Bank of Cyprus Group
Bank of America Merrill Lynch Financial Conference
September 2017
The financial information included in this presentation is neither reviewed nor audited by the Group’s external auditors. The Interim Condensed Consolidated Financial Statements for the six months ended 30 June 2017 have not been audited by the Group’s external auditors.
The Group’s external auditors have conducted a review of the interim Condensed Consolidated Financial Statements for the six months ended 30 June 2017 in accordance with the International Standard on Review Engagements 2410 ‘Review of Interim Financial Information performed by the Independent Auditor of the Entity’. They are presented in Euro (€) and all amounts are rounded as indicated. A comma is used to separate thousands and a dot is used to separate decimals.
(1) The Group Financial Results referred to in this Presentation relate to the consolidated financial results of Bank of Cyprus Holdings Public Limited Company (BOC Holdings), together with its subsidiary the Bank of Cyprus Public Company Limited, the “Bank”, and the Bank’s subsidiaries. On 18 January 2017, BOC Holdings was introduced in the Group structure as the new holding company. On 19 January 2017, the total issued share capital of BOC Holdings was admitted to listing and trading on the London Stock Exchange and the Cyprus Stock Exchange.
Investment highlights
1 • Leading position in a strengthening Cypriot economy
2 • Proven track record of delivery against strategic objectives
3 • Steady improvement in financial indicators
4 • Clear strategy with focus on Cypriot bank and managing legacy portfolio
5 • EPS guidance of c.€0.40 provided for 2018; on course to deliver medium terms targets
2 Cypriot economy on a sustainable growth path
GDP growth of 3.5% in 2Q2017 Falling unemployment rate
Real GDP growth (%) Unemployment rate 18.0% 15.9% 16.1% 16.0% 14.9% 2010 2011 2012 2013 2014 2015 2016 1Q2017 2Q2017 2017E 3.7% 3.5% 2.8% 2.9% 14.0% 13.0% 1.3% 1.7% 0.3% 11.8% 11.7%
12.0% (1.5%)
(6.0%) 10.0% (3.2%)
8.0%
6.0% Real GDP growth – Actual CySTAT Real GDP growth – forecast (MOF) 2012 2013 2014 2015 2016 2017E Unemployment rate (% of labour force) Credit ratings improving faster than peers… …reflected in reduced government bond yields
Moody’s credit ratings Spreads (%) 1.2 A3 A3 Baa2 Baa2 Baa2 1 Ba1 Ba1 0.8 Ba3 Ba3 0.6 B2 0.4 Caa1 Caa2 Caa3 0.2
C 0
Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17
Jul2016 Jul2017
Apr2016 Oct2016 Apr2017
Jan2016 Jun2016 Jan2017 Jun2017
Mar 2016 Mar 2017
Feb2016 Feb2017
Dec2015 Aug2016 Sep2016 Nov2016 Dec2016 Aug2017 Sep2017 May2017 Cyprus Portgual Italy May2016 Spain Greece Ireland Cyprus Portugal Spain Italy Greece
SOURCE: Statistical Service of Republic of Cyprus; Bloomberg; European Commission Winter Forecasts 2017; Ministry of Finance; Calculations by BOC Economic Research 3 Strong delivery against objectives…
Phase 1 Phase 2 Phase 3
Recapitalisation, shrink to Normalisation of funding and Growth, capital build up and core strength balance sheet derisking shareholder returns
2013 2014 2015 2016 2017 2018
• Well positioned to capitalise on • Bail-in and acquisition of certain assets Real Estate Management Unit (REMU) set up in 2016 Cyprus growth and liabilities of Laiki Full ELA repayment • Continued proactive management of €1bn share capital increase NPE reduction Moved listing from ATHEX to LSE • New lending focused on core Sale of non-core assets sectors of economy
Integration of Laiki T2 issuance in Jan-17 – return to capital markets • Provision coverage in line with EU peer Relisting in Cyprus and Greece €5.2 bn NPE reduction since Dec 14, accounting for 29% of Cyprus' GDP • Normalised CoR in 2018 to drive shareholders return Restructuring and Recoveries Division (RRD) set up • Step-up to Premium LSE listing
4 …resulting in steady improvement on KPIs
c.€5 bn balance sheet deleveraging > €5 bn reduction in RWAs Improving funding structure
Customer deposits Total assets (€ bn) RWAs (€ bn) Loans to deposits ratio (%) as % total assets
49% 75% (€4.7bn) (€5.3bn) (51%) EBA average L/D1: 118%
90%- 110% 141% 26.8 22.7 loans to 22.1 >25.0 90% deposits ratio 17.4
Dec Jun Medium Term Dec Jun Dec Jun Medium Term 2014 2017 Target 2014 2017 2014 2017 Target
Adequate capital post additional €5.2 bn reduction in NPEs NPEs coverage approaching 50% provisions
NPEs ratio NPEs (€ bn) CET1 (fully loaded) (%) CET1 (transitional) (%) ` NPEs provision coverage 63% 50% 13.4% 11.8% (€5.2bn)
50% 48% <30% 14.0% >13% 12.3% 15.0 41% 42% 39% 9.8 34%
Dec Jun Medium Term Dec Jun Medium Term 2014 2017 Target Dec Dec Dec Mar Jun Medium 2014 2017 Target 2014 2015 2016 2017 2017 Term Target
(1) Based on EBA Risk Dashboard Report, data as at 31 March 2017. 5 RESTRICTED Clear strategy with focus on core Cypriot bank and managing legacy portfolio
0 New lending 1H2017 €mn 97 • Redeployment of B/S to core sectors of Cypriot economy and targeted lending in the UK Cyprus 845 114 UK 298
49 Fee income / Total income 133 1 2 156 • Revenue diversification via increasing focus on IBS and WM fee income and insurance 15% 17% 19% 4 255 2015 2016 1H17 192 • Distribution channel cost optimisation 0 bank Core • Tangible cost savings initiatives through a targeted cost reduction program • HR policies aimed at productivity 0 enhancement 153 204 • Comprehensive digital transformation • Roll out of digital strategy programme in collaboration with IBM 203 224 230
• Further refining NPE management framework to maintain momentum in deleveraging plan • 76% of restructured loans have no arrears 127 127 127 • Pre-approved restructuring solutions 191 • Focus shifting towards SME and Retail portfolio workouts – DFAs3, write offs & foreclosures 191 • Low value high volume tickets 191
234 portfolio NPE Legacy • Manages c.€1.5bn of property stock • Specialist real estate unit - REMU 234 • >€300mn sales at above book value 234 (1) International business service. (2) Wealth management. (3) Debt for Asset swaps. 6 (4) Excluding non recurring fees of approximately €7 mn Leading position in the Cypriot market…
xx% Market share Hellenic Bank
38.7%4 23%4 8%4 Gross loans € bn 19.5 12.0 5.2 4.3 1.9
31.3%4 27%4 12%4 Deposits 16.6 12.6 € bn 6.0 2.2 3.8
246 Branch network 121 52 # branches 22 8
Life Non-life
18.8%3 17.0%3 12.3%3 13.4%3 Insurance 21 1 19 premiums 15 16 € mn
2 2 & & 2
Source: CBC, company disclosure as of 1H2017 for BOC, Alpha Bank and Eurobank, 1Q2017 for Hellenic Bank and FY2016 for Cooperative Central Bank (1) 1Q2017 (provisional results). (2) 49,9% owned by BOC. (3) Market shares for insurance premiums as at 31 March 2017 (on provisional results). 7 (4) As of June 2017 for BOC, March 2017 for Hellenic Bank and June 2016 for Cooperative Central Bank. … with robust new lending supporting the Cypriot economy
Cyprus projected to grow faster than most countries in the region Tourism & professional services core sectors
Real GDP growth (%) – 2017E Contribution to 2016 Real GDP growth in p.p. (total 2,8%)
Tourism & trade 1.2 Professional & admin 0.6 Public, education & health 0.4 Industry 0.4 Construction 0.4 3.5% 2.9% Other 0.3 2.6% 2.4% 2.2% 1.7% Agriculture 0.0 0.8% Information (0.0)
Ireland Cyprus Spain Euro area Greece Portugal Italy Financial (0.5) average
New lending largely to corporates New lending maps core sectors driving GDP growth
New lending Cyprus (€ mn) Composition of 1H2017 New lending Cyprus (€ mn) – 1H2017 lending: €845 mn Trade 219 FY16: c. €1 bn 1H17: €845 mn
2% Private individuals 190 14% Professional and other services 94
Construction 94
23% Hotels and restaurants 88 502 61% Real estate 340 343 68 265 240 163 Corporate Consumer Other Sectors 53
