ANNUAL REPORT14 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 “Progress is “ impossible without change George Bernard Shaw WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 At Hellenic Bank, we believe in healthy development which primarily benefits people. We believe in stability and reliability. However, we also believe in the power of change and evolution. For yet another year, we made reliable progress in new projects and efforts which strengthen the evolution of our banking organisation and, consequently, the development of our customers, our partners and our people.
1 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 CONTENTS
3 BASIC FINANCIAL HIGHLIGHTS 5 BOARD OF DIRECTORS AND GENERAL MANAGEMENT 6 CHAIRWOMAN’S STATEMENT 8 CHIEF EXECUTIVE OFFICER’S REVIEW 12 REVIEW OF GROUP OPERATIONS 32 REPORT OF THE BOARD OF DIRECTORS 40 REPORT OF THE BOARD OF DIRECTORS ON CORPORATE GOVERNANCE FOR THE YEAR 2014 58 REMUNERATION POLICY REPORT FOR THE YEAR 2014 68 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HELLENIC BANK PUBLIC COMPANY LIMITED 70 CONSOLIDATED INCOME STATEMENT 71 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 72 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 73 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 75 CONSOLIDATED STATEMENT OF CASH FLOWS 76 INCOME STATEMENT 77 STATEMENT OF COMPREHENSIVE INCOME 78 STATEMENT OF FINANCIAL POSITION 79 STATEMENT OF CHANGES IN EQUITY 81 STATEMENT OF CASH FLOWS 82 NOTES TO THE FINANCIAL STATEMENTS 189 DECLARATION BY THE MEMBERS OF THE BOARD OF DIRECTORS AND THE BANK OFFICIALS RESPONSIBLE FOR THE DRAFTING OF THE FINANCIAL STATEMENTS 190 BOARDS OF DIRECTORS OF THE GROUP’S MAIN SUBSIDIARY COMPANIES 191 OFFICES AND BRANCH NETWORK 196 SHAREHOLDER INFORMATION AND INVESTOR RELATIONS
2 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 BASIC FINANCIAL HIGHLIGHTS
2014 2013 2012 2011 2010
CUSTOMER DEPOSITS AND OTHER CUSTOMER ACCOUNTS € million 6.345,9 5.513,3 7.766,9 7.106,5 6.853,5
LOANS AND ADVANCES € million 4.405,1 4.394,2 5.556,8 5.631,7 5.422,8
TOTAL FINANCIAL POSITION € million 7.551,6 6.383,9 8.755,7 8.279,0 8.236,7
CAPITAL RESOURCES € million 590,0 394,5 481,7 431,6 532,0
GROUP OPERATING PROFIT BEFORE PROVISIONS TO COVER CREDIT RISK € million 157,9 129,5 159,4 55,6 90,0
Note: According to the provisions of the International Financial Reporting Standard 5, ‘Non-current Assets Held for Sale and Discontinued Operations’, the results for the year ended 31 December 2014 refer to the comparative figures of the annual results of the Group for the year ended 31 December 2014 which have been restated to reflect the reclassification of the operations of the BNG from continuing to discontinued operations on 26 of March 2013, as well as the disposal of the Bank’s subsidiary company in Russia, Limited Liability Company Commercial Bank ‘Hellenic Bank’ on 5 June 2014 and the disposal of the Bank’s subsidiary Borenham Holding Limited on 6 February 2015.
HELLENIC BANK GROUP ANNUAL REPORT 2014 3 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 4 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 BOARD OF DIRECTORS AND GENERAL MANAGEMENT
Board of Directors of Hellenic Bank Public Christodoulos A. Hadjistavris Company Ltd (Elected on 28 May 2014) Andreas P. Panayiotou, Bert Pijls CHAIRMAN (Appointed on 16 January 2015) (Until 28 May 2014) Irena A. Georgiadou, Chief Executive Officer (Elected on 28 May 2014) Makis Keravnos CHAIRWOMAN (Resigned on 1 September 2014) (As from 8 July 2014) Kyriacos J. Koushos, Marinos S. Yannopoulos (From 9 September 2014 until 8 January 2015) VICE-CHAIRMAN (Elected Vice-Chairman on 13 January 2014, did not offer himself for Bert Pijls re-election at the 40th Annual General Meeting on 28 May 2014 and (Appointed on 12 January 2015) therefore retired from the Board of Directors on 28 May 2014) Marinos S. Yannopoulos, General Management of the Hellenic Bank (Elected on 28 May 2014) VICE-CHAIRMAN Group (From 17 July 2014 until 9 September 2014) Antonis Rouvas, General Manager Charalambos P. Panayiotou Eliodoros Eliodorou, General Manager (Resigned on 14 January 2014) (Until 5 February 2015) Ioannis Ch. Charilaou George Evripidou, General Manager (Resigned on 23 December 2014) (Until 9 February 2015) Georgios K. Pavlou Petros Ioannides, General Manager (Did not offer himself for re-election at the 40th Annual General Meeting (Until 10 February 2015) on 28 May 2014 and therefore retired from the Board of Directors on 28 May 2014) Yiannis Telonis, General Manager (Until 6 February 2015) Kyriakos E. Georgiou, Senior Independent Director (Did not offer himself for re-election at the 40th Annual General Meeting George Karageorgis, General Manager on 28 May 2014 and therefore retired from the Board of Directors on 28 (As from 1 July 2014) May 2014) Marinos Athanassiades, General Manager Makis Keravnos (As from 1 July 2014) (Resigned on 1 September 2014) Phivos Leontiou, Assistant General Manager Marianna Pantelidou Neophytou (As from 1 July 2014) Ioannis A. Matsis Marios M. Michaelides Group Chief Financial Officer (Did not offer himself for re-election at the 40th Annual General Meeting Antonis Rouvas on 28 May 2014 and therefore retired from the Board of Directors on 28 May 2014) Auditors Andreas G. Charitou KPMG Limited Adonis E. Yiangou (Appointed on 3 February 2014, did not offer himself for re-election at the Legal Advisers 40th Annual General Meeting on 28 May 2014 and therefore retired from the Board of Directors on 28 May 2014) Costas Ch. Velaris Alecos F. Markides Vassos Y. Komodromos (Appointed on 18 February 2014, appointed as Senior Independent Georgiades & Pelides LLC Director on 17 July 2014 and resigned from the Board of Directors on 23 December 2014) Company Secretary David Whalen Bonanno Charalambos Mousoulides (Elected on 28 May 2014) (Until 6 February 2015) Evripides A. Polykarpou Petros Arsalides (Elected on 28 May 2014 and appointed Senior Independent Director on (Appointed on 6 February 2015) 27 January 2015) Georgios Fereos Registered Office (Elected on 28 May 2014) Corner Limassol Avenue & 200 Athalassa Avenue, 2025 Strovolos, Nicosia, Cyprus P.O.Box 24747, 1394 Nicosia, Cyprus
