Bk. Cyprus Hldg Regulatory News (BOCH)

BANK OF CYPRUS HOLDINGS GROUP

Interim Financial Report

Six months ended 30 June 2019

Contents

Page

Board of Directors and Executives

1

Forward Looking Statements and Notes

2

Interim Management Report

3

Consolidated Condensed Interim Financial statements

Interim Consolidated Income Statement

25

Interim Consolidated Statement of Comprehensive Income

26

Interim Consolidated Balance Sheet

27

Interim Consolidated Statement of Changes in Equity

28

Interim Consolidated Statement of Cash Flows

30

Notes to the Consolidated Condensed Interim Financial Statements

1. Corporate information

32

2. Unaudited financial statements

32

3. Summary of significant accounting policies

32

4. Going concern

37

5. Operating environment

38

6. Significant and other judgements, estimates and assumptions

39

7. Segmental analysis

45

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

53

9. Staff costs and other operating expenses

53

10. Credit losses of financial instruments and impairment of non‑financial instruments

11. Income tax

55

12. Earnings per share

58

13. Investments

58

14. Derivative financial instruments

60

15. Fair value measurement

61

16. Loans and advances to customers

68

17. Stock of property

68

18. Prepayments, accrued income and other assets

69

19. Non‑current assets and disposal groups held for sale

70

20. Funding from central banks

71

21. Customer deposits

72

22. Subordinated loan stock

73

23. Accruals, deferred income, other liabilities and other provisions

73

24. Share capital

73

25. Pending litigation, claims, regulatory and other matters

75

26. Contingent liabilities

79

27. Cash and cash equivalents

80

28. Analysis of assets and liabilities by expected maturity

81

29. Risk management ‑ Credit risk

82

30. Risk management ‑ Market risk

118

31. Risk management ‑ Liquidity risk and funding

118

32. Capital management

122

33. Related party transactions

122

34. Group companies

125

35. Acquisitions and disposals of subsidiaries

128

36. Investments in associates and joint venture

129

37. Events after the reporting period

131

Independent Review Report to the Bank of Cyprus Holdings Public Limited Company

132

Additional Risk and Capital Management Disclosures including Pillar 3 semi‑annual disclosures

134

Definitions and explanations of Alternative Performance Measures Disclosures

173

BANK OF CYPRUS HOLDINGS GROUP

Board of Directors and Executives

as at 26 August 2019

Board of Directors of Bank of Cyprus Holdings Public Limited Company

Efstratios‑Georgios Arapoglou

CHAIRMAN

Maksim Goldman

VICE CHAIRMAN

Arne Berggren

Lyn Grobler

Dr. Michael Heger

John Patrick Hourican

Dr. Christodoulos Patsalides

Ioannis Zographakis

Anat Bar‑Gera

Maria Philippou

Paula Hadjisotiriou

Executive Committee

John Patrick Hourican

OUTGOING CHIEF EXECUTIVE OFFICER

Panicos Nicolaou

DIRECTOR CORPORATE BANKING/CHIEF EXECUTIVE OFFICER DESIGNATE

Dr. Christodoulos Patsalides

DEPUTY CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER

Michalis Athanasiou

CHIEF RISK OFFICER

Eliza Livadiotou

FINANCE DIRECTOR

Louis Pochanis

DIRECTOR INTERNATIONAL BANKING, WEALTH AND MARKETS

Dr. Charis Pouangare

DIRECTOR CONSUMER AND SME BANKING

Nicolas Scott Smith

DIRECTOR RESTRUCTURING AND RECOVERIES DIVISION

Anna Sofroniou

DIRECTOR REAL ESTATE MANAGEMENT UNIT

Aristos Stylianou

EXECUTIVE CHAIRMAN, INSURANCE BUSINESSES

Company Secretary

Katia Santis

Legal Advisers as to matters of Irish Law

Arthur Cox

Legal Advisers as to matters of English and US Law

Sidley Austin LLP

Legal Advisers as to matters of Cypriot Law

Chryssafinis & Polyviou

Statutory Auditors

PricewaterhouseCoopers,One Spencer Dock,North Wall Quay,Dublin 1,Ireland,I.D.E. Box No. 137

Registered Office

Arthur Cox

10 Earlsfort Terrace

Dublin 2

D02 T380

Ireland

BANK OF CYPRUS HOLDINGS GROUP

Forward Looking Statements and Notes

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

Non‑IFRS performance measures

Bank of Cyprus Holdings Public Limited Company (the 'Company') management believes that the non‑IFRS performance measures included in this document provide valuable information to the readers of the Interim Financial Report as they enable the readers to identify a more consistent basis for comparing the Group's performance between financial periods and provide more detail concerning the elements of performance which management is most directly able to influence or are relevant for an assessment of the Group. They also reflect an important aspect of the way in which the operating targets are defined and performance is monitored by the Group's management. However, any non‑IFRS performance measures in this document are not a substitute for IFRS measures and readers should consider the IFRS measures as the key measures of the 30 June position. Refer to 'Definitions and explanations on Alternative Performance Measures Disclosures' on pages 173 to 182 of the Interim Financial Report for the six months ended 30 June 2019 for further information, reconciliations with Consolidated Condensed Interim Financial Statements and calculations of non‑IFRS performance measures included throughout this document and the most directly comparable IFRS measures.

The Interim Financial Report for the six months ended 30 June 2019 is available on the Group's website www.bankofcyprus.com (Investor Relations/Financial Results).

BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY

Interim Management Report

Commentary on underlying basis

The financial information presented below provides an overview of the Group financial results for the six months ended 30 June 2019 on the 'underlying basis' which the management believes it best fits the measurement of the performance and position of the Group. Reconciliations are included in the below sections and in 'Definitions and explanations on Alternative Performance Measures Disclosures' to allow for the comparability of the underlying basis to statutory information. 

€ million

30 June2019

30 June 2018 (represented)

Net interest income

170

166

Net fee and commission income

75

80

Net foreign exchange gains and net gains on financial instruments transactions and disposal/dissolution of subsidiaries and associates

26

42

Insurance income net of insurance claims and commissions

30

25

Net gains from revaluation and disposal of investment properties and on disposal of stock of properties

16

21

Other income

16

11

Total income

333

345

Staff costs

(112)

(102)

Other operating expenses

(84)

(80)

Special levy on deposits on credit institutions in Cyprus and contribution to Single Resolution Fund (SRF)

(12)

(12)

Total expenses

(208)

(194)

Operating profit

125

151

Loan credit losses

(87)

(85)

Impairments of other financial and non‑financial instruments

(10)

(13)

Reversal of provisions for litigation, regulatory and other matters

3

6

Total loan credit losses, impairments and provisions

(94)

(92)

Profit before tax and non‑recurring items 

31

59

Tax

- 

(4)

(Profit)/loss attributable to non‑controlling interests

(2)

2

Profit after tax and before non‑recurring items

29

57

Advisory and other restructuring costs excluding discontinued operations and NPE sale (Helix)

(12)

(15)

Profit after tax ‑ organic

17

42

Profit from discontinued operations (UK)

- 

4

Profit/(loss) relating to NPE Sale (Helix)

- 

(105)

Loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates

(21)

5

Reversal of impairment of deferred tax assets and impairment of other tax receivables

101

- 

Profit/(loss) after tax (attributable to the owners of the Company)

97

(54)

Reclassifications to comparative information were made as follows:

·; Unrecognised interest on previously credit impaired loans which have cured during the period amounting to €14,918 thousand was reclassified from 'Net interest income' to 'Credit losses to cover credit risk on loans and advances to customers' in line with an IFRIC discussion, which has taken place in November 2018 (Presentation of unrecognised interest following the curing of a credit impaired financial asset (IFRS 9)). The corresponding amount for the six months ended 30 June 2019 stood at €7,781 thousand.

·; The results of the discontinued operations in the UK (Bank of Cyprus UK Ltd and its subsidiary, Bank of Cyprus Financial Services Ltd) were represented as discontinued operations (profit after tax for the six months ended 30 June 2018: €4,010 thousand).

The changes in presentation did not have a material impact on the profit/(loss) after tax of the Group for the period. However the net interest margin, the cost to income and the cost of risk ratios were recalculated to account for these reclassifications.

Key Performance Ratios

30 June2019*

30 June2018**

Net interest margin

1.88%

1.86%

Cost to income ratio

63%

56%

Cost to income ratio excluding special levy and contribution to Single Resolution Fund

59%

53%

Operating profit return on average assets

1.2%

1.4%

Basic earnings/(losses) per share attributable to the owners of the Company (€ cent)

21.84

(12.12)

\* The interest income, non‑interest income, staff costs, other operating expenses and loan credit losses related to Project Helix are disclosed under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying basis.

**Additionally to the above, amounts are represented for the disposal of the UK subsidiary and including the impact from IFRIC presentation of unrecognised interest following the curring of a credit‑impaired financial asset (IFRS 9). This resulted to a reclassification between net interest income and loan credit losses, with no impact on overall profitability.

€ million

30 June2019

31 December 2018(restated)

Cash and balances with central banks

5,262

4,610

Loans and advances to banks

403

473

Debt securities, treasury bills and equity investments

1,881

1,515

Net loans and advances to customers

10,949

10,922

Stock of property

1,430

1,427

Investment property

142

127

Non‑current assets and disposal groups classified as held for sale

198

1,470

Other assets

1,622

1,531

Total assets

21,887

22,075

Deposits by banks

532

432

Funding from central banks

830

830

Repurchase agreements

248

249

Customer deposits

16,377

16,844

Subordinated loan stock

261

271

Other liabilities

1,169

1,082

Total liabilities

19,417

19,708

Shareholders' equity

2,222

2,121

Other equity instruments (AT1)

220

220

Total equity excluding non‑controlling interests

2,442

2,341

Non‑controlling interests

28

26

Total equity

2,470

2,367

Total liabilities and equity

21,887

22,075

Comparative information was restated following the change in the classification of properties which are leased out under operating leases as investment properties.

Key Balance Sheet figures and ratios

30 June20191

30 June2019

31 December 2018

Gross loans and advances to customers (€ million)

13,072

13,148

Allowance for expected credit losses (€ million)

2,145

2,254

Customer deposits (€ million)

16,377

16,844

Loans to deposits ratio (net)

67%

65%

NPE ratio

33%

36%

Expected credit losses coverage ratio for NPEs

50%

47%

Leverage ratio

10.5%

10.0%

Capital ratios and risk weighted assets

Common Equity Tier 1 capital ratio (CET 1) (transitional for IFRS 9)

15.2%

14.9%

11.9%

Total capital ratio

18.1%

17.8%

14.9%

Risk weighted assets (€ million)

13,724

13,962

15,373

1As at 30 June 2019, BOC PCL signed an agreement for the disposal of its entire holding of 49.9% in CNP Cyprus Insurance Holdings Ltd (CNP). Prior to the classification as held for sale, the investment was remeasured and a loss of €25.9 million was recognised in the consolidated income statement. The above 30 June 2019 figures and calculations have been calculated on the basis that the sale of CNP had been completed.

€ million

Underlying basis

Helixportfolio

Investment in associateclassified as HFS

Tax related items

Other

Statutorybasis

Net interest income

170

34

- 

- 

- 

204

Net fee and commission income

75

6

- 

(6)

- 

75

Net foreign exchange gains and net gains on other financial instruments transactions and disposal/dissolution of subsidiaries and associates

26

- 

- 

- 

0

26

Insurance income net of insurance claims and commissions

30

- 

- 

- 

- 

30

Net gains from revaluation and disposal of investment properties and on disposal of stock of properties

16

- 

- 

- 

- 

16

Other income

16

- 

- 

- 

- 

16

Total income

333

40

- 

(6)

0

367

Total expenses

(208)

(23)

- 

- 

(9)

(240)

Operating profit

125

17

- 

(6)

(9)

127

Loan credit losses

(87)

(17)

- 

- 

0

(104)

Impairments of other financial and non‑financial assets

(10)

- 

- 

(8)

- 

(18)

Reversal of provisions for litigation, regulatory and other matters

3

- 

- 

- 

(3)

- 

Remeasurement of investment in associate classified as held for sale

- 

- 

(26)

- 

- 

(26)

Share of profit from associate

- 

- 

5

- 

- 

5

Profit/(loss) before tax and non‑recurring items 

31

- 

(21)

(14)

(12)

(16)

Tax

0

- 

- 

115

- 

115

(Profit) attributable to non‑controlling interests

(2)

- 

- 

- 

- 

(2)

Profit after tax and before non‑recurring items

29

- 

(21)

101

(12)

97

Advisory and other restructuring costs excluding discontinued operations and NPE sale (Helix)

(12)

- 

- 

- 

12

- 

Profit after tax ‑ organic*

17

- 

(21)

101

- 

97

Profit/(loss) relating to NPE sale (Helix)

0

(0)

- 

- 

- 

- 

Loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates

(21)

- 

21

- 

- 

- 

Reversal of impairment of deferred tax assets (DTA) and impairment of other tax receivables

101

- 

- 

(101)

- 

- 

Profit after tax (attributable to the owners of the Company)

97

- 

- 

- 

- 

97

\* This is the profit after tax, before the loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates and the reversal of impairment of DTA and impairment of other tax receivables.

This measure best represents the true performance of the Group for management.

The reclassification differences between the statutory basis and underlying basis mainly relate to the impact from 'non‑recurring items' and are explained as follow:

Helix portfolio

·; Net interest income of €34 million and fee and commission income of €6 million relating to the NPE sale (Helix) is disclosed under non‑recurring items within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis.

·; Total expenses include staff costs of €3 million, operating expenses of €12 million and restructuring costs of €8 million relating to NPE sale (Helix), and are presented within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis.

·; Net loan credit losses of €17 million, is disclosed under non‑recurring items within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis.

Investment in associate classified as HFS

·; Loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit form associate of €21 million comprises the share of profit for associate of €5 million which is reported in the 'Share of profits from associates' under the statutory basis and the loss on remeasurement of €26 million which is classified as 'Remeasurement of investment in associate classified as held for sale' under the statutory basis. 

Tax related items

·; Reversal of impairment of the deferred tax asset amounting to €115 million included within 'Tax' under the statutory basis is classified as a non‑recurring item and disclosed within 'Reversal of impairment of DTA and impairment of other tax receivables' under the underlying basis. 'Fee and commission expense' relating to the revised income tax legislation of €6 million, which has been disclosed within 'Reversal of impairment of deferred tax asset and impairment of other tax receivables' under the underlying basis, is disclosed within the 'Net fee and commission income' under the statutory basis.