Manufacturing 39 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 SME Other
SOURCE: Statistical Service of Republic of Cyprus; Ministry of Finance; IMF World Economic Outlook Database, April 2017 8 Focus remains on asset quality improvement
• 9 consecutive quarters of NPE reduction €5.2bn NPE reduction • €5.2 bn or 35% reduction in NPEs since Dec 14; 29% of Cyprus GDP • Multi-pronged strategy through curing, collections, write-offs and consensual foreclosures
• Brings provisioning assumptions in line with regulatory expectations Additional • Concludes regulatory dialogue on coverage €500mn provisions in 1H2017 • Helps Bank to return to a normal impairment path • No recourse to shareholders
• To exceed 50% by year end Improved 48% 1 coverage ratio • Coverage now above EU average • Paves way for a potential 3rd party solution to address NPE stock
• Elevated CoR of 4.2%2 in 1H2017 driven by modifications to provisioning assumptions 4.2% Cost of Risk (CoR) • CoR expected to normalise going forward to ~100 bps • Accelerates pathway to delivering returns to shareholders
• Post implementation coverage expected to improve to mid 50% IFRS 9 Effective from Jan 2018 • Currently assessing and calibrating detailed impact • Capital impact expected to be phased in over a 5 year period3
(1) Based on EBA Risk Dashboard as at 31 March 2017. (2) Provisions for impairment of customer loans and gains/(losses) on derecognition of loans and changes in expected cash flows on acquired loans over average gross loans. Additional provisions of c.€500 mn are included in the calculation of Cost of Risk but are not annualised. Including impairments of other financial instruments, the provisioning charge for 1H2017 was 4.3%. 9 (3) Expected to occur in line with the proposal of the Council of the European Union. Nine consecutive quarters of improving asset quality trends
High correlation between formation of problem loans & economic cycle 0
97 Quarterly change of 90+ DPD (€ mn) 90+ DPD (€ bn) Recovery
114 Slow deterioration Economic crisis Stabilisation
13.0 13.0
13.0 • €748 mn (9%)
12.8
12.8
12.7 12.6
49 12.6
12.0
11.3
11.0
10.3
drop in 90+DPD in
133
9.3
8.8
8.3
8.0 7.7
156 7.6 1H2017
6.5
5.1
5.1
5.0
4.4
4.0
3.8
2.9
3.6
3.5
380 386
329 • 90+ DPD reduced
2.2
20
1,972 265 3,319 136
255 1,240
1,319
by €5.1 bn (40%)
192
2.3
232
96
558
2.5
2.0
410
64
402
609 100
156 since Dec 2014
(247) (164) (143) (649)
0 (85)
(298)
(450)
(501)
(325)
(459)
(668)
(1,020) (1,041)
0 1
153
1Q-10 2Q-12 4Q-16 2Q-09 3Q-09 4Q-09 2Q-10 3Q-10 4Q-10 1Q-11 2Q-11 3Q-11 4Q-11 1Q-12 3Q-12 4Q-12 2Q-13 3Q-13 4Q-13 1Q-14 2Q-14 3Q-14 4Q-14 1Q-15 2Q-15 3Q-15 4Q-15 1Q-16 2Q-16 3Q-16 1Q-17 2Q-17 204
203 NPEs down by €1.3 bn (12%) in 1H2017; down by €620 mn (6%) qoq; 224 230 NPEs (€ bn) NPE ratio NPEs with forbearance measures no impairments, no arrears • NPEs reduced by 127 62.9% 63.0% 62.2% 61.9% 61.8% 61.0% €5.2 bn (35%) 127 59.3% 57.8% 54.8% since Dec 2014 127 51.8% 50.0% • NPEs ratio 1.9 191 2.2 reduced by 12.9 2.4 191 2.3 p.p2 since Dec 191 2.0 1.6 35% drop since Dec 14 1.6 2014 6% drop qoq; 234 15.0 15.2 14.8 14.2 14.0 13.3 12.5 11.9 11.0 10.4 9.8 234 234 Dec 2014 Mar 2015 Jun 2015 Sep 2015 Dec 2015 Mar 2016 Jun 2016 Sep 2016 Dec 2016 Mar 2017 Jun 2017
(1) Information for 1Q2013 and 2Q2013 is not available as it was not possible to publish the financial results for the three months ended 31 March 2013. 10 (2) Percentage points. Understanding loan portfolio
Focus on quality new lending and Retail & SME NPEs Key strategic initiatives for further NPE reduction 0 97 Cy operations- Gross loans (€ bn) 114 17.7 • Further refining NPE management framework to maintain 49 momentum in deleveraging plan 133 156 • High Quality New Business • Close monitoring to ensure loans exit NPE status Performing 6.0 • New lending targeted at core sectors of economy 255 • 76% of restructured loans have no arrears 192 Healthy 0 €8.3 bn Retail: • Moving NPEs to RRD, to deliver viable restructuring or termination 0 • Watching redefaults & quality of restructurings • Execute longer term sustainable solutions 153 • Expect €1.6 bn to exit NPEs in coming years 3 2.3 204 Cured • Flexible approach to manage specific segments including • 47% of this relates to Corporate loans DFAs and write offs
203 Forborne • Supportive underlying economic macro improvements 224 No impairments 1.6 No arrears1,2 • c€300mn reduction in Terminated a/c in 230 1H2017 • Increased focus on Retail and SME Enhance Retail/SME: 127 Workout 3.3 • Introduce pre-approved restructuring solutions 127 • c€600mn(Retail) transferred to RRD in 2Q2017 • Address low value high volume tickets 127 NPEs €9.4 bn 191 • Focus on realising collateral via consensual & 191 non consensual foreclosures Terminated Foreclosures: 191 4.5 • ‘Final Solutions’ used such as write offs accounts • Focus on selling and realising foreclosed assets (Recoveries) • REMU on-boards assets at conservative 234 c.25-30% discount to OMV • Dedicated REMU division managing on boarded properties 234 234 (1) In pipeline to exit NPEs subject to meeting all exit criteria. (2) Analysis based on account basis. 11 (3) Includes €0.7 bn of restructurings of performing loans. NPE reduction aided by curing of restructured loans; NPE inflows stabilise
0 97 114
FY2016 NPE net reduction: c.€2.8 bn 1H2017 NPE net reduction : c.€1.2 bn 49 133 156
255 0.85 192 (1.63) 0 (1.12) (0.86) 0.44 Inflows as % (0.91) 0 of performing (0.47) (0.21) 153 loans FY2016 Inflows as % 204 3.1% of performing 13.26 loans 203 1H2017 10.50 2.6% 224 9.35 230
127 127
127 1,2 1,2 Dec 2015 Inflows Curing Write-offs Consensual Dec 2016 Inflows Curing restructured Write-offs Consensual Jun 17 restructured foreclosures loans/collections foreclosures 191 loans/collections 191 191
234 234 234
(1) Value of on-boarded assets is set at a conservative 25%-30% discount from open market valuations, by two independent sources. 12 (2) Includes debt for asset swaps and debt for equity swap. REMU – the engine for dealing with foreclosed assets (1/2)
1 Property stock – not substantially growing (Group) 0 97 € mn 114 BV1 (140) 229 49 (13) (1) 133 1,503 1,502 1,427
156 2 Stock as at 01 Jan 17 Additions Sales Impairment loss Foreign exchange and other Stock as at 30 Jun 2017 255 movements 192 2 Property stock split – on boarded at conservative carrying value3 0 Cyprus: €1,331 mn Greece & € mn Total Romania 0 153 115 279 87 64 530 255 1 171 €1,502
204 #319 #131 #38 #5 #901 #3 #1,397
203 # Assets Residential Offices and other commercial properties Manufacturing and industrial Hotels Land and Plots Golf Under construction Greece and Romania 224 230 3 Encouraging trends in Real Estate Market
127 Central Bank of Cyprus Residential Property Price Index 30,000 Sales contracts
127 120.0 25,000 21,245 106.9 127 110.0 20,000 100.0 90.0 15,000 12,664 80.0 75.6 191 73.3 10,000 7,063 70.0 73.2 4,952 191 68.1 73.6 4,527 60.0 5,000 3,767 3,637 4,349 191
50.0 0
2002 2000 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
01.17
Q1.08 Q1.11 Q3.06 Q1.07 Q3.07 Q3.08 Q1.09 Q3.09 Q1.10 Q3.10 Q3.11 Q1.12 Q3.12 Q1.13 Q3.13 Q1.14 Q3.14 Q1.15 Q3.15 Q1.16 Q3.16 234 Q1.06 Sales to Cypriots Sales to Non-Cypriots
234 CBC RPPI
2016Jan-Jul 2017Jan-Jul 234 SOURCE: Central Bank of Cyprus, Cyprus Land Registry (1) BV= book value = Carrying value prior to the sale of property. (2) Total stock as at 30 June 2017 excludes investment properties and investment properties held for sale. 13 (3) As of 1H2017. REMU – the engine for dealing with foreclosed assets (2/2)