HELLENIC BANK GROUP ANNUAL REPORT 2014 5 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 CHAIRWOMAN’S STATEMENT
managed to gainsay even the most lenient projections. The recession was in the end limited to 3%, despite the initial estimates that it would exceed 25% of GDP. In the meantime, the rampant increase in unemployment came to a halt in the second half of 2014 to 16,1%3.
The financial performance, which proved better than expected also opened a window of opportunity, which allowed Cyprus to return to the markets and begin to regain its credibility. Despite the anticipation to the contrary, the country achieved a budget surplus (0,39% of GDP) for 2014 and reduced the public debt to sustainable levels - close to 105%4 of GDP - two years earlier than Irena A. Georgiadou expected. Chairwoman Cyprus’ effort was recognised and noticed and the international rating agencies proceeded with upgrading Dear Shareholders, the economy, thus demonstrating that confidence is gradually being restored. In 2014, the world economy attempted to resist the negative side effects inherited by the crisis and the low An important landmark of the country’s recovery course growth potential of many countries. and the financial sector’s stability has been the full lifting of the capital controls. The IMF data shows a growth of 3,3%1 for 2014, while the reports for 2015 emphasise that despite the This positive picture, however, should not drift Cyprus improvement of the economic prospects of some key into complacency as the economy remains weak and advanced economies, new challenges to global financial vulnerable to both internal and external factors and stability have arisen. The low oil prices, the strengthening challenges. of the dollar and the devaluation of the ruble against key currencies, the drop of the sovereign bond yields, The course of the Greek economy continues to affect deflationary pressures in the Eurozone, regulatory Cyprus to some extent. Greece remains an important changes and the drop of interest rates are examples of the export destination, although our financial ties have new coordinates of the economic environment of today. weakened. Any extension of the uncertainty may delay And as always, some will come out as winners and some Cyprus’ effort to return to growth, while any deadlock in will lose in this new environment. the negotiations between Greece and the institutions may have wider effects on the Eurozone. In Europe, skepticism remains since there is no clarity as to when stable growth rates will be finally achieved. And The tourism sector also lies in the balance due to the because it is obvious that the growth in the Eurozone will developments in Russia. EU sanctions on Moscow have be ‘bank-driven’, the ECB seems determined to create had a serious effect on Russia’s economy, while its the right conditions for growth. The programs that are currency devalued. The Cyprus Tourism Organisation launched aim to lower the cost of debt, which will in seems cautiously optimistic, estimating that arrivals turn drive expansion for the banks as well as stimulate will be down by some 2-3%, a loss which may be the property market, and also result in the weakening of compensated for by other tourism markets. the euro against key currencies which will also support growth. In this challenging environment, the banking sector is called upon to recover and play its role: Through The implementation of the Juncker package is also responsible monetary and credit transactions to assist in expected to boost the European economy. achieving sustainable growth.
2014 proved to be a pivotal year for Cyprus. The Cypriot However, for decades banking practices have been both economy appeared more resilient and was able to absorb poor and irresponsible, creating distortions and sores in the shocks of the unprecedented depositors’ ‘haircut’, the sector which will require a lot of healing time. the deep recession and the effects of strict but necessary This has resulted in private debt levels disproportionate budgetary discipline, which was imposed via the to the size of the economy and has led to lending which is economic adjustment program. in fact impossible to be repaid. These practices must stop and will stop. The reflexes of the economy and the fiscal adjustment
1 Source: International Monetary Fund Annual Reports (2014,2013,2012) 2 Source: Ministry of Finance official data 3 Source: Eurostat latest data 4 Source: Ministry of Finance official data
6 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827
The successful completion of the pan-European stress I would like to sincerely thank the new Board of Directors, tests marked the beginning of positive developments for the new CEO, our shareholders, our staff, partners and the banking system and its relocation on solid ground. customers for their long-standing trust and support.
