting date
for impairment when there is an indication that the investment may be impaired. 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 included
in 'Other Income' in the Consolidated Income Statement and represents profit or loss before tax. The
associated tax charge is disclosed in income tax.
The Group recognises its share of any changes in the equity of the associate or the joint venture through
the consolidated statement of changes in equity. Gains 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 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 assets/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.
134
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
2.7
Summary of significant accounting policies (continued)
Foreign currency translation (continued)
2.7.1
Transactions and balances (continued)
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.
2.9
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.
135
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.10
Revenue from contracts with customers (continued)
Contract assets and receivables are recorded within ‘Prepayments, accrued income and other assets’ and
contract liabilities within ‘Accruals, deferred income, other liabilities and other provisions’ in the
consolidated balance sheet.
2.10.1 Fee and commission income
The Group earns fee income from a diverse range of services it provides to its clients. Fee income can be
divided into two broad categories:
i.
ii.
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
For fees earned from services that are provided over a certain period of time revenue is 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
For fees earned from providing transaction-type services, revenue is recognised when the service has been
completed, provided such fees are not subject to refund or another contingency beyond the control of the
Group. Incremental costs to fulfil services provided at a point in time are typically incurred and recorded at
the same time as the performance obligation is satisfied and revenue is earned, and are therefore not
recognised as an asset, e.g. brokerage commissions.
Fee and commission income is measured based on consideration specified in a legally enforceable contract
with a customer, excluding amounts such as taxes collected on behalf of third parties. Consideration can
include both fixed and variable amounts. Variable consideration includes refunds, discounts and other
amounts that are contingent on the occurrence or non-occurrence of a future event. Variable consideration
that is contingent on an uncertain event can only be recognised to the extent that it is highly probable that
a significant reversal in the amount of cumulative revenue for a contract will not occur.
2.10.2 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 on 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 disposal of stock of property
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.
136
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.11
Recognition of interest income/expense and income/expense similar to interest
The Group calculates interest income/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 is presented within the
caption ‘Interest income’, while interest income on financial instruments at FVPL is 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’, while interest
expense on financial instruments at FVPL is presented within the caption ‘Expense similar to interest
expense’ in the consolidated income statement. All form part of the ‘Net interest income’.
The Group during the year had funding from central banks with negative interest rates. The Group classifies
the interest on these liabilities within interest income. Negative interest on financial liabilities is disclosed in
Note 7.
The Group during the year had 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 on financial
assets 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/(losses) on financial instruments' for debt
securities, or in ‘Changes in expected cash flows’ component of the 'Credit losses to cover credit risk on
loans and advances to customers' for loans and advances to customers included within 'Credit losses on
financial assets'.
137
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.12
Retirement benefits
The Group operates both defined contribution and defined benefit retirement plans.
Defined contribution plans
The Group recognises obligations in respect of the accounting period in the consolidated income statement.
Any unpaid contributions at the reporting date are included as a liability.
Defined benefit plans
The cost of providing benefits for defined benefit plans is estimated separately for each plan using the
Projected Unit Credit Method of actuarial valuation.
The defined benefit asset or liability comprises the present value of the defined benefit obligations (using a
discount rate based on high quality corporate bonds), reduced by the fair value of plan assets out of which
the obligations are to be settled. Plan assets are assets that are held by a funded plan or qualifying
insurance policies. Any net defined benefit surplus is limited to the present value of available refunds and
reductions in future contributions to the plan. Fair value is based on market price information and in the
case of quoted securities it is the published bid price.
The net charge to the consolidated income statement mainly comprises the service costs and the net
interest on the net defined benefit asset or liability, and is presented in staff costs. Service costs comprise
current service costs, past-service costs, gains and losses or curtailments and non-routine settlements. Re-
measurements, comprising actuarial gains and losses, the effect of the asset ceiling (excluding net interest),
and the return on plan assets (excluding net interest), are recognised immediately on the consolidated
balance sheet with a corresponding debit or credit in other comprehensive income. Re-measurements are
not reclassified to profit or loss in subsequent periods.
Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous
actuarial assumptions and what has actually occurred), as well as the effects of changes in actuarial
assumptions.
2.13
Tax
Current income tax and deferred tax
Tax on income is provided in accordance with the fiscal regulations and rates which apply in the countries
where the Group operates and is recognised as an expense in the period in which the income arises.
Deferred tax is provided using the liability method. Current income tax assets and liabilities are measured
at the amount expected to be recovered from or paid to the tax authorities. Current income tax and
deferred tax relating to items recognised directly in equity is recognised directly in equity.
Deferred tax liabilities are recognised for all taxable temporary differences between the tax basis of assets
and liabilities and their carrying amounts at the reporting date, which will give rise to taxable amounts in
future periods. Deferred tax liabilities are recognised for all taxable temporary differences associated with
investments in subsidiary and associate companies and branches, except where the timing of the reversal of
the temporary differences can be controlled and it is probable that the temporary differences will not
reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences and carry-forward of unutilised
tax losses to the extent that it is probable that taxable profit will be available, against which the deductible
temporary differences and carry-forward of unutilised tax losses can be utilised. The carrying amount of
deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to utilise all or part of the deductible temporary
differences or tax losses. Unrecognised deferred tax assets are reassessed at each reporting date and are
recognised to the extent that it has become probable that future taxable profit will allow the deferred tax
asset to be recovered.
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.
138
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.13
Tax (continued)
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 could 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:
i. 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.
ii. 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’, ‘Loans and advances to banks’, ‘Loans and advances to customers’, ‘Deposits
by banks’, ‘Funding from central banks’ and ‘Customer deposits’ are recognised when cash is received by
the Group or advanced to the borrowers. All other financial assets and financial liabilities are initially
recognised on the trade date. Purchases or sales of financial assets, where delivery is required within a time
frame established by regulations or by market convention, are also recognised on the trade date, i.e. the
date that the Group commits to purchase or sell the asset. Derivatives are also recognised on a trade date
basis.
2.14.2 Initial recognition and measurement of financial instruments
The classification of financial assets on initial recognition depends on their contractual terms and the
business model for managing the instruments, as described in Note 2.15.
All financial instruments are measured initially at their fair value plus, in the case of financial assets and
liabilities not measured at FVPL, any directly attributable incremental costs of acquisition or issue.
When the fair value of financial instruments at initial recognition differs from the transaction price, the
Group accounts for the Day 1 profit or loss, as described in Note 2.14.3 below.
2.14.3 Day 1 profit or loss
When the transaction price of the instrument differs from the fair value at origination and the fair value is
based on a valuation technique using only inputs observable in market transactions, the Group recognises
the difference between the transaction price and fair value in 'Net gains/(losses) on financial instruments'
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 financial 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.
139
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.14
Financial instruments - initial recognition (continued)
2.14.4 Measurement categories of financial assets and financial liabilities (continued)
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 financial liabilities
The classification and measurement of financial assets depends on how these are managed as part of the
business models the Group operates and their contractual cash flow characteristics (whether the cash flows
represent solely payments of principal 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:
i. 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;
ii. 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;
iii. 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);
iv. The expected frequency, value and timing of sales are also important aspects of the Group’s
assessment.
If cash flows after initial recognition are realised in a way that is different from the Group’s original
expectations, the Group does not change the classification of the remaining financial assets held in that
business model, but incorporates such information when assessing newly originated or newly purchased
financial assets going forward.
Contractual cash flows characteristics test (SPPI assessment)
The Group assesses whether the individual financial assets’ cash flows represent solely payments of
principal and interest on the principal amount outstanding at origination (SPPI test).
For the purposes of this assessment, principal is defined as the fair value of the financial asset on initial
recognition and may change over the life of the financial asset (for example, if there are repayments of
principal or amortisation of the premium/discount).
Interest is defined as consideration for the time value of money, for the credit risk associated with the
principal amount outstanding during a particular period of time and for other basic lending risks and costs
(e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether contractual cash flows are SPPI, the Group applies judgement 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) convertibility 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/(losses) on financial instruments’ 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.
140
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.15
Classification and measurement of financial assets and financial liabilities (continued)
2.15.1 Derivative financial instruments (continued)
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/(losses) on financial instruments' 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:
i.
The financial asset is held within a business model with the objective to hold financial assets in order
to collect contractual cash flows;
ii. 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 that pass the SPPI test.
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 on financial assets'.
2.15.3 Debt instruments measured at FVOCI
Debt instruments are measured at FVOCI if they meet both of the following conditions:
i.
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;
ii. 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/(losses) on financial instruments' 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.
141
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.15
Classification and measurement of financial assets and financial liabilities (continued)
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
instruments' 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)
Such designation is determined on an instrument-by-instrument basis.
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 within a business model under which they are
managed and their performance is evaluated on a fair value 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/(losses) on financial instruments' 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.
Dividend income is recognised in ‘Other income’ in the consolidated income statement when the right to
receive payment has been established.
2.15.6 Equity instruments measured at FVOCI
At initial recognition, the Group can make an irrevocable election to classify an investment in an 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.
142
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.15
Classification and measurement of financial assets and financial liabilities (continued)
2.15.7 Debt securities in issue and Subordinated liabilities
Debt securities in issue and Subordinated liabilities are initially measured at the fair value of the
consideration received, net of any issue costs. They are 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 loan
stock.
Interest on debt securities in issue and subordinated liabilities 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.
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 a 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
i.
ii. 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
i.
ii. 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.
143
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.18
Modification of financial assets
The contractual terms of a financial asset may be modified due to various reasons, either due to commercial
renegotiations or as a response to a borrower's financial difficulties (forborne modified loans) 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 meets the criteria for significant increase in credit risk such as it satisfies relative
thresholds, which are based on changes in its lifetime probability of default (PD), days past due are not
considered to be forborne, 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.
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 whereby the ECL is measured on a lifetime basis. 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 ECLs are recognised.
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BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.1 Overview of ECL principle (continued)
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 until a POCI loan is derecognised.
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 on financial assets' and further analysed in Note 16 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, diminished
financial obligation and obligor bankruptcy.
(iii) Material exposures as set by the Central Bank of Cyprus (CBC), which are more than 90 days past
due.
(iv) Performing forborne exposures under probation for which additional forbearance measures are
extended.
(v) Performing forborne exposures previously classified as NPEs that present more than 30 days past
due within the probation period.
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).
The Days-Past-Due (DPD) counter begins 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.
For retail debtors, 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.
For non-retail debtors, when an exposure fulfils the NPE criteria set out above, then the total customer
exposure is classified as non-performing.
145
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.2 Credit impaired and definition of default (continued)
Material arrears/excesses are defined as follows:
i. Retail exposures: Total arrears/excess amount greater than €100
ii. Exposures other than retail: Total arrears/excess amount greater than €500
and the amount in arrears/excess is at least 1% of the customer's total exposure.
The definitions of credit-impaired and default are aligned so that stage 3 represents loans which are
considered defaulted or otherwise credit-impaired.
Exposures are classified as forborne when concessions are made to debtors who are facing or about to face
financial difficulties and cannot meet their contractual obligations.
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. A period of one year has passed since the latest of the following events:
a. The restructuring date
b. The date the exposure was classified as non-performing
c. The end of the grace period included in the restructuring arrangements.
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 only when all of the following
conditions are met:
i. At least three months have passed since the date that the conditions for which the exposure was
classified as non-performing cease to be met, and within these three months there are no default
triggers, and
ii. During the three month period, the behaviour of the obligor should be taken into account, i.e. there
are no arrears/excesses and instalments are being repaid normally, and
iii. During the three month period, the financial situation of the obligor should be taken into account, i.e.
the financial situation of the obligor has improved, and
iv. During the three month period an Unlikely-to-Pay criteria assessment is carried out and it is
assessed that the obligor can fulfil their obligations without resorting to the liquidation of collateral
and there are no other Unlikely-to-Pay criteria, and
v. The obligor does not have any amount past due by more than 90 days.
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' within 'Credit losses on financial
assets'.
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 (SICR)
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.
146
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.3 Significant increase in credit risk (SICR) (continued)
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.
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 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 2022 and 2021:
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 2022
2 X PD@O
2 X PD@O
2 X PD@O
2 X PD@O
2 X PD@O
2 X PD@O
1-3 X PD@O
PD Deterioration
thresholds applied at
31 December 2021
2 X PD@O
2 X PD@O
2 X PD@O
2 X PD@O
2 X PD@O
2 X PD@O
1-3 X PD@O
i.
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
ii.
SICR is automatically triggered upon the granting of forbearance measures to performing borrowers. Stage
1 exposures that are classified as 'performing forborne' are automatically transferred to Stage 2.
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 the amount in arrears is lower than 1% of the customer's total exposure, in the case of retail
exposures and arrears up to €500 and the amount in arears is lower than 1% of the customer's total
exposure 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.
147
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.3 Significant increase in credit risk (SICR) (continued)
Significant increase in credit risk 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.
2.19.4 Measurement of ECLs
IFRS 9 ECL reflects an unbiased, probability-weighted estimate based on either loss expectations resulting
from default events either 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:
i.
ii.
iii.
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. For 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.
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BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.4 Measurement of ECLs (continued)
For each exposure, lifetime PD represents the probability of default within the lifetime horizon and is based
on the underlying models of marginal probability of default through the cycle (MPD TTC), MPD individual,
MPD point in time, Marginal Probability of Paid-off (MPP) and the NPE overlay. In particular, the first
element, MPD TTC is constructed per segment, illustrating the probability of default status depending on
number of months since the origination date. The PD for each month since the 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 calibrates the underlying models, such that it is
aligned with the NPE definition. For revolving facilities where there is no contractual survival maturity, one
curve per segment is developed. The combination of these models gives rise to a PD value for each month
for the lifetime of the exposure.
BOC PCL's internal rating process is summarised in Note 45.
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 in BOC PCL proceeding with collateral liquidation actions. To this
end, the LGD model considers parameters such as historical loss and/or recovery rates as well as the
collateral value which is discounted to the present value determining the amount of the expected shortfall.
LGD rates are estimated for the Stage 1, Stage 2, Stage 3 and POCI segments of each asset class.
The structure of the LGD model considers the following:
i. Curing where the probability of cure model was derived based on historical observations.
ii. 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. This involves, among others, 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. Also, significant Stage 1 exposures within
sectors assessed by Credit Risk Management to be highly impacted by one or more factors or events (with
selection criteria such as COVID-19, a global or local economic / market / regulatory / geopolitical
developments, etc) are assessed for potential increase in credit risk and significant exposures that have
transitioned to Stage 2 from Stage 1 are assessed for potential indications for unlikeness to pay.
The ECL for individually assessed stage 3 assets is calculated on an individual 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. The granularity for the IFRS 9 segments is aligned
with the Internal Rating Based (IRB) segmentation of the CRR.
149
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.4 Measurement of ECLs (continued)
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.
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, adverse and favourable 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 and relevant macro-variables have
been selected in order to predict more 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
(residential, 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.
Regarding the scenario weights, these are determined using probability theory and severity analysis.
Historical data for GDP growth (1995-2022) is analysed and a frequency distribution is produced. From that
distribution probabilities are derived for all possible outcomes. Deviations of actual outcomes from the mean
are calculated in terms of standard deviation ratios, and severity is higher at higher deviation ratios. 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 favourable scenario is defined over the range
of values to the right of the distribution that correspond to 25% probability. The adverse scenario is defined
over the range of values to the left of the distribution that correspond to 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 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
corresponding weights are also determined by the Economic Research Department as described above using
discretion and expert judgement where necessary. 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 BOC PCL, has the right to cancel
and/or reduce the facilities with two months’ notice. BOC PCL does not limit its exposure to credit losses to
the contractual notice period, but instead a behavioural maturity model is utilised where each revolving
facility is assigned an expected time period to termination.
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BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.19
Impairment of financial assets (continued)
2.19.7 Purchased or originated credit impaired financial assets (POCI)
POCI financial assets are recorded at fair value on initial recognition. ECLs are only recognised or released
to the extent that there is a subsequent change in the 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. BOC PCL 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.
i. 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), BOC PCL
forms a reasonable expectation of future cash flows which would also take into account the
collateral’s realisable value.
ii. When BOC PCL 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.
iii. 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, BOC PCL might be unable to form a reasonable expectation of future cash flows.
Nevertheless, BOC PCL takes all the legally available steps to recover the debt, where appropriate.
iv. 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 on
financial assets' and separately identified in Note 16 within ‘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 being the premium received, 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 on financial assets' and further
identified in Note 16 in 'Credit losses on financial assets' 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.
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BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.21
Financial guarantees, letters of credit and undrawn loan commitments (continued)
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 credit is recorded in ‘Credit losses on financial
assets' 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.
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.
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/(losses) on financial
instruments'. 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/(losses) on financial instruments'.
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.
152
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.23
Hedge accounting (continued)
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/(losses) on financial instruments' 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.
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.
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.
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BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.25
Insurance business (continued)
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.
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 discloses those securities as
‘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
Group as a 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.
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BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.27
Leases (continued)
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 recognised in the consolidated income statement
within 'Other operating expenses'. RoU assets are subject to impairment under IAS 36.
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 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, as 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.
Group as a lessor
Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership
of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis
over the lease terms and is included in ‘Other income’ in the consolidated income statement due to its
operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to
the carrying amount of the leased asset and recognised over the lease term on the same basis as rental
income.
155
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
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, as further disclosed in Note 2.29. 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'.
Useful life is in the range of 30 to 67 years. Freehold land is not depreciated. On disposal of freehold land
and buildings, the relevant revaluation reserve balance is transferred to ‘Retained earnings’.
The cost of adapting/improving leasehold property is amortised over 5 years.
Equipment is measured at cost less accumulated depreciation. Depreciation of equipment is calculated on a
straight line basis over its estimated useful life of 5 to 10 years.
RoU assets recognised as property are measured at cost less accumulated depreciation and adjusted for
certain re-measurements of lease liabilities. Depreciation of the recognised RoU assets is calculated on a
straight line basis over the lease term, as further disclosed in Note 2.27.
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, property and equipment is written down to its recoverable amount.
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BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
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. Additionally, leased properties which are acquired in exchange for debt and
are leased out under operating leases are also usually classified as 'Investment properties'.
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 by the 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 BOC PCL or by entities set up and controlled by the Group for the sole purpose of managing
these properties with an intention to be disposed of. These properties are recognised in the Consolidated
Financial Statements as ‘Stock of property’, reflecting the substance of these transactions.
Stock of property is initially measured at cost and subsequently measured at the lower of cost and net
realisable value. Net realisable value is the estimated selling price, less the estimated costs necessary to
make the sale.
If net realisable value is below the cost of the stock of property, impairment is recognised in ‘Impairment
net of reversals on 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 for such classification is regarded as met only when the sale is highly probable and the asset
or disposal group is available for immediate sale in its present condition. Actions required to complete the
sale should indicate that it is unlikely that significant changes to the plan will be made or that the plan will
be withdrawn. Management must be committed to the sale, which should be expected to qualify for
recognition as a completed sale within one year from the date of classification.
Such non-current assets and disposal groups held for sale are measured at the lower of their carrying
amount and fair value less costs to sell, except for those assets and liabilities that are not within the scope
of the measurement requirements of IFRS 5 ‘Non-current assets held for sale and discontinued operations’
such as deferred taxes, financial instruments, investment properties measured at fair value, insurance
contracts and assets and liabilities arising from employee benefits. These are measured in accordance with
the Group’s relevant accounting policies described elsewhere in this note.
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.
157
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.31
Non-current assets held for sale and discontinued operations (continued)
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 a 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 coordinated 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 profit/loss 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 (including internally developed 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. The Group recognises an intangible asset that arises from development or the
development phase of an internal project if, and only if, it can demonstrate all of the following:
The technical feasibility of completing the intangible asset so that it will be available for use or sale;
Its intention to complete the intangible asset and use or sell it;
i.
ii.
iii. Its ability to use or sell the intangible asset;
iv. How the intangible asset will generate probable future economic benefits;
v. The availability of adequate technical, financial and other resources to complete the development and
to use or sell the intangible asset; and
vi. Its ability to reliably measure the expenditure attributable to the intangible asset during its
development.
The expenditures arising on research or the research phase of an internal project are expensed as incurred.
Research expenditure cannot be subsequently capitalised.
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, including computer software development costs. 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.
2.33
Share capital
Ordinary shares are classified as equity.
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BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
2.
Summary of significant accounting policies (continued)
2.33
Share capital (continued)
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
Share-based compensation plans
The Group recognises expenses for deferred compensation awards over the period that the employee is
required to provide service to become entitled to the award. Whereby employees render services in
exchange for equity instruments these arrangements are classified as equity-settled transactions.
Share-based compensation benefits are provided to employees (senior management of the Group) via the
Long Term Incentive Plan, an employee share arrangement which satisfies an incentive based award
through the issue of shares (equity settled).
Share-based compensation expense is measured by reference to the fair value of the equity instruments on
the date of grant, with a corresponding increase in equity (other capital reserves), taking into account the
terms and conditions inherent in the award, including, where relevant, dividend rights, transfer restrictions
in effect beyond the vesting date, market conditions, and non-vesting conditions. For equity-settled awards,
fair value is not remeasured unless the terms of the award are modified such that there is an incremental
increase in value.
The total expense is recognised on a per-tranche basis, over the service period based on an estimate of the
number of shares expected to vest and are adjusted to reflect the actual outcomes of service or
performance conditions. At the end of each reporting period, the Group revises its estimates of the number
of shares that are expected to vest and recognises the impact of the revision to original estimates, if any, in
the consolidated income statement, with a corresponding adjustment to equity (other capital reserves). The
cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date
reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of
shares that will ultimately vest. The expense or credit in the consolidated income statement for a period
represents the movement in cumulative expense recognised as at the beginning and end of that period. No
expense is recognised for awards that do not ultimately vest because non-market performance and/or
service conditions have not been met.
The vesting period for these schemes may commence before the legal grant date if the employees have
started to render services in respect of the award before the legal grant date, where there is a shared
understanding of the terms and conditions of the arrangement. Expenses are recognised when the
employee starts to render service to which the award relates.
2.35
Other equity instruments
An instrument is an equity instrument if the instrument includes no contractual obligation to deliver cash or
another financial asset to another entity, or to exchange financial assets or financial liabilities with another
entity under conditions that are potentially unfavourable to the issuer.
Other equity instruments are recorded at their residual amount and are not subject to any re-measurement
after initial recognition. The cost incurred attributable to the issue of other equity instruments is deducted
from retained earnings. Any subsequent write-down or write-up results to a credit or debit in retained
earnings respectively. Coupon payments are recorded directly in retained earnings.
2.36
Treasury shares
Own equity instruments which are acquired by the Company or by any of its subsidiaries are presented as
treasury shares at their acquisition cost. Treasury shares are deducted from equity until they are cancelled
or reissued. No gain or loss is recognised in the consolidated income statement on the purchase, sale, issue
or cancellation of the Company’s own equity shares.
2.37
Provisions for pending litigation, claims, regulatory and other matters
Provisions for pending litigation, claims, 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.
159
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
3.
Going concern
The Directors have made an assessment of the ability of the Group and the Company to continue as a going
concern for a period of 12 months from the date of approval of these Consolidated Financial Statements.
The Directors have concluded that there are no material uncertainties which would cast a significant doubt
over the ability of the Group, BOCH and the Company to continue to operate as a going concern for a period
of 12 months from the date of approval of these Consolidated Financial Statements.
In making this assessment, the Directors have considered a wide range of information relating to present
and future conditions, including projections of profitability, cash flows, capital requirements and capital
resources, taking also into consideration, the Group’s Financial Plan approved by the Board in February
2023 (the ‘Plan’) and the operating environment. The Group has sensitised its projection to cater for a
downside scenario and has used reasonable economic inputs to develop its medium-term strategy. The
Group is working towards materialising its Strategy.
Capital
The Directors and Management have considered the Group’s forecasted capital position, including the
potential impact of a deterioration in economic conditions. The Group has developed capital projections
under a base and an adverse scenario and the Directors believe that the Group has sufficient capital to meet
its regulatory capital requirements throughout the period of assessment.
Funding and liquidity
The Directors and Management have considered the Group’s funding and liquidity position and are satisfied
that the Group has sufficient funding and liquidity throughout the period of assessment. The Group
continues to hold a significant liquidity buffer at 31 December 2022 that can be easily and readily monetised
in a period of stress.
4.
Economic and geopolitical environment
The economic environment in 2023 and over the medium term is now subject to a high degree of
uncertainty, with the continuation of the war in Ukraine, rising tensions in US-China relations, more
persistent inflation and tighter monetary conditions threatening a significant slowdown in the global
economy, particularly in Europe. A combination of supply shocks, including rising protectionism, the green
transition, persistently low productivity growth, slowing population growth as well as more widespread
labour shortages following the pandemic, could potentially result average inflation over the next years being
higher than over the past years.
Government debt levels in relation to GDP in the advanced economies, fell in 2021-2022 following steep
increases in 2020, due to a stronger recovery and higher inflation. However, governments' fiscal space will
narrow again in the medium term due to higher interest rates and slower economic growth, limiting their
ability to deal with future economic emergencies and potentially increasing the risk of financial instability,
especially in more vulnerable countries.
Cyprus' risk profile has improved significantly, but substantial risks remain in the domestic environment and
in the external environment on which it depends. The most important factor weighing on Cyprus' sovereign
risk is the high level of public debt. Banks have weathered the pandemic crisis well, with their liquidity and
capital buffers intact. Non-performing loans continued their downward trend, mainly due to the sale
packages of the two largest banks. However, in an uncertain environment, asset quality remains a focus for
bank management and supervisors.
Recent developments in financial markets in March 2023, particularly in the United States but also in Europe
to a lesser extent, have been unprecedented. The failures of the two banks in the United States, the
California-based Silicon Valley Bank and the New York-based Signature Bank, prompted the forceful
intervention of the authorities to pre-empt the risk of financial instability in the banking system. The US
authorities have also taken additional measures to prevent a broader run on bank deposits. This included
invoking a systemic risk clause that allowed the US authorities to guarantee all deposits in the two banks
beyond the $250,000 insured cap guarantee by the FDIC. The US Federal Reserve also established a new
lending facility that provides banks access to liquidity against eligible collateral, but without the need to
take a haircut.
In Switzerland, Credit Suisse was exposed to the same sort of concerns as global banks. Credit Suisse was
bought by UBS, another Swiss bank, after a deal brokered by the Swiss government, the Swiss National
Bank and FINMA which included liquidity assistance from the Swiss National Bank and partial losses
guarantees from the government.
160
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
4.
Economic and geopolitical environment (continued)
Following the Credit Suisse deal, the Single Resolution Board, the European Banking Authority and ECB
Banking Supervision issued a statement welcoming the comprehensive set of actions taken by the Swiss
authorities in order to ensure financial stability and noting that the European banking sector is resilient, with
robust levels of capital and liquidity.
The Group is closely monitoring developments.
The Group believes it is reasonably well positioned to withstand volatility that may arise from a
deterioration in the geopolitical and global economic environment.
Group’s Direct exposure to Russia
Russia’s invasion of Ukraine has triggered disruptions and uncertainties in the markets and in the global
economy. The coordinated implementation of sanctions by the EU, the UK and the U.S., joined by several
other countries, imposed against Russia, Belarus and certain regions of Ukraine and certain Russian entities
and nationals. The Group’s policy is to comply with all applicable laws, including sanctions and export
controls.
Overall, the Group’s direct exposure to Russia, Ukraine and Belarus remains limited. In summary, the Group
has direct lending exposure to Russia, Ukraine and Belarus of a gross book value of approximately €108
million (2021: €119 million) across its business divisions as at 31 December 2022 of which €98 million
(2021: €95 million) were classified as performing and secured mainly with residential collateral located in
Cyprus. The basis of the exposure is expanded compared to the country risk exposure as included in Note
45.2 of the Consolidated Financial Statements which is disclosed by reference to the country of
residency/country of registration, to also include exposures for loans and advances to customers with
passport of origin in these countries and/or business activities within these countries and/or where the UBO
has passport of origin or residency in these countries.
Customer deposit balances with customers with UBO primary passport of origin in these countries amounts
to c. 5.7% of total deposits as at 31 December 2022 as disclosed in Note 31 of the Consolidated Financial
Statements.
With respect to the Group's Russian subsidiary, the net exposure is being run down and as a result the net
assets included on the Group's balance sheet as at 31 December 2022 are less than €1 million (2021: €10
million).
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 for pending litigation, claims, regulatory and other matters, 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.
161
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
5.
5.1
Significant and other judgements, estimates and assumptions (continued)
Classification of financial assets
The Group exercises judgement upon determining the classification of its financial assets, in relation 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.
It has been the Group’s policy to regularly review its models in the context of actual loss experience and
adjust when necessary.
Elements of ECL models that are considered accounting judgements and estimates include:
Assessment of significant increase in credit risk (SICR)
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
particular cases. Specifically 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. For
revolving facilities, management estimates are required with respect to the life-time and hence a
behavioural maturity model is utilised, assigning an expected maturity based on product and customer
behaviour.
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 and are based on
internal model analysis after considering external market data supplemented by expert judgement.
In a challenging international environment, the Cypriot economy has shown considerable resilience. Growth
remained strong in 2022 averaging 5.6% which is well above the euro area average, driven almost entirely
by services on the supply side. Tourist activity recovered strongly during the year with arrivals reaching
80% and receipts 90% of the levels in 2019. On the demand side, growth was driven by private
consumption and investment, especially inventory accumulation, while the external sector made a negative
contribution due to faster growth in imports. However, growth is expected to slow in 2023, towards 3%,
according to the Ministry of Finance.
162
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
Rising energy costs, exacerbated by the war in Ukraine, are affecting both consumers and businesses and
the government has taken initial steps to mitigate the impact. Harmonised inflation in Cyprus fell from
10.6% in July 2022 to an annual average of 7.6% in December 2022.
Cyprus received a pre-financing of €157 million from the Recovery and Resilience Facility in September
2021 and the first disbursement of €85 million in December 2022. The release of the funds is conditional on
the strict implementation of the reforms agreed in the National Recovery Plan. The funds will be used,
among other things, to increase investment in the digital and green transition, improve the efficiency of
public and local administrations, and improve the efficiency of the judicial system.
The sovereign risk ratings of the Cypriot government have improved significantly in recent years, reflecting
reduced banking sector risks, improved economic resilience and consistent fiscal outperformance. Cyprus
has demonstrated policy commitment to correcting fiscal imbalances through reform and restructuring of its
banking system. Public debt remains high relative to GDP, but large-scale asset purchases by the ECB
ensure favourable funding costs for Cyprus and ample liquidity in the government bond market.
However, substantial risks remain in terms of the domestic operating environment, as well as the external
environment on which it depends. The large stock of public debt weighs heavily on Cyprus’ sovereign credit
risk. In the banking sector non-performing exposures need to drop further. While the current account deficit
will be narrowing as exports services recover in the medium term, it will remain sizable. The monetary
policy of the European Central Bank can remain tight for longer if inflation pressures persist. The extent of
the crisis in Ukraine can lead to elevated tensions for a considerable period of time.
For the ECL, 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 based on
developments and events as at the reporting date, i.e. 31 December 2022.
The tables below indicate the most significant macroeconomic variables as well as the scenarios used by the
Group as at 31 December 2022 and 2021 respectively. The Group uses three different economic scenarios
in the calculation of default probabilities and provisions. 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 management's view of specific
characteristics of the Cyprus economy that render it more vulnerable to external and internal shocks. Given
the added uncertainties of the outlook for 2023 and downside risks, a global slowdown and the continuing
war in Ukraine with the risk of escalation rising, as well as the tighter monetary environment in the fight
against inflation, management decided to maintain an elevated weight on the adverse scenario.
In the banking sector total non-performing exposures at the end of November 2022, amounted to €2.7
billion, or 10.5% of gross loans and the coverage ratio was 52.2%. Private debt has continued to decline
since mid-2012, shrinking by more than half by the end of December 2022. The decline reflects the long
process of deleveraging since the start of the financial crisis and includes the sale or transfer of non-
performing loans in recent years. Private debt, as measured by loans to residents excluding the
government, stands at 80% of nominal GDP at the end of December 2022.
These factors and the overall risk profile discussed in the previous section, including economic structure risk
given a very large external sector and high concentration to geographical areas render the economy more
susceptible to external shocks and weaken its resilience. This 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 keep the weight of the adverse scenario to 30%, and correspondingly keep a reduced weight of
the favourable scenario to 20%.
163
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
31 December 2022
Year
Scenario
Weight %
Real GDP (%
change)
Unemployment
rate (% of
labour force)
2023
2024
2025
2026
2027
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
-2.0
2.8
3.6
-0.7
2.4
2.8
1.4
2.5
2.6
2.8
2.8
3.1
3.5
2.6
2.6
31 December 2021
7.0
6.3
5.9
6.8
6.0
5.8
6.7
5.7
5.6
6.7
5.5
5.3
6.5
5.2
4.9
Year
Scenario
Weight %
Real GDP (%
change)
Unemployment
rate (% of
labour force)
2022
2023
2024
2025
2026
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
-0.4
4.3
4.5
0.1
3.3
3.3
1.8
3.0
3.2
2.4
2.9
3.0
3.0
2.7
2.6
7.6
6.5
5.8
7.7
6.4
5.8
7.6
6.2
5.7
7.2
5.8
5.5
6.7
5.3
5.1
Consumer
Price Index
(average %
change)
3.7
4.7
5.1
3.0
3.2
3.3
2.4
2.3
2.4
2.4
2.4
2.4
2.5
2.5
2.4
RICS House
Price Index
(average %
change)
-2.2
2.8
3.3
-0.8
2.5
2.8
1.1
2.5
2.6
2.7
2.5
2.6
3.5
2.5
2.6
Consumer
Price Index
(average %
change)
0.5
2.2
3.0
1.6
1.6
1.6
1.8
1.8
1.8
1.9
1.9
1.9
1.8
1.8
1.8
RICS House
Price Index
(average %
change)
-3.7
2.6
3.1
-1.0
3.3
4.0
3.0
3.1
3.2
3.3
3.0
2.9
3.2
2.7
3.1
The adverse scenarios may outpace the base and favourable scenarios after the initial shock has been
adjusted to and the economy starts to expand from a lower base. Thus, in the adverse scenario GDP will
follow a growth trajectory that will ultimately equal and surpass the baseline before converging. Property
prices are determined by multiple factors with GDP growth featuring prominently. However, the relationship
between GDP growth and property prices entails 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.
164
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
The baseline scenario was updated for the 31 December 2022 reporting, considering available information
and relevant developments until then, and is described next. Economic activity continued to recover
strongly in 2022 driven by a steep recovery in the tourism sector after the steep contraction of 2020, and a
strong growth in private consumption, despite an aggressive monetary contraction. Real GDP increased by
5.6% in 2022 and is projected to rise by 2.8% in 2023. Consumer price inflation averaged 8.1% in 2022
and is expected to decelerate to 4.7% in 2023. The unemployment rate will continue to drop steadily in the
medium term. Property prices will continue to rise modestly in 2023 as domestic demand remains relatively
strong.
The adverse scenario is consistent with assumptions for a global economic slowdown driven by the war in
Ukraine, elevated inflation and continued tight monetary policies. The Cypriot economy relies on services,
particularly on tourism, international business, and information services with an outward orientation. This
makes the Cypriot economy more exposed than other economies to the international environment and
terms of trade shocks. Weaker external demand and more restricted domestic demand as a result of higher
interest rates will lead to a slow-down of economic activity. The adverse scenario assumes a deeper impact
of these conditions on the real economy than under the baseline scenario. Real GDP is expected to contract
modestly by 2.0% in 2023 with the recovery remaining weak in the medium term. In the labour market the
unemployment rate will rise only modestly and inflation while elevated, will be lower than under the
baseline scenario. House prices will also contract in line with the contraction in real GDP.
Since 1 January 2018, the Group has reassessed the key economic variables used in the ECL models
consistent with the implementation of IFRS 9. 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 data 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, endorsed by the Group Provisions Committee and approved by the joint Risk and
Audit Committee. Qualitative adjustments or overlays were applied to the positive future property value
growth to restrict the level of future property price growth to 0% for all scenarios for loans and advances to
customers which are secured by property collaterals.
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 (LGD)
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.
165
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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. Assumptions were made on the basis of a macroeconomic scenario for
future changes in property prices, and these are capped to zero for all scenarios, in case of any future
projected increase, whereas any future projected decrease is taken into consideration.
At 31 December 2022, the weighted average haircut (including liquidity haircut and selling expenses) used
in the collectively assessed provisions calculation for loans and advances to customers is approximately
32% under the baseline scenario (2021: approximately 32%) excluding those classified as held for sale.
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 (2021: 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 to customers.
Expected lifetime of revolving facilities
The expected lifetime of revolving facilities is based on a behavioural maturity model for revolving facilities
based on BOC PCL's available historical data, where an expected maturity for each revolving facility based
on the customer's profile is assigned.
The credit conversion factor model for revolving products was calibrated in the fourth quarter of 2021, to
include additional data points covering the period up to moratorium and in order to be aligned with the
behavioural maturity model for revolving facilities. The impact on the ECL for the year ended 31 December
2021 was a release of ECL of €1,790 thousand. The behavioural model was updated in the second quarter
of 2022 to reflect updates in customers profile whilst maintaining the same model components.
Modelling adjustments
Forward looking models have been developed for ECL parameters PD, EAD, LGD for all portfolios and
segments sharing similar characteristics. Model validation (initial and periodic) is performed by the
independent validation unit within the Risk Management Division and involves assessment of a model under
both quantitative (i.e. stability and performance) and qualitative terms. The frequency and level of rigour of
model validation is commensurate to the overall use, complexity and materiality of the models, (i.e. risk
tiering). 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 Group 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.
166
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
In the second quarter of 2022, following the agreement for the disposal of Helix 3 portfolio, the cure model
was updated, assigning as maximum cure period an exposure of 3 years instead of 5 years from their
default date. This had an ECL impact of €1.8 million charge for the year ended 31 December 2022.
Overlays in the context of COVID-19 and current economic conditions
COVID-19 related management overlays applied in 2020 and up to the first six months of 2021 were
removed in the third quarter of 2021, except for the overlay for exposures in the hotel and catering sector
(which applied stricter customer's credit ratings thresholds for customers in this industry sector) that was
removed in the second quarter of 2022 following the introduction of the new overlays described below. The
impact on the ECL, from the removal of the overlay, was a release of €143 thousand for the year ended 31
December 2022 and a transfer of €45 million loans from Stage 2 to Stage 1 during the year ended 31
December 2022.
During 2022, the Group in response to uncertainties from the consequences of the Ukrainian crisis
established two new overlays in the collectively assessed population for exposures that were considered to
be the most vulnerable to the implications of the crisis, to address the increased uncertainties from the
geopolitical instability, trade restrictions, disruptions in the global supply chains, increases in the energy
prices and their potential negative impact in the domestic cost of living. The impact on the ECL from the
application of these overlays was approximately €10 million charge for the year ended 31 December 2022
and a transfer of €148 million loans from Stage 1 to Stage 2 as at 31 December 2022.
Specifically, the first overlay relates to private individuals that are expected to be affected by the increased
cost of living in order to reflect the future vulnerabilities to inflation, where a scenario with higher
percentage increase is applied for the cost of living. A one-notch downgrade is applied to the identified
portfolio, reflecting the expected impact of inflation to their credit quality. The second overlay relates to
sectors that have been classified as high risk (Transportation) or Early Warning (Trade, Hotels and catering,
Construction, Real Estate, Finance and Other sectors such as Electricity, Arts, Agriculture and Mining) to
reflect the expected Gross Value Added (GVA) outlook of these sectors, where this has deteriorated.
Specifically, the sector risk classification is carried out by comparing the projected GVA outlook of each
sector with its past performance (intrinsic) and its performance vis-a-vis other sectors (systemic). In cases
where both systemic and intrinsic indicators are found to have deteriorated, the relevant sector is classified
as 'High Risk', whereas if only one of the two has deteriorated, then the sector is classified as 'Early
Warning'. A one-notch downgrade is applied to ‘Early Warning’ sectors whereas for ‘High Risk’ sector a more
severe downgrade is applied accordingly.
Horizontal probability of default (PD) overlay was introduced in the fourth quarter of 2022 to address
specifically the high inflation environment affecting the economy. With this overlay the PDs have been
capped to the average of 2018/2019 level, on the basis that these years are considered as closer to a
business-as-usual environment in terms of default rates. The impact on the ECL from the application of this
overlay was €5.5 million ECL charge for the year 2022.
The Group has exercised critical judgement on a best effort basis, to consider all reasonable and
supportable information available at the time of the assessment of the ECL allowance as at 31 December
2022. The Group will continue to evaluate the ECL allowance and the related economic outlook each
quarter, so that any changes arising from the uncertainty on the macroeconomic outlook and geopolitical
developments, impacted by the implications of the Russian invasion of Ukraine, as well as the degree of
recurrence of the COVID-19 disease due to virus mutations, are timely captured.
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 2021, 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. The selection
criteria were further enhanced in 2022 to include significant exposures to customers with passport of origin
or residency in Russia, Ukraine or Belarus and/or business activity within these countries.
Further details on impairment allowances and related credit information are set out in Note 45.
167
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
5.
5.3
Significant and other judgements, estimates and assumptions (continued)
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, taking 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 for pending litigation, claims, regulatory and other matters is described
in Note 2.37. Judgement is required in determining whether a present obligation exists and in estimating
the probability, timing and amount of any outflows. Provisions for pending litigation, 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 possible loss for such matters can be estimated. Actual
results may prove to be significantly higher or lower than the estimated 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, is subject to tax in Cyprus and in the countries that it has run-down operations mainly in
Greece, Russia and Romania. Estimates are required in determining the provision for taxes at the reporting
date. The Group recognises income tax liabilities for transactions and assessments whose tax treatment is
uncertain. Where the final tax is different from the amounts initially recognised in the consolidated income
statement, such differences will impact the income tax expense, the tax liabilities and deferred tax assets or
liabilities of the period in which the final tax is agreed with the relevant tax authorities.
Deferred tax assets
In the absence of a specific accounting standard dedicated to the accounting of the asset that arose
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), BOC
PCL had exercised judgement in applying the guidance of IAS 12 in accounting for this asset item as the
most relevant available standard. On the basis of this guidance, BOC PCL had determined that this asset
should be accounted for on the basis of IAS 12 principles relating to deferred tax assets.
For 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 primarily 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.
168
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
5.
5.6
Significant and other judgements, estimates and assumptions (continued)
Fair value of investments and derivatives (continued)
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 uses models with only 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.
5.8
Non-life insurance business
The Group is engaged in the provision of non-life insurance services. Risks under these policies usually
cover a period of 12 months.
The liabilities for outstanding claims arising from insurance contracts issued by the Group are calculated
based on case estimates 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.
169
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
5.
5.9
Significant and other judgements, estimates and assumptions (continued)
Life insurance business
The Group is engaged in the provision of life insurance services. Whole life insurance plans (life plans) are
unit-linked contracts associated with assets where the amount payable in the case of death is the greater of
the sum insured and the value of investment units. Simple insurance or temporary term plans (term plans)
relate to fixed term duration plans for protection against death. In case of death within the coverage period,
the insured sum will be paid. Endowment insurance (investment plans/mortgage plans/horizon plans) refer
to specific duration plans linked to investments, to create capital through systematic investment in
association with death insurance coverage whereby the higher of the sum insured and the value of
investment units is payable on death within the contract term.
Further information on life insurance business is disclosed in Note 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 2022, are set out in Note 26.
5.9.2
Insurance liabilities
The calculation of liabilities and the choice of assumptions regarding insurance contracts require the
management of the Group to make significant estimates.
The assumptions underlying the estimates for each claim are based on past experience, internal factors and
conditions, as well as external factors which reflect current market prices and other published information.
The assumptions and judgements are determined at the date of valuation of liabilities and are assessed
systematically so that the reliability and realistic position can be ensured.
Estimates for insurance contracts are made in two stages. Initially, at the start of the contract, the Group
determines the assumptions regarding future deaths, voluntary terminations, investment returns and
administration expenses. Subsequently, at each reporting date, an actuarial valuation is performed which
assesses whether liabilities are adequate according to the most recent estimates.
The assumptions with the greatest influence on the valuation of insurance liabilities are presented below:
Mortality and morbidity rates
Assumptions are based on standard international tables of mortality and morbidity, according to the type of
contract. In addition, a study is performed based on the actual experience (actual deaths) of the insurance
company for comparison purposes and if sufficient evidence exists which is statistically reliable, the results
are incorporated in these tables. An increase in mortality rates will lead to a larger expected number of
claims (or claims could occur sooner than anticipated), which will increase the expenditure and reduce
profits for shareholders.
Investment return and discount rate
The weighted average rate of return is derived based on assets that are assumed to back liabilities,
consistent with the long-term investment strategy of the Group. These estimates are based on current
market returns as well as expectations about future economic and financial developments. An increase in
investment returns would lead to an increase in profits for shareholders.
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.
170
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
5.
5.9
Significant and other judgements, estimates and assumptions (continued)
Life insurance business (continued)
5.9.2
Insurance liabilities (continued)
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 current practice in Cyprus (followed under IFRS 4), 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:
i.
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.
ii. Stock of property comprises real estate assets held with an intention to be disposed of. This principally
relates to properties acquired through debt-for-property swaps and properties acquired through the
acquisition of certain operations of Laiki Bank in 2013 (except from those that are leased out and are
classified as investment properties).
5.12
Fair value of properties held for own use and investment properties
The Group’s accounting policy for property held for own use, as well as for investment property requires
that it is measured at fair value. In the case of property held for own use, valuations are carried out
periodically so that the carrying value is not materially different from the fair value, whereas in the case of
investment properties, the fair value is established at each reporting date. Valuations are carried out by
qualified valuers by applying valuation models recommended by the internationally accepted valuation
standards.
In arriving at their estimates of the fair values of properties, the valuers use their market knowledge and
professional judgement and do 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 BOC PCL showed that the value of the lease liability and corresponding RoU
assets is relatively insensitive to changes in the IBR.
171
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
5.
Significant and other judgements, estimates and assumptions (continued)
5.13
Leases (continued)
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:
i.
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
financial plan. The current medium term financial 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).
ii. For non-cancellable leases, the lease term has been assessed to be the non-cancellable period.
iii. 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. The results of the overseas activities of the Group, namely Greece,
Romania and Russia are presented within segment ‘Other’, given the size of these operations which are in a
run-down mode and relate to legacy operations of the Group. Further, the results of certain small
subsidiaries of the Group are allocated to the segments based on their key activities. In addition, as from
the fourth quarter of 2022, following an internal re-organisation the Large Corporate and the International
Corporate business lines, which were previously reported together as one business line namely Global
Corporate have been separated and Large corporate is presented and monitored together with Corporate.
Comparative information in analysis by business line, analysis of total revenue and analysis of assets and
liabilities were restated to account for this change.
The operating segments are analysed below:
i.
ii.
The Corporate and Large Corporate, Small and medium-sized enterprises (SME) and Retail business
lines are managing loans and advances to customers. Categorisation of loans per customer group is
detailed below.
International Corporate is managing loans and advances to customers within the Shipping Centre,
the International Corporate Lending and the International Syndicate and Project Finance.
iii. 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.
iv. 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.
v. Wealth management oversees the provision of private banking and wealth management, market
execution and custody along with asset management and investment banking. The business line
Wealth management also includes subsidiary companies of the Group, whose activities relate to
investment banking and brokerage, investment holding and management, administration and
safekeeping of UCITS units.
vi. The Real Estate Management Unit (REMU) 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. The business line REMU also includes
other subsidiary property companies of the Group.
vii. 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.
viii. The Insurance business line is involved in both life and non-life insurance business.
172
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
6.
Segmental analysis (continued)
ix. The business line 'Other' includes central functions of BOC PCL 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, property companies under REMU and subsidiary companies under Wealth) as
well as the overseas activities of the Group.
BOC PCL broadly categorises its loans per customer group, using the following customer sectors:
i. Retail – all physical person customers, regardless of the facility amount, and legal entities with
facilities from BOC PCL of up to €500 thousand, excluding business property loans and/or annual
credit turnover up to €1 million.
ii. SME – any company or group of companies (including personal and housing loans to the directors or
shareholders of a company) with facilities from BOC PCL in the range of €500 thousand to €4 million
and/or annual credit turnover of €1 million up to €10 million.
iii. Corporate – any company or group of companies (including personal and housing loans to the
directors or shareholders of a company) with available credit lines with BOC PCL of €4 million up to
€30 million and/or having a minimum annual credit turnover of €10 million up to €50 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 its 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.
Comparative information in analysis by business line of total revenue and turnover was restated to account
for the changes in the presentation of the primary statements for the year ended 31 December 2022 as
described in Note 2.1.
173
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
6.
Segmental analysis (continued)
Analysis by business line
2022
Net interest income/(expense)
Net fee and commission income/(expense)
Net foreign exchange gains/(losses)
Net (losses)/gains on financial instruments
Net (losses)/gains on derecognition of financial assets measured at amortised
cost
Insurance income net of claims and commissions
Net gains/(losses) from revaluation and disposal of investment properties
Net gains on disposal of stock of property
Other income
Total operating income
Staff costs
Staff costs–voluntary exit plans and other termination benefits
Special levy on deposits and other levies/contributions
Provisions for pending litigations, regulatory and other provisions (net of
reversals)
Other operating (expenses)/income (excluding advisory and other
restructuring costs)
Corporate
and Large
corporate
International
corporate
€000
€000
114,135
22,369
23,224
1,575
992
(508)
614
-
-
-
(71)
137,531
(6,629)
(1,167)
(3,752)
50
-
83
-
-
-
-
24,932
(1,396)
(216)
(294)
Small and
medium-
sized
enterprises
€000
34,860
11,753
591
-
(456)
-
-
-
16
46,764
(5,294)
(2,060)
(1,938)
Annual Financial Report 2022
Retail
Restructuring
and recoveries
International
banking
services
Wealth
management
REMU
Insurance
Treasury
Other
Total
€000
€000
€000
€000
€000
€000
€000
€000
€000
4,680
(34,649)
(100)
14,860
738
371,179
(175)
(7,749)
1,602
32,513
192,284
137,178
61,764
2,424
-
454
-
-
-
31,083
7,819
80
4,557
6,220
-
-
-
45,170
55,714
6,020
-
45
-
-
-
5,099
126
(114)
(302)
-
-
-
-
(7)
-
-
181
13,325
131
201
(2)
215
9,349
-
21,008
-
(2,025)
4,911
3,238
31,291
10,052
-
(1,193)
(230)
5,235
71,069
(406)
-
65
-
-
-
1
70
71,139
(774)
645
6,776
(999)
13,970
16,681
201,951
(53,372)
(46,536)
(23,509)
49,960
106,947
9,704
(11,976)
60,854
41,189
42,976
710,832
(10,759)
(12,054)
(4,044)
(4,062)
(11,855)
(2,140)
(78,431)
(190,036)
(9,125)
(91)
(5,249)
(7,864)
(1,311)
(1,044)
(571)
(2,475)
(426)
(35,189)
(104,325)
-
-
-
-
-
-
-
(38,492)
(11,880)
(11,880)
-
-
-
-
-
-
-
(34,579)
(6,618)
(15,684)
(77,242)
(22,222)
(9,938)
(2,280)
(18,105)
(11,724)
(10,132)
55,971
(152,553)
Other operating expenses - advisory and other restructuring costs
-
-
-
Operating profit before credit losses and impairment
Credit losses on financial assets
Impairment net of reversals on non-financial assets
Profit/(loss) before tax
Income tax
Profit/(loss) after tax
Non-controlling interests-profit
91,404
(7,572)
-
16,408
(203)
-
83,832
16,205
(10,479)
(2,026)
21,788
(1,024)
-
20,764
(2,596)
73,353
14,179
18,168
-
-
-
-
1,292
230
-
1,522
(190)
1,332
-
(2,193)
-
-
(731)
-
-
(11,212)
(14,136)
5,570
71,842
1,025
(35,445)
34,800
28,491
(37,765)
199,410
(48,393)
-
(42,823)
5,353
558
-
72,400
(9,050)
(1,535)
(3,422)
(427)
(823)
3,082
(59,529)
-
(23,921)
-
-
(5,628)
(29,549)
(510)
(62,788)
34,373
27,668
(40,311)
110,332
(107)
7,151
(6,806)
(3,458)
(13,263)
(35,471)
(37,470)
63,350
(617)
(55,637)
27,567
24,210
(53,574)
74,861
-
-
-
-
-
-
(2,866)
(2,866)
Profit/(loss) after tax attributable to the owners of the Company
73,353
14,179
18,168
1,332
(37,470)
63,350
(617) (55,637)
27,567
24,210 (56,440)
71,995
174
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
6.
Segmental analysis (continued)
Analysis by business line (continued)
2021 (restated)
Net interest income/(expense)
Net fee and commission income/(expense)
Net foreign exchange gains/(losses)
Net (losses)/gains on financial instruments
Net gains/(losses) on derecognition of financial assets measured at amortised
cost
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
Total operating income
Staff costs
Staff costs–voluntary exit plans and other termination benefits
Special levy on deposits and other levies/contributions
Provisions for pending litigations, regulatory and other provisions (net of
reversals)
Other operating (expenses)/income (excluding advisory and other
restructuring costs)
Operating profit before credit losses and impairment
Credit losses on financial assets
Impairment net of reversals on non-financial assets
Profit/(loss) before tax
Income tax
Profit/(loss) after tax
Non-controlling interests-profit
Corporate
and Large
corporate
International
corporate
€000
€000
Small and
medium-
sized
enterprises
€000
90,045
22,923
773
(113)
5,986
-
-
-
10
119,624
(6,813)
(1,094)
(3,236)
16,120
759
39
-
485
-
-
-
-
17,403
(1,480)
(111)
(223)
29,175
9,465
511
-
1,058
-
-
-
12
40,221
(6,074)
(1,470)
(1,802)
Annual Financial Report 2022
Retail
Restructuring
and recoveries
International
banking
services
Wealth
management
REMU
Insurance
Treasury
Other
Total
€000
€000
€000
€000
€000
€000
€000
€000
€000
-
-
-
48,138
13,041
77
7,823
54,782
5,868
(17,179)
-
747
(3,445)
(52)
22,273
8,682
296,616
5,592
2,814
(338)
(179)
(7,616)
1,632
4,035
25,860
171,796
514
16,503
-
6
(541)
(6,797)
3,639
(21,323)
(3,872)
(104)
2
-
-
-
-
-
-
-
-
-
(2,674)
12,422
52
3
347
5,874
-
60,871
245
-
63
-
-
-
-
-
-
173
601
874
7,381
3,859
61,044
(1,828)
13,296
14,244
40,257
68,372
9,164
12,004
52,970
21,143
47,724
554,207
(14,975)
(12,731)
(4,080)
(3,972)
(11,303)
(1,526)
(78,758)
(202,487)
(1,911)
(110)
(1,724)
(7,095)
(79)
(687)
-
(483)
(1,113)
(178)
481
(16,146)
-
-
-
-
-
-
-
(36,350)
523
523
77,110
45,537
1,872
-
304
-
-
-
502
125,325
(60,775)
(8,464)
(23,197)
(40,394)
12,880
-
-
-
-
-
-
-
(31,282)
(4,964)
(16,838)
(73,283)
77,199
(4,852)
-
10,625
(421)
-
72,347
10,204
(9,043)
(1,276)
14,037
1,967
-
16,004
(2,000)
(23,874)
(21,612)
(22,225)
(42,098)
-
(9,886)
(3,921)
(17,054)
(9,077)
(9,724)
52,709
(147,194)
-
-
(1,201)
-
-
(311)
(23,124)
36,936
397
(10,706)
31,477
9,715
22,368
129,429
804
-
37,740
(4,717)
(300)
(2,118)
-
(47,062)
(8)
-
129
(12,127)
(46,144)
-
(2,394)
(49,456)
97
(59,886)
31,469
9,844
7,847
33,829
(158)
7,255
(4,733)
(1,230)
262
(4,161)
(27,514)
(64,323)
3,439
8,040
63,304
8,928
14,004
(24,075)
(56,283)
33,023
(61)
(52,631)
26,736
8,614
8,109
29,668
-
-
-
-
-
-
-
-
-
-
(2,168)
(2,168)
Other operating expenses - advisory and other restructuring costs
-
-
-
-
Profit/(loss) after tax attributable to the owners of the Company
63,304
8,928
14,004
(24,075)
(56,283)
33,023
(61) (52,631)
26,736
8,614
5,941
27,500
175
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
6.
Segmental analysis (continued)
Analysis of total revenue
Annual Financial Report 2022
Total revenue includes net interest income, net fee and commission income, net foreign exchange gains, net gains/(losses) on financial instruments, net
gains/(losses) on derecognition of financial assets measured at amortised cost, 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 was no revenue deriving from
transactions with a single external customer that amounted to 10% or more of Group revenue.
2022
Revenue from third parties
Inter-segment (expense)/revenue
Total revenue
2021 (restated)
Revenue from third parties
Inter-segment (expense)/revenue
Total revenue
Analysis of assets and liabilities
Corporate
and Large
corporate
€000
154,621
(17,090)
International
corporate
€000
28,570
(3,638)
Small and
medium-sized
enterprises
€000
Retail
Restructuring
and recoveries
€000
€000
International
banking
services
€000
Wealth
management
REMU
Insurance
Treasury
Other
Total
€000
€000
€000
€000
€000
€000
50,413
213,309
(3,649)
(11,358)
54,216
(4,256)
103,182
3,765
10,516
(813)
(8,848)
(3,128)
68,365
(7,511)
(5,710)
46,899
42,198
710,832
779
-
137,531
24,932
46,764
201,951
49,960
106,947
9,703
(11,976)
60,854
41,189
42,977
710,832
136,722
(17,098)
21,041
(3,638)
43,892
137,484
(3,671)
(12,159)
119,624
17,403
40,221
125,325
44,281
(4,024)
40,257
64,635
3,737
68,372
9,929
(765)
15,132
(3,128)
59,770
(25,756)
47,077
554,207
(6,800)
46,899
647
-
9,164
12,004
52,970
21,143
47,724
554,207
2022
Assets
Assets
Corporate
and Large
corporate
€000
International
corporate
€000
Small and
medium-sized
enterprises
€000
Retail
Restructuring
and recoveries
€000
€000
International
banking
services
€000
Wealth
management
REMU
Insurance
Treasury
Other
Total
€000
€000
€000
€000
€000
€000
3,556,475
684,696
1,020,727
4,193,741
313,657
137,399
72,438
1,115,788
998,966 12,291,132
1,416,672
25,801,691
Inter-segment assets
-
-
-
-
-
-
(9,313)
(35,214)
(18,807)
-
(25,938)
(89,272)
Assets between Cyprus and overseas operations
Total assets
3,556,475
684,696
1,020,727 4,193,741
313,657
137,399
63,125 1,080,574
980,159 12,291,132 1,390,734
25,712,419
(269,489)
25,442,930
176
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
6.
Segmental analysis (continued)
Analysis of assets and liabilities (continued)
Annual Financial Report 2022
2021 (restated)
Assets
Assets
Inter-segment assets
Assets between Cyprus and overseas operations
Total assets
2022
Liabilities
Liabilities
Corporate
and Large
corporate
€000
International
corporate
€000
Small and
medium-sized
enterprises
€000
Retail
Restructuring
and recoveries
€000
€000
International
banking
services
€000
Wealth
management
REMU
Insurance
Treasury
Other
Total
€000
€000
€000
€000
€000
€000
3,515,114
636,819
1,036,958
4,011,930
703,926
134,596
73,512
1,282,342
1,023,678 11,412,964
1,583,290
25,415,129
-
-
-
-
-
-
(12,036)
(16,240)
(20,367)
-
(15,227)
(63,870)
3,515,114
636,819
1,036,958 4,011,930
703,926
134,596
61,476 1,266,102 1,003,311 11,412,964 1,568,063
25,351,259
(388,474)
24,962,785
Corporate
and Large
corporate
€000
International
corporate
€000
Small and
medium-sized
enterprises
€000
Retail
Restructuring
and recoveries
€000
€000
International
banking
services
€000
Wealth
management
REMU
Insurance
Treasury
Other
Total
€000
€000
€000
€000
€000
€000
1,915,300
139,898
1,007,555 11,333,783
33,806
3,957,050
628,578
10,049
784,727
3,183,550
704,092
23,698,388
Inter-segment liabilities
-
-
-
-
-
-
-
-
-
(89,272)
-
(89,272)
Liabilities between Cyprus and overseas operations
Total liabilities
2021 (restated)
Liabilities
Liabilities
Inter-segment liabilities
Liabilities between Cyprus and overseas operations
Liabilities
1,915,300
139,898
1,007,555 11,333,783
33,806
3,957,050
628,578
10,049
784,727 3,094,278
704,092
23,609,116
(270,614)
23,338,502
1,602,216
145,934
866,860 11,051,397
45,994
3,500,183
335,587
13,359
826,816
4,161,124
787,671
23,337,141
-
-
-
-
-
-
-
-
-
(63,870)
-
(63,870)
1,602,216
145,934
866,860 11,051,397
45,994
3,500,183
335,587
13,359
826,816 4,097,254
787,671
23,273,271
(389,599)
22,883,672
Segmental analysis of customer deposits and loans and advances to customers is presented in Note 31 and Notes 45.2 and 45.6 respectively.
177
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
6.
Segmental analysis (continued)
Analysis of turnover
Interest income and income similar to interest income
Fees and commission income
Net foreign exchange gains
Gross insurance premiums (Note 12)
Losses of investment properties and stock of properties
Other income
2022
€000
2021
(restated)
€000
451,395
202,583
31,291
210,347
(7,657)
16,681
904,640
388,568
180,212
16,503
190,432
(35,307)
14,244
754,652
The analysis of 'Losses of investment properties and stock of properties' is provided in the table below:
Net losses from revaluation and disposal of investment properties
Net gains on disposal of stock of property
Impairment of stock of property (Note 16)
Analysis of turnover for the Company
Interest income and income similar to interest income
Fees and commission income
Net foreign exchange gains
Gain/(losses) of investment properties and stock of properties
Dividend income
Other income
2022
€000
(999)
13,970
(20,628)
(7,657)
2021
€000
(1,828)
13,296
(46,775)
(35,307)
2022
€000
2021
€000
487,249
186,609
27,280
4,963
21,459
6,164
415,136
168,808
15,518
(13,967)
25,205
4,812
733,724
615,512
The analysis of 'Gain/ (losses) of investment properties and stock of properties' is provided in the table below:
Net gains from revaluation and disposal of investment properties
Net gains on disposal of stock of property
Impairment of stock of property (Note 14 of the Company Financial
Statements)
2022
€000
2021
€000
520
10,561
(6,118)
4,963
214
10,831
(25,012)
(13,967)
178
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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
- Other financial assets (Note 28)
Debt securities at FVOCI
Negative interest on funding from central banks
Income similar to interest income
Loans and advances to customers measured at FVPL
Derivative financial instruments
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
- Debt securities in issue
- Subordinated liabilities
Negative interest on loans and advances to banks and balances with central
banks
Interest expense on lease liabilities (Note 43)
Expense similar to interest expense
Derivative financial instruments
2022
€000
2021
€000
336,080
309,299
42,545
12,113
10,889
9,231
18,418
1,117
7,574
5,335
12,528
25,094
429,276
360,947
2022
€000
2021
€000
10,963
11,156
22,119
12,382
15,239
27,621
2022
€000
2021
€000
6,857
7,151
7,857
5,707
1,623
4,055
20,213
23,335
23,184
114
65,376
31,919
121
66,760
2022
€000
2021
€000
14,840
25,192
179
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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 3/Helix 2
Mutual funds and asset management fees
Brokerage commissions
Other commissions
2022
€000
47,050
112,562
5,564
3,652
858
32,897
202,583
2021
€000
46,445
96,325
7,009
3,896
1,029
25,508
180,212
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
€26,257 thousand (2021: €24,810 thousand). Other banking commissions include commissions from
payment orders amounting to €27,439 thousand (2021: €27,462 thousand) and account maintenance fees
of €29,266 thousand (2021: €23,388 thousand). Liquidity fee is also included within other banking
commissions and amounted to €15,663 thousand (2021: €12,906 thousand).