·; Impairment of other financial assets of €8 million, which are included in 'Credit losses of other financial instruments' under the statutory basis, relate to the impairment of Greek tax receivables and are classified as a non‑recurring item and dislcosed within 'Reversal of impairment of DTA and impairment of other tax receivables' under the underlying basis.

Other reclassifications

·; Advisory and other restructuring costs of approximately €12 million included in 'Other operating expenses' under the statutory basis, are separately presented under the underlying basis.

·; Reversal of provisions for litigation, regulatory and other matters amounting to €3 million included in 'Other operating expenses' under the statutory basis, are separately presented under the underlying basis.

Total equity (excluding non‑controlling interests) totalled €2,442 million at 30 June 2019, compared to €2,341 million at 31 December 2018. Shareholders' equity totalled €2,222 million at 30 June 2019, compared to €2,121 million at 31 December 2018.

The Common Equity Tier 1 capital (CET1) ratio on an IFRS 9 transitional basis stood at 14.9% at 30 June 2019 (and 15.2% pro forma for the sale of investment in CNP Cyprus Insurance Holdings Ltd ('CNP')), compared to 11.9% at 31 December 2018 (adjusted to take into account the DTAs which were fully phased in as of 1 January 2019). During the six months ended 30 June 2019 the Project Helix was completed, positively impacting CET1 ratio by c.140 bps. The CET1 ratio was positively affected by the tax legislation amendments relating to the conversion of deferred tax assets into deferred tax credits (DTC) and includes reviewed profits for the six months ended 30 June 2019.

The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU Regulation 2017/2395) where the impact on the impairment amount from the initial application of IFRS 9 on the capital ratios is phased‑in gradually. The amount added each year decreases based on a weighting factor until the impact of IFRS 9 is fully absorbed back to CET1 at the end of the five years. The impact on the capital ratios for the year 2018 was 5% of the impact on the impairment amounts from the initial application of IFRS 9, increasing to 15% (cumulative) for the year 2019. The CET1 ratio on a fully‑loaded basis amounts to 13.3% at 30 June 2019 and 13.5% pro forma for the sale of investment in CNP, compared to 10.1% at 31 December 2018 (and 13.5% pro forma for DTC and Helix). On a transitional basis and on a fully phased‑in basis after the five year period of transition is complete, the impact of IFRS 9 is expected to be manageable and within the Group's capital plans.

As at 30 June 2019, the Total Capital ratio (TCR) stood at 17.8% (and 18.1% pro forma for the sale of investment in CNP), compared to 14.9% at 31 December 2018.

The Group's capital ratios are above the minimum CET1 regulatory capital ratio of 10.5% (comprising a 4.5% Pillar I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 0.5%) and the overall Total Capital requirement of 14.0%, comprising an 8.0% Pillar I requirement (of which up to 1.5% can be in the form of Additional Tier 1 capital and up to 2.0% in the form of Tier 2 capital), a 3.0% Pillar II requirement (in the form of CET1), the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 0.5%. The ECB has also provided non‑public guidance for an additional Pillar II CET1 buffer.

Pillar II add‑on capital requirements derive from the context of the Supervisory Review and Evaluation Process (SREP) process, which is a point in time assessment and are therefore subject to change over time. 

In accordance with the provisions of the Macroprudential Oversight of Institutions Law of 2015, the Central Bank of Cyprus (CBC) is also the responsible authority for the designation of banks that are Other Systemically Important Institutions (O‑SIIs) and for the setting of the O‑SII buffer requirement for these systemically important banks. The Group has been designated as an O‑SII and the O‑SII buffer currently set by the CBC for the Group is 2%. This buffer is being phased‑in gradually having started from 1 January 2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%) on 1 January 2022. 

Based on the SREP decisions of prior years, the Company and BOC PCL were under a regulatory prohibition for equity dividend distribution and therefore no dividends were declared or paid during years 2018 and 2017. Following the 2018 SREP decision, the Company and BOC PCL are still under equity dividend distribution prohibition. This prohibition does not apply if the distribution is made via the issuance of new ordinary shares to the shareholders which are eligible as CET1 capital. No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company and the BOC PCL.

The EBA final guidelines on SREP and supervisory stress testing in July 2018 and the Single Supervisory Mechanism's (SSM) 2018 SREP methodology provide that CET1 held for the purposes of Pillar II add‑on capital requirements cannot be used to meet any other capital requirements (Pillar 1, P2R or the combined buffer requirements), and therefore cannot be used twice. Such restrictions are, however, only expected to apply with effect from the 2019 SREP cycle.

Project Helix

In June 2019, the Group completed the sale of a portfolio of loans with a gross book value of €2.8 billion (of which €2.7 billion related to non‑performing loans) (the 'Portfolio') secured by real estate collateral to certain funds affiliated with Apollo Global Management LLC, the agreement for which was announced on 28 August 2018 (Project Helix). Cash consideration of c.€1.2 billion was received on completion, reflecting adjustments resulting from, inter alia, loan repayments received on the Portfolio since the reference date of 31 March 2018.

Overall, the transaction is capital accretive, with a net positive impact on the Group capital ratios of c.60 bps. The impact from the completion of Project Helix on the CET1 ratio and Total Capital ratio at 30 June 2019 is an increase of c.140 bps. 

The participation of the Bank of Cyprus Public Company Limited (BOC PCL) in the senior debt in relation to financing the Transaction has been syndicated down from the initial level of €450 million to c.€45 million, representing c.4% of the total acquisition funding.

Agreement for the sale of investment in CNP Cyprus Insurance Holdings Ltd

In June 2019, the Group signed an agreement to sell its entire shareholding of 49.9% in its associate CNP Cyprus Insurance Holdings Limited ('CNP') that had been acquired as part of the acquisition of certain operations of Laiki Bank in 2013 for a cash consideration of €97.5 million. The sale is expected to be completed in the second half of 2019, subject to regulatory approvals. On completion, the sale is expected to have a positive impact of c.30 bps on both the Group's CET1 ratio and Total Capital ratio (based on the Financial results as at 30 June 2019) resulting mainly from the release of risk weighted assets.

Additional Tier 1 (AT1)

In December 2018, the Company proceeded with the issuance of €220 million of Additional Tier 1 Capital Securities (AT1). AT1 constitues an unsecured and subordinated obligation of the Company. The coupon is at 12.50% and is payable semi‑annually. The first coupon payment to AT1 holders was made in June 2019 and was recognised in retained earnings.

Legislative amendments for the conversion of deferred tax asset (DTA) to deferred tax credit (DTC)

Legislative amendments allowing for the conversion of specific deferred tax assets (DTA) into deferred tax credits (DTC) were adopted by the Cyprus Parliament on 1 March 2019 and published on the Official Gazette of the Republic on 15 March 2019. The law amendments cover the income tax losses transferred from Laiki Bank to BOC PCL in March 2013. The introduction of CRD IV in January 2014 and its subsequent phasing‑in led to a more capital intensive treatment of this DTA for the Company. The law amendments have resulted in improved regulatory capital treatment of the DTA, under Capital Requirements Regulation (EU) No. 575/2013 ('CRR'), amounting to c.€285 million or a CET1 uplift of c.190 bps.

Pro forma capital ratios

With the completion of the sale of investment in CNP, expected in the second half of 2019, the CET1 ratio (IFRS 9 transitional basis) of 14.9% as at 30 June 2019 improves to 15.2% pro forma for CNP. The Total Capital ratio of 17.8% as at 30 June 2019 improves to 18.1% pro forma for CNP.

Share premium reduction of BOC PCL

BOC PCL will proceed (subject to approvals mainly by the Court of Cyprus and the ECB) with a capital reduction process which will result in the reclassification of approximate €551 million of BOC PCL share premium account balance as distributable reserves which shall be available for distribution to the shareholders of BOC PCL, resulting in total net distributable reserves of c.€1 billion on a pro forma basis (31 December 2018). The reduction of capital will not have any impact on regulatory capital or the total equity position of BOC PCL or the Group.

The distributable reserves provide the basis for the calculation of distributable items under the CRR, which provides that coupons on AT1 capital instruments may only be funded from distributable items.

Funding from Central Banks

At 30 June 2019, BOC PCL's funding from central banks amounted to €830 million, which relates to ECB funding, (at the same level as at 31 December 2018), comprising solely of funding through the Targeted Longer‑Term Refinancing Operations (TLTRO II). 

Deposits

Customer deposits totalled €16,377 million at 30 June 2019 compared to €16,844 million at 31 December 2018, down by 3%.

BOC PCL's deposit market share in Cyprus reached 34.7% as at 30 June 2019, compared to 36.0% at 31 December 2018. Customer deposits accounted for 75% of total assets at 30 June 2019.

Upon completion of the project Helix, the Loan to Deposit ratio (L/D) was reduced by 5 p.p. to 67%, compared to 72% to 31 December 2018 when ignoring the classification of the Helix portfolio as a disposal group held for sale and compared to a pick of 151% at 31 March 2014.

Subordinated Loan Stock

At 30 June 2019 BOC PCL's subordinated loan stock (including accrued interest) amounted to €261 million (compared to €271 million as at 31 December 2018) and relates to unsecured subordinated Tier 2 Capital Notes of nominal value €250 million, issued by BOC PCL in January 2017.

Liquidity

At 30 June 2019 the Group Liquidity Coverage Ratio (LCR) stood at 253% (compared to 231% at 31 December 2018) and was in compliance with the minimum regulatory requirement of 100%. The liquidity surplus at 30 June 2019 increased to €3.8 billion, reflecting a €1.2 billion increase of liquidity on Helix completion.

The Net Stable Funding Ratio (NSFR) has not yet been introduced. It will become a regulatory indicator when Capital Requirement Regulation 2 (CRR2) is enforced, currently expected in 2021, with the limit set at 100%. At 30 June 2019, the Group's NSFR, on the basis of Basel ΙΙΙ standards, stood at 128% (compared to 119% at 31 December 2018).

Loans

Group gross loans totalled €13,072 million at 30 June 2019 compared to €15,900 million at 31 December 2018. Gross loans in Cyprus totalled €12,945 million at 30 June 2019. The reduction in gross loans by 17% is attributed mainly to the completion of Project Helix (sale of €2.8 billion of gross loans of which €2.7 billion related to non‑performing loans) and to a lesser extent to the completion of Project Velocity (sale of €30 million gross loans, of which the whole amount related to non‑performing loans) in the second quarter of 2019.

New loans granted in Cyprus reached €1,111 million for the six months ended 30 June 2019, exceeding new lending in the six months ended 30 June 2018. 

At 30 June 2019, the Group net loans and advances to customers totalled €10,949 million (compared to €10,922 million at 31 December 2018 excluding Project Helix loans).

BOC PCL is the single largest credit provider in Cyprus with a market share of 41.3% at 30 June 2019 compared to 45.4% at 31 December 2018 with the reduction reflecting the derecognition of the Helix portfolio on completion of project Helix.

Loan portfolio quality

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

Non‑performing exposures (NPEs) as defined by the European Banking Authority (EBA) were reduced to €4,312 million at 30 June 2019, accounting for 33% of gross loans compared to 47% at 31 December 2018 (including the Helix and Velocity portfolios).

The provisioning coverage ratio of NPEs improved to 50% at 30 June 2019 compared to 47% at 31 December 2018 on the same basis. Ignoring the classification of the Helix (and Velocity) Portfolios as disposal groups held for sale, the NPE Provision coverage as at 31 December 2018 stood at 52%.

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

30 June 2019

31 December 2018

€ million

% of gross loans

€ million

% of gross loans

NPEs as per EBA definition

4,312

33.0%

7,419

46.7%

Of which:‑ NPEs with forbearance measures, no arrears

657

5.0%

1,211

7.6%

Overall, the Group has recorded organic NPE reductions for seventeen consecutive quarters and expects the organic reduction of NPEs to continue during the coming quarters.

Project Helix

In June 2019, the Group announced the completion of Project Helix, that refers to the sale of a portfolio of loans with a gross book value of €2.8 billion (of which €2.7 billion related to non‑performing loans) (the 'Portfolio') secured by real estate collateral to certain funds affiliated with Apollo Global Management LLC, the agreement for which was announced on 28 August 2018.

Following the completion of Project Helix, the Group's gross NPEs are c.70% lower than its peak in 2014. Project Helix reduced the NPE ratio by c.11 p.p. to 33% as at 30 June 2019.

Cash consideration of c.€1.2 billion was received on completion, reflecting adjustments resulting from, inter alia, loan repayments received on the Portfolio since the reference date of 31 March 2018.

The participation of BOC PCL in the senior debt in relation to financing the Transaction has been syndicated down from the initial level of €450 million to c.€45 million, representing c.4% of the total acquisition funding.

The Group remains focused on continuing to improve its asset quality position and to seek solutions, both organic and inorganic, to make BOC PCL a stronger and safer institution, capable of supporting the local economy.

ESTIA

In July 2018, the Government announced a scheme aimed at addressing NPEs backed by primary residence, known as ESTIA (the 'Scheme'). This Scheme is expected to impact approximately €0.84 billion of retail core NPEs, subject to eligibility criteria and participation rate. The ESTIA eligible portfolio refers to the potentially eligible portfolio following on‑going detailed assesment based on the BOC PCL's available data on Open Market Value (OMV) and NPE status. Eligibility criteria relate primarily to the OMV of the residence, total income and net wealth of the household. These will act as a clear definition of socially protected borrowers, acting as an enabler against strategic defaulters. In accordance with the Scheme, the eligible loans are to be restructured to the lower of the contractual balance and OMV. The Government will subsidise one third of the instalment. In July 2019, the Memorandum of the Understanding was signed by the banks and the Government for participation in the Scheme, which is underway for official launch in September 2019. According to the timeline provided by the Government, the application submissions will occur from September to mid‑November 2019, with evaluation by the banks running concurrently until the end of November 2019. During the fourth quarter of 2019, participating banks will offer restructuring solutions to the applicants and simultaneously the applications will be reviewed and approved by the Government, with the process expected to finish by March 2020. The first payment of the state subsidy installment is expected to occur between December 2019 and April 2020.

Project Velocity

In June 2019, BOC PCL completed the sale of an NPE portfolio of primarily retail unsecured exposures, with a contractual balance of €245 million and a gross book value of €30 million as at the date of disposal (known as 'Project Velocity' or the 'Sale') to APS Delta s.r.o. This portfolio comprised 9,700 heavily delinquent borrowers, including 8,800 private individuals and 900 small‑to‑medium‑sized enterprises. The Sale was broadly neutral to both, the income statement and to capital.