The continued implementation of the economic adjustment program offers, under the circumstances, the best pledge for returning to growth and further stability of the banking sector. A key parameter is the completion of the legislative framework for foreclosures and insolvency, a development which will reduce the amount of non- performing loans through restructuring, while at the same time enabling the participation of Cyprus in the ECB’s Irena A. Georgiadou liquidity support programmes. Chairwoman
Dear Shareholders, Nicosia, 31 March 2015 Amid this environment, Hellenic Bank continues its dynamic course with new shareholders, a new Board of Directors and a new senior executive management, as the only systemic bank of southern Europe which neither applied a depositors’ ‘haircut’, nor used any taxpayer money to cover its capital needs.
2014 has been a year of changes for the Bank and this marks the beginning of a new and promising era.
In May 2014 the General Meeting of Shareholders elected the new Board which was inaugurated in July and immediately set out its main priorities, which were the containment of non-performing loans and the drawing of a new growth strategy for the Group.
On September 1st, 2014 Mr. Makis Keravnos stepped down and on the 9th of the same month, the then Vice Chairman of the Board of Directors Mr. Marinos Yannopoulos, assumed Chief Executive Officer powers for the interim period.
In mid-September and only two months after it was established, the new Board of Directors intensified its actions and took a preliminary decision to increase the share capital of the Bank; a venture which was completed successfully, raising €204 million. Being fully recapitalised and stronger, in November 2014 Hellenic Bank joined the Single Supervisory Mechanism (SSM).
In November 2014, the Board of Directors selected Mr. Bert Pijls for the position of Chief Executive Officer of the Group, who upon approval by the ECB, undertook official duties early in 2015.
Changes are constant. They are constant since progress is impossible without change. Being perfectly aligned with the directives of the Central Bank and having improved its corporate governance, Hellenic Bank now proceeds with the implementation of its strategy, with full respect to the trust and commitment shown by its shareholders and clients.
HELLENIC BANK GROUP ANNUAL REPORT 2014 7 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 CHIEF EXECUTIVE OFFICER’S REVIEW
• Despite the challenges of the economic environment and the recession, Hellenic Bank Group’s profit from ordinary operations before provisions for the year ended 31 December 2014 amounted to €157,9 million, an increase of 22% compared to last year, due to an increase in net income as well as a decrease of expenses.
• The Group’s loss after impairment losses and provisions to cover credit risk and taxation for the year ended 31 December 2014 amounted to €118,4 million compared to a loss of €158,4 million for the previous year. Bert Pijls Chief Executive Officer • Gross loans and advances to customers in Cyprus remained at €4,4 billion, the same level as in 2013.
Dear Shareholders, • The percentage of non-performing loans to total gross loans, including interest suspended and not recognised Two years after the crisis of March 2013, I am pleased in the income statement, amounted to 56,6% to state that both Cyprus as well as Hellenic Bank are compared to 45,7% in December 2013. on the road to recovery. The country has implemented rapid structural reforms, and the Bank has significantly • At year-end, the Bank’s coverage ratio was 47,5% strengthened its position in the market and is now (December 2013: 41,4%). well-positioned to be a key driver of the economic recovery of the country. • The confidence of depositors in Hellenic Bank increased further in 2014. During the year, deposits 2014 has been a transitional year for the Group. On the increased by 15% to €6,3 billion in December 2014 one hand we were dealing with the aftermath of the compared to €5,5 billion in December 2013. economic crisis and on the other we have started to re-position Hellenic Bank for the opportunities that will • The Capital Adequacy Ratio of the Group as at 31 emerge in the future. The Bank has a newly constituted December 2014 was 18,2%, the Tier 1 Ratio was 16,2% Board of Directors and has appointed myself as the new and the Common Equity Tier 1 Ratio was 13,4%. CEO in November. It has gone through the Asset Quality Review under the auspices of the European Central Bank, Strategic Objectives after which it successfully raised €204 million of additional Given that Hellenic Bank is not under any regulatory capital through a rights issue, and it has begun to upgrade restructuring programme that it has ample liquidity and its management processes and capabilities, especially in has been recapitalised, we are uniquely positioned to arrears management. support the recovery of the Cypriot economy as well as grow the Bank. In order to make this opportunity a reality, Whilst 2014 has been another difficult and unfortunately the Bank has a two-pronged approach. On the one hand loss-making year for Hellenic Bank, I am pleased that we we must continue to proactively address non-performing finished the year on a more positive note. The fourth loans and on the other we must increase the amount of quarter was marginally profitable, the majority of our NPL new loans we provide to viable Cypriot businesses and balances have now been reviewed in order to reach viable households. restructurings, and the NPL ratio has remained flat for the last quarter of the year. Furthermore, the continued In 2014, much progress has been made in how Hellenic growth in deposits demonstrates our clients’ confidence Bank manages non-performing loans and we will continue in the brand. this in 2015. Our aim is to offer restructuring solutions that are tailored to our clients’ specific circumstances with Financial year 2014 the objective to render the client and the loan viable for In financial terms, 2014 has been a challenging year, the long term. although better than 2013. Encouragingly, we increased income and reduced expenses for the year, but we also As far as new lending is concerned, we must underwrite witnessed a marked increase in non-performing loans on a solid footing in order to avoid the mistakes of the during the first three quarters, with associated provisions past. In line with the Central Bank of Cyprus directives, for impairment. As a result, pre-provision income was up our primary aim is to lend based on the clients’ ability to but the total loss for the year was still significant. service the debt. New lending has been limited during the
8 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 past two years but we believe there is a fair amount of pent-up demand and that that demand will grow further as the economy recovers.
Needless to say, we will execute these two parts of our strategy whilst keeping a close eye on capital, liquidity and expenses.
