Last checked at 28 Aug 2020 10:51
Interim Financial Report 2020- Part 2
Bank of Cyprus Holdings
Additional Risk and Capital Management Disclosures, including Pillar III semi-annual disclosures 30 June 2020
BANK OF CYPRUS HOLDINGS GROUP
Additional Risk and Capital Management Disclosures, including Pillar III semi-annual disclosures
This report includes additional risk and capital management disclosures.
In addition, this report includes information prepared in accordance with the Capital Requirements Regulation (CRR) and amended Capital Requirements Directive IV (CRD IV). The disclosures have been prepared in accordance with the European Banking Authority (EBA) Guidelines on materiality, proprietary and confidentiality and on disclosure frequency under Articles 432(1), 432(2) and 433 of Regulation (EU) No
575/2013 (EBA/2014/14) and EBA Guidelines on disclosure requirements under Part Eight of Regulation (EU) No 575/2013.
1. Credit risk
According to the European Banking Authority's (EBA) standards and European Central Bank's (ECB) Guidance to Banks on Non-Performing loans (which was published in March 2017), Non-Performing Exposures (NPEs) are defined as those exposures that satisfy one of the following conditions:
(i) The borrower is assessed as unlikely to pay its credit obligations in full without the realisation of the
collateral, regardless of the existence of any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the Capital Requirement Regulation (CRR), which would also trigger a default under specific credit adjustment, distress restructuring and obligor bankruptcy.
(iii) Material exposures as set by the Central Bank of Cyprus (CBC), which are more than 90 days past due.
(iv) Performing forborne exposures under probation for which additional forbearance measures are
extended.
(v) Performing forborne exposures under probation that present more than 30 days past due within the probation period.
Exposures include all on and off balance sheet exposures, except those held for trading, and are categorised as such for their entire amount without taking into account the existence of collateral.
The following materiality criteria are applied:
· When the problematic exposures of a customer that fulfil the NPE criteria set out above are greater than
20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total customer exposure is classified as non-performing; otherwise only the problematic part of the exposure is classified as non-performing.
· Material arrears/excesses are defined as follows:
- Retail exposures: Total arrears/excesses amount greater than €100
- Exposures other than retail: Total arrears/excesses are greater than €500
and the amount in arrears/excess in relation to the customer's total exposure is at least 1%.
NPEs may cease to be considered as non-performing only when all of the following conditions are met: (i) The extension of forbearance measures does not lead to the recognition of impairment or default. (ii) One year has passed since the forbearance measures were extended.
(iii) Following the forbearance measures and according to the post-forbearance conditions, there is no past due amount or concerns regarding the full repayment of the exposure.
(iv) No unlikely-to-pay criteria exist for the debtor.
(v) The debtor has made post-forbearance payments of a non-insignificant amount of capital (different capital thresholds exist according to the facility type).
1. Credit risk (continued)
The tables below present the analysis of loans and advances to customers in accordance with the EBA standards.
30 June 2020 | Gross loans and advances to customers | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions | ||||||||||||||||
Group gross customer loans and advances1 |
Of which NPEs | Of which exposures with forbearance measures | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Of which NPEs | Of which exposures with forbearance measures | |||||||||||||
Total exposures with forbearance measures |
Of which NPEs |
Total exposures with forbearance measures |
Of which NPEs | |||||||||||||||
€000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | |||||||||||
Loans and advances to customers | ||||||||||||||||||
General governments | 57,666 | - | - | - | 3,264 | - | - | - | ||||||||||
Other financial corporations | 125,499 | 14,715 | 15,561 | 2,024 | 16,104 | 10,286 | 1,792 | 561 | ||||||||||
Non-financial corporations | 5,783,714 | 939,658 | 736,143 | 478,043 | 560,530 | 478,647 | 224,472 | 211,492 | ||||||||||
Of which: Small and Medium sized Enterprises2 | 4,277,687 | 665,190 | 670,033 | 439,960 | 457,315 | 387,628 | 208,882 | 197,313 | ||||||||||
Of which: Commercial real estate2 | 4,251,558 | 560,506 | 631,856 | 398,940 | 322,742 | 257,944 | 174,542 | 163,957 | ||||||||||
Non-financial corporations by sector | ||||||||||||||||||
Construction | 695,368 | 133,195 | 82,941 | |||||||||||||||
Wholesale and retail trade | 1,189,355 | 295,597 | 157,439 | |||||||||||||||
Accommodation and food service activities | 1,091,016 | 32,662 | 43,506 | |||||||||||||||
Real estate activities | 1,207,715 | 216,577 | 110,868 | |||||||||||||||
Manufacturing | 409,078 | 78,885 | 53,049 | |||||||||||||||
Other sectors | 1,191,182 | 182,742 | 112,727 | |||||||||||||||
Households | 5,586,066 | 1,584,634 | 1,151,665 | 828,712 | 868,807 | 804,646 | 374,790 | 365,780 | ||||||||||
Of which: Residential mortgage loans2 | 4,329,204 | 1,244,717 | 930,655 | 671,049 | 632,012 | 578,427 | 281,006 | 273,855 | ||||||||||
Of which: Credit for consumption2 | 683,292 | 206,843 | 132,187 | 108,223 | 122,181 | 119,246 | 53,423 | 52,364 | ||||||||||
11,552,945 | 2,539,007 | 1,903,369 | 1,308,779 | 1,448,705 | 1,293,579 | 601,054 | 577,833 | |||||||||||
Loans and advances to customers classified as held for sale | 942,140 | 928,871 | 540,920 | 531,391 | 580,488 | 574,156 | 314,737 | 309,894 | ||||||||||
Total on-balance sheet | 12,495,085 | 3,467,878 | 2,444,289 | 1,840,170 | 2,029,193 | 1,867,735 | 915,791 | 887,727 | ||||||||||
(1) Excluding loans and advances to central banks and credit institutions.
(2) The analysis shown in lines 'non-financial corporations' and 'households' is non-additive across categories as certain customers could be in both categories.
1. Credit risk (continued)
31 December 2019 | Gross loans and advances to customers | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions | ||||||||||||||||
Group gross customer loans and advances3 |
Of which NPEs | Of which exposures with forbearance measures | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Of which NPEs | Of which exposures with forbearance measures | |||||||||||||
Total exposures with forbearance measures |
Of which NPEs |
Total exposures with forbearance measures |
Of which NPEs | |||||||||||||||
€000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | |||||||||||
Loans and advances to customers | ||||||||||||||||||
General governments | 56,921 | 1 | - | - | 3,389 | - | - | - | ||||||||||
Other financial corporations | 124,343 | 27,459 | 18,489 | 2,366 | 17,542 | 14,843 | 1,466 | 462 | ||||||||||
Non-financial corporations | 6,271,155 | 1,382,074 | 1,216,902 | 737,602 | 753,848 | 686,025 | 348,577 | 337,290 | ||||||||||
Of which: Small and Medium sized Enterprises4 | 4,662,994 | 1,073,846 | 786,069 | 556,483 | 636,820 | 576,635 | 271,110 | 261,229 | ||||||||||
Of which: Commercial real estate4 | 4,270,225 | 858,998 | 767,008 | 480,382 | 457,622 | 402,751 | 219,952 | 211,902 | ||||||||||
Non-financial corporations by sector | ||||||||||||||||||
Construction | 823,276 | 265,879 | 144,336 | |||||||||||||||
Wholesale and retail trade | 1,294,815 | 371,613 | 185,720 | |||||||||||||||
Accommodation and food service activities | 1,055,448 | 50,116 | 44,823 | |||||||||||||||
Real estate activities | 1,266,772 | 296,406 | 153,802 | |||||||||||||||
Professional, scientific and technical activities | 425,134 | 90,832 | 53,916 | |||||||||||||||
Other sectors | 1,405,710 | 307,228 | 171,251 | |||||||||||||||
Households | 6,192,505 | 2,285,998 | 1,577,249 | 1,245,937 | 1,148,304 | 1,080,696 | 526,423 | 513,772 | ||||||||||
Of which: Residential mortgage loans4 | 4,808,202 | 1,811,698 | 1,291,083 | 1,021,084 | 842,389 | 783,146 | 401,561 | 392,046 | ||||||||||
Of which: Credit for consumption4 | 770,552 | 280,584 | 177,047 | 151,313 | 158,044 | 156,642 | 71,357 | 70,065 | ||||||||||
12,644,924 | 3,695,532 | 2,812,640 | 1,985,905 | 1,923,083 | 1,781,564 | 876,466 | 851,524 | |||||||||||
Loans and advances to customers classified as held for sale | 184,964 | 183,974 | 45,191 | 45,028 | 159,035 | 158,998 | 37,438 | 37,429 | ||||||||||
Total on-balance sheet | 12,829,888 | 3,879,506 | 2,857,831 | 2,030,933 | 2,082,118 | 1,940,562 | 913,904 | 888,953 | ||||||||||
(3) Excluding loans and advances to central banks and credit institutions.
(4) The analysis shown in lines 'non-financial corporations' and 'households' is non-additive across categories as certain customers could be in both categories.
2. Liquidity risk and funding
2.1 Encumbered and unencumbered assets
Asset encumbrance arises from collateral pledged against secured funding and other collateralised obligations.
An asset is classified as encumbered if it has been pledged as collateral against secured funding and other collateralised obligations and, as a result, is no longer available to the Bank of Cyprus Holdings Group (the Group) for further collateral or liquidity requirements. The total encumbered assets of the Group amounted to
€2,977,408 thousand as at 30 June 2020 (31 December 2019: €2,850,429 thousand).
An asset is classified as unencumbered if it has not been pledged as collateral against secured funding and other collateralised obligations. Unencumbered assets are further analysed into those that are available and can be potentially pledged and those that are not readily available to be pledged. As at 30 June 2020, the Group held €14,421,947 thousand (31 December 2019: €14,408,148 thousand) of unencumbered assets that can be potentially pledged and can be used to support potential liquidity funding needs and €2,687,145 thousand (31 December 2019: €2,525,161 thousand) of unencumbered assets that are not readily available to be pledged for funding requirements in their current form.
Loans and advances to customers indicated as encumbered as at 30 June 2020 and 31 December 2019 are mainly used as collateral for funding from the ECB and the covered bond.
Loans and advances to customers include mortgage loans of a nominal amount €1,003 million as at 30 June
2020 (31 December 2019: €1,000 million) in Cyprus, pledged as collateral for the covered bond issued by Bank of Cyprus Public Company Ltd (BOC PCL) in 2011 under its Covered Bond Programme. Furthermore, as at 30 June 2020 housing loans of a nominal amount €1,662 million (31 December 2019: €1,498 million) in
Cyprus are pledged as collateral for funding from the ECB (Note 31 of the Consolidated Condensed Interim
Financial Statements for the six months ended 30 June 2020).
The table below presents an analysis of the Group's encumbered and unencumbered assets and the extent to which these assets are currently pledged for funding or other purposes. The carrying amount of such assets is disclosed below:
30 June 2020 | Encumbered | Unencumbered |
Total | |
Pledged as collateral |
Which can potentially be pledged | Which are not readily available to be pledged | ||
€000 | €000 | €000 | €000 | |
Cash and bank placements | 102,778 | 5,046,637 | 748,943 | 5,898,358 |
Investments | 177,517 | 1,780,710 | 40,703 | 1,998,930 |
Loans and advances to customers | 2,697,113 | 6,159,981 | 1,247,146 | 10,104,240 |
Non-current assets and disposal groups held for sale |
- |
- |
372,591 |
372,591 |
Property | - | 1,683,089 | 29,292 | 1,712,381 |
Total on-balance sheet | 2,977,408 | 14,670,417 | 2,438,675 | 20,086,500 |
31 December 2019 | ||||
Cash and bank placements | 90,437 | 4,774,845 | 515,641 | 5,380,923 |
Investments | 222,961 | 1,633,571 | 49,298 | 1,905,830 |
Loans and advances to customers | 2,537,031 | 6,271,879 | 1,912,931 | 10,721,841 |
Non-current assets and disposal groups held for sale |
- |
- |
26,217 |
26,217 |
Property | - | 1,727,853 | 21,074 | 1,748,927 |
Total on-balance sheet | 2,850,429 | 14,408,148 | 2,525,161 | 19,783,738 |
2. Liquidity risk and funding (continued)
2.1 Encumbered and unencumbered assets (continued)
Encumbered assets primarily consist of loans and advances to customers and investments in debt securities. These are mainly pledged for the funding facilities of the Central Banks (ECB and CBC) (Note 20 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2020) and for the covered bond. Investments are mainly used as collateral for repurchase transactions with commercial banks as well as supplementary assets for the covered bond (Note 31 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2020). Encumbered assets include cash and other liquid assets placed with banks as collateral under ISDA/GMRA agreements which are not immediately available for use by the Group but are released once the transactions are terminated. Cash is mainly used to cover collateral required for (i) derivatives and repurchase transactions and (ii) trade finance transactions and guarantees issued. It is also used as part of the supplementary assets for the covered bond.
BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the
Covered Bonds Directive of CBC. Under the Covered Bond Programme, BOC PCL has in issue covered bonds of
€650 million secured by residential mortgages originated in Cyprus. On 6 June 2018, the terms of the covered bond have been amended to extend the maturity date to 12 December 2021 and set the interest rate to 3
months Euribor plus 2.50% on a quarterly basis. The covered bonds are traded on the Luxemburg Bourse. The covered bonds have a conditional Pass-Through structure. All the bonds are held by BOC PCL. The covered bonds are eligible collateral for the Eurosystem credit operations and are placed as collateral for accessing funding from the ECB.
Unencumbered assets which can potentially be pledged include Cyprus loans and advances which are less than 90 days past due. Balances with central banks are reported as unencumbered and can be pledged, to the extent that there is excess available over the minimum reserve requirement. The minimum reserve requirement is reported as unencumbered not readily available to be pledged.
Unencumbered assets that are not readily available to be pledged primarily consist of loans and advances which are prohibited by contract or law to be encumbered or which are over 90 days past due or for which there are pending litigations or other legal actions against the customer, a proportion of which would be suitable for use in secured funding structures but are conservatively classified as not readily available for collateral. Properties whose legal title has not been transferred in the name of the Company or a subsidiary are not considered to be readily available as collateral.
Insurance assets held by Group insurance subsidiaries are not included in the table above or below as they are primarily due to the insurance policyholders.
The carrying and fair value of the encumbered and unencumbered investments of the Group as at 30 June
2020 and 31 December 2019 are as follows:
30 June 2020 | Carrying value of encumbered investments |
Fair value of encumbered investments |
Carrying value of unencumbered investments |
Fair value of unencumbered investments |
€000 | €000 | €000 | €000 | |
Equity securities | - | - | 194,640 | 194,640 |
Debt securities | 177,517 | 178,030 | 1,626,773 | 1,641,304 |
Total investments | 177,517 | 178,030 | 1,821,413 | 1,835,944 |
31 December 2019 | ||||
Equity securities | - | - | 167,823 | 167,823 |
Debt securities | 222,961 | 223,362 | 1,515,046 | 1,531,336 |
Total investments | 222,961 | 223,362 | 1,682,869 | 1,699,159 |
2. Liquidity risk and funding (continued)
2.2 Liquidity regulation
The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR) under CRD IV/CRR (as supplemented by relevant Regulations). It also monitors its position against the Net Stable Funding Ratio (NSFR) as proposed under Basel III and expected to become a regulatory indicator when Capital Requirements Regulation ΙΙ (CRR II) is enforced with the limit set at 100%.
The LCR is designed to promote short-term resilience of a Group's liquidity risk profile by ensuring that it has sufficient high quality liquid resources to survive an acute stress scenario lasting for 30 days. The NSFR has been developed to promote a sustainable maturity structure of assets and liabilities.
As at 30 June 2020 the Group was in compliance with all regulatory liquidity requirements. As at 30 June
2020, the LCR stood at 257% for the Group (compared to 208% at 31 December 2019) and was in compliance with the minimum regulatory requirement of 100%. As at 30 June 2020 the Group's NSFR, on the basis of the Basel ΙΙΙ standards, was 134% (compared to 127% at 31 December 2019).
2.3 Liquidity reserves
The below table sets out the Group's liquidity reserves:
Composition of the liquidity reserves | 30 June 2020 | 31 December 2019 | ||||
Internal Liquidity reserves | Liquidity reserves as per LCR Delegated Reg (EU) 2015/61 LCR eligible |
Internal Liquidity reserves |
Liquidity reserves as per LCR Delegated Reg (EU) 2015/61 LCR eligible | |||
Level 1 | Level 2A | Level 1 | Level 2A | |||
€000 | €000 | €000 | €000 | €000 | €000 | |
Cash and balances with central banks |
5,118,949 |
5,118,949 |
- |
4,898,360 |
4,898,361 |
- |
Placements with banks | 424,972 | - | - | 147,086 | - | - |
Liquid investments | 1,356,668 | 1,226,586 | 115,009 | 1,214,197 | 1,115,196 | 124,763 |
Available ECB Buffer | 656,944 | - | - | 1,116,249 | - | - |
Total | 7,557,533 | 6,345,535 | 115,009 | 7,375,892 | 6,013,557 | 124,763 |
2. Liquidity risk and funding (continued)
2.3 Liquidity reserves (continued)
Internal Liquidity Reserves present the total liquid assets as defined in BOC PCL's Liquidity Policy. Liquidity reserves as per LCR Delegated Regulation (EU) 2015/61 present the liquid assets as per the definition of the aforementioned regulation i.e. High Quality Liquid Assets (HQLA).
Under Liquidity reserves as per LCR, Nostro and placements with banks are not included, as they are not considered HQLA (they are part of the LCR Inflows).
Liquid investments under the Liquidity reserves as per LCR are shown at market values reduced by standard weights as prescribed by the LCR regulation. Liquid investments under Internal Liquidity reserves include all LCR and/or ECB eligible investments and are shown at market values net of haircut based on ECB haircuts and methodology.
Finally, available ECB buffer is not part of the Liquidity reserves as per LCR, since the assets in the ECB
collateral pool are not LCR eligible but only eligible as collateral for Eurosystem credit operations.
The Liquidity Reserves are managed by Treasury.
Resulting from the outbreak of COVID-19, the ECB has adopted a broad set of policy measures to mitigate the economic impact of the crisis and to ensure that its directly supervised banks can continue to fulfil their role in funding the real economy. A high-level description of the main measures which have a direct or indirect impact on the liquidity position of banks is described below.
The ECB announced that it will allow banks to operate temporarily below the defined level of 100% of the LCR. In July 2020, ECB announced that it will allow banks to operate below 100% of the LCR until at least end-
2021.