The Group continues to assess the potential to accelerate the decrease in NPEs on its balance sheet through an additional sale of NPEs. To that extent the Group has, during the second half of 2019, embarked on a preparation phase to review the feasibility of NPE reduction structures with the aim of identifying the option that best meets the Group's strategic objectives. The preparation phase involves defining the relevant NPE portfolio, evaluation of real estate collaterals, data remediation and enhancement of data tapes, borrower information memorandums, legal due diligence and transaction structuring options. For the purposes of completing the workstreams outlined above and in order to conclude on the best possible structure, the Group has engaged international advisors, and is proceeding to engage in high level discussions via the signing of confidentiality agreements with various third parties, including financial investors and investment banks, that may be interested in pursuing a possible collaboration with the Group. A range of potential outcomes of this preparation phase is possible, including an outright sale (including BOC PCL retaining a portion of the related financing). Any potential transaction is expected to involve a portfolio of NPEs in excess of €2 billion by gross book value. The Group is not committed to any outcome arising from this preparation phase, which is currently expected to be finalised in the first half of 2020.

The Real Estate Management Unit (REMU) on‑boarded €126 million of assets during the six months ended 30 June 2019, via the execution of debt for asset swaps and repossessed properties. The focus for REMU is increasingly shifting from on‑boarding of assets resulting from debt for asset swaps towards the disposal of these assets. The Group completed organic disposals of €92 million during the six months ended 30 June 2019 (compared to €126 million for the same period last year), resulting in a profit on disposal of €16 million for the six months ended 30 June 2019. During the six months ended 30 June 2019, the Group executed sale‑purchase agreements (SPAs) with contract value of €110 million (258 properties), excluding the sale of Cyreit. In addition, the Group signed SPAs for disposals of assets with contract value of €89 million.

In November 2018, BOC PCL signed an agreement for the disposal of its entire holding in the investment shares of the Cyreit Variable Capital Investment Company PLC (Cyreit). During the first half of 2019, the Group completed the sale of the Cyreit (21 properties) recognising a loss on disposal of approximate €1 million. The total proceeds, since November 2018, from the disposal of Cyreit were €160 million.

With the completion of Project Helix, properties with carrying value of €109 million, which were included in the portfolio for the NPE sale (Helix), were derecognised as at 30 June 2019.

The Group has decided to classify the leased properties acquired in exchange of debt and leased out under operating leases as 'Investment Properties' instead of 'Inventories'. This change has been applied retrospectively resulting in the restatement of comparatives.

As a result of the above change in classification, properties with carrying value of €118 million were reclassified from the stock of properties (measured at the lower of cost and net realisable value under IAS 2) to investment properties (measured at fair value under IAS 40) as at 30 June 2019 (compared to €103 million at 31 December 2018). These properties continue to be managed by REMU.

This change in classification had no material impact on the Group's comparative retained earnings and a cumulative impact of €1 million gain has been recognised under 'Net gains from revaluation and disposal of investment properties and on disposal of stock of properties' in the income statement of first half of 2019.

Overseas exposure

At 30 June 2019 there were overseas exposures of €311 million in Greece relating to both loans and properties (compared to €144 million as at 31 December 2018), not identified as non‑core exposures, since they are considered by management as exposures arising in the normal course of business. The increase is mainly driven by new lending to Greek entities investing in Cyprus, granted by BOC PCL in the normal course of business.

During the six months ended 30 June 2019, the Group signed a binding agreement for the disposal of the overseas exposure in Serbia, comprising loans and properties, amounting to €8 million. As at 30 June 2019 the exposure was classified as held for sale.

The Group continues its efforts for further deleveraging and disposal of non‑essential assets and operations.

Total income

Net interest income (NII) and net interest margin (NIM) for the six months ended 30 June 2019 amounted to €170 million and 1.88% respectively on the underlying basis. NII was up by 3% compared to €166 million a year earlier. The NIM remained broadly flat when compared to previous year, negatively affected by the continued pressure on lending rates and positively affected by the reduction of cost of deposits.

Average interest earning assets for the six months ended 30 June 2019 amounted to €18,270 million, up by 1% a year earlier.

Non‑interest income for the six months ended 30 June 2019 amounted to €163 million, mainly comprising net fee and commission income of €75 million, net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries of €26 million, net insurance income of €30 million, net gains from revaluation and disposal of investment properties and on disposal of stock of properties of €16 million and other income of €16 million.

Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries of €26 million for the six months ended 30 June 2019, comprising mainly net foreign exchange gains of €14 million and net gains on revaluation of financial instruments of €12 million, decreased by 37% compared to same period last year mainly due to one‑off gain on disposal of bonds during the six months ended 30 June 2018 amounting to €19 million. 

Net insurance income amounted to €30 million for the six months ended 30 June 2019, compared to €25 million for the same period last year, up by 20%, reflecting increased income and positive investment returns. 

Net gains from revaluation and disposal of investment properties and on disposal of stock of properties for the six months ended 30 June 2019 amounted to €16 million, of which net profit from the disposal of stock properties of €17 million (REMU gains), and a valuation loss of €1 million, compared to net gains of €21 million for the same period last year which related mainly to the net profit from the disposal of stock of properties (REMU gains).

Total income for the six months ended 30 June 2019 amounted to €333 million, compared to €345 million for the same period last year (down by 4%). 

Total expenses

Total expenses for the first half of 2019 were €208 million compared to €194 million for the same period last year), 54% of which related to staff costs (€112 million), 40% to other operating expenses (€84 million) and 6% (€12 million) to special levy and contribution to Single Resolution Fund (SRF).

Total operating expenses for the first half of 2019 were €196 million compared to €182 million in the corresponding period last year, up by 8%.

Staff costs of €112 million for the first half of 2019 increased by 9% compared to €102 million in the first six months of 2018 mainly driven by the increase in employer's social insurance contributions from the beginning of the year and the additional contributions to the new general healthcare system which commenced in March 2019. 

The number of persons employed by the Group as at 30 June 2019 was 4,155 and includes 108 persons relating to the Helix transaction, where the full migration and transfer to the buyer is expected to conclude by the end of the year (31 December 2018: 4,146 and 30 June 2018: 4,158 represented).

Other operating expenses were €84 million, increased by 6% from the same period last year, mainly due to higher property related costs and higher depreciation and amortisation resulting from increased capital expenditure following the Digital Transformation Programme.

Cost management, including containment of staff costs, remains a key focus for this year and going forward.

Profit before tax and non‑recurring items

Profit before tax and non‑recurring items for the six months ended 30 June 2019 was €125 million, compared to €151 million for the six months ended 30 June 2018, down by 17%, mainly due to the lower volume on loans and pressure on lending rates. 

The loan credit losses for the six months ended 30 June 2019 totalled €87 million, compared to €85 million for the same period last year, reflecting further balance sheet de‑risking.

The annualised loan credit losses charge (cost of risk) for the first half of 2019, following the completion of NPE sales which led to the reduction of gross loans by €2.8 billion, accounted for 1.3% of gross loans, compared to an annualised loan credit losses charge of 1.22% for the same period last year, on the same basis. 

At 30 June 2019, the allowance for expected loan credit losses, including fair value adjustment on initial recognition and provisions for off‑balance sheet exposures totalled €2,145 million (compared to €2,254 million at 31 December 2018 pro forma for Helix) and accounted for 16.4% of gross loans on the same basis. 

Impairments of other financial and non‑financial instruments for the six months ended 30 June 2019 amounted to €10 million compared to €13 million for the six months ended 30 June 2018, mainly driven by the de‑risking of the legacy REMU properties.

Reversal of provisions for litigation, regulatory and other matters relates to reversal of provisions of previously provided cases with a favourable outcome.

Profit/(loss) after tax

The tax credit for the six months ended 30 June 2019 is minimal, positively affected by overprovisions relating to prior years, compared to a tax charge of €4 million for the six months ended 30 June 2018. 

Profit after tax and before non‑recurring items for the six months ended 30 June 2019 was €29 million, compared to a profit of €57 million for the same period last year, down by 51%.

Advisory and other restructuring costs‑excluding discontinued operations and NPE sale (Helix) amounted to €12 million, compared to €15 million for the first half of 2018, down by 22%.

Profit after tax arising from the organic operations of the Group for the first half of 2019 amounted to €17 million, compared to €42 million for the corresponding period last year, down by 61%.

The net result relating to NPE sale (Helix) comprising the interest income, non‑interest income, staff costs, other operating expenses and loan credit losses related to Project Helix, for the first six months of 2019 was nil compared to a net loss of €105 million for the six months ended 30 June 2018.

The loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates totalled €21 million for the six months ended 30 June 2019, comprising a loss on remeasurement of investment in associate classified as held for sale of €26 million and a share of profit from investment in associate of €5 million (compared to a share of profit from associates of €5 million in the period ended 30 June 2018). During 2019 the Group announced a binding agreement to sell its entire shareholding of 49.9% in its associate CNP Cyprus Insurance Holdings Limited (CNP) that had been acquired as part of the acquisition of certain operations of Laiki Bank in 2013, for a cash consideration of €97.5 million.

The reversal of impairment of DTA and impairment of other tax receivables totalled €101 million for the first half of 2019, comprising the positive impact of €109 million following amendments to the Income Tax legislation in Cyprus adopted in March 2019, and an impairment of €8 million relating to Greek tax receivables adversely impacted from legislative changes.

Profit after tax attributable to the owners of the Company for the six months ended 30 June 2019 was €97 million, compared to a loss of €54 million for the six months ended 30 June 2018. 

Economic expansion continued into 2019 with real Gross Domestic Product (GDP) increasing by 3.4% in the first quarter and by 3.2% in the second quarter seasonally adjusted, after rising by 3.9% in 2018, and by 4.5% and 4.8% respectively in 2017 and 2016 (Cyprus Statistical Service). The deceleration was driven by slowing activity in the traditional sectors including tourism and construction. From the demand side the slowdown was driven by a deteriorating external balance. Excluding ships registrations, net exports have been contributing negatively to real GDP growth in 2018 and in the first quarter of 2019. Exports and imports of goods and services excluding ships, declined in the first quarter. Regarding exports, both the goods and services components declined, the latter reflecting a poorer tourism performance at the start of the year. Government consumption surged in the quarter. Other than transport equipment which fluctuates with ship registrations, fixed investment was driven by construction related activities.

Total employment increased by 6% in the first quarter (Cyprus Statistical Service) driven by full‑time hirings, and the unemployment rate dropped to 7.3% when seasonally adjusted (Eurostat). Consumer inflation remained tamed in the first seven months of the year rising by 0.8% compared with 1.4% for 2018 due in part to low energy prices in world markets, but also limited pricing power in most categories of goods and services with the exception of housing. Tourist arrivals dropped marginally by 0.9% in the first half of the year with the drop of Russian tourists more pronounced at 4.4%, whilst arrivals from the UK were up marginally by 0.4%. In the construction sector, building permits remained strong in the first quarter, particularly for dwellings, with some deceleration in terms of volume. Building permits increased sharply in April 2019 in terms of volume, driven by the hotel sector. On the demand side, the volume of retail sales decelerated sharply in the first quarter of the year, rising by 1.9%, compared to a 5.4% overall yearly increase in 2018.

Looking into the medium term, the economy is expected to continue to grow but at a slowing pace, according to forecasts by the IMF and the European Commission. Employment conditions are expected to continue to improve and the unemployment rate is expected to drop further. Price inflation is expected to rise in later years as capacity utilisation will be tightening. The economy will continue to wrestle with legacy problems to some degree, but the real challenge will be the transformation of the economy towards higher value added activities that will support higher productivity growth and improved competitiveness.

The primary challenges therefore will be, to further de‑risk the economy by reducing public debt and the remaining stock of non‑performing loans; to safeguard fiscal space so as to be able to respond to unforeseen circumstances; and to pursue additional structural reforms especially in the judiciary and public administration domains that will improve the investment environment and in the process induce productivity boosting investments.

Fiscal performance has been strengthening driven by rising public revenues and constrained expenditures. The general government budget surplus rose to 3.5% of GDP in 2018 and remained sizable in the first half of 2019. Public debt remains high and rose further in 2018 to €21.3 billion or 102.5% of GDP, as a result of the fiscal burden associated with the resolution of the Cyprus Cooperative Bank (Eurostat). However, a combination of budget surplus, rising expected inflation and low debt service costs, will be supporting an accelerated decline in the public debt to GDP ratio in the medium term.

In the banking sector, funding conditions remained favourable and the stock of NPEs continued to decline. Specifically, the stock of NPEs declined from €20.9 billion at the end of December 2017 to €10.4 billion at the end of December 2018 after Bank of Cyprus' loans sale and the resolution of the Cyprus Cooperative Bank. The stock of NPEs was €10.3 billion at the end of March 2019 and the ratio to gross loans was 30.9%, marginally higher than 30.5% at the end of December 2018, reflecting a further drop in loans outstanding.

Going forward, downside risks derive from the external environment and the structure of the domestic economy which is characterised by a large foreign balance relative to the GDP. The slowing of global trade, uncertainties over Brexit and fragilities in the EU are having an impact. Brexit presents downside risks to the Cyprus economy given close trade and investment links. Economic growth is expected to remain positive, but to soften. Growth in 2019 and 2020 according to the European Commission is expected to be at 2.9% and 2.6%, respectively. Employment is expected to continue to rise, but at a slower pace than in recent years, and the unemployment rate is expected to continue to drop. Investment is expected to be strengthening, but high imports are expected to limit the contribution to growth from the external sector. Exports growth is expected to decelerate relative to 2014‑2018 against a less favourable international environment.

The sovereign risk ratings of the Cyprus Government improved considerably in the recent period reflecting expectations of a sustained decline in public debt as a ratio to GDP, expected further declines in non‑performing exposures and a more stable price environment following a protracted period of deflation and low inflation. In November 2018 Fitch Ratings upgraded its Long‑Term Issuer Default ratings for Cyprus to investment grade (BBB‑), affirming in April 2019. In September 2018, S&P Global Ratings also upgraded Cyprus to investment grade (BBB‑). In July 2018 Moody's Investors Service upgraded Cyprus' sovereign rating to Ba2 from Ba3, affirmed in April 2019. All maintain stable outlook.

As the Cypriot operations account for 99% of gross loans and 100% of customer deposits, after the disposal of the UK operations in 2018, the Group's financial performance is highly correlated to the economic and operating conditions in Cyprus and is expected to consequently benefit from the country's recovery. Most recently, at the end of July 2019, Standard and Poor's affirmed their long‑term issuer credit rating on the Bank to 'B+' (stable outlook). In March 2019, Fitch Ratings affirmed their long‑term issuer default rating of B‑ (positive outlook). In January 2019, Moody's Investors Service upgraded the Bank's long‑term deposit rating to B3 from Caa1, with a positive outlook. The positive outlook reflects expectations of further improvements in the BOC PCL's financial fundamentals, mainly asset quality over the next 12‑18 months, in the context of an improved operating environment in Cyprus. The key drivers for the rating actions were the improvement in the BOC PCL's financial fundamentals, mainly in asset quality, and its funding position. 