€248 mn sales agreed YTD; REMU profit of €12 mn in 1H2017 0 97 114 4 Sales > €300 mn achieved since REMU established (Cy) 5 Prices achieved on average above Book Value (Cy) 4 1,5 Hotels Commercial Residentail Land Gross Proceeds / OMV Net Proceeds / BV 49 € mn 3 113% 99% 1 FY16: €155 mn YTD: €184 mn 110% 113% 115% 133 BV 3 98% 74% 94% 90% 102% 12 156 110 € mn 100% 3 40 BV 8 80% 255 60% 184 192 48 44 49 2 40% 39 35 124 0 20% 14 0% 0 Total Sales Hotels Commercial Residential Land 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 post end of YTD 153 2Q2017 204 6 Year to date sale agreements of €248 mn3,5 (Cy)
203 Sales contract prices6 (€ mn) Sale of properties by type YTD (%) 224 230 Total sale agreements 5% 40 €248 mn Land and Plots 127 23 21% 127 30 127 Hotels 311 191 134 properties sold YTD 218 6% Commercial 191 191 67% Residential Offers accepted In process (YTD) SPA in preparation SPA signed (YTD) Sold (YTD) 234 (YTD) (YTD) 234 (1) BV= book value = Carrying value prior to the sale of property. 234 (2) 2Q2017 sales include a disposal of a property (€10 mn) which was classified in investment properties held for disposal. (3) Positively affected by 2 major sales. Adjusting for these two sales Gross Proceeds/OMV at 95% and Net Proceeds/BV at 98%. (4) Proceeds before selling charge and other leakages. 14 (5) Proceeds after selling charges and other leakages. (6) Amounts as per SPAs. Coverage ratio improvement facilitating significant B/S derisking
0 On course to achieving medium term target of 50% Comfortably covered (over 100%) including collateral 97 114 % of total NPEs 90+DPD provision coverage NPEs provision coverage Loan loss reserves Tangible Collateral 1
49 61% 133 54% 54% 156 114% 48% 109% 109%
255 41% >50% 48% 66% 192 68% 67% 41% 42% 0 39% 34% 48% 0 41% 42%
153 Dec Dec Dec Mar Jun Medium Term Dec 16 Mar-17 Jun-17 204 2014 2015 2016 2017 2017 Target
203 2 224 BOC coverage in line with EU peer 230 NPE coverage (%) By Jan 2018 expected to be in mid 50% post implementation of IFRS 9 127 127 50% by year end (medium term target)
127 45%
191
67%
64%
64%
63%
62%
60%
58%
58%
191 56%
51%
51%
48%
48%
44%
44% 44%
191 42%
38%
35%
35% 35%
32%
32%
31%
31%
30%
30%
29% 29% 234
234 RO HU SI HR CZ PL1 BG AT SK FR IT GR BOC 3 PT BE ES LU DE IE MT NL SE EE LT GB LV NO FI DK 234 (1) Restricted to Gross IFRS balance. (2) Based on EBA Risk Dashboard as at 31 March 2017. (3) Provision Coverage for BOC relates to NPEs provision coverage as at 30 June 2017. 15 Normalisation of CoR to help deliver shareholder returns
0 CoR at 4.2% following modifications to provisioning assumptions Back-testing of provisions supports past provision adequacy 97 114 Cost of Risk - Group (pre additional provisions) Gross Contractual Surplus/(Gap) in No. of Quarter 49 Balance € mn provisions € mn Customers 133 4.2%1 1Q2015 6.0 1.4 148 156 c.€500 mn 2Q2015 79.2 16.0 242 additional 3Q2015 20.2 0.0 441 255 provisions 192 4Q2015 65.7 -2.1 551 0 1Q2016 158.3 0.5 1,276 1.7% 2Q2016 266.9 12.1 2,298 0 3Q2016 124.5 13.9 115 1.7% 1.7% ~ 153 4Q2016 71.9 -1.1 2,343 1.3% 1.0% 204 1Q2017 119.2 1.1 2,194 2Q2017 200.9 7.5 2,369 203 1,112.8 49.4 11,977 FY2016 1Q2017 1H2017 2018 Target 224 230
127 • Changes in collective provisioning assumptions: 127 127 o Recovery period increased for non-recoveries to 6 years (from average 3 years)
191 o Average Haircut increased to 32% (from average 9%) 191 191 • Comfort around adequacy of existing provisioning levels; CoR expected at 100 bps going forward
234 • Back-testing of 12k fully settled customer exposures since 1Q2015 indicates resolution of cases within existing provisions 234 • Visibility around delivery of shareholder returns with normalisation of CoR 234
(1) Provisions for impairment of customer loans and gains/(losses) on derecognition of loans and changes in expected cash flows on acquired loans over average gross loans. Additional provisions of c.€500 mn are included in the calculation of Cost of Risk but are not annualised. Including impairments of other financial instruments, the provisioning 16 charge for 1H2017 was 4.3%. Asset quality improvement compares favourably vs peer1
Highest reduction of NPEs as % of 2017 GDP vs peer Strong progress on NPE coverage 0 97 Change in NPE as % of nominal GDP since 2014 NPE coverage progress since 2014 (in percentage points) 114 (29.1%)
15 14 13 49 (1.9%) 11 (1.7%) 133 (1.1%) 7 (1.1%) Average: 6,4% (0.6%) (0.5%) (0.5%) (0.2%) 5 5 156 3 3 0.1% 2 2 1.0% 255 1.7% 192 4 -4
0 2 5 2
BOC
BOC
Peer 2 Peer Peer1 Peer3 Peer4 Peer5 Peer6 Peer7 Peer8 Peer9
Peer2 Peer3 Peer4 Peer5 Peer6 Peer7 Peer8 Peer9
Peer1
Peer10 Peer11 Peer11 0 Peer10 153 204 Highly secured NPE book when considering tangible collateral relative to peers 203 NPE Total coverage3 (1H2017) 224 230 Provision coverage Tangible coverage as per EBA June 2016
121% 114% 127 109% 105% 104% 101% 93% 92% 91% 87% 86% 127 48% 38% 66% 60% 59% 50% 127 53% 47% 43% 31% 37% 73% 71% 48% 45% 45% 51% 40% 45% 48% 56% 49% 191 6
191 BOC
Peer 7 Peer Peer1 Peer3 Peer4 Peer5 Peer6 Peer8 Peer9 Peer2 191 Peer10
234 Source: Company reports, IMF and EBA 234 (1) The charts are not adjusted for market share. (2) Greece only. 234 (3) Calculated using NPE provisions coverage - latest available – 2Q2017 and collateral coverage as of June 2016 as per EBA transparency exercise except BOC which is as disclosed in 1H2017 results. (4) Portugal only. (5) Total coverage ratio progress. 17 (6) Indicative as total coverage available as of 2Q2017, back solved using EBA tangible coverage as at June 2016 of 60%. Undervalued relative to peer and fall in Texas ratio adjusted collaterals
0 Price/Pre Provision Operating Profitability (2017E) valuation relative to European peers 97 8.6x 114 7.2x 7.0x 5.7x 5.3x 5.2x 49 4.8x 133 2.4x 156 2.0x
255 Ireland Benelux Germany France Austria Italy Spain Cyprus Greece 192 1 2 3 4 5 6 7 8, 10 9 0
0 153 Valuation benchmark on a P/(Equity + Acc. Provisions) basis; Significant fall in Texas ratio including collaterals 204 Texas ratio (Collateral)12,13 Texas ratio11
29% 40% 65% 83% 75% 102% 131% 139% 108% 108% 123%
203 0.78x Average peer 224 0.69x group decrease BOC decrease: 57% 0.62x 0.58x with collateral: 31% 66% 77% 72% 73% 73% 230 0.46x 66% Average: 0,36x 55% 56% 57% 0.34x 0.29x 34% 127 25% Average: 59% 0.17x 0.15x 0.11x 127 0.09x 0.07x
127
BOC
BOC
Peer1 Peer2 Peer3 Peer4 Peer5 Peer6 Peer7 Peer9
Peer1 Peer2 Peer3 Peer4 Peer5 Peer6 Peer7 Peer9
Peer 8 Peer
Peer8
Peer10 Peer11 191 Peer10 191 191 Source: Company reports as of 1H2017, Factset as at 15 September 2017 (10) Pre-provisions profit for 2017E based on annualisation of 1H2017 number. (1) Representative Irish banks include: AIB and BoI. (11) Texas ratio is calculated as NPEs / (Tangible book value + Loan loss reserves). 234 (2) Representative Benelux banks include: ING, ABN Amro and KBC. (12) Texas ratio (Collateral) is calculated as NPEs / (Tangible book value + Loan loss reserves (3) Representative German banks include: DB and Commerzbank. including collateral). Bankia does not report total collateral. Bankia excluded as collateral not 234 (4) Representative French banks include: SocGen, BNPP and Credit Agricole. reported. (5) Representative Austrian banks include: Erste and Raiffeisen. (13) Calculated using NPE provisions coverage - latest available – Q2 2017 and collateral 234 (6) Representative Italian banks include: UniCredit, ISP and UBI. coverage as of June 2016 as per EBA transparency exercise except BOC which is as (7) Representative Spanish banks include: Santander, Caixa Bank and BBVA. disclosed in 1H2017 results. (8) Representative Cypriot bank includes: BOC. 18 (9) Representative Greek banks include: Eurobank, Alpha Bank, Piraeus Bank and NBG. Strong and stable funding position
Maintaining stable deposit balances and loan to deposit ratio 0 97 1 Loans to deposits ratio EU average Loans to deposits ratio 3 3 114 Group Deposits € bn