In addition, the package included a set of collateral easing measures, which resulted in increasing the banks' borrowing capacity at the ECB operations and improving the liquidity buffers due to the lower haircuts applied to the ECB eligible collaterals the bank holds, that comprises of bonds and Additional Credit Claims (ACC). The collateral easing packages are designed as temporary measures (with the exception of part of the haircut reduction on ACCs which is permanent) that will remain in place until September 2021 with the flexibility to be extended or modified. Furthermore, the ECB enlarged the scope of the ACC framework, increasing the universe of eligible loans. In relation to existing collateral, the ECB announced changes in collateral rules, temporarily accepting collaterals with a rating below investment grade, up to a certain rating level.
Additionally, the package contained measures to provide liquidity support to the euro area financial system, such as a series of LTROs which ran from March to June 2020 so participants could shift their outstanding LTRO amounts to TLTRO III, as well as significant favourable amendments in the terms and characteristics of TLTRO III. Furthermore, a new series of additional longer-term refinancing operations, called Pandemic Emergency Longer-Term Refinancing Operations (PELTROs), were introduced with an interest rate of 25 basis points below the average rate applied in the Eurosystem's main refinancing operations (currently 0%) over the life of the respective PELTROs that are maturing in the third quarter of 2021.
3. Minimum Required Own Funds for Credit, Market and Operational Risk
Group's approach to assessing the adequacy of its internal capital
The Group assesses its capital requirements taking into consideration its regulatory requirements, risk profile and risk appetite set by the BoD. A three year plan (Plan) is annually prepared revising the financial forecasts and capital projections over a three year horizon in light of recent developments and it is approved by the BoD. The Plan takes into account the Group key strategic pillars and the Risk Appetite Framework (RAF). The Plan is rolled forward on a quarterly basis after taking into account the actual results of each quarter.
The Group capital projections are developed with the objective of maintaining capital that is adequate in quantity and quality to support the Group's risk profile, regulatory and business needs. These are frequently monitored against relevant internal target capital ratios to ensure they remain appropriate, and consider risks to the plan, including possible future regulatory changes.
The main strategic and business risks are monitored regularly by the ExCo, the ALCO and the RC. These committees receive regular reports of risk and performance indicators, from relevant managers and make decisions to ensure adherence to the Group's strategic objective, while remaining within the Group RAS.
The key pillars of the Group's strategy are to:
· Reduce the level of delinquent loans, arrest any asset quality deterioration and early manage arrears
resulting from the outbreak of COVID-19
· Achieve a lean operating model
· Maintain an appropriate capital position by internally generating capital
· Further optimise the funding structure
· Focus on the core Cyprus market
· Deliver value to shareholders and other stakeholders
Overviews of RWAs
The RWAs that form the denominator of the risk-based capital ratio are presented below. Minimum capital requirements are calculated as 8% of the RWAs. All rows that are not relevant to the Group's activities are not included.
As of 1 January 2018 the RWAs are reported on an IFRS 9 transitional basis under article 473(a) of the CRR. Until 31 March 2020 the provisions amounts of the individual exposures were decreased by an appropriate ratio hence creating higher individual exposures compared to the actual balance sheet values and as a result comparatively higher RWAs and capital requirements. As of 30 June 2020, and following the amendment of article 473(a) of the CRR through Regulation (EU) 2020/873, the Group has elected to apply the provision introduced by the amended regulation whereby the IFRS 9 CET1 add-back component is assigned 100% RWA and is added to the total exposures amount reported as part of the Credit Risk RWAs instead of being allocated to the individual exposures amount. The impact of this amendment did not have an effect on the total RWAs reported and capital requirements of the Group compared to the previous approach. The IFRS 9 transitional basis effect for the static component will be phased out by 1 January 2023, whereas the IFRS 9 transitional basis effect for the dynamic component will be phased out by 1 January 2025 following recent amendments in the CRR. Refer to section 5 for a description of amendments introduced.
3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)
EU OV1 Overview of RWAs
RWAs | Minimum capital requirements | |||
30 June 2020 | 31 December 2019 | 30 June 2020 | ||
€000 | €000 | €000 | ||
1 | Credit risk (excluding counterparty credit risk (CCR)) |
10,480,615 |
11,411,497 |
838,449 |
2 | Of which: Standardised Approach | 10,480,615 | 11,411,497 | 838,449 |
6 | CCR | 15,561 | 12,618 | 1,245 |
7 | Of which: mark to market | 12,189 | 9,568 | 975 |
12 | Of which: Credit Valuation Adjustment (CVA) |
3,372 |
3,050 |
270 |
14 | Securitisation exposures in the banking book (after the cap) |
42,162 |
45,638 |
3,373 |
18 | Of which: Standardised Approach | 42,162 | 45,638 | 3,373 |
23 | Operational risk | 1,342,700 | 1,342,700 | 107,416 |
25 | Of which: Standardised Approach | 1,342,700 | 1,342,700 | 107,416 |
27 | Amounts below the thresholds for deduction (subject to 250% risk weight) |
79,146 |
77,550 |
6,332 |
29 | Total | 11,960,184 | 12,890,003 | 956,815 |
The main drivers behind the decrease in RWAs arise from credit risk and they relate to (a) increased provisioning, settlements/repayments and curing in NPEs and regulatory high risk exposure classes in customer loans; (b) the implementation of the CRR II SME Discount Factor (SMEDF) from the CRR amendment introduced in June 2020 (refer to Section 5) which expanded the population of performing exposures that benefit from lower RWAs and also revised the discount factor applies to such exposures resulting in a reduction of RWAs of c380million; and (c) the reduction in balance sheet values of other assets. The increase in CCR RWAs derives from increased derivative exposures.
The main drivers behind the decrease in the RWAs for the different types of risk for the period are analysed in the tables below.
There were no large exposures for institutions that exceeded the relevant limits.
3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)
3.1 Credit Risk
The Standardised Approach has been applied to calculate the minimum capital requirement in accordance with the requirements laid down in Article 92 of the CRR as shown in the table below. Minimum capital requirements are calculated as 8% of the RWAs.
Further analysis on the RWA intensity is available in Section 8.12.
Exposure Portfolio | 30 June 2020 | 31 December 2019 |
€000 | €000 | |
Central governments or central banks | 27,913 | 30,607 |
Regional governments or local authorities | 51 | 43 |
Public sector entities | - | 1 |
Institutions | 16,799 | 15,081 |
Corporates | 234,539 | 268,319 |
Retail | 72,440 | 76,832 |
Secured by mortgages on immovable property | 98,394 | 94,432 |
Exposures in default | 136,958 | 164,290 |
Items associated with particular high risk | 99,204 | 112,388 |
Covered bonds | 1,392 | 1,307 |
Items representing securitisation positions | 3,373 | 3,651 |
Claims on institutions and corporates with a short-term credit assessment | 38 | - |
Collective Investments Undertakings (CIU) | 192 | 16 |
Equity | 8,402 | 6,422 |
Other items | 149,434 | 150,151 |
Total Capital Requirement for Credit Risk | 849,129 | 923,540 |
The application of the SMEDF is the main driver behind the decrease in exposure class "Corporates". The effect of increased provisioning, settlements/repayments and curing in NPEs and regulatory high risk exposure classes in customer loans is presented by the decrease in the higher risk exposure classes "Exposures in default" and "Items associated with particularly high risk". The decrease in "Central governments or central banks" is driven by a decrease in DTA balance sheet values. All other capital requirements movements follow movements in the book value of balance sheet assets.
3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)
3.2 Market risk
There were no minimum capital requirements for market risk for 2019 and 30 June 2020.
Due to the small trading book, Article 94 of the CRR was applied since 2019 allowing the RWA for trading book positions to be calculated in accordance with Article 92 paragraph 3(a) of the CRR, hence the RWAs and capital requirements are included in the Credit Risk tables. All trading book positions relate to equity and CIUs.
FX risk does not require any capital since the materiality threshold set by Article 351 of the CRR is not met.
3.3 Operational Risk
The minimum capital requirement for operational risk is calculated in accordance with Title III: Own funds requirements for operational risk of the CRR.
The Group uses the Standardised Approach for the operational risk capital calculation.
Under the Standardised Approach, net interest and non-interest income are classified into eight business lines, as set out in CRR. The capital requirement is calculated as a percentage of the average income over the past three years, ranging between 12% and 18% depending on the business line. If the capital requirement in respect of any year of income is negative, it is set to zero in the average calculation.
As at 30 June 2020, the minimum capital requirement in relation to operational risk, calculated in accordance with the Standardised Approach remained the same as 31 December 2019, at €107,416 thousand.
30 June 2020/31 December 2019 | Standardised approach |
€000 | |
Corporate Finance (CF) | 98 |
Trading and Sales (TS) | 7,488 |
Retail Brokerage (RBr) | 109 |
Commercial Banking (CB) | 63,258 |
Retail Banking (RB) | 23,736 |
Payment and Settlement (PS) | 12,324 |
Agency Services (AS) | 357 |
Asset Management (AM) | 46 |
Total Capital Requirement for Operational Risk | 107,416 |
3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)
3.4 Credit Valuation Adjustment (CVA) Risk
CVA captures the credit risk of derivative counterparties not already included in Counterparty Credit Risk. It calculates the potential loss on derivatives due to increase in the credit spread of the counterparty.
The Standardised Approach has been used to calculate the CVA charge for regulatory purposes in accordance with the requirements of the CRR (Standardised Approach: Articles 381, 382 and 384).
30 June 2020 €000 | 31 December 2019 €000 | |
CVA (Capital Requirement) | 270 | 244 |
The increase in the capital requirements relates to an increase in derivative exposure values.
3.5 EU INS1 Non-deducted participations in insurance undertakings
Carrying amount | ||
30 June 2020 | 31 December 2019 | |
€000 | €000 | |
Holdings of own funds instruments of a financial sector entity where the institution has a significant investment not deducted from own funds (before risk-weighting) |
22,803 |
24,994 |
Total RWAs | 57,008 | 62,485 |
4. Other risks
4.1 Operational risk
Operational risk is defined as the risk of a direct or indirect impact loss resulting from inadequate or failed internal processes, people and systems or external events. The Group includes in this definition compliance, legal and reputational risk.
The Group recognises that the control of operational risk is directly related to effective and efficient management practices and high standards of corporate governance. To that effect, the management of operational risk is geared towards maintaining a strong internal control governance framework and managing operational risk exposures through a consistent set of management processes that drive risk identification, assessment, control and monitoring.
The main objectives of operational risk management within the Group are: (i) the development of operational risk awareness and culture, (ii) the provision of adequate and timely information to the Group's management at all levels in relation to the operational risk profile at a company, unit and activity level, so as to facilitate decision making for risk control activities, and (iii) the control of operational risk to ensure that operational losses do not cause material damage to the Group's franchise and that the impact on the Group's profitability and corporate objectives is contained.
Operational risks can arise from all business lines and from all activities carried out by the Group and are thus diverse in nature. To enable effective management of all material operational risks, the operational risk management framework adopted by the Group is based on the three lines of defence model, through which risk ownership is dispersed throughout the organisation. The first line of defence comprises of management and staff who have immediate responsibility of day-to-day operational risk management and own the risk. Each business unit owner is responsible for identifying and managing all the risks that arise from the unit's activities as an integral part of their first line responsibilities.
4. Other risks (continued)
4.1 Operational risk (continued)
The second line of defence comprises of the risk management function whose role is to provide operational risk oversight and independent and objective challenge to the first line of defence, supported by other specialist control and support functions such as the Group Compliance, Legal Services, Information Security and Health and Safety functions. The third line of defence comprises of the Internal Audit function, which provides independent assurance over the integrity and effectiveness of the risk management framework throughout the Group.
During the first half of 2020, special circumstances created by the COVID-19 outbreak drove, to a large extent, the activities performed by Operational Risk Management. More specifically, for business continuity purposes, BOC PCL's Pandemic Incident Management Plan was invoked early February 2020, with split operations established for critical units, along with access granted to staff, as applicable, to work remotely. The Pandemic Incident Management Team (PIMT) was also invoked and provided regular updates to the Crisis Management Committee towards a proactive and effective management of the pandemic threat, through a series of measures taken and announced to staff and customers.
Additionally, enhanced fraud monitoring was performed by the fraud risk management team as a result of the customers' accelerated shift towards digital channels. The operational risk management (ORM) unit was also faced with an increased number of process/procedure assessments that emerged due to the special circumstances created by COVID-19.
Further to the actions taken to respond to the COVID-19 pandemic, ongoing activities/initiatives towards further enhancement of ORM involved inter alia the following: (i) upgrading of the e-banking fraud system, planned to go-live by the end of 2020, (ii) training to staff and top-management on basic principles of Fraud Risk Management through the e-learning platform, (iii) the set-up of a new 'Third Party Risk Management' Unit under the ORM Department, which initially undertook the responsibility of drafting BOC PCL's 'Third Party Risk Management Policy' (which replaced the former 'Outsourcing Policy') and the relevant procedure stemming from the said policy, and (iv) ongoing reviews and enhancements of the internal ORM policies, procedures and the ORM database.
Operational risk loss events are classified and recorded in the Group's RCMS system, which serves as an enterprise tool integrating all risk-control data (i.e. risks, loss incidents, Key Risk Indicators) to provide a holistic view with regards to risk identification, corrective action and statistical analysis. During the first half of the year 2020, 99 loss events with gross loss equal to or greater than €1,000 each were recorded including incidents of prior years (mostly legal cases) for which losses materialised in the first six months of 2020 (six months ended 30 June 2019: 379 loss events).
The Group strives to continuously enhance its risk control culture and increase awareness of its employees on operational risk issues through ongoing staff training (both classroom/workshop type of training and e- learning sessions).
The Group also maintains adequate insurance policies to cover for unexpected material operational losses. Business resilience is treated as a priority and as such the Group places significant importance on continuously
enhancing the continuity arrangements, to ensure timely recovery in the case of events, such as the COVID-
19 pandemic, that may cause major disruptions to the business operations.
4.2 Political risk
External factors which are beyond the control of the Group, such as developments in the European Union and the global economy, or specific countries with which Cyprus maintains close economic and investment links, as well as political and government actions internally, can affect the operations of the Group, its strategy and prospects.
4. Other risks (continued)
4.2 Political risk (continued)
Cyprus is a small open economy with a large external sector. Exports of goods and services were about 60% of Gross Domestic Product (GDP) during 2017-2019. As a result, the Cyprus economy is vulnerable to exogenous developments from outside its borders particularly developments affecting its main trading partners including Russia and the UK. Cyprus is also exposed to developments in the European Union and the Eurozone that might impact bond markets and interest rates, as well as to developments in the global economy at large, including trade.
While Cyprus has had a five-year streak of strong economic recovery in 2015-2019, the COVID-19 pandemic is having a significant impact on the economy in 2020 where real GDP is now expected to contract by 7.8% according to the European Commission's latest publications, with only a partial recovery in 2021 at 5.3%, assuming no second wave of the pandemic.
The world went through a devastating first half of the year 2020 under lockdown conditions intended to contain the spread of the pandemic. Emerging from the lockdowns, however, has not been easy or uniform. COVID-19 cases are still increasing in some countries and some containment measures are being re-instated. The resumption of economic activity therefore will be alternated and uneven, subject to the uncertainty of a second wave and renewed restrictions. This will be holding back consumption and investment expenditures making the recovery only partial and weak in the second half and into next year.
The implications of COVID-19 for the global economy are many and varied. Supply chains are being disrupted, some businesses will be closing, unemployment will remain high for longer and a structural transition will be unfolding as some sectors will be contracting and others will be expanding.
Emerging markets will be more vulnerable to financial pressures, given their large exposures in foreign currency borrowing and their vulnerability to capital outflows. Loss of capital inflows would strain the sustainability of their debts. Exports are falling and some emerging countries have been severely affected by the declines in oil prices. Thus, the susceptibility of emerging markets to external shocks has increased significantly as a result of the pandemic. Some countries like Argentina and Lebanon, are already in debt distress. Countries vulnerable to external financing and debt difficulties are under increased liquidity pressure that will further impact economic growth leading to a possible debt crisis for individual countries.
Cluster outbreaks of the virus such as the ones that already occurred in Beijing, parts of Latin America and parts of the US, will be troubling recoveries and impeding global growth. China will see a slow and uneven economic recovery, under sluggish domestic demand and slowing exports.
In Europe economic conditions will improve slightly in the second half and into next year, but political and financial risks will persist. Private consumption and total investment will remain below pre-crisis levels and unemployment will be higher. Financial risk will be more pronounced in southern countries which are more heavily dependent on tourism. Budget deficits will deteriorate, and debt levels will rise in countries such as Italy, Spain, Greece, Cyprus, Portugal and even France. The ECB will continue its current policies and bond buying programs to keep borrowing costs for member states low. Under these conditions, the risk of a financial crisis is low. It will take a worsening situation with non-performing loans in some countries, or a downgrade of the credit worthiness of a country to increase the probability of a crisis in the Eurozone.
Also, slow recoveries and higher unemployment rates for longer after 2020 will be creating fertile ground of political risk to rise.
At the July 21st Council, EU leaders agreed on a €750 billion post-pandemic recovery fund known as 'Next Generation EU', and the Multiannual Financial Framework 2021-2027 worth about €1.1 trillion. The summit preserved the overall size of the recovery fund, but reduced the amount of grants to €390 billion from the
€500 billion proposed. The recovery fund is expected to provide significant economic relief especially to
countries hit the hardest by the pandemic.
4. Other risks (continued)
4.2 Political risk (continued)
The risk of disruption from Brexit-related developments remains. The UK has left the EU at the end of January
2020, but trade negotiations with the EU are yet to conclude. There are a large number of issues to negotiate and little time within which to do it. Because the UK government chose not to extend its membership in the
single market beyond 31 December 2020, the possibility of a no-deal exit cannot be ruled out a-priori.
Without a trade deal UK goods imported into the EU will be subject to the Common External Tariff. Such uncertainties impact heavily the UK economy and its growth outlook for the year is now severely downgraded.
In addition, Italy remains a main source of financial risk within the Eurozone. The country is in deep recession. According to the European Commission's latest publications, Italy will contract by 11.3% in 2020 and will recover only partly by 6% in 2021. Political uncertainty will also rise as the country will be emerging from the pandemic. A debt crisis is not likely in the near term, but downside risks are increasing. The banking sector is particularly fragile as the recession will be increasing the stock on non-performing loans and as the probability of default by individuals and companies will be rising.
The Russian economy may continue to deteriorate. Russia is impacted negatively by persistent sanctions and by low oil prices. Given that the banking sector has linkages with business and professional services with Russia and that Russia has become a major market for Cypriot tourism, any events and developments on the Russian economy may potentially have an impact on the Cyprus economy as well.
Cyprus is less exposed to Greece than it was prior to the crisis in 2013. Greece's departure from the Eurozone is no longer a short-term risk and the country's growth outlook has improved. However, Greece continues to face challenges and long-term risks.