Tackling the BOC PCL's loan portfolio quality is of utmost importance for the Group. The Group has been successful in engineering restructuring solutions across the spectrum of its loan portfolio, and expects the organic reduction of residual NPEs to continue, with a target of c. €800 million for 2019, as portfolio size and business line mix has changed radically upon completion of the Project Helix. In parallel, the Group continues to actively explore strategies to further accelerate de‑risking including further portfolio sales. 

The July 2018 foreclosure law amendments have expedited the process and removed options to frustrate execution. Recently, the Cyprus Parliament voted through certain changes to the 2018 law which, in the most part, seek to (a) provide additional checks and balances where banks are seeking to foreclose small loans (

The strategic focus of the Group is to reshape its business model to grow in the core Cypriot market through prudent new lending. As at 30 June 2019, the Bank's capital position remains good and is strengthened pro forma for the disposal of investment in CNP. The Group expects to continue to be able to support the recovery of the Cyprus economy through the provision of new lending. Growth in new lending in Cyprus is focused on selected industries that are more in line with the Bank's target risk profile, such as tourism, trade, real estate, professional services, information/communication technologies, energy, education and green projects.

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

Management is also placing emphasis on diversifying income streams by optimising fee income from international transaction services, wealth management and insurance. The Group's insurance companies, EuroLife Ltd and General Insurance of Cyprus Ltd operating in the sectors of life and general insurance respectively, are leading players in the insurance business in Cyprus, with such businesses providing a recurring income, further diversifying the Group's income streams. The insurance income net of insurance claims for the six months ended 30 June 2019 amounted to €30 million, up by 20% compared to same period last year, contributing to 18% of non‑interest income.

In order to further optimise its funding structure, the Bank continues to focus on the shape and cost of deposit franchise, taking advantage of the increased customer confidence towards the Bank, as well as improving macroeconomic conditions. The cost of deposit was reduced by 52 bps to 24 bps over the last 18 months.

In common with other European banks, the changed interest rate environment presents a challenge to the Group's profitability. A key focus for management this year and going forward is the active management of funding costs and on‑going running expenses, including the containment of staff cost. The Digital Transformation Programme that started in 2017 is beginning to deliver an improved customer experience (see section below) and the branch network is half the size it was in 2013.

Digital Transformation

As part of its vision to be the leading financial hub in Cyprus, BOC PCL continues its Digital Transformation Programme in collaboration with IBM, the BOC PCL's Strategic Digital Transformation Partner, which focuses on three strategic pillars: developing digital services and products that enhance the customer experience, streamlining internal processes and introducing new ways of working to improve the workplace environment. In the last few months, various new features were introduced on the new mobile app, such as the ability to apply for e‑products, transfer amounts over €150 through QuickPay, log‑in through biometrics, and view own accounts with UK banks. Also, financial management tools have been introduced that allow our clients to use the 1Bank service to better manage their finances. In addition, Apple Pay was launched that allows Bank of Cyprus Visa cardholders to make secure and fast payments through iOS mobile devices. This has had very positive feedback from customers and rapid adoption. Payments via Android devices are made through the BoC Wallet app. Moreover, the introduction of the 1Bank B2B (business to business) APIs (Application Programming Interfaces) is gaining traction.

These are interfaces that enable businesses to enjoy access to 1Bank functionality directly through their own systems without the need to access the 1Bank website. In addition, the IBU Gateway was introduced that provides 24/7 access to Professional Associates and IBU/Wealth customers to apply for products or services and get a ready‑to‑sign application form.

BOC PCL has led the way in Cyprus in establishing an open banking ecosystem, by being the first bank in Cyprus to launch its PSD2 APIs (Payment Service Directive2, Application Programming Interfaces) and also by integrating with nine UK banks allowing customers to view their account balances and transactions from the integrated banks together with their Bank of Cyprus accounts through 1Bank. Building on the success of the integration of the UK banks BOC PCL is working on integrating Cypriot banks. Furthermore, several other initiatives are in progress, including enhancing digital channels to improve customer experience, providing online services using digital signatures, automating internal end to end processes using a BPM (Business Process Management) platform and introducing collaboration and knowledge sharing tools across the organisation.

The adoption of digital products and services continues to grow and gain momentum, compared to two years ago, when the digital transformation program began. Today, 75% of transactions involving deposits, cash withdrawals and internal/external transfers, are performed through digital channels (with the corresponding rate two years before reaching 65%). Regarding the use of mobile banking, the number of active users increased by 54% from June 2017, while the average monthly number of log‑ins per customer also increased by 44% during the same period. BOC PCL also monitors the Digital Adoption Rate, which is a composite indicator that demonstrates the digital engagement of customers with BOC PCL and the overall digital economy. This indicator is currently 66% and moving steadily upwards (compared to 59% two years ago).

The Group remains on track for implementing its strategic objectives aiming to become a stronger, safer and a more focused institution capable of supporting the recovery of the Cypriot economy and delivering appropriate shareholder returns in the medium term.

The key pillars of the Group's strategy are to:

·; Materially reduce the level of delinquent loans

·; Further optimise the funding structure

·; Maintain an appropriate capital position by internally generating capital

·; Focus on the core Cyprus market

·; Achieve a lean operating model

·; Deliver value to shareholders and other stakeholders

KEY PILLARS

PLAN OF ACTION

 1. Materially reduce the level of delinquent loans

·; Sustain momentum in restructuring and continue reduction of NPEs

·; Focus on terminated portfolios (in Recovery Unit) - "accelerated consensual foreclosures"

·; Real estate management via REMU

·; Continue to explore alternative accelerating NPE reduction measures such as NPE sales, securitisations etc.

 2. Further optimise the funding structure

·; Focus on shape and cost of deposit franchise

 3. Maintain an appropriate capital position

·; Internally generating capital

 4. Focus on core Cyprus market

·; Targeted lending in Cyprus into promising sectors to fund recovery

·; New loan origination, while maintaining lending yields

·; Revenue diversification via fee income from international banking, wealth, and insurance

 5. Achieve a lean operating model

·; Implementation of digital transformation program underway, aimed at enhancing productivity through alternative distribution channels and reducing operating costs over time, including containment of staff costs

·; Post the execution of further NPE reduction, BOC PCL is focusing on the need to manage costs

 6. Deliver value

·; Deliver appropriate medium term risk‑adjusted returns

Going concern

The Directors have made an assessment of the Group's ability to continue as a going concern for a period of 12 months from the date of approval of these Financial Statements. The Directors believe that the Group is taking all necessary measures to maintain its viability and the development of its business in the current economic environment.

In making this assessment, the Directors considered the significant transactions during 2018 and the six months ended 30 June 2019, which had a positive impact on the capital position of the Group, including the sale of non performing loans (the Helix transaction), the disposal of Bank of Cyprus UK Ltd and the issuance of €220 million Additional Tier 1 Capital Securities. The Directors have also considered the legislative amendments on the Income Tax Law Amendment 28 (I) of 2019, enacted on 1 March 2019, which allow for the conversion of specific deferred tax assets (DTA) into deferred tax credits (DTC), the Group's Financial and Capital Plan and the developments in the operating environment in Cyprus.

The Group has developed a Financial and Capital Plan (the 'Plan'), which has been approved by the Board in February 2019. One of the most important objectives of the Plan was to ensure that the Group has sufficient resources and capital in order to continue the balance sheet de‑risking and further deal with the residual NPEs. The IFRS 9 impact on a fully phased‑in basis has been considered within the Group's Plan.

Despite the implementation risk associated with the outcome of future events outlined in the Plan at the reporting date, the Directors believe that there is sufficient capital throughout the period of assessment to meet regulatory capital requirements. The Group will continue its de‑risking strategy and remains focused to implement the actions contemplated in the Plan.

The Directors, in making their assessment, have given particular attention to the regulatory requirements relating to capital and liquidity as follows:

Non‑Performing Exposures

·; The Group completed the Helix transaction in June 2019 which along with the organic reduction led to a significant decrease of NPEs during the six months ended 30 June 2019; and

·; The reduction of NPEs has been a regulatory focus for a number of years and will continue to be so. The Group has prepared an updated NPE strategy plan for the years 2019‑2021 which was submitted to the ECB in June 2019. The Directors believe that the reduction of NPEs is a significant factor with regards to the future viability of the Group as a pillar bank in Cyprus.

Capital

The Common Equity Tier 1 (CET1) ratio and the Total Capital ratio on a transitional basis at 30 June 2019 are higher than the minimum required ratios (Note 5.1 of these Consolidated Condensed Interim Financial Statements).

Following the Annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2018 and based on the final 2018 SREP decision received on 27 March 2019, the Group's minimum phased in CET1 ratio and Total Capital ratio remain unchanged, when ignoring the phasing‑in of the Capital Conservations Buffer and the Other Systemically Important Institution Buffer. The final 2018 SREP decision was applied from 1 April 2019.

The projected capital ratios of the Group indicate that there will be sufficient capital throughout the period of assessment when considered in conjunction with the following items:

·; The phase‑in of IFRS 9. The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU Regulation 2017/2395) where the total impact on adoption of IFRS 9 of €308,511 thousand, on 1 January 2018 and any subsequent increase allowed by the regulation for phasing‑in (i.e. increase in Stage 1 and Stage 2 allowance), will impact the capital ratios over a period of five years. The impact on the regulatory capital is being phased‑in based on a weighting factor until it is fully absorbed at the end of the five years. The initial impact of IFRS 9 was phased in by 5% on 1 January 2018 and increased to 15% (cumulative) on 1 January 2019.

·; The regulatory capital position of the Group has strengthened further, upon the completion of the Helix transaction. On completion, the derecognition of the Helix portfolio had a positive impact on the Group's capital ratios resulting from the release of risk weighted assets.

·; The Group's capital position is sufficient, allowing acceleration of risk reduction and recalibration of the cost base. The Group remains focused to implement the actions contemplated in the Plan submitted to the ECB.

·; The agreement for the sale of investment in CNP Cyprus Insurance Holdings Ltd will further enhance the capital position of the Group.

·; As the Cypriot operations account for 99% of gross loans and 100% of customer deposits (after the disposal of the UK operations in 2018), the Group's financial performance is highly correlated to the economic and operating conditions in Cyprus and is expected to consequently benefit from the country's recovery. The sovereign risk ratings of the Cyprus government improved considerably in the recent period reflecting expectations of a sustained decline in public debt as a ratio to GDP, expected further declines in non‑performing exposures and a more stable price environment following a protracted period of deflation and low inflation. In November 2018, Fitch Ratings upgraded its Long‑Term Issuer Default ratings for Cyprus to investment grade (BBB‑), affirming in April 2019. In September 2018, S&P Global Ratings also upgraded Cyprus to investment grade (BBB‑). In July 2018 Moody's Investors Service upgraded Cyprus' sovereign rating to Ba2 from Ba3, affirmed in April 2019. All maintain stable outlook.

·; Most recently, at the end of July 2019, Standard and Poor's affirmed their long‑term issuer credit rating on the BOC PCL's of 'B+' (stable outlook). In March 2019, Fitch Ratings affirmed their long‑term issuer default rating of B‑ (positive outlook). In January 2019, Moody's Investors Service upgraded the Bank's long‑term deposit rating to B3 from Caa1, with a positive outlook. The positive outlook reflects expectations of further improvements in the BOC PCL's financial fundamentals, mainly asset quality over the next 12‑18 months, in the context of an improved operating environment in Cyprus. The key drivers for the ratings were the improvement in the BOC PCL's financial fundamentals, mainly in asset quality, and its funding position.

Funding and liquidity

·; The Group is monitoring its liquidity position and is considering ways to reduce the deposits cost; and

·; The Group is in compliance with the Liquidity Coverage Ratio (LCR) and is significantly above the minimum requirements (Note 31 of these Consolidated Condensed Interim Financial Stetaments).

Based on the projections of the management, it is expected that the Group will maintain compliance with these liquidity requirements for the period of the going concern assessment.

Like other financial organisations, the Group is exposed to risks, the most significant of which are credit risk, liquidity risk, market risk (arising from adverse movements in exchange rates, interest rates and security prices) and insurance risk. The Group monitors, manages and mitigates these risks through various control mechanisms. Detailed information relating to Group risk management is set out in Note 29 to 31 of these Consolidated Condensed Interim Financial Statements and in the Additional Risk and Capital Management Disclosures including Pillar 3 Semi‑annual disclosures which form part of the Interim Financial Report for the six months ended 30 June 2019.

The Group is also exposed to litigation risk, arising from claims, investigations, regulatory and other matters. Further information is disclosed in Note 25 to these Consolidated Condensed Interim Financial Statements.

Additionally, the Group is exposed to the risk on changes in the fair value of property which is held either for own use or as stock of property or as investment property. Stock of property is predominately acquired in exchange of debt and is intended to be disposed of in line with the Group's strategy. Further information is disclosed in Note 17 to these Consolidated Condensed Interim Financial Statements.

The Group activities are mainly in Cyprus therefore the Group performance is impacted by changes in the Cyprus operating environment as described in the 'Operating environment' section of this Interim Management Report.

In addition, details of the significant judgements, estimates and assumptions which may have a material impact on the Group's financial performance and position are set out in Note 6 of these Consolidated Condensed Interim Financial statements.

Details of the financial instruments and hedging activities of the Group are set out in Note 14 of these Consolidated Condensed Interim Financial Statements.

ESTIA Memorandum of Understanding

In July 2019 the Memorandum of Understanding was signed by BOC PCL and the Government for the implementation of ESTIA scheme, which is underway for official launch in September 2019. ESTIA is a scheme aimed at addressing NPEs backed by primary residence, announced by the Government in July 2018. According to the timeline provided by the Government, the application submissions will occur from September 2019 to mid‑November 2019. During the forth quarter of 2019 BOC PCL, will offer restructuring solutions to the applicants and simultaneously the applications will be reviewed and approved by the Government. The first payment of the state subsidy installment is expected to occur between December 2019 and April 2020.