49 2 133 Cyprus non-IBU Cyprus IBU UK Other countries 156 124% 125% 121% 16.51 16.54 16.58 14.18 255 121% 118% 1.46 1.46 1.57 141% 118% 13.17 136% 192 0.55 1.49 4.49 4.41 4.08 1.30 0 121% 90%- 110% 3.75 110% 3.47
0 95% 95% 90% 153 10.56 10.67 10.93 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Mar 17 Jun 17 Medium 7.85 8.94 204 Term Target
203 Strong market shares in resident and non-resident deposits Dec-14 Dec-15 Dec-16 Mar 17 Jun 17 224 230 Residents Non-residents
127 • Focus on deposit mix/cost optimisation 127 35.8% 35.3% 34.1% 34.5% • LCR (Liquidity Coverage Ratio) compliance 127 32.2% 31.1% 26.7% • NSFR (Net stable Funding Ratio) compliance at 191 29.5% 29.5% 30.1% 27.0% 27.2% 102%, ahead of introduction in Jan 2018 (min. 100%) 191 25.5% 24.1% 191 • Not compliance with local CBC liquidity ratios that are expected to be phased out 234
234 Dec 13 Dec 14 Dec 15 Jun 16 Dec 16 Mar 17 Jun 17 234 (1) Based on EBA Risk Dashboard Report, Data as at 31 March 2017. (2) International Business Unit. 19 Capital ratios remain adequate
Organic capital rebuild through operating profitability and b/s management
1.8% COR 2018 ~1.0% 6.3% (8.8%) Drivers of future capital >13% strengthening (1.0%) 14.0% • Contain CoR
9.5% • Reduction of RWA intensity 9.5% 12.3% as asset quality improves
• Stable operating profitability
1 CET 1 Operating RWA reduction Provisions Other CET 1 2018 Operating 2018 Provisions & 2018 CET 1 1 (transitional) profitability & impairments (transitional) profitability Impairmens (transitional) 31 Dec 2014 30 June 2017 Min SREP requirement
RWA intensity2 reducing as asset quality improves Rebuild capital position through regained market access
RWA intensity (%) Leverage ratio3 CET 1 Tier 2 16.1% 12.5% 12.6% 13.3% 11.0% 1.4% 13.8% • Potential issuance of up 13.0% 1.4% to 1.5% of AT1 and/or additional Tier 2 in the next 12 months, subject 14.7% 85% 85% 85% 12.4% to market conditions 79%
Dec 14 Dec 15 Dec 16 Jun 17 Total Capital ratio pre Total Capital ratio post Min SREP requirement additional provisions additional provisions
(1) Capital deductions, phase-in adjustments & reserve movements. (2) Risk Weighted Assets over Total Assets. 20 (3) Tangible equity / total assets. Good Progress made on Group KPIs
Key performance Medium Type Dec-2016 Jun-2017 Preliminary 2018 Guidance6 indicators Term Targets
90+ DPD ratio 41% 39% <20% <30%
NPEs ratio 55% 50% <30% <40% Asset quality Substantially delivered. Expected to increase to NPEs coverage 41% 48% >50% mid-50% by Jan 2018
Provisioning charge1 1.7% 4.2%2 <1.0% ~1.0%
Net Loans % Funding 95% 90% 90%-110% <100% Deposits
CET1 14.5% 12.3% >13%5 >13%5 Capital Total capital ratio 14.6% 13.8% >15%5 >15%5
Downward pressure due to low interest rate Net interest margin 3.5% 3.4% ~3.00% environment and L/D dynamics Margins Fee and commission Delivered but efforts for further improvement and 17%3 19% >20% income/total income continuing efficiency
Cost to income ratio 41%4 46%4 40%-45% Falling revenue puts pressure on C/I
Balance Total assets €22.2 bn €22.1 bn >€25 bn Total assets to reach c.€24 bn by Dec 2018 Sheet
EPS EPS (€ cent) 0.71 (124.19) ~€0.406
(1) Provisions for impairment of customer loans and gains /(losses) on derecognition of loans and changes in expected cash flows on acquired loans over average gross loans. (2) Including impairments of other financial instruments, the provisioning charge for 1H2017 was 4.3%. Additional provisions of c.€500 mn are included in Cost of Risk but are not annualised. (3) Excluding non-recurring fees of approximately €7 mn. (4) Adjusted for the special levy, the cost to income ratio for 1H2017 was 42% compared to 39% for FY2016. (5) On an IFRS 9 phased-in basis (pre the Proposal of the Council of the European Union). 21 (6) Excluding the impact of any unplanned or unforeseen risk reduction trades or macro events. Key Takeaways
• Good progress on NPE reduction • Coverage at 48%; to exceed 50% by year end NPEs • The Bank no longer an outlier in terms of coverage vs. EU average1 • Additional provisions of c.€500 mn concludes the dialogue with the ECB on coverage
• CET1 at 12.3% and 11.8% on a fully loaded basis Capital • Total Capital ratio at 13.8% • Additional provisions of c.€500 mn taken without recourse to shareholders
• Loan book is now fully funded, currently at 90% loans to deposit ratio Funding • Compliance with LCR & NSFR liquidity requirements2
• Robust new lending, supporting the Cypriot economy Profitability • NIM of 3.37%; Cost/Income ratio of 42%3
• EPS of c.€0.40 • More normal credit cost (~100 bps in 2018) 2018 outlook • CET 1 >13% and Total capital ratio >15% • No equity dividend foreseen in 2018 • Potential AT1 issuance
(1) Based on EBA Risk Dashboard as at 31 March 2017. (2) Compliance with ECB requirements. Not compliant with Central Bank of Cyprus requirements. 22 (3) Adjusted for the special levy and SRF contribution. Key Information and Contact Details
Credit Ratings: Fitch Ratings: Long-term Issuer Default Rating: Affirmed to “B-" on 13 April 2017 (stable outlook) Short-term Issuer Default Rating: Affirmed to “B" on 13 April 2017 Viability Rating: Affirmed to “b-” on 13 April 2017
Moody’s Investors Service: Baseline Credit Assessment: Upgraded to caa1 on 29 June 2017 Short-term deposit rating: Affirmed at "Not Prime" on 29 June 2017 Long-term deposit rating: Upgraded to Caa1 on 29 June 2017(positive outlook) Counterparty Risk Assessment: Assigned at B1(cr) / Not-Prime (cr) on 29 June 2017
Listing: LSE – BOCH, CSE – BOCH/ΤΡΚΗ, ISIN IE00BD5B1Y92 Contacts Investor Relations Tel: +35722122239, Email: [email protected] Annita Pavlou Investor Relations Manager, Tel: +357 22 122740, Email: [email protected] Elena Hadjikyriacou ([email protected]) Marina Ioannou ([email protected]) Styliani Nicolaou ([email protected]) Andri Rousou ([email protected]) Finance Director Eliza Livadiotou, Tel: +35722 122344, Email: [email protected]
Visit our website at: www.bankofcyprus.com 23 Supporting materials Macroeconomic overview Improving macro fundamentals
Tourism and professional services are the Tourism arrivals (mn) Tourism Revenues leading contributors
Contribution to 2016 Real GDP growth in € bn % of GDP percentage points (total 2,8%) 3.50 14.5% 1.2 3.00 13.2% 11.5% 11.5% 12.0% 0.6 2.50 2.7 0.4 0.4 0.4 9.9% 0.3 2.4 0.0 2.00 8.0% 2.1 2.1 1.9 2.0 (0.0) 1.50 1.5 (0.5) 1.00
0.50
Other
Industry
Financial admin
Agriculture 0.00
Information 2009 2012 2013 2014 2015 2016e 2017e Construction
health 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Professional & Professional
Tourism & trade & Tourism Public, education & education Public,
Construction activity - signs of recovery Support from key business enablers
% changes year-on-year of yearly moving averages Corporate tax rate (2016) Level of education 2016, age 15-641 Double taxation 40.0 Cyprus has the highest number of 12.5% avoidance university graduates in the population 30.0 treaties with in the EU after the UK and Ireland 20.0 12.5% c.50 countries 10.0 20.0% 0.0 Less than 25.0% 24.3% -10.0 Upper secondary -20.0 29.0% -30.0 29.5% 38.4% Upper secondary -40.0 -50.0 30.2%
31.3% 37.4% Tertiary
2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 2009Q2 2009Q4 2010Q2 2010Q4 2011Q2 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q4 2015Q2 2015Q4 2016Q2 2016Q4 2004Q4 34.4% Production index in construction Building permits volume
SOURCES: Statistical Service of Republic of Cyprus, Eurostat; Calculations by BOC Economic Research 25 0 97 114
49 133 156
255 192 0
0 153 204 Supporting materials 203 224 230 Asset quality
127 127 127
191 191 191
234 234 234 Intense restructuring efforts continue; re-default level stable