Developments in other non-EU countries with which Cyprus maintains significant economic links, the unresolved Cyprus problem, and political and social unrest or escalation of military conflict in neighboring countries and/or other overseas areas may adversely affect the Cyprus economy. Political risk remains at an elevated level due to the de facto division of the island and the potential for tension with Turkey over hydrocarbons explorations in Cyprus' Exclusive Economic Zone (EEZ).
Given the above, the Group recognises that unforeseen political events can have negative effects on the fulfilment of contractual relationships and obligations of its customers and other counterparties, which may have a significant impact on the Group's activities, operating results and position.
5. Capital management
The primary objective of the Group's capital management is to ensure compliance with the relevant regulatory capital requirements and to maintain strong credit ratings and healthy capital adequacy ratios in order to support its business and maximise shareholders' value.
The capital adequacy framework, as in force, was incorporated through the CRR and Capital Requirements Directive IV (CRD IV) and came into effect on 1 January 2014 with certain specified provisions implemented gradually. The CRR and CRD IV transposed the new capital, liquidity and leverage standards of Basel III into the European Union's legal framework. CRR establishes the prudential requirements for capital, liquidity and leverage for credit institutions and investment firms. It is directly applicable in all EU member states. CRD IV governs access to deposit-taking activities and internal governance arrangements including remuneration, board composition and transparency. Unlike the CRR, member states were required to transpose the CRD IV into national laws and it allowed national regulators to impose additional capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V) came into force. As an amending regulation, the existing provisions of CRR apply, unless they are amended by CRR II. Member states are required to transpose the CRD V into national law. Certain provisions took immediate effect (primarily relating to Minimum Requirement for Own Funds and Eligible Liabilities, (MREL)), but most changes will start to apply from mid-2021. Certain aspects of CRR II are dependent on final technical standards to be issued by the EBA and adopted by the European Commission. The key changes introduced consist of, among others, changes to qualifying criteria for CET1, AT1 and Tier 2 instruments, introduction of requirements for MREL and a binding Leverage Ratio requirement and a Net Stable Funding Ratio (NSFR).
5. Capital management (continued)
In addition, the Regulation (EU) 2016/445 of the ECB on the exercise of options and discretions available in Union law (ECB/2016/4) provides certain transitional arrangements which supersede the national discretions unless they are stricter than the EU Regulation 2016/445.
Moreover, in June 2020 Regulation (EU) 2020/873 came into force which provides for certain amendments in response to the COVID-19 pandemic, bringing forward some of the capital relieving measures that were due to come into force at a later stage and introducing modifications as part of the wider efforts of competent authorities to provide the support necessary to the institutions. The main adjustments affecting the Group's own funds as at 30 June 2020 relate to accelerating the implementation of the new SME discount factor under CRR II in June 2020 instead of June 2021 (lower RWAs), extending the IFRS 9 transitional arrangements and introducing further relief measures to CET1 allowing to fully add back to CET1 any increase in ECL recognised in 2020 and 2021 for non-credit impaired loans and phasing in this starting from 2022. In addition, the amendments, introduce temporary treatment of unrealized gains and losses on exposures to central governments, to regional governments or to local authorities measured at fair value through other comprehensive income which is expected to be implemented by the Group in the third quarter of 2020. Lastly finalisation of changes on the application of prudential treatment of software assets as amended by CRR II is expected in the second half of 2020 advancing the the implementation to 2020 instead of 2021.
The CET1 ratio of the Group at 30 June 2020 stands at 14.3% and the total capital ratio at 17.8% on a transitional basis.
The minimum Pillar I total capital requirement is 8.0% and may be met, in addition to the 4.5% CET1 requirement, with up to 1.5% by Additional Tier 1 capital and with up to 2.0% by Tier 2 capital.
The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I
capital requirements (Pillar II add-ons).
Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2019 the Group's minimum phased in CET1 capital ratio and Total Capital Ratio remained unchanged for 2020 compared to 2019, when ignoring the phasing in of the Other Systemically Important Institution (O SII) buffer. The Group's phased-in CET1 capital ratio was set to 11.0%, comprising a 4.5% Pillar I requirement, a
3.0% Pillar II requirement (P2R), the Capital Conservation Buffer of 2.5% (fully phased-in as of 1 January
2019) and the O-SII buffer of 1.0%.
The Group's Total Capital requirement is 14.5%, comprising an 8.0% Pillar I requirement (of which up to
1.50% could be in the form of Additional Tier 1 capital and up to 2.00% in the form of Tier 2 capital), a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the O-SII buffer of 1.0%. The ECB has also
provided non-public guidance for an additional Pillar II CET1 buffer. The final 2019 SREP decision is effective from 1 January 2020.
In April 2020, and following ECB and EBA announcements on 12 March 2020 in response to the COVID-19 outbreak, BOC PCL received an amending decision from the ECB amending the composition of the Pillar II additional own funds requirement, allowing to use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to meet Pillar II Requirements and not only by CET1, compared to the 2019 final SREP decision received in December 2019 which required P2R to be met in full with CET1. This decision is effective from 12 March 2020. This brings forward a measure that was scheduled to come into force in January 2021 with CRD V. As a result of this amending decision, the minimum phased-in CET1 requirement decreased to 9.7%, comprising a 4.5% Pillar I requirement, a 1.7% Pillar II requirement, the Capital Conservation Buffer (CCB) of 2.5% (fully phased in as of 1 January 2019) and the O-SII buffer of 1.0%. ECB's capital easing measures for COVID-19 increased the Group's CET1 buffer by 131 bps. There is no change on the Total Capital requirement.
In addition, the EBA final guidelines on SREP and supervisory stress testing and the Single Supervisory Mechanism's (SSM) 2018 SREP methodology provide that own funds held for the purposes of Pillar II Guidance cannot be used to meet any other capital requirements (Pillar I, Pillar II requirements or the combined buffer requirement), and therefore cannot be used twice. In line with the final 2019 SREP decision, these new provisions became effective from 1 January 2020.
5. Capital management (continued)
The Group's minimum phased-in CET1 capital ratio for 2019 was 10.5%, comprising of 4.5% Pillar I requirement, 3.0% Pillar II requirement, CCB of 2.5% and O-SII buffer of 0.5%. The ECB had also provided non-public guidance for an additional Pillar II CET1 buffer.
The Group's minimum phased-in Total capital ratio requirement for 2019 was 14.0%, comprising of 8.0% Pillar I requirement (of which up to 1.50% could be in the form of Additional Tier 1 capital and up to 2.00% in the form of Tier 2 capital), 3.0% Pillar II requirement, CCB of 2.5% and O-SII buffer of 0.5%.
The above minimum ratios apply for both BOC PCL and the Group.
The capital position of the Group and BOC PCL at 30 June 2020 exceeds both their Pillar I and their Pillar II add-on capital requirements. However, the Pillar II add-on capital requirements are a point-in-time assessment and therefore are subject to change over time.
The CBC, in accordance with the Macroprudential Oversight of Institutions Law of 2015, sets, on a quarterly basis, the Countercyclical Capital Buffer (CCyB) level in accordance with the methodology described in this law. The CBC has set the level of the CCyB for Cyprus at 0% for the six months up to 30 June 2020 and the year 2019. The CBC has also set the level of the CCyB for Cyprus at 0% for the period 1 July 2020 to September 2020.
In accordance with the provisions of this law, the CBC is also the responsible authority for the designation of banks that are Other Systemically Important Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for these systemically important banks. BOC PCL has been designated as an O-SII and the CBC set the O-SII buffer for BOC PCL and the Group at 2.0%.
This buffer is being phased in gradually, having started from 1 January 2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%). In April 2020, the CBC decided to delay the phasing in (0.5%) of the O SII buffer on 1 January 2021 and 1 January 2022 by 12 months. Consequently, the O SII buffer will be fully phased in on 1 January 2023, instead of 1 January 2022 as originally set.
The insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance including the minimum solvency ratio. The regulated UCITS management company of the Group, BOC Asset Management Ltd complies with the regulatory capital requirements of the Cyprus Securities and Exchange Commission (CySEC) laws and regulations as at 30 June 2020. The regulated investment firm (CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd (CISCO) lacks behind the minimum initial capital requirement and the additional capital conservation buffer as at 30 June 2020 and 31 December 2019, whereas as at 30 June 2020 it also fell below the minimum total capital ratio hurdle of CySEC. A business and capital plan was submitted to CySEC in December 2019. CySEC has provided CISCO with a written extension until 31 December 2020 to comply with the capital requirements, as per its Supervisory Review and Evaluation Process (SREP).
5. Capital management (continued)
The capital position of the Group and BOC PCL as at the reporting date (after applying the transitional arrangements) is presented below:
Regulatory capital | Group | BOC PCL | ||
30 June 2020 | 31 December 20195 | 30 June 2020 | 31 December 20195 | |
€000 | €000 | €000 | €000 | |
Transitional Common Equity Tier 1 (CET1)6 | 1,707,010 | 1,909,049 | 1,660,989 | 1,869,105 |
Transitional Additional Tier 1 capital (AT1) | 220,000 | 220,000 | 220,000 | 220,000 |
Tier 2 capital (T2) | 199,074 | 189,955 | 250,000 | 250,000 |
Transitional total regulatory capital | 2,126,084 | 2,319,004 | 2,130,989 | 2,339,105 |
Risk weighted assets - credit risk7 | 10,617,484 | 11,547,303 | 10,602,925 | 11,518,932 |
Risk weighted assets - operational risk | 1,342,700 | 1,342,700 | 1,255,875 | 1,255,875 |
Total risk weighted assets | 11,960,184 | 12,890,003 | 11,858,800 | 12,774,807 |
% | % | % | % | |
Transitional Common Equity Tier 1 ratio | 14.3 | 14.8 | 14.0 | 14.6 |
Transitional total capital ratio | 17.8 | 18.0 | 18.0 | 18.3 |
Fully loaded | Group | BOC PCL | ||
30 June 20208 | 31 December 20198 | 30 June 20208 | 31 December 20198 | |
% | % | % | % | |
Common Equity Tier 1 ratio | 12.6 | 13.1 | 12.3 | 12.9 |
Total capital ratio | 16.3 | 16.5 | 16.4 | 16.6 |
During the period ended 30 June 2020 the CET1 was negatively affected mainly by the phasing-in of IFRS 9 transitional adjustments on 1 January 2020, the decrease in reserves and ECL charges, including provisions recognised as a result of the anticipated NPE sale agreement (Project Helix 2). Risk weighted assets movement and pre-provision income had a positive effect on CET1 ratio. The recently introduced adjustments in response to the COVID-19 pandemic, affected positively the CET1 ratio through increasing the IFRS9 add- back (dynamic component) and by decreasing Risk Weighted Assets through the implementation of the new SME discount factor.
As a result of the above, the CET1 ratio decreased by c.50 bps during the six months ended 30 June 2020.
As part of the relaxation measures following the COVID-19 outbreak, on 12 March 2020, the ECB and the EBA announced that banks are temporarily allowed to operate below the level of capital defined by the Pillar II Guidance, the Capital Conservation Buffer and the Countercyclical Buffer. In July 2020, the ECB committed to allow banks to operate below the Pillar II guidance (P2G) and the combined buffer requirement until at least end of 2022, without automatically triggering supervisory actions.
(5) As per the Annual Report 2019 and Pillar III Disclosures 2019.
(6) CET1 includes regulatory deductions, primarily comprising intangible assets amounting to €47,835 thousand as at 30 June 2020 (31 December 2019: €51,204 thousand). (7) Includes Credit Valuation Adjustments (CVA).
(8) IFRS 9 fully loaded.
5. Capital management (continued)
The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU Regulation 2017/2395) where the impact on the impairment amount from the initial application of IFRS 9 on the capital ratios is phased in gradually.
The Group has elected in prior years to apply the static-dynamic approach in relation to the transitional arrangements for the initial application of IFRS 9, pursuant to EU Regulation 2017/2395 and it therefore applies paragraph 4 of Article 473(a) of the CRR. The 'Static-dynamic' approach allows for recalculation of the transitional adjustment periodically on Stage 1 and Stage 2 loans, so as to reflect the increase of the ECL provisions within the transition period. The Stage 3 ECL remains static over the transition period as per the impact upon initial recognition.
The amount added each year decreases based on a weighting factor until the impact of IFRS 9 is fully absorbed back to CET1 at the end of the five years. The impact on the capital position for the year 2018 was
5% of the impact on the impairment amounts from the initial application of IFRS 9, increasing to 15% (cumulative) for the year 2019 and to 30% (cumulative) for the year 2020.
Following the June 2020 amendments to the CRR, the Group applied the amendments in relation to the IFRS
9 transitional arrangements for Stage 1 and Stage 2 loans (i.e. the dynamic component) which provide for the extension of the transitional period for the dynamic component. A 100% add back of IFRS 9 provisions is allowed for the years 2020 and 2021 reducing to 75% in 2022, to 50% in 2023 and to 25% in 2024. The
calculation at each reporting period is to be made against Stage 1 and Stage 2 provisions as at 1 January
2020, instead of 1 January 2018. The calculation of the static component has not been amended.
In relation to the temporary treatment of unrealized gains and losses for certain exposures measured at fair value through other comprehensive income as described earlier in this Section, Regulation 2020/873 allows institutions to remove from their CET1 the amount of unrealized gains and losses accumulated since 31
December 2019, excluding for those financial assets that are credit-impaired. The relevant amount is
removed at a scaling factor of 100% from January to December 2020, reduced to 70% from January to December 2021 and to 40% from January to December 2022. The Bank expects to apply the temporary treatment starting 3Q2020. As a result, as at 30 June 2020, own funds, capital and leverage ratios reflect the full impact of unrealized gains and losses measured at fair value through other comprehensive income.
5. Capital management (continued)
Template on the comparison of institutions' own funds and capital and leverage ratios with and without the application of transitional arrangements for IFRS9 or analogous ECLs
30 June 2020* | 31 March 2020* | 31 December 2019* | 30 September 2019** | 30 June 2019** | ||
€000 | €000 | €000 | €000 | €000 | ||
1 | Common Equity Tier 1 (CET1) capital | 1,707,010 | 1,806,926 | 1,909,049 | 1,974,153 | 1,969,129 |
2 | CET1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied |
1,479,450 |
1,590,786 |
1,646,593 |
1,711,698 |
1,706,673 |
3 | Tier 1 capital | 1,927,010 | 2,026,926 | 2,129,049 | 2,194,153 | 2,189,129 |
4 | Tier 1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied |
1,699,450 |
1,810,786 |
1,866,593 |
1,931,698 |
1,926,673 |
5 | Total capital | 2,126,084 | 2,227,575 | 2,319,004 | 2,391,436 | 2,389,755 |
6 | Total capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied |
1,917,532 |
2,028,428 |
2,075,418 |
2,148,107 |
2,146,888 |
Risk-weighted assets | ||||||
7 | Total risk-weighted assets |
11,960,184 |
12,598,792 |
12,890,003 |
13,757,700 |
13,962,068 |
8 | Total risk-weighted assets as if IFRS 9 or analogous ECLs transitional arrangements had not been applied |
11,732,624 |
12,368,530 |
12,607,267 |
13,471,035 |
13,676,337 |
5. Capital management (continued)
30 June 2020* | 31 March 2020* | 31 December 2019* | 30 September 2019** | 30 June 2019** | ||
€000 | €000 | €000 | €000 | €000 | ||
Capital ratios | ||||||
9 | CET1 (as a percentage of risk exposure amount) | 14.3% | 14.3% | 14.8% | 14.3% | 14.1% |
10 | CET1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied |
12.6% |
12.9% |
13.1% |
12.7% |
12.5% |
11 | Tier 1 (as a percentage of risk exposure amount) | 16.1% | 16.1% | 16.5% | 15.9% | 15.7% |
12 | Tier 1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied |
14.5% |
14.6% |
14.8% |
14.3% |
14.1% |
13 | Total capital (as a percentage of risk exposure amount) |
17.8% |
17.7% |
18.0% |
17.4% |
17.1% |
14 | Total capital (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied |
16.3% |
16.4% |
16.5% |
15.9% |
15.7% |
Leverage ratio | ||||||
15 | Leverage ratio total exposure measure | 21,219,766 | 20,316,602 | 21,075,511 | 21,088,020 | 21,873,669 |
16 | Leverage ratio | 9.1% | 10.0% | 10.1% | 10.4% | 10.0% |
17 | Leverage ratio as if IFRS 9 or analogous ECLs transitional arrangements had not been applied |
8.1% |
9.0% |
8.9% |
9.3% |
8.9% |
* As per the final capital regulatory submission.
**As per the final capital regulatory submission, excluding interim profits.
The main drivers behind the decrease in RWAs arise from credit risk and they relate to (a) increased provisioning, settlements/repayments and curing in NPEs and regulatory high risk exposure classes in customer loans; (b) the implementation of the CRR II SME Discount Factor (SMEDF) following the June
2020CRR amendment which expanded the population of performing exposures that benefit from lower RWAs and also revised the discount factor applies to such exposures resulting in a reduction of RWAs of c380million;
and (c) the reduction in balance sheet values of other assets. The increase in CCR RWAs derives from
increased derivative exposures.
The increase in the leverage ratio total exposure measure follows the movements in the Group's balance sheet
assets.
CET1 is negatively affected mainly by the phasing-in of IFRS 9 transitional adjustments, decrease in revaluation reserves and ECL charges.
Taken into account the above, the overall leverage ratio, which is well above the minimum ratio set at 3% by the amended CRR will be effective on 28 June 2021, has decreased in the six months ended 30 June 2020 compared to 31 December 2019.
6. Leverage ratio
According to CRR Article 429, the leverage ratio, expressed as a percentage, is calculated as the capital measure divided by the total exposure measure of the Group.
The leverage ratio of the Group is presented below:
30 June 2020 | 31 December 2019 | |
Transitional basis | €000 | €000 |
Capital measure (Tier1) | 1,927,010 | 2,129,049 |
Total exposure measure | 21,219,766 | 21,075,511 |
Leverage ratio (%) | 9.1 | 10.1 |
IFRS 9 fully loaded | ||
Capital measure (Tier1) | 1,699,450 | 1,866,593 |
Total exposure measure | 21,084,837 | 20,859,371 |
Leverage ratio (%) | 8.1 | 9.0 |
The increase in the 'Total exposure measure' follows the movements in the Group's balance sheet assets.
The 'Capital measure (Tier1)' is negatively affected mainly by the phasing-in of IFRS 9 transitional adjustments, decrease in revaluation reserves and ECL charges.
7. Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Assessment
Process (ILAAP), Pillar II and Supervisory Review and Evaluation Process (SREP)
The Group prepares the ICAAP and ILAAP reports annually. Both reports for 2019 were approved by the Board of Directors and submitted to the ECB on 30 April 2020. Due to the timing of the two reports, the business plans and ICAAP and ILAAP stress scenarios have not been updated to reflect the impact of the COVID-19 in line with relevant supervisory communication on this issue; however the COVID-19 preliminary estimated impact on capital and liquidity (based on scenarios) has been commented in the ICAAP and ILAAP reports under a separate section.