Fee and commission expense
Banking commissions
Mutual funds and asset management fees
Brokerage commissions
10.
Net foreign exchange gains
2022
€000
2021
€000
9,984
284
31
10,299
8,013
278
125
8,416
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.
11.
Net gains/(losses) on financial instruments
Trading portfolio:
- derivative financial instruments
Other investments at FVPL:
- debt securities
- mutual funds
- equity securities
Net loss on disposal of FVOCI debt securities
Net loss on early redemption of subordinated liabilities (Note 33)
Net gains/(losses) 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)
2022
€000
2021
(restated)
€000
280
132
7,326
(2,139)
55
(2,384)
-
4,050
65,427
(62,563)
10,052
5,534
(829)
3,139
-
(12,558)
(17,292)
19,878
(19,327)
(21,323)
180
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
12.
contracts
Income from assets and expenses from liabilities under insurance and reinsurance
Income from assets under insurance and reinsurance contracts
Gross premiums
Life
insurance
€000
127,152
2022
Non-life
insurance
€000
83,195
Total
€000
210,347
Life
insurance
€000
113,171
2021
Non-life
insurance
€000
77,261
Total
€000
190,432
Reinsurance premiums
(18,258)
(42,729)
(60,987)
(17,084)
(35,311)
(52,395)
Net premiums
Change in provision for
unearned premiums
Total net earned premiums
Net investment (loss)/income
and other (expense)/income
Commissions from reinsurers
and other income
Change in value of in-force
business before tax (Note 26)
108,894
40,466
149,360
96,087
41,950
138,037
-
851
851
-
(649)
(649)
108,894
41,317
150,211
96,087
41,301
137,388
(43,226)
-
(43,226)
45,766
-
45,766
7,769
14,041
21,810
7,784
11,209
18,993
73,437
55,358
128,795
149,637
52,510
202,147
(14,114)
-
(14,114)
3,714
-
3,714
59,323
55,358
114,681
153,351
52,510
205,861
Expenses from liabilities under insurance and reinsurance contracts
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
Life
insurance
€000
(66,758)
2022
Non-life
insurance
€000
(23,464)
Total
€000
(90,222)
Life
insurance
€000
(51,101)
2021
Non-life
insurance
€000
(22,766)
Total
€000
(73,867)
4,987
9,925
14,912
4,970
8,858
13,828
63,131
(4,567)
58,564
(64,375)
1,171
(63,204)
(2,405)
2,219
(186)
2,939
(1,833)
1,106
(20,151)
(6,459)
(26,610)
(16,787)
(5,893)
(22,680)
(21,196)
(22,346)
(43,542)
(124,354)
(20,463)
(144,817)
The decrease in income from assets under insurance and reinsurance contracts during the year ended 31
December 2022 is impacted by the valuation on the unit-linked investments, which in turn has a positive
impact on the respective technical reserves, whose movement is reported under expenses from liabilities
under insurance and reinsurance contracts.
181
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
12.
contracts (continued)
Income from assets and expenses from liabilities under insurance and reinsurance
In addition to the above, the following income and expense items related to the insurance operations have
been recognised in the consolidated income statement:
Life
insurance
€000
2022
Non-life
insurance
€000
Total
€000
Life
insurance
€000
2021
Non-life
insurance
€000
Total
€000
(83)
(243)
(326)
(68)
188
120
Net (expense)/income from non-
linked insurance business assets
Net gains/(losses) on financial
instrument transactions and
other non-linked insurance
business income
Staff costs
Other operating expenses
(6,010)
(4,492)
(10,502)
13.
Other income
40
(2,833)
(2,793)
(5,674)
(8,010)
(13,684)
1,114
(5,271)
(5,668)
(535)
579
(7,335)
(12,606)
(4,015)
(9,683)
Dividend income
(Loss)/profit on sale and write-off of property and equipment and intangible
assets
Rental income from investment properties
Rental income from stock of property
Income from hotel, golf and other leisure activities
Share of profit from associates
Loss on disposal/dissolution of subsidiaries and associates
Other income
2022
€000
2021
(restated)
€000
940
(13)
4,263
257
3,559
-
-
7,675
16,681
1,774
7
4,630
357
2,539
137
(724)
5,524
14,244
The income from hotel, golf and other leisure activities primarily relates to activities of subsidiaries acquired
in debt satisfaction as part of loan restructuring activity.
The loss on disposal/dissolution of subsidiaries for 2021 relates mainly to the loss on the disposal of the
subsidiary Global Balanced Fund of Funds Salamis Variable Capital Investment Company Plc and to the loss
on the disposal of the subsidiary CLR Investment Fund Public Ltd (Note 51) and to the loss on the disposal
of the associate Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc (Note 52).
182
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
14.
Staff costs
Staff costs
Salaries
Employer’s contributions to state social insurance
Retirement benefit plan costs
Share-based benefits-expense
Restructuring costs - voluntary exit plans and other termination benefits
2022
€000
2021
€000
150,506
160,605
27,192
12,016
322
190,036
104,325
294,361
28,186
13,696
-
202,487
16,146
218,633
During the year ended 31 December 2022, an amount of €1,719 thousand (2021: €1,235 thousand)
relating to staff costs has been capitalised as internally developed computer software (Note 26).
The number of persons employed by the Group as at 31 December 2022 was 2,889 (2021: 3,438 and
includes 49 persons that have accepted the voluntary exit plan (VEP) and left the Group in early 2022).
In July 2022, the Group completed a VEP through which 559 of the Group’s full-time employees were
approved to leave at a total cost of €101,195 thousand.
In January 2022, the Group's subsidiary company, JCC Payment Systems Ltd, proceeded with a VEP for its
employees, through which 15 employees were approved to leave at a total cost of €3,130 thousand. In
December 2021, the Group completed a VEP, through which 102 of the Group's full-time employees were
approved to leave at a total cost of €16,146 thousand.
In July 2021, BOC PCL reached an agreement with the Cyprus Union of Bank Employees for the renewal of
the collective agreement for the years 2021 and 2022. The agreement relates to certain changes including
the introduction of a new pay grading structure linked to the value of each position of employment, and of a
performance related pay component as part of the annual salary increase.
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 2022
and 2021.
Corporate and Large corporate
International 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
Other countries
183
2022
2021
60
30
95
1,019
180
218
36
26
45
201
1,299
3,209
11
3,220
92
69
107
1,091
247
243
37
23
55
203
1,348
3,515
15
3,530
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
14.
Staff costs (continued)
14.1
Retirement benefits
Retirement benefit plan costs
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
2022
€000
2021
€000
652
11,364
12,016
586
13,110
13,696
Cyprus
The main retirement plan for the Group’s permanent employees in Cyprus (86% of total Group employees)
is a defined contribution plan. This plan provided for employer contributions of 9% for the period 1 January
2021 to 31 August 2021, revised to 8% from 1 September 2021 and employee contributions of 3%-10% of
the employees’ gross salaries for both 2022 and 2021. This plan is managed by an Administrative
Committee appointed by the members.
In previous years a small number of employees who did not participate in the main retirement plan, were
members of a pension scheme that was closed to new entrants and could have received part or all of their
retirement benefit entitlement by way of a pension for life. This plan is managed by an Administrative
Committee composed currently of representatives of the employer. The pension scheme is in the process of
liquidation as the last member exited the plan during the year ended 31 December 2022.
A small number of employees of Group subsidiaries in Cyprus are also members of defined benefit plans.
These plans are funded with assets backing the obligations held in separate legal vehicles.
Greece
Following IFRIC’s decision in May 2021 about the periods of service to which an entity attributes benefit for
a particular defined benefit plan, the Group as at 31 December 2022 and 2021 does not have any
retirement benefits obligation for its employees in Greece, and as a result the accumulated actuarial
gains/losses attributable to these plans were derecognised since 31 December 2021. As at 31 December
2022 and 2021 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 employees of the former
subsidiary of the Group 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)
Assets (Note 28)
2022
€000
2021
3,694
(816)
2,878
1,673
-
1,673
Two of the plans have a total funded status at a surplus of €10,739 thousand, one of which is under
liquidation with funded status surplus of €1,600 thousand (2021: two plans with surplus €5,462 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.
184
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
14.
Staff costs (continued)
14.1
Retirement benefit plan costs (continued)
Annual Financial Report 2022
The amounts recognised in the consolidated balance sheet and the movement in the net defined benefit obligation for the years ended 31 December 2022 and
2021 are presented below:
1 January 2022
Current service cost
Loss 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
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 2022
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
95,038
(98,827)
(3,789)
5,462
1,673
479
219
1,523
2,221
-
(34,016)
(721)
3,008
-
(31,729)
(4,077)
-
183
(6,893)
-
-
-
(1,569)
(1,569)
30,400
-
-
-
-
30,400
4,296
479
219
(46)
652
30,400
(34,016)
(721)
3,008
-
(1,329)
219
(3,615)
(3,615)
(183)
6,893
-
-
-
-
-
-
-
-
-
-
-
-
5,617
5,617
(339)
-
-
-
-
479
219
(46)
652
30,400
(34,016)
(721)
3,008
5,617
4,288
(120)
(3,615)
-
-
-
54,743
(62,605)
(7,862)
10,740
2,878
185
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
14.
Staff costs (continued)
14.1
Retirement benefit plan costs (continued)
1 January 2021
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
Benefits paid directly by the employer
31 December 2021
Annual Financial Report 2022
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
6,809
2,759
9,568
-
-
-
-
-
-
-
2,703
2,703
-
-
-
-
-
5,462
533
53
586
(5,563)
(2,530)
(170)
409
2,703
(5,151)
298
(3,585)
-
-
(43)
1,673
93,012
533
1,178
(86,203)
-
(1,125)
1,711
(1,125)
533
53
586
(5,563)
(2,530)
(170)
409
-
(7,854)
298
(5,563)
-
-
-
-
(5,563)
(4,993)
(3,585)
(3,585)
(185)
2,827
-
(98,827)
-
-
(43)
(3,789)
-
(2,530)
(170)
409
-
(2,291)
5,291
-
185
(2,827)
(43)
95,038
186
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
14.
Staff costs (continued)
14.1
Retirement benefit plan costs (continued)
The actual return on plan assets for year 2022 was a loss of €28,831 thousand (2021: gain of €6,688
thousand) mainly due to the reduction in bond and equity prices during the year.
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 to better match 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
Funds
2022
2021
%13
%57
%13
%17
%20
%48
%15
%17
%100
%100
The assets held by the funded plans include equity securities issued by the Company, the fair value of which
as at 31 December 2022 is €95 thousand (2021: €57 thousand).
The Group expects to make additional contributions to defined benefit plans of €3,606 thousand during
2023.
At the end of the reporting period, the average duration of the defined benefit obligations was 14 years
(2021: 18 years).
187
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
14.
Staff costs (continued)
14.1
Retirement benefit plan costs (continued)
Principal actuarial assumptions used in the actuarial valuations
The present value of the defined benefit obligations of the retirement plans is estimated annually using the
Projected Unit Credit Method of actuarial valuation, carried out by independent actuaries. The principal
actuarial assumptions used for the valuations of the retirement plans of the Group during 2022 and 2021 are
set out below:
2022
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
2021
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
3.85%
2.50%
2.50%
n/a
23.5 years M
29.6 years F
n/a
0.88%
1.50%
2.00%
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
n/a
n/a
n/a
n/a
n/a
n/a
5.00%
3.10%
n/a
2.90%
n/a
23.0 years M
24.7 years F
1.80%
3.25%
n/a
3.10%
n/a
22.9 years M
24.3 years F
The discount rate used in the actuarial valuations reflects the rate at which liabilities could effectively be
settled and is set by reference to market yields at the reporting date of high quality corporate bonds of
suitable maturity and currency. For the Group’s plans in the Eurozone which comprise 18% of the defined
benefit obligations, the Group adopted a full yield curve approach using AA- rated corporate bond data from
the iBoxx Euro Corporates AA10+ index. For the Group’s plan in the UK which comprises 82% of the defined
benefit obligations, the Group adopted a full yield curve approach using the discount rate that has been set
based on the yields on AA- rated corporate bonds with duration consistent with the scheme’s liabilities.
Under this approach, each future liability payment is discounted by a different discount rate that reflects its
exact timing.
To develop the assumptions relating to the expected rates of return on plan assets, the Group, in
consultation with its actuaries, uses forward-looking assumptions for each asset class reflecting market
conditions and future expectations at the reporting date. Adjustments are made annually to the expected
rate of return assumption based on revised expectations of future investment performance of asset classes,
changes to local legislation that may affect investment strategy, as well as changes to the target strategic
asset allocation.
The impact of significant assumptions' fluctuations on the defined benefit obligation as at 31 December
2022 and 2021 is presented below:
Variable
Discount rate
Inflation growth rate
Salary growth rate
Pension growth rate
Life expectancy
2022
2021
Change
+0.5%
Change
-0.5%
Change
+0.5%
Change
-0.5%
%-6.5
%3.8
%1.1
%6.9
%-4.2
%-1.1
%0.1
%-0.1
Plus 1 year Minus 1 year
%-3.6
%3.6
%-8.7
%5.5
%1.0
%0.1
Plus 1 year
%2.9
%9.4
%-5.4
%-0.9
%-0.1
Minus 1 year
%-2.9
188
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
14.
Staff costs (continued)
14.1
Retirement benefit plan costs (continued)
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 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.
14.2
Share-based compensation plan
Long-Term Incentive Plan
During the Annual General Meeting of the shareholders of the Company which took place on 20 May 2022, a
special resolution was approved for the establishment and implementation of the share based Long-Term
Incentive Plan of Bank of Cyprus Holdings Public Limited Company (the ‘2022 LTIP’).
The 2022 LTIP is a share-based compensation plan for executive directors and senior management of the
Group. The 2022 LTIP provides for an award in the form of ordinary shares of BOCH based on certain non-
market performance and service vesting conditions. Performance will be measured over a 3-year period.
The performance conditions are set by the Human Resources & Remuneration Committee (HRRC) each year
and may be differentiated to reflect the Group's strategic targets and employee's personal performance, at
HRRC's discretion. Performance will be assessed against an evaluation scorecard consistent with the Group’s
Medium Term Strategic Targets containing both financial and non-financial objectives, and including targets
in the areas of: (i) Profitability; (ii) Asset quality; (iii) Capital adequacy; (iv) Risk control & compliance; and
(v) Environmental, Social and Governance ('ESG'). The awards ordinarily vest in six tranches, with 40%
vesting in the year following the year the performance period ends and the remaining 60%, vesting in
tranches (12%), on each of the first, second, third, fourth and fifth anniversary date of the first vesting
date. For any award to vest the employee must be in the employment of the Group up until the date of the
vesting of such an award. Under certain circumstances the HRRC has the discretion to determine whether
the award will lapse and/or the extent to which the award will be vested.
The maximum number of shares that may be issued pursuant to the 2022 LTIP until the tenth anniversary
of the relevant resolution shall not exceed 5% of the issued ordinary share capital of BOCH, as at the date
of the resolution (being 22,309,996 ordinary shares of €0.10 each), as adjusted for any issuance or
cancellation of shares subsequently to the date of the resolution (excluding any issuances of shares
pursuant to the 2022 LTIP).
The pre-existing Share Option Plan, which was operating at the level of BOCH, has been superseded by the
2022 LTIP.
On 22 December 2022 (grant date) 819,860 share awards under the 2022 LTIP were granted by BOCH to
22 eligible employees (2021: nil) comprising the Extended Executive Committee of the Group. The awards
are subject to a three year performance period (2022-2024) (with all performance conditions being non-
market performance conditions) and thereon vest in six tranches, with the first tranche vesting in the year
following the year the performance period ends and the last tranche vesting on the fifth anniversary of the
first vesting date. Vesting is also subject to service conditions. Awards are subject to potential forfeiture
under certain leaver scenarios.
The following table presents movements in outstanding share-based awards during 2022 and 2021.
As at 1 January
Granted during the year
Vested during the year
Forfeited during the year
31 December
2022
2021
Number of
shares
Weighted
average grant
date fair value
€
Number of
shares
Weighted
average grant
date fair value
€
-
819,860
1.69
-
-
-
-
819,860
189
-
-
-
-
-
-
-
-
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
14.
Staff costs (continued)
14.2
Share-based compensation plan (continued)
Assumptions as at 31 December 2022
The fair value calculations at 31 December 2022 for grants made in the year are calculated, using Black-
Scholes model. As the award is a share award (and does not contain any market based performance
conditions) the fair value is based on the share price at the date of the grant.
15.
Other operating expenses
Repairs and maintenance expenses
Other property-related costs
Consultancy, legal and other professional services fees
Insurance
Advertising and marketing
Depreciation of property and equipment (Note 25)
Amortisation of intangible assets (Note 26)
Communication expenses
Printing and stationery
Cash transfer expenses
Other operating expenses
Advisory and other restructuring costs
2022
€000
2021
(restated)
€000
34,840
14,325
18,844
6,613
10,097
15,650
18,553
6,535
1,698
2,953
22,445
152,553
14,136
166,689
33,083
12,448
13,797
6,160
9,836
16,313
18,615
7,254
1,851
2,664
25,173
147,194
23,124
170,318
Advisory and other restructuring costs comprise mainly fees to external advisors in relation to: (i) the
transformation program and other strategic projects of the Group, and (ii) the disposal of operations and
non-core assets.
During the year ended 31 December 2022, the Group recognised €193 thousand relating to rent expense
for short-term leases, included within 'Other property-related costs' (2021: €255 thousand) and €6,767
thousand relating to the depreciation of right-of-use assets, included within 'Depreciation of property and
equipment' (2021: €7,520 thousand) (Note 43).
Within total other operating expenses an amount of €820 thousand (2021: €734 thousand) relates to
investment property that generated rental income.
Special levy on deposits and other levies/contributions as presented in the consolidated income statement
are set out below:
Special levy on deposits of credit institutions in Cyprus
Single Resolution Fund contribution
Guarantee fee on annual deferred tax credit (Note 17)
Contribution to Deposit Guarantee Fund
2022
€000
2021
€000
21,499
19,936
5,779
4,795
6,419
5,209
5,300
5,905
38,492
36,350
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 charge of the Special Levy up to the level of
the total annual Special Levy charge.
190
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
15.
Other operating expenses (continued)
As from 1 January 2020 and until 3 July 2024 BOC PCL is subject to a 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 Group, for audit and other professional services
provided both in Cyprus and overseas, as follows:
Audit of the individual and the Group financial statements
Other assurance services
Tax compliance and advisory services
Other non-audit services
2022
€000
2021
€000
2,163
1,628
504
282
199
659
298
78
3,148
2,663
Other assurance services include fees relating to the interim review.
16.
assets
Credit losses on financial instruments and impairment net of reversals of non-financial
Credit losses on financial instruments
Credit losses to cover credit risk on loans and advances to customers
Impairment net of reversals on loans and advances to customers (Note
45.6)
Recoveries of loans and advances to customers previously written off
Changes in expected cash flows
Financial guarantees and commitments (Notes 45.5.1 and 45.5.2)
Credit losses of other financial instruments
Amortised cost debt securities (Note 20)
FVOCI debt securities (Note 20)
Loans and advances to banks (Note 19)
Balances with central banks (Note 19)
Other financial assets (Note 28)
Impairment net of reversals on non-financial assets
Stock of property (Note 27)
Other non-financial assets
2022
€000
2021
€000
64,997
(11,919)
7,948
(4,516)
56,510
33,956
(11,907)
15,951
2,341
40,341
701
(23)
(52)
193
2,200
3,019
59,529
20,628
8,921
29,549
(32)
(91)
(5)
-
5,931
5,803
46,144
46,775
2,681
49,456
191
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
17.
Income tax
Current tax:
- Cyprus
Cyprus special defence contribution
Deferred tax (credit)/charge
Prior years’ tax adjustments
Other tax charges
2022
€000
2021
€000
35,736
144
(2,318)
1,713
196
35,471
5,202
163
641
(1,882)
37
4,161
The reconciliation between the income tax expense and the profit before tax as estimated using the current
income tax rates is set out below:
Profit 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
- deferred tax (credit)/charge
Cyprus special defence contribution
Prior years' tax adjustments
Other tax charges
2022
€000
110,332
13,792
2021
€000
33,829
4,229
34,973
(13,029)
(2,318)
33,418
144
1,713
196
35,471
14,324
(13,351)
641
5,843
163
(1,882)
37
4,161
Income tax in Cyprus is calculated at the rate of 12.5% on taxable income (2021: 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% (2021: 3%) and on interest income from
activities outside the ordinary course of business at a rate of 30% (2021: 30%).
The Group’s profits from overseas operations are taxed at the rates prevailing in the respective countries,
which for 2022 were: Greece 22% (2021: 22%), Romania 16% (2021: 16%) and Russia 20% (2021:
20%).
The Group is subject to income taxes in the various jurisdictions in which 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.
On 22 December 2022, the European Commission approved Directive 2022/2523 which provides for a
minimum effective tax rate of 15% for the global activities of large multinational groups. The Directive that
follows closely the OECD Inclusive Framework on Base Erosion and Profit Shifting should be transposed by
the Member States throughout 2023, entering into force on 1 January 2024. The legislation has not been
substantively enacted at the balance sheet date and the Group will continue to monitor the evolving
national legislation including any disclosures required, or exemptions available, under IAS 12 in the year
ending 31 December 2023.
192
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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)
Net deferred tax assets
The net deferred tax assets comprise:
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
The deferred tax assets (DTA) 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
2022
€000
(10,528)
(13,338)
(2,847)
227,455
(14,472)
(2,571)
183,699
2021
€000
(10,990)
(13,582)
(2,847)
265,364
(16,236)
(2,663)
219,046
2022
€000
227,521
(43,822)
183,699
2021
€000
265,481
(46,435)
219,046
2022
€000
219,046
2,318
244
(37,909)
183,699
2021
€000
295,378
(641)
127
(75,818)
219,046
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 (credit)/charge recognised in the consolidated income statement is set
out below:
Difference between capital allowances and depreciation
Value of in-force life insurance business
Other temporary differences
2022
€000
2021
€000
(462)
(1,764)
(92)
(2,318)
170
464
7
641
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
2022
€000
2021
€000
244
127
193
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
17.
Income tax (continued)
During the year ended 31 December 2021 an amount of €479 thousand that relates to the balance of
deferred tax arising from property revaluation, has been transferred from the deferred tax liability -
property revaluation to the deferred tax liability - other temporary differences following the respective
transfer of the related property from the category 'Property and equipment' (Note 25) to 'Investment
properties' (Note 22).
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:
i.
ii. The Law applies only to tax losses transferred following resolution of a credit institution within the
The amendments allow for the conversion of specific tax losses into tax credits.
framework of ‘The Resolution of Credit and Other Institutions Law’.
iii. 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.
iv. Acquired tax losses are converted into 15 equal annual instalments or into 11 equal annual instalments
for acquired losses from credit institutions which were in resolution pre 31 December 2017.
v. 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.
vi. 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.
vii. 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.
viii. 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.
ix. A guarantee fee on annual tax credit is payable annually by the credit institution to the Government.
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 has proceeded with the adoption of
modifications to the Law, including requirements for an additional annual fee over and above the 1.5%
annual guarantee fee already provided for in the Law, to maintain the conversion of such DTAs into tax
credits. The relevant amendments were voted by the Cyprus Parliament in May 2022 and have become
effective since. As prescribed by the amendments in the Law, the annual fee is to be determined by the
Cyprus Government on an annual basis, providing however, for such fee charge to be set at a minimum fee
of 1.5% of the annual instalment and can range up to a maximum amount of €10,000 thousand per year,
and also allowing for a higher amount to be charged in the year the amendments are effective (i.e. in
2022).
BOC PCL has DTA that meets the requirements of the Income Tax Law Amendment 28(I) of 2019 relating to
income tax losses transferred to BOC PCL as a result of the acquisition of certain operations of Laiki Bank,
on 29 March 2013, under ‘The Resolution of Credit and Other Institutions Law’. The DTA recognised upon
the acquisition of certain operations of Laiki in 2013 amounted to €417 million (corresponding to €3.3 billion
tax losses) for which BOC PCL paid a consideration as part of the respective acquisition. The period of
utilisation of the tax losses which may be converted into tax credits is eleven years following the
amendment of the Law in 2019, starting from 2018 i.e. by end of 2028.
As a result of the above Law, the Group has DTA amounting to €227,455 thousand as at 31 December 2022
(2021: €265,364 thousand) that meet the requirements under this Law, the recovery of which is
guaranteed. On an annual basis an amount is converted to annual tax credit and is reclassified from the
DTA to current tax receivables.
The DTA subject to the Law is accounted for on the same basis, as described in Note 2.13.
194
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
17.
Income tax (continued)
The Group in prior years, in anticipation of modifications in the Law, acknowledged that such increased
annual fee may be required to be recorded on an annual basis until expiration of such losses in 2028. The
Group estimates that such 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. An amount of €4,795 thousand that relates to the tax credit of year 2022 (2021:
€5,300 thousand) was recorded during the year ended 31 December 2022. In the third quarter of 2022,
BOC PCL has been levied an amount for years 2018-2021 within the provisions level maintained.
The accumulated income tax losses are presented in the table below:
2022
Expiring within 5 years
Total income
tax losses
€000
44,960
Income tax
losses for
which a
deferred tax
asset was
recognised
€000
-
Utilisation in annual instalments up to 2028
1,819,636
1,819,636
Income tax
losses for
which no
deferred tax
asset was
recognised
€000
44,960
-
2021
Expiring within 5 years
Utilisation in annual instalments up to 2028
18.
Earnings per share
1,864,596
1,819,636
44,960
251,448
2,122,909
2,374,357
-
251,448
2,122,909
2,122,909
-
251,448
Basic and diluted profit per share attributable to the owners of the
Company
Profit for the year attributable to the owners of the Company
(€ thousand)
Weighted average number of shares in issue during the year, excluding
treasury shares (thousand)
Basic and diluted profit per share (€ cent)
2022
2021
71,995
27,500
9,597,945
9,597,945
0.8
0.3
19.
Cash, balances with central banks and loans and advances to banks
Cash
Balances with central banks
Allowance for expected credit losses (Note 16)
Loans and advances to banks
Allowance for expected credit losses (Note 16)
2022
€000
2021
€000
91,717
142,915
9,475,734
9,087,968
(193)
-
9,567,258
9,230,883
2022
€000
2021
€000
204,832
291,705
(21)
(73)
204,811
291,632
195
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
19.
Cash, balances with central banks and loans and advances to banks (continued)
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
31 December
2022
€000
9,087,968
2021
€000
5,513,629
387,766
3,574,339
9,475,734
9,087,968
Balances with central banks are classified as Stage 1.
The ECL charge (Note 16) and ECL allowance on balances with central banks for the year ended and as at
31 December 2022 amounted to €193 thousand (2021: nil).
An analysis of the movement of the gross carrying amount and ECL of loans and advances to banks is
presented in the table below:
2022
2021
1 January
Net decrease
Changes to models and inputs used for
ECL calculation (Note 16)
Foreign exchange adjustments
Gross carrying
amount
€000
291,705
(85,970)
-
(903)
ECL
€000
(73)
-
52
-
31 December
204,832
(21)
All loans and advances to banks are classified as Stage 1.
Gross carrying
amount
€000
402,862
(109,485)
-
(1,672)
291,705
ECL
€000
(78)
-
-
5
(73)
Balances with central banks include obligatory deposits for liquidity purposes as at 31 December 2022 which
amount to €114,537 thousand (2021: €166,987 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 45.11.
Loans and advances to banks earn interest based on the interbank rate of the relevant term and currency.
20.
Investments
The analysis of the Group’s investments is presented in the table below:
Investments at FVPL
Investments at FVOCI
Investments at amortised cost
Out of these, the amounts pledged as collateral are shown below:
Investments pledged as collateral
Investments at FVOCI
Investments at amortised cost
196
2022
€000
190,209
467,375
2021
€000
199,194
748,695
2,046,119
1,191,274
2,703,703
2,139,163
2022
€000
60,974
223,369
2021
€000
488,806
771,352
284,343
1,260,158
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
20.
Investments (continued)
Investments pledged as collateral as at 31 December 2022 and 2021 related to debt securities collaterised
mainly for the additional amounts borrowed from the ECB Targeted Longer-Term Refinancing Operations
(TLTRO III) (Note 30). Encumbered assets are disclosed in Note 47.
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.
The credit rating analysis of investments is disclosed in Note 45.11.
Investments at fair value through profit or loss
Debt and other non-equity securities
Equity securities
Mutual funds
Investments mandatorily
measured at FVPL
2021
€000
2022
€000
8,968
6,961
174,280
190,209
6,034
9,053
184,107
199,194
The debt securities which are measured at FVPL are mandatorily classified because they failed to meet the
SPPI Criteria.
Investments at FVOCI
Debt securities
Equity securities (including preference shares)
Investments at amortised cost
Debt securities
2022
€000
453,775
13,600
467,375
2021
€000
733,080
15,615
748,695
2022
€000
2,046,119
2021
€000
1,191,274
197
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
20.
Investments (continued)
Further analysis of the Group's investments is provided in the tables below.
Equity securities
Equity securities
2022
Listed on the Cyprus Stock Exchange
Listed on other stock exchanges
Unlisted
2021
Listed on the Cyprus Stock Exchange
Listed on other stock exchanges
Unlisted
FVPL
€000
FVOCI
€000
Total
€000
-
6,961
-
6,961
1,335
68
12,197
13,600
1,335
7,029
12,197
20,561
FVPL
€000
FVOCI
€000
Total
€000
-
9,053
-
9,053
1,752
76
13,787
15,615
1,752
9,129
13,787
24,668
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 €13,600 thousand at 31
December 2022 and is equal to their fair value (2021: €15,615 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 €940 thousand has been received and recognised for 2022 in other income
(2021: €1,774 thousand) (Note 13).
During the years ended 31 December 2022 and 31 December 2021 no material equity investments
measured at FVOCI have been disposed of. During the year there were transfers from OCI to retained
earnings of €2,931 thousand (2021: nil) relating to investments disposed in prior years.
Mutual funds
Mutual funds
2022
Listed on other stock exchanges
Unlisted
2021
Listed on other stock exchanges
Unlisted
FVPL
€000
77,782
96,498
174,280
FVPL
€000
88,963
95,144
184,107
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.
198
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
20.
Investments (continued)
Debt securities and other non-equity securities
Analysis by issuer type
2022
Cyprus government
Other governments
Financial institutions
Other financial corporations
Supranational organisations
Other non-financial corporations
2021
Cyprus government
Other governments
Financial institutions
Other financial corporations
Supranational organisations
Other non-financial corporations
Geographic dispersion by country of
issuer
2022
Cyprus
Greece
Germany
France
Other European Union countries
United Kingdom
USA and Canada
Other countries
Supranational organisations
2021
Cyprus
Germany
France
Other European Union countries
United Kingdom
USA and Canada
Other countries
Supranational organisations
FVPL
€000
FVOCI
€000
Amortised
cost
€000
-
-
-
8,968
-
-
310,791
22,616
115,497
-
-
4,871
521,322
402,844
722,522
36,547
293,834
69,050
Total
€000
832,113
425,460
838,019
45,515
293,834
73,921
8,968
453,775
2,046,119
2,508,862
FVPL
€000
FVOCI
€000
Amortised
cost
€000
Total
€000
-
-
500
5,534
-
-
408,708
87,295
230,513
-
-
6,564
326,953
223,813
397,775
33,507
209,226
-
735,661
311,108
628,788
39,041
209,226
6,564
6,034
733,080
1,191,274
1,930,388
FVPL
€000
FVOCI
€000
Amortised
cost
€000
Total
€000
-
-
-
-
-
-
8,968
-
-
310,791
14,987
-
58,134
33,298
-
8,974
27,591
-
531,611
43,276
121,132
162,405
370,728
23,128
238,802
261,203
293,834
842,402
58,263
121,132
220,539
404,026
23,128
256,744
288,794
293,834
8,968
453,775
2,046,119
2,508,862
FVPL
€000
FVOCI
€000
500
408,708
-
-
-
-
5,534
-
-
3,598
66,116
139,940
-
77,831
36,887
-
Amortised
cost
€000
Total
€000
326,953
67,747
100,388
239,781
25,043
111,961
110,175
209,226
736,161
71,345
166,504
379,721
25,043
195,326
147,062
209,226
6,034
733,080
1,191,274
1,930,388
199
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
20.
Investments (continued)
Listing analysis
2022
Listed on the Cyprus Stock Exchange
Listed on other stock exchanges
Unlisted
2021
Listed on the Cyprus Stock Exchange
Listed on other stock exchanges
Unlisted
FVPL
€000
FVOCI
€000
Amortised
cost
€000
Total
€000
-
-
8,968
8,968
-
29,849
29,849
453,775
2,016,270
2,470,045
-
-
8,968
453,775
2,046,119
2,508,862
FVPL
€000
FVOCI
€000
Amortised
cost
€000
Total
€000
-
-
6,034
6,034
-
48,463
48,463
733,080
1,142,811
1,875,891
-
-
6,034
733,080
1,191,274
1,930,388
The Group uses fair value hedging to manage the interest rate risk in relation to its FVOCI bonds (Note 21).
An analysis of the movement of debt securities at FVOCI 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 inputs used for
ECL calculations (Note 16)
Changes in fair value
31 December
2022
2021
Gross debt
securities
€000
733,766
27,972
(244,486)
(6,119)
11,190
-
(67,885)
454,438
ECL
€000
(686)
-
35
-
-
(12)
-
(663)
Gross debt
securities
€000
657,633
116,290
(34,083)
(2,448)
14,852
-
(18,478)
733,766
ECL
€000
(777)
6
-
-
-
85
-
(686)
All debt securities measured at FVOCI are classified as Stage 1.
An analysis of changes in the gross carrying amount (before ECL) of the debt securities at amortised cost by
staging is presented in the table below:
1 January
Stage 1
€000
1,143,533
New assets acquired in the year 1,073,058
Assets derecognised and
redeemed in the year
Fair value due to hedging
relationship
Interest accrued and
amortisation
Foreign exchange adjustments
(164,874)
(10,527)
(179)
6,627
31 December
2,047,638
2022
Stage 2
€000
Total
€000
48,559 1,192,092
Stage 1
€000
984,739
-
1,073,058
503,089
(47,100) (211,974)
(348,151)
2021
Stage 2
€000
Total
€000
48,981 1,033,720
-
-
503,089
(348,151)
(197)
(10,724)
(2,156)
(392)
(2,548)
(1,262)
(1,441)
6,627
(4,744)
10,756
(30)
-
(4,774)
10,756
2,047,638 1,143,533
48,559 1,192,092
-
-
200
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
20.
Investments (continued)
An analysis of changes on the respective ECL is presented in the table below:
1 January
Assets derecognised or
redeemed (Note 16)
Changes to models and inputs
used for ECL calculation (Note
16)
31 December
Stage 1
€000
2022
Stage 2
€000
Total
€000
Stage 1
€000
2021
Stage 2
€000
Total
€000
(722)
(96)
(818)
(545)
(305)
(850)
11
96
107
155
-
155
(808)
(1,519)
-
-
(808)
(1,519)
(332)
(722)
209
(96)
(123)
(818)
There were no reclassifications of investments during the year ended 31 December 2022 and 2021.
The fair value of the financial assets that have been reclassified out of FVPL to FVOCI on transition to IFRS
9, amounts to €8,694 thousand at 31 December 2022 (2021: €11,066 thousand). The fair value loss that
would have been recognised in the consolidated income statement during the year ended 31 December
2022 if these financial assets had not been reclassified as part of the transition to IFRS 9, amounts to
€1,432 thousand (2021: loss of €97 thousand). The effective interest rate of these instruments is 1.6%-
5.0% (2021: 1.6%-5.0%) per annum and the respective interest income during the year ended 31
December 2022 amounts to €252 thousand (2021: €280 thousand).
21.
Derivative financial instruments
The contract amount and fair value of the derivative financial instruments is set out below:
2022
Fair value
2021
Fair value
Contract
amount
€000
Assets
Liabilities
€000
€000
Contract
amount
€000
Assets
Liabilities
€000
€000
13,239
1,248,522
14,806
352
171,864
1,448,783
103
283
437
287
3,094
4,204
123
11,344
10,316
991,117
420
65
21,690
83
3,094
518,950
81
4,388
86
62
223
55
1,342
61
21
218
14,018 1,543,184
4,840
1,697
803,513
43,939
2,151
700,835
1,813
30,025
3,059
806,572
2,255,355
10
43,949
48,153
-
107,193
2,151
808,028
16,169 2,351,212
-
1,813
6,653
730
30,755
32,452
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 foreign currency 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.
201
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
21.
Derivative financial instruments (continued)
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.
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 currency 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 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, foreign currency 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.
202
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
21.
Derivative financial instruments (continued)
Hedges of net investments
The Group’s consolidated balance sheet is impacted 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 other foreign operations and by forward
exchange rate contracts.
As at 31 December 2022, forward exchange rate contracts amounting to €3,059 thousand (2021: forward
exchange rate contracts and currency swaps amounting to €107,193 thousand) have been designated as
hedging instruments and have given rise to a loss of €4,079 thousand (2021: gain of €7,797 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.
2022
Derivatives qualifying for hedge accounting
Fair value hedges
-interest rate swaps
Net investments
-forward exchange rate contracts
Total
2021
Derivatives qualifying for hedge accounting
Fair value hedges
Gains/(losses) attributable to
hedged risk
Hedged in-
effectiveness
Hedged items
€000
Hedging
instrument
€000
€000
(62,563)
65,427
(2,864)
4,079
(58,484)
(4,079)
61,348
-
(2,864)
Gains/(losses) attributable to
hedged risk
Hedged in-
effectiveness
Hedged items
€000
Hedging
instrument
€000
€000
-interest rate swaps
(19,327)
19,878
(551)
Net investments
-forward exchange rate contracts and currency
swaps
Total
(8,422)
(27,749)
8,422
28,300
-
(551)
203
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
21.
Derivative financial instruments (continued)
The accumulated fair value adjustment arising from the hedging relationships is presented in the table
below:
2022
Derivatives qualifying for hedge
accounting
Fair value hedges - interest rate swaps
Interest rate swaps
-debt securities
-debt securities in issue
Net investments - forward and swap
exchange rate contracts
Net assets
Total
2021
Derivatives qualifying for hedge
accounting
Fair value hedges - interest rate swaps
Interest rate swaps
-debt securities
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
468,396
-
(66,555)
-
297,636
3,059
-
-
10
-
4,853
-
471,455
297,636
(66,545)
4,853
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
746,432
-
-
107,193
746,432
107,193
729
-
729
-
(730)
(730)
For assets hedged using fair value hedges the fixed rate is 1.84% and the floating rate is 1.20% as at 31
December 2022 (2021: 2.38% and 0.94% respectively). For liabilities hedged using fair value hedges, the
average fixed rate is 0.62% and the average floating rate is 0.25% respectively as at 31 December 2022.
There were no liabilities hedged using fair value hedges as at 31 December 2021.
204
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
21.
Derivative financial instruments (continued)
The maturity of the Group's contract amount of the derivatives is presented in the table below:
2022
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
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
1,649
1,109,302
9,138
139,220
-
352
-
-
-
-
2,452
-
-
-
-
-
-
14,806
-
-
-
-
-
13,239
1,248,522
14,806
352
154,173
17,691
171,864
1,111,303
148,358
2,452
168,979
17,691 1,448,783
23,416
17,000
42,200
486,397
234,500
803,513
3,059
26,475
-
17,000
-
42,200
44,652
-
-
3,059
486,397
234,500
806,572
655,376
252,191 2,255,355
Total
1,137,778
165,358
205
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
21.
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
4,923
875,897
4,493
114,852
-
83
-
-
-
-
1,928
368
6,219
-
500,000
-
-
15,471
-
-
-
-
-
-
11,344
991,117
21,690
83
18,950
518,950
880,903
119,345
508,515
15,471
18,950 1,543,184
44,182
41,530
101,465
247,158
266,500
700,835
2021
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
1,032,278
160,875
107,193
151,375
-
41,530
-
101,465
609,980
-
-
107,193
247,158
266,500
808,028
262,629
285,450 2,351,212
Interest rate benchmark reform
As at 31 December 2022 and 2021 the interest rate benchmarks to which BOC PCL's hedge relationships
are exposed to, are Euro Interbank Offered Rate (Euribor) and USD London Interbank Offered Rate (Libor)
in relation to 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 analysed by interest
rate basis. The derivative hedging instruments provide a close approximation to the extent of the risk
exposure BOC PCL manages through hedging relationships.
Interest Rate Swaps
Euribor (3-month)
Libor USD (3-month)
Total
2022
€000
770,731
32,782
803,513
2021
€000
529,831
171,004
700,835
Euribor is in compliance with EU Benchmarks Regulation and the Group does not consider that Euribor
based derivatives are affected by the BMR Reform.
As at 31 December 2022, the Group’s assessment regarding the on going transition to the new risk free
rates (RFRs) indicates that the impact on the hedging relationships and in value terms is not significant.
Further details in relation to interest rate benchmark reform are disclosed in Note 46.
206
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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 at FVPL
Investments at FVOCI
2022
2021
Carrying
value
€000
9,567,258
204,811
190,209
467,375
Fair value
€000
9,567,258
193,349
190,209
467,375
Carrying
value
€000
9,230,883
291,632
199,194
748,695
Fair value
€000
9,230,883
289,519
199,194
748,695
Investments at amortised cost
2,046,119
1,953,336
1,191,274
1,196,753
Derivative financial assets
48,153
48,153
6,653
6,653
Loans and advances to customers
Life insurance business assets attributable
to policyholders
Financial assets classified as held for sale
Other financial assets
9,961,642
10,020,131
9,836,405
9,642,212
531,061
531,061
-
-
415,622
469,562
540,827
250,370
393,464
540,827
250,370
393,464
23,432,250
23,440,434
22,689,397
22,498,570
Financial liabilities
Funding from central banks and deposits by
banks
Derivative financial liabilities
Customer deposits
Debt securities in issue
Subordinated liabilities
Other financial liabilities and lease liabilities
2,484,332
2,399,266
3,426,639
3,328,987
16,169
16,169
32,452
32,452
18,998,319
18,963,934
17,530,883
17,532,995
297,636
303,812
255,455
254,179
265,472
255,455
302,555
342,373
275,519
292,615
355,159
275,519
22,355,723
22,154,475
21,910,421
21,817,727
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 and properties
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.
207
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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 BOC PCL’s own credit quality respectively.
The Group calculates the CVA by applying the PD of the counterparty, conditional on the non-default of the
Group, to the Group’s expected positive exposure to the counterparty and multiplying the result by the loss
expected in the event of default. Conversely, the Group calculates the DVA by applying BOC PCL's 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.
The expected exposure of derivatives is calculated as per the CRR and takes into account the netting
agreements where they exist. A standard Loss Given Default (LGD) assumption in line with industry norms
is adopted. Alternative LGD assumptions may be adopted when both the nature of the exposure and the
available data support this.
The Group does not hold any significant derivative instruments which are valued using a valuation technique
with significant non-market observable inputs.
Investments at 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. The discount rate used in the determination of the fair value of the loans and
advances to customers measured at FVPL during the year ended 31 December 2022 ranges from 2.66% to
4.86% (2021:2.34%-8.50%).
Customer deposits
The fair value of customer deposits is determined by calculating the present value of future cash flows. The
discount rate takes into account current market rates and the credit profile of BOC PCL. The fair value of
deposits repayable on demand and deposits protected by the Deposit Protection Guarantee Scheme are
approximated by their carrying values.
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.
Debt securities in issue and Subordinated liabilities
Debt securities and subordinated liabilities issuances are 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.
Owned property
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.
208
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
22.
Fair value measurement (continued)
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
2022
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
Net investments-forward exchange rate
contracts and currency swaps
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
103
283
437
287
3,094
4,204
43,939
10
43,949
96,498
-
9,045
47,837
25,607
2,610
85,099
9,045
47,837
25,607
2,610
85,099
203,658
203,658
214,359
214,359
-
-
-
-
-
-
-
-
-
8,968
12,265
103
283
437
287
3,094
4,204
43,939
10
43,949
190,209
467,375
Investments at FVPL
Investments at FVOCI
84,743
455,110
Other financial assets not measured at
fair value
Loans and advances to banks
Investments at amortised cost
Loans and advances to customers
539,853
144,651
524,349
1,208,853
-
1,871,757
193,349
69,300
-
193,349
12,279
1,953,336
-
-
9,805,772
9,805,772
1,871,757
262,649
9,818,051
11,952,457
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 €4,538 thousand in their fair value and a decrease in the
discount factor by 10% would result in an increase of €1,145 thousand in their fair value.
For one investment included in debt and other non-equity securities mandatorily measured at FVPL as a
result of the SPPI assessment and categorised as Level 3 with a carrying amount of €8,968 thousand as at
31 December 2022, a change in the conversion factor by 10% would result in a change in the value of the
debt and other non-equity securities by €897 thousand.
For additional disclosures on sensitivity analysis of equity securities refer to Note 46.
209
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
22.
Fair value measurement (continued)
The fair value measurement hierarchy for life insurance business assets attributable to policy holders is
disclosed in Note 24.
2022
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
Debt securities in issue
Subordinated liabilities
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
254,179
123
10,316
420
65
3,094
14,018
2,151
2,151
16,169
1,944,145
455,121
-
-
-
265,472
-
-
-
-
-
-
-
-
-
-
-
123
10,316
420
65
3,094
14,018
2,151
2,151
16,169
1,944,145
455,121
18,963,934
18,963,934
-
-
254,179
265,472
254,179
2,664,738
18,963,934
21,882,851
The fair value of the subordinated liabilities has been classified as Level 2 in the fair value hierarchy because
it has been estimated using market observable inputs of financial instruments with similar characteristics.
210
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
22.
Fair value measurement (continued)
2021
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
Residential
Offices and other commercial properties
Manufacturing and industrial properties
Freehold property
Offices and other commercial properties
Freehold property held for sale
Offices and other commercial properties
Loans and advances to customers measured
at FVPL
Trading derivatives
Forward exchange rate contracts
Currency swaps
Interest rate swaps
Currency options
Interest rate caps/floors
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps
Investments at FVPL
Investments at FVOCI
Other financial assets not measured at
fair value
Loans and advances to banks
Investments at amortised cost
Loans and advances to customers
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
98,016
734,832
-
-
-
-
-
-
-
-
-
-
-
-
-
81
4,388
86
62
223
4,840
1,813
95,144
-
11,937
55,805
28,610
536
20,857
11,937
55,805
28,610
536
20,857
117,745
117,745
1,790
2,635
896
5,321
1,790
2,635
896
5,321
195,666
195,666
10,408
10,408
281,868
281,868
-
-
-
-
-
-
-
6,034
13,863
81
4,388
86
62
223
4,840
1,813
199,194
748,695
832,848
101,797
630,905
1,565,550
-
1,074,144
289,519
98,238
-
289,519
24,371
1,196,753
-
-
9,360,344
9,360,344
1,074,144
387,757
9,384,715
10,846,616
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 €4,647 thousand in their fair value and a decrease in the
discount factor by 10% would result in an increase of €784 thousand in their fair value.
For one investment included in debt and other non-equity securities mandatorily measured at FVPL as a
result of the SPPI assessment and categorised as Level 3 with a carrying amount of €5,534 thousand as at
31 December 2021, a change in the conversion factor by 10% would result in a change in the value of the
debt and other non-equity securities by €553 thousand.
211
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
22.
Fair value measurement (continued)
2021
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
Debt securities in issue
Subordinated liabilities
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
292,615
55
1,342
61
21
218
1,697
30,025
730
30,755
32,452
2,950,646
378,341
-
-
-
355,159
-
-
-
-
-
-
-
-
-
-
-
-
55
1,342
61
21
218
1,697
30,025
730
30,755
32,452
2,950,646
378,341
17,532,995
17,532,995
-
-
292,615
355,159
292,615
3,684,146
17,532,995
21,509,756
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 years ended 31 December 2022 and 2021 there were no significant transfers between Level 1
and Level 2.
212
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
22.
Fair value measurement (continued)
Annual Financial Report 2022
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 and consequently, the Group requires
significant unobservable inputs to calculate their fair value.
The movement in Level 3 financial assets which are measured at fair value is presented below:
2022
2021
Investment
properties
€000
Investment
properties
held for sale
€000
Own use
properties
€000
Own use
properties
held for sale
€000
Loans and
advances to
customers
€000
117,745
5,321
195,666
10,408
281,868
Financial
instruments
Investment
properties
€000
€000
19,897
10,054
128,088
2,774
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
1,248
202,146
10,408
289,861
33,182
9,166
-
3,173
-
857
1 January
Additions
Disposals
Transfers from investment properties
to non-current assets and disposal
groups held for sale (Note 29)
Transfers from own use properties to
investment properties (Note 25)
Transfers from own use properties held
for sale to own use properties (Note
29)
Conversion of instruments into
common shares
Depreciation charge for the year
Impairment charge for the year (Note
16)
Fair value (losses)/gains
Net gains/(losses) on loans and
advances to customers measured at
FVPL (Note 11)
Derecognition of loans
Interest on loans (Note 7)
Foreign exchange adjustments
31 December
(39,484)
(5,321)
-
-
-
-
-
-
(2,915)
-
-
-
587
85,099
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,408
(10,408)
-
(2,046)
(3,543)
-
-
-
-
-
203,658
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(500)
(10,425)
(1,656)
(5,729)
5,729
-
-
-
(4,102)
-
-
5,616
-
-
-
-
-
-
(5,616)
-
-
(2,129)
-
408
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(4,133)
(2,783)
4,050
(82,522)
10,963
-
-
-
-
-
-
-
17
204
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(17,292)
(3,083)
12,382
-
396
(903)
-
-
-
(18,618)
-
-
5,840
-
-
-
-
214,359
21,233
117,745
5,321
195,666
10,408
281,868
19,897
213
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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:
214
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
22.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of investment properties
Annual Financial Report 2022
Type and country
Residential
Cyprus
Greece
Offices and other commercial properties
Cyprus
Greece
Manufacturing and industrial
Cyprus
Greece
Land (fields and plots)
Cyprus
Total
Analysis of own use properties
4,911
4,134
9,045
44,837
3,000
47,837
18,439
7,168
25,607
2,610
85,099
Estimated
rental value
per m2 per
annum
Estimated
building cost
per m2
2022
€000
Yield
Estimated fair
value per m2
Estimated
land value per
m2
€37-€93
€185-€1,673
5%-7% €427-€2,338
€130-€650
Land
Building area
m2
134-1,203
m2
89-1,420
€6-€115
€164-€2,115
2%-7.1%
€45-€1,892
€7-€4,017
24-5,147
51-825
€36-€250
€470
3.4%-10% €520-€5,781
€150-€5,000
348-35,413
16-5,850
€19-€381
€193-€3,548
5.4%-10.5%
€72-€3,638
€142-€265
100-8,582
6-4,692
€14-€62
€360
4.5%-9% €283-€1,272
€550
2,202-15,965
743-8,007
€7-€58
€133-€461
3.5%-11%
€8-€439
€5-€395
57-34,495
349-5,858
Age of
building
Years
10-104
11-50
9-67
18-64
10-38
13-84
n/a
n/a
n/a
n/a
€1,127
2,316
n/a
n/a
Type and country
Offices and other commercial properties
Cyprus
Total
2022
€000
203,658
203,658
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
€76-€277
€750-€1,855
5.6%-5.8%
€70-€6,164
€70-€2,274
390-51,947
122-11,109
15-79
215
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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
Hotels
Russia
Land (fields and plots)
Cyprus
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
€35-€100
€134-€1,370
4.5%-5% €380-€2,297
€110-€800
€3-€115
€131-€2,296
0.7%-8.4%
€50-€1,892
€3-€2,437
Land
Building area
m2
89-1,203
5,147
m2
19-559
51-825
2021
€000
9,577
4,150
13,727
54,553
€25-€352
€1,172
4%-8% €498-€6,981
€580-€5,000
152-35,413
16-2,533
€19-€272
€207-€3,615
5.3%-11.3%
€74-€3,615
n/a
€107
n/a
€79
€14-€67
€427
3.5%-7% €305-€1,646
€43
€71-€450
5.2%-10%
€8-€425
€258
€77
€550
€399
8,582
6-4,692
1,792-26,046
212-3,288
2,202-15,965
743-7,500
57-34,495
349-5,858
n/a
n/a
n/a
€356
n/a
n/a
n/a
n/a
n/a
€356
n/a
n/a
7,436
€550
€550-€1,127
2,316-29,398
€15
€15-€23
58,600-689,000
n/a
n/a
3,742
145
58,440
21,822
7,684
29,506
536
17,701
3,156
20,857
123,066
Age of
building
Years
7-48
10-49
9-76
17-63
12-18
9-37
12-83
16
n/a
n/a
Analysis of own use properties and own use properties held for sale
Type and country
Offices and other commercial properties
Cyprus
Total
2021
€000
206,074
206,074
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
€24-€277
€580-€1,855
5.8%-6%
€14-€6,164
€70-€2,274
390-598,767
122-11,233
14-78
216
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
22.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
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.
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 45.6)
Gross loans and advances to group companies at amortised cost
Loans and advances to customers measured at FVPL
2022
€000
9,917,335
(178,442)
2021
€000
9,840,535
(285,998)
9,738,893
9,554,537
8,390
214,359
-
281,868
9,961,642
9,836,405
Gross loans and advances to group companies represent loans and advances to parent company classified
as Stage 1 as at 31 December 2022.
The following tables present the Group’s gross loans and advances to customers at amortised cost by
staging and by geographical analysis (based on the country in which the loans are managed).
2022
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
Cyprus
Other Countries
2021
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
Cyprus
Other countries
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
7,931,511
1,586,488
372,821
115,544
10,006,364
(64,255)
(20,885)
(1,803)
(2,086)
(89,029)
7,867,256
1,565,603
371,018
113,458
9,917,335
7,867,037
1,565,603
219
-
7,867,256
1,565,603
368,922
2,096
371,018
113,458
9,915,020
-
2,315
113,458
9,917,335
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
7,488,354
1,721,231
576,873
159,755
9,946,213
(69,659)
(22,051)
(3,530)
(10,438)
(105,678)
7,418,695
1,699,180
573,343
149,317
9,840,535
7,418,432
1,699,180
263
-
7,418,695
1,699,180
545,327
28,016
573,343
149,317
9,812,256
-
28,279
149,317
9,840,535
Residual fair value adjustment
The residual fair value adjustment on initial recognition 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.
Loans and advances to customers measured at FVPL are managed in Cyprus.
217
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
23.
Loans and advances to customers (continued)
The following tables present the Group’s gross loans and advances to customers at amortised cost by
staging and by business line concentration.
2022
By business line
Corporate and Large Corporate
International 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
2021 (restated)
By business line
Corporate and Large Corporate
International 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
2,502,630
807,282
685,099
825,123
150
189,825
2,982,436
305,714
704,959
152,815
2,842
12,643
5,168
1,713
-
-
-
108
104,539
39,996
34,246
10,603
22,018
5,364
-
-
-
-
31,934
5,652
54,259
35
3,299
30,071
14,376
20,689
23,374
42,155
16,237
18,403
29,339
88,956
28,569
1,254
2
POCI
€000
34,616
Total
€000
3,398,787
24
685,308
10,364
1,028,611
12,413
3,330,634
15,746
887,896
10,175
2,381
3,292
1,029
1,316
2,366
14,039
4,953
147
597
67,952
49,001
72,633
24,343
19,719
31,705
102,995
33,630
137,874
46,247
7,867,256
1,565,603
371,018
113,458
9,917,335
Stage 1
€000
Stage 2
€000
Stage 3
€000
2,365,329
578,920
812,211
878,698
53,259
215,012
2,769,274
320,473
732,154
116,983
6,092
14,016
3,075
1,409
-
-
-
114
92,193
43,908
35,613
16,417
15,528
5,701
-
-
-
-
40,715
781
71,763
5,753
12,522
49,633
23,361
14,255
34,083
62,934
24,838
29,600
35,685
154,469
51,672
2,775
-
POCI
€000
44,269
Total
€000
3,360,059
11
637,943
10,589
1,050,334
11,886
3,151,266
16,189
888,687
6,257
5,663
3,547
1,050
6,474
3,632
28,650
10,424
235
441
62,217
70,179
85,084
32,998
36,074
39,317
183,119
62,210
135,918
45,130
7,418,695
1,699,180
573,343
149,317
9,840,535
Loans and advances to customers pledged as collateral are disclosed in Note 47.
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.
218
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
24.
Life insurance business assets attributable to policyholders
Equity securities
Debt securities
Mutual funds
Bank deposits and other receivables
Property
2022
€000
2021
€000
1,359
36,837
443,299
49,566
531,061
11,260
542,321
1,098
36,400
441,410
61,919
540,827
10,970
551,797
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 €2,965 thousand (2021: €3,079
thousand).
In addition to the above assets, the life insurance subsidiary of the Group holds shares of the Company, as
part of the assets attributable to policyholders with a carrying value as at 31 December 2022 of €236
thousand (2021: €143 thousand). Such shares are presented in the Consolidated Financial Statements 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:
2022
Equity securities
Debt securities
Mutual funds
2021
Equity securities
Debt securities
Mutual funds
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
1,359
17,525
440,108
458,992
1,098
17,287
438,258
456,643
-
-
-
-
-
-
-
-
-
19,312
3,191
22,503
-
19,113
3,152
22,265
1,359
36,837
443,299
481,495
1,098
36,400
441,410
478,908
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 gains/(losses) recognised in the consolidated income statement
31 December
2022
€000
2021
€000
22,265
238
22,503
23,435
(1,170)
22,265
During the years ended 31 December 2022 and 2021 there were no significant transfers between Level 1
and Level 2.
219
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
25.
Property and equipment
2022
Net book value at 1 January
Additions
Transfers from non-current assets and disposal groups held
for sale (Note 29)
Impairment
Disposals and write-offs
Depreciation charge for the year (Note 15)
New leases (Note 43)
Re-assessment of RoU assets (Note 43)
Derecognition of RoU assets (Note 43)
Net book value at 31 December
1 January 2022
Cost or valuation
Accumulated depreciation
Net book value
31 December 2022
Cost or valuation
Accumulated depreciation
Net book value
2021
Net book value at 1 January
Additions
Revaluation
Transfers to investment properties (Note 22)
Disposals and write-offs
Depreciation charge for the year (Note 15)
New leases (Note 43)
Derecognition of RoU assets (Note 43)
Net book value at 31 December
1 January 2021
Cost or valuation
Accumulated depreciation
Net book value
31 December 2021
Cost or valuation
Accumulated depreciation
Net book value
Property
€000
Equipment
€000
Total
€000
231,896
3,898
10,408
(3,543)
(46)
(9,669)
132
3,922
(1,460)
235,538
20,234
2,854
-
-
(92)
252,130
6,752
10,408
(3,543)
(138)
(5,981)
(15,650)
825
-
-
957
3,922
(1,460)
17,840
253,378
296,406
(64,510)
231,896
141,220
437,626
(120,986)
(185,496)
20,234
252,130
303,891
(68,353)
235,538
142,787
446,678
(124,947)
(193,300)
17,840
253,378
Property
€000
Equipment
€000
Total
€000
251,023
1,546
408
(5,616)
(7)
(10,489)
1,148
(6,117)
231,896
21,451
4,741
-
-
(134)
272,474
6,287
408
(5,616)
(141)
(5,824)
(16,313)
-
-
1,148
(6,117)
20,234
252,130
305,645
(54,622)
251,023
139,495
445,140
(118,044)
(172,666)
21,451
272,474
296,406
(64,510)
231,896
141,220
437,626
(120,986)
(185,496)
20,234
252,130
220
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
25.
Property and equipment (continued)
The net book value of the Group's property comprises:
Freehold property
Improvements on leasehold property
RoU assets (Note 43)
Total
2022
€000
2021
€000
203,658
195,666
2,472
29,408
2,649
33,581
235,538
231,896
Freehold property includes land amounting to €79,623 thousand (2021: €78,591 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.
There were no charges against the freehold property of the Group as at 31 December 2022 and 2021.
The net book value of freehold property, on a cost less accumulated depreciation basis, as at 31 December
2022 amounts to €142,555 thousand (2021: €134,000 thousand).
26.
Intangible assets
2022
Net book value at 1 January
Additions
Decrease 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 2022
Cost
Accumulated amortisation and impairment
Net book value
31 December 2022
Cost
Accumulated amortisation and impairment
Net book value
Computer
software
€000
54,144
17,347
-
(392)
(18,553)
52,546
In-force life
insurance
business
€000
129,890
-
Total
€000
184,034
17,347
(14,114)
(14,114)
-
-
(392)
(18,553)
115,776
168,322
236,526
(182,382)
129,890
366,416
-
(182,382)
54,144
129,890
184,034
253,353
(200,807)
115,776
369,129
-
(200,807)
52,546
115,776
168,322
221
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
26.
Intangible assets (continued)
2021
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 2021
Cost
Accumulated amortisation and impairment
Net book value
31 December 2021
Cost
Accumulated amortisation and impairment
Net book value
Computer
software
€000
59,080
16,053
-
(2,374)
(18,615)
54,144
In-force life
insurance
business
€000
126,176
-
Total
€000
185,256
16,053
3,714
3,714
-
-
(2,374)
(18,615)
129,890
184,034
224,722
(165,642)
126,176
350,898
-
(165,642)
59,080
126,176
185,256
236,526
(182,382)
129,890
366,416
-
(182,382)
54,144
129,890
184,034
Computer software includes internally developed computer software with a net carrying amount of €2,954
thousand (2021: €1,235 thousand).
Valuation of in-force life insurance business
The actuarial assumptions made to determine the value of in-force life insurance business relate to future
mortality, redemptions, level of administration and selling expenses and investment returns. The main
assumptions used in determining the value of the in-force business are:
Discount rate (after tax)
Return on investments
Expense inflation
2022
10.0%
5.0%
4.0%
M: 68% A67/70
2021
10.0%
5.0%
3.5%
M: 68% A67/70
Smokers
Non-Smokers M: 48.25% A67/70 M: 48.25% A67/70
Mortality assumption*
Smokers
Non-Smokers
F: 68% A67/70
rated down
by 4 years
F: 48.25% A67/70
rated down
by 4 years
F: 68% A67/70
rated down
by 4 years
F: 48.25% A67/70
rated down
by 4 years
* The Group uses A67/70 UK standard mortality table in setting the mortality assumption, since the Group’s
own claim experience is not sufficient to allow the development of its own mortality table. To reflect the
Group’s specific claims experience more accurately, a percentage is applied on the A67/70 UK standard
mortality table.
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 the
year ended 31 December 2022 an impairment loss of €20,628 thousand (2021: €46,775 thousand) was
recognised in 'Impairment net of reversals on non-financial assets' in the consolidated income statement. At
31 December 2022, stock of €529,316 thousand (2021: €519,978 thousand) is carried at net realisable
value. Additionally, at 31 December 2022 stock of property with a carrying amount of €108,010 thousand
(2021: €116,987 thousand) is carried at approximately its fair value less costs to sell.
222
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
27.
Stock of property (continued)
The stock of property includes residential properties, offices and other commercial properties,
manufacturing and industrial properties, hotels and land (fields and plots). 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 disposal group (Note 29)
Impairment (Note 16)
Foreign exchange adjustments
Net book value at 31 December
2022
€000
1,111,604
76,851
(126,797)
-
(20,628)
2021
€000
1,349,609
34,347
(123,520)
(101,978)
(46,775)
2
(79)
1,041,032
1,111,604
As at 31 December 2022 there are charges against stock of property of the Group with a carrying value
€20,989 thousand (2021: €21,015 thousand).