Quarterly evolution of restructuring activity (€ bn) (Cy operations) 0 1 97 Restructured loans Write offs & non contractual write offs2 DFAs 114
49 2.2 2.0 133 0.3 0.4 156 1.3 0.4 0.3 1.1 0.8 0.9 0.9 0.7 1.50 0.2 0.7 255 1.33 1.26 0.2 0.2 0.1 0.2 0.1 0.2 192 0.81 0.2 0.56 0.69 0.68 0.53 0 0.42
0
2Q2017 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 153 2Q2015 204 Cohort analysis of restructured 3,4 loans; 76% of restructured loans present no arrears
203 Corporate SMEs Retail Total Bank – Cyprus 224 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017
230
97%
98%
96%
100%
94%
127 90%
85%
84%
83%
84%
82%
79%
80%
77%
83%
78%
76% 78%
80%
73%
82%
127 82%
72%
80%
73%
69% 76%
76%
69%
68%
72%
76%
74%
71%
73%
68%
71%
71%
62%
62%
68%
67% 67%
127 64% 63%
72% 61%
60% 61%
61%
59%
58%
58%
58%
54% 55%
53% 61% 43% 191 40% 191 20% 191
0% 234 No arrears No arrears No arrears No arrears 234 (1) Restructuring activity within quarter as recorded at each quarter end and includes restructurings of 90+ DPD, NPEs, performing loans and re-restructurings. 234 (2) Loans together with the associated provisions are written off when there is no realistic prospect of future recovery. Partial write-offs, including non-contractual write-offs, may occur when it is considered that there is no realistic prospect for the recovery of the contractual cash flows. In addition, write-offs may reflect restructuring activity with customers and are part of the terms of the agreement and subject to satisfactory performance. (3) Restructured loans post 31 December 2013 excluding write offs & non contractual write offs and DFAs. 27 (4) The performance of loans restructured during 2Q2017 is not presented in this graph as it is too early to assess. NPE inflows stabilise; NPEs exits as expected (Cy)
NPEs inflows (€ bn) 0 97 Redefaults New inflows Inflows as % performing loans 114 4.5% 4.0% • Slowing of new inflows confirm: 4.0%
49 3.5% 2.8% 2.9% 2.8% quality of new lending 2.6% 3.0% 133 2.4% 0.27 0.23 2.5% success of prior restructurings 156 0.22 0.21 2.0% 0.17 0.19 0.09 1.5% Support by improvement of 255 0.12 1.0% underlying economic macro
192 0.14 0.5% 0.09 0 0.0% 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 0 153 Outflows of NPEs on curing and exits (€ bn) 204 Curing of restructured loans Curing as % of NPEs DFAs & DFEs1 Write offs and non contractual write offs €1.6 bn forborne NPEs with no impairments or 203 Other (Interest / Collections / Change in balances) arrears2,3 224
0.50 230 2.3% 5.5% 0.30 2.1% 2.0% 5.1% € bn Corporate SME Retail
0.10 4.3% 127 - 0.8 -0.10 (0.26) (0.23) 2 (0.30) (0.40) 127 -0.30 (0.58) (0.50) (0.13) (0.19) 0.2 -0.50 (0.38) (0.10) 127 (0.25) (0.11) (0.37) (0.25) 0.5 -0.70 (0.16) (0.26) (0.09) (0.22) 0.3 (0.08) (0.01) 0.3 -0.90 (0.04) (0.76) (0.24) (0.75) 0.2 191 (0.05) (0.84) 0.1 -1.10 (0.88) (0.94) 191 (1.03) 0.1 -1.30 0.3 0.2 0.2 191 -1.50 2017 2018 2019+ 234 FY2016 outflows: €3.61 bn 1H2017 outflows: €1.59 bn 234 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 234
(1) Comprises of debt for asset swaps and debt for equity swap. (2) In pipeline to exit NPEs subject to meeting all exit criteria . 28 (3) Analysis based on account basis.
Continuous progress across all segments
Focus shifts to Retail and SME after intense Corporate attention 0 97 NPEs (Cy) €9.35 bn 114 Corporate Dec 15 6.56 49 Exits (2.42) Corporate 2.09 133 NPE ratio 49.4% 156 Inflows 0.37 Dec-16 4.51 NPE provision Exits (0.89) coverage 51.2% 255 €3.76 bn Inflows 192 0.14 NPE total Terminated 114.2% 0 Corporate 1.67 Jun 17 3.76 coverage SME 0 Dec 15 3.37 NPE ratio 68.7% 153 SME 1.27 Exits 2.82 (0.55) 204 Inflows 2.82 0.14 €2.68 bn NPE provision 46.5% Dec-16 2.96 coverage Exits 2.59 (0.37) 203 Terminated NPE total 118.3% 224 SMEs 1.41 Inflows 2.59 0.09 coverage 230 Jun 17 2.68 Retail 127 Retail 1.51 €2.91 bn Dec 15 3.32 NPE ratio 47.1% 127 Exits (0.64) 127 29.1% Inflows 0.35 NPE provision Terminated coverage 191 Retail 1.40 Dec-16 3.03 53.5% 191 Exits (0.33) Inflows 0.21 NPE total 191 109.7% 30 June 2017 coverage Jun 17 2.91 234 234 234 29 Cyprus NPL framework proving effective
0 Robust foreclosure legal framework adopted in Cyprus in April 2015 97 • Enables the enforcement of mortgages as security rights against debtors through foreclosure 114 • Minimises the involvement of the Land Registry Office and procedure is driven by the secured creditors in order to expedite property foreclosures • Ability to initiate foreclosure proceedings once the loan is terminated / repayments & instalments are overdue for over 120 days 49 • Access to purchase the mortgaged property after 12 months since the for-sale process begins 133
156 Cross country comparison of NPL supervisory framework Cyprus Italy Spain Greece Ireland Portugal
255 NPL governance / workout 192 Guidance on NPL workout practices / arrears management 0 Guidance requiring banks to have NPL strategies / action plans Guidance requiring a dedicated arrears / NPL unit 0 Guidance requiring banks to have NPL operational targets 153 204 Debt enforcement / foreclosures 203 Legal techniques to enable out-of-court enforcement of collateral 224 Bilateral sales of repossessed assets permitted 230 Blanket bans (moratoria) on sales/auctions/foreclosures
127 Household insolvency and restructuring framework 127 Out-of-court mechanism 127 Bankruptcy regime for consumers/households Insolvency/bankruptcy discharge period (years) 3 1 5 3 1 5 191 191 Collateral valuation 191 Guidance of specific rules on valuation methods Guidance on valuation frequency for NPL collateral 234 Requirements for appraisers 234 Requirements for data collection on collateral 234 Source: European Central Bank – “Stocktake of national supervisory practices and legal framework related to NPLs”, September 2016
30 0 97 114
49 133 156
255 192 0
0 153 204 Supporting materials 203 224 230 Financial performance
127 127 127
191 191 191
234 234 234 BOC - Main performance indicators
0 97 Ratios Group 1H2017 114 Net Interest Margin 3.37% 49 133 1 156 Performance Cost to income ratio 42%
255 Loans to deposits 90% 192 0 90+ DPD / 90+ DPD ratio €7,561 mn (39%) 0 153 204 90+ DPD coverage 61%
203 Asset Quality 224 Cost of risk (annualised) 4.2%2 230
127 Provisions / Gross Loans 23.8% 127 127 Transitional Common Equity Tier 1 capital €2,142 mn 191 191 Capital
191 CET1 ratio (transitional basis) 13.8%
234 Total Shareholders’ Equity / Total Assets 11.5% 234 234 (1) Adjusted for the special levy and the SRF contribution. (2) Provisions for impairment of customer loans and gains/(losses) on derecognition of loans and changes in expected cash flows on acquired loans over average gross loans. Additional provisions of c.€500 mn are included in the calculation of Cost of Risk but are not annualised. Including impairments of other financial instruments, the provisioning charge for 1H2017 was 4.3%. 32 Operating profitability stabilised; 2Q2017 impacted by additional provisions