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

Each of the Directors, whose names and functions are listed on page 1, confirms that to the best of each person's knowledge and belief:

·; the Consolidated Condensed Interim Financial Statements, prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, give a true and fair view of the assets, liabilities and financial position of the Group at 30 June 2019, and its profit for the period then ended; and

·; that as required by the Transparency (Directive 2004/109/EC) Regulations 2007, the Interim Financial Report includes a fair review of:

(a) important events that have occurred during the first six months of the year, and their impact on the Consolidated Condensed Interim Financial Statements;

(b) a description of the principal risks and uncertainties for the next six months of the financial year; and

(c) details of any related party transactions that have materially affected the Group's financial position or performance in the six months ended 30 June 2019, and material changes to related party transactions described in the Annual Report for the year ended 31 December 2018.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 Consolidated Condensed Interim Financial Statements for the six months ended

30 June 2019

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Income Statement

Six months ended30 June

2019

2018(represented)*

Notes

€000

€000

Continuing operations

Turnover

3

487,145

521,469

Interest income

251,805

286,581

Income similar to interest income

26,683

26,296

Interest expense

(50,415)

(78,016)

Expense similar to interest expense

(23,964)

(22,777)

Net interest income

204,109

212,084

Fee and commission income

87,467

85,282

Fee and commission expense

(12,955)

(4,946)

Net foreign exchange gains

14,117

18,039

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

8

12,155

37,378

Insurance income net of claims and commissions

30,036

25,094

Net (losses)/gains from revaluation and disposal of investment properties

(1,349)

1,165

Net gains on disposal of stock of property

17,747

20,266

Other income

15,679

11,276

367,006

405,638

Staff costs

9

(114,244)

(104,670)

Special levy on deposits on credit institutions in Cyprus and contribution to Single Resolution Fund

(12,477)

(12,073)

Other operating expenses

9

(112,967)

(102,292)

127,318

186,603

Net gains on derecognition of financial assets measured at amortised cost

5,429

19,381

Credit losses to cover credit risk on loans and advances to customers

10

(108,911)

(252,953)

Credit losses of other financial instruments

10

(7,367)

(3,331)

Impairment of non‑financial instruments

10

(11,585)

(10,117)

Profit/(loss) before share of profit from associates and remeasurement

4,884

(60,417)

Remeasurement of investment in associate classified as held for sale

19

(25,943)

-

Share of profit from associates

36

5,312

4,520

Loss before tax from continuing operations

(15,747)

(55,897)

Income tax

11

115,144

(3,890)

Profit/(loss) after tax from continuing operations

99,397

(59,787)

Discontinued operations

Profit after tax from discontinued operations

7

- 

4,010

Profit/(loss) for the period

99,397

(55,777)

Attributable to:

Owners of the Company‑continuing operations profit/(loss)

97,398

(58,058)

Owners of the Company‑discontinued operations profit

- 

4,010

Total profit/(loss) attributable to the owners of the Company

97,398

(54,048)

Non‑controlling interests‑continuing operations profit/(loss)

1,999

(1,729)

Total profit/(loss) attributable to non‑controlling interests

1,999

(1,729)

Profit/(loss) for the period

99,397

(55,777)

Basic and diluted profits/(losses) per share attributable to the owners of the Company (€ cent)‑continuing operations

12

21.8

(13.0)

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

12

21.8

(12.1)

* For comparative represented information refer to Note 3.1.

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Statement of Comprehensive Income

Six months ended30 June

2019

2018(represented)

Notes

€000

€000

Profit/(loss) for the period

99,397

(55,777)

Other comprehensive income (OCI)

OCI that may be reclassified in the consolidated income statement in subsequent periods

Fair value reserve (debt instruments)

Net gains/(losses) on investments in debt instruments measured at fair value through OCI (FVOCI)

14,426

(10,455)

Transfer to the consolidated income statement on disposal

- 

(19,787)

14,426

(30,242)

Foreign currency translation reserve

(Loss)/profit on translation of net investments in foreign branches and subsidiaries

(7,200)

4,017

Profit/(loss) on hedging of net investments in foreign branches and subsidiaries

14

8,279

(3,859)

Transfer to the consolidated income statement on dissolution/disposal of foreign branches and subsidiaries

(426)

(48)

653

110

Total OCI that may be reclassified in the consolidated income statement in subsequent periods

15,079

(30,132)

OCI not to be reclassified in the consolidated income statement in subsequent periods

Fair value reserve (equity instruments)

Share of net gains/(losses) from fair value changes of associates

4,199

(1,935)

Net gains on investments in equity instruments designated at FVOCI

236

2,857

4,435

922

Property revaluation

Deferred tax

11

29

17

Actuarial (losses)/gains on the defined benefit plans

Remeasurement (losses)/gains on defined benefit plans

(2,149)

2,784

Total OCI not to be reclassified in the consolidated income statement in subsequent periods

2,315

3,723

Other comprehensive income/(loss) for the period net of taxation

17,394

(26,409)

Total comprehensive income/(loss) for the period

116,791

(82,186)

Attributable to:

Owners of the Company

114,770

(80,453)

Non‑controlling interests

2,021

(1,733)

Total comprehensive income/(loss) for the period

116,791

(82,186)

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Balance Sheet

30 June2019

31 December2018(restated)

Assets

Notes

€000

€000

Cash and balances with central banks

27

5,261,896

4,610,491

Loans and advances to banks

27

403,041

472,532

Derivative financial assets

14

13,651

24,754

Investments

13

1,588,582

777,104

Investments pledged as collateral

13

292,317

737,587

Loans and advances to customers

16

10,949,002

10,921,786

Life insurance business assets attributable to policyholders

438,560

402,565

Prepayments, accrued income and other assets

18

323,253

256,002

Stock of property

17

1,430,441

1,426,857

Deferred tax assets

11

379,126

301,778

Investment properties

141,864

128,006

Property and equipment

292,133

260,723

Intangible assets

173,608

170,411

Investments in associates and joint venture

36

2,191

114,637

Non‑current assets and disposal groups held for sale

19

197,521

1,470,038

Total assets

21,887,186

22,075,271

Liabilities

Deposits by banks

532,023

431,942

Funding from central banks

20

830,000

830,000

Repurchase agreements

247,813

248,945

Derivative financial liabilities

14

56,702

38,983

Customer deposits

21

16,376,686

16,843,558

Insurance liabilities

626,512

591,057

Accruals, deferred income, other liabilities and other provisions

23

331,408

285,483

Pending litigation, claims, regulatory and other matters

25

102,375

116,951

Subordinated loan stock

22

261,417

270,930

Deferred tax liabilities

11

44,818

44,282

Non‑current liabilities and disposal group held for sale

19

6,760

5,812

Total liabilities

19,416,514

19,707,943

Equity

Share capital

24

44,620

44,620

Share premium

24

1,294,358

1,294,358

Revaluation and other reserves

213,532

190,411

Retained earnings

670,143

591,941

Equity attributable to the owners of the Company

2,222,653

2,121,330

Other equity instruments

24

220,000

220,000

Total equity excluding non‑controlling interests

2,442,653

2,341,330

Non‑controlling interests

28,019

25,998

Total equity

2,470,672

2,367,328

Total liabilities and equity

21,887,186

22,075,271

Mr. E.G. Arapoglou

Chairman

Mr. J. P. Hourican

Chief Executive Officer

Mr. I. Zographakis

Director

Mrs. E. Livadiotou

Finance Director

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Statement of Changes in Equity

Attributable to shareholders of the Company

Share capital

(Note 24)

Share premium

(Note 24)

Treasury shares

(Note 24)

Retained earnings

Property revaluation reserve

Financial instruments fair value reserve

Life insurance in‑force business reserve

Foreign currency translation reserve

Total

Other equity instruments

Non‑ controlling interests

Total equity

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

1 January 2019

44,620

1,294,358

(21,463)

591,941

79,433

15,289

101,001

16,151

2,121,330

220,000

25,998

2,367,328

Profit for the period

- 

- 

- 

97,398

- 

- 

- 

- 

97,398

- 

1,999

99,397

Other comprehensive (loss)/income after tax for the period

- 

- 

- 

(2,149)

22

18,846

- 

653

17,372

- 

22

17,394

Total comprehensive income after tax for the period

- 

- 

- 

95,249

22

18,846

- 

653

114,770

- 

2,021

116,791

Increase in value of in‑force life insurance business

- 

- 

- 

(4,114)

- 

- 

4,114

- 

- 

- 

-

- 

Tax on decrease in value of in‑force life insurance business

- 

- 

- 

514

- 

- 

(514)

- 

- 

- 

-

- 

Payment of coupon to AT1 holders (Note 24)

- 

- 

- 

(13,447)

- 

- 

- 

- 

(13,447)

- 

-

(13,447)

30 June 2019

44,620

1,294,358

(21,463)

670,143

79,455

34,135

104,601

16,804

2,222,653

220,000

28,019

2,470,672

Attributable to shareholders of the Company

Share capital

(Note 24)

Share premium

(Note 24)

Treasury shares

(Note 24)

Accumulated losses

Property revaluation reserve

Financial instruments fair value reserve

Other reserves

Life insurance in‑force business reserve

Foreign currency translation reserve

Total

Non‑ controlling interests

Total equity

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

1 January 2018

44,620

2,794,358

(21,463)

(527,128)

92,878

54,485

6,059

105,651

36,098

2,585,558

31,150

2,616,708

Impact of adopting IFRS 9 at 1 January 2018

- 

- 

- 

(299,150)

- 

(8,470)

- 

- 

- 

(307,620)

-

(307,620)

Restated balance at 1 January 2018

44,620

2,794,358

(21,463)

(826,278)

92,878

46,015

6,059

105,651

36,098

2,277,938

31,150

2,309,088

Loss for the period

- 

- 

- 

(54,048)

- 

- 

- 

- 

- 

(54,048)

(1,729)

(55,777)

Other comprehensive income/(loss) after tax for the period

- 

- 

- 

2,784

17

(29,316)

- 

- 

110

(26,405)

(4)

(26,409)

Total comprehensive (loss)/income for the period

- 

- 

- 

(51,264)

17

(29,316)

- 

- 

110

(80,453)

(1,733)

(82,186)

Increase in value of in‑force life insurance business

- 

- 

- 

(515)

- 

- 

- 

515

- 

- 

-

- 

Tax on increase in value of in‑force life insurance business

- 

- 

- 

65

- 

- 

- 

(65)

- 

- 

-

- 

Transfer of realised profits on disposal of properties

- 

- 

- 

3,361

(3,361)

- 

- 

- 

- 

- 

-

- 

Transfer of property revaluation reserve and other reserve of subsidiary to retained earnings 

- 

- 

- 

14,014

(7,955)

- 

(6,059)

- 

- 

- 

-

- 

Decrease in share capital of subsidiary

- 

- 

- 

(554)

- 

- 

- 

- 

- 

(554)

(395)

(949)

Transfer of loss on disposal of FVOCI equity investments to accumulated losses

- 

- 

- 

(67)

- 

67

- 

- 

- 

- 

-

- 

Increase in non‑controlling interests due to change in shareholding of subsidiary

- 

- 

- 

705

- 

- 

- 

- 

- 

705

16,596

17,301

30 June 2018

44,620

2,794,358

(21,463)

(860,533)

81,579

16,766

- 

106,101

36,208

2,197,636

45,618

2,243,254

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Statement of Cash Flows

Six months ended30 June

2019

2018 (represented)

Net cash flow from operating activities

Note

€000

€000

Loss before tax from continuing operations

(15,747)

(55,897)

Profit before tax from discontinued operations

7

- 

4,934

Share of profit from associates

36

(5,312)

(4,520)

Credit losses to cover credit risk on loans and advances to customers and net gains on derecognition of financial assets measured at amortised cost

103,482

233,572

Depreciation of property and equipment and amortisation of intangible assets

17,462

12,013

Change in value of in‑force life insurance business

(4,114)

(515)

Credit losses of other financial instruments

10

7,367

3,331

Amortisation of discounts/premiums, catch‑up adjustment on debt securities and interest on debt securities

(15,546)

(11,883)

Dividend income

(139)

(143)

Net gains on disposal of investments at FVOCI and amortised cost

- 

(19,787)

(Profit)/loss from revaluation of debt securities designated as fair value hedges

(13,416)

94

Interest on funding from central banks

- 

3

Interest on subordinated loan stock

11,567

11,567

Impairment of stock of property

10

11,585

10,106

Remeasurement of investment in associate classified as held for sale

19

25,943

-

Loss on disposal/dissolution of subsidiaries/associates

- 

145

Net gains on disposal of stock of property

(17,747)

(20,266)

Net losses/(gains) from revaluation of investment properties and investment properties held for sale

44

(1,238)

105,429

161,516

Net increase in loans and advances to customers and other accounts

(239,065)

(268,760)

Net (decrease)/increase in customer deposits and other accounts

(272,430)

590,977

(406,066)

483,733

Tax paid

(912)

(1,470)

Net cash (used in)/from operating activities

(406,978)

482,263

Cash flows from investing activities

Purchases of debt securities and equity securities

(277,244)

(226,103)

Proceeds on disposal/redemption of investments:

‑ debt securities

9,523

235,062

‑ equity securities

- 

5,030

Interest received from debt securities

9,726

7,441

Dividend income from equity securities

139

143

Proceeds on disposal of subsidiaries and associates

139,760

2,083

Proceeds on disposal of the Helix portfolio

1,140,231

-

Purchases of property and equipment

(3,889)

(5,476)

Purchases of intangible assets

(6,878)

(9,738)

Proceeds on disposals of property and equipment and intangible assets

252

1,778

Proceeds on disposals of investment properties and investment properties held for sale

11,945

6,500

Net cash from investing activities

1,023,565

16,720

Cash flow from financing activities

Payment of AT1 coupon

24

(13,447)

-

Net repayment of funding from central banks

- 

(100,000)

Interest on subordinated loan stock

(21,080)

(22,258)

Interest on funding from central banks

- 

(3)

Principle elements of lease payments

(4,682)

-

Net proceeds from increase in non‑controlling interests due to change in the shareholding of subsidiary

- 

17,596

Net cash used in financing activities

(39,209)

(104,665)

Net increase in cash and cash equivalents

577,378

394,318

Cash and cash equivalents

1 January

4,804,844

4,280,231

Foreign exchange adjustments

(2,385)

2,857

Net increase in cash and cash equivalents

577,378

394,318

30 June

27

5,379,837

4,677,406

Non cash transactions

Repossession of collaterals

During the six months ended 30 June 2019, the Group acquired properties by taking possession of collaterals held as security for loans and advances to customers of €126,480 thousand (six months ended 30 June 2018: €210,241 thousand) (Note 17).

Disposal of Project Helix

Upon the disposal of Project Helix, the Group participated in a senior debt in relation to the financing of the Project Helix amounting to €45 million.