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
2022
Residential properties
Offices and other commercial properties
Manufacturing and industrial properties
Hotels
Land (fields and plots)
Total
2021
Residential properties
Offices and other commercial properties
Manufacturing and industrial properties
Hotels
Land (fields and plots)
Total
2022
€000
2021
€000
140,767
136,816
(126,797)
(123,520)
13,970
13,296
Cyprus
€000
Greece
€000
Romania
€000
Total
€000
63,724
142,475
29,172
24,027
736,913
996,311
16,947
11,263
11,710
437
4,284
44,641
32
-
48
-
-
80,703
153,738
40,930
24,464
741,197
80
1,041,032
€000
€000
€000
€000
74,248
163,789
33,170
24,619
755,663
18,350
19,462
15,972
456
4,986
1,051,489
59,226
32
-
43
-
814
889
92,630
183,251
49,185
25,075
761,463
1,111,604
223
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
28.
Prepayments, accrued income and other assets
Financial assets
Debtors
Receivable relating to tax
Deferred purchase payment consideration
Other assets
Non-financial assets
Reinsurers’ share of insurance contract liabilities (Note 32)
Current tax receivable
Prepaid expenses
Retirement benefit plan assets (Note 14)
Other assets
2022
€000
2021
€000
44,772
4,536
311,523
54,791
415,622
58,303
124,328
613
816
40,008
224,068
639,690
36,540
4,558
299,766
52,600
393,464
55,323
124,267
701
-
42,552
222,843
616,307
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:
2022
1 January
Net increase
31 December
2021
1 January
Net increase
31 December
Stage 1
Stage 3
€000
€000
377,412
21,826
399,238
37,157
355
37,512
Simplified
method
€000
14,271
138
14,409
Total
€000
428,840
22,319
451,159
81,508
295,904
377,412
35,031
2,126
37,157
13,865
406
14,271
130,404
298,436
428,840
An analysis of the changes on the ECL of the above financial assets is presented in the table below:
2022
1 January
Write-offs
Changes to models and inputs used for ECL
calculations
31 December
2021
1 January
Changes to models and inputs used for ECL
calculations
31 December
Stage 1
Stage 3
€000
€000
Simplified
method
€000
Total
€000
2,557
-
(450)
2,107
31,761
(206)
626
32,181
1,058
(236)
427
1,249
35,376
(442)
603
35,537
-
29,372
1,063
30,435
2,557
2,557
2,389
31,761
(5)
1,058
4,941
35,376
There were no financial assets classified as Stage 2 as at 31 December 2022 and 2021. In addition, no
financial assets were measured at FVPL as at 31 December 2022 and 2021.
224
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
28.
Prepayments, accrued income and other assets (continued)
On the completion date of the sale of Project Helix 2 (the ‘Transaction’) in June 2021, the Group recognised
an amount of €381,567 thousand in other financial assets, which represented the fair value of the deferred
consideration receivable from the Transaction (the ‘DPP’). This amount is payable in four instalments up to
December 2025 and each instalment carries interest up to each payment date. The first instalment in the
amount of €84,579 thousand was received in December 2021. An amount of €10,889 thousand, which
represents the interest income on DPP has been recognised in the Consolidated Income Statement for the
year ended 31 December 2022 (2021: €5,335 thousand) within 'Interest income-Financial assets at
amortised cost-Other financial assets' (Note 7). There are no other conditions attached. An amount of
€13,983 thousand which represents the effect of discounting the DPP at the date of derecognition of the
loan portfolio was recorded as part of the transaction within 'Credit losses to cover credit risk on loans and
advances to customers' during the year ended 31 December 2021. The DPP is classified as Stage 1 as at 31
December 2022 and 2021.
During the year ended 31 December 2022, credit losses of €2,200 thousand were recognised in relation to
other financial assets. This includes ECL losses of €603 thousand (of which €867 thousand relate to a partial
reversal for 12-months ECL of the DPP), €1,310 thousand write-offs and €287 thousand impairment losses.
During the year ended 31 December 2021, credit losses of €5,931 thousand were recognised in relation to
prepayments, accrued income and other financial assets. This includes ECL losses of €4,941 thousand (of
which €2,557 thousand relate to 12-months ECL of the DPP), €1,178 thousand write-offs and €188
thousand reversal of impairments.
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
2021. There were no assets classified as held for sale as at 31 December 2022.
Disposal group 1
Disposal group 2
Freehold property (Note 25)
Gross loans and advances to customers
Allowance for ECL for impairment of loans and advances to customers (Note
45.6)
Stock of property
Investment property
2021
€000
340,622
7,921
10,408
358,951
2021
Disposal Group
1
€000
Disposal Group
2
€000
543,663
12,126
(300,608)
243,055
92,246
5,321
340,622
(4,811)
7,315
606
-
7,921
Disposal Group 1
Disposal group 1 comprised a portfolio of loans and advances to customers and a property portfolio
(comprising stock of property and investment property) known as Project Helix 3 ('Project Helix 3' or the
'Helix 3 Transaction'), classified as held for sale since 30 September 2021. In November 2022, the Group
completed the disposal of Project Helix 3 through the transfer of the portfolios to a licensed Cypriot Credit
Acquiring Company (the CyCAC) by BOC PCL. The shares of the CyCAC were subsequently acquired by
certain funds affiliated with PIMCO, the purchaser of Project Helix 3. The gross consideration on completion
for the transaction amounted to approximately €366 million (including deposit received in 2021) and
reflects adjustments resulting from, inter alia, loan repayments and property disposals proceeds received on
the portfolios since the reference date 31 May 2021. The net consideration for the transaction (after
transaction costs and other adjustments upon completion) corresponds to the net book value of the loans
and advances to customers as at the date of completion, which amounted to €235 million, and the carrying
value of the stock of property and investment properties which amounted to a total of €88 million.
225
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
29.
Non-current assets and disposal groups held for sale (continued)
Disposal Group 2
Disposal group 2 comprised a portfolio of loans and advances to customers and stock of properties in
Romania known as Project Sinope ('Project Sinope' or the 'Sinope Transaction'), classified as held for sale
since 31 December 2021. The transaction was completed in August 2022 and all of the consideration has
been received in cash by completion date.
Freehold property
Freehold property classified as held for sale as at 31 December 2021 was classified back to property and
equipment as own use property as at 31 December 2022 as the property no longer met the criteria to be
classified as held for sale.
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)
2022
€000
2021
€000
1,976,674
2,969,600
As at 31 December 2022, ECB funding amounted to €2 billion (2021: €3 billion) borrowed from various
TLTRO III operations.
In recognition of the challenging credit environment during the pandemic period, the Governing Council of
the ECB 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 would 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 during the above periods remained at 0%. For the counterparties whose
eligible net lending reached 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 would 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%. BOC PCL exceeded the eligible net lending
threshold applicable in the specified periods and was entitled to the beneficial rate of minus 1% for the
period June 2020 to June 2022 and recognised interest at the beneficial rate over the corresponding period.
Subsequently, BOC PCL updated the effective interest rate based on the contractual terms and applying
changes in terms of the operations as a change in the EIR applied prospectively.
ECB during its October 2022 meeting, announced that from 23 November 2022 onwards, the applicable
interest rate would be indexed to the average applicable key ECB interest rates from that date onward.
The maturity of TLTRO III is three years from the settlement of each operation, but there is an option
available to early repay or reduce the amounts borrowed before their respective final maturity.
BOC PCL early repaid €1 billion of TLTRO III funding in December 2022.
Details on encumbered assets related to the above funding facilities are disclosed in Note 47.
226
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
31.
Customer deposits
By type of deposit
Demand
Savings
Time or notice
By geographical area
Cyprus
Greece
United Kingdom
United States
Germany
Romania
Russia
Ukraine
Belarus
Other countries
2022
€000
2021
€000
10,561,724
2,840,346
5,596,249
9,221,791
2,423,086
5,886,006
18,998,319
17,530,883
13,019,109
11,992,960
1,933,771
1,906,854
706,233
178,962
168,785
69,514
700,465
290,050
83,299
713,621
133,355
127,013
54,306
661,820
276,248
55,738
1,848,131
1,608,968
18,998,319
17,530,883
Deposits by geographical area are based on the country of passport of the Ultimate Beneficial Owner.
By currency
Euro
US Dollar
British Pound
Russian Rouble
Swiss Franc
Other currencies
By business line
Corporate and Large corporate
International corporate
SMEs
Retail
Restructuring
– Corporate
– SMEs
– Retail other
Recoveries
– Corporate
International banking services
Wealth management
227
2022
€000
2021
€000
17,067,299
15,736,030
1,529,548
333,458
3,466
11,796
52,752
1,373,584
312,918
28,539
10,865
68,947
18,998,319
17,530,883
2022
€000
2021 (restated)
€000
1,915,300
139,898
1,007,555
1,602,216
145,934
866,860
11,333,783
11,051,397
16,017
6,375
10,152
21,658
13,091
9,862
1,262
3,957,050
610,927
1,383
3,500,183
318,299
18,998,319
17,530,883
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
32.
Insurance liabilities
Gross
€000
2022
Reinsurers'
share
€000
Net
€000
Gross
€000
2021
Reinsurers'
share
€000
Net
€000
609,842
(30,309)
579,533
672,973
(32,714)
640,259
29,880
(13,154)
16,726
27,565
(9,988)
17,577
Life insurance
Life insurance contract
liabilities
Non-life insurance
Provision for unearned
premiums
Other liabilities
Claims outstanding
40,173
(14,840)
25,333
35,629
(12,621)
Unexpired risks reserve
Non-life insurance contract
liabilities
57
-
57
34
-
70,110
679,952
(27,994)
(58,303)
42,116
63,228
621,649
736,201
(22,609)
(55,323)
23,008
34
40,619
680,878
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
672,973
17,610
2022
Reinsurers'
share
€000
Net
€000
Gross
€000
2021
Reinsurers'
share
€000
Net
€000
(32,714)
(3,240)
640,259
14,370
608,591
28,449
(29,775)
(4,297)
578,816
24,152
(80,741)
5,645
(75,096)
35,933
1,358
37,291
609,842
(30,309)
579,533
672,973
(32,714)
640,259
1 January
New business
Change in existing
business
31 December
Non-life insurance contract liabilities
The movement of non-life insurance contract liabilities and reinsurance assets during the year is analysed as
follows:
Provisions for unearned
premiums
1 January
Premium income (Note 12)
Earned premiums
31 December
Gross
2022
Reinsurers'
share
Net
Gross
2021
Reinsurers'
share
Net
€000
€000
€000
€000
€000
€000
27,565
83,195
(9,988)
(42,729)
17,577
40,466
26,178
77,261
(80,880)
39,563
(41,317)
(75,874)
29,880
(13,154)
16,726
27,565
(9,250)
(35,311)
34,573
(9,988)
16,928
41,950
(41,301)
17,577
The provision for unearned insurance and reinsurance premiums represents the portion of premiums that
relate to risks that have not yet expired at the reporting date.
228
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
32.
Insurance liabilities (continued)
Claims outstanding
1 January
Amount paid for claims
settled in the year (Note
12)
Increase in liabilities
arising from claims
31 December
Reported claims
Incurred but not reported
31 December
Gross
€000
2022
Reinsurers'
share
€000
Net
€000
Gross
€000
2021
Reinsurers'
share
€000
Net
€000
35,629
(12,621)
23,008
36,756
(14,454)
22,302
(23,464)
9,925
(13,539)
(22,766)
8,858
(13,908)
28,008
40,173
38,536
1,637
40,173
(12,144)
(14,840)
(14,132)
(708)
(14,840)
15,864
25,333
24,404
929
25,333
21,639
35,629
33,809
1,820
35,629
(7,025)
(12,621)
(11,815)
(806)
(12,621)
14,614
23,008
21,994
1,014
23,008
33.
Debt securities in issue and Subordinated liabilities
2022
2021
Nominal
value
Carrying
value
Nominal
value
Carrying
value
Subordinated
liabilities
Contractual
rate
interest
€000
€000
€000
€000
Subordinated Tier 2
Capital Note - January
2017
Subordinated Tier 2
Capital Note - April 2021
9.25% up to
19 January 2022
6.625% up to
23 October 2026
-
-
35,605
38,561
300,000
303,812
300,000
303,812
300,000
335,605
303,812
342,373
Debt securities in issue
Senior Preferred Notes -
June 2021
2.50% up to
24 June 2026
300,000
297,636
300,000
302,555
BOCH and BOC PCL maintain a Euro Medium Term Note (ΕΜΤΝ) Programme with an aggregate nominal
amount up to €4,000 million.
Subordinated Liabilities
Subordinated Tier 2 Capital Note - January 2017
In January 2017, BOC PCL issued a €250 million unsecured and subordinated Tier 2 Capital Note under the
EMTN Programme. The note was priced at par with a coupon of 9.25% per annum payable annually up to 19
January 2022 and thereafter 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 had a maturity date on 19 January 2027. BOC PCL had the
option to redeem the note early on 19 January 2022, subject to applicable regulatory consents. In April
2021, BOC PCL invited the holders of this note to tender it for purchase by BOC PCL at a price of 105.5%
plus accrued interest and following acceptance of the valid tenders of €207 million nominal amount,
proceeded with the re-purchase. As a result, BOC PCL incurred a loss of €12,558 thousand for the year
ended 31 December 2021, while at the same time forfeiting the relevant obligation for future coupon
payments. By 31 December 2021, the Group purchased from the open market a further €7 million nominal
amount of the notes, which were held by BOC PCL. On 19 January 2022, BOC PCL exercised its option to
redeem at par the remaining nominal amount outstanding of the notes. All outstanding notes were
cancelled. The note was listed on the Luxembourg Stock Exchange’s Euro Multilateral Trading Facility (MTF)
market.
229
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
33.
Debt securities in issue and Subordinated liabilities (continued)
Subordinated Tier 2 Capital Note - April 2021
In April 2021, BOCH issued a €300 million unsecured and subordinated Tier 2 Capital Notes under the EMTN
Programme and immediately after, BOCH and the Company entered into an agreement pursuant to which
BOCH on lent to the Company the entire €300 million proceeds of the issue of the Note (the 'T2 Loan') on
terms substantially identical to the terms and conditions of the Note issued by BOCH. The T2 Loan was
priced at par with a coupon of 6.625% per annum payable annually in arrears and resettable on 23 October
2026 at the then prevailing 5-year swap rate plus a margin of 6.902% per annum up to 23 October 2031,
payable annually. The note matures on 23 October 2031. The Company has the option to redeem the T2
Loan early on any day during the six-month period from 23 April 2026 to 23 October 2026, subject to
applicable regulatory consents.
The fair value of the Subordinated liabilities as at 31 December 2022 and 2021 is disclosed in Note 22.
Debt securities in issue
Senior Preferred Notes - June 2021
In June 2021, BOC PCL issued a €300 million senior preferred note under the EMTN Programme. The note
was priced at par with a fixed coupon of 2.50% per annum, payable annually in arrears and resettable on
24 June 2026. The note matures on 24 June 2027. BOC PCL has the option to redeem the note early on 24
June 2026, subject to applicable regulatory consents. The note is listed on the Luxembourg Stock
Exchange’s Euro MTF market. The note complies with the criteria for the minimum requirement for own
funds and eligible liabilities (MREL) and contributes towards BOC PCL’s MREL requirements.
The fair value of the debt securities in issue as at 31 December 2022 and 2021 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 45.5.1 and
45.5.2)
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
2022
€000
2021
€000
41,097
379
3,694
17,429
47,566
65,687
18,061
97,585
30,190
-
65,165
386,853
11,163
462
1,673
21,945
33,809
79,214
16,441
64,024
33,981
19,225
80,089
362,026
Other liabilities include an amount of €10,385 thousand (2021: €26,476 thousand) relating to the
guarantee fee for the conversion of DTA into tax credits (Note 17) and an amount of €9,874 thousand
(2021: €6,642 thousand) relating to card processing transactions.
The ECL allowance for financial guarantees and commitments is analysed by stage in the table below:
Stage 1
Stage 2
Stage 3
2022
€000
2021
€000
209
207
17,013
17,429
39
293
21,613
21,945
230
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
35.
Share capital
2022
2021
Number of
shares
(thousand)
€000
Number of
shares
(thousand)
€000
Authorised
Ordinary shares of €0.10 each
47,677,593
4,767,759
47,677,593
4,767,759
Issued
1 January and 31 December
9,597,945
959,794
9,597,945
959,794
Authorised and issued share capital
All issued ordinary shares carry the same rights.
There were no changes to the authorised or issued share capital during the years ended 31 December 2022
and 2021.
Share premium reserve
There were no changes to the share premium reserve during the years ended 31 December 2022 and 2021.
Treasury shares of the Company
There are no treasury shares of the Company as at 31 December 2022 and 2021.
Other equity instruments
Reset Perpetual Additional Tier 1 Capital Securities
2022
€000
2021
€000
220,000
220,000
In December 2018 the 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
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 2022, two coupon payments to AT1 holders were made of a
total amount of €27,500 thousand and have been recognised in retained earnings (2021: €27,500
thousand). The Company may elect to cancel any interest payment for an unlimited period, on a non-
cumulative basis, whereas it mandatorily cancels interest payment under certain conditions. AT1 is
perpetual and has no fixed date for redemption but can be redeemed (in whole but not in part) at the
Company's option on the fifth anniversary of the issue date and on each subsequent fifth anniversary
subject to the prior approval of the regulator.
36.
Dividends
Based on the 2021 SREP decision BOCH and BOC PCL were under a regulatory prohibition for equity
dividend distribution in 2022, 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 the years 2022 and 2021.
No prohibition applies to the payment of coupons on any AT1 capital instruments issued by BOCH and BOC
PCL.
Following the 2022 SREP decision, effective from 1 January 2023, the equity dividend distribution
prohibition was amended, for both BOCH and BOC PCL, so that any dividend distribution shall be subject to
regulatory approval.
231
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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 (SDC) 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
General Health System (GHS), 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 SDC and GHS are paid by the Company on account of the shareholders. BOC PCL had no profits after
tax for the relevant year as defined by the Special Defence Contribution Law and as such no payment was
made during 2022 and 2021.
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 2022 amounted to €1,682,019 thousand (2021: €1,577,173 thousand).
39.
Provisions for pending litigation, claims, regulatory and other matters
The Group, in the ordinary course of business, is involved in various disputes and legal proceedings and is
subject to enquiries and examinations, requests for information, audits, investigations, legal and other
proceedings by regulators, governmental and other public bodies, actual and threatened, relating to the
suitability and adequacy of advice given to clients or the absence of advice, lending and pricing practices,
selling and disclosure requirements, record keeping, filings and a variety of other matters. In addition, as a
result of the deterioration of the Cypriot economy and banking sector in 2012 and the subsequent
restructuring of BOC PCL in 2013 as a result of the bail-in Decrees, BOC PCL is subject to a large number of
proceedings and investigations that either precede or result from the events that occurred during the period
of the bail-in Decrees.
Apart from what is described below, the Group considers that none of these matters are material, either
individually or in aggregate. Nevertheless, provisions have been made where: (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. 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 except to the extent that doing so would be prejudicial. Any provision recognised does
not constitute an admission of wrongdoing or legal liability. There are also situations where the Group may
enter into a settlement agreement. This may occur only if such settlement is in BOC PCL's interest (such
settlement does not constitute an admission of wrongdoing) and only takes place after obtaining legal
advice and all approvals by the appropriate bodies of management. 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, regulatory and other matters as at 31 December
2022 and hence it is not believed that such matters, when concluded, will have a material impact upon the
financial position of the Group.
232
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
39.
Provisions for pending litigation, claims, regulatory and other matters (continued)
39.1
Pending litigation and claims
Investigations and litigation relating to securities issued by BOC PCL
A number of institutional and retail customers have filed various separate actions against BOC PCL alleging
that BOC PCL is guilty of misselling in relation to securities issued by BOC PCL between 2007 and 2011.
Remedies sought include the return of the money investors paid for these securities. Claims are currently
pending before the courts in Cyprus and in Greece, as well as the decisions and fines imposed upon BOC
PCL in related matters by Cyprus Securities and Exchange Commission (CySEC) and/or Hellenic Capital
Market Commission (HCMC).
The bonds and capital securities in respect of which claims have been brought are the following: 2007
Capital Securities, 2008 Convertible Bonds, 2009 Convertible Capital Securities (CCS) and 2011 Convertible
Enhanced Capital Securities (CECS).
BOC PCL is defending these claims, particularly with respect to institutional investors and retail purchasers
who received investment advice from independent investment advisors. In the case of retail investors, if it
can be demonstrated that the relevant BOC PCL's officers 'persuaded' them to proceed with the purchase
and/or purported to offer 'investment advice', BOC PCL may face significant difficulties.
To date, a number of cases have been tried in Greece. BOC PCL has appealed against any such cases which
were not ruled in its favour. The resolution of the claims brought in the courts of Greece is expected to take
a number of years.
So far three capital securities cases have been adjudicated in favour of BOC PCL and four cases have been
adjudicated against BOC PCL at Areios Pagos (Supreme Court of Greece). The cases that BOC PCL has won
will be retried by the Court of Appeal as per the direction of the Supreme Court. One of the said cases has
already been retried by the Court of Appeal and the ruling was in favour of BOC PCL. There has been a new
petition for annulment against this decision of the Court of Appeal and the case will be retried before the
Supreme Court in 2023. The four cases that BOC PCL has lost will not be retried and are therefore deemed
as concluded.
In Cyprus sixteen judgments have been issued so far with regards to BOC PCL capital securities. Ten of the
said judgments have been issued in favour of BOC PCL (dismissing the plaintiffs’ claims) and six of them
against BOC PCL. BOC PCL has filed appeals with regards to all of the cases where the judgment was issued
against it. In five of the ten cases that BOC PCL won, the plaintiffs have filed an appeal. It is to be noted
that the statutory limitation period for filing claims with respect to this and other matters for which the
cause of action arose prior and up to 31 December 2015, expired on 31 December 2021.
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 BOC PCL's depositors, who allege that they were adversely affected by the bail-in, filed claims
against BOC PCL and other parties (such as the CBC and the Ministry of Finance of Cyprus) including against
BOC PCL as the alleged successor of Laiki Bank on the grounds that, inter alia, the ‘Resolution Law of 2013’
and the Bail-in Decrees were in conflict with the Constitution of the Republic of Cyprus and the European
Convention on Human Rights. They are seeking damages for their alleged losses resulting from the bail-in of
their deposits. BOC PCL is defending these actions.
BOC PCL has won four cases with regards to bail-in related litigation (on failure to follow instructions). The
plaintiffs have filed appeals with respect to two of the said judgments.
BOC PCL also won three bail-in decree related cases. In summary, the court ruled that the measures that
the government implemented were necessary to prevent the collapse of the financial sector, which would
have detrimental consequences for the country’s economy. Under the circumstances the government could
rely on the doctrine of necessity when it imposed the bail-in. Up to the date of the Consolidated Financial
Statements only one appeal has been filed with respect to the above mentioned judgments. BOC PCL lost
one Laiki Bail-in decree case but it is the opinion of legal advisors of BOC PCL that this case is a one-off case
which turned on its own particular facts.
233
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
39.
Provisions for pending litigation, claims, regulatory and other matters (continued)
39.1
Pending litigation and claims (continued)
BOC PCL won one and lost two bail-in wrongful application related cases. An appeal that was filed by BOC
PCL is still pending with regards to this matter. With regards to the case that BOC PCL won, the plaintiffs
have not filed an appeal.
Shareholders
A number of actions for damages have been filed with the District Courts of Cyprus alleging either the
unconstitutionality of the Resolution Law and the Bail-in Decrees, or a misapplication of same by BOC PCL
(as regards the way and methodology whereby such Decrees have been implemented), or that BOC PCL
failed to follow instructions promptly prior to the bail-in coming into force. 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. BOC PCL contests 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 BOC PCL claiming €70 million allegedly owed as part of BOC PCL's contribution by virtue of an
agreement with the Union dated 31 December 2011. Based on facts currently known, it is not practicable at
this time for BOC PCL to predict the resolution of this matter, including the timing or any possible impact on
BOC PCL.
Employment litigation
Former employees of the Group have instituted a number of employment claims including unfair dismissals
and one claim for Provident Fund entitlements against BOC PCL and the Trustees of the Provident Fund. In
July 2021 the claim for Provident Fund entitlements was settled. The Group does not consider that the
pending cases in relation to employment will have a material impact on its financial position. A judgment
has been issued in one of the unfair dismissals cases and BOC PCL lost. BOC PCL has filed an appeal with
respect to this case. The facts of this case are unique and it is not expected to affect the rest of the cases
where unfair dismissal is claimed.
Additionally, a number of former employees have filed claims against BOC PCL contesting entitlements
received relating to the various voluntary exit plans. As at the reporting date, 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 BOC PCL by borrowers who obtained loans in foreign
currencies (mainly Swiss Francs). The central allegation in these cases is that BOC PCL misled these
borrowers and/or misrepresented matters, in violation of applicable law. BOC PCL is contesting the said
proceedings. The Group does not expect that these actions will have a material impact on its financial
position.
UK property lending claims
BOC PCL is the defendant in certain proceedings alleging that BOC PCL is legally responsible for allegedly,
inter alia, advancing and misselling loans for the purchase by UK nationals of property in Cyprus. The
proceedings in the 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 BOC PCL's standard policies and procedures allegedly resulting to
damages and other losses for the claimants. Further, there are several other banking claims, where the
amounts involved are not as significant. Management has assessed either the probability of loss as remote
and/or 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.
234
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
39.
Provisions for pending litigation, claims, regulatory and other matters (continued)
39.1
Pending litigation and claims (continued)
General criminal investigations and proceedings
The Attorney General and the Cypriot Police (the Police) are conducting various investigations and inquiries
following and relating to the financial crisis which culminated in March 2013. BOC PCL is cooperating fully
with the Attorney General and the Police and is providing all information requested of it. Based on the
currently available information, the Group is of the view that any further investigations or claims resulting
from these investigations will not have a material impact on its financial position.
Others
An investigation is in process related to potentially overstated and/or fictitious claims paid by the non-life
insurance subsidiary of the Group. The information usually required by IAS 37 'Provisions, Contingent
Liabilities and Contingent Assets' is not disclosed on the grounds that it 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.
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 BOC PCL's CCS, CECS and rights issue prospectuses (tracking the investigation carried out by CySEC in
2013), Greek government bonds' reclassification, ELA disclosures and allegations by some investors
regarding BOC PCL's non-compliance with Markets in Financial Instruments Directive (MiFID) in respect of
investors' direct investments in Greek Government Bonds.
A specific estimate of the outcome of the investigations or of the amount of possible fines cannot be given
at this stage, though it is not expected that any resulting liability or damages will have a material impact on
the financial position of the Group.
The Cyprus Securities and Exchange Commission (CySEC) Investigations
CySEC has concluded (in two stages) during 2013 and 2014 its investigation with respect to BOC PCL
exposure to Greek Government Bonds and the non-disclosure of material information and other corporate
governance deficiencies relating to the said exposure. In this respect, CySEC has issued two decisions,
coming to the conclusion that BOC PCL was in breach of certain laws regarding disclosure of information. At
all times, BOC PCL had filed recourses before the Administrative Court regarding the decisions of CySEC and
the fines imposed upon it.
In October 2021 the Administrative Court ruled in favour of BOC PCL in relation to the fine of €160 thousand
on the ground of flawed constitution of the CySEC Board. In May 2022, the Administrative Court (under a
different bench) ruled against BOC PCL in relation to the fine of €950 thousand and found that the
constitution of the CySEC Board was not flawed. Both cases are now pending on appeal. Relevant provisions
were made since prior years for the said cases.
As at 31 December 2022 and 31 December 2021 there were no pending CySEC investigations against BOC
PCL.
Central Bank of Cyprus (CBC)
The CBC has carried out certain investigations to assess compliance of BOC PCL under the anti-money
laundering (AML) legislation which was in place during years 2008-2015 and 2015-2018.
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 BOC PCL was in breach of certain articles of the said legislation and
prima facie, failed to act in accordance with certain provisions of the AML/counter terrorism financing (CTF)
Law and the CBC AML/CTF Directive. In October 2021 a fine of €277 thousand was imposed upon BOC PCL.
BOC PCL paid a discounted fine and has filed a recourse against this decision and fine.
235
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
39.
Provisions for pending litigation, claims, regulatory and other matters (continued)
39.2
Regulatory matters (continued)
Following the investigation and the on-site examination, the CBC concluded with regards to the files and
transactions related to years 2015-2018, that BOC PCL was in breach of certain articles of the legislation. In
December 2021, a fine of €790 thousand was imposed upon BOC PCL. BOC PCL paid a discounted fine and
has filed a recourse against the decision and the fine.
The CBC had conducted an investigation in the past into BOC PCL's issuance of capital securities and
concluded that BOC PCL breached certain regulatory requirements concerning the issuance of Convertible
Capital Securities (Perpetual) in 2009, but not in relation to the CECS in 2011. The CBC had, in 2013,
imposed a fine of €4 thousand upon BOC PCL, who filed a recourse. The Administrative Court cancelled both
the CBC’s decision and the fine that was imposed upon BOC PCL in a respective judgment dated in 2020.
CBC decided to re-examine this matter and to re-open the investigation.
The CBC has decided that between the reporting date of 31 December 2014 and until the reporting date of
31 December 2017 BOC PCL was in breach of the requirements of the Directive on the Computation of
Prudential Liability in Euro, of the Directive on the Prudential Liability in foreign currencies and of the CBC
Directive on Governance and Management Arrangements in Credit Institutions. BOC PCL was given the
opportunity to express its views with regards to the identified failures and the possible imposition of
sanctions. A fine of €6 thousand has been imposed upon BOC PCL. The said fine has been paid.
European Central Bank (ECB) Investigation
In July 2021, BOC PCL was notified in writing by the ECB that, based on an investigation carried out by
ECB’s investigating unit, BOC PCL was in breach of an ECB decision of September 2016. The alleged breach
related to the requirement imposed on BOC PCL to seek the prior approval of the ECB for any transfer of
capital or liquidity to any subsidiary company. The Governing Council of the ECB informed BOC PCL in
February 2022 of its decision to impose an administrative penalty of €575 thousand. BOC PCL proceeded
with the payment of the fine.
Commission for the Protection of Competition Investigation (CPC)
In April 2014, following an investigation which began in 2010, CPC issued a statement of objections,
alleging violations of Cypriot and EU competition law relating to the activities and/or omissions in respect of
card payment transactions by, among others, BOC PCL and JCC Payment Systems Ltd (JCC), a card
processing business currently 75% owned by BOC PCL. BOC PCL is expecting the final conclusion of this
matter and has provided for it accordingly.
There was also an allegation concerning BOC PCL's arrangements with American Express, namely that such
exclusive arrangements violated Cypriot and EU competition law. On both matters, the CPC has concluded
that BOC PCL (in common with other banks and JCC) has breached the relevant provisions of the applicable
law for the protection of competition. In May 2017, the CPC imposed a fine of €18 million upon BOC PCL
and BOC PCL filed a recourse against the decision and the fine. The payment of the fine had been stayed,
pending the final outcome of the recourse. In June 2018, the Administrative Court accepted BOC PCL’s
position and cancelled the decision as well as the fine imposed upon BOC PCL. During 2018, the Attorney
General has filed an appeal before the Supreme court with respect to such decision. Until a judgment is
issued by the Supreme Court, the decision of the CPC remains annulled and there is no subsisting fine upon
BOC PCL. 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 BOC PCL for the period from 2012 to 2016. To date no
charges have been put forward nor have any formal proceedings been instituted against BOC PCL in this
case. The Group is not aware of any further developments in this case.
Association for the Protection of Bank Borrowers (CYPRODAT)
CYPRODAT filed a complaint with the Commission for the Protection of Competition (CPC) in January 2022,
claiming that BOC PCL and another bank have concerted in practices regarding the recent revisions of their
commissions and charges. It also filed an application for an interim order which, if successful, would
essentially freeze the implementation of the revised commissions and charges. The application for interim
order was rejected by the CPC, however, the CPC reverted in April 2022 to inform BOC PCL of the initiation
of an investigation with respect to this matter. This investigation is currently at a very early stage to predict
its outcome.
236
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
39.
Provisions for pending litigation, claims, regulatory and other matters (continued)
39.2
Regulatory matters (continued)
Commissioner for the Protection of Personal Data (CPPD)
The CPPD has informed BOC PCL that based on the evidence submitted, there is a breach of Regulation
2016/679 on the protection of natural persons with regards to the processing of personal data and on the
free movement of such data. The breach concerned the exchange of data under the sale of a portfolio of
credit facilities which did not relate to the transaction. A fine of €17 thousand was imposed on BOC PCL. The
said fine has already been paid and the matter has now been concluded.
BOC PCL informed the Commissioner on the procedures to follow to avoid such oversights in the future and
the measures it has taken to remedy the specific breaches.
Consumer Protection Service (CPS)
In July 2017, CPS imposed a fine of €170 thousand upon BOC PCL after concluding an ex officio
investigation regarding some terms in both BOC PCL's and Marfin Popular Bank's loan documentation, that
were found to constitute unfair commercial practices. Decisions of the CPS (according to rulings of the
Administrative Court) are not binding but merely an expression of opinion. BOC PCL has filed a recourse
before the Administrative Court against this decision. The Administrative Court has issued its judgment in
2022 in favour of BOC PCL, and the CPS decision along with the fine have been cancelled. An appeal has
been submitted by CPS with regards to this judgment, which is still pending as at the year-end.
In March 2020, BOC PCL has been served with an application by the director of CPS through the Attorney
General seeking for an order of the court, with immediate effect, the result of which will be for BOC PCL to
cease the use of a number of terms in the contracts of BOC PCL 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 BOC PCL to undertake measures to remedy the situation. BOC
PCL will take all necessary steps for the protection of its interests. This matter is still pending before the
court as at the year-end.
In April 2021, the Director of the Consumer Protection Service filed an application for the issuance of a
court order against BOC PCL, prohibiting the use of a number of contractual terms included in BOC PCL’s
consumer contracts and the amendment of any such contracts (present and future) so as to remove such
unfair terms. This matter is still pending before the court as at the year-end.
BOC PCL received a letter in July 2021 from CPS, initiating an ex officio investigation under the Distance
Marketing of Financial Services to Consumers Law, with respect to the services and products of BOC PCL for
which the contract between BOC PCL and the consumer is entered into online via BOC PCL’s website.
BOC PCL received another letter in July 2021 from CPS, initiating an investigation with respect to an alleged
wrong commercial practice of BOC PCL of promoting a product.
The investigations are currently at a very early stage to predict their outcome.
Cyprus Consumers’ Association (CCA)
In March 2021, BOC PCL was served with an application filed by the CCA for the issuance of a court order
prohibiting the use of a number of contractual terms included in BOC PCL’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 BOC PCL in 2016 and
2017. BOC PCL will take all necessary steps for the protection of its interests. This matter is still pending
before the court as at the year-end.
The new Law on Consumer Protection brings under one umbrella the existing legislation on unfair contract
terms and practices with some enhanced powers vested in the Consumer Protection Service, i.e. power to
impose increased fines which are immediately payable. The new Law on Consumer Protection has a
retrospective effect in that it also applies to all contracts/practices entered into and/or terminated prior to
this law coming into effect as opposed to contracts/practices which are only entered into/adopted as from
the date of publication of the new Law on Consumer Protection.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these
matters, is unknown.
237
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
39.
Provisions for pending litigation, claims, regulatory and other matters (continued)
39.2
Regulatory matters (continued)
UK regulatory matters
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.
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
2022
1 January
Net increase in provisions including
unwinding of discount
Utilisation of provisions
Release of provisions
Foreign exchange adjustments
31 December
Provisions expected to be settled within 12
months post reporting date
2021
1 January
Net increase in provisions including
unwinding of discount
Utilisation of provisions
Release of provisions
Foreign exchange adjustments
31 December
Provisions expected to be settled within 12
months post reporting date
Pending
litigation and
claims
(Note 39.1)
€000
Regulatory
matters
(Note 39.2)
Other matters
(Note 39.3)
Total
€000
€000
€000
57,844
16,415
29,849
104,108
15,627
(6,314)
(3,210)
-
63,947
26,991
950
(1,357)
(1,037)
(53)
14,918
19,017
(24)
(100)
-
35,594
(7,695)
(4,347)
(53)
48,742
127,607
-
2,804
29,795
Pending
litigation and
claims
(Note 39.1)
€000
Regulatory
matters
(Note 39.2)
Other matters
(Note 39.3)
Total
€000
€000
€000
67,439
12,305
43,871
123,615
2,295
(6,768)
(5,122)
-
4,964
(907)
-
53
29,273
36,532
(39,368)
(47,043)
(3,927)
(9,049)
-
53
57,844
16,415
29,849
104,108
15,782
1,845
2,662
20,289
Provisions for pending litigation, claims, regulatory and other matters recorded in the consolidated income
statement during the year ended 31 December 2022 amount to €11,880 thousand (2021: credit of €523
thousand, which included an amount of €841 thousand representing an amount recovered from plaintiffs
directly recognised in the consolidated income statement during the year ended 31 December 2021).
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.
238
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
39.
Provisions for pending litigation, claims, regulatory and other matters (continued)
39.4
Provisions for pending litigation, claims, regulatory and other matters (continued)
The net increase of provisions for pending litigation and claims for the year ended 31 December 2022 was
primarily driven by a one-off charge of approximately €5,542 thousand in relation to a revised approach on
estimating pending litigation fees. With regards to other matters, the provisions relating to the disposal
process of certain of the Group's operations have been updated on the basis of the Group's assessment and
to the extent those processes have progressed.
An increase by 5% in the probability of loss rate for pending litigation and claims (2021: 5%) with all other
variables held constant, would lead to an increase in the actual provision by €2,821 thousand at 31
December 2022 (2021: increase by €7,097 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 45.5).
40.1
Capital commitments
Capital commitments for the acquisition of property, equipment and intangible assets as at 31 December
2022 amount to €10,647 thousand (2021: €18,678 thousand).
40.2.
Contingent liabilities
The Group, as part of the 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 (Note 39.3).
41.
Additional information on cash flow statement
Non-cash transactions
Repossession of collaterals
During the year ended 31 December 2022, the Group acquired properties by taking possession of collaterals
held as security for loans and advances to customers of €86,016 thousand (2021: €37,121 thousand).
Recognition of RoU assets and lease liabilities
During 2022 the Group recognised RoU assets and corresponding lease liabilities of €957 thousand (2021:
€1,148 thousand).
Disposal of Project Helix 2
During the year ended 31 December 2021 and upon the completion of the disposal of Project Helix 2, the
Group recognised an amount of €381,567 thousand in other financial assets, which represented the fair
value of the deferred consideration receivable for the transaction (the 'DPP') on completion date. Please
refer to Note 28 for further details.
239
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
41.
Additional information on cash flow statement (continued)
Net cash flow from operating activities - interest and dividends
Interest paid
Interest received
Dividends received (Note 13)
Changes in liabilities arising from financing activities
2022
1 January
Cash flows
Other non-cash movements
31 December
2021
1 January
Cash flows
Other non-cash movements
31 December
2022
€000
(88,671)
506,060
940
418,329
2021
€000
(119,183)
437,856
1,774
320,447
Funding from
central banks
(Note 30)
€000
2,969,600
(979,389)
(13,537)
Debt securities
in issue and
Subordinated
liabilities
(Note 33)
€000
644,928
Total
€000
3,614,528
(66,797)
(1,046,186)
23,317
9,780
1,976,674
601,448
2,578,122
994,694
1,968,081
6,825
272,152
333,339
39,437
1,266,846
2,301,420
46,262
2,969,600
644,928
3,614,528
Further information relating to the change in lease liabilities is disclosed in Note 43.
42.
Cash and cash equivalents
Cash and cash equivalents comprise:
Cash and non-obligatory balances with central banks
2022
€000
9,452,721
2021
€000
9,063,896
Loans and advances to banks with original maturity less than three months
133,432
191,314
9,586,153
9,255,210
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
Total loans and advances to banks (Note 19)
2022
€000
9,452,721
2021
€000
9,063,896
114,537
166,987
9,567,258
9,230,883
133,432
71,379
204,811
191,314
100,318
291,632
Restricted loans and advances to banks include collaterals under derivative transactions of €7,380 thousand
(2021: €41,068 thousand) which are not immediately available for use by the Group, but are released once
the transactions are terminated.
240
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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 primarily 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 rates 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 practice are substantially the same with those for lease contracts of
branches.
During the year ended 31 December 2022 the lease term of existing building contracts was re-assessed
using the assumptions as detailed in Note 5.13.
The carrying amounts of the Group’s RoU assets and lease liabilities and the movement during the year
ended 31 December 2022 and the year ended 31 December 2021 is presented in the table below:
2022
1 January
Depreciation charge for the year (Note 15)
New leases (Note 25)
Assets derecognised (Note 25)
Assets recognised following re-assessment (Note 25)
Interest expense (Note 8)
Cash outflows-payments
31 December
2021
1 January
Depreciation charge for the year (Note 15)
New leases (Note 25)
Assets derecognised (Note 25)
Interest expense (Note 8)
Cash outflows-payments
31 December
RoU assets
(Note 25)
€000
33,581
(6,767)
957
(1,460)
3,922
-
-
Lease
Liabilities
(Note 34)
€000
(33,981)
-
(772)
1,456
(3,663)
(114)
6,884
30,233
(30,190)
RoU assets
(Note 25)
€000
Lease
Liabilities
(Note 34)
€000
46,070
(7,520)
1,148
(6,117)
-
-
(45,955)
-
(1,148)
5,606
(121)
7,637
33,581
(33,981)
As at 31 December 2022 RoU assets comprised of leases of buildings of a carrying amount of €29,408
thousand (2021: €33,581 thousand) and computer hardware of a carrying amount of €825 thousand (2021:
nil), and are presented within Property and equipment 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.
241
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
44.
Analysis of assets and liabilities by expected maturity
Assets
Cash and balances with
central banks
Loans and advances to
banks
Derivative financial
assets
Investments
Loans and advances to
customers
Life insurance business
assets attributable to
policyholders
Prepayments, accrued
income and other assets
Stock of property
Investment properties
Deferred tax assets
Property, equipment and
intangible assets
Non-current assets and
disposal groups held for
sale
Liabilities
Deposits by banks
Funding from central
banks
Derivative financial
liabilities
Customer deposits
Insurance liabilities
Accruals, deferred
income and other
liabilities and provisions
for pending litigation,
claims, regulatory and
other matters
Debt securities in issue
and subordinated
liabilities
Deferred tax liabilities
Less than
one year
€000
2022
Over one
year
€000
Total
€000
Less than
one year
€000
2021
Over one
year
€000
Total
€000
9,452,721
114,537 9,567,258
9,063,896
166,987
9,230,883
133,432
71,379
204,811
191,314
100,318
291,632
904
47,249
48,153
4,556
2,097
6,653
460,070 2,243,633 2,703,703
366,420
1,772,743
2,139,163
880,158 9,081,484 9,961,642
1,018,312
8,818,093
9,836,405
15,486
526,835
542,321
14,111
537,686
551,797
283,098
356,592
639,690
301,275
739,757 1,041,032
24,749
37,909
60,350
85,099
189,612
227,521
140,076
267,480
32,139
37,909
476,231
616,307
844,124
1,111,604
85,606
227,572
117,745
265,481
-
-
421,700
421,700
-
436,164
436,164
-
-
358,951
-
358,951
11,589,802 13,853,128 25,442,930 11,495,164 13,467,621 24,962,785
191,635
316,023
507,658
100,530
356,509
457,039
1,976,674
-
1,976,674
2,969,600
-
2,969,600
10,538
5,631
16,169
4,830
27,622
32,452
5,893,802 13,104,517 18,998,319
6,909,913 10,620,970 17,530,883
110,197
569,755
679,952
91,758
644,443
736,201
303,618
210,842
514,460
273,989
192,145
466,134
-
601,448
601,448
38,561
606,367
644,928
1,207
42,615
43,822
937
45,498
46,435
8,487,671 14,850,831 23,338,502 10,390,118 12,493,554 22,883,672
The main assumptions used in determining the expected maturity of assets and liabilities are set out below.
Cash and balances with central banks are classified in the relevant time band based on the contractual
maturity, with the exception of obligatory balances with central banks which are classified in the 'Over one
year' time band.
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.
242
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
44.
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.
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 credit
obligations towards the Group.
The Credit Risk Management department in co-operation with the Credit Risk Control and Monitoring
department set the Group’s credit disbursement policies and monitor compliance with credit risk policies
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 of related accounts are aggregated and
monitored on a consolidated basis.
The Credit Risk Management department, in co-operation with the Credit Risk Control and Monitoring
department, also safeguard the effective management of credit risk at all stages of the credit cycle, monitor
the quality of decisions and processes and ensure that the credit sanctioning function is being properly
managed.
The credit policies complemented by 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 of the customers’ creditworthiness, their
economic sector of activity and geographical concentration.
The credit risk exposure of the Group is diversified across the various industry sectors of the economy.
Credit Risk Management department determines concentration limits for each industry sector, sets
prohibited sectors and defines sectors which may require prior approval before credit applications are
submitted.
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.
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.
243
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.1
Maximum exposure to credit risk and collateral and other credit enhancements
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 contracts of sale and personal and corporate guarantees.
The Group 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.
Off-balance sheet exposures
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.
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. As at 31 December 2022, the majority of derivative exposures are covered by ISDA netting
arrangements. A detailed analysis of derivative asset and liability exposures is available in Note 21.
Information about the Group’s collaterals under derivative transactions is provided in Note 42.
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.
Maximum Exposure to credit risk
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.
244
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 2022
2022
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)
Maximum
exposure to
credit risk
€000
9,475,541
204,811
8,968
2,499,894
48,153
Fair value of collateral and credit enhancements held by the Group
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
-
37,251
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37,251
-
-
-
-
9,475,541
Loans and advances to customers (Note 23)
9,961,642
505,950
556,487
133,305
15,799,569
273,789
(8,231,543)
9,037,557
167,560
8,968
2,499,894
48,153
924,085
44,772
58,303
311,523
59,327
44,772
58,303
311,523
59,327
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22,672,934
543,201
556,487
133,305
15,799,569
273,789
(8,231,543)
9,074,808
13,598,126
5,175
651,219
276
99,554
17,624
892
1,909,487
2,583,505
25,256,439
32,164
132,886
676,087
-
1,039
4
4,069
5,112
-
4,630
1,734
1,465
7,829
4,886
197,912
4,253
406,074
613,125
13
384
12
26,876
27,285
-
-
-
-
-
5,175
303,519
-
347,700
6,895
10,729
470,648
1,438,839
786,237
1,797,268
561,599
141,134
16,412,694
301,074
(8,231,543)
9,861,045
15,395,394
245
Debtors (Note 28)
Reinsurers' share of insurance contract
liabilities (Note 28)
Deferred purchase payment consideration
(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
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
45.
Risk management - Credit risk (continued)
Annual Financial Report 2022
45.1
Maximum exposure to credit risk and collateral and other credit enhancements (continued)
2021
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)
Debtors (Note 28)
Reinsurers' share of insurance contract liabilities (Note
28)
Deferred purchase payment consideration (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
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
9,087,968
-
291,632
3,490
6,034
1,924,354
6,653
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,490
-
-
-
9,836,405
476,390
587,309
140,995
15,150,658
265,660
(7,781,292)
8,839,720
250,370
36,540
55,323
299,766
57,158
85
88
2,954
487,743
36,431
(279,895)
247,406
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,087,968
288,142
6,034
1,924,354
6,653
996,685
2,964
36,540
55,323
299,766
57,158
21,852,203
479,965
587,397
143,949 15,638,401
302,091
(8,061,187)
9,090,616
12,761,587
Acceptances and endorsements
4,625
285
-
-
4,334
Guarantees
Commitments
Documentary credits
Undrawn formal stand-by facilities, credit lines and
other commitments to lend
Off-balance sheet total
609,830
105,508
4,898
2,555
177,171
11,264
729
-
-
5,488
1,950,665
28,541
2,576,384
135,063
1,006
5,904
1,182
420,337
3,737
607,330
18,976
19,392
6
391
19
-
-
-
-
-
4,625
290,523
-
319,307
6,236
5,028
470,042
1,480,623
771,426
1,804,958
The contingent liabilities and commitments as at 31 December 2021 include exposures relating to loans and advances to customers classified as held for sale
amounting to €1,286 thousand which relate to the Cyprus geographical area.
24,428,587
615,028
593,301
147,686 16,245,731
321,483
(8,061,187)
9,862,042
14,566,545
246
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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. The Group’s Risk Appetite Statement may impose stricter concentration limits
which are monitored by the Group.
The credit risk concentration, which is based on industry (economic activity) and business line, as well as
the geographical concentration, is presented below.
The geographical analysis, for credit risk concentration purposes, is based on the Group’s Country Risk
Policy which is followed for monitoring the Group's exposures. Market and Liquidity Risk department 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.
The table below presents the geographical concentration of loans and advances to customers by country of
risk based on the country of residency for individuals and the country of registration for companies.
2022
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other
services
Other sectors
Cyprus
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
Other
countries
€000
Gross loans at
amortised cost
€000
922,093
323,074
928,346
545,421
978,708
4,496,081
551,269
440,873
384
44,978
16,565
8,955
94,823
11,146
980
2
37
-
35,614
23
1,866
73,120
5,311
-
2
-
-
1,965
5,848
-
-
-
-
401
19,103
33
27,943
40,086
922,549
395,995
1,020,611
1
20
556,385
45,769
54,584
1,127,014
4,654,435
907
-
313
36,923
3
203,765
595,703
644,643
9,185,865
177,833
115,971
9,123
19,420
409,123
9,917,335
2022
By business line
Corporate and Large
corporate
International 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
Other
countries
€000
Gross loans at
amortised cost
€000
3,380,542
17,781
50
139,813
152,143
42,327
1,021,950
1,036
1,451
3,272,253
2,450
36,839
885,558
856
66,151
48,027
70,283
24,093
19,063
26,150
69,790
31,967
90,652
39,573
-
-
104
16
-
-
260
12
1,722
1,453
576
869
432
1,841
21
452
1,117
19,778
1,265
8,953
-
-
5,850
2,003
219
5
869
-
-
-
-
-
64
-
113
-
312
102
3,398,787
-
-
345,175
685,308
2,171
1,028,611
186
18,687
3,330,634
1
900
887,896
-
158
291
192
172
2,664
3,431
49
63
384
114
21
32
1,774
9,672
337
11,964
24,470
-
5,221
67,952
49,001
72,633
24,343
19,719
31,705
102,995
33,630
137,874
46,247
9,185,865
177,833
115,971
9,123
19,420
409,123
9,917,335
247
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.2
Credit risk concentration of loans and advances to customers (continued)
2021
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other
services
Other sectors
2021 (restated)
By business line
Corporate and Large
corporate
International 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
Other
countries
€000
Gross loans at
amortised cost
€000
977,703
303,372
881,205
510,928
505
179
122
-
33,422
37,450
60
-
-
959,891
125,123
9,005
108
1,950
2,108
11,443
4,379,843
9,185
121,260
1,057
37,315
3,351
1,212
-
646
-
146
25,674
40,123
58
49,293
73,997
981,887
330,437
992,200
522,853
1,147,700
4,622,657
543,424
458,005
1,007
5,516
7
40
875
-
16,492
35,142
8
182,285
602,456
640,345
9,014,371
178,433
166,446
15,543
59,024
406,718
9,840,535
Cyprus
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
Other
countries
€000
Gross loans at
amortised cost
€000
3,309,761
34,248
60
99
15,778
113
3,360,059
126,808
134,531
44,132
1,038,599
773
1,869
11,742
2,047
-
320,730
637,943
4,701
2,345
1,050,334
3,068,097
3,466
47,742
884,231
1,101
60,446
69,501
80,730
32,611
35,010
30,505
109,945
54,959
76,314
36,854
-
-
152
14
-
-
382
30
2,402
1,334
760
526
338
3,058
132
-
2,557
45,158
4,356
15,211
547
629
126
-
-
-
-
589
2
167
4
138
-
4,513
26,819
3,151,266
237
2,232
888,687
32
-
392
3
219
3,699
9,254
1,557
1,213
340
752
238
256
2,554
18,213
1,304
18,639
23,214
-
6,395
62,217
70,179
85,084
32,998
36,074
39,317
183,119
62,210
135,918
45,130
9,014,371
178,433
166,446
15,543
59,024
406,718
9,840,535
The loans and advances to customers include lending exposures in Cyprus with collaterals in Greece with a
carrying value as at 31 December 2022 of €106,701 thousand (2021: €100,039 thousand).
The loans and advances to customers reported within 'Other countries' as at 31 December 2022 include
exposures of €2,6 million in Ukraine (2021: €3,6 million).
The loans and advances to customers reported within 'Other sectors' as at 31 December 2022 include
exposures of €187 million for the Shipping sector (2021: €176 million).
248
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.2
Credit risk concentration of loans and advances to customers (continued)
Economic activity, geographical and business line concentrations of Group loans and advances to customers
at amortised cost classified as held for sale are presented in the table below. There were no loans and
advances to customers held for sale as at 31 December 2022.
2021
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other services
Other sectors
2021 (restated)
By business line
International corporate
SMEs
Retail
- housing
- consumer, credit cards and other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
Cyprus
€000
United
Kingdom
€000
Romania
Russia
€000
€000
Other
countries
€000
Gross loans at
amortised cost
€000
56,859
24,688
14,794
28,226
4,575
1
1
-
-
-
369,182
1,070
27,866
11,476
2
-
514
110
278
231
9,395
55
1,466
77
-
-
-
-
-
-
-
-
-
-
57,373
24,799
15,073
28,457
13,970
804
4,087
375,198
-
-
-
32
29,334
11,585
537,666
1,074
12,126
804
4,119
555,789
Cyprus
€000
United
Kingdom
€000
Romania
Russia
€000
€000
Other
countries
€000
Gross loans at
amortised cost
€000
-
-
153
2
374
5,301
23,769
12,702
8,090
17,923
238,791
230,561
-
-
-
-
-
-
501
-
-
1
566
6
10,441
231
-
-
-
-
-
-
1,111
343
-
-
-
-
-
-
-
-
-
-
-
32
-
-
-
-
-
34
-
-
766
38
-
381
3,210
462
537,666
1,074
12,126
804
4,119
10,473
231
153
2
374
5,301
24,304
12,702
9,201
19,414
242,605
231,029
555,789
249
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.3
held for sale
Analysis of loans and advances to customers , including loans and advances to customers
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:
2022
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 derecognised or repaid
(excluding write offs)
Changes to contractual cash flows
due to modifications
Disposal of Helix 3 and Sinope
portfolios
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
1,047,802
228,572
10,396,324
7,418,695
534,045
(409,997)
(22,885)
(49)
(788)
1,701,255
(532,847)
479,829
(34,796)
(1,198)
(69,832)
57,681
-
3,473
-
-
-
-
-
-
-
3,424
(683)
(169,303)
(22,774)
(193,548)
187,455
69,085
63,857
18,100
338,497
1,825,387
119,244
12,182
1,191
1,958,004
(1,659,230)
(234,770)
(104,623)
(31,596)
(2,030,219)
(5,286)
2,669
(4,627)
(704)
(7,948)
(91)
(3,383)
(464,394)
(79,331)
(547,199)
31 December
7,867,256
1,565,603
371,018
113,458
9,917,335
2021
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 2 portfolio
derecognised or repaid (excluding
write offs)
Changes to contractual cash flows
due to modifications
Disposal of Helix 2 portfolio
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
6,615,026
2,145,329
2,502,487
479,016
11,741,858
1,053,432
(1,051,363)
(575,203)
(15,136)
657,895
(35,918)
(2,069)
(82,692)
51,054
-
-
-
-
-
-
15
(518)
1
3,994
(2)
4,008
(843)
(252,976)
(40,657)
(294,994)
136,340
104,182
119,123
31,535
391,180
1,614,893
85,901
4,046
11,481
1,716,321
(1,399,395)
(190,449)
(192,441)
(76,968)
(1,859,253)
(2,351)
(8,408)
3,461
(14,942)
(2,119)
(15,951)
(16,941)
(1,087,782)
(173,714)
(1,286,845)
31 December
7,418,695
1,701,255
1,047,802
228,572
10,396,324
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 in ‘Loans
derecognised or repaid'.
The analysis of gross loans and advances to customers at amortised cost by staging and by business line
concentration is included in Note 23.
250
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.3
held for sale (continued)
Analysis of loans and advances to customers , including loans and advances to customers
The movement of gross loans and advances to customers at amortised cost, in the Corporate and Large
corporate, International corporate and Retail business lines in Cyprus (the country where the loans are
managed), including loans and advances to customers classified as held for sale, are presented in the tables
below:
2022
1 January
Transfers (out of)/in business line
Write offs
Interest accrued
New loans originated or purchased
Loans other than held for sale portfolios derecognised or repaid
(excluding write offs)
Changes to contractual cash flows due to modifications not resulting
in derecognition
31 December
2021 (restated)
1 January
Transfers in/(out of) business line
Write offs
Interest accrued
New loans originated or purchased
Loans other than held for sale portfolios derecognised or repaid
(excluding write offs)
Changes to contractual cash flows due to modifications not resulting
in derecognition
31 December
Corporate
and Large
corporate
€000
3,344,281
(23,764)
(14)
104,907
859,742
International
corporate
Retail
€000
€000
632,223
4,040,108
1,489
-
29,842
179,815
(5,291)
(1,866)
86,701
679,538
(889,683)
(157,457)
(581,009)
3,006
(604)
349
3,398,475
685,308
4,218,530
Corporate and
Large corporate
€000
International
corporate
€000
Retail
€000
3,194,024
599,619
3,844,562
36,728
(284)
101,964
756,016
108
(1,827)
29,040
150,866
(2,808)
(1,704)
89,885
628,425
(743,523)
(144,665)
(519,142)
(644)
(918)
890
3,344,281
632,223
4,040,108
Loans and advances to customers classified as held for sale
The following table presents the Group’s gross loans and advances to customers at amortised cost classified
as held for sale as at 31 December 2021, by staging and business line concentration which is included in the
movement table above.
2021
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
-
-
-
2,132
476,538
96,209
574,879
(57)
2,075
(2,079)
(16,954)
(19,090)
474,459
79,255
555,789
251
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.3
held for sale (continued)
Analysis of loans and advances to customers , including loans and advances to customers
2021 (restated)
By business line
International corporate
SMEs
Retail
- housing
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
718
804
553
-
-
-
-
10,470
231
153
2
374
3,842
22,113
11,543
8,507
17,653
204,956
194,615
3
-
-
-
-
741
1,387
606
694
1,761
37,649
36,414
2,075
474,459
79,255
Total
€000
10,473
231
153
2
374
5,301
24,304
12,702
9,201
19,414
242,605
231,029
555,789
45.4
Credit quality of loans and advances to customers based on the internal credit rating
Credit scoring is the primary risk rating system for assessing obligor and transaction risk for the key
portfolios of BOC PCL. For the purposes of credit scoring, these portfolios are Corporate, Retail and SMEs.
Corporate and SME portfolios include legal entities. Retail portfolio 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 probability of default (PDs) are calculated per rating. The following table presents weighted PD
per risk level's rating for corporate, retail and SME exposures.
Unrated corporate exposures are assessed using the Group's in-house behavioural scorecard model for
corporate legal entities. Unrated retail exposures 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 to retail individuals are separately
disclosed since a time span of seven months is necessary in order to provide an accurate rating.
The portfolios weighted PDs per rating are presented below.
2022
Rating
1
2
3
4
5
6
7
Corporate legal entities
%
1.19
1.87
2.02
2.96
4.48
4.97
10.15
12-month PD
Retail individuals
%
0.66
0.64
1.39
2.64
4.92
8.58
24.02
252
SME legal entities
%
0.34
0.66
1.89
7.23
9.46
14.87
30.77
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.4
(continued)
Credit quality of loans and advances to customers based on the internal credit rating
2021
Rating
1
2
3
4
5
6
7
Corporate legal entities
%
1.38
2.20
2.37
3.42
5.32
5.82
11.89
12-month PD
Retail individuals
%
0.80
0.79
1.68
3.24
6.24
10.04
27.14
SME legal entities
%
0.36
0.75
2.22
7.70
12.96
17.87
36.63
Lower rating exposures demonstrate a better capacity to meet financial commitments, with lower
probability of default, whereas higher 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 which are managed in
Cyprus, using the corporate legal entities, SMEs legal entities and retail individuals definition as per the
internal rating of BOC PCL.
Corporate legal entities
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New customers
Total Stage 3 and POCI
Retail individuals
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
Stage 1
€000
2022
Stage 2
€000
Stage 1
€000
2021
Stage 2
€000
Total
€000
Total
€000
517,647
241,611
856,502
609,281
5,576
5,858
94,105
43,690
207,831
800,794
292,027
386,717
152,941
185,422
18,602
37,570
208,855
465,217
512,071
235,753
762,397
565,591
592,963
94,690
32,481
190,253
427,647
371,648
124,963
689,030
729,502
578,247
167,752
8,680
120,016
386,841
9,550
1,120
43,870
119,522
289,389
307,445
129,996
106,826
49,745
3,413,846
858,200 4,272,046 3,176,679 1,057,463
144,903
4,416,949
Stage 1
€000
2022
Stage 2
€000
895,267
42,998
Total
€000
938,265
1,066,411
29,995 1,096,406
845,204
592,998
197,743
64,234
17,820
-
72,153
99,388
78,861
77,217
80,259
2,660
917,357
692,386
276,604
141,451
98,079
2,660
Stage 1
€000
795,577
965,269
756,588
562,838
224,332
114,346
27,568
-
2021
Stage 2
€000
37,566
34,373
53,053
81,779
80,133
105,725
101,290
2,681
15,808
512,408
381,198
126,083
732,900
849,024
867,636
475,197
138,676
226,842
436,586
4,234,142
191,972
4,426,114
Total
€000
833,143
999,642
809,641
644,617
304,465
220,071
128,858
2,681
307,896
4,251,014
462,865
4,713,879
New customers
268,676
13,017
281,693
292,088
Total Stage 3 and POCI
3,948,353
496,548 4,444,901 3,738,606
288,998
4,733,899
253
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.4
(continued)
Credit quality of loans and advances to customers based on the internal credit rating
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
2022
Stage 2
€000
161,411
175,934
32,209
9,432
6,656
5,889
3,431
49,172
60,704
33,555
71,421
29,154
25,850
7,842
10,307
5,347
24,648
2,731
504,838
210,855
Total
€000
194,966
247,355
61,363
35,282
14,498
16,196
8,778
73,820
63,435
715,693
48,479
764,172
Stage 1
€000
2021
Stage 2
€000
183,001
181,836
43,425
15,454
8,260
5,793
3,249
-
62,129
12,159
29,316
16,911
18,447
16,252
8,019
6,496
18,198
3,511
503,147
129,309
Total
€000
195,160
211,152
60,336
33,901
24,512
13,812
9,745
18,198
65,640
632,456
45,560
678,016
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 at 31 December 2021, as
per the internal rating system of BOC PCL is disclosed in the tables below.
Corporate legal entities
Total Stage 3 and POCI
Retail individuals
Rating 4
Rating 6
Rating 7
Total Stage 3 and POCI
SMEs legal entities
Rating 2
Rating 4
Rating 5
Rating 7
Total Stage 3 and POCI
Stage 1
€000
2021
Stage 2
€000
Stage 1
€000
2021
Stage 2
€000
-
-
-
-
111
98
1,464
1,673
Stage 1
€000
2021
Stage 2
€000
-
-
-
-
-
55
326
1
20
402
Total
€000
64,759
64,759
Total
€000
111
98
1,464
1,673
400,861
402,534
Total
€000
55
326
1
20
402
87,849
88,251
254
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.5
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.