Based on the end of December 2019 ICAAP, BOC PCL has sufficient capital throughout the three-year horizon to enable it to comply with all regulatory ratios, both in the base and adverse scenario, under the normative approach. Under the economic perspective, a small capital shortfall arises in the adverse scenario, in 2022, which however can be neutralised by available mitigants.
The Group has prepared a review of its ICAAP, with reference date 31 March 2020, based on the reforecast plan, submitted to the Board of Directors in June 2020. This review indicates that BOC PCL has sufficient capital throughout the three-year horizon to enable it to comply with all regulatory ratios, both in the base and adverse scenario, under the normative approach. Under the economic perspective, a capital shortfall arises in the adverse scenario, in 2021 and 2022. Economic capital will be closely monitored to ensure sufficient mitigating actions would be in place to be used in case such scenario realises.
The Group also undertakes a quarterly review of its ICAAP results (as at the end of June and as at the end of September) considering the latest actual and forecasted information. During the quarterly review, the Group's risk profile and risk management policies and processes are reviewed and any changes since the annual ICAAP exercise are taken into consideration.
7. Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Assessment Process (ILAAP), Pillar II and Supervisory Review and Evaluation Process (SREP) (continued)
The Group also undertakes a quarterly review for the ILAAP through quarterly stress tests submitted to the ALCO and the Risk Committee of the Board of Directors. During the quarterly review, the liquidity risk drivers are assessed and, if needed, the stress test assumptions are amended accordingly. Any material changes since the year-end are assessed in terms of liquidity. The quarterly review identifies whether the Group has an adequate liquidity buffer to cover the stress outflows. The Group's ILAAP analysis demonstrates that the volume and capacity of liquidity resources available to the Group are adequate.
The ECB, as part of its supervisory role, has been conducting the SREP and onsite inspections on the Group. SREP is a holistic assessment of, amongst other things, the Group's business model, internal governance and institution-wide control arrangements, risks to capital and adequacy of capital to cover these risks and risks to liquidity and adequacy of liquidity resources to cover these risks. The objective of the SREP is for the ECB to form an up-to-date supervisory view of the Group's risks and viability and to form the basis for supervisory measures and dialogue with the Group. Additional capital and other requirements could be imposed on the Group as a result of these supervisory processes, including a revision of the level of Pillar II add-ons as the Pillar II add-ons capital requirements are a point-in-time assessment and therefore subject to change over time.
The Group was to participate in the ECB SREP stress test of 2020 which was launched in January 2020 and was to be concluded by end of July 2020. However due to the outbreak of COVID-19 and its global spread, EBA decided to postpone until 2021 the EU-wide Stress Test Exercise of 2020 to allow banks to focus on and ensure continuity of their core operations. For 2020, the EBA will carry out an additional EU-wide transparency exercise in order to provide updated information on banks' exposures and asset quality to market participants. The ECB announced that it supports the decision of EBA to postpone the stress tests exercise and will extend the postponement to all banks subject to the 2020 stress test.
8. Other Pillar III disclosures
8.1 Non-performing exposures
The tables below disclose NPEs based on the definitions of the EBA standards. The definition of credit impaired
loans (Stage 3) is aligned to the EBA NPEs definition (Section 1 'Credit risk').
Additional details on the definition of NPEs are disclosed in Note 2.19.2 of the Annual Consolidated Financial
Statements for the year ended 31 December 2019.
The tables below are presented using figures per the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2020 and the Annual Consolidated Financial Statements for the year ended 31
December 2019, including loans and advances to customers at amortised cost classified as held for sale and loans and advances to customers measured at fair value through profit or loss.
8. Other Pillar III disclosures (continued)
8.1 Non-performing exposures (continued)
Credit quality of performing and non-performing exposures by past due days
30 June 2020 | Gross carrying amount/Nominal amount | |||||||||||
Performing exposures | Non-performing exposures | |||||||||||
Not past due or past due ≤30 days |
Past due >30 days ≤90 days | Unlikely to pay that are not past-due or are Past due ≤90 days |
Past due > 90 days ≤180 days |
Past due >180 days ≤1 year | Past due >1 year ≤2 years |
Past due >2 years ≤5 years |
Past due >5 years ≤7 years |
Past due >7 years |
Of which: defaulted | |||
Loans and advances9 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 |
Central banks | 5,160,549 | 5,160,549 | - | - | - | - | - | - | - | - | - | - |
General governments | 57,666 | 57,666 | - | - | - | - | - | - | - | - | - | - |
Credit institutions | 622,052 | 622,052 | - | - | - | - | - | - | - | - | - | - |
Other financial corporations | 110,784 | 110,780 | 4 | 14,715 | 1,435 | - | 2 | 10,730 | 75 | 461 | 2,012 | 14,715 |
Non-financial corporations | 4,844,182 | 4,837,381 | 6,801 | 939,658 | 384,375 | 9,555 | 36,928 | 50,028 | 88,707 | 111,468 | 258,597 | 939,658 |
Of which SMEs | 3,612,497 | 3,605,795 | 6,702 | 665,190 | 133,436 | 9,438 | 36,928 | 49,935 | 88,658 | 104,843 | 241,952 | 665,190 |
Households | 4,001,306 | 3,995,781 | 5,525 | 1,584,634 | 196,503 | 24,074 | 78,944 | 134,528 | 381,997 | 269,381 | 499,207 | 1,584,634 |
14,796,539 | 14,784,209 | 12,330 | 2,539,007 | 582,313 | 33,629 | 115,874 | 195,286 | 470,779 | 381,310 | 759,816 | 2,539,007 | |
Loans and advances to customers classified as held for sale9 | 13,269 | 13,269 | - | 928,871 | 88,318 | 14,132 | 62,229 | 175,263 | 151,583 | 137,952 | 299,394 | 928,871 |
Debt securities | ||||||||||||
Central banks | - | - | - | - | - | - | - | - | - | - | - | - |
General governments | 1,070,384 | 1,070,384 | - | - | - | - | - | - | - | - | - | - |
Credit institutions | 477,698 | 477,698 | - | - | - | - | - | - | - | - | - | - |
Other financial corporations | 251,208 | 251,208 | - | - | - | - | - | - | - | - | - | - |
Non-financial corporations | 6,754 | 6,754 | - | - | - | - | - | - | - | - | - | - |
1,806,044 | 1,806,044 | - | - | - | - | - | - | - | - | - | - | |
Off balance sheet exposures | ||||||||||||
Central Bank | - | - | - | |||||||||
General governments | 9,800 | - | - | |||||||||
Credit institutions | 40,983 | - | - | |||||||||
Other financial corporations | 13,350 | 1,083 | 1,083 | |||||||||
Non-financial corporations | 1,636,033 | 173,739 | 173,739 | |||||||||
Households | 673,894 | 11,343 | 11,343 | |||||||||
2,374,060 | 186,165 | 186,165 | ||||||||||
Total | 18,989,912 | 16,603,522 | 12,330 | 3,654,043 | 670,631 | 47,761 | 178,103 | 370,549 | 622,362 | 519,262 | 1,059,210 | 3,654,043 |
(9) Amounts presented are before fair value adjustment on initial recognition relating to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans.
8. Other Pillar III disclosures (continued)
8.1 Non-performing exposures (continued)
Credit quality of performing and non-performing exposures by past due days (continued)
31 December 2019 | Gross carrying amount/Nominal amount | |||||||||||
Performing exposures | Non-performing exposures | |||||||||||
Not past due or past due ≤30 days |
Past due >30 days ≤90 days | Unlikely to pay that are not past- due or are Past due ≤90 days |
Past due > 90 days ≤180 days |
Past due >180 days ≤1 year |
Past due >1 year ≤2 years |
Past due >2 years ≤5 years |
Past due >5 years ≤7 years |
Past due >7 years |
Of which: defaulted | |||
Loans and advances10 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 |
Central banks | 4,908,487 | 4,908,487 | - | - | - | - | - | - | - | - | - | - |
General governments | 56,920 | 56,920 | - | 1 | - | - | - | - | 1 | - | - | 1 |
Credit institutions | 320,953 | 320,953 | - | - | - | - | - | - | - | - | - | - |
Other financial corporations | 96,884 | 96,822 | 62 | 27,459 | 1,442 | 1 | 16,971 | 102 | 251 | 7,994 | 698 | 27,459 |
Non-financial corporations | 4,889,081 | 4,877,311 | 11,770 | 1,382,074 | 483,598 | 35,244 | 86,941 | 84,300 | 148,926 | 240,548 | 302,517 | 1,382,074 |
Of which SMEs | 3,589,148 | 3,577,378 | 11,770 | 1,073,846 | 201,038 | 35,221 | 86,937 | 84,147 | 144,341 | 236,608 | 285,554 | 1,073,846 |
Households | 3,906,507 | 3,889,848 | 16,659 | 2,285,998 | 365,164 | 81,407 | 154,657 | 181,264 | 511,019 | 440,291 | 552,196 | 2,285,998 |
14,178,832 | 14,150,341 | 28,491 | 3,695,532 | 850,204 | 116,652 | 258,569 | 265,666 | 660,197 | 688,833 | 855,411 | 3,695,532 | |
Loans and advances to customers classified as held for sale10 | 990 | 990 | - | 183,974 | 5,300 | 1,242 | 4,125 | - | 54,371 | 118,936 | - | 183,974 |
Debt securities | ||||||||||||
Central banks | 13,416 | 13,416 | - | - | - | - | - | - | - | - | - | - |
General governments | 933,294 | 933,294 | - | - | - | - | - | - | - | - | - | - |
Credit institutions | 521,596 | 521,596 | - | - | - | - | - | - | - | - | - | - |
Other financial corporations | 264,347 | 264,347 | - | - | - | - | - | - | - | - | - | - |
Non-financial corporations | 6,849 | 6,849 | - | - | - | - | - | - | - | - | - | - |
1,739,502 | 1,739,502 | - | - | - | - | - | - | - | - | - | - | |
Off balance sheet exposures | ||||||||||||
Central Bank | - | - | - | |||||||||
General governments | 13,282 | - | - | |||||||||
Credit institutions | 51,569 | - | - | |||||||||
Other financial corporations | 18,294 | 1,086 | 1,086 | |||||||||
Non-financial corporations | 1,602,574 | 221,848 | 221,848 | |||||||||
Households | 704,752 | 8,603 | 8,603 | |||||||||
2,390,471 | 231,537 | 231,537 | ||||||||||
Total | 18,309,795 | 15,890,833 | 28,491 | 4,111,043 | 855,504 | 117,894 | 262,694 | 265,666 | 714,568 | 807,769 | 855,411 | 4,111,043 |
The NPEs at 30 June 2020 amounted to €3,468 million, compared to €3,880 million at 31 December 2019, reflecting a reduction of 11%, despite the COVID-19 lockdown in March 2020, mainly driven by the completion of Project Velocity 2 and organic reduction of €279 million. The reduction in gross loans and advances to customers by 2% since 31 December 2019 is attributed mainly to the completion of Project Velocity 2 (sale of €133 million of gross loans) and repayments. New loans originated and drawdowns of existing facilities during 2020 amounted to €571 million compared to €1,008 million for the six months ended 30 June 2019 (down by 33%). The reduction in new loans follows the restrictive measures as a result of the outbreak of COVID-19. The movement of loans and advances to customers is disclosed in Note
29.6 of the Consolidated Condensed Interim Financial Statements of the Company for the six months ended 30 June 2020.
(10) Amounts presented are before fair value adjustment on initial recognition relating to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans.
8. Other Pillar III disclosures (continued)
8.1 Non-performing exposures (continued)
Performing and non-performing exposures and related provisions
30 June 2020 | Gross carrying amount/nominal amount | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Accumulated partial write off |
Collateral and financial guarantees received | |||||||||||
Performing exposures |
Non-performing exposures | Performing exposures - accumulated impairment and provisions | Non-performing exposures- accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions | ||||||||||||
Of which stage 1 | Of which stage 2 | Of which stage 2 | Of which stage 3 | Of which stage 1 | Of which stage 2 | Of which stage 2 | Of which stage 3 | On performing exposures | On non- performing exposures | ||||||
€000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | |
Loans and advances11 | |||||||||||||||
Central banks | 5,160,549 | 5,160,549 | - | - | - | - | - | - | - | - | - | - | - | - | - |
General governments | 57,666 | 6,111 | 51,555 | - | - | - | 3,264 | 10 | 3,254 | - | - | - | 487 | 51,719 | - |
Credit institutions | 622,052 | 622,052 | - | - | - | - | 92 | 92 | - | - | - | - | - | - | - |
Other financial Corporations | 110,784 | 68,981 | 41,803 | 14,715 | - | 14,715 | 5,818 | 3,546 | 2,272 | 10,286 | - | 10,286 | 12,903 | 80,941 | 4,301 |
Non-financial Corporations | 4,844,182 | 3,740,686 | 895,272 | 939,658 | - | 823,556 | 81,883 | 57,024 | 24,859 | 478,647 | - | 437,975 | 515,945 | 4,267,350 | 368,116 |
Of which SMEs | 3,612,497 | 2,894,768 | 717,724 | 665,190 | - | 665,190 | 69,687 | 50,098 | 18,967 | 387,628 | - | 387,628 | 481,568 | 3,255,386 | 266,415 |
Households | 4,001,306 | 3,055,964 | 935,456 | 1,584,634 | - | 1,584,634 | 64,161 | 42,092 | 22,069 | 804,646 | - | 804,646 | 887,444 | 3,568,091 | 759,415 |
14,796,539 | 12,654,343 | 1,924,086 | 2,539,007 | - | 2,422,905 | 155,218 | 102,764 | 52,454 | 1,293,579 | - | 1,252,907 | 1,416,779 | 7,968,101 | 1,131,832 | |
Loans and advances to customers classified as held for sale11 |
13,269 |
3,050 |
10,219 |
928,871 |
- |
928,871 |
6,332 |
1,283 |
5,049 |
574,156 |
- |
574,156 |
674,521 |
6,540 |
347,465 |
Debt securities | |||||||||||||||
Central banks | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - |
General governments | 1,070,384 | 1,020,046 | 50,338 | - | - | - | 1,594 | 1,341 | 253 | - | - | - | - | - | - |
Credit institutions | 477,698 | 477,198 | - | - | - | - | 29 | 29 | - | - | - | - | - | - | - |
Other financial corporations | 251,208 | 227,321 | - | - | - | - | 130 | 130 | - | - | - | - | - | - | - |
Non-financial corporations | 6,754 | 6,754 | - | - | - | - | 1 | 1 | - | - | - | - | - | - | - |
1,806,044 | 1,731,319 | 50,338 | - | - | - | 1,754 | 1,501 | 253 | - | - | - | - | - | - | |
Off-balance-sheet exposures | |||||||||||||||
Central banks | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - |
General governments | 9,800 | - | 9,800 | - | - | - | - | - | - | - | - | - | - | 5,593 | - |
Credit institutions | 40,983 | 40,983 | - | - | - | - | - | - | - | - | - | - | - | - | - |
Other financial corporations | 13,350 | 1,770 | 11,580 | 1,083 | - | 1,083 | 3 | - | 3 | - | - | - | - | 8,953 | 4 |
Non-financial corporations | 1,636,033 | 1,070,426 | 565,607 | 173,739 | - | 173,739 | 521 | 137 | 384 | 17,153 | - | 17,153 | - | 864,856 | 9,673 |
Households | 673,894 | 442,836 | 231,058 | 11,343 | - | 11,343 | 17 | 2 | 15 | - | - | - | - | 189,674 | 2,546 |
2,374,060 | 1,556,015 | 818,045 | 186,165 | - | 186,165 | 541 | 139 | 402 | 17,153 | - | 17,153 | - | 1,069,076 | 12,223 | |
Total | 18,989,912 | 15,944,727 | 2,802,688 | 3,654,043 | - | 3,537,941 | 163,845 | 105,687 | 58,158 | 1,884,888 | - | 1,844,216 | 2,091,300 | 9,043,717 | 1,491,520 |
(11) Amounts presented are before fair value adjustment on initial recognition. The fair value adjustment on initial recognition relates to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans.
8. Other Pillar III disclosures (continued)
8.1 Non-performing exposures (continued)
Performing and non-performing exposures and related provisions (continued)
31 December 2019 | Gross carrying amount/nominal amount | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Accumulated partial write off |
Collateral and financial guarantees received | |||||||||||
Performing exposures |
Non-performing exposures | Performing exposures - accumulated impairment and provisions | Non-performing exposures- accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions | ||||||||||||
Of which stage 1 | Of which stage 2 | Of which stage 2 | Of which stage 3 | Of which stage 1 | Of which stage 2 | Of which stage 2 | Of which stage 3 | On performing exposures | On non- performing exposures | ||||||
€000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | |
Loans and advances12 | |||||||||||||||
Central banks | 4,908,487 | 4,908,487 | - | - | - | - | - | - | - | - | - | - | - | - | - |
General governments | 56,920 | 6,111 | 50,809 | 1 | - | 1 | 3,389 | 11 | 3,378 | - | - | - | 485 | 52,045 | 1 |
Credit institutions | 320,953 | 320,953 | - | - | - | - | 72 | 72 | - | - | - | - | - | - | - |
Other financial Corporations | 96,884 | 53,869 | 43,015 | 27,459 | - | 27,459 | 2,699 | 1,111 | 1,588 | 14,843 | - | 14,843 | 103,754 | 68,444 | 12,571 |
Non-financial Corporations | 4,889,081 | 3,999,543 | 889,538 | 1,382,074 | - | 1,382,074 | 67,823 | 42,772 | 25,051 | 686,025 | - | 686,025 | 705,421 | 4,244,908 | 578,703 |
Of which SMEs | 3,589,148 | 2,960,345 | 628,803 | 1,073,846 | - | 1,073,846 | 60,185 | 40,165 | 20,020 | 576,635 | - | 576,635 | 671,723 | 3,202,913 | 471,900 |
Households | 3,906,507 | 3,153,702 | 752,805 | 2,285,998 | - | 2,285,998 | 67,608 | 46,310 | 21,298 | 1,080,696 | - | 1,080,696 | 1,062,108 | 3,478,462 | 1,176,920 |
14,178,832 | 12,442,665 | 1,736,167 | 3,695,532 | - | 3,695,532 | 141,591 | 90,276 | 51,315 | 1,781,564 | - | 1,781,564 | 1,871,768 | 7,843,859 | 1,768,195 | |
Loans and advances to customers classified as held for sale12 |
990 |
177 |
813 |
183,974 |
- |
183,974 |
37 |
7 |
30 |
158,998 |
- |
158,998 |
310.294 |
592 |
14,062 |
Debt securities | |||||||||||||||
Central banks | 13,416 | 13,416 | - | - | - | - | - | - | - | - | - | - | - | - | - |
General governments | 933,294 | 884,164 | 49,130 | - | - | - | 1,319 | 843 | 476 | - | - | - | - | - | - |
Credit institutions | 521,596 | 521,596 | - | - | - | - | 36 | 36 | - | - | - | - | - | - | - |
Other financial corporations | 264,347 | 264,347 | - | - | - | - | 140 | 140 | - | - | - | - | - | - | - |
Non-financial corporations | 6,849 | 6,849 | - | - | - | - | - | - | - | - | - | - | - | - | - |
1,739,502 | 1,690,372 | 49,130 | - | - | - | 1,495 | 1,019 | 476 | - | - | - | - | - | - | |
Off-balance-sheet exposures | |||||||||||||||
Central banks | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - |
General governments | 13,282 | 2 | 13,280 | - | - | - | - | - | - | - | - | - | - | 6,940 | - |
Credit institutions | 51,569 | 51,569 | - | - | - | - | - | - | - | - | - | - | - | - | - |
Other financial corporations | 18,294 | 7,002 | 11,292 | 1,086 | - | 1,086 | 1 | - | 1 | - | - | - | - | 12,377 | 1,035 |
Non-financial corporations | 1,602,574 | 1,187,087 | 415,487 | 221,848 | - | 221,848 | 197 | 49 | 148 | 21,904 | - | 21,904 | - | 821,552 | 6,258 |
Households | 704,752 | 473,509 | 231,243 | 8,603 | - | 8,603 | 10 | 1 | 9 | - | - | - | - | 208,733 | 2,322 |
2,390,471 | 1,719,169 | 671,302 | 231,537 | - | 231,537 | 208 | 50 | 158 | 21,904 | - | 21,904 | - | 1,049,602 | 9,615 | |
Total | 18,309,795 | 15,852,383 | 2,457,412 | 4,111,043 | - | 4,111,043 | 143,331 | 91,352 | 51,979 | 1,962,466 | - | 1,962,466 | 2,182,062 | 8,894,053 | 1,791,872 |
(12) Amounts presented are before fair value adjustment on initial recognition. The fair value adjustment on initial recognition relates to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans.