The year ahead Based on the progress of last year, I am cautiously optimistic about the prospects for Hellenic Bank, as well as the Cypriot economy, in 2015. Overall, I expect the year to be better than 2014 but it will have its challenges. I still foresee a further increase in non-performing loans and provisions for impairment, albeit at a lower rate than 2014.
Exactly how this will play out will depend on external factors. The delay in the approval of the foreclosure law and some uncertainties around its subsequent implementation; the absence of a workable legal framework for the transfer of assets between banks and non-banks; the economic issues in the Eurozone; and continued geopolitical conflict will not assist in bolstering confidence, may restrict foreign investment in Cyprus, and could dampen growth prospects.
Dear Shareholders,
I have assumed my responsibilities as the Chief Executive of the Bank acknowledging fully the challenges, as well as the opportunities, ahead for Hellenic Bank.
I commit to you that I will work jointly with the Board of Directors, whom I thank for their constructive support, the management team and all staff of the Bank towards realising the full potential of Hellenic Bank as a key player in the economic recovery of the Cypriot economy.
Finally, I wish to thank our clients for their loyalty and custom, and our employees for their hard work and dedication in 2014. The significant progress we have made could not have been achieved without their ongoing support.
Bert Pijls Chief Executive Officer
Nicosia, 31 March 2015
HELLENIC BANK GROUP ANNUAL REPORT 2014 9 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 REVIEW OF GROUP OPERATIONS
10 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 Every step we take today is a dynamic prospect for tomorrow
11 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 REVIEW OF GROUP OPERATIONS
Financial Results 2014 Customer deposits increased by 15% from December The Group’s profit from ordinary operations before 2013, reaching the amount of €6,3 billion (December provisions for the year ended 31 December 2014 2013: €5,5 billion), while the Group’s total cash and amounted to €157,9 million, an increase of 22% placements with banks increased by 71% and amounted compared to €129,5 million for the year ended 31 to €3,3 billion at 31 December 2014 (December 2013: December 2013 due to the increase in net income as €1,9 billion), further strengthening the comfortable well as the decrease in expenses. The Group’s loss after liquidity of the Group. recognising impairment losses and provisions to cover credit risk and after taxation for the year ended 31 The total gross customer loans and advances amounted to December 2014 amounted to €118,4 million, compared €4,4 billion, remaining at the same levels as 2013. to a loss of €158,4 million for the year 2013. Loss attributable to the shareholdres of the parent company The ratio of gross loans and advances to deposits was for the year ended 31 December 2014 amounted to 69,4% in December 2014, while the ratio of net loans and €118,6 million, compared to €190,9 million loss for 2013, advances to deposits was 50,8%. The corresponding ratios which includes a loss of €28,8 million from discontinued as at 31 December 2013 were 79,7% and 64,6%. operations following the sale of the Branch Network in Greece (BNG). The ratio of non-performing loans to gross loans and advances including suspended interest not recognised The net interest income of the Group for the year in the income statement was 56,6% (December 2013: ended 31 December 2014, amounted to €204,1 million, 45,7%). At the same time, the ratio of total impairment compared to €187,2 million for the year ended 31 losses on loans and advances including suspended December 2013, increasing by 9% due to the significant interest to total non-performing loans and advances decrease of 35% in interest expense and despite the 9% (including suspended interest) was 47,5% (December decrease of interest income. 2013: 41,4%).
Non-interest income increased by 3%, following the 4% Accumulated impairment losses on loans and advances increase in net fee and commission income and the 6% including suspended interest not recognised in the increase in net gain on disposal and revaluation of foreign income statement amounted to €1,2 billion at 31 currencies and financial instruments, while other income December 2014 (December 2013: €0,8 billion), which has decreased by 2%. corresponds to 26,9% of the total gross loans and advances (December 2013: 18,9%). The total expenses for the year ended 31 December 2014 decreased by 6% year-on-year, mainly due to the decrease Based on the results of the Asset Quality Review of staff costs by 16%. (AQR) and the Stress Tests (together referred to as the ‘Comprehensive Assessment’) that were released by the Impairment losses and provisions to cover credit risk in European Central Bank (ECB) and the European Banking the income statement for the year ended 31 December Authority (EBA), the capital requirement for Hellenic Bank 2014, which included provisions to cover credit risk based on the ‘Adverse Scenario’ totalled €105 million relating to contractual commitments and guarantees of which more than covered through the 2014 Rights Issue. €22,5 million, amounted to €304,4 million, showing a decrease of €6,4 million from the corresponding amount Since November 2014, Hellenic Bank is included of 2013. among the significant European banks that are directly supervised by the European Central Bank. On 5th June 2014, Hellenic Bank, within its continuous efforts for efficient management of available resources, On 12th December 2014, the Bank completed the first capital planning and active management of risk-weighted phase of its capital increase, raising €201 million and, on assets, disposed 100% of the share capital of its 28th January 2015, it concluded the 2014 Rights Issue wholly-owned subsidiary bank in Russia, Limited Liability by raising an additional €3 million through the allotment Company Commercial Bank ‘Hellenic Bank’. The gain from of shares that corresponded to unexercised Rights not the disposal was €3,0 million. allotted through the Pre-subscription phase. The capital raised more than covered the capital need of €105 The total assets of the Group amounted to €7,6 billion, on million, further enhancing the Bank’s capital base and a year-on-year increase of 18%. enabling it to take advantage of the growth opportunities in the recovery of the Cypriot economy.