45.5.1 Contingent liabilities
An analysis of changes in the outstanding nominal amount of exposures and the corresponding ECLs are
disclosed in the tables below:
2022
Exposures
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net increase/(decrease)
31 December
2021
Exposures
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net increase/(decrease)
31 December
2022
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
432,463
30,378
(20,997)
(9)
67,351
509,186
136,324
(30,378)
22,353
(3,288)
(14,385)
110,626
45,668
614,455
-
(1,356)
3,297
(11,027)
36,582
-
-
-
41,939
656,394
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
208,410
151,638
(18,674)
(143)
91,232
432,463
363,019
(151,638)
22,983
(1,548)
(96,492)
136,324
52,756
624,185
-
(4,309)
1,691
(4,470)
45,668
-
-
-
(9,730)
614,455
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
20
7
(16)
-
108
119
77
42
119
124
(7)
16
(27)
4
110
71
39
110
21,613
21,757
-
-
27
(4,627)
17,013
17,013
-
-
-
-
(4,515)
17,242
17,161
81
17,013
17,242
255
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.5
Contingent liabilities and commitments (continued)
45.5.1 Contingent liabilities (continued)
2021
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
42
14
(13)
(23)
20
12
8
20
695
(14)
(273)
(284)
124
32
92
124
18,370
-
286
2,957
21,613
21,613
-
21,613
19,107
-
-
2,650
21,757
21,657
100
21,757
* The credit for the year mainly relates to assets derecognised in the year (2021: Charge for the year
mainly relates to changes to inputs and net exposure).
The credit quality of contingent liabilities as per the internal rating system of BOC PCL is disclosed in the
table below.
Corporate legal entities
Rating 1
Stage 1
€000
105,872
2022
Stage 2
€000
Total
€000
Stage 1
€000
2021
Stage 2
€000
Total
€000
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
2022
Stage 2
€000
Total
€000
Stage 1
€000
2021
Stage 2
€000
Total
€000
105,881
121,750
1,223
122,973
16,342
49,322
42,198
82,571
11,963
4,538
35,749
89,655
438,219
9,424
447,643
13,327
45,371
25,513
42,183
11,720
1,410
29,487
75,832
93
670
2,185
31,791
3,809
432
60,193
-
366,593
100,396
13,420
46,041
27,698
73,974
15,529
1,842
89,680
75,832
466,989
35,207
502,196
30,564
9,299
1,356
543
152
2
552
76,521
47,629
166,618
26,571
193,189
30,241
7,949
1,592
365
42
3
554
-
25,124
65,870
78
1,217
223
111
6
-
32
21,316
65
23,048
30,319
9,166
1,815
476
48
3
586
21,316
25,189
88,918
9,781
98,699
401,829
36,390
16,342
48,934
34,218
76,807
7,845
31
22,127
89,653
Stage 1
€000
30,526
8,552
867
280
58
1
552
9
-
388
7,980
5,764
4,118
4,507
13,622
2
38
747
489
263
94
1
-
19,630
46,891
56,891
738
107,357
59,261
256
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.5
Contingent liabilities and commitments (continued)
45.5.1 Contingent liabilities (continued)
Stage 1
€000
2022
Stage 2
€000
-
-
14,975
14,975
2021
Stage 2
€000
-
-
12,880
12,880
Total
€000
Stage 1
€000
14,975
14,975
587
15,562
Total
€000
12,880
12,880
680
13,560
Retail individuals
Unrated
Total Stage 3
45.5.2 Commitments
An analysis of changes in the outstanding exposures and the corresponding ECLs are disclosed in the tables
below:
2022
Exposure
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net increase/(decrease)
31 December
2021
Exposure
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net (decrease)/increase
31 December
2022
ECL
1 January
Transfers to stage 1
Transfers to stage 2
Charge/(credit) for the year*
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
1,497,081
412,570
159,869
(159,518)
(117,601)
(276)
25,891
118,493
(1,205)
(51,226)
52,278
(351)
(892)
1,481
(9,483)
1,961,929
-
-
-
(34,818)
1,564,964
319,114
43,033
1,927,111
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
1,146,962
417,291
(52,799)
(358)
(14,015)
775,164
(416,743)
52,799
(1,165)
2,515
79,031
(548)
-
1,523
2,001,157
-
-
-
(27,728)
(39,228)
1,497,081
412,570
52,278
1,961,929
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
19
4
(18)
85
90
68
22
90
169
(4)
18
(86)
97
60
37
97
-
-
-
-
-
-
-
-
188
-
-
(1)
187
128
59
187
257
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.5
Contingent liabilities and commitments (continued)
45.5.2 Commitments (continued)
2021
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
126
9
(32)
(84)
19
7
12
19
425
(9)
63
(310)
169
80
89
169
-
-
(31)
31
-
-
-
-
551
-
-
(363)
188
87
101
188
*The charge/(credit) for the year mainly relates to changes to inputs.
The credit quality of commitments, as per the internal rating system of BOC PCL is disclosed in the table
below.
Stage 1
€000
2022
Stage 2
€000
Total
€000
Stage 1
€000
219,598
13,914
233,512
608,837
256,675
2021
Stage 2
€000
8,352
3,397
10,627
10,107
82,198
16,047
1,627
103,918
20,402
2021
Stage 2
€000
22,597
17,522
3,988
2,900
1,748
523
262
17,465
459
256,764
41,484
128,429
58,322
58,708
12,239
154
26,441
26,296
40,913
12,254
3,027
2,270
235
77
-
11,073
304,292
67,464
Total
€000
265,116
44,881
139,056
68,429
140,906
28,286
1,781
130,359
46,698
865,512
22,553
888,065
Total
€000
257,040
58,435
16,242
5,927
4,018
758
339
17,465
11,532
371,756
24,001
395,757
Total
€000
Stage 1
€000
265,507
234,443
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
54,285
88,766
104,470
77,173
15,059
11,882
107,161
83,200
775,508
14,763
790,271
57,327
15,378
4,915
3,477
673
313
88,193
14,663
450,446
23,916
474,362
50,364
83,187
99,083
68,953
8,154
1,492
60,960
72,297
3,921
5,579
5,387
8,220
6,905
10,390
46,201
10,903
664,088
111,420
Stage 1
€000
2022
Stage 2
€000
189,826
37,089
9,437
1,923
1,322
303
177
58,779
13,683
75,681
20,238
5,941
2,992
2,155
370
136
29,414
980
312,539
137,907
258
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.5
Contingent liabilities and commitments (continued)
45.5.2 Commitments (continued)
Total
€000
296,620
132,669
73,853
40,652
15,820
8,859
3,460
7,437
Stage 1
€000
2021
Stage 2
€000
244,760
115,852
55,987
30,358
8,553
4,095
711
-
29,865
10,877
12,732
7,642
8,621
6,756
2,984
7,926
1,028
78,754
123,636
583,952
88,431
658,124
4,354
662,478
Total
€000
274,625
126,729
68,719
38,000
17,174
10,851
3,695
7,926
124,664
672,383
5,724
678,107
Retail individuals
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New customers
Total Stage 3
Stage 1
€000
2022
Stage 2
€000
279,094
124,039
63,108
32,345
9,304
3,464
770
-
76,213
17,526
8,630
10,745
8,307
6,516
5,395
2,690
7,437
2,541
588,337
69,787
259
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.6
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 to customers, including the loans and advances to customers
held for sale, is as follows:
2022
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 3 and Sinope
portfolios
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
15,457
9,737
(1,009)
(106)
29,383
(9,561)
9,857
(833)
478,796
(176)
(8,848)
939
(7,575)
(3,186)
15,387
67,781
591,417
-
-
-
(31)
-
-
-
-
4,595
3,552
(1)
(788)
-
3,877
(964)
736
-
3,553
(683)
(169,303)
(22,774)
(193,548)
-
-
(2,700)
485
16,687
-
(16,943)
11,744
427
35
17,114
3,912
(2,714)
(23,321)
995
13,960
5,009
2,677
47,617
14,616
69,919
(2,085)
2,226
(3,818)
(391)
(4,068)
-
22,288
9,066
13,222
22,288
(624)
(262,062)
(42,404)
(305,090)
27,041
113,573
15,540
178,442
13,401
13,640
56,957
56,616
10,664
4,876
90,088
88,354
27,041
113,573
15,540
178,442
* Individual components of the ‘Impairment net of reversals on loans and advances to customers’ (Note16).
The impairment loss for the year ended 31 December 2022 was driven mainly from additional net credit
losses of €28 million recorded on NPEs as part of the Group’s de-risking activities and additional ECL charge
of €16 million following the new overlays introduced in 2022, as explained in Note 5.2.
260
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.6
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2021
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 2 portfolio
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
1,376,412
204,477
22,619
18,228
(2,361)
(430)
49,127
(17,818)
15,825
(1,462)
(11,600)
(7,088)
-
(410)
(13,464)
1,892
4,781
2,362
Total
€000
1,652,635
-
-
-
-
-
-
(605)
(14,512)
-
2,362
(843)
(252,895)
(40,657)
(294,913)
-
-
(464)
318
41,812
6,658
48,470
-
(26,886)
6,282
233
(770)
(19)
4,385
(28,752)
6,862
(10,259)
2,943
66,324
10,295
69,303
1,647
(1,889)
(2,262)
(3,330)
(12,802)
(725,525)
(109,569)
(851,093)
29,383
478,796
67,781
591,417
14,476
14,907
78,045
400,751
15,457
29,383
478,796
7,427
60,354
67,781
106,609
484,808
591,417
-
(518)
-
4,152
(632)
281
(826)
(3,197)
15,457
6,661
8,796
* Individual components of the ‘Impairment net of reversals on loans and advances to customers’ (Note16).
261
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.6
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
The analysis of credit losses of loans and advances to customers, including the loans and advances to
customers held for sale, by business line is presented in the table below:
2022
Corporate and Large corporate
International 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
2021 (restated)
Corporate and Large corporate
International 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
13,997
567
2,444
2,378
2,552
22
184
19
29
-
-
-
-
73
23
12,096
5
3,009
2,738
4,794
2,133
706
682
536
-
-
-
-
332
10
28,951
36
1,998
5,146
5,763
7,481
9,157
9,222
7,309
7,917
11,096
11,937
7,494
65
1
1,498
4
214
398
56,542
612
7,665
10,660
1,020
14,129
9,005
741
347
513
387
288
651
465
5
4
18,641
10,788
10,270
8,387
8,304
11,384
12,588
7,959
475
38
22,288
27,041
113,573
15,540
178,442
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
8,432
903
1,653
1,615
2,674
40
79
3
14
-
-
-
-
33
11
11,972
1,390
3,242
2,868
4,434
1,397
1,139
708
1,049
-
-
-
-
1,181
3
38,831
7,871
8,151
7,045
8,223
5,015
13,970
20,005
16,583
21,374
26,338
152,596
152,691
102
1
1,481
3
276
317
60,716
10,167
13,322
11,845
1,002
16,333
2,292
884
775
806
3,518
2,045
27,732
26,643
6
1
8,744
16,072
21,491
18,452
24,892
28,383
180,328
179,334
1,322
16
15,457
29,383
478,796
67,781
591,417
262
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.6
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
The movement of the ECL allowance for the loans and advances to customers in the Corporate and Large
corporate, International corporate and Retail business lines in Cyprus (the country where the loans are
managed), including ECL allowance for loans and advances to customers held for sale, is presented in the
table below:
2022
1 January
Transfer in/(out of) the business line
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
31 December
2021 (restated)
1 January
Transfer in/(out of) the business line
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
31 December
Corporate and
Large
corporate
€000
International
corporate
Retail
€000
€000
45,541
278
(14)
936
1,950
(5,699)
9
11,672
(673)
2,359
56,359
2,323
(67)
-
3
164
(448)
-
(548)
-
(815)
612
28,215
(1,812)
(1,866)
445
1,261
(818)
1,294
2,800
(203)
(4,527)
24,789
Corporate and
Large
corporate
€000
International
corporate
Retail
€000
€000
42,511
(607)
(1,929)
2,648
1,396
(1,624)
(7)
209
10,580
(7,636)
45,541
151
1,773
(182)
-
369
-
-
213
-
(1)
2,323
45,730
(4,440)
(1,704)
934
1,847
(971)
449
(6,779)
(1,097)
(5,754)
28,215
Credit losses of loans and advances to customers as at 31 December 2021 include credit losses relating to
loans and advances to customers classified as held for sale as presented in the table below:
31 December 2021
-
710
262,706
42,003
305,419
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
During the year ended 31 December 2022 the total non-contractual write-offs recorded by the Group
amounted to €134,767 thousand (2021: €234,378 thousand). The contractual amount outstanding on
financial assets that were written off during the year ended 31 December 2022 and that are still subject to
enforcement activity is €972,621 thousand (2021: €970,568 thousand).
For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with
50%, 30% and 20% probability respectively.
263
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.6
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 favourable
and 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. 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 takes into consideration the timing of expected sale and the estimated sale proceeds in
determining the ECL.
The above assumptions are also influenced by the ongoing regulatory dialogue BOC PCL maintains with its
lead regulator, the ECB, and other regulatory guidance and interpretations issued by various regulatory and
industry bodies such as the ECB and the EBA, which provide guidance and expectations as to relevant
definitions and the treatment/classification of certain parameters/assumptions used in the estimation of
provisions.
Any changes in these assumptions or difference between assumptions made and actual results could result
in significant changes in the estimated amount of expected credit losses of loans and advances to
customers.
Sensitivity analysis
The Group has performed sensitivity analysis relating to the loan portfolio in Cyprus, which represents more
than 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 2022 and 2021.
The Group has applied sensitivity analysis to the below parameters and the impact on the ECL, for both
individually and collectively assessed ECL calculations, is 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
2022
€000
2021
€000
1,999
(2,077)
4,955
(4,344)
11,335
(8,930)
7,367
(6,964)
3,610
(3,626)
8,000
(7,421)
19,063
(16,906)
8,190
(8,011)
264
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.6
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
The increase/(decrease) on ECL, for loans and advances to customers at amortised cost, is further analysed,
per stage, in the table below:
2022
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%*
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
175
(139)
552
(495)
1,036
(842)
406
321
1,503
1,999
(435)
1,590
(1,374)
2,747
(2,021)
6,961
(4,747)
(1,503)
2,813
(2,475)
7,552
(6,067)
-
-
(2,077)
4,955
(4,344)
11,335
(8,930)
7,367
(6,964)
Decrease in the PDs of stages 1 and 2 by 20%*
(2,217)
2021
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%*
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
384
(351)
434
(401)
1,215
(1,004)
2,687
(2,882)
413
2,813
3,610
(461)
1,402
(1,323)
3,742
(3,266)
5,503
(5,129)
(2,814)
6,164
(5,697)
14,106
(3,626)
8,000
(7,421)
19,063
(12,636)
(16,906)
-
-
8,190
(8,011)
*The impact on the ECL also includes the transfer between stages of the loans and advances to customers
following the increase/ decrease in the PD.
265
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.6
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
The sensitivity analysis performed on the collateral realisation haircut and its impact on the ECL by business
line is presented in the table below:
Corporate and Large corporate
International 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
Increase the
collateral
realisation
haircut by
5%
Decrease the
collateral
realisation
haircut by
5%
2022
€000
2022
€000
Increase the
collateral
realisation
haircut by 5%
Decrease the
collateral
realisation
haircut by 5%
2021
(restated)
€000
2021
(restated)
€000
2,322
68
487
1,260
527
(1,478)
(30)
(409)
(1,085)
(457)
1,253
(1,333)
628
824
324
720
948
1,378
540
53
3
(633)
(738)
(287)
(665)
(819)
(690)
(255)
(49)
(2)
2,605
954
724
1,838
718
551
956
1,079
458
748
1,114
5,541
1,503
273
1
(2,284)
(964)
(627)
(1,545)
(653)
(558)
(858)
(972)
(420)
(760)
(940)
(4,889)
(1,233)
(202)
(1)
11,335
(8,930)
19,063
(16,906)
45.7
Collateral and other credit enhancements obtained
The carrying value of assets obtained during 2022 and 2021 by taking possession of collateral held as
security, was as follows:
Residential property
Commercial and other property
2022
€000
2021
€000
12,414
70,238
82,652
10,100
27,021
37,121
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 2022, including any
expenses capitalised during the year, amounted to €1,087,556 thousand (2021: €1,274,961 thousand).
The disposals of repossessed assets during 2022 (including those that were classified as held for sale prior
to their disposal) amounted to €249,252 thousand (2021: €209,961 thousand).
266
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.8
Currency concentration of loans and advances to customers
The following table presents the currency concentration of the Group's loans and advances at amortised
cost.
Gross loans at amortised cost
Euro
US Dollar
British Pound
Russian Rouble
Swiss Franc
Other currencies
2022
€000
9,456,220
334,663
89,244
312
35,430
1,466
2021
€000
9,294,950
372,263
93,369
16,329
61,336
2,288
9,917,335
9,840,535
Loans and advances to customers classified as held for sale
The following table presents 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
2021
€000
533,190
700
230
18,184
3,485
555,789
45.9
Modified loans and advances to customers
Modified loans and advances to customers are those loans where the original contractual terms of the loans
have been modified due to financial difficulties of the borrower and are considered as
forborne/restructured (as explained in Note 45.10), and
i.
ii. have been modified due to commercial renegotiations and such loans are considered as non-
forborne.
Customers classified as Stage 2 and Stage 3 as at 31 December 2021, that had facilities modified (in a prior
or the current period), and are classified as Stage 1 as at 31 December 2022 amount to €281,391 thousand
(2021: €540,712 thousand) and their corresponding ECL amount to €895 thousand (2021: €1,268
thousand).
Previously classified Stage 2 and Stage 3 customers (with a carrying amount as at 31 December 2021 of
€34,788 thousand (2020: €109,881 thousand)) that had facilities modified during the year and are
classified as Stage 1 at 31 December 2022 amount to €30,012 thousand (2021: €110,303 thousand) and
their corresponding ECL amount to €51 thousand (2021: €233 thousand). Their related modification loss
amounted to €177 thousand (2021: €433 thousand).
Stage 2 and Stage 3 loans that were forborne during the year amounted to €228,804 thousand (2021:
€707,190 thousand). Their related modification loss amounted to €4,669 thousand (2021: €23,243
thousand).
Facilities that reverted to Stage 2 and Stage 3 having once cured during the year amount to €33,784
thousand (2021: €126,972 thousand) and their corresponding ECL amounts to €1,055 thousand (2021:
€5,250 thousand) as at 31 December 2022.
267
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.10
Forbearance/Restructuring
Forborne loans are those loans that have been modified because the borrower is considered 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.
Forborne/restructured loans and advances are those facilities for which the Group has modified the
repayment programme (e.g. 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).
For an account to qualify for forbearance/restructuring it must meet certain criteria including the viability of
the customer. 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 allowed in specific
situations in response to legal or regulatory requirements.
Forbearance/restructuring activities may include measures that restructure the borrower's business
(operational restructuring) and/or measures that restructure the borrower's
financing (financial
restructuring).
Forbearance/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:
i. Suspension of capital or capital and interest: granting to the borrower a grace period in the payment of
capital (i.e. during this period only interest is paid) or capital and interest, for a specific period of time.
ii. 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.
iii. Arrears and/or interest capitalisation: capitalisation of the arrears and of any unpaid interest to the
outstanding principal balance for repayment under a rescheduled program.
Long-term restructuring solutions can include the following:
i.
Interest rate reduction: permanent or temporary reduction of interest rate (fixed or variable) into a fair
and sustainable rate.
ii. 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.
iii. Sale of Assets: Part of the restructuring can be the agreement with the borrower for immediate or over
time sale of assets (mainly real estate) to reduce borrowing.
iv. Modification of existing terms of previous decisions: In the context of the new sustainable
settlement/restructuring solution, review any terms of previous decisions that may not be met.
v. Consolidation/refinancing of existing facilities: In cases where the borrower maintains several separate
loans with different collaterals, these can be consolidated and a new repayment schedule can be set and
the new loan can be secured with all existing collaterals.
vi. Hard Core Current Account Limit: In such cases a loan with a longer repayment may be offered to
replace / reduce the current account limit.
vii. Split and freeze: the customer’s debt is split into sustainable and unsustainable parts. The sustainable
part is restructured to a sustainable repayment program. 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.
268
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.10
Forbearance/Restructuring (continued)
viii. 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.
ix. Liquidation Collateral: An agreement between BOC PCL and a borrower for the voluntary sale of
mortgaged assets, for partial or full repayment of the debt.
x. Currency Conversion: This solution is provided to match the credit facility currency and the borrower's
income currency.
xi. Additional Financing: This solution can be granted, simultaneously with the restructuring of the existing
credit facilities of the borrower, to cover any financing gap.
xii. Partial or total write off: This solution corresponds to the Group forfeiting the right to legally recover
part or the whole of the amount of debt outstanding by the borrower.
xiii. Debt/equity swaps: debt restructuring that allows partial or full repayment of the debt in exchange of
obtaining an equivalent amount of equity by the Group, with the remaining debt right sized to the cash
flows of the borrower to allow repayment. 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.
xiv. Debt/asset swaps: agreement between the Group and the borrower to voluntarily transfer the
mortgaged asset or other immovable property to the Group, to partially or fully repay the debt. Any
residual debt may be restructured within an appropriate repayment schedule in line with the borrower’s
reassessed repayment ability.
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, previously classified as NPEs that present more than 30 days past due within the probation
period.
Forbearance 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.
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. It also
contributes in the construction through the cycle probability of default and cure curves, where when feasible
a specific curve for the forborne products is calculated and assigned accordingly.
The below table presents the movement of the Group’s forborne loans and advances to customers
measured at amortised cost including those classified as held for sale. The forborne loans and advances to
customers classified as held for sale as at 31 December 2022 amounts to nil (2021: €245,452 thousand).
1 January
New loans and advances forborne in the year
Loans no longer classified as forborne and repayments
Write off of forborne loans and advances
Interest accrued on forborne loans and advances
Foreign exchange adjustments
Derecognition of Helix 2 portfolio
Derecognition of Helix 3 and Sinope portfolios
31 December
2022
€000
1,469,182
130,547
(241,739)
(77,357)
57,795
3,115
2021
€000
1,981,825
741,116
(484,039)
(110,471)
72,292
1,907
-
(733,448)
(235,245)
-
1,106,298
1,469,182
The forborne loans classification is discontinued when all EBA criteria for the discontinuation of the
classification as forborne exposure are met. The criteria are set out in the EBA Final draft Implementing
Technical Standards (ITS) on supervisory reporting and non-performing exposures.
269
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.10
Forbearance/Restructuring (continued)
The below tables present the Group’s forborne loans and advances to customers by staging, economic
activity and business line classification excluding those classified as held for sale, as well as ECL allowances
and tangible collateral held for such forborne loans.
Stage 1
Stage 2
Stage 3
POCI
Fair value of collateral
Stage 1
Stage 2
Stage 3
POCI
2022
€000
2021
€000
-
857,356
215,730
33,212
6,883
828,849
348,385
39,613
1,106,298
1,223,730
2022
€000
2021
€000
-
818,138
172,501
30,188
6,751
782,843
275,882
37,824
1,020,827
1,103,300
The fair value of collateral presented above has been computed to the extent that the collateral mitigates
credit risk.
Credit risk concentration
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other services
Other sectors
2022
€000
2021
€000
41,038
17,080
282,460
245,695
145,840
279,934
76,135
18,116
52,714
16,217
259,534
164,871
196,522
414,463
96,714
22,695
1,106,298
1,223,730
270
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.10
Forbearance/Restructuring (continued)
By business line
Corporate and Large corporate
International corporate
SMEs
Retail
- housing
- consumer, credit cards and other
2022
€000
684,382
-
74,474
85,319
28,944
47,840
21,002
53,316
14,402
6,279
15,635
49,240
13,983
11,482
-
2021
(restated)
€000
629,270
4,904
106,362
138,753
47,006
21,836
35,890
66,608
20,561
19,796
14,382
81,318
22,478
14,159
407
1,106,298
1,223,730
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
628,104
72,727
50,688
869
5,590
878
684,382
74,474
62,312
20,502
2,505
85,319
20,207
7,653
1,084
28,944
31,637
7,240
19,912
4,924
-
-
-
-
6,060
11,918
30,649
9,021
5,837
14,449
44,191
12,705
10,143
1,844
2,755
457
442
1,186
5,049
1,278
47,840
21,002
53,316
14,402
6,279
15,635
49,240
13,983
10,293
1,188
1
11,482
857,356
215,730
33,212
1,106,298
271
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
International banking services
Wealth management
2022
By business line
Corporate and Large
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
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.10
Forbearance/Restructuring (continued)
2021 (restated)
By business line
Corporate and Large
corporate
International 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 allowance
Stage 1
Stage 2
Stage 3
POCI
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
6,461
559,311
-
96,654
63,498
4,904
5,736
-
-
629,270
4,904
3,972
106,362
-
-
381
41
-
-
-
-
-
-
-
-
-
-
97,548
38,276
2,548
138,753
29,578
16,181
1,206
47,006
6,941
8,705
13,500
5,047
-
-
-
-
11,565
-
8,882
23,410
49,746
15,088
17,503
12,402
70,951
19,313
2,495
-
6,013
3,775
3,362
426
2,293
1,980
10,367
3,165
99
407
21,836
35,890
66,608
20,561
19,796
14,382
81,318
22,478
14,159
407
6,883
828,849
348,385
39,613
1,223,730
2022
€000
2021
€000
-
13,939
68,557
11,259
93,755
8
13,349
120,345
10,218
143,920
272
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.11
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
2022
€000
2021
€000
84,543
25,249
36,544
105,759
84,629
3,333
9,491,444
9,095,864
358
2,192
1,715
38,307
19,160
6,078
37,474
27,303
9,680,352
9,379,600
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
B1 - B3
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
2022
€000
1,109,706
397,831
88,422
886,419
14,243
12,241
2021
€000
836,676
254,956
78,301
735,663
-
24,792
2,508,862
1,930,388
832,113
425,460
1,251,289
735,661
311,108
883,619
2,508,862
1,930,388
8,968
453,775
6,034
733,080
2,046,119
1,191,274
2,508,862
1,930,388
273
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
45.
Risk management - Credit risk (continued)
45.11
customers - analysis by rating agency designation (continued)
Credit quality of Group assets exposed to credit risk other than loans and advances to
2022
Aaa - Aa3
A1 - A3
Baa1 - Baa3
Ba1 - Ba3
B1 - B3
Unrated
2021
Aaa - Aa3
A1 - A3
Baa1 - Baa3
Ba1 - Ba3
Unrated
FVOCI
Stage 1
€000
85,199
41,947
856
325,773
-
-
Amortised cost
Stage 1
€000
1,015,539
355,884
87,566
560,646
14,243
12,241
453,775
2,046,119
FVOCI
Stage 1
€000
Stage 1
€000
Amortised cost
Stage 2
€000
Total
€000
235,297
57,757
31,318
408,708
-
595,845
197,199
46,983
278,491
24,293
-
-
-
48,463
-
595,845
197,199
46,983
326,954
24,293
733,080
1,142,811
48,463
1,191,274
46.
Risk management - Market risk
Market risk is the risk of loss from adverse changes in market prices namely from changes in interest rates,
foreign currency exchange rates, property and security prices. The Market and Liquidity 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
from 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. 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 Euro and the US Dollar, being the main currencies,
using the assumption of the prevailing market risk policy for the current and the comparative year:
274
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
46.
Risk management - Market risk (continued)
Impact on Net Interest
Income in €000
2022
(60 bps for
Euro and 75
bps for US
Dollar)
2021
(50 bps for
Euro and 60
bps for US
Dollar)
73,126
(77,043)
(56,569)
59,657
70,381
35,677
(28,235)
(19,944)
25,546
33,182
(73,896)
(28,169)
71,829
(75,343)
(55,812)
59,132
69,180
34,484
(26,230)
(17,866)
25,153
32,200
(72,216)
(25,208)
1,298
(1,700)
(757)
525
1,202
1,193
(2,005)
(2,078)
393
982
(1,680)
(2,961)
Currency
Interest Rate Scenario
All
All
All
All
All
All
Euro
Euro
Euro
Euro
Euro
Euro
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
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
275
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
46.
Risk management - Market risk (continued)
The above sensitivities incorporate assumptions on the pass-through change of time deposits.
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
Interest Rate Scenario
All
All
All
All
All
All
Euro
Euro
Euro
Euro
Euro
Euro
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
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
2022
(60 bps for
Euro and 75
bps for US
Dollar)
2021
(50 bps for
Euro and 60
bps for US
Dollar)
31,739
(68,581)
11,884
369
27,212
(35,032)
54,878
(59,502)
23,018
526
47,696
(28,040)
8,599
(9,079)
750
212
6,727
(6,992)
(14,964)
23,698
(9,300)
8,986
3,616
6,273
(18,080)
60,603
(7,836)
17,714
2,234
26,386
6,232
(6,604)
(1,464)
258
4,998
(6,920)
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)
2022
+0.75% for US Dollar
+0.6% for Euro
+0.4% for British Pound
-0.75% for US Dollar
-0.6% for Euro
-0.4% for British Pound
Impact on profit/loss
before tax
Impact on equity
€000
€000
(466)
(394)
466
386
276
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
46.
Risk management - Market risk (continued)
Parallel change in interest rates
((increase)/decrease in net
interest income)
2021
+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/loss
before tax
Impact on equity
€000
€000
1,219
(782)
(739)
739
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.
Regarding LIBOR reform, regulators and industry working groups have identified 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 of the underlying
market they intended to measure:
i.
ii.
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.
In October 2021, the European Commission designated a statutory replacement rate for certain settings of
CHF LIBOR.
On 16 November 2021, the Financial Conduct Authority of the United Kingdom (UK FCA) confirmed that
they would permit the temporary use of the synthetic GBP and JPY LIBOR in all legacy LIBOR contracts,
other than cleared derivatives that have not been changed at or ahead of end 31 December 2021.
In September 2022, the FCA confirmed that the publication of 1-month and 6-month synthetic GBP LIBOR
will be required until the end of March 2023, after which date these settings will permanently cease. On 23
November 2022, the FCA announced its intention (i.e. proposed, not confirmed yet) to continue to require
LIBOR’s administrator, IBA, to publish the 3-month synthetic GBP LIBOR setting until the end of March
2024, after which it will also permanently cease.
On 23 November 2022, the FCA announced that the three synthetic JPY LIBOR settings will cease at end
2022.
Also, under their new use restriction power they would prohibit new use of USD LIBOR from the end of
2021, except in specific circumstances. On 23 November 2022, the FCA announced its proposal (i.e.
proposed, not confirmed yet) to require IBA to continue to publish the 1-month, 3-month and 6-month USD
LIBOR settings on a synthetic basis until end September 2024.
How the Group is managing the transition to alternative benchmark rates
BOC PCL established a project to manage the transition to alternative interest rate benchmarks with the
Director of Treasury as 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), Operations and the business lines. The
Assets and Liabilities Committee (ALCO) monitors the project on a regular basis.
The Group's transition project also involved the drawing up of appropriate fallback provisions for LIBOR
linked contracts and transition mechanisms in its floating rate assets and liabilities with maturities after
2021.
For the legacy non-cleared 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, BOC PCL will adopt the market wide standardised approach to be followed by the relevant
clearing house.
277
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
46.
Risk management - Market risk (continued)
The Group proactively engaged with its customer base and market counterparties for the amendment of
substantially all impacted LIBOR contracts (other than the relevant contracts referencing to USD LIBOR and
which will cease on 30 June 2023) by 31 December 2021 for transitioning to alternative rates. Those legacy
credit facilities in CHF for which the contract was not amended by the first interest period commencing in
2022 ('tough legacy'), have been transitioned to the statutory rate provided by EU legislation. The Group
has also made the necessary arrangements to transition its tough legacy GBP and JPY credit facilities to
alternative rates by notifying its customer base accordingly and reserving the right to use a statutory rate
provided by EU legislation in case such a rate is nominated in the future. Specifically, in anticipation that the
European Commission might not designate an alternative rate for JPY and GBP Libor, the Group has
informed its customers of its decision to transition tough legacy JPY and GBP LIBOR credit facilities to the
same alternative rates, as if the customer has signed the relevant contract amendment. This would ensure
that customers would not be treated differently compared to other similar customers on the same JPY and
GBP LIBOR tenor who have signed their contract amendment. The Group has also engaged in client
communication to inform customers and ensure a smooth transition of non-USD LIBOR credit facilities to
RFRs.
New RFR lending products have also been introduced and adopted across the Group’s key currencies.
The Group's project for the transition to alternative interest rate benchmarks is now focused of the
transition of USD LIBOR contracts ahead of the June 2023 deadline.
BOC PCL has dedicated teams in place to support the transition and continuously assess, monitor and
dynamically manage risks arising from the transition when required.
The Group has also been actively monitoring any market and regulatory developments published by
regulatory bodies as well as by relevant Working Groups across various jurisdictions.
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 which have yet to transition as at 31 December 2022 and as at 31 December 2021 to
the replacement benchmark rate at the respective date:
2022
Non-derivative financial assets
Loans and advances to customers
Loans and advances to banks
Total
Non-derivative financial liabilities
Deposits by banks
Total
2021
Non-derivative financial assets
Loans and advances to customers
Loans and advances to banks
Total
Non-derivative financial liabilities
Deposits by banks
Total
USD LIBOR
€000
283,509
Other
LIBOR
€000
316
Total
€000
283,825
26,607
4,297
30,904
310,116
4,613
314,729
7,416
7,416
248
248
7,664
7,664
GBP LIBORUSD LIBORCHF LIBOR
€000
364,113
92,819
26,727
€000
€000
Other
LIBOR
€000
1,627
Total
€000
485,286
18,341
87,397
4,984
10,261
120,983
111,160
451,510
31,711
11,888
606,269
113
113
7,658
7,658
-
-
503
503
8,274
8,274
EURIBOR is in compliance with the EU Benchmarks Regulation and can continue to be used as a benchmark
interest rate for existing and new contracts. The Group therefore, does not consider that Group’s exposure
to EURIBOR is affected by the BMR reform.
278
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
46.
Risk management - Market risk (continued)
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 currency 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 and Liquidity 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 (by an approximately equal and opposite impact), 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.
Change in foreign
exchange rate
%
Impact on profit/loss
after tax
€000
Impact on equity
€000
2022
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
2021
US Dollar
Russian Rouble
Romanian Lei
Swiss Franc
British Pound
Japanese Yen
Other currencies
-
-
(349)
-
-
-
-
-
-
285
-
-
-
-
-
34,656
340
-
-
-
-
+10
+70
+10
+10
+10
+10
+10
-10
-40
-10
-20
-10
-10
-10
2,534
2,806
3
237
483
6
65
(2,073)
(344)
(2)
(356)
(396)
(5)
(53)
1,253
2,571
-
420
(70)
67
138
+10
+25
+10
+5
+10
+10
+10
279
Change in foreign
exchange rate
%
Impact on profit/loss
after tax
€000
Impact on equity
€000
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
46.
Risk management - Market risk (continued)
Change in foreign
exchange rate
%
Impact on profit/loss
after tax
€000
Impact on equity
€000
-10
-25
-10
-5
-10
-10
-10
(1,025)
(1,543)
-
(380)
57
(55)
(113)
-
(20,793)
(278)
-
-
-
-
US Dollar
Russian Rouble
Romanian Lei
Swiss Franc
British Pound
Japanese Yen
Other currencies
Price risk
Equity securities price risk
The risk of loss from changes in the price of equity securities arises when there is an unfavourable change in
the prices of equity securities held by the Group as investments.
Investments in equities are outside the Group’s risk appetite, but may be acquired in the context of
delinquent loan workouts. The Group monitors the current portfolio mostly acquired by the Group as part of
the acquisition of certain operations of Laiki Bank, or through delinquent loan workouts, with the objective
to gradually liquidate all positions for which there is a market. Equity securities are disposed of by the
Group as soon as practicable.
Changes in the prices of equity securities that are classified as investments at FVPL, affect the results of the
Group, whereas changes in the value of equity securities classified as FVOCI affect directly the equity of the
Group.
The table below shows the impact on the profit/loss before tax and on equity of the Group from a change in
the price of the equity securities held, as a result of reasonably possible changes in the relevant stock
exchange indices.
2022
Cyprus Stock Exchange
Athens Exchange
New York Exchange
Other stock exchanges and
unlisted
Non-listed (Real Estate)
Cyprus Stock Exchange
Athens Exchange
New York Exchange
Other stock exchanges and
unlisted
Non-listed (Real Estate)
2021
Cyprus Stock Exchange
Athens Exchange
New York Exchange
Other stock exchanges and
unlisted
Non-listed (Real Estate)
Change in index
%
Impact on profit/loss
before tax
€000
Impact on equity
€000
+50
+34
+23
+66
+25
-33
-45
-28
-59
-10
1
286
1,394
2
-
(1)
(379)
(1,697)
(2)
-
1,383
-
-
2,569
1,735
(913)
-
-
(2,296)
(694)
Change in index
%
Impact on profit/loss
before tax
€000
Impact on equity
€000
-
257
1,626
46
-
645
-
-
3,721
1,666
+20
+30
+20
+65
+25
280
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
46.
Risk management - Market risk (continued)
2021
Cyprus Stock Exchange
Athens Exchange
New York Exchange
Other stock exchanges and
unlisted
Non-listed (Real Estate)
Change in index
%
Impact on profit/loss
before tax
€000
Impact on equity
€000
-25
-35
-25
-80
-10
(1)
(300)
(2,033)
(57)
-
(806)
-
-
(4,579)
(666)
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 mainly 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 2022 was A2 (2021: A3). The average rating excluding the Cyprus
Government bonds and non-rated transactions as at 31 December 2022 was Aa2 (2021: Aa2). Further
information on ratings of debt securities is disclosed in Note 45.11.
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, which is the maximum amount between
the Monte Carlo CVAR (using a 97.5% Confidence Interval) and the Systematic Liquidity Risk according to
the Internal Risk Based model, performed on a bond level.
2022
Up scenario:
Aa3 and above rated bonds
A3 and above rated bonds
Baa1 and below rated bonds
Cyprus Government bonds
Down scenario:
Aa3 and above rated bonds
A3 and above rated bonds
Baa1 and below rated bonds
Cyprus Government bonds
2021
Up scenario:
Aa3 and above rated bonds
A3 and above rated bonds
Baa3 and above rated bonds
Cyprus Government bonds
Down scenario:
Aa3 and above rated bonds
A3 and above rated bonds
Baa3 and above rated bonds
Cyprus Government bonds
Impact on profit/loss
before tax
€000
Impact on equity
€000
3,621
1,733
7
-
(3,621)
(1,733)
(7)
-
4,192
3,324
2,467
34,179
(4,192)
(3,324)
(2,467)
(34,179)
Impact on profit/loss
before tax
€000
Impact on equity
€000
2,383
2,722
31
-
(2,383)
(2,722)
(31)
-
4,093
2,627
4,183
22,758
(4,093)
(2,627)
(4,183)
(22,758)
281
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
46.
Risk management - Market risk (continued)
Other non-equity instruments price risk
The table below shows the impact on the profit/loss before tax and on equity of the Group from a change in
the price of other non-equity investments held, as a result of reasonably possible changes in the price index
of the relevant instruments.
2022
Other (non-equity instruments)
Other (non-equity instruments)
2021
Other (non-equity instruments)
Other (non-equity instruments)
Property price risk
Change in index
%
Impact on profit/loss
before tax
€000
Impact on equity
€000
+23
-28
+20
-25
2,063
(2,511)
1,107
(1,384)
-
-
-
-
A significant part of the Group’s loan portfolio is secured by real estate the majority of which is located in
Cyprus. Furthermore, the Group holds a substantial number of properties mainly arising from loan
restructuring activities; the enforcement of loan collateral and debt for asset swaps. These properties are
held by the Group primarily as stock of properties and some are held as investment properties.
Property risk is the risk that the Group’s business and financial position will be affected by adverse changes
in the demand for, and prices of, real estate, or by regulatory capital requirements relating to increased
charges with respect to the stock of properties held.
47.
Risk management - Liquidity and funding risk
Liquidity Risk
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 and 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 the Liquidity Policy of managing assets taking liquidity
into consideration and monitoring cash flows and liquidity on a regular 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 which defines 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 risk
across the Group.
The Treasury Division is responsible for liquidity management at Group level ensuring compliance with
internal policies and regulatory liquidity requirements and providing direction as to the actions to be taken
regarding liquidity needs. Treasury assesses on a continuous basis, the adequacy of the liquid assets and
takes the necessary actions to ensure a comfortable liquidity position.
Liquidity is also monitored by Market and Liquidity Risk department, to ensure compliance with both internal
policies and limits, and with the limits set by the regulatory authorities. Market and Liquidity Risk
department reports the liquidity position to ALCO at least monthly. It also provides the results of various
stress tests to ALCO at least quarterly.
282
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
47.
Risk management - Liquidity and funding risk (continued)
Liquidity is monitored and managed on an ongoing basis through:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Risk appetite: established the Group's Risk Appetite Statement 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 regular basis. Where
applicable, a traffic light system (RAG) has been introduced for the ratios, in order to raise flags
and take action 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 so as 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 identified and managed. The LCP
provides a communication plan and includes management actions to respond to liquidity stresses.
Recovery Plan: the Group has developed a Recovery Plan (RP), the key objectives of which are,
among others, to set key Recovery and Early Warning Indicators 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 liquidity position.
Monitoring process
Daily
The daily monitoring of the stock of highly liquid assets is important to safeguard and ensure the
uninterrupted operations of the Group’s activities. Market and Liquidity Risk department prepares a daily
report analysing the internal liquidity buffer and comparing it to the previous day’s buffer. Results are made
available to members of the Risk and Treasury Divisions. In addition, Treasury monitors daily and intraday
the customer inflows and outflows in the main currencies used by the Group.
Market and Liquidity Risk department also prepares daily stress testing for bank specific, market wide and
combined scenarios. The requirement is to have sufficient liquidity buffer to enable BOC PCL to survive a
twelve-month stress period, including capacity to raise funding under all scenarios.
Moreover, an intraday liquidity stress test takes place to ensure that the Group maintains sufficient liquidity
buffer in immediately accessible form, to enable it to meet the stressed intraday payments.
The liquidity buffer is made up of: Banknotes, CBC balances (excluding the Minimum Reserve Requirements
(MRR)), unpledged cash and nostro current accounts, as well as money market placements up to the stress
horizon, available ECB credit line and market value net of haircut of unencumbered/available liquid bonds.
The designing of the stress tests follows guidance and is 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 test assumptions are reviewed on an annual basis and approved by the Board through its Risk
Committee. Whenever it is considered appropriate to amend the assumptions during the year, approval is
requested from ALCO and the Board Risk Committee. The main items shocked in the different scenarios are:
deposit outflows, wholesale funding, loan repayments, off balance sheet commitments, marketable
securities, own issue covered bond, additional credit claims, interbank takings and cash collateral for
derivatives and repos.
Weekly
Market and Liquidity Risk department prepares a report indicating the level of Liquid Assets including Credit
Institutions Money Market Placements as per LCR definitions.
Monthly
Market and Liquidity Risk department 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
available liquidity buffer in order to calculate the survival days. The fixed deposit renewal rates, the
percentage of International Banking Services deposits over total deposits and the percentage of instant
access deposits are also presented. The liquidity mismatch in the form of the Maturity Ladder report (for
both contractual and behavioural flows) is presented to ALCO and the resulting mismatch between assets
and liabilities is compared to previous month’s mismatch.
283
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
47.
Risk management - Liquidity and funding risk (continued)
Market and Liquidity Risk department also prepares a monthly liquidity report which is submitted to the
ECB. The report includes information on deposits breakdown, cash flow information, survival period, LCR
ratio, rollover of funding, funding gap (through the Maturity Ladder analysis), concentration of funding and
collateral details. It concludes on the overall liquidity position of BOC PCL and describes the measures
implemented and to be implemented in the short-term to improve liquidity position if needed.
Market and Liquidity Risk reports the LCR and Additional Liquidity Monitoring Metrics (ALMM) to the
CBC/ECB on a monthly basis.
Quarterly
The results of the stress testing scenarios are reported to ALCO and Board Risk Committee quarterly as part
of the quarterly Internal Liquidity Adequacy Assessment Process (ILAAP) review. Market and Liquidity 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 in the context of established policies and processes for the identification, measurement,
management and monitoring of liquidity risk as 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 is reviewed
and tested at least annually.
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%. The Group also calculates its NSFR as per Capital Requirements
Regulation II (CRR II), with the limit set at 100%. The NSFR is the ratio of available stable funding to
required stable funding. NSFR has been developed to promote a sustainable maturity structure of assets
and liabilities.
Funding risk
Funding risk is the risk that the Group does not have sufficiently stable sources of funding or access to
sources of funding may not always be available at a reasonable cost and thus the Group may fail to meet its
obligations, including regulatory ones (e.g. MREL).
Main sources of funding
As at 31 December 2022 the Group’s main sources of funding were its deposit base and central bank
funding, through the Eurosystem monetary policy operations. Wholesale funding is also becoming an
important source of funding, following the refinancing of the Tier 2 for €300 million in April 2021 and the
issuance of senior preferred debt of €300 million in June 2021.
With respect to TLTRO III operations, the carrying value of the ECB funding as at 31 December 2022, (after
the early repayment of €1 billion within December 2022), was €1,977 million (2021: €2,970 million).
As at 31 December 2022, the wholesale funding nominal amount was €820 million (2021: €856 million).
This includes funding raised from the wholesale debt capital markets of €220 million AT1 issued in
December 2018, €300 million new Tier 2 issued in April 2021 and €300 million senior preferred debt issued
in June 2021. In January 2022, BOC PCL redeemed the remaining €36 million outstanding of the Tier 2
issued in January 2017.
Funding to subsidiaries
The funding provided by BOC PCL to its subsidiaries for liquidity purposes is repayable as per the terms of
the respective agreements.
284
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
47.
Risk management - Liquidity and funding risk (continued)
The subsidiaries may proceed with dividend distributions in the form of cash to BOC PCL, provided that they
are not in breach of their regulatory capital and liquidity requirements, where applicable. Certain
subsidiaries have a recommendation from their regulator to exercise caution and prudence regarding
dividend distributions and to consider the impact of COVID-19 on their operating models, solvency, liquidity
and financial position.
Collateral requirements and other disclosures
Collateral requirements
The carrying values of the Group's encumbered assets as at 31 December 2022 and 31 December 2021 are
summarised below:
Cash and other liquid assets
Investments
Loans and advances
2022
€000
2021
€000
73,557
102,463
284,343
1,260,158
3,273,369
3,126,803
3,631,269
4,489,424
Cash is mainly used to cover collateral required for derivatives, trade finance transactions and guarantees
issued. It may also be used as part of the supplementary assets for the covered bond. The decrease in cash
and other liquid assets presented as encumbered assets during the year ended 31 December 2022 was
driven mainly by the decrease in cash encumbered for derivatives and for trade finance transactions.
As at 31 December 2022 and 2021, investments are mainly used as collateral for ECB funding or as
supplementary assets for the covered bond. The decrease in the investments presented as encumbered
assets during the year ended 31 December 2022 was driven by the removal of debt securities from the ECB
collateral pool following the repayment of €1 billion TLTRO III funding in December 2022.
Loans and advances indicated as encumbered as at 31 December 2022 and 2021, are mainly used as
collateral for funding from the ECB and the covered bond.
Loans and advances to customers include mortgage loans of a nominal amount of €1,007 million as at 31
December 2022 (2021: €1,007 million) in Cyprus, pledged as collateral for the covered bond issued by BOC
PCL in 2011 under its Covered Bond Programme. Furthermore, as at 31 December 2022 housing loans of a
nominal amount of €2,287 million (2021: €2,091 million) in Cyprus, are pledged as collateral for funding
from the ECB (Note 30).
BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the
Covered Bonds Directive of the CBC. Under the Covered Bond Programme, BOC PCL has in issue covered
bonds of €650 million secured by residential mortgages originated in Cyprus. The Covered Bonds have a
maturity date of 12 December 2026 and pay an interest rate of 3-months Euribor plus 1.25% on a quarterly
basis. On 9 August 2022, BOC PCL proceeded with an amendment to the terms and conditions of the
covered bonds following the implementation of Directive (EU) 2019/2162 in Cyprus. The covered bonds are
listed on the Luxemburg Bourse. The covered bonds have a conditional Pass-Through structure. All the
bonds are held by BOC PCL. The covered bonds are eligible collateral for the Eurosystem credit operations
and are placed as collateral for accessing funding from the ECB.
Other disclosures
Deposits by banks include balances of €29,100 thousand as at 31 December 2022 (2021: €36,571
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 €55,152 thousand as at 31 December 2022 (2021: €71,321 thousand).
Analysis of financial assets and liabilities based on remaining contractual maturity
The analysis of the Group’s financial assets and liabilities based on the remaining contractual maturity at 31
December is based on undiscounted cash flows, analysed in time bands according to the number of days
remaining from 31 December to the contractual maturity date.
285
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
47.
Risk management - Liquidity and funding risk (continued)
Financial assets
The analysis of financial assets does not include any interest receivable cash flows. Financial assets have a
much longer duration than financial liabilities and non-discounted interest receivable cash flows are higher
than non-discounted interest payable cash flows (based on remaining contractual maturity). As a result,
non-discounted cash inflows from interest receivable would have greatly exceeded non-discounted cash
outflows on interest payable, thus artificially improving liquidity.
Current accounts, overdrafts and amounts in arrears are included within the first maturity time band which
reflects their contractual maturity. All other loans and advances to customers are analysed according to
their contractual repayment schedule.
Loans and advances to banks are analysed in the time bands according to the number of days remaining
from 31 December until their contractual maturity date. Amounts placed as collateral (primarily for
derivatives) are assigned to different time bands based on either their maturity, 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.
Debt securities in issue and subordinated liabilities are classified in the relevant time band according to the
remaining contractual maturity.
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 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
Amounts of commitments and contingent liabilities are included in the time band on the basis of their
remaining contractual maturities.
In the case of undrawn facilities the Group has the right to cancel them upon relevant notice to the
customers and are hence included in the 'On demand and up to one month' time band.
286
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
47.
Risk management - Liquidity and funding risk (continued)
2022
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
Investments not at FVPL
Other assets
Financial liabilities
Deposits by banks
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
9,541,665
134,556
187,213
9,624
1,340
-
13,489
1,480
703
9,566,961
36
-
64,558
2,996
4,321
-
204,811
190,209
907,912
219,362
641,301
3,170,230
5,022,837
9,961,642
507
42,553
80,245
160
70,637
13,661
238
10,811
36,437
48,153
318,427
1,793,724
288,153
2,513,494
91,843
228,167
1,706
415,622
10,894,651
314,784
1,065,334
5,271,966
5,354,157 22,900,892
144,389
20,320
33,128
215,446
120,895
534,178
Funding from central banks
-
-
-
2,028,300
Customer deposits
15,096,274
1,591,894
2,278,574
-
-
10,274
665
168,614
-
-
255
1,111
17,956
7,500
19,875
9
4,727
30,684
38,116
339,725
89,626
4,412
18,350
7,452
-
-
-
420,618
1,219
5,552
3,291
2,028,300
19,004,858
347,225
530,119
16,169
30,405
227,997
Debt securities in issue
Subordinated liabilities
Fair value of derivative
liabilities
Lease liabilities
Other liabilities
Net financial
(liabilities)/assets
15,420,216
1,631,536
2,374,497
2,741,427
551,575 22,719,251
(4,525,565) (1,316,752) (1,309,163)
2,530,539
4,802,582
181,641
287
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
47.
Risk management - Liquidity and funding risk (continued)
2021
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
Investments not at FVPL
Financial assets classified as
held for sale
Other assets
Financial liabilities
Deposits by banks
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
9,186,073
17,427
23,827
1,997
1,579
9,230,903
197,258
193,160
4,921
-
1,882
69,213
-
-
18,358
6,034
291,632
199,194
998,098
216,897
689,990
3,282,030
4,649,390
9,836,405
4,187
44,715
227,195
80,803
322
46
314
1,784
6,653
52,105
247,055
1,126,177
469,917
1,939,969
8
1,785
451
4,443
1,606
304,915
21,110
1,518
250,370
393,464
10,931,489
293,465
967,694 4,786,252
5,169,690 22,148,590
59,987
16,568
26,426
193,160
170,983
467,124
Funding from central banks
-
-
-
2,931,762
Customer deposits
13,135,377
1,836,665
2,545,487
-
38,898
2,249
607
178,701
-
-
836
1,160
20,922
7,500
19,875
1,746
5,213
30,737
16,523
30,000
79,500
11,925
19,641
6,582
-
-
2,931,762
17,534,052
307,500
399,375
15,696
8,018
3,342
345,000
537,648
32,452
34,639
240,284
Debt securities in issue
Subordinated liabilities
Fair value of derivative
liabilities
Lease liabilities
Other liabilities
Net financial
(liabilities)/assets
2022
Gross settled derivatives
Financial assets
Contractual amounts
receivable
Contractual amounts payable
Financial liabilities
Contractual amounts
receivable
Contractual amounts payable
13,415,819
1,876,151
2,636,984 3,289,093
904,914 22,122,961
(2,484,330) (1,582,686) (1,669,290) 1,497,159
4,264,776
25,629
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
149,604
83,265
(149,166)
(83,215)
438
50
1,034,973
65,093
(1,045,050)
(65,224)
(10,077)
(131)
1,230
(1,222)
8
1,222
(1,223)
(1)
-
-
-
-
-
-
-
-
-
-
-
-
234,099
(233,603)
496
1,101,288
(1,111,497)
(10,209)
288
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
47.
Risk management - Liquidity and funding risk (continued)
2022
Contingent liabilities and
commitments
Contingent liabilities
Acceptances and
endorsements
Guarantees
Commitments
Documentary credits
Undrawn formal standby
facilities, credit lines and
other commitments to lend
2021
Gross settled derivatives
Financial assets
Contractual amounts
receivable
Contractual amounts payable
Financial liabilities
Contractual amounts
receivable
Contractual amounts payable
2021
Contingent liabilities and
commitments
Contingent liabilities
Acceptances and
endorsements
Guarantees
Commitments
Documentary credits
Undrawn formal standby
facilities, credit lines and
other commitments to lend
On demand
and up to one
month
€000
Between one
and three
months
€000
Between three
months and
one year
€000
Between one
and five years
Over five years
Total
€000
€000
€000
1,756
2,890
529
-
-
5,175
145,303
108,220
228,922
130,112
38,662
651,219
1,206
6,900
9,268
1,909,487
-
-
-
-
250
17,624
-
1,909,487
2,057,752
118,010
238,719
130,112
38,912
2,583,505
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
420,866
55,956
(416,841)
(55,707)
4,025
249
1,498
(1,475)
23
576,053
63,521
(577,555)
(63,992)
(1,502)
(471)
798
(813)
(15)
-
-
-
-
-
-
-
-
-
-
-
-
478,320
(474,023)
4,297
640,372
(642,360)
(1,988)
On demand
and up to one
month
€000
Between one
and three
months
€000
Between three
months and
one year
€000
Between one
and five years
Over five years
Total
€000
€000
€000
1,599
134,280
2,306
94,065
720
-
-
4,625
247,402
107,768
26,315
609,830
2,007
4,024
3,127
946
1,160
11,264
1,950,665
-
-
-
-
1,950,665
2,088,551
100,395
251,249
108,714
27,475
2,576,384
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.
289
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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%
2022
€000
2021
€000
184
(3,357)
(1,792)
(10,603)
123
(3,925)
(1,298)
(9,367)
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.
290
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
48.
Risk management - Insurance risk (continued)
Non-life insurance contracts
Non-life insurance business is concentrated in Cyprus and the main claims during 2022 and 2021 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 healthy capital adequacy ratios to cover the risks of its
business and support its strategy and maximise shareholders’ value.
The capital adequacy framework, as in force, was incorporated through the Capital Requirements Regulation
(CRR) and Capital Requirements Directive (CRD) which came into effect on 1 January 2014 with certain
specified provisions implemented gradually. The CRR and CRD 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. It is directly applicable in all EU
member states. CRD governs access to deposit taking activities and internal governance arrangements
including remuneration, board composition and transparency. Unlike the CRR, member states were required
to transpose the CRD into national law and national regulators were allowed to impose additional capital
buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (Regulation (EU) 2019/876 (CRR II) and
Directive (EU) 2019/878 (CRD V)) came into force. As an amending regulation, the existing provisions of
CRR apply unless they are amended by CRR II. Certain provisions took immediate effect (primarily relating
to Minimum Requirement for Own Funds and Eligible Liabilities (MREL)), but most changes became effective
as of June 2021. 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 (as defined in the CRR) and a Net Stable
Funding Ratio (NSFR).
291
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
49.
Capital management (continued)
The amendments that came into effect on 28 June 2021 are in addition to those introduced in June 2020
through Regulation (EU) 2020/873, which among other, brought forward certain CRR II changes in light of
the COVID-19 pandemic. The main adjustments of Regulation (EU) 2020/873 that had an impact on the
Group’s capital ratio relate to the acceleration of the implementation of the new SME discount factor (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 (phasing-in at 25% in 2022) and advancing the
application of prudential treatment of software assets as amended by CRR II (which came into force in
December 2020). In addition, Regulation (EU) 2020/873 introduced a 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 from the third quarter of 2020. This temporary treatment was in effect until 31 December
2022.
The Group and BOC PCL have complied with the minimum capital requirements (Pillar I and Pillar II).
In October 2021, the European Commission adopted legislative proposals for further amendments to the
Capital Requirements Regulation (CRR), CRD and the BRRD (the ‘2021 Banking Package’). Amongst other
things, the 2021 Banking Package would implement certain elements of Basel III that have not yet been
transposed into EU law. The 2021 Banking Package is subject to amendment in the course of the EU’s
legislative process; and its scope and terms may change prior to its implementation. In addition, in the case
of the proposed amendments to CRD and the BRRD, their terms and effect will depend, in part, on how they
are transposed in each member state. The European Council's proposal on CRR and CRD was published on 8
November 2022. During 2023, the finalisation of European Parliament’ position is expected, which will be
followed by the trilogue process that will eventually result in the final versions of the directives and
regulations. It is expected that the 2021 Banking Package is enter into force on 1 January 2025; and certain
measures are expected to be subject to transitional arrangements or to be phased in over time.
The insurance subsidiaries of the Group, the General Insurance of Cyprus Ltd and EuroLife Ltd, comply with
the requirements of the Superintendent of Insurance including the minimum solvency ratio. The regulated
investment firm (CIF) of the Group, Cyprus Investment and Securities Corporation Ltd (CISCO) complies
with the minimum capital adequacy ratio requirements. The regulated UCITS management of the Group,
BOC Asset Management complied with the regulatory capital requirements of the Cyprus Securities and
Exchange Commission (CySEC) law and regulations. In February 2023, the activities of BOC Asset
Management Ltd were absorbed by CISCO and BOC Asset Management Ltd was dissolved. The payment
services subsidiary of the Group, JCC Payment Services Ltd, complies with the regulatory capital
requirements.
Additional information on regulatory capital is disclosed in 'Risk and Capital Management Report'
(unaudited), which is included in the Annual Financial Report, and in the 'Pillar III Disclosures Report 2022'
(unaudited), which is published on the Group's website.
292
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
50.
Related party transactions
Related parties of the Group include associates and joint ventures, key management personnel, members of
the Board of Directors and their connected persons. Connected persons for the purpose of this disclosure
include spouses, minor/dependent 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.
Related parties also include entities providing key management personnel services to the Group.
(a)
Transactions with subsidiaries
The Company is the holding company of the Group. The Company enters into transactions with its
subsidiaries in the normal course of business. Balances and transactions between the Company and its
subsidiaries are disclosed in Note 17 of the Company’s financial statements. Transactions with the
subsidiaries have been eliminated on consolidation.
(b)
Transactions with associates
The Group provides to and receives from its associates certain banking and financial services. These are not
material to the Group and all the transactions are made on normal business terms as for comparable
transactions with customers of a similar standing. Additional information is disclosed in Note 52.
(c)
Compensation of the Board of Directors and key management personnel
The following disclosures are made in accordance with the provisions of IAS 24 Related Party Disclosures in
respect of the compensation of the Board of Directors and key management personnel.
Fees and emoluments of members of the Board of Directors and key management personnel
Directors' emoluments
Executives
Salaries and other short-term benefits
Employer's contributions
Retirement benefit plan costs
Share-based benefits
Non-executives
Fees
Total directors' emoluments
Key management personnel emoluments
Salaries and other short-term benefits
Termination benefits
Employer's contributions
Retirement benefit plan costs
Share-based benefits
Total key management personnel emoluments
Total
2022
€000
2021
€000
1,046
63
82
118
1,309
1,247
2,556
801
43
68
-
912
1,250
2,162
2,864
3,234
200
336
218
204
3,822
6,378
-
274
181
-
3,689
5,851
Fees and benefits are included for the period that they serve as members of the Board of Directors. Key
management personnel emoluments are included for the period that they serve as key management
personnel.
The retirement benefit plan costs relate to contributions paid for defined contributions plan.
293
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
50.
Related party transactions (continued)
Executive Directors
The fees and emoluments of the Executive Directors are analysed as follows:
Panicos Nicolaou (Chief Executive Officer)
Salaries and other short-term benefits
Employer's contributions
Retirement benefit plan costs
Share-based benefits
Eliza Livadiotou (Executive Director Finance & legacy - appointed on
6 October 2021)
Salaries and other short-term benefits
Employer's contributions
Retirement benefit plan costs
Share-based benefits
Total
2022
€000
2021
€000
761
38
60
93
952
285
25
22
25
357
1,309
715
37
61
-
813
86
6
7
-
99
912
The share-based benefits relate to the expense for the year for the share awards granted in December 2022
(Note 14).
Non-executive Directors
The fees of Non-executive Directors are analysed as follows:
Efstratios-Georgios Arapoglou
Lyn Grobler
Arne Berggren
Constantine Iordanou
Ioannis Zographakis
Maksim Goldman(1)
Maria Philippou
Michael Heger(1)
Nicolaos Sofianos
Paula Hadjisotiriou
2022
€000
2021
€000
257
165
124
95
157
40
108
40
129
132
-
-
215
154
113
6
198
113
119
113
100
119
-
-
1,247
1,250
(1)Following the shareholders' vote on 20 May 2022, Mr Maksim Goldman and Dr. Michael Heger have not
been re-elected to the Board of Directors of the Company.
The fees of the non-executive Directors include fees as members of the Board of Directors of the Company
and its subsidiaries, as well as of committees of the Board of Directors.
294
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
50.
Related party transactions (continued)
Key management personnel
The emoluments of key management personnel include the remuneration of the members of the Executive
Committee since the date of their appointment to the Committee and the emoluments of other members of
the Senior Management team (Extended EXCO) (prior to the change in the Group organisational structure,
in 2022 the key management personnel included those members of the management team who reported
directly to the Chief Executive Officer or to the Deputy Chief Executive Officer & Chief of Business). Mrs Eliza
Livadiotou was appointed as member of the Board of Directors from 6 October 2021 and her emoluments
from that date onwards are disclosed within the Executive Directors emoluments above.
(d)
Transactions with Directors and key management personnel
The tables below show the deposits, loans and advances and other credit balances held by the members of
the Board of Directors and key management personnel and their connected persons, as at the balance sheet
date and other relevant information as required by IAS 24 Related Party Disclosures.
Loans to Directors
For the purposes of these disclosures, ‘Directors’ means the current Board of Directors of the Company and
any past Directors who were members of the Board of Directors of the Company during the 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.
There were 12 Directors in office during the year (2021: 12 Directors), 4 of whom availed of credit facilities
(2021: 4 Directors). All of the Directors who availed of credit Facilities had balances outstanding at 31
December 2022 and 31 December 2021. The balances outstanding are disclosed below.
The value of arrangements at the beginning and end of the current and preceding financial years as stated
below, expressed as a percentage of the net assets of the Group at the beginning and end of the current
and preceding financial years is less than 1%.
Details of transactions with the Directors and their connected persons, where indicated, for the years ended
31 December 2022 and 2021 are as follows:
Board of Directors
Balance as at
1 January
Amounts
advanced
during the
year
Amounts
repaid during
the year
Balance as at
31 December
Panicos Nicolaou
€000
€000
€000
€000
Aggregate
maximum
amount
outstanding
during the
year
€000
Unused
credit
facilities
€000
2022
Loans
Overdrafts/ credit cards
Panicos
Nicolaou
2021
Loans
Overdrafts/ credit cards
35
3
38
-
n/a
35
n/a
-
2
2
35
4
39
€000
€000
€000
€000
€000
€000
95
2
97
-
n/a
60
n/a
35
3
38
95
4
99
-
46
46
-
45
45
295
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
50.