8. Other Pillar III disclosures (continued)
8.1 Non-performing exposures (continued)
Performing and non-performing exposures and related provisions (continued)
Regulatory expectations
On 14 of March 2018 ECB published an NPE addendum which supplements the NPE guidance by specifying what the ECB deems to be prudent levels of provisions for new NPEs. The ECB will in this context assess among other things, the length of time an exposure has been classified as NPE (vintage) as well as the
collateral held. The ECB will link the supervisory expectations in this addendum to new NPEs classified as such from 1 April 2018 onwards, irrespective of the reason of classification.
In July 2018, ECB announced additional steps in its supervisory approach to the stock of NPEs. The approach creates a consistent framework for addressing the issue, as part of the supervisory dialogue, through bank- specific supervisory expectations aimed at achieving adequate provisioning of legacy NPEs. This assessment was guided by: i) individual banks' current NPE ratios, ii) their main financial features, iii) their NPE reduction strategy (if available), and iv) a benchmarking of comparable peers in order to ensure consistent treatment. Most recent data and their capacity to absorb additional provisions were also considered. All Significant Institutions (SIs) have been assessed with the aim of setting bank-specific expectations so as to ensure continued progress in reducing legacy risks and the same coverage of the stock and flow of NPEs over the medium term.
BOC PCL, being a bank with elevated levels of NPEs, received a letter from the ECB, as part of normal supervisory activities, containing qualitative elements, focused on ensuring it is managing and addressing NPEs in line with supervisory expectations.
On 22 August 2019 the ECB has revised its supervisory expectations for prudential provisioning of new NPEs specified in the "NPE Addendum", after taking into account the adoption of the new EU regulation that outlines the Pillar I treatment for NPEs. Supervisory expectations for coverage of stock of NPEs remain unchanged. NPEs arising from loans originated after 26 April 2019 in principle are subject solely to Pillar II treatment. Taking into account the specificities of the supervisory expectations, banks will thus be asked to inform the ECB of any differences between their practices and the prudential provisioning expectations, as part of the SREP supervisory dialogue, from early 2021 onwards. Supervisory expectations for the stock of NPEs (i.e. loans classified as NPEs on 31 March 2018) remain unchanged, as communicated in the Supervisory Review and Evaluation Process letters sent to banks and in the press release in July 2018.
Collateral obtained by taking possession and execution processes
Collateral obtained by taking possession | ||||
June 2020 | December 2019 | |||
Value at initial recognition | Accumulated negative changes | Value at initial recognition | Accumulated negative changes | |
€000 | €000 | €000 | €000 | |
Property, plant and equipment (PP&E) | - | - | - | - |
Other than PP&E | ||||
Residential immovable property | 546,412 | 23,250 | 482,154 | 16,307 |
Commercial immovable property | 614,062 | 102,798 | 694,993 | 84,863 |
Movable property (auto, shipping, etc.) | - | - | - | - |
Equity and debt instruments | 66,714 | 28,256 | 66,714 | 15,273 |
Other | 378,562 | 8,690 | 355,884 | 2,091 |
Total | 1,605,750 | 162,994 | 1,599,745 | 118,534 |
8. Other Pillar III disclosures (continued)
8.1 Non-performing exposures (continued)
EU CR2-B Changes in stock of defaulted and impaired loans and debt securities
Defaulted exposures are exposures that satisfy the NPE definition.
30 June 2020 | Contractual value defaulted exposures |
€000 | |
Opening balance | 6,333,023 |
Loans and debt securities that have defaulted or impaired during the period | 31,350 |
Returned to non-defaulted status | (112,680) |
Amounts written off | (134,077) |
Other changes | (227,631) |
Closing balance | 5,889,985 |
31 December 2019 | Contractual value defaulted exposures |
€000 | |
Opening balance | 12,945,931 |
Loans and debt securities that have defaulted or impaired during the year | 188,795 |
Returned to non-defaulted status | (349,157) |
Amounts written off | (440,942) |
Other changes | (6,011,604) |
Closing balance | 6,333,023 |
The decrease in the gross contractual value of defaulted exposures in the period is driven at its majority by the sale of Velocity 2 portfolio which is reflected in line 'Other changes'. 'Other changes' include to a lesser extent normal movements in the balances such as accrued interest, repayments and withdrawals. The table above presents the movement since 1 January 2020 to 30 June 2020, whereas the comparative table for 2019 presents the movement for the year ended 31 December 2019.
8. Other Pillar III disclosures (continued)
8.1 Non-performing exposures (continued)
EU CR2-A Changes in stock of general and specific credit risks adjustment
The changes in the accumulated specific and general adjustment are as follows:
2020 |
2019 | |||
Accumulated specific credit risk adjustment | Accumulated general credit risk adjustment | Accumulated specific credit risk adjustment | Accumulated general credit risk adjustment | |
€000 | €000 | €000 | €000 | |
1 January | 1,803,550 | - | 3,462,005 | - |
Increases due to amounts set aside for estimated loan losses during the period |
351,283 |
- |
350,486 |
- |
Decreases due to amounts reversed for estimated loan losses during the period |
(166,828) |
- |
(221,062) |
- |
Decreases due to amounts taken against accumulated credit risk adjustments |
(136,024) |
- |
(246,661) |
- |
Impact of exchange rate differences and other adjustments |
(1,637) |
- |
7,233 |
- |
Interest (provided) not recognised in the income statement |
39,628 |
- |
83,903 |
- |
Disposal of Velocity 2/Helix 1 and Velocity 1 portfolios |
(112,098) |
- |
(1,602,825) |
- |
30 June | 1,777,874 | - | 1,833,079 | - |
Recoveries on credit risk adjustments recorded directly to the income statement |
12,011 |
- |
14,739 |
- |
Specific credit risk adjustments directly recorded to the income statement |
(15,375) |
- |
240 |
- |
All recoveries on credit risk adjustments and specific credit risk adjustments are made via the accumulated allowance account.
The above table includes credit losses relating to loans and advances to customers classified as held for sale but does not include the residual fair value adjustments on initial recognition of loans acquired from Laiki Bank and originated credit impaired, and provisions for impairment on financial guarantees and commitments amounting to €17,694 thousand (30 June 2019: €22,151 thousand).
8. Other Pillar III disclosures (continued)
8.2 Forbearance
Forbearance measures occur in situations in which the borrower is considered to be unable to meet the terms and conditions of the contract due to financial difficulties. Taking into consideration these difficulties, the Group decides to modify the terms and conditions of the contract to provide the borrower with the ability to service the debt or refinance the contract, either partially or fully.
The practice of extending forbearance measures constitutes a grant of a concession whether temporarily or permanently to that borrower. A concession may involve restructuring the contractual terms of a debt or payment in some form other than cash, such as an arrangement whereby the borrower transfers collateral pledged to the Group.
Forborne exposures are referred to as rescheduled loans and advances to customers in the Consolidated Condensed Interim Financial Statements of the Group for the six months ended 30 June 2020 and their definition is aligned with the EBA definition of forborne exposures.
Further information on the definition, movement and credit quality of forborne exposures can be found in Note
29.10 of the Consolidated Condensed Interim Financial Statements of the Company for the six months ended
30 June 2020.
8. Other Pillar III disclosures (continued)
8.2 Forbearance (continued)
Credit quality of forborne exposures
30 June 2020 |
Gross carrying amount/nominal amount of exposures with forbearance measures | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Collateral received and financial guarantees received on forborne exposures | |||||
Performing forborne | Non-performing forborne |
On performing forborne exposures |
On non- performing forborne exposures | |||||
Of which: defaulted |
Of which: impaired | Of which: collateral and financial guarantees received on non- performing exposures with forbearance measures | ||||||
€000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | |
Loans and advances13 | ||||||||
Central banks | - | - | - | - | - | - | - | - |
General governments | - | - | - | - | - | - | - | - |
Credit institutions | - | - | - | - | - | - | - | - |
Other financial corporations | 13,537 | 2,024 | 2,024 | 2,024 | 1,231 | 561 | 2,431 | 1,453 |
Non-financial corporations | 258,100 | 478,043 | 478,043 | 478,043 | 12,980 | 211,492 | 407,461 | 193,129 |
Households | 322,953 | 828,712 | 828,712 | 828,712 | 9,010 | 365,780 | 738,550 | 451,977 |
594,590 | 1,308,779 | 1,308,779 | 1,308,779 | 23,221 | 577,833 | 1,148,442 | 646,559 | |
Loans and advances to customers classified held for sale13 | 9,529 | 531,391 | 531,391 | 531,391 | 4,843 | 309,894 | 221,083 | 216,379 |
Debt securities | - | - | - | - | - | - | - | - |
Loans commitments given | 4,475 | 5,195 | 5,195 | 5,195 | - | - | 4,057 | 1,070 |
Total | 608,594 | 1,845,365 | 1,845,365 | 1,845,365 | 28,064 | 887,727 | 1,373,582 | 864,008 |
(13) Amounts presented are before fair value adjustment on initial recognition. The fair value adjustment on initial recognition relates to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans.
8. Other Pillar III disclosures (continued)
8.2 Forbearance (continued)
Credit quality of forborne exposures (continued)
31 December 2019 |
Gross carrying amount/nominal amount of exposures with forbearance measures | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Collateral received and financial guarantees received on forborne exposures | |||||
Performing forborne | Non-performing forborne |
On performing forborne exposures |
On non- performing forborne exposures | |||||
Of which: defaulted |
Of which: impaired | Of which: collateral and financial guarantees received on non- performing exposures with forbearance measures | ||||||
€000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | |
Loans and advances14 | ||||||||
Central banks | - | - | - | - | - | - | - | - |
General governments | - | - | - | - | - | - | - | - |
Credit institutions | - | - | - | - | - | - | - | - |
Other financial corporations | 16,123 | 2,366 | 2,366 | 2,366 | 1,004 | 462 | 5,269 | 1,885 |
Non-financial corporations | 479,300 | 737,602 | 737,602 | 603,551 | 11,287 | 337,290 | 728,430 | 323,550 |
Households | 331,312 | 1,245,937 | 1,245,937 | 1,235,124 | 12,651 | 513,772 | 1,016,919 | 716,559 |
826,735 | 1,985,905 | 1,985,905 | 1,841,041 | 24,942 | 851,524 | 1,750,618 | 1,041,994 | |
Loans and advances to customers classified held for sale14 | 163 | 45,028 | 45,028 | 45,028 | 9 | 37,429 | 3,381 | 3,376 |
Debt securities | - | - | - | - | - | - | - | - |
Loans commitments given | 5,698 | 9,233 | 9,233 | 9,233 | - | - | 5,265 | - |
Total | 832,596 | 2,040,166 | 2,040,166 | 1,895,302 | 24,951 | 888,953 | 1,759,264 | 1,045,370 |
(14) Amounts presented are before fair value adjustment on initial recognition. The fair value adjustment on initial recognition relates to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans.
8. Other Pillar III disclosures (continued)
8.3 Exposures subject to measures applied in response to the COVID-19 crisis
The table below provides an overview of the credit quality of loans and advances subject to moratorium on loan repayments applied in the light of the COVID-19 crisis. The type of eligible moratorium granted was the suspension of instalments of capital and interest for a period of nine months. Moratorium was applied to all eligible individuals or legal entities across different sectors.
Gross carrying amount | Accumulated impairment, accumulated negative changes in fair value due to credit risk | Gross carrying amount | |||||||||||||
Performing | Non performing | Performing | Non performing |
Inflows to non- performing exposures | |||||||||||
30 June 2020 |
Of which: Exposures with forbearance measures | Of which: Instruments with significant increase in credit risk since initial recognition but not credit- impaired (Stage 2) |
Of which: Exposures with forbearance measures | Of which: Unlikely to pay that are not past- due or past- due <= 90 days |
Of which: Exposures with forbearance measures | Of which: Instruments with significant increase in credit risk since initial recognition but not credit- impaired (Stage 2) |
f |
Of which: Exposures with orbearance measures | Of which: unlikely to pay that are not past- due or past-due 90 days | ||||||
€000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | |
Loans and advances subject to moratorium |
5,917,521 |
5,516,814 |
- |
1,309,953 |
400,707 |
- |
293,003 |
129,887 |
35,135 |
- |
23,170 |
94,753 |
- |
65,348 |
533 |
Of which: Households | 2,147,703 | 1,985,005 | - | 565,867 | 162,698 | - | 82,526 | 60,248 | 18,904 | - | 12,979 | 41,345 | - | 21,165 | 270 |
of which: Collateralised by residential immovable property |
1,769,543 |
1,639,294 |
- |
444,944 |
130,248 |
- |
68,523 |
42,068 |
13,817 |
- |
10,100 |
28,251 |
- |
14,184 |
206 |
of which: Non- financial corporations | 3,690,601 | 3,453,834 | - | 710,030 | 236,767 | - | 209,320 | 68,642 | 15,274 | - | 9,416 | 53,368 | - | 44,155 | 263 |
of which: Small and Medium-sized Enterprises |
2,777,823 |
2,667,678 |
- |
521,642 |
110,144 |
- |
83,176 |
39,889 |
11,498 |
- |
6,644 |
28,391 |
- |
19,432 |
263 |
of which: Collateralised by commercial immovable property |
3,243,516 |
3,066,674 |
- |
614,089 |
176,842 |
- |
156,228 |
33,206 |
10,199 |
- |
5,841 |
23,008 |
- |
16,800 |
85 |
The forbearance measure column above refers to forbearance measures granted post the moratorium date being 29 March 2020. Moratorium refers to the suspension of capital and interest payments until 31 December 2020 for natural persons, self-employed persons and businesses made available for all eligible borrowers with no arrears for more than 30 days as at 29 February 2020. This was passed through a bill in Parliament on 29 March 2020.
8. Other Pillar III disclosures (continued)
8.3 Exposures subject to measures applied in response to the COVID-19 crisis (continued)
The table below provides an overview of the volume of loans and advances subject to legislative and non-legislative moratorium by residual maturity of this moratorium. The moratorium length applied was for nine months, ending 31 December 2020.
Number of obligors | Gross carrying amount | ||||||||
Of which: Legislative moratorium |
Of which: expired | Residual maturity of moratorium | |||||||
<= 3 months | >3 months <= 6 months | >6 months <= 9 months | >9months <= 12 months |
>1 year | |||||
€000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | ||
Loans and advances for which moratorium was offered | 24,838 | 5,944,250 | |||||||
Loans and advances subject to moratorium (granted) | 24,818 | 5,917,521 | 5,917,521 | - | - | - | 5,917,521 | - | - |
of which: Households | 2,147,703 | 2,147,703 | - | - | - | 2,147,703 | - | - | |
of which: Collateralised by residential immovable property | 1,769,543 | 1,769,543 | - | - | - | 1,769,543 | - | - | |
of which: Non-financial corporations | 3,690,601 | 3,690,601 | - | - | - | 3,690,601 | - | - | |
of which: Small and Medium-sized Enterprises | 2,777,823 | 2,777,823 | - | - | - | 2,777,823 | - | - | |
of which: Collateralised by commercial immovable property | 3,243,516 | 3,243,516 | - | - | - | 3,243,516 | - | - | |
The Group has not granted newly originated loans and advances under newly applicable public guarantee schemes introduced in response to
COVID-19 crisis.
8. Other Pillar III disclosures (continued)
8.4 Mark-to-Market Method for Derivatives and Financial Collateral Comprehensive Approach for Security Financing Transactions
Derivative exposure values are calculated by applying the Mark-to-market Method of the CRR whereby the exposure value is the sum of:
· Positive mark-to-market after taking into account: (a) Accrued interest
(b) Netting within each counterparty (where set-off agreement exists)
Potential future credit exposure: Add-on amount equal to a percentage of the nominal amount of each deal based on its remaining maturity and the type of contract.
The mark-to-market of derivatives is calculated using the Net Present Value (NPV) of future cash flows method. Where the derivatives are under ISDA, article 298 of the CRR is applied whereby the single derivative exposure
values under the particular agreement are netted in the manner described by paragraph 1(c) of article 298 of the CRR.
In the case where a Credit Support Annex (CSA) agreement is in place (and the relevant amount has already been settled) the exposure is set to zero, since no credit risk exists.
SFT exposure values are calculated by applying the Financial Collateral Comprehensive Approach of the CRR
and the appropriate supervisory volatility adjustments whereby the exposure value is net of:
· Security value posted as collateral which is the sum of its book value and an appropriate add-on based on supervisory volatility adjustments. The appropriate supervisory volatility adjustments are based on the type of security, its issuer, their external credit assessment and their residual maturity.
· The cash received under the repurchase agreement transaction.
Only Cyprus has derivative and SFT transactions. All SFT transactions are performed with Institutions.