(1H) € mn 1H2017 1H2016 2Q2017 1Q2017 qoq % Key Highlights yoy% 0 Net Interest Income 316 360 160 156 2% -12% 97 • Stable qoq NII at €160 mn 114 Non interest income 154 122 77 77 0% 27% Total income 470 482 237 233 2% -2% • Non-interest income maintained at 49 €77 mn Total expenses (214) (202) (107) (107) 0% 6% 133 • NIM at 3.37% for 1H2017 156 Profit before provisions and impairments1 256 280 130 126 3% -9% • Staff cost pressures offset, by no 2 Loan loss provisions (656) (158) (592) (64) 829% 316% SRF contribution in 2Q2017 255 Impairments of other financial and non financial (36) (22) (4) (32) -86% 67% • Additional provisions of c.€500 mn 192 instruments 0 in 2Q2017 to accelerate derisking Provision for litigation and regulatory matters (35) 0 (18) (17) 11% - • Provisions for litigation and 0 Total Provisions and impairments (727) (180) (614) (113) 450% 306% regulatory matters of €35 mn 153 include €18 mn relating to litigations Share of profit from associates and joint ventures 4 2 2 2 5% 146% for securities issued by the Bank 204 between 2007 and 2011 and to (Loss)/profit before tax and restructuring costs (467) 102 (482) 15 - - redress provisions for the UK operations in 2Q2017 €17 mn in 203 Tax (72) (12) (66) (6) 939% 490% 224 1Q2017 mainly due to a fine imposed Profit/(loss) attributable to NCIs (1) (6) (1) 0 45% -90% by the Cyprus Competition 230 Commission in 1Q2017 (Loss)/profit after tax and before restr. costs (540) 84 (549) 9 - - 127 • Increased tax charge in 2Q2017 of €66 mn mainly due to reduction in Advisory, VEP and other restr. costs3 (14) (87) (7) (7) -10% -84% 127 DTA 127 Net gain on disposal of non-core assets - 59 - - - -100% • Loss after tax of €554 mn for (Loss)/profit after tax (554) 56 (556) 2 - - 1H2017 191 191 Net interest margin 3.37% 3.59% 3.38% 3.33% +5 bps -22 bps 191 Cost-to-Income ratio 46% 42% 45% 46% -1 p.p. +4 p.p. Cost-to-Income ratio adjusted for the special levy 42% 40% 43% 41% +2 p.p. +2 p.p. 234 and SRF contribution 234
234 (1) Profit before provisions and impairments, gains/(losses) on derecognition and changes on expected cash flows , restructuring costs and discontinued operations. (2) Provisions for impairment of customer loans and gains /(losses) on derecognition of loans and changes in expected cash flows on acquired loans. (3) Advisory, VEP and other restructuring costs comprise mainly: 1) fees of external advisors in relation to: (i) disposal of operations and non-core assets (ii) customer loan restructuring activities which 33 are not part of the effective interest rate and (iii) the listing on the London Stock Exchange and 2) voluntary exit plan cost. Stable NIM despite negative interest rate environment
0 97 Net Interest Income and Net Interest Margin Average contractual interest rates2 (bps) (Cy)
114 Net Interest Income € mn € bn Quarterly Average Interest bearing Net Interest Margin (NIM) (bps) assets1 Yield on Loans Cost of Deposits Customer spread 49
133 20.5 19.9 19.5 19.1 19.0 19.0 156 543 363 355 537 529 525 517 335 337 333 338 512 508 255 192 FY16 1H17 NII: €686 mn NII: €316 mn 443 442 438 436 0 NIM: 3.47% NIM: 3.37% 430 426 425
0 153 100 95 91 89 87 86 83 185 175 164 204 162 156 160
203 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 224 230
127 • Net interest income (NII) and net interest margin (NIM) for 1H2017 amounted to €316 mn and 3.37% respectively. NII down by 12% yoy, 127 reflecting the low interest rate environment and the lower volume of loans primarily as a result of the DFAs
127 • The NII and NIM for 2Q2017 amounted to €160 mn and 3.38% respectively, at similar levels as for 1Q2017 191 191 191 • Average interest earning assets for 1H2017 amounted to €19.0 bn, down by 5% yoy, largely due to DFAs and the elevated provisions charges for 2Q2017. Quarterly average interest earning assets for 2Q2017 amounted to €19.0 bn, at similar levels to the previous quarter
234 • Customer spread stable at 425 bps in 2Q2017 234 234 (1) Interest earning assets include placements with banks and central bank, reverse repurchase agreements, net loans and advances to customers and investments excluding equity and mutual funds. (2) Based on average loan contractual interest rates, before IFRS adjustments. 34 Fee and Commission Income at 19% of total Income
Analysis of Non Interest Income (€ mn) – Quarterly 0 Net FX gains / (losses) & Net gains/(losses) on other financial instruments, and other income. 97 Gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of properties 114 Insurance income net of insurance claims Net fee and commission income % 20% 19% 19% 49 15% 16% 16% Net fee and commission 133 77 77 77 income % Total income 156 71 63 15 x 59 16 16 22 1 Recurring non- interest 13 4 9 255 8 60 income (€ mn) 1 1 1 9 1 15 192 57 10 53 14 50 11 49 10 48 0
48 43 45 0 36 38 38 153 204
203 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 224 Fee & commission income in Cyprus by business line Payment Transactions are increasing 230 Average Number of Payment Transactions per month (thousands) International Banking Services (IBS) 127 8% 1% 2% Incoming Payment Orders Outgoing Payment Orders 127 Consumer 9% 53 127 One third of IB, SME 6% W&M fee & 41 41 35 35 37 36 38 38 191 commission 29 30 Corporate 42% income 26 191 is driven by 20 21 Payment 191 RRD Transactions 32% 234 Wealth and Management 2013 - pre- 2013 - post- 2014 2015 2016 1Q2017 2Q2017 234 Bail-in Bail-in Other 234 35 (1) Excluding non-recurring fees of approximately €7 mn. Total expenses
Total operating expenses (€ mn) 0 • Staff costs at €57 mn for 2Q2017, up by 6% qoq, 97 Staff costs Other operating expenses following the renewal of collective agreement with the 114 101 96 96 92 93 95 Union 44 49 38 37 38 40 41 133 • Other operating expenses at €44 mn for 2Q2017, up by 156 7% qoq, primarily due to the increase in advertising and 58 59 54 54 57 53 marketing, advisory and other professional fees during 255 2Q2017 192 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017
0 • Special levy and contribution to the SRF for 2Q2017 Special Levy and SRF contribution (€ mn) 0 totalled €6 mn, compared to €12 mn a quarter earlier. The 153 annual contribution to the SRF, was fully booked in Special Levy SRF contibution 1Q2017, in line with IFRS 204 12.0
6.4 203 • C/I ratio at 46% for 1H2017. Excluding the special levy 4.8 4.8 5.0 5.4 5.6 5.7 224 and contribution to the SRF, C/I ratio at 42%, compared 230 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 to 41% for 1Q2017
127 Cost to Income Ratio (C/I ratio) 127 • Actions for focused, targeted cost containment: 127 Cost to Income ratio Cost to Income ratio excluding special levy on banks and SRF contibution Tangible savings through a targeted cost reduction 46% 46% program for operating expenses 191 42% 42% 41% 41% Introduction of appropriate technology/ processes to 191 enhance product distribution channels and reduce 41% 42% 191 39% 40% 40% 39% operating costs 234 Introduction of HR policies aimed at enhancing 234 productivity 1Q2016 1H2016 9M2016 FY2016 1Q2017 1H2017 234 36 Income Statement Review
0 € mn 1H2017 1H2016 2Q2017 1Q2017 qoq % (1H) yoy% 97 Net Interest Income 316 360 160 156 2% -12%
114 Net fee and commission income 88 74 45 43 4% 19%
49 Insurance income net of insurance claims 25 25 15 10 34% -1% 133 Core income 429 459 220 209 4% -7% 156 Other income 41 23 17 24 -23% 78% Total income 470 482 237 233 2% -2% 255 Total expenses (214) (202) (107) (107) 0% 6% 192 0 Profit before provisions and impairments1 256 280 130 126 3% -9% Loan loss provisions2 (656) (158) (592) (64) 829% 316%
0 Impairments of other financial and non financial instruments (36) (22) (4) (32) -86% 67% 153 Provision for litigation and regulatory matters (35) 0 (18) (17) 11% - 204 Total Provisions and impairments (727) (180) (614) (113) 450% 306% 203 Share of profit from associates and joint ventures 4 2 2 2 5% 146% 224 (Loss)/profit before tax and restructuring costs (467) 102 (482) 15 - - 230 Tax (72) (12) (66) (6) 939% 490% 127 Profit/(loss) attributable to NCIs (1) (6) (1) 0 45% -90% 127 (Loss)/profit after tax and before restr. costs (540) 84 (549) 9 - - 127 Advisory, VEP and other restr. costs3 (14) (87) (7) (7) -10% -84% 191 Net gain on disposal of non-core assets - 59 - - - -100% 191 (Loss)/profit after tax (554) 56 (556) 2 - -
191 Net interest margin 3.37% 3.59% 3.38% 3.33% +5 bps -22 bps Cost-to-Income ratio 46% 42% 45% 46% +4 p.p. 234 -1 p.p. 234 Cost-to-Income ratio adjusted for special levy and SRF contribution 42% 40% 43% 41% +2 p.p. +2 p.p.