Related party transactions (continued)
Balance as at
1 January
Amounts
advanced
during the
year
Amounts
repaid during
the year
Balance as at
31 December
Aggregate
maximum
amount
outstanding
during the
year
Unused
credit
facilities
€000
€000
€000
€000
€000
€000
99
8
107
30
9
39
-
n/a
77
n/a
14
n/a
8
n/a
87
14
101
99
8
107
99
14
113
102
33
135
-
48
48
-
55
55
Eliza
Livadiotou
2022
Loans
Overdrafts/ credit cards
Eliza
Livadiotou
2021
Loans
Overdrafts/ credit cards
Balance as at
1 January
Amounts
advanced
during the
year
Amounts
repaid during
the year
Balance as at
31 December
Ioannis Zographakis
€000
€000
€000
€000
Aggregate
maximum
amount
outstanding
during the
year
€000
Unused
credit
facilities
€000
2022
Overdrafts/ credit cards
Ioannis Zographakis
2021
Overdrafts/ credit cards
Nicolaos Sofianos
2022
Overdrafts/ credit cards
Nicolaos Sofianos
2021
Overdrafts/ credit cards
2
1
n/a
n/a
n/a
n/a
2
2
2
4
8
8
Balance as at
1 January
Amounts
advanced
during the
year
Amounts
repaid during
the year
Balance as at
31 December
€000
€000
€000
€000
Aggregate
maximum
amount
outstanding
during the
year
€000
Unused
credit
facilities
€000
1
1
n/a
n/a
n/a
n/a
-
1
2
5
10
4
The balances included in the table above include principal and interest. Also, amounts approved and repaid
are not shown for overdraft and credit card facilities as these are revolving in nature. The aggregate
maximum amount outstanding includes credit card exposures at the maximum statement balance.
No other Directors had any loan facilities or overdraft/credit card balances with the Group during the year
ended 31 December 2022 (2021: nil).
The aggregate expected credit loss allowance on the above loans and credit facilities is below €5 thousand
as at 31 December 2022 (2021: below €5 thousand). All principal and interest that has fallen due on these
loans or credit facilities has been paid.
296
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
50.
Related party transactions (continued)
Connected persons of the Board of Directors
The aggregate of loans to connected persons of Directors in office at 31 December 2022, are as follows
(2022: aggregate of 2 persons; 2021: aggregate of 2 persons):
Panicos Nicolaou
2022
Overdrafts/credit cards
2021
Overdrafts/credit cards
Eliza Livadiotou
2022
Loans
Overdrafts/credit cards
2021
Loans
Overdrafts/credit cards
Balance as at 1
January
Amounts
advanced during
the year
Amounts repaid
during the year
Balance as at
31 December
€000
€000
€000
€000
Aggregate
maximum
amount
outstanding
during the year
€000
1
-
n/a
n/a
n/a
n/a
2
1
3
3
Balance as at 1
January (or
appointment
date)
Amounts
advanced during
the year
Amounts repaid
during the year
Balance as at
31 December
€000
€000
€000
€000
Aggregate
maximum
amount
outstanding
during the year
€000
83
7
90
91
11
102
-
n/a
-
n/a
12
n/a
11
n/a
74
10
84
83
7
90
83
10
93
91
11
102
The balances included in the table above include principal and interest. Also, amounts approved and repaid
are not shown for overdraft and credit card facilities as these are revolving in nature. The aggregate
maximum amount outstanding includes credit card exposures at the maximum statement balance.
The aggregate expected credit loss allowance on the above loans and credit facilities is below €5 thousand
as at 31 December 2022 (2021: below €5 thousand). All principal and interest that has fallen due on these
loans or credit facilities has been paid.
Key management personnel in office during the year (and their connected persons)
There were 21 key management personnel in office during the year (2021: 17 key management personnel),
20 of whom availed of credit facilities (2021: 16 key management personnel). All of the key management
personnel who availed of credit facilities had balances outstanding at 31 December 2022 and 31 December
2021.
A number of loans and advances have been extended to key management personnel on the same terms as
those applicable to the rest of the Group’s employees and to their connected persons on the same terms as
those of customers of a similar credit standing.
Where no amount is shown in the tables below, this indicates a credit balance, a nil balance, or a balance of
less than €500.
297
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
50.
Related party transactions (continued)
Details of transactions with key management personnel and their connected persons for the years ended 31
December 2022 and 2021 are as follows:
Balance as at
1 January
Balances of key
management
personnel
appointed in
the year
€000
€000
Other
movements on
balances of key
management
personnel and
their connected
persons during
the year
€000
Amounts
advanced during
the year
Amounts repaid
during the year
Balance as at
31 December
€000
€000
€000
1,836
453
2,289
21,398
472
21,870
1,154
n/a
-
n/a
-
n/a
18,572
n/a
41
n/a
25
n/a
433
n/a
311
n/a
2,400
386
2,786
1,836
453
2,289
Aggregate
maximum
amount
outstanding
during the
year (Since
appointment
date)
€000
2,720
603
3,323
21,398
507
21,905
2022
Loans
Overdrafts/credit cards
2021
Loans
Overdrafts/credit cards
The balances included in the table above include principal and interest. Also, amounts approved and repaid
are not shown for overdraft and credit card facilities as these are revolving in nature. The aggregate
maximum amount outstanding includes credit card exposures at the maximum statement balance. Other
movements on balances of key management personnel and their connected persons during the year ended
31 December 2021 relate mainly to balances of connected entities that ceased to be connected to key
management personnel.
The aggregate expected credit loss allowance on the above loans and credit facilities is below €6 thousand
as at 31 December 2022 (2021: below €5 thousand). All principal and interest that has fallen due on these
loans or credit facilities has been paid.
Aggregate amounts outstanding at year end and additional transactions
Loans and advances as at 31 December
Board of Directors
Key management personnel
Connected persons - Board of Directors
Connected persons - Key management personnel
Deposits as at 31 December
Board of Directors
Key management personnel
Connected persons - Board of Directors
Connected persons - Key management personnel
Interest income for the year
Commission income for the year
Insurance premium income for the year
Subscriptions and insurance expenses for the year
Accruals and other liabilities as at 31 December with entity providing
key management personnel services
Staff costs, consultancy, restructuring and other expenditure with
entity providing key management personnel services
298
2022
€000
2021
€000
105
2,191
86
595
2,977
3,582
1,952
1,373
1,805
8,712
71
6
453
296
-
-
148
2,216
91
73
2,528
1,146
1,541
1,173
1,081
4,941
394
1
367
377
1,199
9,980
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
50.
Related party transactions (continued)
The above table does not include year end balances for members of the Board of Directors, key
management personnel and their connected persons who resigned during the year, nor balances of
customers that do not meet the definition of connected persons as at 31 December 2022.
As at 31 December 2022 there were 10 Directors in office (2021: 12) and 20 key management personnel in
office (2021:17)
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.
During the year ended 31 December 2022 connected persons of key management personnel transacted
with REMU for the purchase of a property amounting to €58 thousand (2021: nil). The transaction was
made on normal business terms as for comparable transactions with third parties.
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 €120 thousand as at 31 December 2022 (2021: €133
thousand).
There were also contingent liabilities and commitments to key management personnel and their connected
persons amounting to €1,227 thousand as at 31 December 2022 (2021: €573 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 their connected persons (using forced-
sale values for tangible collaterals and assigning no value to other types of collaterals) at 31 December
2022 amounted to €1,212 thousand (2021: €774 thousand).
During the year ended 31 December 2022 premiums of €202 thousand (2021: €152 thousand) and claims
of €20 thousand (2021: €19 thousand) were paid by/to the members of the Board of Directors of the
Company and their connected persons to/from the insurance subsidiaries of the Group.
There were no other transactions during the year ended 31 December 2022 and 2021 with connected
persons of the current members of the Board of Directors or with any members who resigned during the
year.
299
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
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 2022 are:
Company
Country
Activities
Bank of Cyprus Public Company Ltd
EuroLife Ltd
General Insurance of Cyprus Ltd
JCC Payment Systems Ltd
The Cyprus Investment and
Securities Corporation Ltd (CISCO)
BOC Asset Management Ltd
LCP Holdings and Investments
Public Ltd
Kermia Ltd
Kermia Properties & Investments
Ltd
S.Z. Eliades Leisure Ltd
Auction Yard Ltd
BOC Secretarial Company Ltd
Bank of Cyprus Public Company Ltd
(branch of BOC PCL)
BOC Asset Management Romania
S.A.
MC Investment Assets
Management LLC
Fortuna Astrum Ltd
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Greece
Romania
Russia
Serbia
Commercial bank
Life insurance
Non-life insurance
Card processing transaction
services
Investment banking and
brokerage
Management administration and
safekeeping of UCITS Units
Investments in securities and
participations in companies and
schemes that are active in
various business sectors and
projects
Property trading and
development
Property trading and
development
Land development and operation
of a golf resort
Auction company
Secretarial services
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
75
100
100
67
100
100
70
100
100
n/a
100
100
100
300
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
51.
Group companies (continued)
In February 2023 the Group proceeded with a restructuring of its investment banking and brokerage
activities through the absorption by CISCO of BOC Asset Management Ltd's activities. BOC Asset
Management Ltd was subsequently dissolved.
In addition to the above companies, as at 31 December 2022 BOC PCL had 100% shareholding in the
companies listed below, whose activity is the ownership and management of immovable property:
Cyprus: Hamura Properties Ltd, Tolmeco Properties Ltd, Arlona Properties Ltd, Dilero Properties Ltd, Ensolo
Properties Ltd, Pelika Properties Ltd, Cobhan 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, Les Coraux Estates Ltd, Natakon Company Ltd, Oceania Ltd,
Dominion Industries Ltd, Ledra Estate Ltd, EuroLife Properties Ltd, Laiki Lefkothea Center Ltd, Labancor Ltd,
Joberco Ltd, Zecomex Ltd, Domita Estates Ltd, Memdes Estates Ltd, Edoric Properties Ltd, Canosa
Properties Ltd, Kernland Properties Ltd, Jobelis Properties Ltd, Melsolia Properties Ltd, Koralmon Properties
Ltd, Spacous Properties Ltd, Calinora Properties Ltd, Marcozaco Properties Ltd, Soluto Properties Ltd,
Solomaco Properties Ltd, Linaland 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, Regetona Properties Ltd, Camela 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, Pendalo
Properties Ltd, Frontyard Properties Ltd, Bonsova Properties Ltd, Thermano Properties Ltd, Venicous
Properties Ltd, Lorman Properties Ltd, Eracor Properties Ltd, Rulemon Properties Ltd, Thelemic Properties
Ltd, Maledico Properties Ltd, Bascone Properties Ltd, Balasec Properties Ltd, Bendolio Properties Ltd, Diafor
Properties Ltd, Kartama 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, Coeval Properties Ltd, Finevo Properties Ltd, Mazima 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, Odolo Properties
Ltd, Calandomo Properties Ltd, Molemo Properties Ltd, Nivamo Properties Ltd, Samilo Properties Ltd,
Sendilo Properties Ltd, Baleland Properties Ltd, Alezia Properties Ltd, Zenoplus Properties Ltd, Alepar
Properties Ltd, Enelo Properties Ltd, Monata Properties Ltd, Vertilia Properties Ltd, Amary Properties Ltd,
Aparno Properties Ltd, Lomenia Properties Ltd, Midelox Properties Ltd, Montira Properties Ltd, Orilema
Properties Ltd and Philiki Ltd.
Romania: Otherland Properties Dorobanti SRL, Green Hills Properties SRL, Imoreth Properties SRL, Inroda
Properties SRL, Zunimar Properties SRL, Allioma Properties SRL and Nikaba Properties SRL.
Further, at 31 December 2022 BOC PCL had 100% shareholding in Obafemi Holdings Ltd, Stamoland
Properties Ltd, Unoplan Properties Ltd, Petrassimo Properties Ltd and Gosman Properties Ltd.
The main activities of the above companies are the holding of shares and other investments and the
provision of services.
At 31 December 2022 BOC PCL had 100% shareholding in BOC Terra AIF V.C.I Plc which is a real estate
alternative investment fund, currently inactive.
At 31 December 2022 BOC PCL had 100% shareholding in the companies listed below which are reserved to
accept property:
Cyprus: Holstone Properties Ltd, Cramonco Properties Ltd, Carilo Properties Ltd, Gelimo Properties Ltd,
Rifelo Properties Ltd, Avaleto Properties Ltd, Larizemo Properties Ltd and Olisto Properties Ltd.
In addition, BOC PCL holds 100% of the following intermediate holding companies:
Cyprus: Otherland Properties Ltd, Battersee Properties Ltd, Bonayia Properties Ltd, Janoland Properties Ltd,
Imoreth Properties Ltd, Inroda Properties Ltd, Zunimar Properties Ltd, Nikaba Properties Ltd, Allioma
Properties Ltd, Landanafield Properties Ltd and Hydrobius Ltd.
301
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
51.
Group companies (continued)
BOC PCL also holds 100% of the following companies which are inactive:
Cyprus: Laiki Bank (Nominees) Ltd, Paneuropean Ltd, Nelcon Transport Co. Ltd, Iperi Properties Ltd,
CYCMC IV Ltd, Prodino Properties Ltd and Thryan Properties Ltd.
Greece: Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki (branch of General Insurance of Cyprus
Ltd), Kyprou Commercial SA and Kyprou Properties SA.
All Group companies are accounted for as subsidiaries using the full consolidation method. All companies
listed above have share capital consisting of ordinary shares.
Acquisitions of subsidiaries
During the years ended 31 December 2022 and 2021 there were no acquisitions of subsidiaries.
Dissolution and disposal of subsidiaries
There were no material disposals of subsidiaries during the year ended 31 December 2022. Renalandia
Properties Ltd, Crolandia Properties Ltd, Elosis Properties Ltd, Pariza Properties Ltd, Prosilia Properties Ltd,
Otoba Properties Ltd, Dolapo Properties Ltd, Nivoco Properties Ltd, Polkima Properties Ltd, Fledgego
Properties Ltd, Bocaland Properties Ltd, Buchuland Properties Ltd, Imperial Life Assurances Ltd, Philiki
Management Services Ltd, Selilar Properties Ltd, Tantora Properties Ltd were dissolved during the year
ended 31 December 2022. Vieman Ltd, Edilia Properties Ltd, Limoro Properties Ltd, Stevolo Properties Ltd,
Yossi Properties Ltd, Jalimo Properties Ltd, Nesia Properties Ltd, Arcandello Properties Ltd, Meriaco
Properties Ltd, Flymoon Properties Ltd, CYCMC II Ltd, Comenal Properties Ltd, Innerwick Properties Ltd,
Palmco Properties Ltd, Paradexia Properties Ltd, Noleta Properties Ltd, Garmozy Properties Ltd, Valioco
Properties Ltd, Dentorio Properties Ltd and Cimonia Properties Ltd were disposed of during the year ended
31 December 2022.
As at 31 December 2022, the following subsidiaries were in the process of dissolution or in the process of
being struck off: Fantasio Properties Ltd, Demoro Properties Ltd, Bramwell Properties Ltd, Blindingqueen
Properties Ltd, Fairford Properties Ltd, Salecom Ltd, Sylvesta Properties Ltd, Cyprialife Ltd, Battersee Real
Estate SRL, Romaland Properties Ltd, Trecoda Properties Ltd, Weinco Properties Ltd, Aktilo Properties Ltd,
Stormino Properties Ltd, Tavoni Properties Ltd, Ameleto Properties Ltd, Birkdale Properties Ltd, Folimo
Properties Ltd, Steparco Ltd, Thames Properties Ltd and Finerose Properties Ltd.
During the year ended 31 December 2021, the Group disposed of its 100% shareholding in Global Balanced
Fund of Funds Salamis Variable Capital Investment Company Plc and recorded a loss on disposal of €458
thousand in the consolidated income statement for the year ended 31 December 2021 (Note 13). In
addition, the Group proceeded with the disposal of its 20% shareholding in CLR Investment Fund Public Ltd
in October 2021. The disposal resulted in a loss of €66 thousand, which has been recognised in the
consolidated income statement for the year ended 31 December 2021 (Note 13).
52.
Investments in associates and joint venture
Investments in associates
Aris Capital Management LLC
Rosequeens Properties Limited
Fairways Automotive Holdings Ltd
Percentage
holding
(%)
30.0
33.3
45.0
The carrying values of the investments in associates are considered to be fully impaired and their value has
been restricted to zero.
302
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
Annual Financial Report 2022
52.
Investments in associates and joint venture (continued)
Rosequeens Properties SRL
During the year ended 31 December 2022 the Group disposed of its 33.3% holding in associate company
Rosequeens Properties SRL.
Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc (Apollo)
In March 2021, the Group completed the sale of its entire holding of 34.2% of the UCITS of Apollo. The
Group considered that it exercised significant influence over Apollo even though no Board representation
existed, because due to its UCITS holdings, it possessed the power to potentially appoint members of the
Board of Directors. During the year ended 31 December 2021, an amount of €137 thousand was recognised
in the consolidated income statement as the Group's share of profit from Apollo. The loss on the sale of the
investment in associate amounted to €97 thousand and has been recognised in 'Other Income' during the
year ended 31 December 2021.
Investment in joint venture
Tsiros (Agios Tychon) Ltd
Percentage
holding
(%)
50.0
The carrying value of the investment in the joint venture is considered to be fully impaired and its value has
been restricted to zero.
303
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
53.
Country by country reporting
Annual Financial Report 2022
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 2022:
Country
Cyprus
Russia
Romania
Greece
Total
Total operating
income/(expense)
Average number
of employees
Profit/(loss)
before tax
€000
€000
709,650
(76)
(149)
1,407
710,832
3,209
3
2
6
3,220
119,761
(7,404)
(355)
(1,670)
110,332
Accounting tax
expense on
profit/(loss)
€000
38,471
-
-
-
38,471
Corporation tax
paid/(refunded)
Public subsidies
received
€000
€000
6,715
-
-
(22)
6,693
-
-
-
-
-
Total operating income/(expense), profit/(loss) before tax and accounting tax expense 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
instruments, net gains on derecognition of financial assets measured at amortised cost, income from assets under insurance and reinsurance contracts,
expenses from liabilities under insurance and reinsurance contracts, net losses from revaluation and disposal of investment properties, net gains 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 2022.
Profit/(loss) before tax: profit/(loss) before tax represents profits/(losses) after the deduction of inter-segment revenues/(expenses).
Accounting tax expense on profit/(loss): includes corporation tax and Cyprus special defence contribution. Deferred tax credit for the year is excluded.
Corporation tax paid/(refunded) includes actual payments made during 2022 for corporation tax (including insurance premium taxes) and Cyprus special
defence contribution.
304
BANK OF CYPRUS GROUP
Notes to the Consolidated Financial Statements
54.
Events after the reporting period
No significant non-adjusting events have taken place since 31 December 2022. With respect to the recent
developments in financial markets reference is made in Note 4.
305
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 2022, 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 117 to 305 and
comprise:
● the consolidated balance sheet as at 31 December 2022;
● 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.
306
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: €16.7 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 93% of
the Group’s revenues and approximately 97% of the
Group’s total assets.
We have identified the following key audit matters:
●
●
Impairment of loans and advances to customers.
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.
307
Overall group materiality
€16.7 million.
How we determined it
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’.
Rationale for the
materiality
benchmark applied
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 €800 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
over specific financial statement lines 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 93% of the Group’s revenues and
approximately 97% 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.
308
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
How our audit addressed the 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:
● The interpretations and assumptions
required to build the models,
including the segmentation employed;
We understood and evaluated the overall
control framework and tested the design and
operating effectiveness of key controls across
processes relevant to the calculation of ECL.
We tested the completeness and accuracy of
data inputs to the ECL model on a sample
basis.
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 allocation of
loans and advances to customers to Stages 1, 2
or 3 with reference to those triggers. As part of
this, we considered the impact of staging
overlays, where applicable.
309
● The allocation of loans and advances
to customers within Stages 1, 2 or 3
including consideration of relevant
overlays, where applicable;
● Identifying ‘Significant Increase in
Credit Risk’; 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 model
which mathematically checked the calculation
of collective ECL.
We evaluated the Group’s individual
assessments for a sample of material Stage 3
exposures for compliance with the Group’s
policies, developments during 2022 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 compared, with the assistance of PwC
credit risk experts, the forward-looking
macroeconomic assumptions used in the base,
favourable and adverse scenarios to publicly
available information. We also assessed the
reasonableness of the adverse and favourable
assumptions together with the scenario
weightings applied by management.
We evaluated the appropriateness of the
Group’s disclosures particularly in relation to
significant judgements and estimates.
We concluded that the methodologies and
judgements used by management in
determining the ECL charge and ECL
provisions recognised were reasonable and the
disclosures made in relation to these matters
in the consolidated financial statements were
appropriate.
310
Litigation provisions and regulatory
and other claims
Refer to Note 2.37 “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.
Provisions for pending litigation, claims,
regulatory and other matters amounted to
€128 million as at 31 December 2022.
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 requires 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 and
evaluated the design of controls relevant to the
recognition and measurement of litigation
provisions and regulatory and other claims.
We tested the operating effectiveness of
controls we wished to rely on.
We tested a risk based sample of
management’s assessment of individual cases,
including whether an economic outflow was
assessed as probable. 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 a sample of cases where economic outflow
was assessed as probable by management, and
therefore a provision recorded, we recalculated
the provision and performed sensitivity
analysis on key assumptions used by
management.
We understood the basis of management’s
collective provisions, in circumstances where
these are applied, assessed the key
assumptions used by reference to past
experience and recalculated provisions
booked.
We inspected the minutes of meetings of the
board of directors and certain of its
committees for evidence of any unidentified
legal cases or relevant developments in current
cases, including the minutes of the Settlement
of Legal Cases Committee.
We inspected regulatory correspondence and
further inquired with the compliance
department about known existing
circumstances of 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 2022.
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.
311
Valuation of stock of properties
Refer to Note 2.30 “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 external valuers and
the holding periods for assets are key inputs to
determine the appropriate carrying value.
We have determined this to be a key audit
matter in light of the large volume of
properties held, the carrying value of these
properties of €1.041 million at 31 December
2022, and the uncertainty around market
conditions when estimating the carrying
amount.
We understood and evaluated the design of the
overall control framework relevant to
repossessed properties and tested the
operating effectiveness of key controls around
their valuation.
We focused on the key inputs and assumptions
underlying the valuation of the properties.
We evaluated the competence, capability and
objectivity of management’s external experts
(property valuers), where relevant.
For a sample of external valuation reports, we
assessed the methodology and assumptions
used with the assistance of PwC valuation
experts.
We tested the accuracy of the application by
management of illiquidity discounts for a
sample of properties held at year end.
For a sample of properties acquired during
the year, we tested “cost’’ by reference to
signed “debt-for-asset” agreements entered
into with borrowers, and we tested the “net
realisable value’’ at year-end by reference to
external valuation reports.
We performed look-back procedures by
comparing the price achieved for disposals
during 2022 to the carrying values for those
assets as at 31 December 2021.
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.
312
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 applications and underlying data
are made in an appropriate manner and to
mitigate the risk of potential fraud or error.
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 2022;
● Extracted the list of developers from the
production IT systems and release tools
for those applications where system
functionality is managed in-house and
considered the appropriateness of
developer access; and
● Considered the authentication controls
of applications and supporting IT
infrastructure to assess compliance
with the Group’s password policy
requirements.
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.
313
Reporting on other information
The Board of Directors is responsible for the other information. The other information comprises
the information included in the Forward Looking Statements and Notes, Consolidated
Management Report, Risk and Capital Management Report, ESG Disclosures and the 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.
314
● 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 4
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
31 March 2023 in accordance with Article 11 of the EU Regulation 537/2014.
315
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
31 March 2023
316
Financial Statements 2022
BANK OF CYPRUS PUBLIC COMPANY LTD
Financial Statements
for the year ended 31 December 2022
Contents
Page
Annual Financial Report 2022
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.
5.
Economic and geopolitical environment
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
6.
7.
8.
9. Net foreign exchange gains
10. Net gains/(losses) on financial instruments
11. Other income
12. Staff costs
13. Other operating expenses
14. Credit losses on financial instruments and
impairment net of reversals 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. Debt securities in issue and Subordinated liabilities
32. Accruals, deferred income, other liabilities and
other provisions
33. Share capital
34. Dividends
35. Retained earnings
36. Fiduciary transactions
37. Provisions for pending litigation, claims, regulatory
and other matters
38. Contingent liabilities and commitments
39. Additional information on cash flow statement
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 and funding risk
46. Capital management
47. Related party transactions
48. Subsidiary companies
49. Events after the reporting period
319
320
321
322
324
326
326
329
329
330
341
342
342
343
343
343
344
351
353
354
357
358
359
363
369
380
383
385
386
388
388
389
391
391
392
393
395
395
396
396
397
397
404
405
406
407
408
409
441
449
456
457
461
463
318
BANK OF CYPRUS PUBLIC COMPANY LTD
Income Statement
for the year ended 31 December 2022
Annual Financial Report 2022
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 instruments
Net gains on derecognition of financial assets measured at amortised cost
Dividend income from subsidiaries
Net gains from revaluation and disposal of investment properties
Net gains on disposal of stock of property
Other income
Total operating income
Staff costs
Special levy on deposits and other levies/contributions
Provisions for pending litigations, regulatory and other provisions (net of
reversals)
Other operating expenses
Operating profit before credit losses and impairment
Credit losses on financial assets
Impairment net of reversals on non-financial assets
Profit before tax
Income tax
Profit after tax for the year
Basic and diluted profit per share (€ cent)
Notes
2022
€000
2021
(restated)
€000
733,724
430,171
57,078
(64,888)
(14,840)
407,521
186,609
(14,861)
27,280
(52,575)
5,235
21,459
520
10,561
6,164
615,512
363,552
51,584
(66,431)
(25,192)
323,513
168,808
(13,219)
15,518
(63,165)
3,859
25,205
214
10,831
4,812
597,913
(267,423)
(38,492)
476,376
(195,568)
(36,350)
(11,880)
533
(140,450)
(146,680)
139,668
(63,356)
(8,740)
67,572
(26,627)
40,945
98,311
(45,366)
(32,595)
20,350
(169)
20,181
0.4
0.2
6
6
7
7
8
8
9
10
22
26
11
12
13
37
13
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.
319
BANK OF CYPRUS PUBLIC COMPANY LTD
Statement of Comprehensive Income
for the year ended 31 December 2022
Annual Financial Report 2022
Notes
2022
€000
2021
€000
40,945
20,181
(10,182)
(10,182)
(8,920)
(1,262)
-
-
415
(42)
(42)
-
457
457
(6,245)
4,803
(118)
(118)
216
-
216
(6,343)
(6,343)
(16,427)
24,518
437
437
602
468
134
3,764
3,764
5,218
25,399
Profit 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 on investments in debt instruments measured at fair value
through OCI (FVOCI)
Transfer to the income statement on disposal
Foreign currency translation reserve
Profit on translation of net investments in foreign branches
OCI not to be reclassified in the income statement in subsequent
periods
Fair value reserve (equity instruments)
Net (losses)/gains on investments in equity instruments designated at FVOCI
Property revaluation reserve
Fair value gain before tax
Deferred tax
Actuarial (losses)/gains on defined benefit plans
Remeasurement (losses)/gains on defined benefit plans
Other comprehensive (loss)/income for the year net of taxation
Total comprehensive income for the year
24
15
12
320
BANK OF CYPRUS PUBLIC COMPANY LTD
Statement of Changes in Equity
for the year ended 31 December 2022
Annual Financial Report 2022
Attributable to shareholders of the Company
Share
capital
(Note 33)
Share
premium
(Note 33)
Retained
earnings
(Note 35)
Other capital
reserves
(Note 12)
Property
revaluation
reserve
Financial
instruments
fair value
reserve
Foreign
currency
translation
reserve
Other equity
instruments
(Note 33)
Total
equity
1 January 2022
Profit for the year
Other comprehensive (loss)/income after tax for
the year
Total comprehensive income/(loss) after tax for
the year
Share-based benefits - cost
Transfers to retained earnings
Payment of coupon to AT1 holders (Note 33)
€000
959,794
€000
-
-
-
-
-
-
31 December 2022
959,794
€000
571,365
40,945
(6,343)
34,602
-
4,180
(27,500)
582,647
-
-
-
-
-
-
-
-
€000
€000
€000
€000
€000
€000
-
-
-
-
322
-
-
57,199
18,150
(2,808)
220,000
1,823,700
-
-
216
(10,300)
216
-
(6,134)
-
(10,300)
-
412
-
-
-
-
-
1,542
-
-
-
-
-
-
-
40,945
(16,427)
24,518
322
-
(27,500)
322
51,281
8,262
(1,266)
220,000
1,821,040
322
BANK OF CYPRUS PUBLIC COMPANY LTD
Statement of Changes in Equity
for the year ended 31 December 2022
Annual Financial Report 2022
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
€000
€000
€000
€000
Foreign
currency
translation
reserve
€000
Other equity
instruments
(Note 33)
Total
equity
€000
€000
1 January 2021
Profit for the year
Other comprehensive income after tax for the
year
Total comprehensive income after tax for the
year
Transfer of realised profits on disposal of
properties
Payment of coupon to AT1 holders (Note 33)
959,794
-
-
-
-
-
31 December 2021
959,794
-
-
-
-
-
-
-
574,975
20,181
3,764
23,945
(55)
(27,500)
571,365
56,597
17,700
(3,265)
220,000
1,825,801
-
602
602
-
-
-
395
395
55
-
-
457
457
-
-
-
-
-
-
-
20,181
5,218
25,399
-
(27,500)
57,199
18,150
(2,808)
220,000
1,823,700
323
BANK OF CYPRUS PUBLIC COMPANY LTD
Statement of Cash Flows
for the year ended 31 December 2022
Profit before tax
Adjustments for:
Depreciation of property and equipment and amortisation of intangible assets
Impairment of stock of property and other non-financial assets
Impairment of balances with Group Companies
Credit losses on financial assets
Net gains on derecognition of financial assets measured at amortised cost
Amortisation of discounts/premiums and interest on debt securities
Dividend income
Net loss on disposal of investment in debt securities measured at FVOCI
Loss from revaluation of debt securities designated as fair value hedges
Interest on subordinated liabilities and debt securities in issue
Negative interest on loans and advances to banks and balances with central banks
Negative interest on funding from central banks
Profit on disposal/dissolution of subsidiaries and associates
Loss from buyback of subordinated loan stock
Impairment of investment in subsidiaries
Net losses on balances with Group companies
Annual Financial Report 2022
Notes
2022
€000
2021
(restated)
€000
67,572
20,350
14
10
26,617
6,108
7,353
56,003
(5,235)
(21,344)
(21,542)
2,384
51,839
28,070
23,184
28,329
27,592
4,464
40,902
(3,859)
(20,102)
(25,577)
-
16,779
27,390
31,919
(18,418)
(25,094)
(781)
-
2,632
61,524
(108)
12,558
5,003
39,378
Net gains on disposal of stock of property and investment properties
(11,529)
(11,577)
Loss on sale and write offs of property and equipment and intangible assets
Interest expense on lease liability
Net losses from revaluation of investment properties
Change in:
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
Prepayments, accrued income and other assets
Provisions for pending litigation, claims, regulatory and other matters
Accruals, deferred income, other liabilities and other provisions
Derivative financial instruments
Investments measured at FVPL
Stock of property
Tax paid
Net cash from operating activities
Cash flows from investing activities
Purchases of debt, treasury bills and equity securities
Proceeds on disposal/redemption of investments in debt and equity securities
Net exchange differences
Interest received from debt securities
Dividend income from equity securities
Proceeds on disposal of held for sale portfolios
Deposits on held for sale portfolios
Proceeds on disposal of subsidiaries and associates
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
Net cash used in investing activities
Cash flow from financing activities
Payment of AT1 coupon
Net (repayments)/proceeds of funding from central banks
Proceeds from issue of subordinated liabilities
Repayments of subordinated liabilities
324
14
11
448
13
31
532
254,910
168,923
28,992
49,421
52,450
1,467,436
(46,950)
29,584
(157,654)
150
4,154
(5,824)
(57,783)
(3,847)
108,807
(23,947)
63,267
(8,956)
997,671
29,364
(3,877)
(228,626)
85,893
(46,671)
8,833
4,448
8,519
89,607
1,723,846
1,144,448
(7)
179
1,723,839
1,144,627
(1,101,030)
453,198
(17,784)
30,929
21,542
332,151
-
4,200
(5,297)
(11,330)
516
8,699
(284,206)
(27,500)
(979,389)
-
(35,605)
(619,380)
379,298
(26,605)
27,324
25,577
145,030
19,225
8,323
(4,216)
(12,944)
110
9,236
(49,022)
(27,500)
2,000,000
300,000
(231,596)
24
25
33
BANK OF CYPRUS PUBLIC COMPANY LTD
Statement of Cash Flows
for the year ended 31 December 2022
Proceeds from the issue of debt securities (net of costs)
Interest on subordinated liabilities
Interest on debt securities in issue
Negative interest on loans and advances to banks and balances with central banks
Principal elements of lease payments
Net cash (used in)/from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents 1 January
31 December
Annual Financial Report 2022
-
(23,334)
(7,858)
(23,184)
(6,000)
(1,102,870)
336,763
9,211,105
9,547,868
298,505
(33,570)
-
(31,919)
(6,877)
2,267,043
3,362,648
5,848,457
9,211,105
40
Additional information on the cash flow statement is provided in Note 39.
325
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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
the Group's website
Strovolos,
http://www.bankofcyprus.com (Group/Investor Relations/Financial Results).
Cyprus)
Nicosia,
Street,
2002
and
on
The Annual Financial Report of Bank of Cyprus Holdings Public Limited Company is available on the website
http://www.bankofcyprus.com (Group/Investor Relations/Financial Results).
Financial Statements
The Financial Statements of the Bank of Cyprus Public Company Ltd for the year ended 31 December 2022
(the Financial Statements) were authorised for issue by a resolution of the Board of Directors on 31 March
2023.
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.
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 with those parts of the Companies Act 2014
applicable to companies reporting under IFRSs.
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 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.
326
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
2.
2.1
Summary of significant accounting policies (continued)
Basis of preparation (continued)
Comparative information
Comparative information was restated following certain changes in the presentation of the primary
statements for the year ended 31 December 2022 as described further below. The changes did not have an
impact on the results for the year or equity of the Company.
Reclassifications within the Income Statement
'Gains/(losses) on disposal/dissolution of subsidiaries and associates', previously presented within 'Net
(losses)/gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates',
are now presented within 'Other income'. 'Net gains/(losses) on financial instrument transactions' has been
renamed to 'Net gains/(losses) on financial instruments'. 'Provisions for pending litigations, regulatory and
other provisions (net of reversals)' previously presented within 'Other operating expenses' is now presented
separately in the Income Statement. As a result of these changes in the presentation of 'Other income'
'Turnover' is also restated as indicated below.
Credit losses relating to financial assets, including loans and advances to customers, is now presented in a
single line. Analysis of the individual components included within each line item is presented in the
respective Notes.
Net losses on financial instrument transactions and
disposal/dissolution of subsidiaries and associates
Net losses on financial instruments
Other income
Credit losses to cover credit risk on loans and advances to
customers
Credit losses of other financial instruments
Credit losses on financial assets
Other operating expenses
Provisions for pending litigations, regulatory and other
provisions (net of reversals)
Turnover
Reclassifications within the Balance Sheet
31 December
2021
(as previously
presented)
€000
Reclassifications
31 December
2021
(restated)
€000
€000
(63,057)
n/a
4,704
(58,353)
(35,203)
(10,163)
n/a
(45,366)
63,057
(63,165)
108
-
35,203
10,163
(45,366)
-
n/a
(63,165)
4,812
(58,353)
n/a
n/a
(45,366)
(45,366)
(146,147)
(533)
(146,680)
n/a
(146,147)
615,404
533
-
108
533
(146,147)
615,512
Investments are now presented by class on the face of the balance sheet and loan stock is now presented in
separate lines by type of liability issued.
327
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
2.
2.1
Summary of significant accounting policies (continued)
Basis of preparation (continued)
Assets
Investments
Investments pledged as collateral
Investments at FVPL
Investments at FVOCI
Investments at amortised cost
Liabilities
Loan stock
Debt securities in issue
Subordinated liabilities
31 December
2021
(as previously
presented)
€000
Reclassifications
31 December
2021
(restated)
€000
€000
670,040
(670,040)
1,260,158
(1,260,158)
n/a
n/a
n/a
4,865
734,059
1,191,274
1,930,198
-
644,928
(644,928)
n/a
n/a
644,928
302,555
342,373
-
n/a
n/a
4,865
734,059
1,191,274
1,930,198
n/a
302,555
342,373
644,928
The Statement of Cash Flows for the year ended 31 December 2021 as well as respective notes were
restated to reflect the changes in the presentation of the Income Statement and Balance Sheet described
above.
In addition, comparative information was restated in relation to the presentation of 'credit risk
concentration of loans and advances to customers' as detailed in Notes 21, 30, 43.2, 43.3, 43.6 and 43.10.
2.2
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
2022.
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 2022.
328
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
3.
Going concern
The Directors have made an assessment of the Company’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 have concluded that there are no material uncertainties which would cast a significant doubt
over the ability of the Company and the Group to continue to operate as a going concern for a period of 12
months from the date of approval of these Financial Statements.
In making this assessment, the Directors have considered a wide range of information relating to present
and future conditions, including projections of profitability, cash flows, capital requirements and capital
resources, taking also into consideration, the Group’s Financial Plan approved by the Board in February
2023 (the ‘Plan’) and the operating environment. The Group has sensitised its projection to cater for a
downside scenario and has used reasonable economic inputs to develop its medium-term strategy. The
Group is working towards materialising its Strategy.
Capital
The Directors and Management have considered the Group’s forecasted capital position, including the
potential impact of a deterioration in economic conditions. The Group has developed capital projections
under a base and an adverse scenario and the Directors believe that the Group has sufficient capital to meet
its regulatory capital requirements throughout the period of assessment.
Funding and liquidity
The Directors and Management have considered the Group’s funding and liquidity position and are satisfied
that the Group has sufficient funding and liquidity throughout the period of assessment. The Group
continues to hold a significant liquidity buffer at 31 December 2022 that can be easily and readily monetised
in a period of stress.
4.
Economic and geopolitical environment
The economic environment in 2023 and over the medium term is now subject to a high degree of
uncertainty, with the continuation of the war in Ukraine, rising tensions in US-China relations, more
persistent inflation and tighter monetary conditions threatening a significant slowdown in the global
economy, particularly in Europe. A combination of supply shocks, including rising protectionism, the green
transition, persistently low productivity growth, slowing population growth as well as more widespread
labour shortages following the pandemic, could potentially result average inflation over the next years being
higher than over the past years.
Government debt levels in relation to GDP in the advanced economies, fell in 2021-2022 following steep
increases in 2020, due to a stronger recovery and higher inflation. However, governments' fiscal space will
narrow again in the medium term due to higher interest rates and slower economic growth, limiting their
ability to deal with future economic emergencies and potentially increasing the risk of financial instability,
especially in more vulnerable countries.
Cyprus' risk profile has improved significantly, but substantial risks remain in the domestic environment and
in the external environment on which it depends. The most important factor weighing on Cyprus' sovereign
risk is the high level of public debt. Banks have weathered the pandemic crisis well, with their liquidity and
capital buffers intact. Non-performing loans continued their downward trend, mainly due to the sale
packages of the two largest banks. However, in an uncertain environment, asset quality remains a focus for
bank management and supervisors.
329
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
4.
Economic and geopolitical environment (continued)
Recent developments in financial markets in March 2023, particularly in the United States but also in Europe
to a lesser extent, have been unprecedented. The failures of the two banks in the United States, the
California-based Silicon Valley Bank and the New York-based Signature Bank, prompted the forceful
intervention of the authorities to pre-empt the risk of financial instability in the banking system. The US
authorities have also taken additional measures to prevent a broader run on bank deposits. This included
invoking a systemic risk clause that allowed the US authorities to guarantee all deposits in the two banks
beyond the $250,000 insured cap guarantee by the FDIC. The US Federal Reserve also established a new
lending facility that provides banks access to liquidity against eligible collateral, but without the need to
take a haircut.
In Switzerland, Credit Suisse was exposed to the same sort of concerns as global banks; Credit Suisse was
bought by UBS, another Swiss bank, after a deal brokered by the Swiss government, the Swiss National
Bank and FINMA which included liquidity assistance from the Swiss National Bank and partial losses
guarantees from the government.
Following the Credit Suisse deal, the Single Resolution Board, the European Banking Authority and ECB
Banking Supervision issued a statement welcoming the comprehensive set of actions taken by the Swiss
authorities in order to ensure financial stability and noting that the European banking sector is resilient, with
robust levels of capital and liquidity.
The Group is closely monitoring developments.
The Group believes it is reasonably well positioned to withstand volatility that may arise from a
deterioration in the geopolitical and global economic environment.
Group’s Direct exposure to Russia
Russia’s invasion of Ukraine has triggered disruptions and uncertainties in the markets and in the global
economy. The coordinated implementation of sanctions by the EU, the UK and the U.S., joined by several
other countries, imposed against Russia, Belarus and certain regions of Ukraine and certain Russian entities
and nationals. The Group’s policy is to comply with all applicable laws, including sanctions and export
controls.
Overall, the Group’s direct exposure to Russia, Ukraine and Belarus remains limited. In summary, the Group
has direct lending exposure to Russia, Ukraine and Belarus of a gross book value of approximately €108
million (2021: €119 million) across its business divisions as at 31 December 2022 of which €98 million
(2021: €95 million) were classified as performing and secured mainly with residential collateral located in
Cyprus. The basis of the exposure is expanded compared to the country risk exposure as included in Note
43.2 below which is disclosed by reference to the country of residency/country of registration, to also
include exposures for loans and advances to customers with passport of origin in these countries and/or
business activities within these countries and/or where the UBO has passport of origin or residency in these
countries.
Customer deposit balances with customers with UBO primary passport of origin in these countries amounts
to c. 5.7% of total deposits as at 31 December 2022 as disclosed below in Note 30.
With respect to the Group's Russian subsidiary, the net exposure is being run down and as a result the net
assets included on the Group's balance sheet as at 31 December 2022 are less than €1 million (2021: €10
million).
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.
330
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
5.
Significant and other judgements, estimates and assumptions (continued)
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities are described below. The 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 for pending litigation, claims, regulatory and other matters, 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, in relation 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.
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
Company’s calculations are outputs of models, of underlying assumptions on the choice of variable inputs
and their interdependencies.
It has been the Company’s policy to regularly review its models in the context of actual loss experience and
adjust when necessary.
Elements of ECL models that are considered accounting judgements and estimates include:
Assessment of significant increase in credit risk (SICR)
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
particular cases. Specifically 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.
331
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
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. For
revolving facilities, management estimates are required with respect to the life-time and hence a
behavioural maturity model is utilised, assigning an expected maturity based on product and customer
behaviour.
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 and
are based on internal model analysis after considering external market data supplemented by expert
judgement.
In a challenging international environment, the Cypriot economy has shown considerable resilience. Growth
remained strong in 2022 averaging 5.6% which is well above the euro area average, driven almost entirely
by services on the supply side. Tourist activity recovered strongly during the year with arrivals reaching
80% and receipts 90% of the levels in 2019. On the demand side, growth was driven by private
consumption and investment, especially inventory accumulation, while the external sector made a negative
contribution due to faster growth in imports. However, growth is expected to slow in 2023, towards 3%,
according to the Ministry of Finance.
Rising energy costs, exacerbated by the war in Ukraine, are affecting both consumers and businesses and
the government has taken initial steps to mitigate the impact. Harmonised inflation in Cyprus fell from
10.6% in July 2022 to an annual average of 7.6% in December 2022.
Cyprus received a pre-financing of €157 million from the Recovery and Resilience Facility in September
2021 and the first disbursement of €85 million in December 2022. The release of the funds is conditional on
the strict implementation of the reforms agreed in the National Recovery Plan. The funds will be used,
among other things, to increase investment in the digital and green transition, improve the efficiency of
public and local administrations, and improve the efficiency of the judicial system.
The sovereign risk ratings of the Cypriot government have improved significantly in recent years, reflecting
reduced banking sector risks, improved economic resilience and consistent fiscal outperformance. Cyprus
has demonstrated policy commitment to correcting fiscal imbalances through reform and restructuring of its
banking system. Public debt remains high relative to GDP, but large-scale asset purchases by the ECB
ensure favourable funding costs for Cyprus and ample liquidity in the government bond market.
However, substantial risks remain in terms of the domestic operating environment, as well as the external
environment on which it depends. The large stock of public debt weighs heavily on Cyprus’ sovereign credit
risk. In the banking sector, non-performing exposures need to drop further. While the current account
deficit will be narrowing as exports services recover in the medium-term, it will remain sizable. The
monetary policy of the European Central Bank can remain tight for longer if inflation pressures persist. The
extent of the crisis in Ukraine can lead to elevated tensions for a considerable period of time.
For the ECL, 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 based on
developments and events as at the reporting date, i.e. 31 December 2022.
332
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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 as at
31 December 2022 and 2021 respectively. The Company uses three different economic scenarios in the
calculation of default probabilities and provisions. 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 2022. This reflects management's view of specific characteristics of the Cyprus economy that
render it more vulnerable to external and internal shocks. Given the added uncertainties of the outlook for
2023 and downside risks, a global slowdown and the continuing war in Ukraine with the risk of escalation
rising as well as the tighter monetary environment in the light against inflation, management decided to
maintain an elevated weight on the adverse scenario.
In the banking sector total non-performing exposures at the end of November 2022, amounted to €2.7
billion, or 10.5% of gross loans and the coverage ratio was 52.2%. Private debt has continued to decline
since mid-2012, shrinking by more than half by the end of December 2022. The decline reflects the long
process of deleveraging since the start of the financial crisis and includes the sale or transfer of non-
performing loans in recent years. Private debt, as measured by loans to residents excluding the
government, stands at 80% of nominal GDP at the end of December 2022.
These factors and the overall risk profile discussed in the previous section, including economic structure risk
given a very large external sector and high concentration to geographical areas render the economy more
susceptible to external shocks and weaken its resilience. This 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 2022. Hence management has decided to keep the
weight of the adverse scenario to 30%, and correspondingly keep a reduced weight of the favourable
scenario to 20%.
31 December 2022
Year
Scenario
Weight
%
Real GDP
(% change)
Unemployment
rate (% of
labour force)
2023
2024
2025
2026
2027
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
7.0
6.3
5.9
6.8
6.0
5.8
6.7
5.7
5.6
6.7
5.5
5.3
6.5
5.2
4.9
-2.0
2.8
3.6
-0.7
2.4
2.8
1.4
2.5
2.6
2.8
2.8
3.1
3.5
2.6
2.6
333
Consumer
Price Index
(average
% change)
3.7
4.7
5.1
3.0
3.2
3.3
2.4
2.3
2.4
2.4
2.4
2.4
2.5
2.5
2.4
RICS House
Price Index
(average
% change)
-2.2
2.8
3.3
-0.8
2.5
2.8
1.1
2.5
2.6
2.7
2.5
2.6
3.5
2.5
2.6
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
31 December 2021
Year
Scenario
Weight
%
Real GDP
(% change)
Unemployment
rate (% of
labour force)
2022
2023
2024
2025
2026
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
-0.4
4.3
4.5
0.1
3.3
3.3
1.8
3.0
3.2
2.4
2.9
3.0
3.0
2.7
2.6
7.6
6.5
5.8
7.7
6.4
5.8
7.6
6.2
5.7
7.2
5.8
5.5
6.7
5.3
5.1
Consumer
Price Index
(average
% change)
0.5
2.2
3.0
1.6
1.6
1.6
1.8
1.8
1.8
1.9
1.9
1.9
1.8
1.8
1.8
RICS House
Price Index
(average
% change)
-3.7
2.6
3.1
-1.0
3.3
4.0
3.0
3.1
3.2
3.3
3.0
2.9
3.2
2.7
3.1
The adverse scenarios may outpace the base and favourable scenarios after the initial shock has been
adjusted to and the economy starts to expand from a lower base. Thus, in the adverse scenario GDP will
follow a growth trajectory that will ultimately equal and surpass the baseline before converging. Property
prices are determined by multiple factors with GDP growth featuring prominently. However, the relationship
between GDP growth and property prices entails 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 31 December 2022 reporting, considering available information
and relevant developments until then, and is described next. Economic activity continued to recover
strongly in 2022 driven by a steep recovery in the tourism sector after the steep contraction of 2020, and a
strong growth in private consumption, despite an aggressive monetary contraction. Real GDP increased by
5.6% in 2022 and is projected to rise by 2.8% in 2023. Consumer price inflation averaged 8.1% in 2022
and expected to decelerate to 4.7% in 2023. The unemployment rate will continue to drop steadily in the
medium term. Property prices will continue to rise modestly in 2023 as domestic demand remains relatively
strong.
The adverse scenario is consistent with assumptions for a global economic slowdown driven by the war in
Ukraine, elevated inflation and continued tight monetary policies. The Cypriot economy relies on services,
particularly on tourism, international business, and information services with an outward orientation. This
makes the Cypriot economy more exposed than other economies to the international environment and
terms of trade shocks. Weaker external demand and more restricted domestic demand as a result of higher
interest rates will lead to a slow-down of economic activity. The adverse scenario assumes a deeper impact
of these conditions on the real economy than under the baseline scenario. Real GDP is expected to contract
modestly by 2.0% in 2023 with the recovery remaining weak in the medium term. In the labour market the
unemployment rate will rise only modestly and inflation while elevated, will be lower than under the
baseline scenario. House prices will also contract in line with the contraction in real GDP.
334
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
Since 1 January 2018, the Company has reassessed the key economic variables used in the ECL models
consistent with the implementation of IFRS 9. The Company 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 Company additionally uses data 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, endorsed by the Group Provisions Committee and approved by the joint Risk and
Audit Committee. Qualitative adjustments or overlays were applied to the positive future property value
growth to restrict the level of future property price growth to 0% for all scenarios for loans and advances to
customers which are secured by property collaterals.
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 (LGD)
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. Assumptions were made on the basis of a macroeconomic scenario for
future changes in property prices, and these are capped to zero for all scenarios, in case of any future
projected increase, whereas any future projected decrease is taken into consideration.
At 31 December 2022, the weighted average haircut (including liquidity haircut and selling expenses) used
in the collectively assessed provisions calculation for loans and advances to customers is approximately
32% under the baseline scenario (2021: approximately 32%) excluding those classified as held for sale.
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 (2021: average of seven years), excluding those classified as held for sale.
335
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
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 to customers.
Expected lifetime of revolving facilities
The expected lifetime of revolving facilities is based on a behavioural maturity model for revolving facilities
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 credit conversion factor model for revolving products was calibrated in the fourth quarter of 2021, to
include additional data points covering the period up to moratorium and in order to be aligned with the
behavioural maturity model for revolving facilities. The impact on the ECL for the year ended 31 December
2021 was a release of ECL of €1,790 thousand. The behavioural model was updated in the second quarter
of 2022 to reflect updates in customers profile whilst maintaining the same model components.
Modelling adjustments
Forward looking models have been developed for ECL parameters PD, EAD, LGD for all portfolios and
segments sharing similar characteristics. Model validation (initial and periodic) is performed by the
independent validation unit within the Risk Management Division and involves assessment of a model under
both quantitative (i.e. stability and performance) and qualitative terms. The frequency and level of rigour of
model validation is commensurate to the overall use, complexity and materiality of the models, (i.e. risk
tiering). 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.
In the second quarter of 2022, following the agreement for the disposal of Helix 3 portfolio, the cure model
was updated, assigning as maximum cure period an exposure of 3 years instead of 5 years from their
default date. This had an ECL impact of €1.8 million charge for the year ended 31 December 2022.
336
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
Overlays in the context of COVID-19 and current economic conditions
COVID-19 related management overlays applied in 2020 and up to the first six months of 2021 were
removed in the third quarter of 2021, except for the overlay for exposures in the hotel and catering sector
(which applied stricter customer's credit ratings thresholds for customers in this industry sector) that was
removed in the second quarter of 2022 following the introduction of the new overlays described below. The
impact on the ECL, from the removal of the overlay, was a release of €143 thousand for the year ended 31
December 2022 and a transfer of €45 million loans from Stage 2 to Stage 1 during the year ended 31
December 2022.
During 2022, the Company in response to uncertainties from the consequences of the Ukrainian crisis,
established two new overlays in the collectively assessed population, for exposures that were considered to
be the most vulnerable to the implications of the crisis, to address the increased uncertainties from the
geopolitical instability, trade restrictions, disruptions in the global supply chains, increases in the energy
prices and their potential negative impact in the domestic cost of living. The impact on the ECL from the
application of these overlays was approximately €10 million charge for the year ended 31 December 2022
and a transfer of €148 million loans from Stage 1 to Stage 2 as at 31 December 2022.
Specifically, the first overlay relates to private individuals that are expected to be affected by the increased
cost of living in order to reflect the future vulnerabilities to inflation, where a scenario with higher
percentage increase is applied for the cost of living. A one-notch downgrade is applied to the identified
portfolio, reflecting the expected impact of inflation to their credit quality. The second overlay relates to
sectors that have been classified as high risk (Transportation) or Early Warning (Trade, Hotels and catering,
Construction, Real Estate, Finance and Other sectors such as Electricity, Arts, Agriculture and Mining) to
reflect the expected Gross Value Added (GVA) outlook of these sectors, where this has deteriorated.
Specifically, the sector risk classification is carried out by comparing the projected GVA outlook of each
sector with its past performance (intrinsic) and its performance vis-a-vis other sectors (systemic). In cases
where both systemic and intrinsic indicators are found to have deteriorated, the relevant sector is classified
as 'High Risk', whereas if only one of the two has deteriorated, then the sector is classified as 'Early
Warning'. A one-notch downgrade is applied to ‘Early Warning’ sectors whereas for ‘High Risk’ sector a more
severe downgrade is applied accordingly.
Horizontal probability of default (PD) overlay was introduced in the fourth quarter of 2022 to address
specifically the high inflation environment affecting the economy. With this overlay the PDs have been
capped to the average of 2018/2019 level, on the basis that these years are considered as closer to a
business as usual environment in terms of default rates. The impact on the ECL from the application of this
overlay was €5.5 million ECL charge for the year 2022.
The Company has exercised critical judgement on a best effort basis, to consider all reasonable and
supportable information available at the time of the assessment of the ECL allowance as at 31 December
2022. The Company will continue to evaluate the ECL allowance and the related economic outlook each
quarter, so that any changes arising from the uncertainty on the macroeconomic outlook and geopolitical
developments, impacted by the implications of the Russian invasion of Ukraine, as well as the degree of
recurrence of the COVID-19 disease due to virus mutations, are timely captured.
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 2021, 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. The selection
criteria were further enhanced in 2022 to include significant exposures to customers with passport of origin
or residency in Russia, Ukraine or Belarus and/or business activity within these countries.
337
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
5.
5.2
Significant and other judgements, estimates and assumptions (continued)
Calculation of expected credit losses (continued)
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, taking 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 for pending litigation, claims, regulatory and other matters is described
in Note 2.37 of the Consolidated Financial Statements of the Group for the year ended 2022. Judgement is
required in determining whether a present obligation exists and in estimating the probability, timing and
amount of any outflows. Provisions for pending litigation, 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 possible loss for such matters can be estimated. Actual results may prove to
be significantly higher or lower than the estimated 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 is subject to tax in Cyprus and 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 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.
For further details on such deferred tax assets refer to Note 15.
338
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
5.
5.6
Significant and other judgements, estimates and assumptions (continued)
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 primarily 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 uses models with only 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.
339
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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:
i.
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.
ii. 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 do 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 2022, 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:
i.
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
financial plan. The current medium-term financial 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).
ii. For non-cancellable leases, the lease term has been assessed to be the non-cancellable period.
340
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
5.
Significant and other judgements, estimates and assumptions (continued)
5.10
Leases (continued)
iii. 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
- Other financial assets (Note 27)
Debt securities at FVOCI
Negative interest on funding from central banks
Income similar to interest income
Loans and advances to customers measured at FVPL
Derivative financial instruments
2022
€000
2021
€000
336,997
311,904
42,523
12,113
10,889
9,231
18,418
1,117
7,574
5,335
12,528
25,094
430,171
363,552
2022
€000
45,922
11,156
57,078
2021
€000
36,345
15,239
51,584
341
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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
- Debt securities in issue
- Subordinated liabilities
Negative interest on loans and advances to banks and balances with central
banks
Interest expense on lease liabilities (Note 41)
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 3/Helix 2
Mutual funds and asset management fees
Other commissions
2022
€000
2021
€000
6,472
7,151
7,857
5,468
1,623
4,055
20,213
23,335
23,184
11
64,888
31,919
31
66,431
2022
€000
2021
€000
14,840
25,192
2022
€000
62,344
112,785
5,564
2,715
3,201
2021
€000
55,157
101,111
7,009
2,856
2,675
186,609
168,808
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
€41,551 thousand (2021: €33,522 thousand). Other banking commissions include commissions from
payment orders amounting to €27,439 thousand (2021: €27,462 thousand) and account maintenance fees
of €29,266 thousand (2021: €23,388 thousand). Liquidity fee is also included within other banking
commissions and amounted to €15,663 thousand (2021: €12,906 thousand).
Fee and commission expense
Banking commissions
Mutual funds and asset management fees
2022
€000
14,552
309
14,861
2021
€000
12,908
311
13,219
342
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
9.
Net foreign exchange gains
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.
10.
Net gains/(losses) on financial instruments
Trading portfolio:
- derivative financial instruments
Other investments at FVPL:
- debt securities
- mutual funds
- equity securities
Net loss on disposal of FVOCI debt securities
Net losses on balances with Group companies
Net loss on early redemption of subordinated liabilities (Note 31)
Net gains/(losses) 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)
2022
€000
2021
(restated)
€000
280
132
4,151
-
(12)
(2,384)
(61,524)
-
4,050
65,427
(62,563)
(52,575)
3,509
(266)
2,137
-
(39,378)
(12,558)
(17,292)
19,878
(19,327)
(63,165)
Net losses on balances with Group companies for 2022 of €61,524 thousand (2021: €39,378 thousand)
relate to fair value losses on receivables from Group property companies in Cyprus of €57,399 thousand
(2021: €37,338 thousand) and net losses from settlement of balances with Group property companies of
€4,125 thousand (2021: €2,040 thousand).
11.
Other income
Dividend income (Note 18)
Loss on sale and write-off of property and equipment and intangible assets
Rental income from investment properties
Rental income from stock of property
Net gains on disposal/dissolution of subsidiaries and associates
Other income
2022
€000
2021
(restated)
€000
83
(14)
1,648
74
781
3,592
6,164
372
(13)
1,754
35
108
2,556
4,812
Dividend income relates to Cyprus operations.
The net gains on disposal/dissolution of subsidiaries for the year ended 31 December 2022 relate to the
gain on the disposal of the subsidiary Yossi Properties Ltd (Note 48) (2021: net gains relate mainly to the
loss on the disposal of the subsidiary Global Balanced Fund of funds Salamis Variable Capital Investment
Company PLC (Note 48) and to the gain on disposal of the associate Apollo Global Equity Fund of Funds
Variable Capital Investment Company Plc (Note 23)).
343
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
12.
Staff costs
Staff costs
Salaries
Employer’s contributions to state social insurance
Retirement benefit plan costs
Share-based benefits-expenses
Restructuring costs - voluntary exit plans and other termination benefits
2022
€000
133,033
24,447
11,265
322
169,067
98,356
267,423
2021
€000
142,657
25,511
12,367
-
180,535
15,033
195,568
During the year ended 31 December 2022, an amount of €1,719 thousand (2021: €1,235 thousand)
relating to staff costs has been capitalised as internally developed computer software (Note 25).
The number of persons employed by the Company as at 31 December 2022 was 2,483 (2021: 3,012) and
includes 44 persons that have accepted the voluntary exit plan (VEP) and left the Company in early 2022.
In July 2022, the Company completed a VEP through which 542 of the Company's full time employees were
approved to leave at a total cost of €98,356 thousand.
In December 2021, the Company completed a VEP, through which 96 of the Company's full-time employees
were approved to leave at a total cost of €15,033 thousand.
In July 2021, the Company reached an agreement with the Cyprus Union of Bank Employees for the renewal
of the collective agreement for the years 2021 and 2022. The agreement relates to certain changes
including the introduction of a new pay grading structure linked to the value of each position of
employment, and of a performance related pay component as part of the annual salary increase.
12.1
Retirement benefits
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
2022
€000
658
10,607
11,265
2021
€000
87
12,280
12,367
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 provided for employer contributions of 9% for the
period 1 January 2021 to 31 August 2021, revised to 8% from 1 September 2021 and employee
contributions of 3%-10% of the employees’ gross salaries for both 2022 and 2021. This plan is managed by
an Administrative Committee appointed by the members.
In previous years a small number of employees who did not participate in the main retirement plan, were
members of a pension scheme that was closed to new entrants and could have received part or all of their
retirement benefit entitlement by way of a pension for life. This plan is managed by an Administrative
Committee composed currently of representatives of the employer. The pension scheme is in the process of
liquidation as the last member exited the plan during the year ended 31 December 2022.
344
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
12.
Staff costs (continued)
12.1
Retirement benefits (continued)
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.
Analysis of the results of the actuarial valuations for the defined benefit plans
Amounts recognised in the balance sheet
Liabilities (Note 32)
2022
€000
2021
€000
3,694
-
Two of the plans have a total funded status at a surplus of €10,739 thousand one of which is under
liquidation with funded status surplus of €1,600 thousand (2021: two plans with surplus €5,462 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 2022 and 2021 are presented below:
345
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
12.
Staff costs (continued)
12.1
Retirement benefits (continued)
1 January 2022
Current service cost
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 2022
Annual Financial Report 2022
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
(86,098)
-
(1,455)
(1,455)
29,523
-
-
-
-
29,523
4,285
(3,176)
4,904
(5,462)
5,462
716
(58)
658
29,523
(30,663)
(721)
2,587
-
726
208
(3,176)
-
-
-
-
-
-
-
-
5,617
5,617
(339)
-
-
(52,017)
(7,046)
10,740
-
716
(58)
658
29,523
(30,663)
(721)
2,587
5,617
6,343
(131)
(3,176)
-
3,694
80,636
716
1,397
2,113
-
(30,663)
(721)
2,587
-
(28,797)
(4,077)
-
(4,904)
44,971
346
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
12.
Staff costs (continued)
12.1
Retirement benefits (continued)
1 January 2021
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 2021
Present value of
obligation
Fair value of
plan assets
Net amount
before impact of
asset ceiling
€000
€000
€000
Annual Financial Report 2022
Impact of
minimum
funding
requirement/
asset ceiling
€000
Net defined
benefit liability
€000
2,759
6,561
-
-
-
-
-
-
2,703
2,703
-
-
-
87
87
(5,004)
(1,333)
(170)
40
2,703
(3,764)
255
(3,139)
-
-
(74,277)
(1,085)
(1,085)
(5,004)
-
-
-
-
(5,004)
(4,994)
(3,139)
2,401
3,802
87
87
(5,004)
(1,333)
(170)
40
-
(6,467)
255
(3,139)
-
(86,098)
(5,462)
5,462
78,079
1,172
1,172
-
(1,333)
(170)
40
-
(1,463)
5,249
-
(2,401)
80,636
347
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
12.
Staff costs (continued)
12.1
Retirement benefits (continued)
The actual return on plan assets for year 2022 was a loss of €28,012 thousand (2021: gain of €6,089
thousand) mainly due to the reduction in bond and equity prices during the year.
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 to
better match 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
Funds
2022
2021
%13
%59
%6
%22
%20
%47
%12
%21
%100
%100
The Company expects to make additional contributions to defined benefit plans of €3,046 thousand during
2023.
At the end of the reporting period, the average duration of the defined benefit obligations was 13.4 years
(2021: 18.8 years).