30 June 2020 | 31 December 2019 | |
€000 | €000 | |
Institutions | 28,616 | 17,737 |
Corporates | 970 | 718 |
Retail | 25 | 15 |
Claims on institutions and corporates with a short-term credit assessment |
946 |
- |
Total | 30,557 | 18,470 |
The increase in exposure values relates to increased derivative exposure values.
The table below shows the analysis of CCR per approach. All rows and columns that are not relevant to the
institution's activities or methods applied are not included.
8. Other Pillar III disclosures (continued)
8.4 Mark-to-Market Method for Derivatives and Financial Collateral Comprehensive Approach for Security Financing Transactions (continued)
EU CCR1 - Analysis of the Counterparty Credit Risk (CCR) exposure by approach
Replacement cost/current market value |
Potential future credit exposure | Exposure at Default (EAD) post Credit Risk Mitigation (CRM) |
RWAs | |
30 June 2020 | €000 | €000 | €000 | €000 |
Mark to market |
4,032 |
11,889 |
13,497 |
3,659 |
Financial collateral comprehensive method (for SFTs) |
17,060 |
8,530 | ||
Total | 12,189 |
31 December 2019 | ||||
Mark to market | 620 | 8,385 | 733 | 699 |
Financial collateral comprehensive method (for SFTs) |
17,737 |
8,869 | ||
Total | 9,568 |
The increase in the RWAs in derivative transactions under the mark-to-market method stems from increased derivative exposure values. The decrease in the SFT RWAs under the financial collateral comprehensive method stems from the overall decrease in balance sheet values in SFT transactions.
8. Other Pillar III disclosures (continued)
8.5 Regulatory CVA charge for capital calculation
The table below provides a summary of the exposure subject to CVA regulatory calculations. All rows that are not relevant to the Group's activities or methods applied are not included.
EU CCR2 - CVA capital charge
30 June 2020 | 31 December 2019 | ||||
Exposure value |
RWA | Exposure value |
RWA | ||
€000 | €000 | €000 | €000 | ||
4 | All portfolios subject to the standardised method |
30,558 |
3,372 |
18,470 |
3,050 |
5 | Total subject to the CVA capital charge | 30,558 | 3,372 | 18,470 | 3,050 |
8.6 CCR exposures by regulatory portfolio and risk
The table below provides a breakdown of all CCR exposures, calculated under the Standardised Approach, by portfolio (type of counterparties) and by risk weight. All rows and columns that are not relevant to the Group's activities are not included.
EU CCR3 - Standardised approach - CCR exposures by regulatory portfolio and risk
Exposure classes | Risk Weights |
Total |
Of which unrated15 | |||||
2% |
20% |
50% |
75% |
100% | ||||
30 June 2020 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | |
6 | Institutions | 2,744 | 7,541 | 18,332 | - | - | 28,617 | - |
7 | Corporates | - | - | - | - | 970 | 970 | 970 |
8 | Retail | - | - | - | 25 | - | 25 | 25 |
9 | Institutions and corporates with a short-term credit assessment |
- |
- |
946 |
- |
- |
946 |
- |
11 | Total | 2,744 | 7,541 | 19,278 | 25 | 970 | 30,558 | 995 |
31 December 2019 | ||||||||
6 | Institutions | - | - | 17,737 | - | - | 17,737 | - |
7 | Corporates | - | - | - | - | 718 | 718 | 718 |
8 | Retail | - | - | - | 15 | - | 15 | 15 |
11 | Total | - | - | 17,737 | 15 | 718 | 18,470 | 733 |
The overall allocation of exposure values among exposure classes remains unchanged. The overall increase in exposure values in 'Institutions' and 'Institutions and corporates with a short-term credit assessment' is the result of increased derivative transactions.
(15) Includes all exposures for which an issue/issuer or country rating (where applicable) is not available or they follow a uniform regulatory treatment under the standardised approach of the CRR.
8. Other Pillar III disclosures (continued)
8.7 Gross Positive Fair Value of Contracts, Netting Benefits, Netted Current Credit Exposure, Collateral held and Net Derivatives Credit Exposure
The gross positive fair value of Group derivative contacts, which mainly consist of IRS and FX contracts, is presented in the table below:
Gross positive fair value | 30 June 2020 | 31 December 2019 |
€000 | €000 | |
Cyprus and Group | 16,027 | 23,040 |
The Bank has netting benefits for the derivatives, through the ISDA/CSA agreements signed with the majority of counterparties. The netted credit exposure for the Group derivative contracts (without considering collateral arrangements), is presented in the table below:
Netted credit exposure | 30 June 2020 | 31 December 2019 |
€000 | €000 | |
Cyprus and Group | 4,032 | 620 |
Net derivative credit exposure | 30 June 2020 | 31 December 2019 |
€000 | €000 | |
Cyprus and Group | 1,642 | 150 |
The net credit exposure of Group derivative contracts, after considering both the benefits from legally enforceable netting agreements and collateral arrangements, is presented in the table below. Collateral received through the CSA agreements from counterparties as at 30 June 2020 was €2,390 thousand (31
December 2019: €470 thousand).
EU CCR5-A Impact of netting and collateral held on exposure values
Gross positive fair value or net carrying amount |
Netting benefits | Netted current credit exposure |
Collateral held |
Net credit exposure | |
30 June 2020 | €000 | €000 | €000 | €000 | €000 |
Derivatives | 16,027 | 11,995 | 4,032 | 2,390 | 1,642 |
SFTs | 17,060 | - | 17,060 | - | 17,060 |
Cross-product netting | - | - | - | - | - |
Total | 33,087 | 11,995 | 21,092 | 2,390 | 18,702 |
31 December 2019 | |||||
Derivatives | 23,040 | 22,420 | 620 | 470 | 150 |
SFTs | 17,737 | - | 17,737 | - | 17,737 |
Cross-product netting | - | - | - | - | - |
Total | 40,777 | 22,420 | 18,357 | 470 | 17,887 |
8. Other Pillar III disclosures (continued)
8.8 Composition of collateral for exposures to CCR
A breakdown of all types of collateral posted or received by banks to support or reduce CCR exposures, is presented below:
EU CCR5-B Composition of collateral for exposures to CCR
30 June 2020 |
Collateral used in derivative transactions | Collateral used in SFTs | ||||
Fair value of collateral received | Fair value of posted collateral | Fair value of collateral received |
Fair value of posted collateral | |||
Segregated |
Unsegregated |
Segregated |
Unsegregated | |||
€000 | €000 | €000 | €000 | €000 | €000 | |
Cash | - | 2,390 | 51,461 | 3,592 | - | 3,886 |
Total | - | 2,390 | 51,461 | 3,592 | - | 3,886 |
31 December 2019 | ||||||
Cash | - | 470 | 28,610 | 7,907 | - | 4,587 |
Total | - | 470 | 28,610 | 7,907 | - | 4,587 |
Increase in Mark to Market losses of the outstanding derivative transactions since last reporting date; translate into higher posted amount in the case of derivatives. The lower posted amount in SFTs is as a result of REPO maturity.
8.9 EU CR1-A Credit quality of exposures by exposure class and instrument
The gross carrying value relates to the contractual balances before any impairments made via an allowance or via a direct reduction in the carrying amount according to the applicable accounting framework. Column (c) represents the value adjustment used in the calculation of the RWAs including any other own funds reductions, while column (e) is a subset of column (c) and represents the partial and total amount of principal and past-due interest of any on-balance sheet instrument that is derecognised because the institution has no reasonable expectations of recovering the contractual cash-flows. Column (f) includes changes in column (c) between the current and the previous year calculated at exposure class level.
The amounts included in column (a) represent all defaulted exposures in accordance with Article 178 of the CRR. Row 'Exposures in default' is an informative row which is not included in the rows 'Total standardised approach' and 'Total'. Column (a) summarises the defaulted exposures that have been reported in exposure class 'Exposures in default' according to Article 112(j) of the CRR and it includes the defaulted exposures in all other exposure classes except for 'Items associated with particularly high risk' and 'Equity Exposures' which is included in row 'Other'.
8. Other Pillar III disclosures (continued)
8.9 EU CR1-A Credit quality of exposures by exposure class and instrument (continued) Materiality applied: All exposure classes that do not exceed 1% of total net exposures have been included in
'Other'.
EU CR1-A Credit quality of exposures by exposure class and instrument
a | b | c | d | e | f | g | |
Gross carrying values of |
Specific credit risk adjustment |
General credit risk adjustment |
Accumulated write-offs | Credit risk adjustment charges of the period | Net values | ||
Defaulted exposures | Non- defaulted exposures |
(a+b-c-d) | |||||
30 June 2020 | €000 | €000 | €000 | €000 | €000 | €000 | €000 |
Central governments or central banks | - | 6,551,509 | 1,584 | - | - | 463 | 6,549,925 |
Institutions | - | 868,933 | 123 | - | - | (94,340) | 868,810 |
Corporates | 2,065,874 | 4,486,990 | 1,566,510 | - | 971,975 | 56,406 | 4,986,354 |
Of which: SMEs | 863,671 | 2,833,983 | 738,779 | - | 428,994 | 20,148 | 2,958,875 |
Retail | 2,036,281 | 2,482,288 | 1,693,539 | - | 822,404 | (112,307) | 2,825,030 |
Of which: SMEs | 471,578 | 721,941 | 377,787 | - | 167,814 | (66,404) | 815,732 |
Secured by mortgages on immovable property |
1,081,883 |
3,557,843 |
352,185 |
- |
135,832 |
148,126 |
4,287,541 |
Of which: SMEs | 196,913 | 821,255 | 56,914 | - | 22,839 | 18,303 | 961,254 |
Exposures in default | 5,184,038 | - | 3,440,173 | - | - | (32,806) | 1,743,865 |
Items associated with particularly high risk | 705,947 | 840,664 | 504,986 | - | 335,089 | (9,050) | 1,041,625 |
Other exposures | - | 1,970,585 | 55,604 | - | - | 31 | 1,914,981 |
Other | - | 608,745 | 2,588 | - | 487 | 144 | 606,157 |
Total standardised approach | 5,889,985 | 21,367,557 | 4,177,119 | - | 2,265,787 | (10,527) | 23,080,423 |
Total | 5,889,985 | 21,367,557 | 4,177,119 | - | 2,265,787 | (10,527) | 23,080,423 |
Of which: Loans | 5,724,621 | 16,813,767 | 4,102,204 | - | 2,265,787 | (9,711) | 18,436,184 |
Of which: Debt securities | - | 1,732,879 | 1,620 | - | - | 461 | 1,731,259 |
Of which: Off-balance sheet exposures | 165,364 | 805,993 | 17,691 | - | - | (1,308) | 953,666 |
8. Other Pillar III disclosures (continued)
8.9 EU CR1-A Credit quality of exposures by exposure class and instrument (continued)
EU CRI-A Credit quality of exposures by exposure class and instrument
a | b | c | d | e | f | g | |
Gross carrying values of |
Specific credit risk adjustment |
General credit risk adjustment |
Accumulated write-offs | Credit risk adjustment charges of the year | Net values | ||
Defaulted exposures | Non- defaulted exposures |
(a+b-c-d) | |||||
31 December 2019 | €000 | €000 | €000 | €000 | €000 | €000 | €000 |
Central governments or central banks | - | 6,148,482 | 1,121 | - | - | (167) | 6,147,361 |
Institutions | 94,362 | 631,336 | 94,463 | - | 94,361 | 343 | 631,235 |
Corporates | 1,980,168 | 4,510,952 | 1,510,104 | - | 1,015,450 | (2,989,983) | 4,981,016 |
Of which: SMEs | 939,586 | 2,813,177 | 718,631 | - | 454,454 | (2,630,529) | 3,034,132 |
Retail | 2,377,876 | 2,575,805 | 1,805,846 | - | 960,359 | (156,508) | 3,147,835 |
Of which: SMEs | 588,605 | 740,736 | 444,191 | - | 245,646 | (49,806) | 885,150 |
Secured by mortgages on immovable property | 1,095,592 | 3,313,286 | 204,059 | - | 91,147 | 2,135 | 4,204,819 |
Of which: SMEs | 189,552 | 751,264 | 38,611 | - | 17,862 | (20,763) | 902,205 |
Exposures in default | 5,547,999 | - | 3,472,979 | - | - | (3,123,512) | 2,075,020 |
Items associated with particularly high risk | 785,024 | 921,340 | 514,036 | - | 342,719 | (1,516,012) | 1,192,328 |
Other exposures | - | 2,050,695 | 55,573 | - | - | 55,515 | 1,995,122 |
Other | 85 | 630,982 | 2,444 | - | 485 | (3,022) | 628,623 |
Total Standardised approach | 6,333,107 | 20,782,878 | 4,187,646 | - | 2,504,521 | (4,607,699) | 22,928,339 |
Total | 6,333,107 | 20,782,878 | 4,187,646 | - | 2,504,521 | (4,607,699) | 22,928,339 |
Of which: Loans | 6,124,883 | 16,173,439 | 4,111,915 | - | 2,504,521 | (4,657,476) | 18,186,407 |
Of which: Debt securities | - | 1,665,186 | 1,159 | - | - | (137) | 1,664,027 |
Of which: Off - balance- sheet exposures | 208,140 | 860,189 | 18,999 | - | - | (5,604) | 1,049,330 |
The main drivers behind the overall decrease in net values are analysed in Section 3.1. In their majority they relate to a decrease in Gross carrying values of Defaulted exposures with fairly stable corresponding Specific credit adjustments and Accumulated write-offs and to an increase of the Gross carrying values of Non-defaulted exposures.
8. Other Pillar III disclosures (continued)
8.10 Credit quality of exposures by industry
The description in relation to the columns on the table below corresponds to the descriptions as provided for table included in section 8.9 above.
Industry 'Other services' includes exposures to Private individuals, Activities of extraterritorial organizations and bodies, Other services activities and Financial and Insurance activities.
Materiality applied: All industry sectors that do not exceed 1% of total net exposures have been included in row
'Other'. The industry groups that have been included in "Other" are agriculture, forestry and fishing, mining and quarrying, electricity, gas, steam and air conditioning supply, water supply, Information and communication,
human health services and social work activities, education and arts and entertainment and recreation, and
administrative and support service activities.
EU CR1-B Credit quality of exposures by industry or counterparty types
defaulted
8. Other Pillar III disclosures (continued)
8.10 Credit quality of exposures by industry (continued)
EU CRI-B Credit quality of exposures by industry or counter party types
a | b | c | d | e | f | g | |
Gross carrying values of |
Specific risk adjustment |
General credit risk adjustment |
Accumulated write-offs | Credit risk adjustment charges of the year | Net values | ||
Defaulted exposures | Non- defaulted exposures |
(a+b-c-d) | |||||
31 December 2019 | €000 | €000 | €000 | €000 | €000 | €000 | €000 |
Manufacturing | 240,225 | 510,417 | 162,848 | - | 96,128 | (249,905) | 587,794 |
Construction | 648,104 | 1,026,304 | 361,121 | - | 210,929 | (1,599,589) | 1,313,287 |
Wholesale and retail trade | 727,279 | 1,520,817 | 450,535 | - | 231,998 | (598,585) | 1,797,561 |
Transport and storage | 66,795 | 388,730 | 52,135 | - | 36,853 | (89,252) | 403,390 |
Accommodation and food service activities | 211,782 | 1,135,760 | 176,659 | - | 128,123 | (373,486) | 1,170,883 |
Real estate activities | 471,973 | 1,801,369 | 324,310 | - | 228,493 | (543,767) | 1,949,032 |
Professional, scientific and technical activities | 269,315 | 486,914 | 197,729 | - | 141,197 | (302,371) | 558,500 |
Public administration and defence, compulsory social security |
6 |
6,387,818 |
3,562 |
- |
486 |
(3,376) |
6,384,262 |
Other services | 3,289,065 | 6,702,911 | 2,207,246 | - | 1,299,427 | (595,255) | 7,784,730 |
Other | 408,563 | 821,838 | 251,501 | - | 130,887 | (252,113) | 978,900 |
Total | 6,333,107 | 20,782,878 | 4,187,646 | - | 2,504,521 | (4,607,699) | 22,928,339 |
The main drivers behind the overall decrease in net values are analysed in section 3.1. At their majority there is a decrease in Gross carrying values of Defaulted exposures across all industries with fairly sable corresponding Specific credit adjustments and Accumulated write-offs and to an increase the Gross carrying values of Non- defaulted exposures across all industries.
8. Other Pillar III disclosures (continued)
8.11 Credit quality of exposures by geography
The description in relation to the columns on the table below corresponds to the descriptions as provided for table included in section 8.9 above.
The country or geographical area in which the exposure is classified is driven by the country of residence/incorporation of the counterparty.
The materiality of geographical areas has been determined using the following threshold: All EU countries that do not exceed 1% of total net exposures have been included in 'Other countries' and all non-EU countries that do not exceed 1% of total net exposures have been included in 'Other geographical areas'. There are not any non-EU countries that exceed the 1% threshold. 'Supranational' exposures are included in 'Other geographical areas'.
EU CR1-C Credit quality of exposures by geography
a | b | c | d | e | f | g | |
Gross carrying value of |
Specific credit risk adjustment |
General credit risk adjustment |
Accumulated write-offs | Credit risk adjustment charges of the period | Net values | ||
Defaulted exposures | Non- defaulted exposures |
(a+b-c-d) | |||||
30 June 2020 | €000 | €000 | €000 | €000 | €000 | €000 | €000 |
EU Countries | 5,671,191 | 20,370,207 | 4,015,077 | - | 2,176,804 | (14,149) | 22,026,321 |
Cyprus | 5,145,111 | 18,812,140 | 3,569,635 | - | 1,855,780 | 54,193 | 20,387,616 |
United Kingdom | 301,780 | 301,583 | 244,299 | - | 181,479 | 24,208 | 359,064 |
France | 167 | 259,796 | 103 | - | 18 | 8 | 259,860 |
Greece | 31,196 | 333,435 | 24,246 | - | 5,439 | (97,231) | 340,385 |
Other countries | 192,937 | 663,253 | 176,794 | - | 134,088 | 4,673 | 679,396 |
Other geographical areas | 218,794 | 997,350 | 162,042 | - | 88,983 | 3,622 | 1,054,102 |
Total | 5,889,985 | 21,367,557 | 4,177,119 | - | 2,265,787 | (10,527) | 23,080,423 |
8. Other Pillar III disclosures (continued)
8.11 Credit quality of exposures by geography (continued)
EU CRI - C Credit quality of exposures by geography
a | b | c | d | e | f | g | |
Gross carrying value of |
Specific credit risk adjustment |
General credit risk adjustment |
Accumulated write-offs | Credit risk adjustment charges of the year | Net values | ||
Defaulted exposures | Non- defaulted exposures |
(a+b-c-d) | |||||
31 December 2019 | €000 | €000 | €000 | €000 | €000 | €000 | €000 |
EU Countries | 6,095,092 | 19,890,191 | 4,029,226 | - | 2,425,649 | (4,575,203) | 21,956,057 |
Cyprus | 5,464,822 | 18,364,022 | 3,515,442 | - | 2,025,982 | (4,483,466) | 20,313,402 |
United Kingdom | 302,061 | 246,878 | 220,091 | - | 160,462 | (5,532) | 328,848 |
France | 78 | 307,808 | 95 | - | 27 | 28 | 307,791 |
Greece | 132,609 | 339,603 | 121,477 | - | 101,645 | (18,000) | 350,735 |
Other countries | 195,522 | 631,880 | 172,121 | - | 137,533 | (68,233) | 655,281 |
Other geographical areas | 238,015 | 892,687 | 158,420 | - | 78,872 | (32,496) | 972,282 |
Total | 6,333,107 | 20,782,878 | 4,187,646 | - | 2,504,521 | (4,607,699) | 22,928,339 |
The main drivers behind the overall decrease in net values are analysed in section 3.1. At their majority they relate to Cyprus with a decrease in gross carrying values of Defaulted exposures with fairly stable corresponding Specific credit adjustments and Accumulated write-offs and to an increase in the gross carrying values of Non-defaulted.