234 (1) Profit before provisions and impairments, gains/(losses) on derecognition and changes on expected cash flows , restructuring costs and discontinued operations. (2) Provisions for impairment of customer loans and gains /(losses) on derecognition of loans and changes in expected cash flows on acquired loans. (3) Advisory, VEP and other restructuring costs comprise mainly: 1) fees of external advisors in relation to: (i) disposal of operations and non-core assets (ii) customer loan restructuring activities which 37 are not part of the effective interest rate and (iii) the listing on the London Stock Exchange and 2) voluntary exit plan cost. Cyprus: Income Statement by business line for 1H2017
Wealth & 0 International Consumer SME Corporate Brokerage & Total € mn Banking RRD REMU Insurance Other 97 Banking Banking Banking Asset Cyprus
114 Management
Net interest income 49 114 26 50 36 5 74 (9) 0 1 297 133 Net fee & commission income 25 5 7 33 1 6 - (2) 10 85 156 Other income 2 1 0 4 2 0 12 24 19 64
255 Total income 141 32 57 73 8 80 3 22 30 446 192 0 Total expenses (57) (6) (6) (13) (2) (15) (4) (8) (80) (191) Profit/(loss) before provisions 0 and impairments 84 26 51 60 6 65 (1) 14 (50) 255 153 Provisions for impairment of 204 customer loans net of gains/(losses) on derecognition (30) (29) 0 (7) 0 (574) - - 2 (638) 203 of loans and changes in 224 expected cash flows 230 Impairment of other financial ------(25) (25) and non financial instruments 127 Provision for litigation and ------(31) (31) 127 regulatory matters 127 Share of profits from associates ------4 4
191 Profit/(loss) before tax 54 (3) 51 53 6 (509) (1) 14 (100) (435) 191 Tax (7) 0 (6) (7) (1) 65 0 (2) (112) (70) 191 Profit attributable to non ------(1) (1) controlling interest 234 Profit/(loss) after tax and 234 before one off items 47 (3) 45 46 5 (444) (1) 12 (213) (506) 234 38 Careful Expansion of BOC UK operations
0 Gross loans and customer deposits Loans by sector at 30 June 2017 97 Gross loans (£ bn) 1% 114 1% 1.21 1.24 Corporate 16% 49 1.09 133 SMEs 0.93 156 Consumer credit 0.83 0.74 82% 255 Housing 0.63 192 0 Dec 2014 Jun 2015 Dec 2015 Jun 2016 Dec 2016 Mar 2017 Jun 2017 0 153 Core operating profitability is rising Customer deposits (£ bn) 204 Operating profit (£ mn) (Loss)/profit after tax (£ mn) 1.38 203 1.26 1.25 0.2 1.8 1.8 224 1.6 1.13 (2.4) 230 1.04 0.96 0.93 4Q2016 1Q2017 2Q2017 127 (13.6) 127 Loss after tax negatively affected by legal and 127 Dec 2014 Jun 2015 Dec 2015 Jun 2016 Dec 2016 Mar 2017 Jun 2017 regulatory redress provision charges 191 191 4Q2016 1Q2017 2Q2017 191 • Gross loans and customer deposits in the UK increased by 50% and 33% since Dec 15 to £1.24 bn and to £1.38 bn, respectively • New lending of £257 mn during 1H2017 234 234 • Loss after tax of £2.4 mn for the 2Q2017, negatively affected by legal and regulatory redress provision charges 234 • Expansion of UK operations that remains consistent with Group's overall credit appetite and regulatory environment 39 Gross loans by Geography and by Customer Type
Gross loans by geography 30 June 2017 (%) 0
97 1 Cyprus UK Other countries 114 Total (€ bn) 7.4%1.9% 49 22.59 21.85 21.08 20.60 20.13 20.01 133 1.21 0.72 0.70 19.50 1.17 1.18 0.63 0.60 0.56 0.51 0.38 1.23 1.30 1.44 156 Other countries 1 1.43
255 UK 20.66 19.98 192 19.27 18.77 18.27 18.06 17.69 90.7% 0 Cyprus 0 153 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 204
203 Gross loans by customer type 30 June 2017 (%) 224 Corporate SME 230 Total Retail Housing Retail Other 22.59 (€ bn) 21.85 21.08 127 20.60 20.13 20.01 10.5% 2.18 19.50 2.16 2.13 127 2.11 2.09 2.19 4.31 4.28 2.06 127 4.27 4.24 Retail other 4.22 4.19 4.15 4.68 4.65 4.55 21.3% 46.9% 191 Retail Housing 4.47 4.35 4.29 4.15
191 SMEs 11.42 21.3% 191 10.77 10.13 9.78 9.47 9.35 9.14 Corporate 234 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 234 234
(1) Other countries: Greece, Russia and Romania. 40 Analysis of Deposits by Currency and by Type
0 Deposits by Currency 30 June 2017 (%) 97 114 Total EUR USD GBP Other Currencies EUR USD GBP Other currencies (€ bn) 1.0% 16.51 16.54 16.58 49 15.64 0.14 10.9% 14.75 0.22 0.15 133 14.18 14.13 0.20 1.69 1.81 13.61 13.63 13.61 0.24 1.69 0.15 0.16 1.63 2.10 1.80 156 0.65 0.66 0.16 1.61 2.20 1.61 1.68 1.61 1.95 1.56 1.79 10.8% 1.55 1.73 1.91 1.75 255 2.15 1.82 192 77.3% 0 11.86 12.40 12.60 12.83 10.44 10.61 11.11 9.26 9.59 10.11
0 Total Cyprus 90.5% 153 204 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17
203 Deposits by type of deposits 30 June 2017 (%) 224 Time deposits 230 Total Time deposits Savings accounts Current & demand accounts Savings account Current and demand account 16.51 16.54 16.58 127 (€ bn) 15.64 14.75 127 13.61 13.63 13.61 14.18 14.13 127 5.96 5.92 5.70 6.18 5.40 4.48 4.47 4.63 4.99 4.97 1.11 191 1.01 1.06 1.05 35.7% 0.97 1.02 1.01 1.03 1.01 1.04 191 57.6% 191 9.27 9.53 9.55 8.16 8.14 7.97 8.16 8.15 8.31 8.93 6.7% 234 234 Mar-15 Jun-15 Sep-15 Dec-15 Mar -16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 234 41 Consolidated Balance Sheet
0 % % € mn change 30.06.17 31.12.16 € mn change 30.06.17 31.12.16 97 114 Cash and balances with Deposits by banks -5% 415 435 54% 2,317 1,506 Central Banks Funding from central banks 6% 900 850 49 Loans and advances to -35% 708 1,088 133 banks Repurchase agreements 0% 256 257 156 Debt securities, treasury bills 36% 918 674 Customer deposits and equity investments 0% 16,584 16,510 255 192 Net loans and advances to Subordinated loan stock - 257 - -5% 14,913 15,649 0 customers Other liabilities 8% 1,097 1,014 Stock of property 5% 1,502 1,427 0 153 Other assets -5% 1,729 1,828 Total liabilities 2% 19,509 19,066 204 Total assets 0% 22,087 22,172 Shareholders’ equity -17% 2,543 3,071 203 Non controlling interests 224 2% 35 35 230 Total equity -17% 2,578 3,106 127 127 Total liabilities and equity 0% 22,087 22,172 127
191 191 191
234 234 234 42 Risk Weighted Assets – Regulatory Capital
Risk weighted assets by Geography (€ mn) Equity and Regulatory Capital (€ mn) 0 30.06.16 30.09.16 31.12.16 31.03.17 30.06.17 97 30.06.16 30.09.16 31.12.16 31.03.17 30.06.17 114 Cyprus 17,845 17,675 17,554 17,336 16,128 Russia 16 15 1451 33 32 Shareholders’ equity 3,054 3,063 3,071 3,079 2,543 49 United Kingdom 695 725 784 896 869 133 CET1 capital 2,735 2,736 2,728 2,694 2,142 156 Romania 195 205 182 178 129 Tier I capital 2,735 2,736 2,728 2,694 2,142 255 Greece 176 140 190 223 193 192 Other2 41 43 10 15 17 Tier II capital 21 21 21 225 248 0 Total RWA 18,968 18,803 18,865 18,681 17,368 Total regulatory capital (Tier I + Tier II) 2,756 2,757 2,749 2,919 2,390 0 RWA intensity(%) 84% 84% 85% 83% 79% 153 ` 204 Risk weighted assets by type of risk (€ mn) Reconciliation of Group Equity to CET 1 € mn 30.06.17 203 30.06.16 30.09.16 31.12.16 31.03.17 30.06.17 224 Group Equity per financial statements 2,578 230 Less: Intangibles and other deductions (24) Credit risk 16,921 16,747 16,862 16,785 15,474 Less: Deconsolidation of insurance and other entities (216) 127 Less: Regulatory adjustments (DTA and other items) (147) 127 Less: Revaluation reserves and other unrealised items transferred to (49) 127 Market risk 7 6 6 7 5 Tier II