348
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
12.
Staff costs (continued)
12.1
Retirement benefits (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 2022 and 2021
are set out below:
2022
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
2021
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
3.85%
2.50%
2.50%
n/a
23.5 years M
29.6 years F
n/a
0.88%
1.50%
2.00%
2.00%
23.5 years M
29.6 years F
n/a
UK
5.00%
3.10%
n/a
2.90%
n/a
23.0 years M
24.7 years F
1.80%
3.25%
n/a
3.10%
n/a
22.9 years M
24.3 years F
The discount rate used in the actuarial valuations reflects the rate at which liabilities could effectively be
settled and is set by reference to market yields at the reporting date of high quality corporate bonds of
suitable maturity and currency. For the Company’s plans in the Eurozone which comprise 0% 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 100% 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.
349
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
12.
Staff costs (continued)
12.1
Retirement benefits (continued)
The impact of significant assumptions' fluctuations on the defined benefit obligation as at 31 December
2022 and 2021 is presented below:
Variable
Discount rate
Inflation growth rate
Pension growth rate
Life expectancy
2022
2021
Change
+0.5%
Change
-0.5%
Change
+0.5%
Change
-0.5%
%-6.5
%3.2
%6.9
%-3.8
%0.1
%-0.1
Plus 1 year Minus 1 year
%-4.4
%4.4
%-9.1
%5.3
%0.1
Plus 1 year
%3.4
%9.7
%-5.2
%-0.1
Minus 1 year
%-3.4
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 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.
12.2
Share-based compensation plan
Long-Term Incentive Plan
During the Annual General Meeting of the shareholders of the BOCH which took place on 20 May 2022, a
special resolution was approved for the establishment and implementation of the share based Long-Term
Incentive Plan of Bank of Cyprus Holdings Public Limited Company (the ‘2022 LTIP’).
The 2022 LTIP is a share based compensation plan for executive directors and senior management of the
Group. The 2022 LTIP provides for an award in the form of ordinary shares of BOCH based on certain non-
market performance and service vesting conditions. Performance will be measured over a 3-year period.
The performance conditions are set by the Human Resources & Remuneration Committee (HRRC) each year
and may be differentiated to reflect the Company’s strategic targets and employee's personal performance,
at HRRC's discretion. Performance will be assessed against an evaluation scorecard consistent with the
Group’s Medium Term Strategic Targets containing both financial and non-financial objectives, and including
targets in the areas of: (i) Profitability; (ii) Asset quality; (iii) Capital adequacy; (iv) Risk control &
compliance; and (v) Environmental, Social and Governance ('ESG'). The awards ordinarily vest in six
tranches, with 40% vesting in the year following the year the performance period ends and the remaining
60% vesting in tranches (12%), on each of the first, second, third, fourth and fifth anniversary date of the
first vesting date. For any award to vest the employee must be in the employment of the Group up until the
date of the vesting of such an award. Under certain circumstances the HRRC has the discretion to determine
whether the award will lapse and/or the extent to which the award will be vested.
The maximum number of shares that may be issued pursuant to the 2022 LTIP until the tenth anniversary
of the relevant resolution shall not exceed 5% of the issued ordinary share capital of BOCH, as at the date
of the resolution (being 22,309,996 ordinary shares of €0.10 each), as adjusted for any issuance or
cancellation of shares subsequently to the date of the resolution (excluding any issuances of shares
pursuant to the 2022 LTIP).
The pre-existing Share Option Plan, which was operating at the level of BOCH, has been superseded by the
2022 LTIP.
350
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
12.
Staff costs (continued)
12.2
Share-based compensation plan (continued)
On 22 December 2022 (grant date) 819,860 share awards under the 2022 LTIP were granted by BOCH to
22 eligible employees (2021: nil) comprising the Extended Executive Committee of the Group. The awards
are subject to a three year performance period (2022-2024) (with all performance conditions being non-
market performance conditions) and thereon vest in six tranches, with the first tranche vesting in the year
following the year the performance period ends and the last tranche vesting on the fifth anniversary of the
first vesting date. Vesting is also subject to service conditions. Awards are subject to potential forfeiture
under certain leaver scenarios.
The following table presents movements in outstanding share-based awards during 2022 and 2021.
As at 1 January
Granted during the year
Vested during the year
Forfeited during the year
31 December
2022
2021
Weighted
average
grant date
fair value
€
-
1.69
-
-
Number of
shares
-
819,860
-
-
819,860
Number of
shares
Weighted
average grant
date fair value
€
-
-
-
-
-
-
-
-
-
Assumptions as at 31 December 2022
The fair value calculations at 31 December 2022 for grants made in the year are calculated, using Black-
Scholes model. As the award is a share award (and does not contain any market based performance
conditions) the fair value is based on the share price at the date of the grant.
13.
Other operating expenses
Repairs and maintenance expenses
Other property-related costs
Consultancy, legal and other professional services fees
Insurance
Advertising and marketing
Depreciation of property and equipment (Note 24)
Amortisation of intangible assets (Note 25)
Communication expenses
Printing and stationery
Cash transfer expenses
Other operating expenses
Advisory and other restructuring costs
351
2022
€000
2021
(restated)
€000
28,610
11,570
17,001
6,174
8,540
12,212
14,405
5,462
1,542
2,953
17,845
126,314
14,136
140,450
27,754
10,024
12,229
5,779
8,160
13,351
14,978
6,182
1,689
2,664
20,746
123,556
23,124
146,680
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
13.
Other operating expenses (continued)
Advisory and other restructuring costs comprise mainly fees to external advisors in relation to: (i) the
transformation program and other strategic projects of the Company and (ii) the disposal of operations and
non-core assets.
During the year ended 31 December 2022, the Company recognised €5,988 thousand relating to the
depreciation of right-of-use assets, included within 'Depreciation of property and equipment' (2021: €7,077
thousand) (Note 41).
Within total other operating expenses an amount of €533 thousand (2021: €486 thousand) relates to
investment property that generated rental income.
Special levy on deposits and other levies/contributions as presented in the income statement are set out
below:
Special levy on deposits of credit institutions in Cyprus
Single Resolution Fund contribution
Guarantee fee on annual deferred tax credit (Note 15)
Contribution to Deposit Guarantee Fund
2022
€000
2021
€000
21,499
19,936
5,779
4,795
6,419
5,209
5,300
5,905
38,492
36,350
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 charge of the Special Levy up to the level of
the total annual Special Levy charge.
As from 1 January 2020 and until 3 July 2024 the Company is subject to a 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
2022
€000
2021
€000
1,460
1,174
450
158
193
612
198
71
2,261
2,055
352
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
13.
Other operating expenses (continued)
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 individual and the Group financial statements
Other assurance services
Tax compliance and advisory services
Other non-audit services
2022
€000
2021
€000
2,163
1,628
504
282
199
659
298
78
3,148
2,663
Other assurance services include fees relating to the interim review.
14.
assets
Credit losses on financial instruments and impairment net of reversals of non-financial
Credit losses on financial instruments
Credit losses to cover credit risk on loans and advances to customers
Impairment net of reversals on loans and advances to customers (Note
43.6)
Recoveries of loans and advances to customers previously written off
Changes in expected cash flows
Financial guarantees and commitments (Notes 43.5.1 and 43.5.2)
Credit losses of other financial instruments
Amortised cost debt securities (Note 18)
FVOCI debt securities (Note 18)
Balances with Group companies (Note 22)
Loans and advances to banks (Note 17)
Balances with central banks (Note 17)
Other financial assets (Note 27)
Impairment net of reversals on non-financial assets
Stock of property (Note 26)
Investments in subsidiaries (Note 48)
Other non-financial assets
2022
€000
2021
€000
63,595
(11,919)
7,948
(4,516)
55,108
28,818
(11,907)
15,951
2,341
35,203
701
(23)
7,353
(48)
193
72
8,248
63,356
6,118
2,632
(10)
8,740
(32)
(84)
4,464
(13)
-
5,828
10,163
45,366
25,012
5,003
2,580
32,595
The impairment of investment in subsidiaries for 2022 amounts to €2,632 thousand (2021: €5,003
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.
353
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
15.
Income tax
Current tax
Cyprus special defence contribution
Deferred tax (credit)/charge
Prior years’ tax adjustments
Other tax charges
2022
€000
2021
€000
25,450
29
(575)
1,723
-
26,627
-
37
126
-
6
169
The reconciliation between the income tax expense and the profit before tax as estimated using the current
income tax rates is set out below:
Profit 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
- deferred tax (credit)/charge
Prior years' tax adjustments
Cyprus special defence contribution
Other tax charges
2022
€000
67,572
8,447
31,846
(14,843)
(575)
24,875
1,723
29
-
26,627
2021
€000
20,350
2,544
13,146
(15,690)
126
126
-
37
6
169
Income tax in Cyprus is calculated at the rate of 12.5% on taxable income (2021: 12.5%).
Special defence contribution is payable on rental income at a rate of 3% (2021: 3%) and on interest income
from activities outside the ordinary course of business at a rate of 30% (2021: 30%).
The Company’s profits from overseas operations are taxed at the rates prevailing in the respective
countries, which for 2022 were: Greece 22% (2021: 22%).
The Company is subject to income taxes in the various jurisdictions in which 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.
354
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
15.
Income tax (continued)
On 22 December 2022, the European Commission approved Directive 2022/2523 which provides for a
minimum effective tax rate of 15% for the global activities of large multinational groups. The Directive that
follows closely the OECD Inclusive Framework on Base Erosion and Profit Shifting should be transposed by
the Member States throughout 2023, entering into force on 1 January 2024. The legislation has not been
substantively enacted at the balance sheet date and the Company will continue to monitor the evolving
national legislation including any disclosures required, or exemptions available, under IAS 12 in the year
ending 31 December 2023.
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
The net deferred tax assets comprise:
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
The deferred tax assets (DTA) 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
2022
€000
(9,349)
(10,295)
227,455
207,811
2021
€000
(9,924)
(10,511)
265,364
244,929
2022
€000
227,455
(19,644)
207,811
2021
€000
265,364
(20,435)
244,929
2022
€000
244,929
575
216
(37,909)
207,811
2021
€000
320,739
(126)
134
(75,818)
244,929
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 (credit)/charge recognised in the income statement is set out below:
Difference between capital allowances and depreciation
2022
€000
2021
€000
(575)
(575)
126
126
355
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
15.
Income tax (continued)
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
2022
€000
2021
€000
216
134
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.
i.
ii. 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’.
iii. 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.
iv. Acquired tax losses are converted into 15 equal annual instalments or into 11 equal annual
instalments for acquired losses from credit institutions which were in resolution pre 31 December
2017.
v. 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.
vi. 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.
vii. 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.
viii. 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.
ix. A guarantee fee on annual tax credit is payable annually by the credit institution to the Government.
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 has proceeded with the adoption of
modifications to the Law, including requirements for an additional annual fee over and above the 1.5%
annual guarantee fee already provided for in the Law, to maintain the conversion of such DTAs into tax
credits. The relevant amendments were voted by the Cyprus Parliament in May 2022 and have become
effective since. As prescribed by the amendments in the Law, the annual fee is to be determined by the
Cyprus Government on an annual basis, providing however, for such fee charge to be set at a minimum fee
of 1.5% of the annual instalment and can range up to a maximum amount of €10,000 thousand per year,
and also allowing for a higher amount to be charged in the year the amendments are effective (i.e. in
2022).
The Company has DTA that meets the requirements of the Income Tax Law Amendment 28(I) of 2019
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 upon the acquisition of certain operations of Laiki in 2013 amounted to €417 million
(corresponding to €3.3 billion tax losses) for which the Company paid a consideration as part of the
respective acquisition. The period of utilisation of the tax losses which may be converted into tax credits is
eleven years following the amendment of the Law in 2019, starting from 2018 i.e. by end of 2028.
356
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
15.
Income tax (continued)
As a result of the above Law, the Company has DTA amounting to €227,455 thousand as at 31 December
2022 (2021: €265,364 thousand) that meet the requirements under this Law, the recovery of which is
guaranteed. On an annual basis an amount is converted to annual tax credit and is reclassified from the
DTA to current tax receivables.
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 2022.
The Company in prior years, in anticipation of modifications in the Law, acknowledged that such increased
annual fee may be required to be recorded on an annual basis until expiration of such losses in 2028. The
Company estimates that such 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. An amount of €4,795 thousand that relates to the tax credit of year
2022 (2021: €5,300 thousand) was recorded during the year ended 31 December 2022. In the third quarter
of 2022, the Company has been levied an amount for years 2018-2021 within the provisions level
maintained.
Accumulated income tax losses
The accumulated income tax losses are presented in the table below:
2022
Expiring within 5 years
Total income
tax losses
€000
44,261
Income tax
losses for
which a
deferred tax
asset was
recognised
€000
-
Utilisation in annual instalments up to 2028
1,819,636
1,819,636
Income tax
losses for
which no
deferred tax
asset was
recognised
€000
44,261
-
2021
Expiring within 5 years
Utilisation in annual instalments up to 2028
16.
Earnings per share
1,863,897
1,819,636
44,261
250,924
2,122,909
2,373,833
-
250,924
2,122,909
2,122,909
-
250,924
Basic and diluted profit per share attributable to the owners of the
Company
2022
2021
Profit for the year attributable to the owners of the Company (€ thousand)
40,945
20,181
Weighted average number of shares in issue during the year, excluding
treasury shares (thousand)
Basic and diluted profit per share (€ cent)
9,597,945
9,597,945
0.4
0.2
357
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
17.
Cash, balances with central banks and loans and advances to banks
Cash
Balances with central banks
Allowance for expected credit losses (Note 14)
Loans and advances to banks
Allowance for expected credit losses (Note 14)
2022
€000
2021
€000
91,707
142,902
9,475,581
9,087,815
(193)
-
9,567,095
9,230,717
166,697
247,749
(8)
(56)
166,689
247,693
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
31 December
2022
€000
9,087,815
2021
€000
5,513,476
387,766
3,574,339
9,475,581
9,087,815
Balances with central banks are classified as Stage 1.
The ECL charge (Note 14) and ECL allowance on balances with central banks for the year ended and as at
31 December 2022 amounted to €193 thousand (2021: nil).
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 decrease
Changes to models and inputs used for ECL
calculation (Note 14)
31 December
2022
2021
Gross
carrying
amount
€000
247,749
(81,052)
-
166,697
ECL
€000
(56)
-
48
(8)
Gross
carrying
amount
€000
361,347
(113,598)
-
247,749
ECL
€000
(69)
-
13
(56)
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 2022 which
amount to €114,537 thousand (2021: €166,987 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 43.11.
Loans and advances to banks earn interest based on the interbank rate of the relevant term and currency.
358
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
18.
Investments
The analysis of the Company's Investments is presented in the table below:
Investments at FVPL
Investments at FVOCI
Investments at amortised cost
Out of these, the amounts pledged as collateral are shown below:
Investments pledged as collateral
Investments at FVOCI
Investments at amortised cost
2022
€000
8,712
456,598
2021
€000
4,865
734,059
2,046,119
1,191,274
2,511,429
1,930,198
2022
€000
60,974
223,369
2021
€000
488,806
771,352
284,343
1,260,158
Investments pledged as collateral as at 31 December 2022 and 2021 related to debt securities collaterised
mainly for the additional amounts borrowed from the ECB Targeted Longer-Term Refinancing Operations
(TLTRO III) (Note 29). Encumbered assets are disclosed in Note 45.
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.
The credit rating analysis of investments is disclosed in Note 43.11.
Investments at fair value through profit or loss
Debt and other non-equity securities
Equity securities
Investments
mandatorily measured at
FVPL
2022
€000
2021
€000
7,870
842
8,712
4,009
856
4,865
The debt securities which are measured at FVPL are mandatorily classified, because they failed to meet the
SPPI Criteria.
Investments at FVOCI
Debt securities
Equity securities (including preference shares)
2022
€000
446,416
10,182
456,598
2021
€000
723,759
10,300
734,059
359
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
18.
Investments (continued)
Investments at amortised cost
Debt securities
Further analysis of the Company's investments is provided in the tables below.
2022
€000
2,046,119
2021
€000
1,191,274
Equity securities
Equity securities
2022
Listed on the Cyprus Stock Exchange
Listed on other stock exchanges
Unlisted
2021
Listed on the Cyprus Stock Exchange
Listed on other stock exchanges
Unlisted
FVPL
€000
FVOCI
€000
Total
€000
-
842
-
842
-
856
-
856
1,329
68
8,785
1,329
910
8,785
10,182
11,024
FVOCI
€000
Total
€000
1,746
76
8,478
1,746
932
8,478
10,300
11,156
FVPL
€000
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 €10,182 thousand at
31 December 2022 and is equal to their fair value (2021: €10,300 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 €83 thousand has been received and recognised for 2022 in other income
(2021: €372 thousand) (Note 11).
During the years ended 31 December 2022 and 31 December 2021 no material equity investments
measured at FVOCI have been disposed of. During the year there were transfers from OCI to retained
earnings of €412 thousand (2021: nil) relating to investments disposed in prior years.
Debt securities and other non-equity securities
Analysis by issuer type
2022
Cyprus government
Other governments
Financial institutions
Other financial corporations
Supranational organisations
Other non-financial corporations
FVPL
€000
-
-
-
7,870
-
-
FVOCI
€000
308,303
22,616
115,497
-
-
-
Amortised
cost
€000
521,322
402,844
722,522
36,547
293,834
69,050
Total
€000
829,625
425,460
838,019
44,417
293,834
69,050
7,870
446,416
2,046,119
2,500,405
360
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
18.
Investments (continued)
2021
Cyprus government
Other governments
Financial institutions
Other financial corporations
Supranational organisations
Geographic dispersion by country of
issuer
2022
Cyprus
Greece
Germany
France
Other European Union countries
United Kingdom
USA and Canada
Other countries
Supranational organisations
2021
Cyprus
Germany
France
Other European Union countries
United Kingdom
USA and Canada
Other countries
Supranational organisations
Listing analysis
2022
Listed on the Cyprus Stock Exchange
Listed on other stock exchanges
Unlisted
FVPL
€000
FVOCI
€000
Amortised
cost
€000
-
-
500
3,509
-
405,951
87,295
230,513
-
-
326,953
223,813
397,775
33,507
209,226
Total
€000
732,904
311,108
628,788
37,016
209,226
4,009
723,759
1,191,274
1,919,042
FVPL
€000
FVOCI
€000
Amortised
cost
€000
-
-
-
-
-
-
7,870
-
-
308,303
14,987
-
58,134
32,442
-
4,959
27,591
-
531,611
43,276
121,132
162,405
370,728
23,128
238,802
261,203
293,834
Total
€000
839,914
58,263
121,132
220,539
403,170
23,128
251,631
288,794
293,834
7,870
446,416
2,046,119
2,500,405
FVPL
€000
FVOCI
€000
Amortised
cost
€000
500
405,951
-
-
-
-
3,509
-
-
3,598
66,116
138,969
-
72,237
36,888
-
326,953
67,747
100,388
239,781
25,043
111,961
110,175
209,226
Total
€000
733,404
71,345
166,504
378,750
25,043
187,707
147,063
209,226
4,009
723,759
1,191,274
1,919,042
FVPL
€000
FVOCI
€000
Amortised
cost
€000
Total
€000
-
-
7,870
7,870
-
29,849
29,849
446,416
2,016,270
2,462,686
-
-
7,870
446,416
2,046,119
2,500,405
361
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
18.
Investments (continued)
2021
Listed on the Cyprus Stock Exchange
Listed on other stock exchanges
Unlisted
FVPL
€000
FVOCI
€000
Amortised
cost
€000
Total
€000
-
-
4,009
4,009
-
48,463
48,463
723,759
1,142,811
1,866,570
-
-
4,009
723,759
1,191,274
1,919,042
The Company uses fair value hedging to manage the interest rate risk in relation to its FVOCI bonds (Note
19).
An analysis of the movement of debt securities at FVOCI 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 inputs used for ECL
calculations (Note 14)
Changes in fair value
31 December
2022
2021
Gross debt
securities
€000
724,439
27,972
(243,539)
(6,119)
11,190
-
(66,870)
447,073
ECL
€000
(680)
-
35
-
-
(12)
-
(657)
Gross debt
securities
€000
644,960
116,291
(31,094)
(2,448)
14,852
-
(18,122)
724,439
ECL
€000
(764)
4
-
-
-
80
-
(680)
All debt securities measured at FVOCI are classified as Stage 1.
An analysis of changes in the gross carrying amount (before ECL) of the debt securities at amortised cost by
staging is presented in the table below:
1 January
Stage 1
€000
1,143,533
New assets acquired in the year 1,073,058
Assets derecognised and
redeemed in the year
Fair value due to hedging
relationship
Interest accrued and
amortisation
Foreign exchange adjustments
(164,874)
(10,527)
(179)
6,627
31 December
2,047,638
2022
Stage 2
€000
48,559 1,192,092
Total
€000
Stage 1
€000
984,739
-
1,073,058
503,089
(47,100) (211,974)
(348,151)
2021
Stage 2
€000
Total
€000
48,981 1,033,720
-
-
503,089
(348,151)
(197)
(10,724)
(2,156)
(392)
(2,548)
(1,262)
(1,441)
6,627
(4,744)
10,756
(30)
-
(4,774)
10,756
2,047,638 1,143,533
48,559 1,192,092
-
-
362
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
18.
Investments (continued)
An analysis of changes on the respective ECL is presented in the table below:
1 January
Assets derecognised or
redeemed (Note 14)
Changes to models and inputs
used for ECL calculation (Note
14)
31 December
Stage 1
€000
2022
Stage 2
€000
Total
€000
Stage 1
€000
2021
Stage 2
€000
Total
€000
(722)
(96)
(818)
(545)
(305)
(850)
11
96
107
155
-
155
(808)
(1,519)
-
-
(808)
(1,519)
(332)
(722)
209
(96)
(123)
(818)
There were no reclassifications of investments during the year ended 31 December 2022 and 2021.
The fair value of the financial assets that have been reclassified out of FVPL to FVOCI on transition to IFRS
9, amounts to €1,329 thousand at 31 December 2022 (2021: €1,746 thousand). The fair value loss that
would have been recognised in the income statement during the year ended 31 December 2022 if these
financial assets had not been reclassified as part of the transition to IFRS 9, amounts to €417 thousand
(2021: €289 thousand).
19.
Derivative financial instruments
The contract amount and fair value of the derivative financial instruments is set out below:
2022
Fair value
Contract
amount
€000
Assets
Liabilities
€000
€000
Contract
amount
€000
2021
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
13,239
1,251,581
14,806
352
171,864
1,451,842
103
293
437
287
3,094
4,214
123
10,316
420
65
3,094
14,018
115,441
994,213
21,690
83
518,950
1,650,377
81
4,388
86
62
223
4,840
779
1,348
61
21
218
2,427
803,513
2,255,355
43,939
48,153
2,151
16,169
700,835
2,351,212
1,813
6,653
30,025
32,452
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 foreign currency exchange rates. Derivatives
are also sold to customers as risk management products.
363
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
19.
Derivative financial instruments (continued)
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.
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 currency 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 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, foreign currency 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.
364
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
19.
Derivative financial instruments (continued)
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.
Hedges of net investments
The Company’s balance sheet is impacted 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 by forward exchange rate contracts.
2022
Derivatives qualifying for hedge accounting
Fair value hedges
-interest rate swaps
Total
2021
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
(62,563)
(62,563)
65,427
65,427
(2,864)
(2,864)
Gains/(losses) attributable
to hedged risk
Hedged in-
effectiveness
Hedged items
€000
Hedging
instrument
€000
€000
(19,327)
(19,327)
19,878
19,878
(551)
(551)
The accumulated fair value adjustment arising from the hedging relationships is presented in the table
below:
365
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
19.
Derivative financial instruments (continued)
2022
Derivatives qualifying for hedge
accounting
Fair value hedges - interest rate swaps
-debt securities
-debt securities in issue
Total
2021
Derivatives qualifying for hedge
accounting
Fair value hedges - interest rate swaps
-debt securities
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
468,396
-
(66,555)
-
297,636
-
468,396
297,636
(66,555)
-
4,853
4,853
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
746,432
746,432
-
-
729
729
-
-
For assets hedged using fair value hedges the fixed rate is 1.84% and the floating rate is 1.20% as at 31
December 2022 (2021: 2.38% and 0.94% respectively). For liabilities hedged using fair value hedges, the
average fixed rate is 0.62% and the average floating rate is 0.25% respectively as at 31 December 2022.
There were no liabilities hedged using fair value hedges as at 31 December 2021.
366
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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
1,649
9,138
2,452
1,112,362
139,219
-
352
-
-
-
-
-
-
-
-
-
-
14,806
-
-
-
-
-
13,239
1,251,581
14,806
352
154,173
17,691
171,864
1,114,363
148,357
2,452
168,979
17,691
1,451,842
23,416
17,000
1,137,779
165,357
42,200
44,652
486,397
234,500
803,513
655,376
252,191
2,255,355
2022
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
367
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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
109,020
4,493
1,928
878,993
114,852
368
-
-
-
83
-
-
-
-
6,219
15,471
-
500,000
-
-
-
-
-
-
115,441
994,213
21,690
83
18,950
518,950
988,096
119,345
508,515
15,471
18,950
1,650,377
44,182
41,530
101,465
247,158
266,500
700,835
1,032,278
160,875
609,980
262,629
285,450
2,351,212
2021
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
Interest rate benchmark reform
As at 31 December 2022 and 2021 the interest rate benchmarks to which the Company's hedge
relationships are exposed to, are Euro Interbank Offered Rate (Euribor) and USD London Interbank Offered
Rate (Libor) in relation to 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 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-month)
Libor USD (3-month)
Total
2022
€000
770,731
32,782
803,513
2021
€000
529,831
171,004
700,835
Euribor is in compliance with EU Benchmarks Regulation and the Company does not consider that Euribor
based derivatives are affected by the BMR Reform.
As at 31 December 2022, the Company's assessment regarding the on going transition to the new risk free
rates (RFRs) indicates that the impact on the hedging relationships and in value terms is not significant.
Further details in relation to interest rate benchmark reform are disclosed in Note 44.
368
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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 at FVPL
Investments at FVOCI
2022
2021
Carrying
value
€000
Fair value
€000
9,567,095
9,567,095
166,689
153,995
8,712
8,712
456,598
456,598
Carrying
value
€000
9,230,717
247,693
4,865
734,059
Fair value
€000
9,230,717
245,592
4,865
734,059
Investments at amortised cost
2,046,119
1,953,336
1,191,274
1,196,753
Derivative financial assets
48,153
48,153
6,653
6,653
Loans and advances to customers
9,952,921
10,011,393
9,835,534
9,641,324
Balances with Group companies
566,125
566,125
Financial assets classified as held for sale
-
-
Other financial assets
367,490
421,430
667,725
250,356
354,641
667,725
250,356
354,641
23,179,902
23,186,837
22,523,517
22,332,685
Financial liabilities
Funding from central banks and deposits by
banks
Derivative financial liabilities
Customer deposits
Balances with Group companies
Debt securities in issue
Subordinated liabilities
Other financial liabilities and lease liabilities
2,478,055
2,393,303
3,421,560
3,324,375
16,169
16,169
32,452
32,452
18,998,319
18,963,934
17,530,883
17,532,995
97,513
297,636
303,812
193,640
97,513
254,179
265,472
193,640
67,929
302,555
342,373
223,283
67,929
292,615
355,159
223,283
22,385,144
22,184,210
21,921,035
21,828,808
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 and properties
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.
369
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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.
The expected exposure of derivatives is calculated as per the CRR and takes into account the netting
agreements where they exist. A standard Loss Given Default (LGD) assumption in line with industry norms
is adopted. Alternative LGD assumptions may be adopted when both the nature of the exposure and the
available data support this.
The 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. The discount rate used in the determination of the fair value of the loans and
advances to customers measured at FVPL during the year ended 31 December 2022 ranges from 2.66% to
4.86% (2021: 2.34%-8.50%).
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.
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.
370
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
20.
Fair value measurement (continued)
Debt securities in issue and Subordinated liabilities
Debt securities and subordinated liabilities issuances are 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.
Owned property
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.
371
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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:
2022
Assets measured at fair value
Investment properties
Residential
Offices and other commercial properties
Manufacturing and industrial properties
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 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
-
-
-
-
-
-
-
-
-
-
-
-
-
842
447,745
-
-
-
-
-
-
-
103
293
437
287
3,094
4,214
43,939
-
-
-
9,045
8,470
8,836
9,045
8,470
8,836
26,351
26,351
164,593
164,593
214,359
214,359
-
-
-
-
-
-
-
7,870
8,853
532,793
103
293
437
287
3,094
4,214
43,939
8,712
456,598
532,793
448,587
48,153
954,819
1,451,559
-
-
153,995
-
1,871,757
69,300
-
33,332
12,279
153,995
33,332
1,953,336
-
-
9,797,034
9,797,034
1,871,757
223,295
9,842,645
11,937,697
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 €4,538 thousand in their fair value and a decrease in the
discount factor by 10% would result in an increase of €1,145 thousand in their fair value.
For one investment included in debt and other non-equity securities mandatorily measured at FVPL as a
result of the SPPI assessment and categorised as Level 3 with a carrying amount of €7,870 thousand as at
31 December 2022, a change in the conversion factor by 10% would result in a change in the value of the
debt and other non-equity securities by €787 thousand.
For additional disclosures on sensitivity analysis of equity securities refer to Note 44.
372
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
20.
Fair value measurement (continued)
2022
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
Debt securities in issue
Subordinated liabilities
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
254,179
123
10,316
420
65
3,094
14,018
2,151
16,169
1,944,145
449,158
-
-
-
-
265,472
-
-
-
-
-
-
-
-
-
-
123
10,316
420
65
3,094
14,018
2,151
16,169
1,944,145
449,158
18,963,934
18,963,934
97,513
-
-
97,513
254,179
265,472
254,179
2,658,775
19,061,447
21,974,401
373
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
20.
Fair value measurement (continued)
2021
Assets measured at fair value
Investment properties
Residential
Offices and other commercial properties
Manufacturing and industrial properties
Investment properties held for sale
Residential
Offices and other commercial properties
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
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
81
4,388
86
62
223
4,840
1,813
1,813
-
-
-
11,937
11,317
10,871
34,125
1,790
1,781
3,571
11,937
11,317
10,871
34,125
1,790
1,781
3,571
162,941
162,941
281,868
281,868
-
-
-
-
-
-
-
-
4,009
8,554
632,925
81
4,388
86
62
223
4,840
1,813
1,813
4,865
734,059
632,925
Investments at FVPL
Investments at FVOCI
Balances with Group companies
856
725,505
-
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
726,361
6,653
1,127,993
1,861,007
-
-
245,592
-
1,074,144
98,238
-
34,800
24,371
245,592
34,800
1,196,753
-
-
9,359,456
9,359,456
1,074,144
343,830
9,418,627
10,836,601
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 €4,647 thousand in their fair value and a decrease in the
discount factor by 10% would result in an increase of €784 thousand in their fair value.
For one investment included in debt and other non-equity securities mandatorily measured at FVPL as a
result of the SPPI assessment and categorised as Level 3 with a carrying amount of €3,509 thousand as at
31 December 2021, a change in the conversion factor by 10% would result in a change in the value of the
debt and other non-equity securities by €351 thousand.
374
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
20.
Fair value measurement (continued)
2021
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
Debt securities in issue
Subordinated liabilities
Level 1
€000
Level 2
€000
Level 3
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
292,615
39,695
779
1,348
61
21
218
2,427
30,025
32,452
2,950,646
373,729
-
-
-
315,464
-
-
-
-
-
-
-
-
-
-
779
1,348
61
21
218
2,427
30,025
32,452
2,950,646
373,729
17,532,995
17,532,995
67,929
-
-
67,929
292,615
355,159
332,310
3,639,839
17,600,924
21,573,073
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 years ended 31 December 2022 and 2021 there were no significant transfers between Level 1
and Level 2.
375
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
20.
Fair value measurement (continued)
Annual Financial Report 2022
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 and consequently, the Company requires
significant unobservable inputs to calculate their fair value.
The movement in Level 3 financial assets which are measured at fair value is presented below:
Investment
properties
Investment
properties
held for sale
Own use
properties
Loans and
advances to
customers
Financial
instruments
Balances
with Group
Companies
Investment
properties
Investment
properties held
for sale
Own use
properties
Loans and
advances to
customers
Financial
instruments
Balances
with Group
Companies
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
2022
2021
3,571
162,941
281,868
1 January
Additions
Transfers from investment properties to
non-current assets and disposal groups
held for sale (Note 28)
Disposals
Transfers from investment properties to
own use properties
Net gains/(losses) on balances with
Group companies (Note 10)
Conversion of instruments into common
shares
Depreciation charge for the year
Fair value (losses)/gains
Net gains/(losses) on loans and
advances to customers measured at
FVPL (Note 10)
Derecognition of funding
Interest on loans
Foreign exchange adjustments
31 December
34,125
405
-
-
-
(7,731)
(3,571)
-
-
-
-
(448)
-
-
-
-
26,351
-
-
-
-
-
-
-
-
-
-
3,066
-
-
-
-
-
(1,414)
-
-
-
-
-
-
-
-
-
-
-
-
-
4,050
(82,522)
10,963
-
12,563
6,366
632,925
65,210
-
(500)
-
-
-
-
(1,723)
-
-
-
17
-
-
-
(57,399)
-
-
-
-
(142,855)
34,912
-
47,438
147
(3,979)
(8,082)
(867)
-
-
-
(532)
-
-
-
-
-
-
3,979
(408)
-
-
-
-
-
-
-
-
-
162,202
289,861
20,704
821
-
-
867
-
-
(1,417)
468
-
-
-
-
-
-
-
-
-
-
-
-
(17,292)
(3,083)
12,382
-
35
-
(199)
-
-
(11,792)
-
3,815
-
-
-
-
696,121
2,631
-
-
-
(37,338)
-
-
-
-
(52,452)
23,963
-
164,593
214,359
16,723
532,793
34,125
3,571
162,941
281,868
12,563
632,925
376
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
20.
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 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, investment
properties held for sale and own use properties are presented in the tables below:
377
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
Type and country
Residential
Cyprus
Greece
Offices and other commercial properties
Cyprus
Greece
Manufacturing and industrial
Cyprus
Greece
Total
Analysis of own use properties
2022
€000
4,911
4,134
9,045
5,470
3,000
8,470
1,668
7,168
8,836
26,351
Annual Financial Report 2022
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
€37-€93 €185-€1,673
5%-7%
€427-€2,338
€130-€650
m2
134-1,203
m2
89-1,420
€6-€115 €164-€2,115
2%-7.1%
€45-€1,892
€7-€4,017
24-5,147
51-825
€36-€136
€470
4%-5.5%
€520-€1,915
€150
348-1,203
37-1,420
€19-€381 €193-€3,548 5.4%-10.5%
€72-€3,638
€142-€265
100-8,582
6-4,692
€36-€47
n/a
6%
€538-€1,063
n/a 2,202-6,320
743-1,608
€7-€58
€133-€461
3.5%-11%
€8-€439
€5-€395
57-34,495
349-5,858
Years
10-104
11-50
9-67
18-64
n/a
13-84
Type and country
Offices and other commercial properties
Cyprus
Total
2022
€000
164,593
164,593
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
5.8% €550-€6,164 €145-€1,400 390-51,947 122-11,233
20-79
378
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
20.
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
Manufacturing and industrial
Cyprus
Greece
Total
Analysis of own use properties
Type and country
Offices and other commercial properties
Cyprus
Total
2021
€000
9,577
4,150
13,727
9,356
3,742
13,098
3,187
7,684
10,871
37,696
2021
€000
162,941
162,941
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
€35-€100 €134-€1,370
4.5%-5% €380-€2,297
€110-€800
89-1,203
€3-€115 €131-€2,296 0.7%-8.4% €50-€1,892
€3-€2,437
5,147
Building
area
Age of
building
m2
19-559
51-825
Years
7-48
10-49
€25-€121
n/a
4%-6% €498-€1,915
€580-€950
152-1,480
25-2,533
€19-€272 €207-€3,615 5.3%-11.3% €74-€3,615
€258
8,582
6-4,692
€26-€38
n/a
5%-6% €522-€1,646
n/a 2,202-6,320
743-1,608
€43
€71-€450
5.2%-10%
€8-€425
€399
57-34,445
349-5,858
9-76
17-63
23
12-83
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 €580-€1,855
5.8%
€70-€6,164 €70-€1,400 390-51,947 122-11,233
19-78
379
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
20.
Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
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.
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 43.6)
Loans and advances to customers measured at FVPL
2022
€000
9,915,037
2021
€000
9,818,026
(176,475)
(264,360)
9,738,562
9,553,666
214,359
281,868
9,952,921
9,835,534
The following tables present the Company’s gross loans and advances to customers at amortised cost by
staging and by geographical analysis (based on the country in which the loans are managed).
2022
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
Cyprus
2021
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
Cyprus
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
7,931,292
1,586,488
370,742
115,544
10,004,066
(64,255)
(20,885)
(1,803)
(2,086)
(89,029)
7,867,037
1,565,603
368,939
113,458
9,915,037
7,867,037
1,565,603
368,939
113,458
9,915,037
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
7,488,091
1,721,231
554,627
159,755
9,923,704
(69,659)
(22,051)
(3,530)
(10,438)
(105,678)
7,418,432
1,699,180
551,097
149,317
9,818,026
7,418,432
1,699,180
545,327
149,317
9,812,256
Other countries
-
-
5,770
-
5,770
7,418,432
1,699,180
551,097
149,317
9,818,026
380
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
21.
Loans and advances to customers (continued)
Residual fair value adjustment
The residual fair value adjustment on initial recognition 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.
Loans and advances to customers measured at FVPL are managed in Cyprus.
The following tables present the Company’s gross loans and advances to customers at amortised cost by
staging and by business line concentration.
2022
By business line
Corporate and Large
corporate
International 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
2,502,630
807,282
685,099
824,904
150
189,825
53,964
35
1,515
34,616
3,398,492
24
685,308
10,364
1,026,608
2,982,436
305,714
30,071
12,413
3,330,634
704,959
152,815
14,376
15,746
887,896
2,842
12,643
5,168
1,713
-
-
-
108
104,539
39,996
34,246
10,603
22,018
5,364
-
-
-
-
31,934
5,652
20,689
23,374
42,155
16,237
18,403
29,339
88,956
28,569
1,254
2
10,175
2,381
3,292
1,029
1,316
2,366
14,039
4,953
147
597
67,952
49,001
72,633
24,343
19,719
31,705
102,995
33,630
137,874
46,247
7,867,037
1,565,603
368,939
113,458
9,915,037
381
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
21.
Loans and advances to customers (continued)
2021 (restated)
By business line
Corporate and Large
corporate
International 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
2,365,329
578,920
811,948
878,698
53,259
215,012
56,002
5,753
6,037
44,269
3,344,298
11
637,943
10,589
1,043,586
2,769,274
320,473
49,633
11,886
3,151,266
732,154
116,983
23,361
16,189
888,687
6,092
14,016
3,075
1,409
-
-
-
114
92,193
43,908
35,613
16,417
15,528
5,701
-
-
-
-
40,715
781
14,255
34,083
62,934
24,838
29,600
35,685
154,469
51,672
2,775
-
6,257
5,663
3,547
1,050
6,474
3,632
28,650
10,424
235
441
62,217
70,179
85,084
32,998
36,074
39,317
183,119
62,210
135,918
45,130
7,418,432
1,699,180
551,097
149,317
9,818,026
Loans and advances to customers pledged as collateral are disclosed in Note 45.
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.
382
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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.
BOC Asset Management Ltd
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
2022
€000
2021
€000
3,134
906
1,111
3
2,628
4,719
6
-
873
8,471
8,390
656
2,435
33,332
531,627
1,166
532,793
566,125
3,397
2,699
1,822
3
8,087
5,321
35
2,631
1,593
6,025
142
682
2,363
34,800
631,789
1,136
632,925
667,725
Total
Stage 1
Stage 3
POCI
Total balances with Group Companies at
amortised cost
Balances with Group Companies measured at
FVPL
2022
2021
Gross
carrying
amount
€000
16,984
12,133
10,978
ECL
€000
129
4,783
1,851
Gross carrying
amount
€000
12,051
111,639
8,467
ECL
€000
-
95,597
1,760
40,095
6,763
132,157
97,357
532,793
572,888
-
6,763
632,925
765,082
-
97,357
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 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.
383
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
22.
Balances and transactions with Group companies (continued)
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 €2,628 thousand as at 31 December 2022 which are denominated in
Russian Rouble (2021: €8,087 thousand). During the year ended 31 December 2022 credit losses of €7,353
thousand (2021: €4,464 thousand) have been recognised in relation to these receivable balances, out of
which €3,665 thousand (2021: €3,626 thousand) relate to Hydrobius Ltd.
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.
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
BOC Terra AIF V.C.I Plc
BOC Asset Management Ltd
Obafemi Holdings Ltd
Group property companies in Cyprus
Other Group companies in Cyprus
Total
2022
€000
2021
€000
21,347
2,523
13,289
5,519
22,370
2,354
1,267
1,629
2,626
2,711
179
3,738
525
1,192
185
8,166
7,893
97,513
14,754
3,386
14,530
5,858
7,597
2,283
1,267
1,637
973
4
423
247
547
972
217
5,068
8,166
67,929
Amounts included above comprise mainly of deposits from the Group companies, which are made on normal
business terms.
384
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
22.
Balances and transactions with Group companies (continued)
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
Labancor 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
23.
Investments in associates
Carrying value of the investments in associates
Aris Capital Management LLC
Rosequeens Properties Limited
Fairways Automotive Holdings Ltd
2022
€000
2021
€000
8,000
4,000
9,000
117
342
-
-
-
12,000
7,000
5,078
-
336
740
30
21
21,459
25,205
2022
€000
2021
€000
36,515
27,110
(19,882)
(13,828)
18,477
(4,603)
2,108
16,412
(4,947)
96
(8,174)
(7,448)
Percentage
holdings
(%)
30.0
33.3
45.0
The carrying values of the investments in associates are considered to be fully impaired and their value has
been restricted to zero.
Investments in associates
Rosequeens Properties SRL
During the year ended 31 December 2022 the Company disposed of its 33.3% holding in associate company
Rosequeens Properties SRL.
385
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
23.
Investments in associates (continued)
Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc (Apollo)
In March 2021 the Company completed the sale of its entire holding of 32.9% of the UCITS of Apollo. The
Company considered that it exercised significant influence over Apollo even though no Board representation
existed, because due to its UCITS holdings, it possessed the power to potentially appoint members of the
Board of Directors. The gain on the sale of the investment in associate amounted to €309 thousand and had
been recognised in 'Other Income' (Note 11) during the year ended 31 December 2021.
24.
Property and equipment
2022
Net book value at 1 January
Additions
Disposals and write-offs
Depreciation charge for the year (Note 13)
New leases (Note 41)
Re-assessment of RoU assets (Note 41)
Derecognition of RoU assets (Note 41)
Net book value at 31 December
1 January 2022
Cost or valuation
Accumulated depreciation
Net book value
31 December 2022
Cost or valuation
Accumulated depreciation
Net book value
Property
€000
Equipment
€000
192,788
3,790
(46)
14,676
1,507
(92)
Total
€000
207,464
5,297
(138)
(8,172)
(4,040)
(12,212)
-
960
(1,460)
187,860
825
-
-
825
960
(1,460)
12,876
200,736
254,846
(62,058)
192,788
102,746
357,592
(88,070)
(150,128)
14,676
207,464
251,272
(63,412)
187,860
102,971
354,243
(90,095)
(153,507)
12,876
200,736
386
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
24.
Property and equipment (continued)
2021
Net book value at 1 January
Additions
Revaluation
Transfers to stock of property (Note 20)
New leases (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 2021
Cost or valuation
Accumulated depreciation
Net book value
31 December 2021
Cost or valuation
Accumulated depreciation
Net book value
The net book value of the Company's property comprises:
Freehold property
Improvements on leasehold property
RoU assets (Note 41)
Total
Property
€000
Equipment
€000
204,741
1,446
16,140
2,770
468
867
472
(5,976)
(7)
(9,223)
192,788
-
-
-
-
(106)
(4,128)
14,676
Total
€000
220,881
4,216
468
867
472
(5,976)
(113)
(13,351)
207,464
258,086
(53,345)
204,741
102,939
361,025
(86,799)
(140,144)
16,140
220,881
254,846
(62,058)
192,788
102,746
357,592
(88,070)
(150,128)
14,676
207,464
2022
€000
164,593
2,422
20,845
2021
€000
162,941
2,514
27,333
187,860
192,788
Freehold property includes land amounting to €67,847 thousand (2021: €67,847 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.
There were no charges against the freehold property of the Company as at 31 December 2022 and 2021.
The net book value of freehold property, on a cost less accumulated depreciation basis, as at 31 December
2022 amounts to €117,070 thousand (2021: €115,418 thousand).
387
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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 2022
Cost
Accumulated amortisation and impairment
Net book value
31 December 2022
Cost
Accumulated amortisation and impairment
Net book value
2022
€000
41,846
11,330
(392)
2021
€000
46,254
12,944
(2,374)
(14,405)
(14,978)
38,379
41,846
203,370
194,650
(161,524)
(148,396)
41,846
46,254
214,180
203,370
(175,801)
(161,524)
38,379
41,846
Computer software includes internally developed computer software with a net carrying amount of €2,954
thousand (2021: €1,235 thousand).
26.
Stock of property
The carrying amount of stock of property is determined as the lower of cost and net realisable value.
Impairment is recognised if the net realisable value is below the cost of the stock of property. During the
year ended 31 December 2022 an impairment loss of €6,118 thousand (2021: €25,012 thousand) was
recognised in 'Impairment net of reversals on non-financial assets' in the income statement. At 31
December 2022, stock of property of €177,853 thousand (2021: €166,573 thousand) is carried at net
realisable value. Additionally, at 31 December 2022 stock of property with a carrying amount of €57,199
thousand (2021: €77,337 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 disposal group (Note 28)
Impairment (Note 14)
Net book value at 31 December
There were no costs of construction during the years 2022 and 2021.
388
2022
€000
513,289
17,175
(82,530)
-
(6,118)
441,816
2021
€000
678,426
30,784
(78,776)
(92,133)
(25,012)
513,289
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
26.
Stock of property (continued)
As at 31 December 2022 there are charges against stock of property of the Company with carrying value
€20,989 thousand (2021: €21,015 thousand).
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
2022
Residential properties
Offices and other commercial properties
Manufacturing and industrial properties
Hotels
Land (fields and plots)
Total
2021
Residential properties
Offices and other commercial properties
Manufacturing and industrial properties
Hotels
Land (fields and plots)
Total
27.
Prepayments, accrued income and other assets
2022
€000
93,091
(82,530)
10,561
2021
€000
89,607
(78,776)
10,831
Cyprus
€000
Greece
€000
Total
€000
63,340
51,706
6,871
2,627
272,744
397,288
16,947
11,263
11,710
437
4,171
44,528
80,287
62,969
18,581
3,064
276,915
441,816
Cyprus
€000
Greece
€000
Total
€000
74,069
57,089
10,713
2,697
309,603
454,171
18,350
19,462
15,972
456
4,878
59,118
92,419
76,551
26,685
3,153
314,481
513,289
Financial assets
Debtors
Receivable relating to tax
Deferred purchase payment consideration
Other assets
Non-financial assets
Current tax receivable
Prepaid expenses
Other assets
389
2022
€000
2021
€000
10
4,536
311,523
51,421
367,490
11
4,558
299,766
50,306
354,641
122,709
122,709
82
22,860
145,651
513,141
93
21,995
144,797
499,438
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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:
2022
1 January
Net increase
31 December
2021
1 January
Net increase
31 December
Stage 1
€000
Stage 3
€000
351,802
12,464
35,803
160
Total
€000
387,605
12,624
364,266
35,963
400,229
50,105
301,697
351,802
33,779
2,024
35,803
83,884
303,721
387,605
An analysis of the changes on the ECL of the above financial assets is presented in the table below:
2022
1 January
Write-offs
Changes to models and inputs used for ECL calculations
31 December
2021
1 January
Changes to models and inputs used for ECL calculations
31 December
Stage 1
€000
Stage 3
€000
Total
€000
2,557
-
(450)
2,107
-
2,557
2,557
30,407
(206)
431
30,632
28,120
2,287
30,407
32,964
(206)
(19)
32,739
28,120
4,844
32,964
There were no financial assets classified as Stage 2 as at 31 December 2022 and 2021. In addition, no
financial assets were measured at FVPL as at 31 December 2022 and 2021.
On the completion date of the sale of Project Helix 2 (the ‘Transaction’) in June 2021, the Company
recognised an amount of €381,567 thousand in other financial assets, which represented the fair value of
the deferred consideration receivable from the Transaction (the ‘DPP’). This amount is payable in four
instalments up to December 2025 and each instalment carries interest up to each payment date. The first
instalment in the amount of €84,579 thousand was received in December 2021. An amount of €10,889
thousand, which represents the interest income on DPP has been recognised in the Income Statement for
the year ended 31 December 2022 (2021: €5,335 thousand) within 'Interest income - Financial assets at
amortised cost - Other financial assets' (Note 6). There are no other conditions attached. An amount of
€13,983 thousand which represents the effect of discounting the DPP at the date of derecognition of the
loan portfolio was recorded as part of the transaction within 'Credit losses to cover credit risk on loans and
advances to customers' during the year ended 31 December 2021. The DPP is classified as Stage 1 as at 31
December 2022 and 2021.
During the year ended 31 December 2022, credit losses of €72 thousand were recognised in relation to
other financial assets. This includes a credit for ECL of €19 thousand (of which €867 thousand relate to a
partial reversal for 12-months ECL of the DPP) and €91 thousand impairment losses. During the year ended
31 December 2021, credit losses of €5,828 thousand were recognised in relation to prepayments, accrued
income and other financial assets. This includes ECL losses of €4,844 thousand (of which €2,557 thousand
relate to 12-months ECL of the DPP), €1,178 thousand write-offs and €194 thousand reversal of
impairments.
390
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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
2021. There were no assets classified as held for sale as at 31 December 2022.
Disposal group 1
Disposal group 2
Gross loans and advances to customers
Allowance for ECL for impairment of loans and advances to customers (Note
43.6)
Stock of property
Investment property
31 December
2021
€000
331,329
7,301
338,630
2021
Disposal
Group 1
€000
543,663
Disposal
Group 2
€000
11,881
(300,608)
(4,580)
243,055
7,301
84,703
3,571
-
-
331,329
7,301
Disposal Group 1
Disposal group 1 comprised a portfolio of loans and advances to customers and a property portfolio
(comprising stock of property and investment property) known as Project Helix 3 ('Project Helix 3' or the
'Helix 3 Transaction'), classified as held for sale since 30 September 2021. In November 2022, the Company
completed the disposal of Project Helix 3 through the transfer of the portfolios to a licensed Cypriot Credit
Acquiring Company (the CyCAC). The shares of the CyCAC were subsequently acquired by certain funds
affiliated with PIMCO, the purchaser of Project Helix 3. The gross consideration on completion for the
transaction amounted to approximately €366 million (including deposit received in 2021) and reflects
adjustments resulting from, inter alia, loan repayments and property disposals proceeds received on the
portfolios since the reference date 31 May 2021. The net consideration for the transaction (after transaction
costs and other adjustments upon completion) corresponds to the net book value of the loans and advances
to customers as at the date of completion, which amounted to €235 million, and the carrying value of the
stock of property and investment properties which amounted to a total of €88 million.
Disposal Group 2
Disposal group 2 comprised a portfolio of loans and advances to customers and stock of properties in
Romania known as Project Sinope ('Project Sinope' or the 'Sinope Transaction'), classified as held for sale
since 31 December 2021. The transaction was completed in August 2022 and all of the consideration has
been received in cash by completion date.
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)
2022
€000
1,976,674
2021
€000
2,969,600
As at 31 December 2022, ECB funding amounted to €2 billion (2021: €3 billion) borrowed from various
TLTRO III operations.
391
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
29.
Funding from central banks (continued)
In recognition of the challenging credit environment during the pandemic period, the Governing Council of
the ECB 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 would 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 during the above periods remained at 0%. For the counterparties whose
eligible net lending reached 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 would be 50 basis points below the average interest rate on the deposit facility prevailing over
the same period, and in any case not higher than minus 1%. The Company exceeded the eligible net
lending threshold applicable in the specified periods and was entitled to the beneficial rate of minus 1% for
the period June 2020 to June 2022 and recognised interest at the beneficial rate over the corresponding
period. Subsequently, the Company updated the effective interest rate based on the contractual terms and
applying changes in terms of the operations as a change in the EIR applied prospectively.
ECB during its October 2022 meeting, announced that from 23 November 2022 onwards, the applicable
interest rate would be indexed to the average applicable key ECB interest rates from that date onward.
The maturity of TLTRO III is three years from the settlement of each operation, but there is an option
available to early repay or reduce the amounts borrowed before their respective final maturity.
The Company early repaid €1 billion of TLTRO III funding in December 2022.
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
Greece
United Kingdom
United States
Germany
Romania
Russia
Ukraine
Belarus
Other countries
2022
€000
2021
€000
10,561,724
9,221,791
2,840,346
2,423,086
5,596,249
5,886,006
18,998,319
17,530,883
13,019,109
11,992,960
1,933,771
1,906,854
706,233
178,962
168,785
69,514
700,465
290,050
83,299
713,621
133,355
127,013
54,306
661,820
276,248
55,738
1,848,131
1,608,968
18,998,319
17,530,883
Deposits by geographical area are based on the country of passport of the Ultimate Beneficial Owner.
392
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
30.
Customer deposits (continued)
By currency
Euro
US Dollar
British Pound
Russian Rouble
Swiss Franc
Other currencies
By business line
Corporate and Large corporate
International corporate
SMEs
Retail
Restructuring
– Corporate
– SMEs
– Retail other
Recoveries
– Corporate
International banking services
Wealth management
2022
€000
2021
€000
17,067,299
15,736,030
1,529,548
1,373,584
333,458
312,918
3,466
11,796
52,752
28,539
10,865
68,947
18,998,319
17,530,883
2022
€000
2021
(restated)
€000
1,915,300
1,602,975
139,898
1,007,555
145,934
866,860
11,333,783
11,051,397
16,017
6,375
10,152
21,658
13,091
9,862
1,262
1,383
3,957,050
3,500,183
610,927
318,299
18,998,319
17,531,642
31.
Debt securities in issue and Subordinated liabilities
Subordinated
liabilities
Subordinated Tier 2 Capital
Note - January 2017
Subordinated Tier 2 Capital
Note April 2021
Contractual
interest rate
9.25% up to
19 January 2022
6.625% up to
23 October 2026
2022
2021
Nominal
value
Carrying
value
Nominal
value
Carrying
value
€000
€000
€000
€000
-
-
35,605
38,561
300,000
303,812
300,000
303,812
300,000
303,812
335,605
342,373
Debt securities in issue
Senior Preferred Notes
June 2021
2.50% up to
24 June 2026
300,000
297,636
300,000
302,555
BOCH and the Company maintain a Euro Medium Term Note (ΕΜΤΝ) Programme with an aggregate nominal
amount up to €4,000 million.
393
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
31.
Debt securities in issue and Subordinated liabilities (continued)
Subordinated Liabilities
Subordinated Tier 2 Capital Note - January 2017
In January 2017, the Company issued a €250 million unsecured and subordinated Tier 2 Capital Note under
the EMTN Programme. The note was priced at par with a coupon of 9.25% per annum payable annually up
to 19 January 2022 and thereafter 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 had a maturity date on 19 January 2027. The
Company had the option to redeem the note early on 19 January 2022, subject to applicable regulatory
consents. In April 2021, the Company invited the holders of this note to tender it for purchase by the
Company at a price of 105.5% plus accrued interest and following acceptance of the valid tenders of €207
million nominal amount, proceeded with the re-purchase. As a result, the Company incurred a loss of
€12,558 thousand for the year ended 31 December 2021, while at the same time forfeiting the relevant
obligation for future coupon payments. By 31 December 2021, the Group purchased from the open market
a further €7 million nominal amount of the notes, which were held by the Company. On 19 January 2022,
the Company exercised its option to redeem at par the remaining nominal amount outstanding of the notes.
All outstanding notes were cancelled. The note was listed on the Luxembourg Stock Exchange’s Euro
Multilateral Trading Facility (MTF) market.
Subordinated Tier 2 Capital Note - April 2021
In April 2021, BOCH issued a €300 million unsecured and subordinated Tier 2 Capital Note under the EMTN
Programme and immediately after, BOCH and the Company entered into an agreement pursuant to which
BOCH on-lent to the Company the entire €300 million proceeds of the issue of the Note (the 'T2 Loan') on
terms substantially identical to the terms and conditions of the Note issued by BOCH. The T2 Loan was
priced at par with a coupon of 6.625% per annum payable annually in arrears and resettable on 23 October
2026 at the then prevailing 5-year swap rate plus a margin of 6.902% per annum up to 23 October 2031,
payable annually. The T2 Loan matures on 23 October 2031. The Company has the option to redeem the T2
Loan early on any day during the six-month period from 23 April 2026 to 23 October 2026, subject to
applicable regulatory consents.
The fair value of the Subordinated liabilities as at 31 December 2022 and 2021 is disclosed in Note 20.
Debt securities in issue
Senior Preferred Notes - June 2021
In June 2021, the Company issued a €300 million senior preferred note under the EMTN Programme. The
note was priced at par with a fixed coupon of 2.50% per annum, payable annually in arrears and resettable
on 24 June 2026. The note matures on 24 June 2027. The Company has the option to redeem the note
early on 24 June 2026, subject to applicable regulatory consents. The note is listed on the Luxembourg
Stock Exchange’s Euro MTF market. The note complies with the criteria for the minimum requirement for
own funds and eligible liabilities (MREL) and contributes towards the Company’s MREL requirements.
The fair value of the debt securities in issue as at 31 December 2022 and 2021 is disclosed in Note 20.
394
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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 43.5.1 and
43.5.2)
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
2022
€000
2021
€000
35,813
379
3,694
17,429
53,851
17,977
97,585
22,201
-
20,098
269,027
8,753
462
-
21,945
66,065
16,369
64,024
27,914
19,225
46,146
270,903
Other liabilities include an amount of €10,385 thousand (2021: €26,476 thousand) relating to the
guarantee fee for the conversion of DTA into tax credits (Note 15).
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
2022
€000
2021
€000
209
207
17,013
17,429
39
293
21,613
21,945
2022
2021
Number of
shares
(thousand)
€000
Number of
shares
(thousand)
€000
Authorised
Ordinary shares of €0.10 each
47,677,593
4,767,759
47,677,593
4,767,759
Issued
1 January and 31 December
9,597,945
959,794
9,597,945
959,794
Authorised and issued share capital
All issued ordinary shares carry the same rights.
There were no changes to the authorised or issued share capital during the years ended 31 December 2022
and 2021.
Share premium reserve
There were no changes to the share premium reserve during the years ended 31 December 2022 and 2021.
395
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
33.
Share capital (continued)
Other equity instruments
Reset Perpetual Additional Tier 1 Capital Securities
2022
€000
220,000
220,000
2021
€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 BOCH the Company. The coupon is at 12.50%
and is payable semi-annually. During the year ended 31 December 2022, two coupon payments to AT1
holders were made of a total amount of €27,500 thousand and have been recognised in retained earnings
(2021: €27,500 thousand). The Company may elect to cancel any interest payment for an unlimited period,
on a non-cumulative basis, whereas it mandatorily cancels interest payment under certain conditions. 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 on each subsequent fifth anniversary,
subject to the prior approval of the regulator.
34.
Dividends
Based on the 2021 SREP decision the Company was under a regulatory prohibition for equity dividend
distribution in 2022, 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 the years 2022 and 2021.
No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company
and BOCH.
Following the 2022 SREP decision, effective from 1 January 2023, the equity dividend distribution
prohibition was amended so that any dividend distribution shall be subject to regulatory approval.
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 (SDC) 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
General Health System (GHS), 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 SDC and GHS are paid by the Company on account of the shareholders.
396
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
35.
Retained earnings (continued)
During 2022 and 2021 no special defence contribution on deemed dividend distribution was paid by the
Company.
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 2022 amounted to €952,263 thousand (2021: €936,789 thousand).
37.
Provisions for pending litigation, claims, regulatory and other matters
The Company, in the ordinary course of business, is involved in various disputes and legal proceedings and
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.
Apart from what is described below, the Company considers that none of these matters are material, either
individually or in aggregate. Nevertheless, provisions have been made where: (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. 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 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 except to the extent that doing so would be prejudicial. Any provision recognised does
not constitute an admission of wrongdoing or legal liability. There are also situations where the Group may
enter into a settlement agreement. This may occur only if such settlement is in the Company's interest
(such settlement does not constitute an admission of wrongdoing) and only takes place after obtaining legal
advice and all approvals by the appropriate bodies of management. 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, regulatory and other matters as at 31 December
2022 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).
397
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
37.
Provisions for pending litigation, claims, regulatory and other matters (continued)
37.1
Pending litigation and claims (continued)
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 demonstrated 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 three capital securities cases have been adjudicated in favour of the Company and four cases have
been adjudicated against the Company at Areios Pagos (Supreme Court of Greece). The cases that the
Company has won will be retried by the Court of Appeal as per the direction of the Supreme Court. One of
the said cases has already been retried by the Court of Appeal and the ruling was in favour of the Company.
There has been a new petition for annulment against this decision of the Court of Appeal and the case will
be retried before the Supreme Court in 2023. The four cases that the Company has lost will not be retried
and are therefore deemed as concluded.
In Cyprus sixteen judgments have been issued so far with regards to the Company capital securities. Ten of
the said judgments have been issued in favour of the Company (dismissing the plaintiffs’ claims) and six of
them against the Company. The Company has filed appeals with regards to all of the cases where the
judgment was issued against it. In five of the ten cases that the Company won, the plaintiffs have filed an
appeal. It is to be noted that the statutory limitation period for filing claims with respect to this and other
matters for which the cause of action arose prior and up to 31 December 2015, expired on 31 December
2021.
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 Company has won four cases with regards to bail-in related litigation (on failure to follow instructions).
The plaintiffs have filed appeals with respect to two of the said judgments.
The Company won three bail-in decree related cases. In summary, the court ruled that the measures that
the government implemented were necessary to prevent the collapse of the financial sector, which would
have detrimental consequences for the country’s economy. Under the circumstances the government could
rely on the doctrine of necessity when it imposed the bail-in. Up to the date of the Financial Statements
only one appeal has been filed with respect to the above mentioned judgments. The Company lost one Laiki
Bail-in decree case but it is the opinion of legal advisors of the Company that this case is a one-off case
which turned on its own particular facts.
The Company won one and lost two bail-in wrongful application related cases. An appeal that was filed by
the Company is still pending with regards to this matter. With regards to the case that the Company won,
the plaintiffs have not filed an appeal.
398
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
37.
Provisions for pending litigation, claims, regulatory and other matters (continued)
37.1
Pending litigation and claims (continued)
Shareholders
A number of actions for damages have been 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. 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 the Company contests 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.
Employment litigation
Former employees of the Company have instituted a number of employment claims including unfair
dismissals and one claim for Provident Fund entitlements against the Company and the Trustees of the
Provident Fund. In July 2021 the claim for Provident Fund entitlements was settled. The Company does not
consider that the pending cases in relation to employment will have a material impact on its financial
position. A judgment has been issued in one of the unfair dismissals cases and the Company lost. The
Company has filed an appeal with respect to this case. The facts of this case are unique and it is not
expected to affect the rest of the cases where unfair dismissal is claimed.
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, 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.
399
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
37.
Provisions for pending litigation, claims, regulatory and other matters (continued)
37.1
Pending litigation and claims (continued)
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, there are several other banking claims, where the
amounts involved are not as significant. Management has assessed either the probability of loss as remote
and/or 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.
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.
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, CECS and rights issue prospectuses (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.