12 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 The Capital Adequacy Ratio of the Group as at 31 growth of its loan portfolio, while safeguarding its capital December 2014, calculated in accordance with the EU’s adequacy ratios and preserving its sound liquidity. new Legislation and Directive concerning the minimum requirements for credit institutions (Capital Requirement The Group, following its recapitalisation, is in a position Regulation (CRR)/Capital Requirement Directive (CRD IV)) to assume a more active role and, using its comfortable dated 26 June 2013, which came into effect at 1 January liquidity, intends to finance sound businesses and 2014 and according to the relevant circulars of the households within the recently-implemented lending Central Bank of Cyprus under Pillar 1, was 18,2% (Bank: regulations issued by the Central Bank. 18,1%), the Tier 1 Ratio was 16,2% (Bank: 16,1%) and the Common Equity Tier 1 (CET1) Ratio was 13,4% (Bank: A number of challenges lie ahead in 2015 with regard 13,3%). to the economy’s prospects for growth. However, the recovery prospects are associated with the successful As at 31 December 2014, the Group’s risk-weighted assets enforcement of the Economic Adjustment Programme, amounted to €4,0 billion. which will improve the country’s competitiveness and allow its return to the international markets for raising Based on the conditions prevailing in the financial finance. environment, the strategic targets of the Group are the effective management of non-performing loans and the € mln. 8.236,7 € mln. 8.755,7 € mln. 8.279,0 € mln. 532,0 € mln. 590,0 € mln. 5.556,8 € mln. 159,4 € mln. 7.766,9 € mln. 157,9 € mln. 7.551,6 € mln. 481,7 € mln. 5.631,7 € mln. 7.106,5 € mln. 431,6 € mln. 5.422,8 € mln. 6.853,5 € mln. 6.345,9 € mln. 6.383,9 € mln. 4.394,2 € mln. 394,5 € mln. 5.513,3 € mln. 4.405,1 € mln. 129,5 € mln. 90,0 € mln. 55,6
10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14
CUSTOMER DEPOSITS AND LOANS AND ADVANCES TOTAL FINANCIAL POSITION CAPITAL RESOURCES GROUP OPERATING PROFIT OTHER CUSTOMER ACCOUNTS BEFORE IMPAIRMENT LOSSES AND PROVISIONS TO COVER CREDIT RISK
HELLENIC BANK GROUP ANNUAL REPORT 2014 13 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 REVIEW OF GROUP OPERATIONS
ACTIVITIES IN CYPRUS • Factoring • Letters of Credit • Trade Finance Business Units • Letters of Guarantee The Bank operates its banking business through the • Credit Cards (Company and Personal) following Divisions: Corporate Banking, Business Services, Retail, International Banking and Card Services. The These facilities are aimed at all sectors of the economy International Banking Division falls under the Global and are marketed according to the strategy of the Bank at Markets & International Banking Division which also the time. includes the Financial Institutions, Treasury, Custodian Services and Private Banking Divisions, as well as Hellenic Business Services Division Bank (Investments) Ltd. Each of these Business Units co- The rapid expansion of the Bank’s operations created operates with the Group Arrears Management and Debt the need for restructuring of the Group in order to help Recovery Unit. maintain its customer-centric focus. The Business Services Division was established in order to better serve the Small Corporate Banking Division and Medium Enterprises (SMEs) sector, which constitutes The Corporate Banking Division’s primary and perennial the backbone of the Cypriot economy. It offers upgraded goal is to continuously provide upgraded and ever- and continuously improved services and specialised improving quality services to large businesses, public products aimed at fully meeting the banking needs of companies and semi-governmental organisations that SMEs and their directors and shareholders. operate in Cyprus. A basic element for achieving this goal is a professional, friendly and effective customer service, During this period, the Division’s primary objective as well as the provision of consulting services to address has been to support businesses in combination with customers’ current and future needs, which is especially the development and maintenance of a sustainable important given the current economic recession. professional and human relationship through a high- Particular emphasis is given on the study and analysis quality, friendly and prompt service. of the key factors which affect the operations and cash flow of companies, with the purpose of determining the The Business Services Division is staffed by qualified, necessary measures for dealing with the risks associated experienced and skilled officers who offer a professional with each financing. Apart from the management and and efficient service to SMEs. The same broad range of consolidation of the existing portfolio, the aim is to attract the Group’s products and services (as outlined above) and new customers with healthy economic profiles, while the continuously upgraded and technologically-developed developing the portfolio of existing clients. systems form the foundation for building strong client relationships. Given ongoing recessionary pressures All officers who staff Corporate Centres have the in Cyprus, the Division plays a key role in restarting necessary academic background, are properly qualified, the economy by providing financial solutions for the experienced and properly trained and have the delivery development of sustainable businesses and the utilisation of a prompt and effective customer service as their of European funding programmes. primary objective. The Corporate Banking Division is the main lending unit of the Group and is primarily funded In the midst of the economic downturn experienced by by the deposits of the retail branch network of the Retail Cyprus, strengthening the infrastructure of the Business Division. Services Division has been a strategic priority of the Group as the SME sector presents the potential for future The Corporate Banking Division, in co-operation with growth. other units and departments of the Group, provides integrated solutions which include the full range of Both the Corporate Banking and Business Services products and services offered by the Group and are in Divisions contribute significantly to the Group’s credit line with the continuously changing financial needs of expansion and overall achievement of strategic targets. customers, as outlined below: Retail Division • Overdraft Accounts In 2014, Cyprus’ financial sector was once again • Long-term loans called upon to operate in an environment of constant • Short-term loans challenges. Even though a start was made with the
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gradual lifting of restrictions imposed in 2013, some of Collections and Arrears Monitoring these still remained in force in 2014. Despite this, Hellenic The Collections and Arrears Monitoring Unit handles Bank’s Retail Division steadfastly continued the drive Retail Division clients who are in arrears in the repayment launched in 2013 to increase its clientele and managed to of their credit facilities. It makes regular reminder expand its deposit base. telephone calls to the relevant clients or their guarantors, aiming at debt recovery. During the past year, great emphasis was placed on the restructuring of the loan portfolio, as well as servicing the Arrears Management Unit (AMU) needs of the Bank’s customers. The Division’s personnel The AMU has been established as an independent, responded conscientiously to the new state of affairs centralised Unit in accordance with the provisions of in the banking sector and supported clients’ requests, the Central Bank of Cyprus’ 2014 Directive on Arrears proceeding to study and restructure the facilities of Management. The AMU manages clients whose credit financially-distressed clients, with the aim of restoring facilities are in arrears, aiming at handling the Group’s their ability to fulfil their credit obligations. NPLs and, in co-operation with all the Bank’s Business Units, ensures their best-possible collectability. The Unit The reorganisation of the Branch Network continued with aims to restructure the facilities of viable and co-operative further reductions in their number, while a review of their clients, using tools and long-term solutions according to location was also set in motion. Branches which had been arrears management policy and strategies. merged were relocated to larger, newer premises to more effectively serve the Bank’s client base. On 31st December The AMU was set up in December 2013 and restructured 2014, the Branch Network numbered 63 service points, in March 2014 so as to respond to the increased volume six of which were cash offices/seasonal. of work. It is comprised of the Business and Retail Departments and operates in all districts. The Unit is The well-trained staff at the branches rose to the staffed by experienced credit officers and managers challenges and the increased turnover, demonstrating the who provide specialised solutions to borrowers, aiming ethos and professionalism that has distinguished them at successful restructuring of their facilities and the throughout the years. improvement of the Bank’s portfolio quality.