Acquisition of equity investments

During the six months ended 30 June 2019 the Group acquired equity investments amounting to €6,529 thousand as a result of its loan restructuring activities. The Group elected to classify this equity participation at FVOCI. 

BANK OF CYPRUS HOLDINGS GROUP

Notes to the Consolidated Condensed Interim Financial Statements

Bank of Cyprus Holdings Public Limited Company (the Company) was incorporated in the Republic of Ireland on 11 July 2016, as a public limited company under company number 595903 in accordance with the provisions of the Companies Act 2014 of Ireland (Companies Act 2014). Its registered office is 10 Earlsfort Terrace, Dublin 2, D02 T380, Ireland.

The Company is the holding company of the Bank of Cyprus Public Company Limited (BOC PCL). The Bank of Cyprus Holdings Group (the Group) comprises the Company, its subsidiary BOC PCL and the subsidiaries of BOC PCL.

The Company is tax resident in Cyprus. The principal activities of BOC PCL and its subsidiary companies (the BOC Group) involve the provision of banking, financial services, insurance services and management and disposal of property predominately acquired in exchange of debt.

The shares of the Company are listed and trading on the London Stock Exchange (LSE) and the Cyprus Stock Exchange (CSE).

The Consolidated Financial Statements are available at the registered office of Bank of Cyprus Holdings Public Limited Company and on the Group's website www.bankofcyprus.com (Investor Relations).

Consolidated Condensed Interim Financial Statements

The Consolidated Condensed Interim Financial Statements of the Company for the six months ended 30 June 2019 (the Consolidated Financial Statements) were authorised for issue by a resolution of the Board of Directors on 26 August 2019.

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

The appointment of the Group external auditors, PricewaterhouseCoopers (PwC), is effective for accounting periods commencing on 1 January 2019 and was approved by the Board of Directors of the Company, following the recommendation from the Audit Committee.

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

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

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, financial assets (including loans and advances to customers and investments) at fair value through profit or loss and derivative financial assets and derivative financial liabilities that have been measured at fair value, non‑current assets held for sale measured at fair value less costs to sell and stock of property measured at net realisable value where this is lower than cost. The carrying values of recognised assets and liabilities that are hedged items in fair value hedges, and otherwise carried at cost, are adjusted to record changes in fair value attributable to the risks that are being hedged.

The Group elected as a policy choice permitted under IFRS 9 to continue to apply hedge accounting in accordance with IAS 39.

Presentation of the Consolidated Financial Statements

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

The Group presents its balance sheet broadly in order of liquidity. An analysis regarding expected recovery or settlement of the 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 28.

Group turnover as presented in the interim consolidated income statement is as defined in the 'Definitions and Explanations on Alternative Performance Measures Disclosures'.

Comparative information

Comparative information was restated following the change in the classification of properties which are leased out under operating leases as investment properties as disclosed in Note 3.3.1. Reclassifications to comparative information were also made as follows:

·; Unrecognised interest on previously credit impaired loans which have cured during the period amounting to €14,918 thousand was reclassified from 'Net interest income' to 'Credit losses to cover credit risk on loans and advances to customers' in line with an IFRIC discussion, which has taken place in November 2018 (Presentation of unrecognised interest following the curing of a credit impaired financial asset (IFRS 9)). The corresponding amount for the six months ended 30 June 2019 stood at €7,781 thousand.

·; The results of the discontinued operations in the UK (Bank of Cyprus UK Ltd and its subsidiary, Bank of Cyprus Financial Services Ltd) were represented as discontinued operations (Note 7).

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

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

The Consolidated Financial Statements do not comprise statutory financial statements for the purposes of the Companies Act 2014 of Ireland. The Company's statutory financial statements for the purposes of Chapter 4 of Part 6 of the Companies Act 2014 of Ireland for the year ended 31 December 2018, upon which the previous auditors have expressed an unqualified opinion, were published on 28 March 2019 and are expected to be delivered to the Registrar of Companies of Ireland within 28 days from 30 September 2019.

The Consolidated Financial Statements do not include all the information and disclosures required for the annual financial statements and should be read in conjunction with the Annual Consolidated Financial Statements of Bank of Cyprus Holdings Group for the year ended 31 December 2018, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, which are available at the Group's website (www.bankofcyprus.com).

The accounting policies adopted are consistent with those followed for the preparation of the Annual Consolidated Financial Statements for the year ended 31 December 2018, except from the adoption of new and amended standards and interpretations as explained in Note 3.3.2 and the accounting of deferred tax credits arising from deferred tax assets as explained in Note 11. In addition, there were changes in the classification of properties which are leased out under operating leases as investment properties as explained in Note 3.3.1.

The Group has decided to classify the leased properties which are acquired in exchange of debt and are leased out under operating leases as 'Investment Properties' instead of 'Inventories'. The Group previously classified these properties as inventory under IAS 2 and measured them upon on‑boarding at cost and subsequently at the lower of cost and net realisable value. 

The aforementioned change in classification has been applied retrospectively in accordance with IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors', resulting in the restatement of financial information for prior periods.

There was no material impact on the Group's retained earnings as of 1 January 2018 and 31 December 2018 as a result of the above described change in classification. The cumulative impact amounted to €1,189 thousand (gain) and has been recognised in the Interim Consolidated Income Statement of the Group for the six months ended 30 June 2019. The earnings per share increased by €0.30 for the six months ended 30 June 2019.

As a result of the change in classification, the following adjustments were made on the consolidated balance sheet as indicated below:

31 December 2018

1 January2018

€000

€000

Consolidated balance sheet

Stock of property

Before the change in classification

1,530,388

1,641,422

Impact of the recognition of leased out property as investment properties

(103,531)

(154,443)

After the change in classification

1,426,857

1,486,979

Investment properties

Before the change in classification

24,475

19,646

Impact of the recognition of leased out property as investment properties

103,531

154,443

After the change in classification

128,006

174,089

The Group applied for the first time certain standards and amendments, which are effective for annual periods beginning on 1 January 2019. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The Group has adopted the new standards, amendments and interpretations to the extent as they were relevant for the Group. The relevant and significant new standards for the Group are:

·; IFRS 16 Leases

·; IFRS 9 Prepayment features with negative compensation (amendment)

·; IAS 28 Long term Interests in Associates and Joint Ventures (amendments)

·; IFRIC Interpretation 23 Uncertainty over Income Tax Treatments

·; IAS 19: Plan Amendment, Curtailment or Settlement (amendments)

·; Annual Improvements to IFRSs 2015‑2017 Cycle

The impact of adoption of IFRS 16 Leases is described below. The amendments to IFRS 9, IAS 19 and IAS 28 and IFRIC 23 did not have any material impact on the Consolidated Financial Statements. New or amended interim disclosures have been provided for the current period, where applicable, and comparative period disclosures are consistent with those made in the prior year.

The standard is effective for annual periods beginning on or after 1 January 2019. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor'). IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Agreement contains a Lease, SIC‑15 Operating Leases‑Incentives and SIC‑27 Evaluating the Substance of Transactions Involving the Legal From of a Lease.

IFRS 16 requires lessees to recognise most leases on their financial statements. Lessees will have a single accounting model for all leases (with certain exemptions) and there is no distinction between operating and finance leases.

A lessee recognises a right‑of‑use asset representing its right to use the underlying asset measured at the amount equal to the lease liabilities and the provision for restoration costs, adjusted for any related prepaid or accrued lease payments previously recognised. Lease liability is recognised based on the present value of remaining lease payments, discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, an incremental borrowing rate ('IBR') is used.

The IBR used as of 1 January 2019 was based on the Cyprus Government yield curve, with no further adjustment, as a fair proxy for the Group's secured borrowing cost, for a time horizon in accordance to the lease term. The determination of an IBR term structure inherently involves significant judgments and uncertainties. A sensitivity analysis on the yield curve was performed concluding that the value of lease liability and corresponding right of use assets is not materially sensitive to changes in the IBR.

Subsequent to initial recognition, the lessee measures the right of use asset by applying the cost model and depreciation is computed on a straight line basis up to the end of the lease term. The lease liability increases with the accrual of interest throughout the life of the lease and is reduced when payments are made.

Lessor accounting remains similar to IAS 17 Leases - i.e. lessors continue to classify leases as finance or operating leases. 

The Group adopted IFRS 16 on a retrospective basis, but took advantage of the option not to restate comparative periods (and the cumulative effect of initially applying the standard was recognised at the date of initial application), by applying the modified retrospective approach. The IFRS 16 implementation project was led by Finance with representations from the impacted departments. The Group established accounting policies and applied the following transition options available under the modified retrospective approach:

·; Application of a single discount rate to each portfolio of leases with reasonably similar characteristics (such as leases with similar remaining lease term for similar class of underlying assets in a similar economic environment).

·; Calculation of the right of use asset equal to the lease liability and restoration provision, adjusted for prepaid or accrued payments.

·; Application of the accounting for short‑term leases with a term not exceeding 12 months of the date of initial application. Hence, right of use assets and lease liabilities do not include the impact of such short term leases.

·; Use of hindsight in determining the lease term if the contract contains options to extend or terminate the lease.

·; Exclusion of the initial direct costs from the measurement of the right of use asset.

·; Election to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application of 1 January 2019.

The Group also 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'). The Group has exercised judgement in determining the threshold of low value assets which was set at €5,000. 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. 

The Group holds lease contracts mainly for commercial properties such as office buildings and branches. The implementation of IFRS 16 led to the recognition of the right of use assets at an equal amount as lease liabilities and restoration liability with no effect on equity or retained earnings of the Group as at 1 January 2019.

The table below shows the impact on initial implementation of IFRS 16:

1 January 2019

€000

Assets

Right of use assets (disclosed within 'Property, plant and equipment')

37,474

Liabilities

Lease liabilities (disclosed separately within 'Accruals, deferred income and other liabilities) 

36,164

Restoration liabilities (disclosed within other liabilities within 'Accruals, deferred income and other liabilities')

1,310

37,474

The lease liabilities as at 1 January 2019 are reconciled to the operating lease commitments as disclosed in the consolidated financial statements for the year ended 31 December 2018 as follows:

1 January 2019

€000

Operating lease commitments as at 31 December 2018 (non‑cancellable)

4,453

Weighted average incremental borrowing rate as at 1 January 2019

1.05%

Discounted operating lease commitment as at 1 January 2019

4,226

Add:

Payments in optional extension periods not recognised as at 31 December 2018

31,938

Lease liabilities as at 1 January 2019

36,164

The effect of the adoption of IFRS 16 remains subject to change until the Group finalises its financial statements for the year ended 31 December 2019, the year of initial application.

The Directors have made an assessment of the Group's ability to continue as a going concern for a period of 12 months from the date of approval of these Financial Statements. The Directors believe that the Group is taking all necessary measures to maintain its viability and the development of its business in the current economic environment.

In making this assessment, the Directors considered the significant transactions during 2018 and the six months ended 30 June 2019, which had a positive impact on the capital position of the Group, including the sale of non performing loans (the Helix transaction), the disposal of Bank of Cyprus UK Ltd and the issuance of €220 million Additional Tier 1 Capital Securities. The Directors have also considered the legislative amendments on the Income Tax Law Amendment 28 (I) of 2019, enacted on 1 March 2019, which allow for the conversion of specific deferred tax assets (DTA) into deferred tax credits (DTC), the Group's Financial and Capital Plan and the developments in the operating environment in Cyprus.

The Group has developed a Financial and Capital Plan (the 'Plan'), which has been approved by the Board in February 2019. One of the most important objectives of the Plan was to ensure that the Group has sufficient resources and capital in order to continue the balance sheet de‑risking and further deal with the residual Non‑Performing Exposures (NPEs). The IFRS 9 impact on a fully phased‑in basis has been considered within the Group's Plan. Despite the implementation risk associated with the outcome of future events outlined in the Plan at the reporting date, the Directors believe that there is sufficient capital throughout the period of assessment to meet regulatory capital requirements. The Group will continue its de‑risking strategy and remains focused to implement the actions contemplated in the Plan.

The Directors, in making their assessment, have given particular attention to the regulatory requirements relating to capital and liquidity as follows:

Non‑Performing Exposures

·; The Group completed the Helix transaction in June 2019 which along with the organic reduction led to a significant decrease of NPEs during the six months ended 30 June 2019; and

·; The reduction of NPEs has been a regulatory focus for a number of years and will continue to be so. The Group has prepared an updated NPE strategy plan for the years 2019‑2021 which was submitted to the European Central Bank (ECB) in June 2019. The Directors believe that the reduction of NPEs is a significant factor with regards to the future viability of the Group as a pillar bank in Cyprus.

Capital

The Common Equity Tier 1 (CET1) ratio and the Total Capital ratio on a transitional basis at 30 June 2019 are higher than the minimum required ratios (Note 5.1).

Following the Annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2018 and based on the final 2018 SREP decision received on 27 March 2019, the Group's minimum phased in CET1 ratio and Total Capital ratio remain unchanged, when ignoring the phasing‑in of the Capital Conservations Buffer and the Other Systemically Important Institution Buffer. The final 2018 SREP decision was applied from 1 April 2019.

The projected capital ratios of the Group indicate that there will be sufficient capital throughout the period of assessment when considered in conjunction with the following items:

·; The phase‑in of IFRS 9. The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU Regulation 2017/2395) where the total impact on adoption of IFRS 9 of €308,511 thousand, on 1 January 2018 and any subsequent increase allowed by the regulation for phasing‑in (i.e. increase in Stage 1 and Stage 2 allowance), will impact the capital ratios over a period of five years. The impact on the regulatory capital is being phased‑in based on a weighting factor until it is fully absorbed at the end of the five years. The initial impact of IFRS 9 was phased in by 5% on 1 January 2018 and increased to 15% (cumulative) on 1 January 2019.

·; The regulatory capital position of the Group has strengthened further, upon the completion of the Helix transaction. On completion, the derecognition of the Helix portfolio had a positive impact on the Group's capital ratios resulting from the release of risk weighted assets.

·; The Group's capital position is sufficient, allowing acceleration of risk reduction and recalibration of the cost base. The Group remains focused to implement the actions contemplated in the Plan submitted to the ECB.

·; The agreement for the sale of investment in CNP Cyprus Insurance Holdings Ltd will further enhance the capital position of the Group.