8. Other Pillar III disclosures (continued)
8.12 Concentrations within Credit Risk Mitigation
The table below illustrates the effect of all CRM techniques applied in accordance with the CRR including the financial collateral comprehensive method. The exposure amount displayed in the table below is after the application of specific credit risk adjustments.
RWA density is a synthetic metric on the riskiness of each portfolio.
All rows and columns that are not relevant to the Group's activities are not included in the table below.
EU CR4 Standardised Approach - Credit risk exposure and Credit Risk Mitigation (CRM) effects
a | b | c | d | e | f | ||
30 June 2020 | Exposures before CCF and CRM | Exposures post CCF and CRM | RWAs and RWA density | ||||
Exposure classes | On-balance- sheet amount | Off-balance- sheet amount | On-balance- sheet amount | Off-balance- sheet amount |
RWAs |
RWA density | |
€000 | €000 | €000 | €000 | €000 | % | ||
1 | Central governments or central banks | 6,549,873 | 52 | 6,584,179 | - | 348,915 | 5.3 |
2 | Regional government or local authorities | 108,114 | 9,183 | 56,910 | 20 | 642 | 1.1 |
3 | Public sector entities | 64,910 | 699 | 64,909 | 16 | 5 | 0.0 |
4 | Multilateral development banks | 81,409 | - | 126,031 | - | - | 0.0 |
5 | International organisations | 107,074 | - | 107,074 | - | - | 0.0 |
6 | Institutions | 827,187 | 41,623 | 827,650 | 25,194 | 199,255 | 23.4 |
7 | Corporates | 3,231,466 | 1,177,228 | 3,057,823 | 226,953 | 2,930,769 | 89.2 |
8 | Retail | 1,466,710 | 965,141 | 1,200,834 | 73,165 | 905,477 | 71.1 |
9 | Secured by mortgages on immovable property | 3,453,414 | 61,100 | 3,347,154 | 30,146 | 1,229,928 | 36.4 |
10 | Exposures in default | 1,603,906 | 139,959 | 1,595,115 | 29,594 | 1,711,976 | 105.4 |
11 | Higher-risk categories | 865,113 | 176,512 | 795,312 | 31,392 | 1,240,055 | 150.0 |
12 | Covered bonds | 173,961 | - | 173,961 | - | 17,396 | 10.0 |
13 | Institutions and corporates with a short-term credit assessment |
- |
- |
- |
- |
- |
0.0 |
14 | Collective investment undertakings (CIUs) | 3,274 | - | 3,274 | - | 2,394 | 73.1 |
15 | Equity | 57,533 | - | 57,533 | - | 105,021 | 182.5 |
16 | Other items | 1,914,981 | - | 1,914,981 | - | 1,867,927 | 97.5 |
17 | Total | 20,508,925 | 2,571,497 | 19,912,740 | 416,480 | 10,559,760 | 51.9 |
8. Other Pillar III disclosures (continued)
8.12 Concentrations within Credit Risk Mitigation (continued)
EU CR4 Standardised Approach-Credit risk exposure and Credit Risk Mitigation (CRM) effects
(continued)
a | b | c | d | e | f | |
31 December 2019 | Exposures before CCF and CRM | Exposures post CCF and CRM | RWAs and RWA density | |||
Exposure classes | On-balance sheet amount | Off-balance sheet amount | On-balance sheet amount | Off-balance sheet amount |
RWAs | RWA density |
€000 | €000 | €000 | €000 | €000 | % | |
Central governments or central banks | 6,147,322 | 39 | 6,182,199 | - | 382,591 | 6.2 |
Regional government or local authorities | 116,832 | 12,619 | 65,688 | 20 | 542 | 0.8 |
Public sector entities | 81,720 | 719 | 81,698 | 41 | 9 | - |
Multilateral development banks | 112,144 | - | 158,415 | - | - | - |
International organisations | 107,307 | - | 107,307 | - | - | - |
Institutions | 579,003 | 52,231 | 579,047 | 27,127 | 179,648 | 29.6 |
Corporates | 3,323,220 | 1,122,883 | 3,157,118 | 214,653 | 3,353,301 | 99.5 |
Retail | 1,532,259 | 1,001,720 | 1,263,734 | 85,889 | 960,387 | 71.2 |
Secured by mortgages on immovable property | 3,221,557 | 57,013 | 3,115,178 | 28,998 | 1,180,406 | 37.5 |
Exposures in default | 1,899,021 | 175,999 | 1,879,130 | 34,366 | 2,053,619 | 107.3 |
Higher-risk categories | 980,729 | 211,599 | 895,399 | 41,167 | 1,404,849 | 150.0 |
Covered bonds | 163,331 | - | 163,331 | - | 16,333 | 10.0 |
Collective investment undertakings (CIUs) | 205 | - | 205 | - | 205 | 100.0 |
Equity | 33,745 | - | 33,745 | - | 80,275 | 237.9 |
Other items | 1,995,122 | - | 1,995,122 | - | 1,876,882 | 94.1 |
Total | 20,293,517 | 2,634,822 | 19,677,316 | 432,261 | 11,489,047 | 57.1 |
The main drivers behind the decrease in the RWAs intensity is explained in section 3.1.
8. Other Pillar III disclosures (continued)
8.12 Concentrations within Credit Risk Mitigation (continued)
The table below presents the exposure value excluding loans and advances classified as held for sale covered by financial collateral, other collateral, guarantees and credit derivatives.
EU CR3 Credit risk mitigation techniques overview
30 June 2020 | Exposures unsecured - carrying amount | Exposures secured - carrying amount | Exposures secured by collateral | Exposures secured by financial guarantees | Exposures secured by credit derivatives |
€000 | €000 | €000 | €000 | €000 | |
Total loans | 634,276 | 9,469,964 | 9,005,427 | 86,226 | - |
Total debt securities | 1,630,329 | 173,961 | 173,961 | - | - |
Total exposures | 2,264,605 | 9,643,925 | 9,179,388 | 86,226 | - |
Of which defaulted | 98,966 | 1,144,575 | 1,107,430 | 16,197 | - |
31 December 2019 | |||||
Total loans | 700,675 | 10,021,166 | 9,600,262 | 56,646 | - |
Total debt securities | 1,574,675 | 163,332 | 163,332 | - | - |
Total exposures | 2,275,350 | 10,184,498 | 9,763,594 | 56,646 | - |
Of which defaulted | 109,054 | 1,801,128 | 1,760,232 | 13,953 | - |
Exposures in unsecured debt securities were increased during the six months ended 30 June 2020 (from a total €1,575 million as at 31 December 2019 to a total €1,630 million as at 30 June 2020). This was driven by a combination of bonds maturity and acquisition of new debt securities, mainly Cyprus Government treasury bills, during the six months ended 30 June 2020.
Unsecured and secured loan exposures have decreased during the six months ended 30 June 2020 mainly due to the classification of Project Helix 2 portfolio as held for sale.
8.13 Breakdown of exposures by asset class and risk weight under the Standardised Approach
The exposures are disclosed post conversion factors and post risk mitigation techniques.
All rows and columns that are not relevant to the Group's activities are not included in the table below.
201
8. Other Pillar III disclosures (continued)
8.13 Breakdown of exposures by asset class and risk weight under the Standardised Approach (continued)
EU CR5 Standardised Approach
30 June 2020 | Risk weight |
Total |
Of which unrated16 | |||||||||||
0% | 2% | 10% | 20% | 35% | 50% | 75% | 100% | 150% | 250% | Other | Deducted | |||
Exposure classes | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 |
Central governments or central banks |
6,204,334 |
- |
- |
38,663 |
- |
- |
- |
341,182 |
- |
- |
- |
- |
6,584,179 |
341,181 |
Regional government or local authorities |
53,718 |
- |
- |
3,212 |
- |
- |
- |
- |
- |
- |
- |
- |
56,930 |
- |
Public sector entities | 64,902 | - | - | 23 | - | - | - | - | - | - | - | - | 64,925 | - |
Multilateral development banks |
126,031 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
126,031 |
81,409 |
International organisations | 107,074 | - | - | - | - | - | - | - | - | - | - | - | 107,074 | 107,074 |
Institutions | 1,236 | 2,744 | - | 780,616 | - | 86,820 | - | 9,242 | 802 | - | - | - | 881,460 | - |
Corporates | - | - | - | - | - | - | - | 3,246,179 | 39,567 | - | - | - | 3,285,746 | 3,226,191 |
Retail | - | - | - | - | - | - | 1,274,024 | - | - | - | - | - | 1,274,024 | 1,274,023 |
Secured by mortgages on immovable property |
- |
- |
- |
- |
2,569,897 |
807,403 |
- |
- |
- |
- |
- |
- |
3,377,300 |
3,377,300 |
Exposures in default | - | - | - | - | - | - | - | 1,450,177 | 174,532 | - | - | - | 1,624,709 | 1,624,708 |
Higher-risk categories | - | - | - | - | - | - | - | - | 826,704 | - | - | - | 826,704 | 826,704 |
Covered bonds | - | - | 173,961 | - | - | - | - | - | - | - | - | - | 173,961 | - |
Institutions and corporates with a short-term credit assessment |
- |
- |
- |
- |
- |
946 |
- |
- |
- |
- |
- |
- |
946 |
- |
Collective investment undertakings (CIUs) |
- |
- |
- |
282 |
- |
1,308 |
- |
1,684 |
- |
- |
- |
- |
3,274 |
3,203 |
Equity | - | - | - | - | - | - | - | 25,875 | - | 31,658 | - | - | 57,533 | 57,533 |
Other items | 115,856 | - | - | 42,543 | - | - | - | 1,707,797 | - | - | 48,785 | 47,835 | 1,962,816 | 1,962,817 |
Total | 6,673,151 | 2,744 | 173,961 | 865,339 | 2,569,897 | 896,477 | 1,274,024 | 6,782,136 | 1,041,605 | 31,658 | 48,785 | 47,835 | 20,407,612 | 12,882,143 |
(16) Includes all exposures for which an issue/issuer or country rating is not available or they follow uniform regulatory treatment.
8. Other Pillar III disclosures (continued)
8.13 Breakdown of exposures by asset class and risk weight under the Standardised Approach (continued)
EU CR5 Standardised Approach
December 2019 | Risk weight | |||||||||||||
0% | 4% | 10% | 20% | 35% | 50% | 75% | 100% | 150% | 250% | Other | Deducted | Total | Of which unrated17 | |
Exposure classes | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 | €000 |
Central governments or central banks | 5,780,040 | - | 11,308 | 11,417 | - | - | - | 379,091 | - | - | 343 | - | 6,182,199 | 379,091 |
Regional government or local authorities | 62,999 | - | - | 2,709 | - | - | - | - | - | - | - | - | 65,708 | - |
Public sector entities | 81,694 | - | - | 45 | - | - | - | - | - | - | - | - | 81,739 | - |
Multilateral development banks | 158,415 | - | - | - | - | - | - | - | - | - | - | - | 158,415 | 112,144 |
International organisations | 107,307 | - | - | - | - | - | - | - | - | - | - | - | 107,307 | 107,307 |
Institutions | 1,273 | - | - | 500,765 | - | 91,349 | - | 6,167 | 24,357 | - | - | - | 623,911 | - |
Corporates | - | - | - | - | - | - | - | 3,331,306 | 41,183 | - | - | - | 3,372,489 | 3,315,705 |
Retail | - | - | - | - | - | - | 1,349,638 | - | - | - | - | - | 1,349,638 | 1,349,635 |
Secured by mortgages on immovable property | - | - | - | - | 2,400,232 | 743,944 | - | - | - | - | - | - | 3,144,176 | 3,144,175 |
Exposures in default | - | - | - | - | - | - | - | 1,633,250 | 280,246 | - | - | - | 1,913,496 | 1,913,495 |
Higher-risk categories | - | - | - | - | - | - | - | - | 936,566 | - | - | - | 936,566 | 936,565 |
Covered bonds | - | - | 163,331 | - | - | - | - | - | - | - | - | - | 163,331 | - |
Collective investment undertakings (CIUs) | - | - | - | - | - | - | - | 205 | - | - | - | - | 205 | 205 |
Equity | - | - | - | - | - | - | - | 2,725 | - | 31,020 | - | - | 33,745 | 33,745 |
Other items | 151,551 | - | - | 50,471 | - | - | - | 1,756,256 | - | - | 36,844 | 51,204 | 2,046,326 | 2,046,326 |
Total | 6,343,279 | - | 174,639 | 565,407 | 2,400,232 | 835,293 | 1,349,638 | 7,109,000 | 1,282,352 | 31,020 | 37,187 | 51,204 | 20,179,251 | 13,338,393 |
The main drivers behind the overall decrease in net values are analysed in section 3.1 which are presented by the shift of exposure values from higher RWs to lower RWs across all exposure classes. "Other" risk weights in exposure class "Other items" includes the book value of properties held for sale that have been on-boarded after a failed auction and risk weight exceeds the normal 100% risk weight following SREP recommendation.
(17) Includes all exposures for which an issue/issuer or country rating is not available or they follow uniform regulatory treatment.
8. Other Pillar III disclosures (continued)
8.14 Securitisation positions
Securitisation results from a transaction or scheme whereby the credit risk associated with an exposure or pool of exposures is tranched having both of the following characteristics:
(a) payments in the transaction or scheme are dependent upon the performance of the exposure or pool of exposures; and
(b) the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme.
During 2019, the Group disposed a portfolio of loans and advances to customers with a gross book value of €2.8 billion (of which €2.7 billion related to non-performing loans) (the Portfolio) and stock of property with carrying value amounting to €109 million (known as 'Project Helix' or the 'Transaction') and stock of property (known as
'Project Helix' or the 'Transaction') through the transfer of the Portfolio by BOC PCL to a licensed Cypriot Credit
Acquiring Company (the 'CyCAC').
BOC PCL received consideration of c.€1,186 million on completion, reflecting adjustments resulting from, inter alia, loan repayments received on the Portfolio since the reference date of 31 March 2018, of which €45 million concern the BOC PCL participation in the senior debt issued to finance the transaction, representing c.4% of the total acquisition funding. Other than the above, BOC PCL has no other securitisation positions. This transaction has been classified as a Traditional Securitisation. In June 2019 the Group has derecognised the disposed portfolio relating to Project Helix.
The senior debt is classified as an investment in debt securities at amortised cost. A cash-flow based ECL approach is used for the calculation of the ECL of this senior term facility. For the calculation of the IFRS 9 provision and the setting of the IFRS 9 staging, three cash flow streams are used: The cash flows as per the Business Plan expectations (optimistic scenario), the cash flows under a baseline scenario (i.e. the Business Plan cash flows adjusted to take into account the actual payments of the facility up to date and the Bank's expectations for the future cash flows) and the cash flows under an adverse scenario (i.e. the Business Plan cash flows adjusted to take into account the actual payments of the facility up to date and the Bank's expectations for the future cash flows under an adverse scenario). The ECL is calculated as the weighted loss arising by comparing its IFRS gross carrying amount (calculated in the previous period) with the present value of expected cash flows under each of the three scenarios. In case no loss arises by comparing the above cash flows, the ECL is floored to the product of i) the balance sheet amount of the bond, ii) a 12-month PD of 3.31% which is based on the rating of the Bank which is single B and iii) a loss given default (LGD) of 10% which is the floor of the Basel 3 revised IRB framework based on residential and commercial real estate.
In addition to credit and liquidity risks, other inherent risks may stem from potential breaches in warranties and disclaimers in the agreement. BOC PCL does not have any material retained positions and there is no need for further hedging. No re-securitisations are applied.
BOC PCL being the originator (directly involved in the original agreement which created the obligations or potential obligations giving rise to the securitised exposures) in the Project Helix traditional securitisation transaction invested in the senior tranche of the debt securities issued whereby traditional securitisation means the economic transfer of the exposures being securitised (transfer of ownership).
8. Other Pillar III disclosures (continued)
8.14 Securitisation positions (continued)
BOC PCL has applied the Standardised Approach for securitization positions (SEC-SA) whereby a look-through approach is used in calculating the RWAs and capital requirements for the position held in the securitisation under article 261 of the EU Regulation 2017/2401 amending the CRR.
Traditional | |||
30 June 2020 | Exposure Value |
RWA | Capital Requirements |
Bank acts as originator | €000 | €000 | €000 |
Loans to corporates or SMEs (treated as corporates) |
36,919 |
42,162 |
3,373 |
Total | 36,919 | 42,162 | 3,373 |
31 December 2019 | |||
Bank acts as originator | |||
Loans to corporates or SMEs (treated as corporates) |
39,946 |
45,638 |
3,651 |
Total | 39,946 | 45,638 | 3,651 |
BOC PCL does not hold any re-securitisation positions or trading book securitization position.
DEFINITIONS
Allowance for expected loan credit losses
Allowance for expected loan credit losses comprises: (i) allowance for expected credit losses (ECL) on loans and advances to customers (including allowance for expected credit losses on loans and advances to customers held for sale), (ii) the residual fair value adjustment on initial recognition of loans and advances to customers (including residual fair value adjustment on initial recognition on loans and advances to customers held for sale), (iii) allowance for expected credit losses for off-balance sheet exposures (financial guarantees and commitments) disclosed on the balance sheet within other liabilities and (iv) the aggregate fair value adjustment on loans and advances to customers classified and measured at FVPL.
Cost to income ratio Cost to income ratio is calculated as the total staff costs (on an underlying basis as reconciled in the table further below), special levy on deposits and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF) (on an underlying basis as reconciled in the table further below), and other operating expenses (excluding 'Advisory and other restructuring costs-organic', any restructuring costs relating to NPE sales, and provisions for litigation, claims, regulatory and other matters) (on an underlying basis as reconciled in the table further below) divided by total income on the underlying basis (as defined below).