Offering service of a high quality remains the primary Debt Recovery Unit (DRU) aim of the Retail Division which supports staff efforts The DRU handles non-viable and/or uncooperative clients, with continuous training and emphasises their personal and is comprised of the Pre-Legal and Legal departments. growth. The selection of the appropriate strategy for the handling of these problematic cases depends on the specific facts Arrears Management and Debt Recovery of each borrower and/or guarantor, as well as on the In 2013 and 2014, the Bank established a new Division available options for the maximisation of the amounts to to streamline processes for the handling of clients whose be recovered. facilities are in arrears, with the objective of better management of the Bank’s Non-Performing Loans (NPL) International Banking portfolio. For the International Banking Division, 2014 was a year which aimed to restore stability, strengthen trust and The Division’s primary target is to manage the continuous develop co-operation with customers and associates. The challenges in handling facilities in arrears, simultaneously particular attention that was paid to the existing clientele, taking into consideration the negative economic as well as to new client relationships, contributed environment, and it seeks to proactively increase positively to the increase in its revenue and, by extension, collections from or initiate restructuring for clients whose the development of the Group. loans are in arrears. The Bank may proceed with debt recovery via legal action as a last resort in cases which are With a solid commitment to prompt and professional considered non-viable and/or for uncooperative clients. service, the strict implementation of the Central Bank of Cyprus’ directives and regulations and a highly functional The Arrears Management and Debt Recovery Division is framework, the mutual relationship of trust between the comprised of the following units: Bank and its clients was further strengthened. There was also a significant improvement in the portfolio quality, one of the Division’s priorities.
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In 2014, implementation of technological innovations With regards to the evaluation of the service quality and the further automation of tasks continued without offered by the Group’s various Divisions, a significant compromising the Division’s client-centric philosophy number of internal surveys were also conducted during and friendly approach to its customers and associates. In 2014, using a customised online research software. addition, the pricing policy remained highly competitive. Treasury Department The high level of service was maintained and re-confirmed The Treasury Department is responsible for managing through the re-certification of all four International the Bank’s investment portfolio, as well as the Group’s Business Centres with the ISO 9001:2008 quality standard. market and liquidity risk, always acting within the policy framework and the limits approved by the Assets and During the second year of its operation, the Shipping Liabilities Management Committee (ALCO). Business Centre in Limassol was further established in the country’s highly interesting and continuously expanding The Department plays an important role in the shipping industry by providing specialised and high- formulation and implementation of the Bank’s interest quality services to companies operating in the sector. The rate policy, as well as the close monitoring of liquidity and strenuous activity in Cyprus’ Exclusive Economic Zone customer cash flows. At the same time, the Treasury is makes shipping a major pillar of the country’s economy, actively engaged in the foreign exchange market, offering enabling the Shipping Business Centre to continue its excellent service and competitive pricing to its customers. prominent and leading role as the only one of its kind. Investments include interbank deposits in euro and in The International Banking Division’s many years of foreign currency, with the majority of euro-denominated experience and know-how in the international banking liquidity being placed with the ECB. The Department’s sector ensure that it has the assurances and potential longer-term investments include both government and necessary to develop further in this sector. supranational bonds, as well as other banking sector bonds. Product Development, Sales Support & Research The Product Development, Sales Support & Research Overall, despite all the difficulties faced by the Bank in Department closely monitors developments in the 2014, the Department’s profitability reached satisfactory banking sector, investigates customers’ needs through levels. market research and analysis of their suggestions and complaints, and enriches/ revises the Group’s range of Private Banking products. The Private Banking Unit is a specialised service which offers premium banking and investment services to high The Department continued to offer support to the Bank’s net-worth individuals in Cyprus and abroad. The Unit’s Branches and Business Centres and simultaneously activities extend to international markets, implementing a introduced ‘My Account 18-30’, a new current account perennial strategy based on the following three pillars: exclusively for young people aged 18-30 years old. 1. Proper evaluation and satisfaction of customers’ investment needs In addition, within the framework of an agreement 2. Ongoing personnel training and development between Hellenic Bank and the European Investment 3. Access to a variety of international investment choices Bank, the Department worked for the development of a through a flexible policy and co-operation with specialised scheme for lending to Cypriot enterprises in prominent overseas financial institutions. industry, tourism and other service sectors. Among others, the unit offers mutual funds of leading In the context of continuously upgrading the Group’s overseas fund managers, structured products including service offered to retail customers, ‘Mystery Shopper’ capital-guaranteed products, brokerage services for research was conducted for the fourteenth consecutive shares and bonds traded in major international markets, year, in conjunction with the seventh wave of the transactions in precious metals including gold, and Customer Satisfaction survey. Further to the above, deposit products including fiduciary deposits. two additional Customer Satisfaction surveys were conducted, regarding the Business Services Division and As part of the continuous effort to develop and address the International Banking Division. The above studies are clients’ needs, the Private Banking Unit will be integrating extremely important tools for evaluating the quality of ‘intraday transaction’ capabilities into its services. service offered to the Group’s customers.