·; As the Cypriot operations account for 99% of gross loans and 100% of customer deposits (after the disposal of the UK operations in 2018), the Group's financial performance is highly correlated to the economic and operating conditions in Cyprus and is expected to consequently benefit from the country's recovery. The sovereign risk ratings of the Cyprus government improved considerably in the recent period reflecting expectations of a sustained decline in public debt as a ratio to GDP, expected further declines in non‑performing exposures and a more stable price environment following a protracted period of deflation and low inflation. In November 2018, Fitch Ratings upgraded its Long‑Term Issuer Default ratings for Cyprus to investment grade (BBB‑), affirming in April 2019. In September 2018, S&P Global Ratings also upgraded Cyprus to investment grade (BBB‑). In July 2018 Moody's Investors Service upgraded Cyprus' sovereign rating to Ba2 from Ba3, affirmed in April 2019. All maintain stable outlook.

·; Most recently, at the end of July 2019, Standard and Poor's affirmed their long‑term issuer credit rating on the BOC PCL's of 'B+' (stable outlook). In March 2019, Fitch Ratings affirmed their long‑term issuer default rating of B‑ (positive outlook). In January 2019, Moody's Investors Service upgraded the Bank's long‑term deposit rating to B3 from Caa1, with a positive outlook. The positive outlook reflects expectations of further improvements in the BOC PCL's financial fundamentals, mainly asset quality over the next 12‑18 months, in the context of an improved operating environment in Cyprus. The key drivers for the ratings were the improvement in the BOC PCL's financial fundamentals, mainly in asset quality, and its funding position.

Funding and liquidity

·; The Group is monitoring its liquidity position and is considering ways to reduce the deposits cost; and

·; The Group is in compliance with the Liquidity Coverage Ratio (LCR) and is significantly above the minimum requirements (Note 31).

Based on the projections of the management, it is expected that the Group will maintain compliance with these liquidity requirements for the period of the going concern assessment.

The minimum Pillar I total capital ratio requirement is 8.0% and may be met, in addition to the 4.5% CET1 requirement, with up to 1.5% of Additional Tier 1 capital and with up to 2.0% of Tier 2 capital. The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital requirements (Pillar II add‑ons). 

Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2018 and based on the final 2018 SREP decision received on 27 March 2019, the Group's minimum phased‑in CET1 capital ratio and Total capital ratio remain unchanged when ignoring the phasing‑in of the Capital Conservation Buffer (CCB) and the Other Systemically Important Institution Buffer. The final 2018 SREP decision applies from 1 April 2019.

The Group's minimum phased‑in CET1 capital ratio requirement is 10.5% (2018: 9.375%), comprising of a 4.5% Pillar I requirement, a 3.0% Pillar II requirement, the CCB of 2.5% (2018: 1.875%) and the Other Systemically Important Institution Buffer of 0.5% (2018: Nil). The ECB has also provided non‑public guidance for an additional Pillar II CET1 buffer.

The Group's Total capital ratio requirement is 14.0% (2018: 12.875%), comprising of a 8.0% Pillar I requirement, a 3.0% Pillar II requirement, the CCB of 2.5% (2018: 1.875%) and the Other Systemically Important Institution Buffer of 0.5% (2018: Nil).

The above minimum ratios apply for both, BOC PCL and the Group. BOC PCL is 100% subsidiary of the Company and its principal activities are the provision of banking, financial services and management and disposal of property predominately acquired in exchange of debt.

The capital position of the Group and BOC PCL at 30 June 2019 exceeds both their Pillar I and their Pillar II add‑on capital requirements. However, the Pillar II add‑on capital requirements are a point‑in‑time assessment and therefore are subject to change over time.

The Group has developed a Plan, which has been approved by the Board in February 2019 (Note 4).

The Group addresses the asset quality challenge through the operation of the Restructuring and Recoveries Division which is actively seeking to find innovative solutions to manage distressed exposures. The Group has been successful in engineering restructuring solutions across the spectrum of its loan portfolio. 

The Group has prepared an updated NPE strategy plan for the years 2019‑2021 which was submitted to the ECB in June 2019.

Group customer deposits totalled €16,377 million at 30 June 2019, compared to €16,844 million at 31 December 2018. At 30 June 2019 and 31 December 2018 all deposits were in Cyprus. Group customer deposits accounted for 75% of total assets as at 30 June 2019 (31 December 2018: 76% and a low of 48% at 31 March 2014).

As at 30 June 2019 and 31 December 2018, the Group was in compliance with all regulatory liquidity requirements. As at 30 June 2019 the LCR stood at 253% for the Group (compared to 231% at 31 December 2018) and was in compliance with the minimum regulatory requirement of 100% applicable as from 1 January 2018.

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

Despite the novelty of many of the said claims based on the information available at present and on the basis of the law as it currently stands, management considers that the said claims are considered unlikely to have a material adverse impact on the financial position and capital adequacy of the Group. Additional information on pending litigation, claims, regulatory and other matters is provided in Note 25.

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

The key assumptions concerning the future and other key sources of estimation of uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are described below. The Group based its assumptions and estimates on parameters available when the Consolidated Financial Statements were prepared. Existing circumstances and assumptions about future developments may, however, change due to market changes or circumstances beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

The most significant judgements, estimates and assumptions relate to classification of financial instruments and calculation of expected credit losses (ECL), tax, estimation of the net realisable value of stock of property and provisions which are presented in Notes 6.1 to 6.5 below. Other judgements, estimates and assumptions are disclosed in Notes 5.6 to 5.12 of the Annual Consolidated Financial Statements for the year ended 31 December 2018.

The Group exercises judgement upon determining the classification of its financial assets, which relate to business models and future cash flows.

Judgement is also required to determine the appropriate level at which the assessment of business models needs to be performed. In general, the assessment for the classification of financial assets into the business models is performed at the level of each business line. Further, the Group exercises judgement in determining the effect of sales of financial instruments on its business model assessment.

The Group also applies judgement upon considering whether contractual features including interest rate could significantly affect future cash flows. Furthermore, judgment is required when assessing whether compensation paid or received on early termination of lending arrangements results in cash flows that are not SPPI.

The calculation of ECL requires management to apply significant judgement and make estimates and assumptions, involving significant uncertainty at the time these are made. Changes to these estimates and assumptions can result in significant changes to the timing and amount of ECL to be recognised. The Group's calculations are outputs of models, of underlying assumptions on the choice of variable inputs and their interdependencies.

Elements of ECL models that are considered accounting judgements and estimates include:

Assessment of significant increase of credit risk

IFRS 9 does not include a definition of significant increase in credit risk. The Group assesses whether significant increase in credit risk has occurred since initial recognition using predominantly quantitative and in certain cases qualitative information. The determination of the relevant thresholds to determine whether the significant increase in credit risk has occurred, involves management judgement. The relevant thresholds are set, monitored and updated on a yearly basis by the Risk Management division and endorsed by the Group Provisions Committee.

Determining the probability of default (PD) at initial recognition requires management estimates. In the case of exposures existing prior to the adoption of IFRS 9, a retrospective calculation of the PD is made in order to quantify the risk of each exposure at the time of the initial recognition. In certain cases estimates about the date of initial recognition might be required.

For the retail portfolio, the Group uses a PD at origination driven by behavioural information (score cards) whereas, for the corporate portfolio, the Group uses the internal credit rating information. In determining the relevant PDs, management estimates are required with respect to the life‑time of revolving facilities. For revolving facilities, the origination date is the date when a credit review has taken place instead of the contractual date.

Scenarios and macroeconomic factors

The Group determines the ECL, which is a probability‑weighted amount by evaluating a range of possible outcomes. Management uses forward‑looking scenarios and assesses the suitability of weights used. These are based on management's assumptions taking into account macroeconomic, market and other factors. Changes in these assumptions and in the external factors could significantly impact ECL. Macroeconomic inputs and weights per scenario are monitored by the Economic Research Unit and are based on external market data supplemented by expert judgement.

Qualitative adjustments or overlays are occasionally made when inputs calculated do not capture all the characteristics of the market. These are reviewed and adjusted, if considered necessary, by the Risk Management Division and endorsed by the Group Provisions Committee. Qualitative adjustments or overlays made as at the reporting date relate to the positive future property value cap to 0% for all scenarios. 

Economic and credit conditions within geographical areas are influenced by many factors with a high degree of interdependency so that there is no one single factor to which the Group's ECL as a whole are particularly sensitive. Different factors are applied in each country to reflect the local economic conditions, laws and regulations and the assumptions underlying this judgement are highly subjective. 

The Group uses three different economic scenarios. 

The table below indicates the most significant macroeconomic variables as well as the scenarios used by the Group as at 30 June 2019 and 31 December 2018 respectively. The Group has used the 30‑50‑20 probability structure for the adverse, base and favourable scenarios respectively compared to the 20‑60‑20 structure derived using the method described in Note 2.19.5 of the Consolidated Financial Statements for the year ended 31 December 2018. This is due to the fact that, the data set used to calculate scenario weights (GDP growth over 1980‑2018) is heterogeneous, involving significant breaks deriving from the changing nature of the Cyprus economy and responses to shocks. Additionally, the economy continues to face high public and private indebtedness and a high level of NPEs that together raise the degree of vulnerability of the economy and limit its reaction space thus sustaining conditions; which can lead to deeper recession in response to shocks than under normal times. Furthermore, the economy presents a structure risk given a very large external sector, making it especially vulnerable to the external environment. The heightened uncertainties in 2019 and beyond relating to Brexit, trade disputes between the US and the China and between the US and the EU, and economic fragility in southern Europe, entail a higher risk of a global recession and financial instability. These factors display a relatively high volatility, which the management considered that may not be fully captured in the weights as calculated using the method described in Note 2.19.5 of the Consolidated Financial Statements for the year ended 31 December 2018 and hence the management has decided to increase the weight of the adverse scenario to 30%, and correspondingly reduce the weight of the base scenario to 50%.

30 June 2019

Year

Scenario

Weight%

Real GDP(% change) 

Unemployment rate (% of labour force)

Consumer Price Index (average % change)

RICS House Price Index (average % change)

2020

Adverse

30.0

‑2.8

11.0

‑0.8

‑1.0

Baseline

50.0

2.7

6.3

1.6

3.2

Favourable

20.0

4.8

5.8

2.7

4.8

2021

Adverse

30.0

‑0.9

11.3

1.7

0.3

Baseline

50.0

2.5

5.8

2.0

3.6

Favourable

20.0

3.2

5.3

2.4

4.3

2022

Adverse

30.0

2.1

10.7

2.6

3.1

Baseline

50.0

2.4

5.6

2.3

4.1

Favourable

20.0

2.4

5.1

2.3

4.2

2023

Adverse

30.0

3.6

9.6

2.8

4.6

Baseline

50.0

2.3

5.5

2.4

4.1

Favourable

20.0

2.3

5.0

2.4

4.2

2024

Adverse

30.0

4.3

8.8

2.8

5.5

Baseline

50.0

2.3

5.4

2.4

4.2

Favourable

20.0

2.3

4.9

2.4

4.4

31 December 2018

Year

Scenario

Weight%

Real GDP(% change) 

Unemployment rate (% of labour force)

Consumer Price Index (average % change)

RICS House Price Index (average % change)

2019

Adverse

30.0

‑1.3

10.0

‑0.2

1.4

Baseline

50.0

3.1

7.6

1.7

4.4

Favourable

20.0

4.3

7.2

2.5

5.5

2020

Adverse

30.0

‑1.3

12.2

0.3

‑1.7

Baseline

50.0

2.6

7.3

1.7

2.7

Favourable

20.0

3.4

6.8

2.6

4.1

2021

Adverse

30.0

3.0

12.4

2.1

0.7

Baseline

50.0

2.4

6.9

2.0

2.9

Favourable

20.0

2.6

6.5

2.4

3.6

2022

Adverse

30.0

4.1

11.1

2.4

3.1

Baseline

50.0

2.5

6.5

2.0

3.1

Favourable

20.0

2.6

6.1

2.6

3.7

2023

Adverse

30.0

3.9

10.0

2.5

4.7

Baseline

50.0

2.3

6.3

2.1

3.8

Favourable

20.0

2.3

5.8

2.6

4.0

The adverse scenarios may outpace the base and favourable scenarios after the initial shock has been adjusted to and the economy starts to expand from a lower base. Thus in the adverse scenario GDP will follow a growth trajectory that will ultimately equal and surpass the baseline before converging. Property prices are primarily determined by GDP growth but with a lag. Thus property prices will initially adjust less steeply than GDP, and will start to accelerate after the recovery in GDP has been entrenched. After this point, property prices will accelerate and will match and surpass the pace in the baseline scenario, before finally converging.

Since 1 January 2018, the Group has reassessed the key economic indicators used in the ECL models and using actual performance ratios of the economy as revised by the Cyprus statistical service for 2016 and 2017 and the forecast upgrades by the International Monetary Fund (IMF) and the European Commission. 

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

For Stage 3 customers, the calculation of individually assessed provisions is the weighted average of three scenarios: base, adverse and favourable. The base scenario focuses on the following variables, which are based on the specific facts and circumstances of each customer: the operational cash flows, the timing of recovery of collaterals and the haircuts from the realisation of collateral. The base scenario is used to derive additional scenarios for either better or worse cases. Under the adverse scenario operational cash flows are decreased by 50%, applied haircuts on real estate collateral are increased by 50% and the timing of recovery of collaterals is increased by 1 year with reference to the baseline scenario, whereas under the favourable scenario applied haircuts are decreased by 5%, with no change in the recovery period with reference to the baseline scenario. Assumptions used in estimating expected future cash flows (including cash flows that may result from the realisation of collateral) reflect current and expected future economic conditions and are generally consistent with those used in the Stage 3 collectively assessed exposures.

For collectively assessed customers the calculation is the weighted average of three scenarios: base, adverse and favourable.

Expected lifetime of revolving facilities

Judgement is exercised on the measurement period of expected lifetime for revolving facilities. The determination of the expected life for the revolving portfolio is sensitive to changes in contractual maturities resulting from business decisions. The Group exercises judgement in determining the period over which ECL should be computed.

Assessment of loss given default 

A factor for the estimation of loss given default (LGD) is the timing and net recoverable amount from repossession or realisation of collaterals which mainly comprise real estate assets.

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

At 30 June 2019 the weighted average haircut (including liquidity haircut and selling expenses) used in the collectively assessed provisions calculation for loans and advances to customers excluding those classified as held for sale is c.32% under the baseline scenario (31 December 2018: c.32%).

The timing of recovery from real estate collaterals used in the collectively assessed provisions calculation for loans and advances to customers has been estimated to be on average seven years under the baseline scenario (31 December 2018: seven years).

For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the haircuts used are based on the specific facts and circumstances of each case. Judgement may also be exercised over staging during the individual assessment.

Any positive cumulative average future change in property values forecasted was capped to zero for the six months ended 30 June 2019 and the year ended 31 December 2018. This applies to all scenarios. 