Digitally engaged customers ratio
This is the ratio of digitally engaged individual customers to the total number of individual customers. Digitally engaged customers are the individuals who use the digital channels of BOC PCL (mobile banking app, browser and ATMs) to perform banking transactions, as well as digital enablers such as a bank-issued card to perform online card purchases, based on an internally developed scorecard.
Gross loans Comprises: (i) gross loans and advances to customers measured at amortised cost before the residual fair value adjustment on initial recognition (including loans and advances to customers classified as non-current assets held for sale) and (ii) loans and advances to customers classified and measured at FVPL adjusted for the aggregate fair value adjustment.
Gross loans are reported before the residual fair value adjustment on initial recognition relating to loans acquired from Laiki Bank (calculated as the difference between the outstanding contractual amount and the fair value of loans acquired). This applies for loans and advances measured at amortised cost on the statutory basis.
Interest earning assets
Interest earning assets include: cash and balances with central banks, plus loans and advances to banks, plus net loans and advances to customers (including loans and advances to customers classified as non-current assets held for sale), plus investments (excluding equities and mutual funds).
Leverage ratio The leverage ratio is the ratio of tangible total equity (including Other equity instruments) to total assets as presented on the balance sheet.
Loan credit losses Loan credit losses comprise: (i) credit losses to cover credit risk on loans and advances to customers, (ii) net gains on derecognition of financial assets measured at amortised cost and (iii) net gains on loans and advances to customers at FVPL, for the reporting period.
Loan credit losses charge (cost of risk)
Loan credit losses charge (cost of risk) (year to date) is calculated as the loan credit losses (as defined) (annualised based on year to date days) divided by the average gross loans (as defined). The average balance is calculated as the average of the opening balance and the closing balance for the reporting period.
Net fee and commission income over total income
Fee and commission income less fee and commission expense divided by total income (as defined).
Net Interest Margin Net interest margin is calculated as the net interest income (per the underlying basis) (annualised based on year to date days) divided by the quarterly average interest earning assets (as defined). Quarterly average interest earning assets exclude interest earning assets of any discontinued operations at each quarter end, if applicable.
Net loans and advances to customers
Comprises gross loans (as defined) net of allowance for expected loan credit losses (as defined, but excluding allowance for expected credit losses on off- balance sheet exposures).
Net loans to deposits ratio
Net loans to deposits ratio is calculated as the gross loans (as defined) net of allowance for expected loan credit losses (as defined), divided by customer deposits.
New lending in the
Interim
Management Report
New lending includes the average YTD change (if positive) for overdraft facilities.
Non-performing exposures (NPEs)
As per the EBA standards and European Central Bank's (ECB) Guidance to Banks on Non-Performing Loans (which was published in March 2017), NPEs are defined as those exposures that satisfy one of the following conditions:
(i) The borrower is assessed as unlikely to pay its credit obligations in full without the realisation of the collateral, regardless of the existence of any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the
Capital Requirement Regulation (CRR), which would also trigger a default under specific credit adjustment, distress restructuring and obligor bankruptcy.
(iii) Material exposures as set by the Central Bank of Cyprus (CBC), which are more than 90 days past due.
(iv) Performing forborne exposures under probation for which additional forbearance measures are extended.
(v) Performing forborne exposures under probation that present more than 30 days past due within the probation period.
When a specific part of the exposures of a customer that fulfils the NPE criteria set out above is greater than 20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total customer exposure is classified as non-performing; otherwise only the specific part of the exposure is classified as non-performing.
The NPEs are reported before the deduction of allowance for expected loan credit losses (as defined).
Non-recurring items Non-recurring items as presented in the 'Consolidated Condensed Interim Income Statement on the underlying basis' relate to: (i) Advisory and other restructuring costs - organic, (ii) Provisions/net loss relating to NPE sales, including restructuring expenses, (iii) Loss on remeasurement of investment in associate upon classification as held for sale (CNP) net of share of profit from associates (for the six months ended 30 June 2019 only), and (iv) Reversal of impairment of deferred tax assets (DTA) and impairment of other tax receivables (for the six months ended 30 June 2019 only).
NPE coverage ratio The NPE coverage ratio is calculated as the allowance for expected loan credit losses (as defined) over NPEs (as defined).
NPE ratio The NPE ratio is calculated as the NPEs (as defined) divided by gross loans (as defined).
Operating profit Operating profit comprises profit before loan credit losses (as defined), impairments of other financial and non-financial assets, provisions for litigation, claims, regulatory and other matters, tax, (profit)/loss attributable to non- controlling interests and non-recurring items (as defined).
Operating profit return on average assets
Operating profit return on average assets is calculated as the annualised (based on year to date days) operating profit (on an underlying basis) (as defined) divided by the quarterly average of total assets for the relevant period. Average total assets exclude total assets of discontinued operations at each quarter end, if applicable.
Profit/(loss) after tax - organic (attributable to the owners of the Company)
Profit/(loss) after tax - organic (attributable to the owners of the Company) is the profit/(loss) after tax and before non-recurring items (as defined above) (attributable to the owners of the Company), except for the 'Advisory and other restructuring costs - organic'.
Total income Total income under the underlying basis comprises total of net interest income, net fee and commission income, net foreign exchange gains, net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates (excluding net gains on loans and advances to customers at FVPL), insurance income net of claims and commissions, net gains/(losses) from revaluation and disposal of investment properties, net gains on disposal of stock of property and other income (on the underlying basis). A reconciliation of these amounts between the statutory and the underlying bases is disclosed in the Interim Management Report under section 'Group financial results on the underlying basis'.
RECONCILIATIONS
For the purpose of the 'Definitions and explanations of Alternative Performance Measures Disclosures', reference to 'Note' relates to the respective note in the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2020.
1. (a) Reconciliation of Gross loans and advances to customers
30 June 2020 | 31 December 2019 | |
€000 | €000 | |
Gross loans and advances to customers (as defined above) | 12,491,427 | 12,821,838 |
Reconciling items: | ||
Residual fair value adjustment on initial recognition (Note 29.2) | (179,479) | (201,999) |
Loans and advances to customers classified as held for sale (Note 29.7) |
(910,972) |
(173,881) |
Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (Note 29.7) |
(31,168) |
(11,083) |
Loans and advances to customers measured at fair value through profit and loss (Note 16) |
(293,541) |
(369,293) |
Aggregate fair value adjustment on loans and advances to customers measured at fair value through profit or loss |
(37,014) |
(57,436) |
Gross loans and advances to customers at amortised cost as per the Consolidated Condensed Interim Financial Statements (Note 16) |
11,039,253 |
12,008,146 |
1. (b) Reconciliation of Loans and advances to customers classified as held for sale
30 June 2020 | 31 December 2019 | |
€000 | €000 | |
Loans and advances to customers classified as held for sale as per the underlying basis |
942,140 |
184,964 |
Reconciling items: | ||
Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (Note 29.7) |
(31,168) |
(11,083) |
Loans and advances to customers classified as held for sale as per the Consolidated Condensed Interim Financial Statements (Note 19) |
910,972 |
173,881 |
2. (a) Reconciliation of Allowance for expected credit losses on loans and advances to customers (ECL)
30 June 2020 | 31 December 2019 | |
€000 | €000 | |
Allowance for expected credit losses on loans and advances to customers (as defined above) |
2,043,229 |
2,096,180 |
Reconciling items: | ||
Residual fair value adjustment on initial recognition (Note 29.2) | (179,479) | (201,999) |
Aggregate fair value adjustment on loans and advances to customers measured at fair value through profit or loss |
(37,014) |
(57,436) |
Allowance for expected credit losses on loans and advances to customers classified as held for sale (Note 29.8) |
(549,320) |
(147,952) |
Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (Note 29.7) |
(31,168) |
(11,083) |
Provisions for financial guarantees and commitments (Note 23) | (17,694) | (22,112) |
Allowance for ECL for impairment of loans and advances to customers as per the Consolidated Condensed Interim Financial Statements (Note 16) |
1,228,554 |
1,655,598 |
2. (b) Reconciliation of Allowance for expected credit losses on loans and advances to customers classified as held for sale (ECL)
30 June 2020 | 31 December 2019 | |
€000 | €000 | |
Allowance for expected credit losses on loans and advances to customers classified as held for sale as per the underlying basis |
580,488 |
159,035 |
Reconciling items: | ||
Residual fair value adjustment on initial recognition on loans and advances to customers classified as held for sale (Note 29.7) |
(31,168) |
(11,083) |
Allowance for ECL for impairment of loans and advances to customers classified as held for sale as per the Consolidated Condensed Interim Financial Statements (Note 19) |
549,320 |
147,952 |
3. Reconciliation of NPEs
30 June 2020 | 31 December 2019 | |
€000 | €000 | |
NPEs (as defined above) | 3,467,878 | 3,879,508 |
Reconciling items: | ||
Loans and advances to customers (NPEs) classified as held for sale (Note 1 below) |
(897,344) |
(172,880) |
Residual fair value adjustment on initial recognition on loans and advances to customers (NPEs) classified as held for sale (Note 2 below) |
(31,527) |
(11,096) |
Loans and advances to customers measured at fair value through profit and loss (NPEs) |
(116,103) |
(144,866) |
POCI (NPEs) (Note 3 below) | (334,897) | (511,933) |
Stage 3 gross loans and advances to customers at amortised cost as per the Consolidated Condensed Interim Financial Statements (Note 29.6) |
2,088,007 |
3,038,733 |
NPE ratio | ||
NPEs (as per table above) (€000) | 3,467,878 | 3,879,508 |
Gross loans and advances to customers (as per table above) (€000) |
12,491,427 |
12,821,838 |
Ratio of NPE/Gross loans (%) | 27.8% | 30.3% |
Note 1: Gross loans at amortised cost after residual fair value adjustment on initial recognition
classified as held for sale include an amount of €761,863 thousand Stage 3 loans (31 December 2019:
€150,206 thousand Stage 3 loans) and an amount of €135,480 thousand POCI - Stage 3 loans (out of a total of €135,487 thousand POCI loans) (31 December 2019: €22,674 thousand POCI - Stage 3 loans (out of a total of €22,679 thousand POCI loans) as disclosed in Note 29.7 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2020.
Note 2: Residual fair value adjustment on initial recognition of loans and advances to customers
classified as held for sale includes an amount of €5,235 thousand for Stage 3 loans (31 December
2019: €3,402 thousand for Stage 3 loans) and an amount of €26,292 thousand for POCI - Stage 3 loans (31 December 2019: €7,694 thousand for POCI - Stage 3 loans) as disclosed in Note 29.7 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2020.
Note 3: Gross loans and advances to customers at amortised cost before residual fair value adjustment on initial recognition include an amount of €334,897 thousand POCI - Stage 3 loans (out of a total of
€442,656 thousand POCI loans) (31 December 2019: €511,933 thousand POCI - Stage 3 loans (out of
a total of €627,212 thousand POCI loans)) as disclosed in Note 29.6 of the Consolidated Condensed
Interim Financial Statements for the six months ended 30 June 2020.
4. Reconciliation of Loan credit losses
Six months ended 30 June | ||
2020 | 2019 | |
€000 | €000 | |
Loan credit losses per the underlying basis | 87,425 | 86,883 |
Reconciling items: | ||
Loan credit losses relating to Helix portfolio and NPE sales, disclosed under non-recurring items within 'Provisions/net loss relating to NPE sales, including restructuring expenses' under the underlying basis |
90,662 |
16,582 |
178,087 | 103,465 | |
Loan credit losses (as defined) are reconciled to the statutory basis as follows: | ||
Credit losses to cover credit risk on loans and advances to customers (Note 10) |
183,711 |
108,911 |
Net gains on derecognition of financial assets measured at amortised cost (Interim Consolidated Income Statement) |
(2,617) |
(5,429) |
Net gains on loans and advances to customers at FVPL (Note 8) | (3,007) | (17) |
178,087 | 103,465 | |
RATIO INFORMATION
For the purpose of the 'Definitions and explanations of Alternative Performance Measures Disclosures', reference to 'Note' relates to the respective note in the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2020.
1. Net Interest Margin
Reconciliation of the various components of net interest margin from the underlying basis to the statutory basis is provided below:
Six months ended 30 June | ||
2020 | 2019 | |
1.1. Reconciliation of Net interest income | €000 | €000 |
Net interest income as per the underlying basis | 167,800 | 170,147 |
Reclassifications for: | ||
Net interest income relating to the Helix portfolio, disclosed under non-recurring items within 'Provisions/net loss relating to NPE sales, including restructuring expenses' under the underlying basis |
- |
33,962 |
Net interest income as per the statutory basis | 167,800 | 204,109 |
Net interest income used in the calculation of NIM (annualised) |
337,444 |
343,114 |
1.2. Interest earning assets | 30 June 2020 | 31 March 2020 | 31 December 2019 |
€000 | €000 | €000 | |
Cash and balances with central banks | 5,276,398 | 4,398,781 | 5,060,042 |
Loans and advances to banks | 621,960 | 455,284 | 320,881 |
Loans and advances to customers | 10,104,240 | 10,596,536 | 10,721,841 |
Loans and advances to customers held for sale (Note 19) |
361,652 |
23,700 |
25,929 |
Investments | |||
Debt securities (Note 13) | 1,804,290 | 1,781,992 | 1,738,007 |
Less: Investments which are not interest bearing | (23,887) | (21,496) | (23,593) |
Total interest earning assets | 18,144,653 | 17,234,797 | 17,843,107 |
1.3. Quarterly average interest earning assets (€000) | |||
- as at 30 June 2020 | 17,740,852 | ||
- as at 30 June 2019 | 18,270,814 |
2. Cost to income ratio
2.1. Reconciliation of the various components of total expenses used in the cost to income ratio calculation from the underlying basis to the statutory basis is provided below:
Six months ended 30 June | ||
2020 | 2019 | |
€000 | €000 | |
2.1.1. Reconciliation of Staff costs | ||
Total Staff costs as per the underlying basis | 96,208 | 111,500 |
Reclassifications for: | ||
Staff costs relating to the Helix portfolio, reclassified under the underlying basis to 'Provisions/net loss relating to NPE sales, including restructuring expenses' |
- |
2,744 |
Total Staff costs as per the statutory basis | 96,208 | 114,244 |
2.1.2. Reconciliation of Other operating expenses | ||
Total Other operating expenses as per the underlying basis | 68,633 | 84,398 |
Reclassifications for: | ||
Operating expenses relating to the Helix portfolio, presented within 'Provisions/net loss relating to NPE sales, including restructuring expenses' under the underlying basis |
12,000 |
12,209 |
Provisions/(reversal of provisions) for litigation, claims, regulatory and other matters, separately presented under the underlying basis |
4,044 |
(2,683) |
Advisory and other restructuring costs - organic, separately presented under the underlying basis (restated*) |
6,183 |
10,178 |
Restructuring costs relating to the Helix portfolio and NPE sales, presented within 'Provisions/net loss relating to NPE sales, including restructuring expenses' under the underlying basis (restated*) |
3,704 |
8,865 |
Total Other operating expenses as per the statutory basis | 94,564 | 112,967 |
*Reclassifications made to comparative information of the underlying basis were made so that advisory and other restructuring costs for the six months ended 30 June 2019 of €1,285 thousand (relating to Project Helix 2 loan portfolio, which was classified as held for sale as at 30 June 2020), previously reported within 'Advisory and other restructuring costs - organic', were disclosed under non-recurring items within 'Provisions/net loss relating to NPE sales, including restructuring expenses' under the underlying basis.
2. Cost to income ratio (continued)
Six months ended 30 June | ||
2020 | 2019 | |
€000 | €000 | |
2.1.3. Special levy on deposits on credit institutions in Cyprus, contribution to Single Resolution Fund and other levies | ||
Special levy on deposits on credit institutions in Cyprus and contribution to Single Resolution Fund (SRF) per the underlying basis |
15,323 |
12,477 |
Reclassification for: | ||
Levy fee relating to the revised income tax legislation, which has been disclosed within 'Reversal of impairment/(impairment) of deferred tax assets (DTA) and impairment of other tax receivables' under the underlying basis (Note 9) |
- |
6,255 |
Special levy on deposits on credit institutions in Cyprus, contribution to Single Resolution fund and other levies as restated** per the statutory basis |
15,323 |
18,732 |
**For information on the restatement of the comparative amounts under the statutory basis please refer to Note 3.1 of the Consolidated Condensed Interim Financial Statements.
2.2. Reconciliation of the various components of total income (as defined) used in the cost to income ratio calculation from the underlying basis to the statutory basis is provided below:
Six months ended 30 June | ||
2020 | 2019 | |
€000 | €000 | |
2.2.1. Reconciliation of Net fee and commission income | ||
Total Net fee and commission income as per the underlying basis |
71,245 |
74,900 |
Reclassifications for: | ||
Fee and commission income relating to the Helix portfolio, disclosed under non-recurring items within 'Provisions/net loss relating to NPE sales, including restructuring expenses' per the underlying basis |
- |
5,867 |
Total net fee and commission income as restated** per the statutory basis |
71,245 |
80,767 |
2.2.2. Reconciliation of Net foreign exchange gains and Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates | ||
Total Net foreign exchange gains and net gains on financial instruments transactions and disposal/dissolution of subsidiaries and associates as per the underlying basis |
12,384 |
26,255 |
Reclassifications for: | ||
Net gains on loans and advances to customers measured at fair value through profit or loss (FVPL), disclosed within 'Loan credit losses' per the underlying basis (Note 8) |
3,007 |
17 |
Total Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates as per the statutory basis (see below) |
15,391 |
26,272 |
Net foreign exchange gains as per the statutory basis | 10,543 | 14,117 |
Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates as per the statutory basis |
4,848 |
12,155 |
Total Net foreign exchange gains and Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates as per the statutory basis |
15,391 |
26,272 |
Reconciliation of Net interest income between the underlying and the statutory basis has been provided in the tables above. | ||
**For information on the restatement of the comparative amounts under the statutory basis please refer to Note 3.1 of the Consolidated Condensed Interim Financial Statements.
3. Operating profit return on average assets
The various components used in the determination of the operating profit return on average assets are provided below:
30 June 2020 |
31 March 2020 | 31 December 2019 | |
€000 | €000 | €000 | |
Total assets used in the computation of the operating profit return on average assets/per the Interim Consolidated Balance Sheet |
21,370,808 |
20,430,792 |
21,122,822 |
30 June 2020 | 30 June 2019 | |
€000 | €000 | |
Operating profit | 218,334 | 252,152 |
Quarterly average total assets | 20,974,807 | 21,902,632 |
The reconciliation of the various components of operating profit between the underlying and the statutory basis has been provided in the tables above.