annual report 2010 At the Bank of Cyprus Group, technology is the driving force behind our transformation into a integrated digital bank, for the benefit of our customers, shareholders and staff no matter where they are. For this reason, we are implementing a plan to ensure that all our future products and services incorporate the advantages afforded by information and communication technologies. Our integrated information management system will also allow us to remove the distance barriers between the various countries in which we do business. In addition to using technology to process and manage data, we also employ it to support the social contribution the Group makes. The Oikade programme relies on technology, and this year’s initiative to publish the Bank’s Annual Report in electronic format for the first time is part of our contribution to protecting the environment. Transforming Bank of Cyprus into a next generation bank annual report 2010 contents page Company Profile 3 Group Financial Highlights 4 Strategy and Priorities 6 Vision and Mission 8 Board of Directors and Senior Executive Management 9 Chairman’s Statement 10 2 Group Chief Executive Officer’s Statement 13 Vice-Chairman’s Statement 15 Shareholder Information 16 Group Operations 20 Introduction to Group Operations 21 Corporate Social Responsibility 41 Corporate Governance Report 52 Summary of Results 61 Financial Statements 68 Other Information 172 Click on the subject of interest BANK OF CYPRUS GROUP annual report 2010 company profile Founded in 1899, the Bank of Cyprus Group is the leading Cypriot banking and financial services group. Τhe Group offers a wide range of financial products and services which include banking services, leasing, factoring, investment banking, brokerage, fund management, life and general insurance. The Group currently operates through a total of 595 branches, of which 211 operate in Russia, 185 in Greece, 143 in Cyprus, 27 in Ukraine, 12 in Romania, 12 in Australia, 4 in the United Kingdom and 1 in the Channel Islands. Bank of Cyprus also has 9 representative offices in Russia, Romania, Ukraine, Canada, Serbia and South Africa. The Bank of Cyprus Group employs 12.009 staff worldwide. 3 At 31 December 2010, the Group’s total assets amounted to €42,64 bn and the shareholders’ funds were €2,83 bn. Bank of Cyprus shares are listed on the Cyprus and Athens Stock Exchanges. Recent awards Best banking Best banking Best bank Best banking Best bank Best Enterprise Best Bank of International Best bank in organisation in organisation for currency organisation in for currency in the category the Year in quality certification Cyprus for the Cyprus for the in Cyprus for exchange Cyprus for the exchange of Financial Cyprus for the “Investors in year 2010, by year 2009 in the the year 2010 services in year 2011 in services in Services and the year 2009, by People”, for Euromoney category of in the category Cyprus, for the the category of Cyprus, for the Best Enterprise in the Banker human resource magazine. developed markets, of developed year 2010 in developed year 2011 in Cyprus for 2010, magazine. management and by Global Finance markets, by Global the category markets, by the category by the Cyprus development. magazine. Finance magazine. of developed Global Finance of developed Employers & markets, by magazine. markets, by Industrialists Global Finance Global Finance Federation magazine. magazine. (ΟΕΒ). BANK OF CYPRUS GROUP annual report 2010 group financial highlights 32.953 27.725 28.585 25.636 27.936 24.425 4 2008 2009 2010 2008 2009 2010 loans and advances to customers customer deposits (€ million) (€ million) 725 654 502 612 313 306 2008 2009 2010 2008 2009 2010 profit before provisions profit after tax (€ million) and non-controlling interests (€ million) 60% 30% 52,4 25,1 50,0 50% 20% 45,8 14,0 11,9 40% 10% 0% 0% 2008 2009 2010 2008 2009 2010 cost / income return on equity BANK OF CYPRUS GROUP annual report 2010 group financial highlights 2010 2009 2008 key profitability data (€ million) net interest income 1.040 848 792 profit before provisions 725 612 654 profit after tax and non-controlling interests 306 313 502 5 key balance sheet data (€ million) total assets 42.638 39.411 36.131 shareholders’ funds 2.828 2.485 2.056 loans and advances to customers 27.725 25.636 24.425 customer deposits 32.953 28.585 27.936 per share data (€ cent) earnings per share (basic) 40,5 45,0 74,2 dividend per share (interim and final) 9,0* 16,0 27,0 capital adequacy ratios tier 1 ratio 11,0% 8,8% 7,2% total ratio 11,9% 11,7% 11,2% number of employees 12.009 12.127 12.127 cost / income 50,0% 52,4% 45,8% return on equity 11,9% 14,0% 25,1% * Τhe final dividend for 2010 is proposed for approval at the Annual General Meeting on 24 May 2011. BANK OF CYPRUS GROUP annual report 2010 strategy and priorities Group Over the next three years, the Group’s strategy will focus on the following: • Healthy liquidity which relies primarily on customer deposits. • Strong capital adequacy. • Healthy recurring profitability. 