The Cyprus Securities and Exchange Commission (CySEC) Investigations
CySEC has concluded (in two stages) during 2013 and 2014 its investigation with respect to the Company
exposure to Greek Government Bonds and the non-disclosure of material information and other corporate
governance deficiencies relating to the said exposure. In this respect, CySEC has issued two decisions,
coming to the conclusion that the Company was in breach of certain laws regarding disclosure of
information. At all times, the Company had filed recourses before the Administrative Court regarding the
decisions of CySEC and the fines imposed upon it.
In October 2021 the Administrative Court ruled in favour of the Company in relation to the fine of €160
thousand on the ground of flawed constitution of the CySEC Board. In May 2022, the Administrative Court
(under a different bench) ruled against the Company in relation to the fine of €950 thousand and found that
the constitution of the CySEC Board was not flawed. Both cases are now pending on appeal. Relevant
provisions were made since prior years for the said cases.
As at 31 December 2022 and 31 December 2021 there were no pending CySEC investigations against the
Company.
Central Bank of Cyprus (CBC)
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 2015-2018.
400
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
37.
Provisions for pending litigation, claims, regulatory and other matters (continued)
37.2
Regulatory matters (continued)
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 prima facie, failed to act in accordance with certain provisions of the AML/counter terrorism financing
(CTF) Law and the CBC AML/CTF Directive. In October 2021 a fine of €277 thousand was imposed upon the
Company. The Company paid a discounted fine and has filed a recourse against this decision and fine.
Following the investigation and the on-site examination, the CBC concluded with regards to the files and
transactions related to years 2015-2018, that the Company was in breach of certain articles of the
legislation. In December 2021, a fine of €790 thousand was imposed upon the Company. The Company paid
a discounted fine and has filed a recourse against the decision and the fine.
The CBC had conducted an investigation in the past into the Company’s issuance of capital securities and
concluded that the Company breached certain regulatory requirements concerning the issuance of
Convertible Capital Securities (Perpetual) in 2009, but not in relation to the CECS in 2011. The CBC had, in
2013, imposed a fine of €4 thousand upon the Company, who filed a recourse. The Administrative Court
cancelled both the CBC’s decision and the fine that was imposed upon the Company in a respective
judgment dated in 2020. CBC decided to re-examine this matter and to re-open the investigation.
The CBC has decided that between the reporting date of 31 December 2014 and until the reporting date of
31 December 2017 the Company was in breach of the requirements of the Directive on the Computation of
Prudential Liability in Euro, of the Directive on the Prudential Liability in foreign currencies and of the CBC
Directive on Governance and Management Arrangements in Credit Institutions. The Company was given the
opportunity to express its views with regards to the identified failures and the possible imposition of
sanctions. A fine of €6 thousand has been imposed upon the Company. The said fine has been paid.
European Central Bank (ECB) Investigation
In July 2021, the Company was notified in writing by the ECB that, based on an investigation carried out by
ECB’s investigating unit, the Company was in breach of an ECB decision of September 2016. The alleged
breach related to the requirement imposed on the Company to seek the prior approval of the ECB for any
transfer of capital or liquidity to any subsidiary company. The Governing Council of the ECB informed the
Company in February 2022 of its decision to impose an administrative penalty of €575 thousand. The
Company proceeded with the payment of the fine.
Commission for the Protection of Competition Investigation (CPC)
In April 2014, following an investigation which began in 2010, 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.
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 had 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 have any formal proceedings been instituted against the Company in
this case. The Group is not aware of any further developments in this case.
401
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
37.
Provisions for pending litigation, claims, regulatory and other matters (continued)
37.2
Regulatory matters (continued)
Association for the Protection of Bank Borrowers (CYPRODAT)
CYPRODAT filed a complaint with the Commission for the Protection of Competition (CPC) in January 2022,
claiming that the Company and another bank have concerted in practices regarding the recent revisions of
their commissions and charges. It also filed an application for an interim order which, if successful, would
essentially freeze the implementation of the revised commissions and charges. The application for interim
order was rejected by the CPC, however, the CPC reverted in April 2022 to inform the Company of the
initiation of an investigation with respect to this matter. This investigation is currently at a very early stage
to predict its outcome.
Commissioner for the Protection of Personal Data (CPPD)
The CPPD has informed the Company that based on the evidence submitted, there is a breach of Regulation
2016/679 on the protection of natural persons with regards to the processing of personal data and on the
free movement of such data. The breach concerned the exchange of data under the sale of a portfolio of
credit facilities which did not relate to the transaction. A fine of €17 thousand was imposed on the
Company. The said fine has already been paid and the matter has now been concluded.
The Company informed the Commissioner on the procedures to follow to avoid such oversights in the future
and the measures it has taken to remedy the specific breaches.
Consumer Protection Service (CPS)
In July 2017, CPS 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. The Company has filed a
recourse before the Administrative Court against this decision. The Administrative Court has issued its
judgment in 2022 in favour of the Bank and the CPS decision along with the fine have been cancelled. An
appeal has been submitted by CPS with regards to this judgment, which is still pending as at the year-end.
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 Company will take all necessary steps for the protection of its interests. This
matter is still pending before the court as at the year-end.
In April 2021, the Director of the Consumer Protection Service filed an application for the issuance of a
court order against the Company, 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 unfair terms. This matter is still pending before the court as at the year-end.
The Company received a letter in July 2021 from CPS, initiating an ex officio investigation under the
Distance Marketing of Financial Services to Consumers Law, with respect to the services and products of the
Company for which the contract between the Company and the consumer is entered into online via the
Company’s website.
The Company received another letter in July 2021 from CPS, initiating an investigation with respect to an
alleged commercial practice of the Company of promoting a product.
The investigations are currently at a very early stage to predict their outcome.
402
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
37.
Provisions for pending litigation, claims, regulatory and other matters (continued)
37.2
Regulatory matters (continued)
Cyprus Consumers’ Association (CCA)
In March 2021, the Company was served with an application filed by the CCA 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.
This matter is still pending before the court as at the year-end.
The new Law on Consumer Protection brings under one umbrella the existing legislation on unfair contract
terms and practices with some enhanced powers vested in the Consumer Protection Service, i.e., power to
impose increased fines which are immediately payable. The new Law on Consumer Protection has a
retrospective effect in that it also applies to all contracts/practices entered into and/or terminated prior to
this law coming into effect as opposed to contracts/practices which are only entered into/adopted as from
the date of publication of the new Law on Consumer Protection.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these
matters, is unknown.
UK regulatory matters
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
2022
1 January
Net increase in provisions including unwinding
of discount
Utilisation of provisions
Release of provisions
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
52,660
14,616
29,828
97,104
15,627
(6,314)
(3,210)
-
58,763
26,991
950
(1,357)
(1,037)
(53)
13,119
19,017
(2)
(100)
-
35,594
(7,673)
(4,347)
(53)
48,743
120,625
-
2,804
29,795
403
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
37.
Provisions for pending litigation, claims, regulatory and other matters (continued)
37.4
Provisions for pending litigation, claims, regulatory and other matters (continued)
2021
1 January
Net increase in provisions including unwinding
of discount
Utilisation of provisions
Release of provisions
Foreign exchange adjustments
31 December
Provisions expected to be settled within 12
months post reporting date
Pending
litigation and
claims
(Note 37.1)
Regulatory
matters
(Note 37.2)
Other matters
(Note 37.3)
Total
62,255
10,506
43,850
116,611
2,295
(6,768)
(5,122)
-
4,964
(907)
-
53
29,273
36,532
(39,368)
(47,043)
(3,927)
(9,049)
-
53
52,660
14,616
29,828
97,104
15,782
1,845
2,662
20,289
Provisions for pending litigation, claims, regulatory and other matters recorded in the income statement
during the year ended 31 December 2022 amount to €11,880 thousand (2021: credit of €533 thousand,
which included an amount of €841 thousand representing an amount recovered from plaintiffs directly
recognised in the income statement during the year ended 31 December 2021).
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 of provisions for pending litigation and claims for the year ended 31 December 2022 was
primarily driven by a one-off charge of approximately €5,542 thousand in relation to a revised approach on
estimating pending litigation fees. With regards to other matters, the provisions relating to the disposal
process of certain of the Company's operations have been updated on the basis of the Company's
assessment and to the extent those processes have progressed.
An increase by 5% in the probability of loss rate for pending litigation and claims (2021: 5%) with all other
variables held constant, would lead to an increase in the actual provision by €2,821 thousand at 31
December 2022 (2021: increase by €7,097 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 43.5).
38.1
Capital commitments
Capital commitments for the acquisition of property, equipment and intangible assets as at 31 December
2022 amount to €23,473 thousand (2021: €17,758 thousand).
404
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
38.
Contingent liabilities and commitments (continued)
38.2
Contingent liabilities
The Company, as part of the 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 (Note 37.3).
39.
Additional information on cash flow statement
Non-cash transactions
Repossession of collaterals
During the year ended 31 December 2022, the Company acquired properties by taking possession of
collaterals held as security for loans and advances to customers of €17,580 thousand (2021: €30,931
thousand).
Recognition of RoU assets and lease liabilities
During 2022 the Company recognised RoU assets and corresponding lease liabilities of €825 thousand
(2021: €472 thousand).
Disposal of Project Helix 2
During the year ended 31 December 2021 and upon the completion of the disposal of Project Helix 2, the
Company recognised an amount of €381,567 thousand in other financial assets, which represented the fair
value of the deferred consideration receivable for the transaction (the 'DPP') on completion date. Please
refer to Note 27 for further details.
Net cash flow from operating activities - interest and dividends
Interest paid
Interest received
Dividends received (Note 11)
2022
€000
(98,100)
543,603
21,542
467,045
2021
€000
(111,565)
462,735
25,577
376,747
405
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
39.
Additional information on cash flow statement (continued)
Changes in liabilities arising from financing activities
2022
1 January
Cash flows
Other non-cash movements
31 December
2021
1 January
Cash flows
Other non-cash movements
31 December
Funding from
central banks
(Note 29)
€000
2,969,600
(979,389)
(13,537)
Debt securities
in issue and
Subordinated
liabilities
(Note 31)
€000
Total
€000
644,928
3,614,528
(66,797)
(1,046,186)
23,317
9,780
1,976,674
601,448
2,578,122
994,694
1,968,081
6,825
272,152
333,339
39,437
1,266,846
2,301,420
46,262
2,969,600
644,928
3,614,528
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 banks
2022
€000
9,452,558
2021
€000
9,063,730
Loans and advances to banks with original maturity less than three months
95,310
147,375
9,547,868
9,211,105
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 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)
2022
€000
9,452,558
2021
€000
9,063,730
114,537
166,987
9,567,095
9,230,717
95,310
71,379
166,689
147,375
100,318
247,693
Restricted loans and advances to banks include collaterals under derivative transactions of €7,380 thousand
(2021: €41,068 thousand) which are not immediately available for use by the Company, but are released
once the transactions are terminated.
406
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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 primarily 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 rates 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 practice are substantially the same with those for lease contracts of
branches.
During the year ended 31 December 2022 the lease term of existing building contracts was re-assessed
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 2022 and the year ended 31 December 2021 is presented in the table below:
2022
1 January
Depreciation charge for the year (Note 13)
New leases (Note 24)
Assets derecognised (Note 24)
Assets recognised following re-assessment (Note 24)
Interest expense (Note 7)
Cash outflows-payments
31 December
2021
1 January
Depreciation charge for the year (Note 13)
New leases (Note 24)
Assets derecognised (Note 24)
Interest expense (Note 7)
Cash outflows-payments
31 December
RoU
assets
(Note 24)
€000
27,333
(5,988)
825
(1,460)
960
-
-
Lease
Liabilities
(Note 32)
€000
(27,914)
-
(772)
1,456
(960)
(11)
6,000
21,670
(22,201)
RoU
assets
(Note 24)
€000
39,914
(7,077)
472
(5,976)
-
-
Lease
Liabilities
(Note 32)
€000
(39,894)
-
(472)
5,606
(31)
6,877
27,333
(27,914)
As at 31 December 2022 RoU assets comprised of leases of buildings of a carrying amount of €20,845
thousand (2021: €27,333 thousand) and computer hardware of a carrying amount of €825 thousand (2021:
nil), and are presented within Property and equipment 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.
407
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
42.
Analysis of assets and liabilities by expected maturity
Assets
Cash and balances with
central banks
Loans and advances to
banks
Derivative financial assets
Investments
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
Less than
one year
€000
2022
Over one
year
€000
Total
€000
Less than
one year
€000
2021
Over one year
€000
Total
€000
9,452,558
114,537
9,567,095
9,063,730
166,987
9,230,717
95,310
904
71,379
47,249
166,689
147,375
100,318
247,693
48,153
4,556
2,097
6,653
444,540
2,066,889
2,511,429
350,911
1,579,287
1,930,198
879,810
9,073,111
9,952,921
1,017,635
8,817,899
9,835,534
123,231
442,894
566,125
105,770
561,955
667,725
189,559
92,400
37,909
323,582
349,416
189,546
513,141
441,816
227,455
58,522
94,700
37,909
440,916
418,589
227,455
499,438
513,289
265,364
-
239,115
239,115
-
249,310
249,310
9,600
16,751
26,351
161,550
161,550
10,300
4,212
23,825
87,006
34,125
91,218
-
-
338,630
-
338,630
Investment in subsidiaries
Non-current assets and
disposal groups held for sale
-
-
11,325,821 13,096,019 24,421,840 11,234,250
12,675,644
23,909,894
Liabilities
Deposits by banks
185,525
315,856
501,381
95,511
356,449
451,960
Funding from central banks
1,976,674
-
1,976,674
2,969,600
-
2,969,600
Derivative financial liabilities
10,538
5,631
16,169
4,830
27,622
32,452
Customer deposits
Balances with Group
companies
Accruals, deferred income,
other liabilities and other
provisions and provisions for
pending litigation, claims,
regulatory and other matters
Debt securities in issue and
subordinated liabilities
Deferred tax liabilities
5,893,802 13,104,517 18,998,319
6,909,913
10,620,970
17,530,883
97,513
-
97,513
67,929
-
67,929
233,405
156,247
389,652
217,077
150,930
368,007
-
-
601,448
601,448
38,561
19,644
19,644
-
606,367
20,435
644,928
20,435
8,397,457 14,203,343 22,600,800 10,303,421
11,782,773
22,086,194
The main assumptions used in determining the expected maturity of assets and liabilities are set out below.
Cash and balances with central banks are classified in the relevant time band based on the contractual
maturity, with the exception of obligatory balances with central banks which are classified in the 'Over one
year' time band.
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.
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.
408
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
42.
Analysis of assets and liabilities by expected maturity (continued)
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 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 credit
obligations towards the Company.
The Credit Risk Management department in co-operation with the Credit Risk Control and Monitoring
department set the Company’s credit disbursement policies and monitor 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 of related accounts are aggregated and
monitored on a consolidated basis.
The Credit Risk Management department, in co-operation with the Credit Risk Control and Monitoring
department, also safeguard the effective management of credit risk at all stages of the credit cycle, monitor
the quality of decisions and processes and ensure that the credit sanctioning function is being properly
managed.
The credit policies complemented by 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 of the customers’ creditworthiness, their
economic sector of activity and geographical concentration.
The credit risk exposure of the Company is diversified across the various industry sectors of the economy.
Credit Risk Management department determines concentration limits for each industry sector, sets
prohibited sectors and defines sectors which may require prior approval before credit applications are
submitted.
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.
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 Financial Statements.
409
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.1
Maximum exposure to credit risk and collateral and other credit enhancements
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 contracts of sale and personal and corporate guarantees.
The Company 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.
Off-balance sheet exposures
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.
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. As at 31 December 2022, the majority of derivative exposures are covered by ISDA netting
arrangements. A detailed analysis of derivative asset and liability exposures is available in Note 19.
Information about the Company's collaterals under derivative transactions is provided in Note 40.
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.
Maximum Exposure to credit risk
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.
410
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.1
Maximum exposure to credit risk and collateral and other credit enhancements (continued)
2022
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)
Maximum
exposure to
credit risk
€000
9,475,388
166,689
7,870
2,492,535
48,153
Cash
€000
-
37,251
-
-
-
Fair value of collateral and credit enhancements held by the Company
Securities
€000
Letters
of credit/
guarantee
€000
Property
Other
Surplus collateral Net collateral
Net exposure to
credit risk
€000
€000
€000
€000
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37,251
-
-
-
-
9,475,388
Loans and advances to customers (Note 21)
9,952,921
505,950
556,487
133,305
15,799,569
273,789
(8,231,543)
9,037,557
129,438
7,870
2,492,535
48,153
915,364
10
566,125
311,523
55,957
10
566,125
311,523
55,957
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23,077,171
543,201
556,487
133,305
15,799,569
273,789
(8,231,543)
9,074,808
14,002,363
5,175
657,219
17,624
1,979,462
2,659,480
25,736,651
276
99,554
892
32,164
132,886
676,087
-
1,039
4
4,069
5,112
-
4,630
1,734
1,465
4,886
197,912
4,253
13
384
12
406,074
26,876
7,829
613,125
27,285
-
-
-
-
-
5,175
303,519
-
353,700
6,895
10,729
470,648
1,508,814
786,237
1,873,243
561,599
141,134
16,412,694
301,074
(8,231,543)
9,861,045
15,875,606
411
Debtors (Note 27)
Balances with group companies (Note 22)
Deferred purchase payment consideration
(Note 27)
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
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.1
Maximum exposure to credit risk and collateral and other credit enhancements (continued)
2021
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)
Debtors (Note 27)
Deferred purchase payment consideration (Note 27)
Balances with group companies (Note 22)
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
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
9,087,815
-
247,693
3,490
4,009
1,915,033
6,653
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,490
-
-
-
9,835,534
476,390
587,309
140,995
15,149,403
265,660
(7,780,914)
8,838,843
250,356
85
88
2,954
487,743
36,431
(279,895)
247,406
11
299,766
667,725
54,864
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,087,815
244,203
4,009
1,915,033
6,653
996,691
2,950
11
299,766
667,725
54,864
22,369,459
479,965
587,397
143,949 15,637,146
302,091
(8,060,809)
9,089,739
13,279,720
Acceptances and endorsements
4,625
285
-
-
4,334
Guarantees
Commitments
Documentary credits
Undrawn formal stand-by facilities, credit lines and
other commitments to lend
Off-balance sheet total
615,958
105,508
4,898
2,555
177,171
11,264
729
-
-
5,488
2,024,198
28,541
2,656,045
135,063
1,006
5,904
1,182
420,337
3,737
607,330
18,976
19,392
6
391
19
-
-
-
-
-
4,625
290,523
-
325,435
6,236
5,028
470,042
1,554,156
771,426
1,884,619
The contingent liabilities and commitments as at 31 December 2021 include exposures relating to loans and advances to customers classified as held for sale
amounting to €1,286 thousand which relate to the Cyprus geographical area.
25,025,504
615,028
593,301
147,686 16,244,476
321,483
(8,060,809)
9,861,165
15,164,339
412
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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. The Company’s Risk Appetite Statement may impose stricter concentration limits
which are monitored by the Company.
The credit risk concentration, which is based on industry (economic activity) and business line, as well as
the geographical concentration, is presented below.
The geographical analysis, for credit risk concentration purposes, is based on the Company’s Country Risk
Policy which is followed for monitoring the Company's exposures. Market and Liquidity Risk department 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.
The table below presents the geographical concentration of loans and advances to customers by country of
risk based on the country of residency for individuals and the country of registration for companies.
2022
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other
services
Other sectors
Cyprus
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
Other
countries
€000
Gross loans at
amortised cost
€000
922,093
323,074
928,346
545,421
978,708
4,496,081
551,269
440,873
384
44,978
16,565
8,955
94,823
11,146
980
2
37
-
35,614
23
1,866
73,120
5,311
-
2
-
-
-
5,848
-
-
-
-
401
19,101
33
27,943
40,086
922,549
395,995
1,020,611
1
20
554,420
45,769
54,586
1,127,014
4,654,435
886
-
1
3
36,923
203,765
595,370
644,643
9,185,865
177,833
115,971
7,137
19,106
409,125
9,915,037
2022
By business line
Corporate and Large
corporate
International 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
Other
countries
€000
Gross loans at
amortised cost
€000
3,380,559
17,781
50
139,813
152,143
42,327
1,021,933
1,036
1,451
3,272,253
2,450
36,839
885,558
856
66,151
48,027
70,283
24,093
19,063
26,150
69,790
31,967
90,652
39,573
-
-
104
16
-
-
260
12
1,722
1,453
576
869
432
1,841
21
452
1,117
19,778
1,265
8,953
-
-
5,850
17
219
5
869
-
-
-
-
-
64
-
113
-
-
-
-
102
3,398,492
345,175
685,308
2,171
1,026,608
186
18,687
3,330,634
1
-
158
291
192
170
2,664
3,431
49
900
63
384
114
21
34
1,774
9,672
337
11,964
24,470
-
5,221
887,896
67,952
49,001
72,633
24,343
19,719
31,705
102,995
33,630
137,874
46,247
9,185,865
177,833
115,971
7,137
19,106
409,125
9,915,037
413
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.2
Credit risk concentration of loans and advances to customers (continued)
2021
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other
services
Other sectors
2021 (restated)
By business line
Corporate and Large
corporate
International 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
Other
countries
€000
Gross loans at
amortised cost
€000
977,703
303,372
881,205
510,928
505
179
122
-
33,422
37,450
9,005
108
1,950
60
-
-
99
11,443
2
-
-
-
-
959,891
125,123
4,379,843
9,185
121,260
1,057
37,315
146
25,674
40,123
58
49,293
73,997
978,538
329,225
992,200
520,198
1,147,700
4,622,657
543,424
458,005
1,007
5,516
7
40
837
-
1,237
35,142
8
182,285
587,163
640,345
9,014,371
178,433
166,446
13,496
38,562
406,718
9,818,026
Cyprus
Greece
€000
€000
United
Kingdom
€000
Romania
Russia
€000
€000
Other
countries
€000
Gross loans at
amortised cost
€000
3,309,761
34,248
60
99
126,808
134,531
44,132
11,742
1,038,599
773
1,869
-
17
-
-
113
3,344,298
320,730
2,345
637,943
1,043,586
3,068,097
3,466
47,742
884,231
1,101
60,446
69,501
80,730
32,611
35,010
30,505
109,945
54,959
76,314
36,854
-
-
152
14
-
-
382
30
2,402
1,334
760
526
338
3,058
132
-
2,557
45,158
4,356
15,211
547
629
126
-
-
-
-
589
2
167
4
138
-
4,513
26,819
3,151,266
237
2,232
888,687
32
-
392
3
219
3,699
9,254
1,557
1,213
340
752
238
256
2,554
18,213
1,304
18,639
23,214
-
6,395
62,217
70,179
85,084
32,998
36,074
39,317
183,119
62,210
135,918
45,130
9,014,371
178,433
166,446
13,496
38,562
406,718
9,818,026
The loans and advances to customers include lending exposures in Cyprus with collaterals in Greece with a
carrying value as at 31 December 2022 of €106,701 thousand (2021: €100,039 thousand).
The loans and advances to customers reported within 'Other countries' as at 31 December 2022 include
exposures of €2,6 million in Ukraine (2021: €3,6 million).
The loans and advances to customers reported within 'Other sectors' as at 31 December 2022 include
exposures of €187 million for the Shipping sector (2021: €176 million).
Economic activity, geographical and business line concentrations of Company loans and advances to
customers at amortised cost classified as held for sale are presented in the table below. There were no
loans and advances to customers held for sale as at 31 December 2022.
414
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.2
Credit risk concentration of loans and advances to customers (continued)
2021
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other services
Other sectors
2021(restated)
By business line
International corporate
Retail
- housing
- consumer, credit cards and other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
Cyprus
United
Kingdom
Romania
Russia
Other
countries
€000
€000
€000
€000
€000
Gross loans
at amortised
cost
€000
56,859
24,688
14,794
28,226
4,575
1
1
-
-
-
369,168
1,070
27,866
11,476
2
-
514
110
278
231
9,164
55
1,466
77
-
-
-
-
-
-
-
-
-
-
804
4,087
-
-
-
32
537,652
1,074
11,895
804
4,119
57,373
24,799
15,073
28,457
13,739
375,184
29,334
11,585
555,544
Romania
Russia
€000
€000
10,441
Other
countries
€000
Gross loans at
amortised cost
€000
32
10,473
-
-
-
-
-
-
-
-
-
-
-
-
34
-
-
766
38
-
804
381
3,210
462
4,119
139
2
374
5,301
24,304
12,702
9,201
19,414
242,605
231,029
555,544
Cyprus
€000
-
139
2
374
5,301
23,769
12,702
8,090
17,923
238,791
230,561
United
Kingdom
€000
-
-
-
-
-
501
-
-
1
566
6
-
-
-
-
-
-
1,111
343
-
-
537,652
1,074
11,895
415
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.3
held for sale
Analysis of loans and advances to customers, including loans and advances to customers
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:
2022
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 derecognised or repaid
(excluding write offs)
Changes to contractual cash
flows due to modifications
Disposal of Helix 3 and Sinope
portfolios
31 December
2021
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 2
portfolio derecognised or
repaid (excluding write offs)
Changes to contractual cash
flows due to modifications
Disposal of Helix 2 portfolio
Stage 1
€000
7,418,432
Stage 2
€000
1,701,255
534,045
(532,847)
(409,997)
(22,885)
479,829
(34,796)
Stage 3
€000
1,025,311
(1,198)
(69,832)
57,681
POCI
€000
228,572
Total
€000
10,373,570
-
-
-
-
-
-
-
17
-
(788)
-
17
(683)
(145,434)
(22,774)
(169,679)
187,450
69,085
63,857
18,100
338,492
1,825,387
119,244
12,182
1,191
1,958,004
(1,659,230)
(234,770)
(104,623)
(31,596)
(2,030,219)
(5,286)
2,669
(4,628)
(704)
(7,949)
(91)
(3,383)
(464,394)
(79,331)
(547,199)
7,867,037
1,565,603
368,939
113,458
9,915,037
Stage 1
€000
6,614,721
Stage 2
€000
2,145,329
1,053,432
(1,051,363)
(575,203)
(15,136)
657,895
(35,918)
Stage 3
€000
2,476,961
(2,069)
(82,692)
51,054
POCI
€000
479,015
Total
€000
11,716,026
-
-
-
-
-
-
29
13
(518)
1
16
(1)
(843)
(246,048)
(40,657)
(288,066)
136,340
104,182
119,123
31,535
391,180
1,614,893
85,901
4,046
11,481
1,716,321
(1,399,351)
(190,449)
(192,356)
(76,968)
(1,859,124)
(2,351)
(8,408)
3,461
(14,942)
(2,119)
(15,951)
(16,941)
(1,087,782)
(173,714)
(1,286,845)
31 December
7,418,432
1,701,255
1,025,311
228,572
10,373,570
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 analysis of gross loans and advances to customers at amortised cost by staging and by business line
concentration in included in Note 23.
416
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.3
held for sale (continued)
Analysis of loans and advances to customers, including loans and advances to customers
The movement of gross loans and advances to customers at amortised cost, in the Corporate and Large
corporate, International corporate, Retail business lines in Cyprus (the country where the loans are
managed), including loans and advances to customers classified as held for sale, are presented in the tables
below:
2022
1 January
Transfers (out of)/in business line
Write offs
Interest accrued
New loans originated or purchased
Loans other than held for sale portfolios derecognised or
repaid (excluding write offs)
Changes to contractual cash flows due to modifications not
resulting in derecognition
31 December
2021 (restated)
1 January
Transfers in/(out of) business line
Write offs
Interest accrued
New loans originated or purchased
Loans other than held for sale portfolios derecognised or
repaid (excluding write offs)
Changes to contractual cash flows due to modifications not
resulting in derecognition
31 December
Corporate
and Large
corporate
€000
3,344,298
(23,764)
(14)
104,907
859,742
International
corporate
Retail
€000
632,206
1,506
-
29,842
179,815
€000
4,040,108
(5,291)
(1,866)
86,701
679,538
(889,683)
(157,457)
(581,009)
3,006
(604)
349
3,398,492
685,308
4,218,530
Corporate
and Large
corporate
€000
3,194,024
36,745
(284)
101,964
756,016
International
corporate
Retail
€000
599,619
€000
3,844,562
91
(1,827)
29,040
150,866
(2,808)
(1,704)
89,885
628,425
(743,523)
(144,665)
(519,142)
(644)
(918)
890
3,344,298
632,206
4,040,108
Loans and advances to customers classified as held for sale
The following table presents the Company's gross loans and advances to customers at amortised cost
classified as held for sale as at 31 December 2021, by staging and business line concentration which is
included in the movement table above.
2021
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
-
-
-
2,132
476,293
96,209
574,634
(57)
(2,079)
(16,954)
(19,090)
2,075
474,214
79,255
555,544
417
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.3
held for sale (continued)
Analysis of loans and advances to customers, including loans and advances to customers
2021(restated)
By business line
International corporate
Retail
- housing
- consumer, credit cards and
other
Restructuring
- corporate
- SMEs
- retail housing
- retail other
Recoveries
- corporate
- SMEs
- retail housing
- retail other
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
10,470
3
10,473
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
718
804
553
-
-
-
-
139
2
374
3,842
22,113
11,543
8,507
17,653
204,956
194,615
-
-
-
741
1,387
606
694
1,761
37,649
36,414
139
2
374
5,301
24,304
12,702
9,201
19,414
242,605
231,029
555,544
2,075
474,214
79,255
43.4
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. For the purposes of credit scoring, these portfolios are Corporate, Retail and
SMEs. Corporate and SME portfolios include legal entities. Retail portfolio 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 probability of default (PDs) are calculated per rating. The following table presents weighted PD
per risk level's rating for corporate, retail and SME exposures.
Unrated corporate exposures are assessed using the Company's in-house behavioural scorecard model for
corporate legal entities. Unrated retail exposures 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 to retail individuals are separately
disclosed since a time span of seven months is necessary in order to provide an accurate rating.
The portfolios weighted PDs per rating are presented below.
418
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.4
(continued)
Credit quality of loans and advances to customers based on the internal credit rating
2022
Rating
1
2
3
4
5
6
7
2021
Rating
1
2
3
4
5
6
7
Corporate legal entities
%
1.19
1.87
2.02
2.96
4.48
4.97
10.15
Corporate legal entities
%
1.38
2.20
2.37
3.42
5.32
5.82
11.89
12-month PD
Retail individuals
%
0.66
0.64
1.39
2.64
4.92
8.58
24.02
12-month PD
Retail individuals
%
0.80
0.79
1.68
3.24
6.24
10.04
27.14
SME legal entities
%
0.34
0.66
1.89
7.23
9.46
14.87
30.77
SME legal entities
%
0.36
0.75
2.22
7.70
12.96
17.87
36.63
Lower rating exposures demonstrate a better capacity to meet financial commitments, with lower
probability of default, whereas higher 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 which are managed in
Cyprus, using the corporate legal entities, SMEs legal entities and retail individuals definition as per the
internal rating of the Company.
Corporate 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
512,071
235,753
762,397
565,591
2022
Stage 2
€000
5,576
5,858
Total
€000
517,647
Stage 1
€000
371,648
241,611
124,963
2021
Stage 2
€000
9,550
1,120
94,105
856,502
689,030
43,870
43,690
609,281
729,502
119,522
592,963
207,831
800,794
578,247
289,389
94,690
32,481
190,253
427,647
292,027
386,717
167,752
307,445
152,941
185,422
8,680
129,996
18,602
208,855
120,016
106,826
37,570
465,217
386,841
49,745
Total
€000
381,198
126,083
732,900
849,024
867,636
475,197
138,676
226,842
436,586
3,413,846
858,200 4,272,046 3,176,679 1,057,463
4,234,142
144,920
4,416,966
191,972
4,426,114
419
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.4
(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
Stage 1
€000
895,267
2022
Stage 2
€000
42,998
Total
€000
938,265
Stage 1
€000
795,577
1,066,411
29,995 1,096,406
965,269
72,153
917,357
756,588
99,388
692,386
562,838
78,861
276,604
224,332
845,204
592,998
197,743
64,234
17,820
77,217
141,451
114,346
105,725
80,259
98,079
27,568
101,290
-
2,660
2,660
-
2021
Stage 2
€000
37,566
34,373
53,053
81,779
80,133
2,681
15,808
512,408
Total
€000
833,143
999,642
809,641
644,617
304,465
220,071
128,858
2,681
307,896
4,251,014
462,882
4,713,896
New customers
268,676
13,017
281,693
292,088
Total Stage 3 and POCI
3,948,353
496,548 4,444,901 3,738,606
288,998
4,733,899
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
161,411
2022
Stage 2
€000
33,555
Total
€000
194,966
Stage 1
€000
183,001
2021
Stage 2
€000
12,159
Total
€000
195,160
175,934
71,421
247,355
181,836
29,316
211,152
32,209
9,432
6,656
5,889
3,431
49,172
60,704
29,154
25,850
7,842
10,307
5,347
24,648
2,731
504,838
210,855
43,425
15,454
8,260
5,793
3,249
-
62,129
16,911
18,447
16,252
8,019
6,496
18,198
3,511
503,147
129,309
61,363
35,282
14,498
16,196
8,778
73,820
63,435
715,693
48,479
764,172
60,336
33,901
24,512
13,812
9,745
18,198
65,640
632,456
45,560
678,016
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 at 31 December 2021, as
per the internal rating system of the Company is disclosed in the tables below.
Corporate legal entities
Total Stage 3 and POCI
Stage 1
€000
2021
Stage 2
€000
Total
€000
64,759
64,759
420
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.4
(continued)
Credit quality of loans and advances to customers based on the internal credit rating
Retail individuals
Rating 4
Rating 6
Rating 7
Total Stage 3 and POCI
SMEs legal entities
Rating 2
Rating 4
Rating 5
Rating 7
Total Stage 3 and POCI
Stage 1
€000
2021
Stage 2
€000
-
-
-
-
111
98
1,464
1,673
Total
€000
111
98
1,464
1,673
400,861
402,534
Stage 1
€000
2021
Stage 2
€000
Total
€000
-
-
-
-
-
55
326
1
20
402
55
326
1
20
402
87,849
88,251
43.5
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.
43.5.1 Contingent liabilities
An analysis of changes in the outstanding nominal amount of exposures and the corresponding ECLs are
disclosed in the tables below:
2022
Exposures
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
438,591
30,378
(20,997)
(9)
67,223
515,186
136,324
(30,378)
22,353
(3,288)
(14,385)
110,626
45,668
620,583
-
(1,356)
3,297
(11,027)
-
-
-
41,811
36,582
662,394
421
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.5
Contingent liabilities and commitments (continued)
43.5.1 Contingent liabilities (continued)
2021
Exposures
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net increase/(decrease)
31 December
2022
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
2021
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
214,845
151,638
(18,674)
(143)
90,925
438,591
363,019
(151,638)
22,983
(1,548)
(96,492)
136,324
52,756
630,620
-
(4,309)
1,691
(4,470)
45,668
-
-
-
(10,037)
620,583
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
20
7
(16)
-
108
119
77
42
119
124
(7)
16
(27)
4
110
71
39
110
21,613
21,757
-
-
27
(4,627)
17,013
17,013
-
-
-
-
(4,515)
17,242
17,161
81
17,013
17,242
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
42
14
(13)
(23)
20
12
8
20
695
(14)
(273)
(284)
124
32
92
124
18,370
19,107
-
286
2,957
21,613
21,613
-
21,613
-
-
2,650
21,757
21,657
100
21,757
* The credit for the year mainly relates to assets derecognised in the year (2021: Charge for the year
mainly relates to changes to inputs and net exposure).
422
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.5
Contingent liabilities and commitments (continued)
43.5.1 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
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
2022
Stage 2
€000
€000
Total
€000
Stage 1
2021
Stage 2
€000
€000
Total
€000
111,875
16,342
48,934
34,218
76,807
7,845
31
22,127
89,653
8
-
388
7,980
5,764
4,118
4,507
13,622
2
407,832
36,389
111,883
121,750
1,223
122,973
16,342
49,322
42,198
82,571
11,963
4,538
35,749
89,655
444,221
9,422
453,643
13,327
45,371
25,513
42,183
11,720
1,410
35,615
75,832
93
670
2,185
31,791
3,809
432
60,258
-
372,721
100,461
13,420
46,041
27,698
73,974
15,529
1,842
95,873
75,832
473,182
35,207
508,389
2021
Stage 2
€000
Total
€000
Stage 1
€000
30,526
8,552
867
280
58
1
552
2022
Stage 2
€000
38
747
489
263
94
1
-
19,630
46,888
56,892
738
107,354
59,262
Total
€000
Stage 1
€000
30,564
30,241
7,949
1,592
365
42
3
554
-
25,124
65,870
9,299
1,356
543
152
2
552
76,522
47,626
166,616
26,573
193,189
78
1,217
223
111
6
-
32
21,316
-
22,983
Stage 1
€000
-
-
2022
Stage 2
€000
14,975
14,975
2021
Stage 2
€000
12,880
12,880
-
-
Total
€000
Stage 1
€000
14,975
14,975
587
15,562
423
30,319
9,166
1,815
476
48
3
586
21,316
25,124
88,853
9,781
98,634
Total
€000
12,880
12,880
680
13,560
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.5
Contingent liabilities and commitments (continued)
43.5.2 Commitments
An analysis of changes in the outstanding exposures and the corresponding ECLs are disclosed in the tables
below:
2022
Exposure
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net increase/(decrease)
31 December
2021
Exposure
1 January
Transfers to stage 1
Transfers to stage 2
Transfers to stage 3
Net (decrease)/increase
31 December
2022
ECL
1 January
Transfers to stage 1
Transfers to stage 2
Charge/(credit) for the year*
31 December
Individually assessed
Collectively assessed
2021
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
1,570,595
412,589
52,278
2,035,462
159,869
(159,518)
(117,601)
(276)
22,352
118,493
(1,205)
(51,245)
(351)
(892)
1,481
-
-
-
(9,483)
(38,376)
1,634,939
319,114
43,033
1,997,086
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
1,224,083
417,291
(52,799)
(358)
(17,622)
775,192
(416,743)
52,799
(1,165)
2,506
79,031
2,078,306
(548)
-
1,523
-
-
-
(27,728)
(42,844)
1,570,595
412,589
52,278
2,035,462
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
19
4
(18)
85
90
68
22
90
169
(4)
18
(86)
97
60
37
97
Stage 1
€000
Stage 2
€000
Stage 3
€000
425
(9)
63
(310)
169
80
89
169
126
9
(32)
(84)
19
7
12
19
424
-
-
-
-
-
-
-
-
-
-
(31)
31
-
-
-
-
188
-
-
(1)
187
128
59
187
Total
€000
551
-
-
(363)
188
87
101
188
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.5
Contingent liabilities and commitments (continued)
43.5.2 Commitments (continued)
*The charge/(credit) for the year mainly relates to changes to inputs.
The credit quality of commitments, as per the internal rating system of the Company is disclosed in the
table below.
Stage 1
2022
Stage 2
€000
€000
Total
€000
Stage 1
2021
Stage 2
€000
€000
Total
€000
338,649
44,881
139,056
68,429
140,906
28,286
1,781
8,371
3,397
10,627
10,107
82,198
16,047
1,627
330,278
41,484
128,429
58,322
58,708
12,239
154
26,441
26,296
103,918
130,359
20,402
46,698
682,351
256,694
Stage 1
€000
234,443
40,913
12,254
3,027
2,270
235
77
-
11,073
2021
Stage 2
€000
22,597
17,522
3,988
2,900
1,748
523
262
17,465
459
304,292
67,464
939,045
22,553
961,598
Total
€000
257,040
58,435
16,242
5,927
4,018
758
339
17,465
11,532
371,756
24,001
395,757
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
289,574
13,911
303,485
50,364
83,187
99,083
68,953
8,154
1,492
60,960
72,296
3,921
5,579
5,387
8,220
6,905
10,390
46,201
10,906
734,063
111,420
Stage 1
€000
189,826
37,089
9,437
1,923
1,322
303
177
58,779
13,683
2022
Stage 2
€000
75,681
20,238
5,941
2,992
2,155
370
136
29,414
980
312,539
137,907
54,285
88,766
104,470
77,173
15,059
11,882
107,161
83,202
845,483
14,763
860,246
Total
€000
265,507
57,327
15,378
4,915
3,477
673
313
88,193
14,663
450,446
23,916
474,362
425
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.5
Contingent liabilities and commitments (continued)
43.5.2 Commitments (continued)
Retail individuals
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Unrated
New customers
Total Stage 3
Stage 1
€000
279,094
124,039
63,108
32,345
9,304
3,464
770
-
76,213
2022
Stage 2
€000
17,526
8,630
10,745
8,307
6,516
5,395
2,690
7,437
2,541
588,337
69,787
Total
€000
296,620
132,669
73,853
40,652
15,820
8,859
3,460
7,437
Stage 1
€000
244,760
115,852
55,987
30,358
8,553
4,095
711
-
78,754
123,636
2021
Stage 2
€000
29,865
10,877
12,732
7,642
8,621
6,756
2,984
7,926
1,028
583,952
88,431
658,124
4,354
662,478
Total
€000
274,625
126,729
68,719
38,000
17,174
10,851
3,695
7,926
124,664
672,383
5,724
678,107
426
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.6
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 to customers, including the loans and advances to customers
held for sale, is as follows:
2022
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 3 and Sinope
portfolios
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
Stage 3
€000
15,457
9,737
(1,009)
(106)
29,383
(9,560)
9,857
(833)
456,927
(176)
(8,848)
939
POCI
€000
67,781
Total
€000
569,548
-
-
-
1
-
-
(7,575)
(3,186)
15,387
(31)
4,595
9
(798)
-
3,877
(964)
736
(2)
(682)
988
-
995
(145,434)
(22,774)
(169,688)
-
-
16,687
-
427
35
17,114
3,912
(2,700)
485
(16,943)
10,342
(2,714)
(23,321)
995
12,558
5,009
2,677
47,617
14,616
69,919
(2,085)
2,226
(3,818)
(391)
(4,068)
-
(624)
(262,062)
(42,404)
(305,090)
22,288
9,066
13,222
22,288
27,041
111,606
15,540
176,475
13,401
13,640
54,990
56,616
10,664
4,876
88,121
88,354
27,041
111,606
15,540
176,475
* Individual components of the ‘Impairment net of reversals on loans and advances to customers’ (Note
14).
The impairment loss for the year ended 31 December 2022 was driven mainly from additional net credit
losses of €28 million recorded on NPEs as part of the Company’s de-risking activities and additional ECL
charge of €16 million following the new overlays introduced in 2022, as explained in Note 5.2.
427
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.6
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2021
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 2 portfolio
31 December
Individually assessed
Collectively assessed
Stage 1
€000
Stage 2
€000
22,619
18,228
(2,361)
(430)
49,127
(17,818)
15,825
(1,462)
Stage 3
€000
1,354,473
(410)
(13,464)
1,892
POCI
€000
Total
€000
204,477
1,630,696
-
-
-
-
-
-
(11,600)
(7,088)
4,781
(605)
(14,512)
-
(518)
-
4,152
(632)
281
-
723
-
723
(843)
(246,048)
(40,657)
(288,066)
-
-
41,812
6,658
48,470
-
233
4,385
(464)
318
(32,024)
6,282
(770)
(19)
(33,890)
6,862
(10,259)
2,943
66,324
10,295
69,303
(826)
(3,197)
15,457
6,661
8,796
1,647
(1,889)
(2,262)
(3,330)
(12,802)
(725,525)
(109,569)
(851,093)
29,383
456,927
67,781
569,548
14,476
14,907
56,176
400,751
15,457
29,383
456,927
7,427
60,354
67,781
84,740
484,808
569,548
*Individual components of the ‘Impairment net of reversals on loans and advances to customers’ (Note 14).
428
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.6
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
The analysis of credit losses of loans and advances to customers, including the loans and advances to
customers held for sale, by business line is presented in the table below:
2022
Corporate and Large corporate
International 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
2021 (restated)
Corporate and Large corporate
International 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
13,997
567
2,444
2,378
2,552
22
184
19
29
-
-
-
-
73
23
12,096
28,770
5
3,009
2,738
4,794
2,133
706
682
536
-
-
-
-
332
10
36
212
5,146
5,763
7,481
9,157
9,222
7,309
7,917
11,096
11,937
7,494
65
1
1,498
4
214
398
1,020
9,005
741
347
513
387
288
651
465
5
4
56,361
612
5,879
10,660
14,129
18,641
10,788
10,270
8,387
8,304
11,384
12,588
7,959
475
38
22,288
27,041
111,606
15,540
176,475
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
8,432
903
1,653
1,615
2,674
40
79
3
14
-
-
-
-
33
11
11,972
1,390
3,242
2,868
4,434
1,397
1,139
708
1,049
-
-
-
-
1,181
3
23,655
7,871
1,458
7,045
8,223
5,015
13,970
20,005
16,583
21,374
26,338
152,596
152,691
102
1
1,481
3
276
317
1,002
2,292
884
775
806
3,518
2,045
27,732
26,643
6
1
45,540
10,167
6,629
11,845
16,333
8,744
16,072
21,491
18,452
24,892
28,383
180,328
179,334
1,322
16
15,457
29,383
456,927
67,781
569,548
429
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.6
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
The movement of the ECL allowance for the loans and advances to customers in the Corporate and Large
corporate, International corporate and Retail business lines in Cyprus (the country where the loans are
managed), including ECL allowance for loans and advances to customers held for sale, is presented in the
table below:
2022
1 January
Transfer in/(out of) the business line
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
31 December
2021 (restated)
1 January
Transfer in/(out of) the business line
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
31 December
Corporate
and Large
corporate
€000
International
corporate
Retail
€000
€000
45,540
281
(14)
936
1,950
(5,699)
9
11,672
(673)
2,359
56,361
2,323
(67)
-
3
164
(448)
-
(548)
-
(815)
612
28,215
(1,812)
(1,866)
445
1,261
(818)
1,294
2,800
(203)
(4,527)
24,789
Corporate
and Large
corporate
€000
International
corporate
Retail
€000
€000
42,511
(608)
(1,929)
2,648
1,396
(1,624)
(7)
209
10,580
(7,636)
45,540
151
1,773
(182)
-
369
-
-
213
-
(1)
2,323
45,730
(4,440)
(1,704)
934
1,847
(971)
449
(6,779)
(1,097)
(5,754)
28,215
Credit losses of loans and advances to customers as at 31 December 2021 include credit losses relating to
loans and advances to customers classified as held for sale as presented in the table below:
31 December 2021
Stage 1
€000
Stage 2
€000
-
710
Stage 3
€000
262,475
POCI
€000
42,003
Total
€000
305,188
During the year ended 31 December 2022 the total non-contractual write-offs recorded by the Company
amounted to €134,767 thousand (2021: €234,378 thousand). The contractual amount outstanding on
financial assets that were written off during the year ended 31 December 2022 and that are still subject to
enforcement activity is €972,621 thousand (2021: €970,568 thousand).
430
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.6
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with
50%, 30% and 20% probability respectively.
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 favourable
and 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. 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 takes into consideration the timing of expected sale and the estimated sale proceeds in
determining the ECL.
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 to
customers.
Sensitivity analysis
The Company has performed sensitivity analysis relating to the loan portfolio in Cyprus, which represents
more than 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 2022 and 2021.
The Company has applied sensitivity analysis to the below parameters and the impact on the ECL, for both
individually and collectively assessed ECL calculations, is 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
2022
€000
2021
€000
1,999
3,610
(2,077)
4,955
(4,344)
11,335
(8,930)
7,367
(6,964)
(3,626)
8,000
(7,421)
19,063
(16,906)
8,190
(8,011)
The increase/(decrease) on ECL, for loans and advances to customers at amortised cost, is further analysed,
per stage, in the table below:
431
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.6
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
2022
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%*
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
175
321
1,503
1,999
(139)
552
(495)
1,036
(842)
406
(435)
1,590
(1,374)
2,747
(2,021)
6,961
(4,747)
(1,503)
(2,077)
2,813
(2,475)
7,552
(6,067)
-
-
4,955
(4,344)
11,335
(8,930)
7,367
(6,964)
Decrease in the PDs of stages 1 and 2 by 20%*
(2,217)
2021
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%*
Stage 1
€000
Stage 2
€000
Stage 3
€000
Total
€000
384
413
2,813
3,610
(351)
434
(401)
1,215
(1,004)
2,687
(2,882)
(461)
1,402
(1,323)
3,742
(2,814)
(3,626)
6,164
(5,697)
14,106
8,000
(7,421)
19,063
(3,266)
(12,636)
(16,906)
5,503
(5,129)
-
-
8,190
(8,011)
*The impact on the ECL also includes the transfer between stages of the loans and advances to customers
following the increase/decrease in the PD.
432
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.6
customers held for sale (continued)
Credit losses of loans and advances to customers, including loans and advances to
The sensitivity analysis performed on the collateral realisation haircut and its impact on the ECL by business
line is presented in the table below:
Increase
the
collateral
realisation
haircut by
5%
Decrease
the
collateral
realisation
haircut by
5%
2022
€000
2,322
68
487
1,260
527
2022
€000
(1,478)
(30)
(409)
(1,085)
(457)
1,253
(1,333)
628
824
324
720
948
1,378
540
53
3
(633)
(738)
(287)
(665)
(819)
(690)
(255)
(49)
(2)
Increase the
collateral
realisation
haircut by
5%
Decrease the
collateral
realisation
haircut by
5%
2021
(restated)
€000
2021
(restated)
€000
2,605
(2,284)
954
724
1,838
718
551
956
1,079
458
748
1,114
5,541
1,503
273
1
(964)
(627)
(1,545)
(653)
(558)
(858)
(972)
(420)
(760)
(940)
(4,889)
(1,233)
(202)
(1)
11,335
(8,930)
19,063
(16,906)
Corporate and Large corporate
International 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
43.7
Collateral and other credit enhancements obtained
The carrying value of assets obtained during 2022 and 2021 by taking possession of collateral held as
security, was as follows:
Residential property
Commercial and other property
2022
€000
2021
€000
12,089
5,491
17,580
10,100
19,778
29,878
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 2022, including any
expenses capitalised during the year, amounted to €446,823 thousand (2021: €613,368 thousand).
The disposals of repossessed assets during 2022 (including those that were classified as held for sale prior
to their disposal) amounted to €178,289 thousand (2021: €160,417 thousand).
433
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.8
Currency concentration of loans and advances to customers
The following table presents the currency concentration of the Company's loans and advances at amortised
cost.
Gross loans at amortised cost
Euro
US Dollar
British Pound
Swiss Franc
Other currencies
2022
€000
9,454,234
334,663
89,244
35,430
1,466
2021
€000
9,292,920
368,113
93,369
61,336
2,288
9,915,037
9,818,026
Loans and advances to customers classified as held for sale
The following table presents 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
2021
€000
532,945
700
230
18,184
3,485
555,544
43.9
Modified loans and advances to customers
Modified loans and advances to customers are those loans where the original contractual terms of the loans
have been modified due to financial difficulties of the borrower and are considered as
forborne/restructured (as explained in Note 43.10), and
i.
ii. have been modified due to commercial renegotiations and such loans are considered as non-forborne
Customers classified as Stage 2 and Stage 3 as at 31 December 2021, that had facilities modified (in a prior
or the current period), and are classified as Stage 1 as at 31 December 2022 amount to €281,391 thousand
(2021: €540,712 thousand) and their corresponding ECL amount to €895 thousand (2021: €1,268
thousand).
Previously classified Stage 2 and Stage 3 customers (with a carrying amount as at 31 December 2021 of
€34,788 thousand (2020: €109,881 thousand)) that had facilities modified during the year and are
classified as Stage 1 at 31 December 2022 amount to €30,012 thousand (2021: €110,303 thousand) and
their corresponding ECL amount to €51 thousand (2021: €233 thousand). Their related modification loss
amounted to €177 thousand (2021: €433 thousand).
Stage 2 and Stage 3 loans that were forborne during the year amounted to €228,804 thousand (2021:
€707,190 thousand). Their related modification loss amounted to €4,669 thousand (2021: €23,243
thousand).
Facilities that reverted to Stage 2 and Stage 3 having once cured during the year amount to €33,784
thousand (2021: €126,972 thousand) and their corresponding ECL amounts to €1,055 thousand (2021:
€5,250 thousand) as at 31 December 2022.
434
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.10
Forbearance/Restructuring
Forborne loans are those loans that have been modified because the borrower is considered 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 Group.
Forborne/restructured loans and advances are those facilities for which the Company has modified the
repayment programme (e.g. 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).
For an account to qualify for forbearance/restructuring it must meet certain criteria including the viability of
the customer. 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 allowed in specific
situations in response to legal or regulatory requirements.
Forbearance/restructuring activities may include measures that restructure the borrower's business
financing (financial
(operational restructuring) and/or measures that restructure the borrower's
restructuring).
Forbearance/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:
i. Suspension of capital or capital and interest: granting to the borrower a grace period in the payment
of capital (i.e. during this period only interest is paid) or capital and interest, for a specific period of
time.
ii. 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.
iii. Arrears and/or interest capitalisation: capitalisation of the arrears and of any unpaid interest to the
outstanding principal balance for repayment under a rescheduled program.
Long-term restructuring solutions can include the following:
i.
Interest rate reduction: permanent or temporary reduction of interest rate (fixed or variable) into a
fair and sustainable rate.
ii. 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.
iii. Sale of Assets: Part of the restructuring can be the agreement with the borrower for immediate or
over time sale of assets (mainly real estate) to reduce borrowing.
iv. Modification of existing terms of previous decisions: In the context of the new sustainable
settlement/restructuring solution, review any terms of previous decisions that may not be met.
v. Consolidation/refinancing of existing facilities: In cases where the borrower maintains several
separate loans with different collaterals, these can be consolidated and a new repayment schedule
can be set and the new loan can be secured with all existing collaterals.
vi. Hard Core Current Account Limit: In such cases a loan with a longer repayment may be offered to
replace /reduce the current account limit.
435
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.10
Forbearance/Restructuring (continued)
vii. Split and freeze: the customer’s debt is split into sustainable and unsustainable parts. The
sustainable part is restructured to a sustainable repayment program. 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.
viii. 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.
ix. Liquidation Collateral: An agreement between the Company and a borrower for the voluntary sale of
mortgaged assets, for partial or full repayment of the debt.
x. Currency Conversion: This solution is provided to match the credit facility currency and the
borrower's income currency.
xi. Additional Financing: This solution can be granted, simultaneously with the restructuring of the
existing credit facilities of the borrower, to cover any financing gap.
xii. Partial or total write off: This solution corresponds to the Company forfeiting the right to legally
recover part or the whole of the amount of debt outstanding by the borrower.
xiii. Debt/equity swaps: debt restructuring that allows partial or full repayment of the debt in exchange
of obtaining an equivalent amount of equity by the Company, with the remaining debt right sized to
the cash flows of the borrower to allow repayment. 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.
xiv. Debt/asset swaps: agreement between the Company and the borrower to voluntarily transfer the
mortgaged asset or other immovable property to the Group, to partially or fully repay the debt. Any
residual debt may be restructured within an appropriate repayment schedule in line with the
borrower’s reassessed repayment ability.
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, previously classified as NPEs that present more than 30 days past due within the probation
period.
Forbearance 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.
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. It also
contributes in the construction through the cycle probability of default and cure curves, where when feasible
a specific curve for the forborne products is calculated and assigned accordingly.
The below table presents the movement of the Company’s forborne loans and advances to customers
measured at amortised cost including those classified as held for sale. The forborne loans and advances to
customers classified as held for sale as at 31 December 2022 amounts to nil (2021: €245,452 thousand).
1 January
New loans and advances forborne in the year
Loans no longer classified as forborne and repayments
Write-off of forborne loans and advances
Interest accrued on forborne loans and advances
Foreign exchange adjustments
Derecognition of Helix 2 portfolio
Derecognition of Helix 3 and Sinope portfolios
31 December
436
2022
€000
1,455,521
130,547
(241,739)
(60,580)
57,795
(313)
2021
€000
1,965,088
741,116
(484,039)
(106,010)
72,321
493
-
(733,448)
(235,245)
-
1,105,986
1,455,521
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.10
Forbearance/Restructuring (continued)
The forborne loans classification is discontinued when all EBA criteria for the discontinuation of the
classification as forborne exposure are met. The criteria 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 forborne loans and advances to customers by staging, economic
activity and business line classification excluding those classified as held for sale, as well as ECL allowances
and tangible collateral held for such forborne loans.
Stage 1
Stage 2
Stage 3
POCI
Fair value of collateral
Stage 1
Stage 2
Stage 3
POCI
2022
€000
-
857,356
215,418
33,212
2021
€000
6,883
828,849
334,724
39,613
1,105,986
1,210,069
2022
€000
-
818,138
172,501
30,188
2021
€000
6,751
782,843
275,269
37,824
1,020,827
1,102,687
The fair value of collateral presented above has been computed to the extent that the collateral mitigates
credit risk.
Credit risk concentration
By economic activity
Trade
Manufacturing
Hotels and catering
Construction
Real estate
Private individuals
Professional and other services
Other sectors
2022
€000
2021
€000
41,038
17,080
282,460
245,695
145,840
279,934
75,823
18,116
50,798
15,258
259,534
164,430
196,522
414,463
86,369
22,695
1,105,986
1,210,069
437
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.10
Forbearance/Restructuring (continued)
By business line
Corporate and Large corporate
International 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
2022
By business line
Corporate and Large
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
2022
€000
684,070
-
74,474
85,319
28,944
47,840
21,002
53,316
14,402
6,279
15,635
49,240
13,983
11,482
-
2021
(restated)
€000
618,400
4,904
103,571
138,753
47,006
21,836
35,890
66,608
20,561
19,796
14,382
81,318
22,478
14,159
407
1,105,986
1,210,069
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
628,104
72,727
50,376
869
5,590
878
684,070
74,474
62,312
20,502
2,505
85,319
20,207
7,653
1,084
28,944
31,637
7,240
19,912
4,924
-
-
-
-
10,293
6,060
11,918
30,649
9,021
5,837
14,449
44,191
12,705
1,188
10,143
1,844
2,755
457
442
1,186
5,049
1,278
1
47,840
21,002
53,316
14,402
6,279
15,635
49,240
13,983
11,482
857,356
215,418
33,212
1,105,986
438
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.10
Forbearance/Restructuring (continued)
2021(restated)
By business line
Corporate and Large
corporate
International 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 allowance
Stage 1
Stage 2
Stage 3
POCI
Stage 1
€000
Stage 2
€000
Stage 3
€000
POCI
€000
Total
€000
6,461
559,311
-
96,654
52,628
4,904
2,945
-
-
618,400
4,904
3,972
103,571
-
-
381
41
-
-
-
-
-
-
-
-
-
-
97,548
38,276
2,548
138,753
29,578
16,181
1,206
47,006
6,941
8,705
13,500
5,047
-
-
-
-
11,565
-
8,882
23,410
49,746
15,088
17,503
12,402
70,951
19,313
2,495
-
6,013
3,775
3,362
426
2,293
1,980
10,367
3,165
99
407
21,836
35,890
66,608
20,561
19,796
14,382
81,318
22,478
14,159
407
6,883
828,849
334,724
39,613
1,210,069
2022
€000
2021
€000
-
13,939
68,374
11,259
93,572
8
13,349
120,345
10,218
143,920
439
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.11
advances to customers-analysis by rating agency designation
Credit quality of the Company assets exposed to credit risk other than loans and
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
Unrated
Other receivables from banks
2022
€000
84,543
21,189
20,251
2021
€000
105,759
80,571
1,595
9,477,497
9,089,015
-
290
38,307
2,339
28,926
27,303
9,642,077
9,335,508
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
B1 - B3
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
2022
€000
1,105,439
396,985
87,566
883,931
14,243
12,241
2021
€000
830,940
253,072
77,330
732,906
-
24,794
2,500,405
1,919,042
829,625
425,460
1,245,320
732,906
311,108
875,028
2,500,405
1,919,042
7,870
446,416
4,009
723,759
2,046,119
1,191,274
2,500,405
1,919,042
440
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
43.
Risk management - Credit risk (continued)
43.11
advances to customers-analysis by rating agency designation (continued)
Credit quality of the Company assets exposed to credit risk other than loans and
2022
Aaa - Aa3
A1 - A3
Baa1 - Baa3
Ba1 - Ba3
Β1 - Β3
Unrated
2021
Aaa - Aa3
A1 - A3
Baa1 - Baa3
Ba1 - Ba3
Unrated
FVOCI
Stage 1
€000
82,030
41,101
-
323,285
-
-
Amortised cost
Stage 1
€000
1,015,539
355,884
87,566
560,646
14,243
12,241
446,416
2,046,119
FVOCI
Stage 1
€000
Stage 1
€000
Amortised cost
Stage 2
€000
231,587
55,873
30,348
405,952
-
595,845
197,199
46,983
278,491
24,293
-
-
-
48,463
-
Total
€000
595,845
197,199
46,983
326,954
24,293
723,760
1,142,811
48,463
1,191,274
44.
Risk management - Market risk
Market risk is the risk of loss from adverse changes in market prices namely from changes in interest rates,
foreign currency exchange rates, property and security prices. The Market and Liquidity 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
from 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. 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 Euro and the US Dollar, being the main currencies
using the assumption of the prevailing market risk policy for the current and the comparative year.
441
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
44.
Risk management - Market risk (continued)
Impact on Net Interest
Income in €000
2022
(60 bps for
Euro and 75
bps for US
Dollar)
2021
(50 bps for
Euro and 60
bps for US
Dollar)
73,126
(77,043)
(56,569)
59,657
70,381
35,677
(28,235)
(19,944)
25,546
33,182
(73,896)
(28,169)
71,829
(75,343)
(55,812)
59,132
69,180
34,484
(26,230)
(17,866)
25,153
32,200
(72,216)
(25,208)
1,298
(1,700)
(757)
525
1,202
1,193
(2,005)
(2,078)
393
982
(1,680)
(2,961)
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
442
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
44.
Risk management - Market risk (continued)
The above sensitivities incorporate assumptions on the pass-through change of time deposits.
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
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
2022
(60 bps for
Euro and 75
bps for US
Dollar)
2021
(50 bps for
Euro and 60
bps for US
Dollar)
31,739
(68,581)
11,884
369
27,212
(35,032)
54,878
(59,502)
23,018
526
47,696
(28,040)
8,599
(9,079)
750
212
6,727
(6,992)
(14,964)
23,698
(9,300)
8,986
3,616
6,273
(18,080)
60,603
(7,836)
17,714
2,234
26,386
6,232
(6,604)
(1,464)
258
4,998
(6,920)
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)
2022
+0.75% for US Dollar
+0.6% for Euro
+0.4% for British Pound
-0.75% for US Dollar
-0.6% for Euro
-0.4% for British Pound
Impact on profit/loss
before tax
Impact on equity
€000
€000
(466)
(253)
466
245
443
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
44.
Risk management - Market risk (continued)
Parallel change in interest rates
((increase)/decrease in net
interest income)
2021
+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/loss
before tax
Impact on equity
€000
€000
1,219
(782)
(568)
568
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.
Regarding LIBOR reform, regulators and industry working groups have identified 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 of the underlying
market they intended to measure:
i.
ii.
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.
In October 2021, the European Commission designated a statutory replacement rate for certain settings of
CHF LIBOR.
On 16 November 2021, the Financial Conduct Authority of the United Kingdom (UK FCA) confirmed that
they would permit the temporary use of the synthetic GBP and JPY LIBOR in all legacy LIBOR contracts,
other than cleared derivatives that have not been changed at or ahead of end 31 December 2021.
In September 2022, the FCA confirmed that the publication of 1-month and 6-month synthetic GBP LIBOR
will be required until the end of March 2023, after which date these settings will permanently cease. On 23
November 2022, the FCA announced its intention (i.e. proposed, not confirmed yet) to continue to require
LIBOR’s administrator, IBA, to publish the 3-month synthetic GBP LIBOR setting until the end of March
2024, after which it will also permanently cease.
On 23 November 2022, the FCA announced that the three synthetic JPY LIBOR settings will cease at end
2022.