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

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

Modelling adjustments

Forward looking models have been developed for ECL parameters (PD), Exposure at default (EAD), Loss Given Default (LGD) for all portfolios and segments sharing similar characteristics. Model validation is performed by the independent validation unit within the Risk Management Division on an annual basis and involves several statistical tests that assess the stability and performance of the models. In certain cases, judgment may be exercised in the form of management overlay by applying adjustments on the modelled parameters. Governance of these models lies with the Risk Management Division. Any management overlays are approved by the Risk Management Division and endorsed by the Provisions Committee. 

ECL allowances also include off‑balance sheet credit exposures represented by guarantees given and by irrevocable commitments to disburse funds. Off‑balance sheet credit exposures of the individually assessed assets require assumptions on the probability, timing and amount of cash outflows. For the collectively assessed off‑balance sheet credit exposures, the allowance for provisions is calculated using the Credit Conversion Factor (CCF) model.

Portfolio segmentation

The individual assessment is performed not only for individually significant assets but also for other exposures meeting specific criteria determined by management. The selection criteria for the individually assessed exposures are based on management judgement and are reviewed on a quarterly basis by the Risk Management Division and are adjusted or enhanced, if deemed necessary. 

In addition to individually assessed assets the Group also assesses assets collectively. The collectively assessed portfolio includes all loans which are not individually assessed. The Group categorises the exposures into sufficiently granular portfolios segments with shared risk characteristics. The granularity for the IFRS 9 segments is aligned with the Internal Rating Based (IRB) segmentation. Further details on impairment allowances and related credit information are set out in Note 29.

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

Deferred tax assets

In the absence of a specific accounting standard dedicated to the accounting of the asset that arose upon the reversal of deferred tax asset impairment recognised in previous years (Note 11), BOC PCL has exercised judgment 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 has determined that this asset should be accounted for on the basis of IAS 12 principles relating to deferred tax assets.

For changes during the six months ended 30 June 2019 relating to the deferred tax credit legislation refer to Note 11.

Stock of property is measured at the lower of cost and net realisable value. The net realisable value is determined through valuation techniques, requiring significant judgement, which take into account all available reference points such as, expert valuation reports, current market conditions, the holding period of the asset applying an appropriate illiquidity discount and any other relevant parameters. Selling expenses are always considered and deducted from the realisable value. Depending on the value of the underlying asset and available market information, the determination of costs to sell may require professional judgement which involves a large degree of uncertainty due to the relatively low level of market activity.

More details on the stock of property are presented in Note 17.

The accounting policy for provisions is described in Note 2.39 of the Annual Consolidated Financial Statements for the year ended 31 December 2018. Judgement is involved in determining whether a present obligation exists and in estimating the probability, timing and amount of any outflows. Provisions for pending litigations, claims, regulatory and other matters usually require a higher degree of judgement than other types of provisions. It is expected that the Group will continue to have a material exposure to litigation and regulatory proceedings and investigations relating to legacy issues in the medium term. The matters for which the Group determines that the probability of a future loss is more than remote will change from time to time, as will the matters as to which a reliable estimate can be made and the estimated possible loss for such matters. Actual results may prove to be significantly higher or lower than the estimate of possible loss in those matters, where an estimate was made. In addition, loss may be incurred in matters with respect to which the Group believed the probability of loss was remote. 

For a detailed description of the nature of uncertainties and assumptions and the effect on the amount and timing of pending litigation, claims, regulatory and other matters refer to Note 25.

Following the sale in 2018 of its 100% subsidiaries, Bank of Cyprus UK Limited and Bank of Cyprus Financial Services Ltd, the Group's activities are mainly concentrated in Cyprus. Cyprus operations are organised into operating segments based on the line of business. The operating segments are analysed below:

The Corporate, Small and medium‑sized enterprises and Retail business lines are managing loans and advances to customers as detailed in 'Credit risk concentration of loans and advances to customers' (Note 29).

Restructuring and recoveries is the specialised unit which was set up to tackle the Group's loan portfolio quality and manages exposures to borrowers in distress situation through innovative solutions.

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

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

The Real Estate Management Unit manages properties acquired through debt‑for‑property swaps and properties acquired through the acquisition of certain operations of Laiki Bank in 2013, and executes exit strategies in order to monetise these assets. 

Treasury is responsible for liquidity management and for overseeing operations to ensure compliance with internal and regulatory liquidity policies and provide direction as to the actions to be taken regarding liquidity availability.

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

The business line 'Other' includes head office functions such as finance, risk management, compliance, legal, corporate affairs and human resources. Head office functions provide services to the operating segments. 

Overseas activities include Greece, Romania and Russia which are separate operating segments for which information is provided to management but, due to their size, have been grouped for disclosure purposes into one segment, namely 'Overseas'.

Comparatives are represented for discontinued operations, regarding the results of the UK operations, disposed of during 2018.

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

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

Income and expenses directly associated with each business line are included in determining the line's performance. Transfer pricing methodologies are applied between the business lines to present their results on an arm's length basis. Total other operating income, staff costs and other operating expenses incurred directly by the business lines are allocated to the business lines as incurred. Indirect other operating income and indirect other operating expenses are re‑allocated from the head office function to the business lines. Management monitors the profit/(loss) before tax of each business line. Additionally, for the purposes of the Cyprus analysis by business line, notional tax at the 12.5% Cyprus tax rate is charged/credited on profit or loss before tax of each business line.

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

Corporate

Small and medium‑sized enterprises

Retail

Restructuring and recoveries

International banking services

Wealth management

REMU

Insurance

Treasury

Other

TotalCyprus

Overseas

Total

Six months ended 30 June 2019

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

Net interest income/(expense)

60,029

20,327

80,099

32,218

17,962

3,643

(7,403)

29

(941)

2,015

207,978

(3,869)

204,109

Net fee and commission income/(expense)

8,591

4,676

21,583

11,241

26,050

1,024

- 

(3,106)

1,063

3,283

74,405

107

74,512

Net foreign exchange gains/(losses)

425

328

1,308

96

3,660

1,630

- 

- 

9,451

(1,751)

15,147

(1,030)

14,117

Net gains/(losses) on financial instrument transactions and on disposal/dissolution of subsidiaries and associates

- 

-

- 

- 

- 

12

- 

1,070

4,930

6,009

12,021

134

12,155

Insurance income net of claims and commissions

- 

-

- 

- 

- 

- 

- 

28,824

- 

- 

28,824

1,212

30,036

Net gains/(losses) from revaluation and disposal of investment properties

- 

-

- 

- 

- 

- 

630

- 

- 

(748)

(118)

(1,231)

(1,349)

Net gains on disposal of stock of property

- 

-

- 

- 

- 

- 

17,497

- 

- 

59

17,556

191

17,747

Total other income/(expense)

4

6

47

23

1

1

1,128

9

- 

13,349

14,568

1,111

15,679

69,049

25,337

103,037

43,578

47,673

6,310

11,852

26,826

14,503

22,216

370,381

(3,375)

367,006

Staff costs

(4,395)

(2,854)

(37,848)

(12,677)

(8,184)

(2,078)

(1,331)

(5,087)

(844)

(38,539)

(113,837)

(407)

(114,244)

Other operating (expenses)/income (excluding advisory and other restructuring costs)

(12,492)

(8,603)

(49,532)

(18,457)

(12,350)

(2,117)

(2,636)

(4,576)

(3,906)

24,624

(90,045)

(3,879)

(93,924)

Special levy on deposits on credit institutions and contribution to Single Resolution Fund

- 

-

- 

- 

- 

- 

- 

- 

- 

(12,477)

(12,477)

- 

(12,477)

Other operating expenses ‑ advisory and other restructuring costs

(187)

(108)

(781)

(15,442)

(207)

(42)

(2,237)

- 

(39)

- 

(19,043)

- 

(19,043)

51,975

13,772

14,876

(2,998)

26,932

2,073

5,648

17,163

9,714

(4,176)

134,979

(7,661)

127,318

Net gains/(losses) on derecognition of financial assets measured at amortised cost

3,933

162

171

(844)

294

18

- 

- 

- 

1,682

5,416

13

5,429

Credit gains/(losses) to cover credit risk on loans and advances to customers

3,306

5,395

(15,607)

(103,965)

332

397

- 

- 

- 

632

(109,510)

599

(108,911)

Credit (losses)/gains of other financial instruments

- 

-

- 

- 

- 

- 

- 

(86)

797

(15)

696

(8,063)

(7,367)

Impairment of non‑financial instruments

- 

-

- 

- 

- 

- 

(9,942)

- 

- 

- 

(9,942)

(1,643)

(11,585)

Remeasurement of investment in associate classified as held for sale

- 

-

- 

- 

- 

- 

- 

- 

- 

(25,943)

(25,943)

- 

(25,943)

Share of profit from associates

- 

-

- 

- 

- 

- 

- 

- 

- 

5,312

5,312

- 

5,312

Profit/(loss) before tax

59,214

19,329

(560)

(107,807)

27,558

2,488

(4,294)

17,077

10,511

(22,508)

1,008

(16,755)

(15,747)

Income tax

- 

-

- 

- 

- 

- 

- 

(1,853)

- 

117,199

115,346

(202)

115,144

Profit/(loss) after tax

59,214

19,329

(560)

(107,807)

27,558

2,488

(4,294)

15,224

10,511

94,691

116,354

(16,957)

99,397

Non‑controlling interests‑profit

- 

-

- 

- 

- 

- 

- 

- 

- 

(1,999)

(1,999)

- 

(1,999)

Profit/(loss) after tax attributable to the owners of the Company

59,214

19,329

(560)

(107,807)

27,558

2,488

(4,294)

15,224

10,511

92,692

114,355

(16,957)

97,398

Corporate

Small and medium‑sized enterprises

Retail

Restructuring and recoveries

International banking services

Wealth management

REMU

Insurance

Treasury

Other

TotalCyprus

Overseas

Total continuing operations

Six months ended 30 June 2018 (represented)

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

€000

Net interest income/(expense)

48,675

19,770

92,489

31,311

26,585

3,856

(7,994)

92

6,964

(4,739)

217,009

(4,925)

212,084

Net fee and commission income/(expense)

7,864

5,047

22,896

4,791

31,795

1,153

- 

(2,853)

956

8,559

80,208

128

80,336

Net foreign exchange gains

388

317

1,891

149

3,743

1,543

- 

- 

8,710

716

17,457

582

18,039

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

- 

-

- 

- 

- 

65

- 

60

22,211

15,017

37,353

25

37,378

Insurance income net of claims and commissions

- 

-

- 

- 

- 

- 

- 

23,971

- 

- 

23,971

1,123

25,094

Net gains/(losses) from revaluation and disposal of investment properties

- 

-

- 

- 

- 

- 

743

- 

- 

1,405

2,148

(983)

1,165

Net gains/(losses) on disposal of stock of property

- 

-

- 

- 

- 

- 

24,040

- 

- 

(3,833)

20,207

59

20,266

Other income/(expenses)

269

6

50

13,677

3

- 

- 

226

- 

(4,245)

9,986

1,290

11,276

57,196

25,140

117,326

49,928

62,126

6,617

16,789

21,496

38,841

12,880

408,339

(2,701)

405,638

Staff costs

(3,860)

(2,778)

(33,993)

(11,543)

(7,071)

(1,811)

(978)

(4,725)

(1,000)

(36,303)

(104,062)

(608)

(104,670)

Special levy on deposits on credit institutions and contribution to Single Resolution Fund

- 

-

- 

- 

- 

- 

- 

- 

- 

(12,073)

(12,073)

- 

(12,073)

Other operating (expenses)/income (excluding advisory and other restructuring costs)

(9,979)

(6,757)

(55,727)

(19,037)

(15,119)

(1,991)

(2,821)

(3,895)

(4,273)

49,156

(70,443)

(4,519)

(74,962)

Other operating expenses ‑ advisory and other restructuring costs

(17)

(3)

(40)

(21,331)

(8)

(6)

(2,641)

- 

- 

(3,169)

(27,215)

(115)

(27,330)

43,340

15,602

27,566

(1,983)

39,928

2,809

10,349

12,876

33,568

10,491

194,546

(7,943)

186,603

Net gains on derecognition of financial assets measured at amortised cost

5,377

1,289

6,804

5,052

796

25

- 

- 

- 

- 

19,343

38

19,381

Credit (losses)/gains to cover credit risk on loans and advances to customers

(18,062)

(10,112)

(21,128)

(205,972)

(7,173)

(3,334)

- 

- 

- 

(1,476)

(267,257)

14,304

(252,953)

Credit (losses)/gains of other financial instruments

- 

-

- 

- 

- 

- 

- 

- 

(670)

(2,664)

(3,334)

3

(3,331)

Impairment of non‑financial instruments

- 

-

- 

- 

- 

- 

(7,898)

- 

- 

(11)

(7,909)

(2,208)

(10,117)

Share of profit from associates

- 

-

- 

- 

- 

- 

- 

- 

- 

4,520

4,520

- 

4,520

Profit/(loss) before tax

30,655

6,779

13,242

(202,903)

33,551

(500)

2,451

12,876

32,898

10,860

(60,091)

4,194

(55,897)

Income tax

(3,832)

(847)

(1,655)

19,738

(4,194)

63

(306)

(1,390)

(4,028)

(7,046)

(3,497)

(393)

(3,890)

Profit/(loss) after tax

26,823

5,932

11,587

(183,165)

29,357

(437)

2,145

11,486

28,870

3,814

(63,588)

3,801

(59,787)

Non‑controlling interests‑loss

- 

-

- 

- 

- 

- 

- 

- 

- 

1,729

1,729

- 

1,729

Profit/(loss) after tax attributable to the owners of the Company

26,823

5,932

11,587

(183,165)

29,357

(437)

2,145

11,486

28,870

5,543

(61,859)

3,801

(58,058)

Six months ended30 June2018

€000

Net interest income

22,397

Net fee and commission income

3,077

Net foreign exchange gains

163

25,637

Staff costs

(11,714)

Other operating expenses

(9,136)

4,787

Credit gains to cover credit risk on loans and advances to customers

147

Profit before tax

4,934

Income tax

(924)

Profit after tax

4,010

The above information on discontinued operations relates to the disposal of the Group's subsidiary bank in the UK, Bank of Cyprus UK Limited and its subsidiary Bank of Cyprus Financial Services Limited, details of which are disclosed in Note 53.2.1 in the Group's Consolidated Financial Statements for the year ended 31 December 2018.

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

Corporate

Small and medium‑sized enterprises

Retail

Restructuring and recoveries

International banking services

Wealth management

REMU

Insurance

Treasury

Other

Total Cyprus

Overseas

Total

Six months ended 30 June 2019