16 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 Custodian Services of the brokerage services, the primary sector of the Despite the negative effects the continued restrictions Company’s activity, through the provision of improved on capital movement caused on investment activity solutions and enhanced choices to customers. during 2014, the Bank’s Custodian Services Unit managed to substantially increase its profitability by expanding In the portfolio management sector, emphasis was placed both its client base and the size of portfolios under on managing investment portfolios with significant custody. The majority of local institutional investors dispersion in different asset classes and exposure to (Collective Investment Funds registered in Cyprus, foreign markets, i.e. outside the CSE and ATHEX. This Insurance Companies, Provident and Pension Funds) led to positive returns for the managed portfolios, as continue to entrust Hellenic Bank with the administrative well as the formation of investment portfolios with low management of their portfolios. investment risk and broad dispersion.
Hellenic Bank participates as a general clearer and In 2014, Hellenic Bank (Investments) Ltd was the custodian in the clearing and settlement systems of underwriter responsible for drawing up the prospectus the Cyprus and Athens Stock Exchanges. In addition, of Hellenic Bank, in relation to its share capital increase the creation of a selective network of sub-custodians through a rights issue. around the globe enables the Bank’s Custodian Services Unit to provide high-level services to its customers In the summer of 2014, the relocation of Hellenic Bank (local, international, institutional and others), which are (Investments) Ltd to the Head Office of Hellenic Bank favourably compared to the leading global custodians. marked a new direction for the company by providing upgraded and targeted services to its clients through a Services offered include core custody services, such renewed focus on their specific personalised investment as safekeeping, trade settlement, corporate actions, needs. reporting, tax reclamation and cash management, as well as dedicated services to collective investment managers Pancyprian Insurance Ltd and administrators, escrow agency services and fiduciary In 2014, Pancyprian Insurance remained the third-largest deposits. Hellenic Bank can assist its customers in general insurance business company. It continued to securing the safe administration of their investments by maintain ample liquidity and prudently managed the taking advantage of the Bank’s extensive know-how and great challenges faced by the insurance industry. The expertise on the subject. insurance market in its entirety was negatively affected, especially due to the reduction in demand. The reduction The adoption of new legislation for Alternative Investment in sales of motor vehicles and properties, the deceleration Funds (AIFs) – which incorporated the respective EU of the construction sector which was limited to the Directive into Cypriot Legislation in July 2014 – is expected minimum, as well as imports and exports, were some of to boost the opportunities for custodian services in the challenges faced by the company during the year. Cyprus. Hellenic Bank actively participates in the overall marketing efforts to promote the collective investment However, Pancyprian Insurance maintained its market sector in or through Cyprus via the Cyprus Investment share and profitability at satisfactory levels, despite the Funds Association (CIFA). shrinkage of the agents portfolio due to the company’s policy to cease co-operating with agents who are not Hellenic Bank (Investments) Ltd profitable or do not comply with the agreed credit period. 2014 was a particularly challenging year for the stock markets and, by extension, the Company’s operations. Being in line with the strategic target for increasing During the year, a gradual improvement in investment income and profitability, the company placed particular sentiment was observed, even though external and emphasis on its competitive products, which are other factors (including the restrictive measures on constantly upgraded in order to meet the market’s transactions) did not contribute to increased transactions changing needs. In co-operation with the Bank’s Retail in the principal markets in which the company operates. and Business Divisions, it has intensified its efforts to attract new Hellenic Bank customers and has also Regardless of the above, there was a continued and increased efforts to attract new high quality agents by seamless overall upgrading of the Company’s systems and promoting its reliability. infrastructure throughout 2014. In the meantime, the wheels have been set in motion for the future upgrading It also continued efforts for improving productivity
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through the implementation of new procedures – Hellenic Alico Life Insurance Company Ltd automation and technological upgrading – with an Despite the adverse events which continued to affect ultimate aim of reducing its operational costs. In addition, the Cypriot economy and the trend for cancellation of special emphasis was placed on the education of the insurance policies, Hellenic Alico Life Insurance Company Group’s staff on insurance-related matters in order to Ltd managed to significantly contribute to the Group’s improve their knowledge and skills so that they can results by achieving satisfactory premium income and effectively and efficiently respond to clients’ needs and maintaining high penetration rates to new customers. demands. The Company’s perennial philosophy of providing In the forthcoming years, the company will continue products characterised by their simplicity and ease of to place particular emphasis on the improvement of promotion by Hellenic Bank’s fully-trained staff result profitability in all insurance classes. Particular emphasis in the achievement of continuously improved company will also be placed on improving the premium collection results. The innovative nature of these products in period through the improvement of monitoring conjunction with the way that they are promoted is a procedures, as well as the handling of debit balances, significant contributing factor to the Company’s success. by strengthening collection teams, applying stricter These facts rank the company highly among life insurance monitoring mechanisms and offering incentives for companies in the Cypriot insurance industry. quicker collections. Due to its ample liquidity and despite of the negative climate, Pancyprian Insurance continued The key elements in the development of the Company’s its timely, fair and humane claims handling, confirming its products are customer needs and the provision of position as the most reliable General Insurance Company financial security for them and their families in cases in the Motor Vehicles class, as affirmed by independent where an unforeseen event may leave them financially market research. exposed.