6 • Adequate geographical diversification. • Effective risk management. The strategy of the Group in each country in which it operates is analysed below: Cyprus • Rational pricing and rate of increase of deposits and loans based on market conditions (liquidity and macroeconomic growth). • Effective management of asset quality and non-performing loans. • Cost containment and increase in productivity. • Maintenance of leading position in the international banking services sector and further enhancement of the synergies between this sector and other Group units. • Strengthening of the asset management services. Greece • Increase in market share in deposits. • Rational pricing of loans and deposits. • Focus on increasing commission income. • Effective management of asset quality and non-performing loans. • Cost containment and increase in productivity. • Gradual expansion of branch network to enhance geographical coverage. Russia • Increase in productivity, leading to an increase in profitability. • Increase in market share in both loans and deposits (especially in the retail and SME segments). • Effective monitoring and management of risks and internal controls. • Improvement of systems and procedures, automations and further centralisation. • Utilisation of synergies with other Group units. BANK OF CYPRUS GROUP annual report 2010 strategy and priorities The strategy of the Group in each country in which it operates is analysed below (continued): Ukraine • Increase in market share, especially in deposits by improving the selling capabilities of the branch network. • Expansion of the branch network to enhance geographical coverage. • Effective management of credit risk. • Utilisation of synergies with other Group units. 7 • Improvement in systems, processes and automation. Romania • Balanced growth in loans and deposits. • Effective management of credit risk. United Kingdom • Improvement in the loans to deposits ratio, with rational pricing. • Effective management of asset quality. • Utilisation of synergies with other Group units. Australia • Improvement in the loans to deposits ratio, with rational pricing. • Increase in commission income. • Gradual expansion of the branch network. • Utilisation of synergies with other Group units, especially with Bank of Cyprus Greece. BANK OF CYPRUS GROUP annual report 2010 vision and mission Vision To be the choice of premium quality and an important banking institution in the markets we operate, distinguished for our drive, our pioneering, creative and innovative approach, the trust we inspire to our customers, the profound sense of pride we instil in our people, the consistently high returns we provide to our shareholders and our substantive contribution to society. 8 Mission • To offer excellent, innovative banking services and to develop long-term trust-based relationships with our customers. • To create long-term prospects for our people, inspiring them to contribute in achieving the organisation’s goals. • To create value for our shareholders. • To secure the appreciation and respect of society as a whole. BANK OF CYPRUS GROUP annual report 2010 board of directors and senior executive management Board of Directors of Bank of Cyprus Public Company Ltd Theodoros Aristodemou CHAIRMAN Andreas Artemis VICE-CHAIRMAN Vassilis G. Rologis Costas Z. Severis Christakis G. Christofides Evdokimos Xenophontos Anna Diogenous 9 George M. Georgiades Andreas J. Jacovides Christos Mouskis Manthos Mavrommatis Andreas Eliades Yiannis Pehlivanidis Yiannis Kypri Costas Hadjipapas Nikolas P. Tsakos Stavros J. Constantinides Secretary Yiannis Kypri Senior Executive Management Andreas Eliades GROUP CHIEF EXECUTIVE OFFICER Yiannis Pehlivanidis FIRST DEPUTY GROUP CHIEF EXECUTIVE OFFICER Yiannis Kypri DEPUTY GROUP CHIEF EXECUTIVE OFFICER Vassos Shiarly GROUP CHIEF GENERAL MANAGER Christis Hadjimitsis SENIOR GROUP GENERAL MANAGER Nicolas Karydas SENIOR GROUP GENERAL MANAGER Legal Advisers Chryssafinis & Polyviou Auditors Ernst & Young Cyprus Ltd BANK OF CYPRUS GROUP annual report 2010 chairman’s statement Following the unprecedented global financial crisis over the last three years, 2010 saw real economic indicators begin to recover in many countries. However, the global economy continues to be characterised by uncertainty and volatility continues to affect global financial stability. One of the concerns centres on the major fiscal challenges facing a number of countries in the European Union and the Eurozone. This year proved challenging for both the Greek and Cypriot economies. Consequently, the banking sector did not remain unaffected. In Greece, the recession and chronic structural problems severely 10 disrupted the entire system and have resulted in immediate and radical measures being taken in a bid to gradually resolve the country’s fiscal problems and structural weaknesses, in order to put the Greek economy on the road to recovery and to lay healthy foundations for its growth in coming years. In Cyprus, despite the economy’s marginal recovery, 2010 was a year of challenges and two of its most important sectors (tourism and construction in particular) continued to experience difficulties.