Also, under their new use restriction power they would prohibit new use of USD LIBOR from the end of
2021, except in specific circumstances. On 23 November 2022, the FCA announced its proposal (i.e.
proposed, not confirmed yet) to require IBA to continue to publish the 1-month, 3-month and 6-month USD
LIBOR settings on a synthetic basis until end September 2024.
How the Group is managing the transition to alternative benchmark rates
The Company established a project to manage the transition to alternative interest rate benchmarks with
the Director of Treasury as 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), Operations and the business lines. The
Assets and Liabilities Committee (ALCO) monitors the project on a regular basis.
The Group's transition project also involved the drawing up of appropriate fallback provisions for LIBOR
linked contracts and transition mechanisms in its floating rate assets and liabilities with maturities after
2021.
444
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
44.
Risk management - Market risk (continued)
For the legacy non-cleared 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 Company will adopt the market wide standardised approach to be followed by the relevant
clearing house.
The Company proactively engaged with its customer base and market counterparties for the amendment of
substantially all impacted LIBOR contracts (other than the relevant contracts referencing to USD LIBOR and
which will cease on 30 June 2023) by 31 December 2021 for transitioning to alternative rates. Those legacy
credit facilities in CHF for which the contract was not amended by the first interest period commencing in
2022 ('tough legacy'), have been transitioned to the statutory rate provided by EU legislation. The Company
has also made the necessary arrangements to transition its tough legacy GBP and JPY credit facilities to
alternative rates by notifying its customer base accordingly and reserving the right to use a statutory rate
provided by EU legislation in case such a rate is nominated in the future. Specifically, in anticipation that the
European Commission might not designate an alternative rate for JPY and GBP Libor, the Company has
informed its customers of its decision to transition tough legacy JPY and GBP LIBOR credit facilities to the
same alternative rates, as if the customer has signed the relevant contract amendment. This would ensure
that customers would not be treated differently compared to other similar customers on the same JPY and
GBP LIBOR tenor who have signed their contract amendment. The Company has also engaged in client
communication to inform customers and ensure a smooth transition of non USD LIBOR credit facilities to
RFRs.
New RFR lending products have also been introduced and adopted across the Company’s key currencies.
The Company's project for the transition to alternative interest rate benchmarks is now focused of the
transition of USD LIBOR contracts ahead of the June 2023 deadline.
The Company has dedicated teams in place to support the transition and continuously assess, monitor and
dynamically manage risks arising from the transition when required.
The Company has also been actively monitoring any market and regulatory developments published by
regulatory bodies as well as by relevant Working Groups across various jurisdictions.
The Company 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 which have yet to transition as at 31 December 2022 and as at 31 December 2021 to
the replacement benchmark rate at the respective date:
2022
Non-derivative financial assets
Loans and advances to customers
Loans and advances to banks
Total
Non-derivative financial liabilities
Deposits by banks
Total
2021
Non-derivative financial assets
Loans and advances to customers
Loans and advances to banks
Total
Non-derivative financial liabilities
Deposits by banks
Total
USD
LIBOR
€000
283,509
26,607
Other
LIBOR
€000
Total
€000
316
4,297
283,825
30,904
310,116
4,613
314,729
7,416
7,416
248
248
7,664
7,664
GBP
LIBOR
€000
USD
LIBOR
€000
CHF
LIBOR
€000
Other
LIBOR
€000
Total
€000
92,819
18,341
364,113
87,397
26,727
4,984
1,627
10,261
485,286
120,983
111,160
451,510
31,711
11,888
606,269
113
113
7,658
7,658
-
-
503
503
8,274
8,274
445
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
44.
Risk management - Market risk (continued)
EURIBOR is in compliance with the EU Benchmarks Regulation and can continue to be used as a benchmark
interest rate for existing and new contracts. The Company therefore, does not consider that Company’s
exposure to EURIBOR is affected by the BMR reform.
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 currency 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 and Liquidity 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, (by an approximately equal and opposite impact), 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.
2022
US Dollar
Russian Rouble
Romanian Lei
Swiss Franc
British Pound
Japanese Yen
Other currencies
US Dollar
Russian Rouble
Romanian Lei
Swiss Franc
British Pound
Japanese Yen
Other currencies
Change in foreign
exchange rate
%
Impact on profit/loss
after tax
€000
Impact on equity
€000
2,534
22,073
3
237
483
6
65
(2,073)
(2,703)
(2)
(356)
(396)
(5)
(53)
-
-
(349)
-
-
-
-
-
-
285
-
-
-
-
+10
+70
+10
+10
+10
+10
+10
-10
-40
-10
-20
-10
-10
-10
446
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
44.
Risk management - Market risk (continued)
2021
US Dollar
Russian Rouble
Romanian Lei
Swiss Franc
British Pound
Japanese Yen
Other currencies
US Dollar
Russian Rouble
Romanian Lei
Swiss Franc
British Pound
Japanese Yen
Other currencies
Price risk
Change in foreign
exchange rate
%
Impact on profit/loss
after tax
€000
Impact on equity
€000
+10
+25
+10
+5
+10
+10
+10
-10
-25
-10
-5
-10
-10
-10
1,253
2,571
-
420
(70)
67
138
(1,025)
(1,543)
-
(380)
57
(55)
(113)
-
34,656
340
-
-
-
-
-
(20,793)
(278)
-
-
-
-
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.
2022
Cyprus Stock Exchange
Athens Exchange
New York Exchange
Other stock exchanges and
unlisted
Non-listed (Real Estate)
Cyprus Stock Exchange
Athens Exchange
New York Exchange
Other stock exchanges and
unlisted
Non-listed (Real Estate)
Change in index
%
Impact on profit/loss
before tax
€000
Impact on equity
€000
-
286
-
-
-
-
(379)
-
-
-
1,380
-
-
319
1,666
(911)
-
-
(285)
(666)
+50
+34
+23
+66
+25
-33
-45
-28
-59
-10
447
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
44.
Risk management - Market risk (continued)
2021
Cyprus Stock Exchange
Athens Exchange
Other stock exchanges and
unlisted
Non-listed (Real Estate)
Cyprus Stock Exchange
Athens Exchange
Other stock exchanges and
unlisted
Non-listed (Real Estate)
Change in index
%
Impact on profit/loss
before tax
€000
Impact on equity
€000
+20
+30
+65
+25
-25
-35
-80
-10
-
257
-
-
-
(300)
-
-
644
-
272
1,666
(805)
-
(334)
(666)
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 mainly 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 2022 was A2 (2021: A3). The average rating excluding the
Cyprus Government bonds and non-rated transactions as at 31 December 2022 was Aa2 (2021: Aa2).
Further information on ratings of debt securities is disclosed in Note 43.11.
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, which is the maximum amount between
the Monte Carlo CVAR (using a 97.5% Confidence Interval) and the Systematic Liquidity Risk according to
the Internal Risk Based model, performed on a bond level.
2022
Up scenario:
Aa3 and above rated bonds
A3 and above rated bonds
Baa1 and below rated bonds
Cyprus Government bonds
Down scenario:
Aa3 and above rated bonds
A3 and above rated bonds
Baa1 and below rated bonds
Cyprus Government bonds
Impact on profit/loss
before tax
€000
Impact on equity
€000
-
-
-
-
-
-
-
-
3,801
3,259
2,389
34,045
(3,801)
(3,259)
(2,398)
(34,045)
448
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
44.
Risk management - Market risk (continued)
2021
Up scenario:
Aa3 and above rated bonds
A3 and above rated bonds
Baa3 and above rated bonds
Cyprus Government bonds
Down scenario:
Aa3 and above rated bonds
A3 and above rated bonds
Baa3 and above rated bonds
Cyprus Government bonds
Impact on profit/loss
before tax
€000
Impact on equity
€000
-
-
-
-
-
-
-
-
-
3,737
2,498
4,137
22,671
-
(3,737)
(2,498)
(4,137)
(22,671)
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 price
index of the relevant instruments.
2022
Other (non-equity instruments)
Other (non-equity instruments)
2021
Other (non-equity instruments)
Other (non-equity instruments)
Property price risk
Change in index
%
Impact on profit/loss
before tax
€000
Impact on equity
€000
+23
-28
+20
-25
1,810
(2,204)
702
(877)
-
-
-
-
A significant part of the Company’s loan portfolio is secured by real estate the majority of which is located in
Cyprus. Furthermore, the Company holds a substantial number of properties mainly arising from loan
restructuring activities; the enforcement of loan collateral and debt for asset swaps. These properties are
held by the Company primarily as stock of properties and some are held as investment properties.
Property risk is the risk that the Company’s business and financial position will be affected by adverse
changes in the demand for, and prices of, real estate, or by regulatory capital requirements relating to
increased charges with respect to the stock of properties held.
45.
Risk management - Liquidity and funding risk
Liquidity Risk
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 and 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 the Liquidity Policy of managing assets taking liquidity
into consideration and monitoring cash flows and liquidity on a regular basis. The Company has developed
internal control processes and contingency plans for managing liquidity risk.
449
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
45.
Risk management - Liquidity and funding risk (continued)
Management and structure
The Board of Directors sets the Group's Liquidity Risk Appetite which defines 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 risk
across the Company.
The Treasury Division is responsible for liquidity management at Company level ensuring compliance with
internal policies and regulatory liquidity requirements and providing direction as to the actions to be taken
regarding liquidity needs. Treasury assesses on a continuous basis, the adequacy of the liquid assets and
takes the necessary actions to ensure a comfortable liquidity position.
Liquidity is also monitored by Market and Liquidity Risk department, to ensure compliance with both internal
policies and limits, and with the limits set by the regulatory authorities. Market and Liquidity Risk
department reports the liquidity position to ALCO 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 the Group's Risk Appetite Statement 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 regular basis. Where
applicable, a traffic light system (RAG) has been introduced for the ratios, in order to raise flags
and take action 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 so as 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 identified and 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), the key objectives of which are,
among others, to set key Recovery and Early Warning Indicators 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 liquidity position.
Monitoring process
Daily
The daily monitoring of the stock of highly liquid assets is important to safeguard and ensure the
uninterrupted operations of the Company’s activities. Market and Liquidity Risk department prepares a daily
report analysing the internal liquidity buffer and comparing it to the previous day’s buffer. Results are made
available to members of the Risk and Treasury Divisions. In addition, Treasury monitors daily and intraday
the customer inflows and outflows in the main currencies used by the Company.
Market and Liquidity Risk department 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.
450
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
45.
Risk management - Liquidity and funding risk (continued)
The designing of the stress tests follows 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 test assumptions are reviewed on an annual basis and approved by the Board through its Risk
Committee. Whenever it is considered appropriate to amend the assumptions during the year, approval is
requested from ALCO and the Board Risk Committee. The main items shocked in the different scenarios are:
deposit outflows, wholesale funding, loan repayments, off-balance sheet commitments, marketable
securities, own issue covered bond, additional credit claims, interbank takings and cash collateral for
derivatives and repos.
Weekly
Market and Liquidity Risk department prepares a report indicating the level of Liquid Assets including Credit
Institutions Money Market Placements as per LCR definitions.
Monthly
Market and Liquidity Risk department 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
available liquidity buffer in order to calculate the survival days. The fixed deposit renewal rates, the
percentage of International Banking Services deposits over total deposits and the percentage of instant
access deposits are also presented. The liquidity mismatch in the form of the Maturity Ladder report (for
both contractual and behavioural flows) is presented to ALCO and the resulting mismatch between assets
and liabilities is compared to previous month’s mismatch.
Market and Liquidity Risk also prepares a monthly liquidity report which is submitted to the ECB. The report
includes information on deposits breakdown, cash flow information, survival period, LCR ratio, rollover of
funding, funding gap (through the Maturity Ladder analysis), concentration of funding and collateral details.
It concludes on the overall liquidity position of the Company and describes the measures implemented and
to be implemented in the short-term to improve liquidity position if needed.
Market and Liquidity Risk reports the LCR and Additional Liquidity Monitoring Metrics (ALMM) to the
CBC/ECB on a monthly basis.
Quarterly
The results of the stress testing scenarios are reported to ALCO and Board Risk Committee quarterly as part
of the quarterly Internal Liquidity Adequacy Assessment Process (ILAAP) review. Market and Liquidity 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 in the context of established policies and processes for the identification, measurement,
management and monitoring of liquidity risk as 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 is reviewed
and tested at least annually.
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%. The Company also calculates its NSFR as per Capital Requirements
Regulation II (CRR II), with the limit set at 100%. The NSFR is the ratio of available stable funding to
required stable funding. NSFR has been developed to promote a sustainable maturity structure of assets
and liabilities.
451
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
45.
Risk management - Liquidity and funding risk (continued)
Funding risk
Funding risk is the risk that the Company does not have sufficiently stable sources of funding or access to
sources of funding may not always be available at a reasonable cost and thus the Company may fail to meet
its obligations, including regulatory ones (e.g MREL).
Main sources of funding
As at 31 December 2022 the Company’s main sources of funding were its deposit base and central bank
funding, through the Eurosystem monetary policy operations. Wholesale funding is also becoming an
important source of funding, following the refinancing of the Tier 2 for €300 million in April 2021 and the
issuance of senior preferred debt of €300 million in June 2021.
With respect to TLTRO III operations the carrying value of the ECB funding as at 31 December 2022, (after
the early repayment of €1 billion within December 2022), was €1,977 million (2021: €2,970 million).
As at 31 December 2022, the wholesale funding nominal amount was €820 million (2021: €856 million).
This includes funding raised from the wholesale debt capital markets of €220 million AT1 issued in
December 2018, €300 million new Tier 2 issued in April 2021 and €300 million senior preferred debt issued
in June 2021. In January 2022, the Company redeemed the remaining €36 million outstanding of the Tier 2
issued in January 2017.
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.
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, where applicable. Certain
subsidiaries have a recommendation from their regulator to exercise caution and prudence regarding
dividend distributions and to consider the impact of COVID-19 on their operating models, solvency, liquidity
and financial position.
Collateral requirements and other disclosures
Collateral requirements
The carrying values of the Company's encumbered assets as at 31 December 2022 and 31 December 2021
are summarised below:
Cash and other liquid assets
Investments
Loans and advances
2022
€000
2021
€000
73,557
102,463
284,343
1,260,158
3,273,369
3,126,803
3,631,269
4,489,424
Cash is mainly used to cover collateral required for derivatives, trade finance transactions and guarantees
issued. It may also be used as part of the supplementary assets for the covered bond. The decrease in cash
and other liquid assets presented as encumbered assets during the year ended 31 December 2022 was
driven mainly by the decrease in cash encumbered for derivatives and for trade finance transactions.
As at 31 December 2022 and 2021, investments are mainly used as collateral for ECB funding or as
supplementary assets for the covered bond. The decrease in the investments presented as encumbered
assets during the year ended 31 December 2022 was driven by the removal of debt securities from the ECB
collateral pool following the repayment of €1 billion TLTRO III funding in December 2022.
Loans and advances indicated as encumbered as at 31 December 2022 and 2021, are mainly used as
collateral for funding from the ECB and the covered bond.
452
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
45.
Risk management - Liquidity and funding risk (continued)
Loans and advances to customers include mortgage loans of a nominal amount of €1,007 million as at 31
December 2022 (2021: €1,007 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 2022 housing loans
of a nominal amount of €2,287 million (2021: €2,091 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. The Covered Bonds
have a maturity date of 12 December 2026 and pay an interest rate of 3-months Euribor plus 1.25% on a
quarterly basis. On 9 August 2022, the Company proceeded with an amendment to the terms and
conditions of the covered bonds following the implementation of Directive (EU) 2019/2162 in Cyprus. The
covered bonds are listed 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 include balances of €29,100 thousand as at 31 December 2022 (2021: €36,571
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 €55,152 thousand as at 31 December 2022 (2021: €71,321 thousand).
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) are assigned to different time bands based on either their maturity, 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.
Debt securities in issue and subordinated liabilities are classified in the relevant time band according to the
remaining contractual maturity.
453
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
45.
Risk management - Liquidity and funding risk (continued)
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 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
Amounts of commitments and contingent liabilities are included in the time band on the basis of their
remaining contractual maturities.
In the case of undrawn facilities the Company has the right to cancel them upon relevant notice to the
customers and are hence included in the 'On demand and up to one month' time band.
2022
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
Investments not at FVPL
Other assets
Financial liabilities
Deposits by banks
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
9,541,655
96,559
6,814
9,471
1,215
-
13,489
1,480
703
9,566,798
36
-
64,558
1,898
4,321
166,689
-
8,712
907,783
219,362
641,082
3,161,840
5,022,854
9,952,921
81,889
3,742
37,600
442,156
738
566,125
507
42,553
50,506
160
238
10,811
36,437
48,153
70,637
318,427
1,787,097
284,003
2,502,717
180
90,340
224,939
1,525
367,490
10,728,266
304,767
1,101,212
5,694,779
5,350,581 23,179,605
138,027
20,320
33,128
215,446
120,811
527,732
Funding from central banks
-
-
-
2,028,300
Customer deposits
Balances with Group
companies
Debt securities in issue
Subordinated liabilities
Fair value of derivative
liabilities
Lease liabilities
Other liabilities
Net financial
(liabilities)/assets
15,096,274
1,591,894
2,278,574
38,116
77,488
14,704
-
-
10,274
579
126,694
-
-
255
959
4,485
5,321
7,500
19,875
9
4,031
29,620
-
339,725
89,626
4,412
13,712
7,442
-
-
-
-
420,618
1,219
3,138
3,291
2,028,300
19,004,858
97,513
347,225
530,119
16,169
22,419
171,532
15,449,336
1,632,617
2,378,058
2,736,779
549,077 22,745,867
(4,721,070) (1,327,850) (1,276,846)
2,958,000
4,801,504
433,738
454
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
45.
Risk management - Liquidity and funding risk (continued)
2021
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
Investments not at FVPL
Financial assets classified as
held for sale
Other assets
Financial liabilities
Deposits by banks
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
9,186,060
17,274
23,827
1,977
1,579
9,230,717
154,117
856
4,123
-
1,882
-
69,213
-
18,358
4,009
247,693
4,865
997,463
216,888
689,957
3,281,840
4,649,386
9,835,534
67,949
5,367
32,454
558,299
3,656
667,725
4,187
44,715
227,195
47,402
322
46
314
1,784
6,653
52,105
247,055
1,119,520
461,938
1,925,333
8
61
451
3,465
1,606
302,195
21,096
1,518
250,356
354,641
10,729,944
296,148
999,137
5,334,964
5,163,324 22,523,517
54,669
16,568
26,426
193,160
170,744
461,567
Funding from central banks
-
-
-
2,931,762
Customer deposits
Balances with Group
companies
Debt securities in issue
Subordinated liabilities
Fair value of derivative
liabilities
Lease liabilities
Other liabilities
Net financial
(liabilities)/assets
2022
Gross settled derivatives
Financial assets
Contractual amounts
receivable
Contractual amounts payable
Financial liabilities
Contractual amounts
receivable
Contractual amounts payable
13,135,377
1,836,665
2,545,487
16,523
47,375
15,236
-
38,898
2,249
513
146,129
-
-
836
1,026
17,807
5,318
7,500
19,875
1,746
4,607
30,406
-
30,000
79,500
11,925
16,006
6,582
-
-
-
307,500
399,375
15,696
6,622
3,342
2,931,762
17,534,052
67,929
345,000
537,648
32,452
28,774
204,266
13,425,210
1,888,138
2,641,365
3,285,458
903,279 22,143,450
(2,695,266) (1,591,990) (1,642,228)
2,049,506
4,260,045
380,067
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
149,604
83,265
(149,166)
(83,215)
438
50
1,034,973
65,093
(1,045,050)
(65,224)
(10,077)
(131)
1,230
(1,222)
8
1,222
(1,223)
(1)
-
-
-
-
-
-
-
-
-
-
-
-
234,099
(233,603)
496
1,101,288
(1,111,497)
(10,209)
455
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
45.
Risk management - Liquidity and funding risk (continued)
2022
Contingent liabilities and
commitments
Contingent liabilities
Acceptances and
endorsements
Guarantees
Commitments
Documentary credits
Undrawn formal standby
facilities, credit lines and
other commitments to lend
2021
Gross settled derivatives
Financial assets
Contractual amounts
receivable
Contractual amounts payable
Financial liabilities
Contractual amounts
receivable
Contractual amounts payable
2021
Contingent liabilities and
commitments
Contingent liabilities
Acceptances and
endorsements
Guarantees
Commitments
Documentary credits
Undrawn formal standby
facilities, credit lines and
other commitments to lend
On demand
and up to one
month
€000
Between one
and three
months
€000
Between three
months and
one year
€000
Between one
and five years
Over five years
Total
€000
€000
€000
1,756
2,890
529
-
-
5,175
151,303
108,220
228,922
130,112
38,662
657,219
1,206
6,900
9,268
1,979,462
-
-
-
-
250
17,624
-
1,979,462
2,133,727
118,010
238,719
130,112
38,912
2,659,480
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
420,866
55,956
(416,841)
(55,707)
4,025
249
1,498
(1,475)
23
576,053
63,521
(577,555)
(63,992)
(1,502)
(471)
798
(813)
(15)
-
-
-
-
-
-
-
-
-
-
-
-
478,320
(474,023)
4,297
640,372
(642,360)
(1,988)
On demand
and up to one
month
€000
Between one
and three
months
€000
Between three
months and
one year
€000
Between one
and five years
Over five years
Total
€000
€000
€000
1,599
140,408
2,306
94,065
720
-
-
4,625
247,402
107,768
26,315
615,958
2,007
4,024
3,127
946
1,160
11,264
2,024,198
-
-
-
-
2,024,198
2,168,212
100,395
251,249
108,714
27,475
2,656,045
46.
Capital management
The primary objective of the Company’s capital management is to ensure compliance with the relevant
regulatory capital requirements and to maintain healthy capital adequacy ratios to cover the risks of its
business and support its strategy and maximise shareholders’ value.
456
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
46.
Capital management (continued)
The capital adequacy framework, as in force, was incorporated through the Capital Requirements Regulation
(CRR) and Capital Requirements Directive (CRD) which came into effect on 1 January 2014 with certain
specified provisions implemented gradually. The CRR and CRD 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. It is directly applicable in all EU
member states. CRD governs access to deposit-taking activities and internal governance arrangements
including remuneration, board composition and transparency. Unlike the CRR, member states were required
to transpose the CRD into national law and national regulators were allowed to impose additional capital
buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (Regulation (EU) 2019/876 (CRR II) and
Directive (EU) 2019/878 (CRD V)) came into force. As an amending regulation, the existing provisions of
CRR apply unless they are amended by CRR II. Certain provisions took immediate effect (primarily relating
to Minimum Requirement for Own Funds and Eligible Liabilities (MREL)), but most changes became effective
as of June 2021. 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 (as defined in the CRR) and a Net Stable
Funding Ratio (NSFR).
The amendments that came into effect on 28 June 2021 are in addition to those introduced in June 2020
through Regulation (EU) 2020/873, which among other, brought forward certain CRR II changes in light of
the COVID-19 pandemic. The main adjustments of Regulation (EU) 2020/873 that had an impact on the
Company’s capital ratio relate to the acceleration of the implementation of the new SME discount factor
(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 (phasing in at 25% in 2022) and advancing
the application of prudential treatment of software assets as amended by CRR II (which came into force in
December 2020). In addition, Regulation (EU) 2020/873 introduced a 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 from the third quarter of 2020. This temporary treatment was in effect until 31 December
2022.
The Group and the Company have complied with the minimum capital requirements (Pillar I and Pillar II).
In October 2021, the European Commission adopted legislative proposals for further amendments to the
Capital Requirements Regulation (CRR), CRD and the BRRD (the '2021 Banking Package'). Amongst other
things, the 2021 Banking Package would implement certain elements of Basel III that have not yet been
transposed into EU law. The 2021 Banking Package is subject to amendment in the course of the EU’s
legislative process; and its scope and terms may change prior to its implementation. In addition, in the case
of the proposed amendments to CRD and the BRRD, their terms and effect will depend, in part, on how they
are transposed in each member state. The European Council's proposal on CRR and CRD was published on 8
November 2022. During 2023, the finalisation of European Parliament’ position is expected, which will be
followed by the trilogue process that will eventually result in the final versions of the directives and
regulations. It is expected that the 2021 Banking Package is enter into force on 1 January 2025; and certain
measures are expected to be subject to transitional arrangements or to be phased in over time.
Additional information on regulatory capital is disclosed in 'Risk and Capital Management Report'
(unaudited), which is included in the Annual Financial Report.
47.
Related party transactions
Related parties for the Company include Group companies, associates and joint ventures, key management
personnel, members of the Board of Directors and their connected persons.
Connected persons for the purpose of this disclosure include spouses, minor/dependent 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.
457
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
47.
Related party transactions (continued)
Aggregate amounts outstanding at year end and additional transactions
Loans and advances as at 31 December
Board of Directors
Key management personnel
Connected persons-Board of Directors
Connected persons-key management personnel
Deposits as at 31 December
Board of Directors
Key management personnel
Connected persons - Board of Directors
Connected persons - Key management personnel
Interest income for the year
Commission income for the year
Insurance premium income for the year
Subscriptions and insurance expenses for the year
Accruals and other liabilities as at 31 December with entity providing
key management personnel services
Staff costs, consultancy, restructuring and other expenditure with
entity providing key management personnel services
2022
€000
2021
€000
105
2,017
86
216
2,424
3,582
1,898
1,373
1,544
8,397
62
6
433
294
-
-
148
2,380
91
73
2,692
1,146
1,541
1,173
1,081
4,941
394
1
367
377
1,199
9,980
The above table does not include year end balances for members of the Board of Directors, key
management personnel and their connected persons who resigned during the year, nor balances of
customers that do not meet the definition of connected persons as at 31 December 2022.
As at 31 December 2022 there were 10 Directors in office (2021: 12) and 18 key management personnel in
office (2021: 17).
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.
During the year ended 31 December 2022 connected persons of key management personnel transacted
with REMU for the purchase of a property amounting to €58 thousand (2021: nil). The transaction was
made on normal business terms as for comparable transactions with third parties.
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 €120 thousand as at 31 December 2022 (2021: €133
thousand).
There were also contingent liabilities and commitments to other key management personnel and their
connected persons amounting to €1,134 thousand as at 31 December 2022 (2021: €573 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
2022 amounted to €1,093 thousand (2021: €774 thousand).
There were no other transactions during the years ended 31 December 2022 and 2021 with connected
persons of the current members of the Board of Directors or with any members who resigned during the
period/year.
458
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
47.
Related party transactions (continued)
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 key management personnel
Directors' emoluments
Executives
Salaries and other short-term benefits
Employer's contributions
Retirement benefit plan costs
Share-based benefits
Total directors' emoluments
Key management personnel emoluments
Salaries and other short-term benefits
Termination benefits
Employer's contributions
Retirement benefit plan costs
Share-based benefits
Total key management personnel emoluments
Total
Executive Directors
The fees and emoluments of the Executive Directors are analysed as follows:
Panicos Nicolaou (Chief Executive Officer)
Salaries and other short-term benefits
Employer's contributions
Retirement benefit plan costs
Share-based benefits
Eliza Livadiotou (Executive Director Finance & legacy - appointed on
6 October 2021)
Salaries and other short-term benefits
Employer's contributions
Retirement benefit plan costs
Share-based benefits
Total
2022
€000
2021
€000
1,046
63
82
118
1,309
801
43
68
-
912
2,645
3,234
200
307
198
204
3,554
4,863
-
274
181
-
3,689
4,601
2022
€000
2021
€000
761
38
60
93
952
285
25
22
25
357
1,309
715
37
61
-
813
86
6
7
-
99
912
The share-based benefits relate to the expense for the year for the share awards granted in December 2022
(Note 12).
Fees and benefits are included for the period that they serve as members of the Board of Directors. Other
key management personnel emoluments are included for the period that they serve as key management
personnel.
459
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
47.
Related party transactions (continued)
Fees and emoluments of members of the Board of Directors and key management personnel
(continued)
The retirement benefit plan costs relate to contributions paid for defined contribution plan.
Non-executive Directors
Non-executive director fees are expensed by 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’.
Key management personnel
The emoluments of key management personnel include the remuneration of the members of the Executive
Committee since the date of their appointment to the Committee and the emoluments of other members of
the Senior Management team (Extended EXCO) (prior to the change in the Group organisational structure,
in 2022 the key management personnel included those members of the management team who reported
directly to the Chief Executive Officer or to the Deputy Chief Executive Officer & Chief of Business). Mrs Eliza
Livadiotou was appointed as member of the Board of Directors from 6 October 2021 and her emoluments
from that date onwards are disclosed within the Executive Directors emoluments above.
Balances and transactions with Group Companies are disclosed in Note 22. Further, the subordinated
liability with the holding Company is disclosed in Note 31.
460
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
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 2022 are:
Company
EuroLife Ltd
Country
Activities
Cyprus
Life insurance
General Insurance of Cyprus Ltd
Cyprus
Non-life insurance
JCC Payment Systems Ltd
The Cyprus Investment and Securities
Corporation Ltd (CISCO)
BOC Asset Management Ltd
Cyprus
Cyprus
Cyprus
LCP Holdings and Investments Public Ltd
Cyprus
Kermia Ltd
Cyprus
Kermia Properties & Investments Ltd
Cyprus
Card processing transaction
services
Investment banking and
brokerage
Management administration
and safekeeping of UCITS
Units
Investments in securities and
participations in companies
and schemes that are active
in various business sectors
and projects
Property trading and
development
Property trading and
development
S.Z. Eliades Leisure Ltd
Cyprus
Land development and
operation of a golf resort
Auction Yard Ltd
Cyprus
Auction company
BOC Secretarial Company Ltd
Cyprus
Secretarial services
Bank of Cyprus Public Company Ltd (branch
of the Company)
Greece
BOC Asset Management Romania S.A.
Romania
MC Investment Assets Management LLC
Russia
Administration of guarantees
and holding of real estate
properties
Collection of the existing
portfolio of receivables,
including third party
collections
Problem asset management
company
Fortuna Astrum Ltd
Serbia
Problem asset management
company
Percentage
holding
(%)
100
100
75
100
100
67
100
100
70
100
100
n/a
100
100
100
461
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
48.
Subsidiary companies (continued)
In February 2023 the Group proceeded with a restructuring of its investment banking and brokerage
activities through the absorption by CISCO of BOC Asset Management Ltd's activities. BOC Asset
Management Ltd was subsequently dissolved.
In addition to the above companies, as at 31 December 2022 the Company had 100% shareholding in the
companies listed below whose activity is the ownership and management of immovable property:
Cyprus: Hamura Properties Ltd, Tolmeco Properties Ltd, Arlona Properties Ltd, Dilero Properties Ltd, Ensolo
Properties Ltd, Pelika Properties Ltd, Cobhan 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, Les Coraux Estates Ltd, Natakon Company Ltd, Oceania Ltd,
Dominion Industries Ltd, Ledra Estate Ltd, EuroLife Properties Ltd, Laiki Lefkothea Center Ltd, Labancor Ltd,
Joberco Ltd, Zecomex Ltd, Domita Estates Ltd, Memdes Estates Ltd, Edoric Properties Ltd, Canosa
Properties Ltd, Kernland Properties Ltd, Jobelis Properties Ltd, Melsolia Properties Ltd, Koralmon Properties
Ltd, Spacous Properties Ltd, Calinora Properties Ltd, Marcozaco Properties Ltd, Soluto Properties Ltd,
Solomaco Properties Ltd, Linaland 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, Regetona Properties Ltd, Camela 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, Pendalo
Properties Ltd, Frontyard Properties Ltd, Bonsova Properties Ltd, Thermano Properties Ltd, Venicous
Properties Ltd, Lorman Properties Ltd, Eracor Properties Ltd, Rulemon Properties Ltd, Thelemic Properties
Ltd, Maledico Properties Ltd, Bascone Properties Ltd, Balasec Properties Ltd, Bendolio Properties Ltd, Diafor
Properties Ltd, Kartama 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, Coeval Properties Ltd, Finevo Properties Ltd, Mazima 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, Odolo Properties
Ltd, Calandomo Properties Ltd, Molemo Properties Ltd, Nivamo Properties Ltd, Samilo Properties Ltd,
Sendilo Properties Ltd, Baleland Properties Ltd, Alezia Properties Ltd, Zenoplus Properties Ltd, Alepar
Properties Ltd, Enelo Properties Ltd, Monata Properties Ltd, Vertilia Properties Ltd, Amary Properties Ltd,
Aparno Properties Ltd, Lomenia Properties Ltd, Midelox Properties Ltd, Montira Properties Ltd, Orilema
Properties Ltd and Philiki Ltd.
Romania: Otherland Properties Dorobanti SRL, Green Hills Properties SRL, Imoreth Properties SRL, Inroda
Properties SRL, Zunimar Properties SRL, Allioma Properties SRL and Nikaba Properties SRL.
Further, at 31 December 2022 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 2022 the Company had 100% shareholding in BOC Terra AIF V.C.I Plc which is a real
estate alternative investment fund, currently inactive.
At 31 December 2022 the Company had 100% shareholding in the companies listed below which are
reserved to accept property:
Cyprus: Holstone Properties Ltd, Cramonco Properties Ltd, Carilo Properties Ltd, Gelimo Properties Ltd,
Rifelo Properties Ltd, Avaleto 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, Bonayia Properties Ltd, Janoland Properties Ltd,
Imoreth Properties Ltd, Inroda Properties Ltd, Zunimar Properties Ltd, Nikaba Properties Ltd, Allioma
Properties Ltd, Landanafield Properties Ltd and Hydrobius Ltd.
462
BANK OF CYPRUS PUBLIC COMPANY LTD
Notes to the Financial Statements
Annual Financial Report 2022
48.
Subsidiary companies (continued)
The Company also holds 100% of the following companies which are inactive:
Cyprus: Laiki Bank (Nominees) Ltd, Paneuropean Ltd, Nelcon Transport Co. Ltd, Iperi Properties Ltd,
CYCMC IV Ltd, Prodino Properties Ltd and Thryan Properties Ltd.
Greece: Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki (branch of General Insurance of Cyprus
Ltd), Kyprou Commercial SA and Kyprou Properties SA.
All Group companies are accounted for as subsidiaries using the full consolidation method. All companies
listed above have share capital consisting of ordinary shares.
Acquisitions of subsidiaries
During the years ended 31 December 2022 and 2021 there were no acquisitions of subsidiaries.
Dissolution and disposal of subsidiaries
Renalandia Properties Ltd, Crolandia Properties Ltd, Elosis Properties Ltd, Pariza Properties Ltd, Prosilia
Properties Ltd, Otoba Properties Ltd, Dolapo Properties Ltd, Nivoco Properties Ltd, Polkima Properties Ltd,
Fledgego Properties Ltd, Bocaland Properties Ltd, Buchuland Properties Ltd, Imperial Life Assurances Ltd,
Philiki Management Services Ltd, Selilar Properties Ltd, Tantora Properties Ltd were dissolved during the
year ended 31 December 2022. Vieman Ltd, Edilia Properties Ltd, Limoro Properties Ltd, Stevolo Properties
Ltd, Yossi Properties Ltd, Jalimo Properties Ltd, Nesia Properties Ltd, Arcandello Properties Ltd, Meriaco
Properties Ltd, Flymoon Properties Ltd, CYCMC II Ltd, Comenal Properties Ltd, Innerwick Properties Ltd,
Palmco Properties Ltd, Paradexia Properties Ltd, Noleta Properties Ltd, Garmozy Properties Ltd, Valioco
Properties Ltd, Dentorio Properties Ltd and Cimonia Properties Ltd were disposed of during the year ended
31 December 2022.
As at 31 December 2022, the following subsidiaries were in the process of dissolution or in the process of
being struck off: Fantasio Properties Ltd, Demoro Properties Ltd, Bramwell Properties Ltd, Blindingqueen
Properties Ltd, Fairford Properties Ltd, Salecom Ltd, Sylvesta Properties Ltd, Cyprialife Ltd, Battersee Real
Estate SRL, Romaland Properties Ltd, Trecoda Properties Ltd, Weinco Properties Ltd, Aktilo Properties Ltd,
Stormino Properties Ltd, Tavoni Properties Ltd, Ameleto Properties Ltd, Birkdale Properties Ltd, Folimo
Properties Ltd, Steparco Ltd, Thames Properties Ltd and Finerose Properties Ltd.
During the year ended 31 December 2022, the Company disposed of its 100% shareholding in Yossi
Properties Ltd and recorded a gain on disposal of €781 thousand in the income statement for the year
ended 31 December 2022 (Note 11).
During the year ended 31 December 2021, the Company disposed of its 100% shareholding in Global
Balanced Fund of Funds Salamis Variable Capital Investment Company Plc and recorded a loss on disposal
of €203 thousand in the income statement for the year ended 31 December 2021 (Note 11).
Carrying value of investments in subsidiaries
1 January
Contribution/Transfer from Balances with Group Companies (net)
Disposals/dissolution of subsidiaries
Impairment of investments in subsidiaries (Note 14)
31 December
49.
Events after the reporting period
2022
€000
2021
€000
91,218
76,382
(3,418)
(2,632)
161,550
97,609
4,638
(6,026)
(5,003)
91,218
No significant non-adjusting events have taken place since 31 December 2022. With respect to the recent
developments in financial markets reference is made in Note 4.
463
Independent Auditor’s Report
To the Members of Bank of Cyprus Public Company Limited
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 Limited (the “Company”) as at 31
December 2022, 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 317 to 463 and comprise:
● the balance sheet as at 31 December 2022;
● 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.
464
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: €16.4 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.
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 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.
465
Overall materiality
€16.4 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 €800 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 determined this to be a key audit matter
due to the significant judgement exercised by
management and the complexity in making the
estimate including:
We understood and evaluated the overall
control framework and tested the design and
operating effectiveness of key controls across
processes relevant to the calculation of ECL.
We tested the completeness and accuracy of
data inputs to the ECL model on a sample
basis.
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 Company and their
compliance with the requirements of IFRS 9.
466
● The interpretations and assumptions
required to build the models,
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;
● Identifying ‘Significant Increase in Credit
Risk’; and
● The inputs, assumptions and probability
weights assigned to multiple economic
scenarios as used by the Company.
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 allocation of
loans and advances to customers to Stages 1, 2
or 3 with reference to those triggers. As part of
this, we considered the impact of staging
overlays, where applicable.
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 model
which mathematically checked the calculation
of collective ECL.
We evaluated the Company’s individual
assessments for a sample of material Stage 3
exposures for compliance with the Company’s
policies, developments during 2022 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 compared, with the assistance of PwC
credit risk experts, the forward-looking
macroeconomic assumptions used in the base,
favourable and adverse scenarios to publicly
available information. We also assessed the
reasonableness of the adverse and favourable
assumptions together with the scenario
weightings applied by management.
We evaluated the appropriateness of the
Company’s disclosures particularly in relation
to significant judgements and estimates.
We concluded that the methodologies and
judgements used by management in
determining the ECL charge and ECL
provisions recognised were reasonable and the
disclosures made in relation to these matters
in the financial statements were appropriate.
467
Litigation provisions and regulatory
and other claims
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.
The Company is subject to various legal claims,
investigations and other proceedings.
Provisions for pending litigation, claims,
regulatory and other matters amounted to
€121 million as at 31 December 2022.
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 requires 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 and
evaluated the design of controls relevant to the
recognition and measurement of litigation
provisions and regulatory and other claims.
We tested the operating effectiveness of
controls we wished to rely on.
We tested a risk based sample of
management’s assessment of individual cases,
including whether an economic outflow was
assessed as probable. 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 a sample of cases where economic outflow
was assessed as probable by management, and
therefore a provision recorded, we recalculated
the provision and performed sensitivity
analysis on key assumptions used by
management.
We understood the basis of management’s
collective provisions, in circumstances where
these are applied, assessed the key
assumptions used by reference to past
experience and recalculated provisions
booked.
We inspected the minutes of meetings of the
board of directors and certain of its
committees for evidence of any unidentified
legal cases or relevant developments in
current cases, including the minutes of the
Settlement of Legal Cases Committee.
We inspected regulatory correspondence and
further inquired with the compliance
department about known existing
circumstances of 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 2022.
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.
468
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 external valuers and
the holding periods for assets are key inputs to
determine the appropriate carrying value.
We have determined this to be a key audit
matter in light of the large volume of
properties held, the carrying value of these
properties of €442 million at 31 December
2022, and the uncertainty around market
conditions when estimating the carrying
amount.
We understood and evaluated the design of the
overall control framework relevant to
repossessed properties and tested the
operating effectiveness of key controls around
their valuation.
We focused on the key inputs and assumptions
underlying the valuation of the properties.
We evaluated the competence, capability and
objectivity of management’s external experts
(property valuers), where relevant.
For a sample of external valuation reports, we
assessed the methodology and assumptions
used with the assistance of PwC valuation
experts.
We tested the accuracy of the application by
management of illiquidity discounts for a
sample of properties held at year end.
For a sample of properties acquired during
the year, we tested “cost’’ by reference to
signed “debt-for-asset” agreements entered
into with borrowers, and we tested the “net
realisable value’’ at year-end by reference to
external valuation reports.
We performed look-back procedures by
comparing the price achieved for disposals
during 2022 to the carrying values for those
assets at 31 December 2021.
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 financial
statements were appropriate.
469
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 applications and underlying data
are made in an appropriate manner and to
mitigate the risk of potential fraud or error.
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 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 2022;
● Extracted the list of developers from the
production IT systems and release tools
for those applications where system
functionality is managed in-house and
considered the appropriateness of
developer access; and
● Considered the authentication controls
of applications and supporting IT
infrastructure to assess compliance
with the 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.
470
Reporting on other information
The Board of Directors is responsible for the other information. The other information comprises
the information included in the Forward Looking Statements and Notes, Management Report, Risk
and Capital Management Report, ESG Disclosures and the 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.
471
● 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 4 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 31 March
2023 in accordance with Article 11 of the EU Regulation 537/2014.
472
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 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.
We have reported separately on the consolidated financial statements of the Company and its
subsidiaries for the year ended 31 December 2022.
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
31 March 2023
473
Alternative Performance Measures Disclosures
2022
BANK OF CYPRUS GROUP Annual Financial Report 2022
Alternative Performance Measures Disclosures
DEFINITIONS
Allowance for
expected credit
losses on loans
Allowance for expected credit losses on loans 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
classified as non-current assets held for sale, where applicable), (ii) the residual
fair value adjustment on initial recognition of loans and advances to customers
(including residual fair value adjustment on initial recognition of loans and
advances to customers held for sale, where applicable), (iii) allowance for
expected credit losses on 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 total expenses on an underlying basis (as
defined below) divided by total income as per the underlying basis (as defined
below).
Digitally engaged
customers ratio
Gross loans
Interest earning
assets
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 comprise: (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, where applicable) and (ii) loans and advances to customers classified
and measured at FVPL adjusted for the aggregate fair value adjustment.
The residual fair value adjustment on initial recognition relates mainly to loans
acquired from Laiki Bank (calculated as the difference between the outstanding
contractual amount and the fair value of loans acquired at acquisition).
Interest earning assets include: cash and balances with central banks, plus loans
and advances to banks, plus net loans and advances to customers (including net
loans and advances to customers classified as non-current assets held for sale,
where applicable) (as defined below), plus deferred consideration receivable
(‘DPP’), plus investments (excluding equities, mutual funds and other non-
interest bearing investments).
Legacy exposures
Legacy exposure are exposures relating to
(i)
(ii)
(iii)
Restructuring and Recoveries Division (RRD),
Real Estate Management Unit (REMU), and
Non-core overseas exposures.
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.
475
BANK OF CYPRUS GROUP Annual Financial Report 2022
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 period.
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
Net loans and advances to customers comprise gross loans (as defined) net of
allowance for expected credit losses on loans (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 credit losses on loans (as defined), divided by customer
deposits.
Net performing loan
book
Net performing loan book is the total net loans and advances to customers (as
defined) excluding legacy exposures (as defined).
New lending
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, diminished financial
obligation 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 previously classified as NPES that
present more than 30 days past due within the probation period.
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/GL/2016/07).
476
BANK OF CYPRUS GROUP Annual Financial Report 2022
Alternative Performance Measures Disclosures
The Days-Past-Due (DPD) counter begins 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.
For retail debtors, 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.
For non-retail debtors, when an exposure fulfils the NPE criteria set out above,
then the total customer exposure is classified as non-performing.
Material arrears/excesses are defined as follows:
- Retail exposures: Total arrears/excess amount greater than €100
- Exposures other than retail: Total arrears/excess amount greater than €500
and the amount in arrears/excess is at least 1% of the customer’s total exposure.
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 ‘Consolidated Income Statement on the
underlying basis’ relate to: (i) Advisory and other restructuring costs – organic,
(ii) Provisions/net loss relating to NPE sales, (iii) Restructuring and other costs
relating to NPE sales, and (iv) Restructuring costs – Voluntary Staff Exit Plan
(VEP).
NPE coverage ratio
The NPE coverage ratio is calculated as the allowance for expected credit losses
on loans (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 (net of reversals),
tax, profit attributable to non-controlling interests and non-recurring items (as
defined).
Operating profit
return on average
assets
Operating profit return on average assets is calculated as the annualised (based
on year to date days) operating profit (on an underlying basis) (as defined)
divided by the quarterly average of total assets for the relevant period. Average
total assets exclude total assets of discontinued operations at each quarter end,
if applicable.
Profit/(loss) after
tax and before non-
recurring items
(attributable to the
owners of the
Company)
Profit/(loss) after
tax – organic
(attributable to the
owners of the
Company)
Profit/(loss) after tax and before non-recurring items (attributable to the owners
of the Company) is the operating profit (as defined) adjusted for loan credit
losses (as defined), impairments of other financial and non-financial assets,
provisions for litigation, claims, regulatory and other matters (net of reversals),
tax and (profit)/loss attributable to non-controlling interests.
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)
(attributable to the owners of the Company), adjusted for the ‘Advisory and other
restructuring costs – organic’.
477
BANK OF CYPRUS GROUP Annual Financial Report 2022
Alternative Performance Measures Disclosures
Return on Tangible
Equity (ROTE) after
tax and before non-
recurring items
Return on Tangible Equity (ROTE) after tax and before non-recurring items is
calculated as Profit/(loss) after tax and before non-recurring items (attributable
to the owners of the Company) (as defined) per the underlying basis (annualised
- (based on year-to-date days)), divided by the quarterly average of
Shareholders’ equity minus intangible assets at each quarter end.
Return on Tangible
Equity (ROTE)
Return on Tangible Equity (ROTE) is calculated as Profit/(loss) after tax
(attributable to the owners of the Company) (annualised - (based on year-to-
date days)), divided by the quarterly average of Shareholders’ equity minus
intangible assets at each quarter end.
Total expenses
Total income
Total expenses on an underlying basis comprises 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 other
levies/contributions and other operating expenses (excluding ‘Advisory and other
restructuring costs-organic’, ‘Restructuring and other costs relating to NPE sales’
(on an underlying basis as reconciled in the table further below).
Total income on the underlying basis comprises the total of net interest income,
net fee and commission income, net foreign exchange gains, net gains/(losses) on
financial instruments (excluding net gains/(losses) on loans and advances to
customers at FVPL), insurance income net of claims and commissions, net
gains/(losses) from revaluation and disposal of investment properties and on
disposal of stock of property and other income (on an underlying basis). A
reconciliation of these amounts between the statutory and the underlying bases
is disclosed in the Directors’ Report under section ‘Group financial results on the
underlying basis’.
478
BANK OF CYPRUS GROUP Annual Financial Report 2022
Alternative Performance Measures Disclosures
RECONCILIATIONS
For the purpose of the ‘Alternative Performance Measures Disclosures’, reference to ‘Note’ relates to the
respective note in the Consolidated Financial Statements for the year ended 31 December 2022.
1.
(a) Reconciliation of Gross loans and advances to customers
2022
€000
2021
€000
Gross loans and advances to customers as per the underlying basis (as
defined above)
10,217,453
10,856,660
Reconciling items:
Residual fair value adjustment on initial recognition (Note 23)
(89,029)
(105,678)
Gross loans and advances to customers at amortised cost classified as held
for sale (Note 45.3)
Residual fair value adjustment on initial recognition on loans and advances
to customers classified as held for sale (Note 45.3)
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)
-
-
(555,789)
(19,090)
(214,359)
(281,868)
3,270
(53,700)
9,917,335
9,840,535
1.
(b) Reconciliation of Gross loans and advances to customers classified as held for sale
Gross loans and advances to customers 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 45.3)
Loans and advances to customers classified as held for sale as per
the Consolidated Financial Statements (Note 29)
2022
€000
2021
€000
574,879
(19,090)
555,789
-
-
-
2.
(a) Reconciliation of Allowance for expected credit losses on loans and advances to
customers (ECL)
Allowance for expected credit losses on loans and advances to customers
(ECL) as per the underlying basis (as defined above)
Reconciling items:
2022
€000
2021
€000
281,630
791,830
Residual fair value adjustment on initial recognition (Note 23)
(89,029)
(105,678)
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 29)
Residual fair value adjustment on initial recognition on loans and advances
to customers classified as held for sale (Note 45.3)
3,270
(53,700)
-
-
(305,419)
(19,090)
Provisions for financial guarantees and commitments (Note 34)
(17,429)
(21,945)
Allowance for ECL for impairment of loans and advances to
customers as per the Consolidated Financial Statements (Note 23)
178,442
285,998
479
BANK OF CYPRUS GROUP Annual Financial Report 2022
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
45.3)
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
2022
€000
2021
€000
-
324,509
-
-
(19,090)
305,419
2022
€000
2021
€000
NPEs as per the underlying basis (as defined above)
410,563
1,343,308
Reconciling items:
Loans and advances to customers (NPEs) classified as held for sale
(Note 1 below)
Residual fair value adjustment on initial recognition of 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 of loans and
advances to customers (NPEs) classified as Stage 3 (Note 23)
Stage 3 gross loans and advances to customers at amortised
cost as per the Consolidated Financial Statements (Note 23)
NPE ratio
-
-
-
(553,619)
(19,030)
(122,972)
(37,742)
(70,814)
(1,803)
(3,530)
371,018
573,343
NPEs (as per table above) (€000)
Gross loans and advances to customers (as per table above)
(€000)
Ratio of NPE/Gross loans (%)
410,563
1,343,308
10,217,453
10,856,660
4.0%
12.4%
Note 1: As at 31 December 2022, there were no loans and advances to customers classified as held
for sale. As at 31 December 2021, gross loans at amortised cost after residual fair value adjustment
on initial recognition classified as held for sale include an amount of €474,459 thousand Stage 3 loans
and an amount of €79,160 thousand POCI – Stage 3 loans (out of a total of €79,255 thousand POCI
loans) as disclosed in Note 45.3 of the Consolidated Financial Statements for the year ended 31
December 2022.
480
BANK OF CYPRUS GROUP Annual Financial Report 2022
Alternative Performance Measures Disclosures
3.
Reconciliation of NPEs (continued)
Note 2: As at 31 December 2022, there were no loans and advances to customers classified as held for
sale. As at 31 December 2021, the residual fair value adjustment on initial recognition of loans and
advances to customers classified as held for sale includes an amount of €2,079 thousand for Stage 3
loans and an amount of €16,951 thousand for POCI – Stage 3 loans (out of a total of €16,954 thousand
POCI loans) as disclosed in Note 45.3 of the Consolidated Financial Statements for the year ended 31
December 2022.
Note 3: Gross loans and advances to customers at amortised cost before residual fair value adjustment
on initial recognition include an amount of €37,742 thousand POCI – Stage 3 loans (out of a total of
€115,544 thousand POCI loans) (2021: €70,814 thousand POCI – Stage 3 loans (out of a total of
€159,755 thousand POCI loans)) as disclosed in Note 23 of the Consolidated Financial Statements for
the year ended 31 December 2022.
4.
Reconciliation of Loan credit losses
Loan credit losses as per the underlying basis
46,717
66,353
2022
€000
2021
€000
Reconciling items:
Reversal of loan credit losses relating to NPE sales, disclosed
under non-recurring items within ‘Provisions/net loss relating to
NPE sales’ under the underlying basis
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 – loans and advances to customers (see further
below)
Net (gains)/losses on loans and advances to customers at FVPL
(Note 11)
(685)
(12,579)
46,032
53,774
56,510
40,341
(6,428)
(3,859)
(4,050)
17,292
46,032
53,774
Net gains on derecognition of financial assets measured at amortised cost in the Consolidated Income
Statement amount to €5,235 thousand (2021: €3,859 thousand) and comprise €6,428 thousand
(2021: €3,859 thousand) net gains on derecognition of loans and advances to customers and €1,193
thousand (2021: nil) net losses on derecognition of debt securities measured at amortised cost.
481
BANK OF CYPRUS GROUP Annual Financial Report 2022
Alternative Performance Measures Disclosures
KEY PERFORMANCE RATIOS INFORMATION
For the purpose of the ‘Alternative Performance Measures Disclosures’, reference to ‘Note’ relates to the
respective note in the Consolidated Financial Statements for the year ended 31 December 2022.
1.
Net Interest Margin
The various components for the calculation of net interest margin are provided below:
1.1 Net interest income used in the calculation of NIM
2022
€000
2021
€000
Net interest income as per the underlying basis/statutory basis
371,179
296,616
31 December
2022
30 September
2022
30 June
2022
€000
31 March
2022
€000
31 December
2021
€000
9,567,258
9,827,431
9,904,549
9,329,711
9,230,883
204,811
457,598
312,308
312,967
291,632
9,961,642
10,093,082
10,149,450
10,009,855
9,836,405
-
236,389
247,207
247,836
250,370
311,523
306,236
304,268
302,036
299,766
2,508,862
2,270,359
1,913,771
1,860,853
1,930,388
(8,968)
(11,732)
(5,476)
(5,790)
(5,534)
22,545,128
23,179,363
22,826,077
22,057,468
21,833,910
1.2 Interest
earning
assets
Cash and balances with
central banks
Loans and advances to
banks
Loans and advances to
customers
Loans and advances to
customers held for sale
(Note 29)
Prepayments, accrued
income and other assets
– Deferred consideration
receivable (‘DPP’) (Note
28)
Investments
Debt securities (Note 20)
Less: Investments which
are not interest bearing
(Note 20)
Total interest earning
assets
1.3 Quarterly
average
interest
earning
assets (€000)
- 2022
- 2021
22,488,389
20,436,098
482
BANK OF CYPRUS GROUP Annual Financial Report 2022
Alternative Performance Measures Disclosures
1.
Net Interest Margin (continued)
1.4 Net interest margin (NIM)
Net interest income (as per table 1.1 above) (€000)
2022
2021
371,179
296,616
Quarterly average interest earning assets (as per table 1.3 above) (€000)
22,488,389
20,436,098
NIM (%)
1.65%
1.45%
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:
Restructuring costs – voluntary exit plans and other termination benefits,
separately presented under the underlying basis (Note 14)
Staff costs as per the statutory basis (Note 14)
2.1.2 Reconciliation of Other operating expenses
2022
€000
2021
€000
190,036
202,487
104,325
16,146
294,361
218,633
2022
€000
2021
(restated)
€000
Other operating expenses as per the underlying basis
152,553
147,194
Reclassifications for:
Operating expenses and restructuring costs relating to the NPE sales,
presented within ‘Restructuring and other costs relating to NPE sales’ under
the underlying basis
Advisory and other restructuring costs – organic, separately presented under
the underlying basis
Other operating expenses as per the statutory basis (Note 15)
2,911
14,011
11,225
9,113
166,689
170,318
483
BANK OF CYPRUS GROUP Annual Financial Report 2022
Alternative Performance Measures Disclosures
2. Cost to income ratio (continued)
Reconciliation of the various components of total income used in the cost to income ratio calculation from
the underlying basis to the statutory basis is provided below:
2.2 Total Income as per the underlying basis
Net interest income as per the underlying basis/statutory basis (as per table
1.1 above)
Net fee and commission income as per the underlying basis/statutory basis
(Note 9)
Net foreign exchange gains, Net gains/(losses) on financial instruments and
Net gains on derecognition of financial assets measured at amortised cost as
per the underlying basis (as per table 2.3 below)
Insurance income net of claims and commissions (Note below)
Net losses from revaluation and disposal of investment properties and Net
gains on disposal of stock of properties (as per the statutory basis)
Net loss from revaluation of investment properties classified as held for sale,
disclosed within ‘Provisions/net loss relating to NPE sales’ (as per the
underlying basis)
Other income (as per the statutory basis)
Total Income as per the underlying basis
2022
€000
2021
(restated)
€000
371,179
296,616
192,284
171,796
36,100
25,030
71,139
61,044
12,971
11,468
-
1,006
16,681
14,244
700,354
581,204
Insurance income net of claims and commissions comprise ‘Income from assets under insurance and
reinsurance contracts’ less ‘Expenses from liabilities under insurance and reinsurance contracts’ as per
statutory basis.
financial
2.3 Reconciliation of Net foreign exchange gains, Net gains/
(losses) on
instruments and Net gains on
derecognition of financial assets measured at amortised cost
between the statutory basis and the underlying basis
Net foreign exchange gains, Net gains/(losses) on financial instruments and
Net gains on derecognition of financial assets measured at amortised cost as
per the underlying basis
Reclassifications for:
Net gains/(losses) 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)
Net gains on derecognition of financial assets measured at amortised cost -
loans and advances to customers (Table 4 Section ‘Reconciliations’ above)
Net loss on early redemption of subordinated loan stock, disclosed within
‘Advisory and other restructuring costs – organic’ under the underlying basis
(Note 11)
Total Net foreign exchange gains, Νet gains/(losses) on financial instruments
and Net gains on derecognition of financial assets measured at amortised cost
as per the statutory basis (see below)
Net foreign exchange gains, Net gains/(losses) on financial instruments and
Net gains on derecognition of financial assets measured at amortised cost (as
per table above) are reconciled to the statutory basis as follows:
Net foreign exchange gains
Net gains/(losses) on financial instruments (Note 11)
Net gains on derecognition of financial assets measured at amortised cost
2022
€000
2021
(restated)
€000
36,100
25,030
4,050
(17,292)
6,428
3,859
-
(12,558)
46,578
(961)
31,291
16,503
10,052
(21,323)
5,235
46,578
3,859
(961)
484
BANK OF CYPRUS GROUP Annual Financial Report 2022
Alternative Performance Measures Disclosures
2.
Cost to income ratio (continued)
2.4 Total Expenses as per the underlying basis
2022
€000
2021
€000
Staff costs as per the underlying basis (as per 2.1.1 table above)
190,036
202,487
Special levy on deposits and other levies/contributions as per the underlying
basis/statutory basis
Other operating expenses as per the underlying basis (as per table 2.1.2
above)
Total Expenses as per the underlying basis
38,492
36,350
152,553
147,194
381,081
386,031
Cost to income ratio
Total expenses (as per table 2.4 above) (€000)
Total income (as per table 2.2 above) (€000)
Total expenses/Total income (%)
381,081
386,031
700,354
581,204
54%
66%
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
2022
€000
30 September
2022
€000
30 June
2022
€000
31 March
2022
€000
31 December
2021
€000
Total assets used in the
computation of the
operating profit return on
average assets/per the
Consolidated Balance
Sheet
Quarterly average total
assets (€000)
25,442,930
26,202,338
25,848,918
25,122,711
24,962,785
-
-
2022
2021
25,515,936
23,656,626
Total income (as per table 2.2 above) (€000)
Total expenses (as per table 2.4 above) (€000)
Operating profit (€000)
Quarterly average total assets (€000)
Operating profit return on average assets (%)
2022
2021
(restated)
700,354
581,204
(381,081)
(386,031)
319,273
195,173
25,515,936
23,656,626
1.2%
0.8%
485
BANK OF CYPRUS GROUP Annual Financial Report 2022
Alternative Performance Measures Disclosures
4.
Cost of Risk
2022
€000
2021
€000
Loan credit losses (as per table 4 in section ‘Reconciliation’ above)
46,717
66,353
Average gross loans (as defined) (as per table 1.(a) above)
10,537,056
11,558,915
Cost of Risk (CoR) %
0.44%
0.57%
5.
Basic earnings after tax and before non-recurring items per share attributable to the
owners of the Company
The various components used in the determination of the ‘Basic earnings after tax and before non-
recurring items per share attributable to the owners of the Company (€ cent)’ are provided below:
Profit after tax and before non-recurring items (attributable to the owners of
the Company) per the underlying basis for the year ended 31 December (as
per table 5.1 below) (€000)
Weighted average number of shares in issue during the year, excluding
treasury shares (€000) (Note 18)
Basic earnings after tax and before non-recurring items per share attributable
to the owners of the Company (€ cent)
2022
2021
189,771
89,288
9,597,945
9,597,945
1.98
0.93
The reconciliation between the ‘Profit after tax and before non-recurring items (attributable to the owners
of the Company)’ per the underlying basis to the ‘Profit after tax (attributable to the owners of the
Company)’ per the statutory basis is provided in the table below:
5.1
Reconciliation of Profit after tax-attributable to the owners of the Company
Profit after tax and before non-recurring items (attributable to the owners of
the Company) per the underlying basis
Reclassifications for:
Reversal of loan credit losses relating to NPE sales, disclosed under non-
recurring items within ‘Provisions/net loss relating to NPE sales’ under the
underlying basis (as per table 4 above)
Net loss from revaluation of investment properties classified as held for sale,
disclosed within ‘Provisions/net loss relating to NPE sales’ (as per table 2.2
above)
Impairment loss relating to stock of properties of Project Helix 3, separately
disclosed under non-recurring items within ‘Provisions/net loss relating to NPE
sales’
Operating expenses and restructuring costs relating to the NPE sales,
presented within ‘Restructuring and other costs relating to NPE sales’ under
the underlying basis (as per table 2.1.2 above)
Advisory and other restructuring costs – organic, separately presented under
the underlying basis (as per table 2.1.2 above)
Restructuring costs – voluntary exit plan, and other termination benefits,
separately presented under the underlying basis (as per table 2.1.1 above)
Net loss on early redemption of subordinated loan stock, disclosed within
‘Advisory and other restructuring costs – organic’ under the underlying basis
(as per table 2.3 above) (Note 11)
Profit after tax (attributable to the owners of the Company) per the statutory
basis
2022
€000
2021
€000
189,771
89,288
685
12,579
-
-
(1,006)
(19,424)
(2,911)
(16,120)
(11,225)
(9,113)
(104,325)
(16,146)
-
(12,558)
71,995
27,500
486
BANK OF CYPRUS GROUP Annual Financial Report 2022
Alternative Performance Measures Disclosures
6.
Return on tangible equity (ROTE) after tax and before non-recurring items
The various components used in the determination of ‘Return on tangible equity (ROTE) after tax and
before non-recurring items’ are provided below:
Profit after tax and before non-recurring items (attributable to the owners
of the Company) per the underlying basis for the year ended 31 December
(as per table 5.1 above) (€000)
Quarterly average tangible total equity as at 31 December (as per table
6.2 below) (€000)
ROTE after tax and before non-recurring items (%)
2022
2021
189,771
89,288
1,667,140
1,651,119
11.4%
5.4%
6.1
Tangible
equity
total
31 December
2022
30 September
2022
30 June
2022
€000
31 March
2022
€000
31 December
2021
€000
Equity attributable to the
owners of the Company
(as per the statutory
basis)
Less: Intangible assets
(as per the statutory
basis)
1,862,128
1,800,243
1,852,435
1,852,011
1,836,679
(168,322)
(166,426)
(171,403)
(177,612)
(184,034)
Total tangible equity
1,693,806
1,633,817
1,681,032
1,674,399
1,652,645
6.2
Quarterly
average
tangible
equity (€000)
total
-
-
2022
2021
1,667,140
1,651,119
7.
Return on tangible equity (ROTE)
Profit after tax (attributable to the owners of the Company) for the year
ended 31 December (as per table 5.1 above) (€000)
Quarterly average tangible total equity as at 31 December (as per table
6.2 above) (€000)
ROTE
2022
2021
71,995
27,500
1,667,140
1,651,119
4.3%
1.7%
487