CET 1 (transitional) 2,142 191 191 Operational risk 2,040 2,050 1,997 1,889 1,889 Less: Adjustments to fully loaded (mainly DTA) (99) 191 CET 1 (fully loaded) 2,043 Risk Weighted Assets 17,368 Total 18,968 18,803 18,865 18,681 17,368 234 CET 1 ratio (fully loaded) 11.8% 234
234 CET 1 ratio (transitional) 12.3%
(1) The increase in Russia RWA is due to one off regulatory adjustments on operational risk in relation to disposed operations where permission to exclude it received from regulators early January 2017. 43 (2) Other countries primarily relates to exposures in Channel Islands. Reduction in Overseas Non-Core Exposures
0 Overseas non-core exposures1 (€ mn) 97 114 Russia: Net exposure Romania: Net exposure 49 133 Serbia: Net exposure Greece: Net exposure 156
255 • In addition, at 30 June 2017, there were €173 mn of 192 overseas exposures in Greece (€195 mn as at 31 0 March 2017) not identified as non-core exposures
696 0 • In accordance with Group’s strategy to exit from 153 588 overseas non-core operations, the operations of the 204 Bank of Cyprus branch in Romania are expected 539 306 518 to be terminated during 2017, subject to 203 regulatory approvals. The remaining assets and liabilities of the branch will be transferred to 224 296 407 395 other entities of the Group. 230 288 54 283 127 127 42 248 240 42 127 217 42
205 9 9 191 164 149 111 108 191 119 191 45 45 44 39 38 Mar 2016 Jun 2016 Sep 2016 Dec 2016 Mar 2017 Jun 2017 234 234 234
(1) Comparatives excluding core exposures. 44 (2) Lending exposures to Greek entities in the normal course of business in Cyprus and lending exposures in Cyprus with collaterals in Greece. Non-Performing Loans definition
0 Non-Performing Exposures (NPEs) –as per the EBA definition: In 2014 the European Banking Authority (EBA) published its reporting standards on 97 forbearance and non-performing exposures (NPEs). According to the EBA standards, a loan is considered a non-performing exposure if: 114 i. the debtor 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 49 ii. the exposures are impaired i.e. in cases where there is a specific provision, or 133 iii. there are material exposures which are more than 90 days past due, or 156 iv. there are performing forborne exposures under probation for which additional forbearance measures are extended, or v. there are performing forborne exposures under probation that present more than 30 days past due within the probation period. 255 192 The exit criteria of NPE forborne are the following: 0 1. The extension of forbearance measures does not lead to the recognition of impairment or default 2. One year has passed since the forbearance measures were extended 0 3. There is not, following the forbearance measures, any past due amount or concerns regarding the full repayment of the exposure according to the 153 post forbearance conditions. 204 90+DPD: Loans in arrears for more than 90 days (90+ DPD) are defined as loans past-due for more than 90 days and those that are impaired 203 (impaired loans are those which are not considered fully collectable and for which a provision for impairment has been recognised on an individual basis or for which incurred losses exist at their initial recognition or customers in Debt Recovery). 224 230
127 127 127
191 191 191
234 234 234 45 0 97 114
49 133 156
255 192 0
0 153 204 Supporting materials 203 224 230 BOC shareholder structure
127 127 127
191 191 191
234 234 234 Share Capital increase in 2014 attracted reputable international investors & a world class Board of Directors
0 Current shareholding of BOC1 Current Board composition 97 114 Name Designation 49 Chairman Dr. Josef Ackermann 133 4.8% Independent 156 9.3% Vice Chairman Mr. Maksim Goldman 5.0% Non Independent 255 5.0% CEO 192 3.5% Mr. John Patrick Hourican 0 4.1% Executive 65.0% 3.3% Deputy CEO and COO Dr. Christodoulos Patsalides 0 Executive 153 Board member Mr. Arne Berggren 204 Independent
Board member 203 Mr. Michalis Spanos Senior Independent 224 Cyprus Popular Bank Public Co Ltd 230 Lamesa Holding S.A. Board member Mr. Ioannis Zographakis TD Asset Management Independent European Bank for Reconstruction and Development 127 Board member Dr. Michael Heger 127 Tyrus Capital S.A.M Independent 127 Senvest Management LLC Board member Osome Investments Limited Ms. Lyn Grobler Independent 191 Other 191 Board member Mr. James B. Lockhart III2 Independent 191
Board member 234 Mrs Anat Bar-Gera2 Independent 234 234
(1) In accordance with the shareholders' disclosure obligations pursuant to Irish Transparency Rules and Regulations. (2) Subject to ECB approval. 47 RESTRICTED Disclaimer
Certain statements, beliefs and opinions in this presentation are forward-looking. Such statements can be generally identified 0 by the use of terms such as “believes”, “expects”, “may”, “will”, “should”, “would”, “could”, “plans”, “anticipates” and 97 comparable terms and the negatives of such terms. By their nature, forward-looking statements involve risks and 114 uncertainties and assumptions about the Group that could cause actual results and developments to differ materially from those expressed in or implied by such forward-looking statements. These risks, uncertainties and assumptions could 49 adversely affect the outcome and financial effects of the plans and events described herein. We have based these forward- 133 looking statements on our current expectations and projections about future events. Any statements regarding past trends or 156 activities should not be taken as a representation that such trends or activities will continue in the future. Readers are cautioned not to place undue reliance on forward-looking statements, which are based on facts known to and/ or assumptions 255 made by the Group only as of the date of this presentation. We assume no obligation to update such forward-looking 192 statements or to update the reasons that actual results could differ materially from those anticipated in such forward-looking 0 statements. This presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any security in any jurisdiction in the United States, to United States Domiciles or otherwise. Some of the information in the presentation is 0 derived from publicly available information from sources such as the Central Bank of Cyprus, the Statistical Services of the 153 Cyprus Ministry of Finance, the IMF, Bloomberg and Company Reports and the Bank makes no representation or warranty as 204 to the accuracy of that information. The delivery of this presentation shall under no circumstances imply that there has been no change in the affairs of the Group or that the information set forth herein is complete or correct as of any date. This 203 presentation shall not be used in connection with any investment decision regarding any of our securities, which should only 224 be made based on expressly authorised materials from us identified as such, nor in connection with any decision whether or 230 how to vote on any matter submitted to our stockholders. The securities issued by Bank of Cyprus Public Company Ltd have 127 not been, and will not be, registered under the US Securities Act of 1933 (“the Securities Act”), or under the applicable 127 securities laws of Canada, Australia or Japan. 127
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