Pancyprian Insurance maintains a strong capital base The Company’s products are divided into two main and is preparing accordingly to meet all of its obligations categories: Credit Life Products (Connected) and Other which stem from the imminent European Solvency II Products (Non-Bank). Directive.
18 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 Card Services The increase in attraction of and providing services to Despite the difficult and challenging financial year, the customers through the internet and the transactions Card Services Department continued its significant performed through the Service (several of them at a lower contribution to increasing group turnover and revenue. or no cost for customers), the full range of electronic In 2014, the wide range of card products available was products, the significant and tangible benefits for enriched with two new cards. The Department launched customers and the user-friendly design and functionality the new MasterCard Connect aiming to satisfy customers’ of the NetBanking website were the main evaluation daily needs, as well as the P-Card Graffiti Contactless, criteria which brought this international distinction. the Bank’s first card to use the advanced contactless technology. In particular, a noteworthy increase was recorded in Electronic Fixed Term Deposit Accounts (Net Fixed), which The Department introduced targeted promotional reached 966%, while the rate of growth in the registration actions for MasterCard and Visa usage in Cyprus and of new subscribers/ companies, active subscribers and abroad. Following a draw, 100 lucky card holders won transactions, which ranged between 12-14%, is also €500 each. Another 225 card holders won €250 each. worthy of attention. Furthermore, the registration of new Within the framework of a MasterCard promotional customers for electronic payroll and remittance purposes campaign, a draw was held for 22 packages for trips to remained at a high level. Paris, Amsterdam, Manchester and Athens to watch UEFA Champions League matches. Moreover, a number of lucky These success rates are far from increasing complacency children of MasterCard holders accompanied the players as the Division is planning a number of significant onto the pitch at two UEFA Champions League matches upgrades throughout 2015, aiming to increase the use of held in Cyprus. Electronic Banking, reduce the Bank’s operational costs and further enhance customer service. During 2014, the Card Services Department continued to offer customers the benefits of the more4u (discount The Customer Service Line continued to successfully scheme) and points4u (points scheme) card loyalty provide prompt and professional information and schemes without any charges or additional subscription support to customers. Professionalism, efficiency and fees. Through the more4u discount scheme, customers quick service, especially outside the Bank’s normal use their cards for significant discounts at more than 200 hours of operation, are confirmed by the continued merchants. Through the points4u scheme, customers growth in customers using its services, as well as the collect points for any purchase made on their credit cards, increase in subscribing customers who would like more which can then be redeemed with gift vouchers that can comprehensive information. be used at travel companies, hotels and supermarkets. Customer Suggestions and Complaints Handling Electronic Banking The Customer Suggestions and Complaints Handling In 2014, the primary objective of the Electronic Banking Service manages customers’ suggestions and complaints Division, has been to offer a 24-hour direct, high- which are submitted through the Bank’s Branches/Service quality, secure and uninterrupted customer service from Centres, the Service Line or the website, over the phone anywhere in the world. Recognising the growing and or by post. changing needs of customers and further exploiting the technological infrastructure of Hellenic NetBanking, the The Service successfully responded within the set time Division has upgraded and further enriched its products frames to customers’ suggestions and complaints, and services. and advised customers on all matters raised with confidentiality and professionalism. Taking customers’ The effort made and support measures taken by opinions into serious consideration, a number of the Division were recognised and rewarded by the suggestions for improving procedures and practices were international magazine Global Finance during a worldwide adopted, aiming at the provision of a more qualitative competition. In particular, the Hellenic NetBanking Service service. was selected as the best Electronic Bank for 2014 at the country level in both the Retail and Business categories, marking the first time in the history of the competition that it has been awarded both prizes offered for Cyprus.
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OVERSEAS OPERATIONS on the major structural problems/issues which continue to impact the Cypriot economy and maintain a rather dire Operations in Russia economic situation characterised by ongoing recession In the context of its continuous efforts for more efficient and limited growth: management of the available resources, capital planning and active management of risk and risk-weighted assets, 1. There is an absolute need for full compliance with on 5th June 2014, Hellenic Bank’s Board of Directors the long and difficult programme of fiscal consolidation, disposed of 100% of the share capital of Limited Liability financial aid and restructuring of the banking sector Company Commercial Bank ‘Hellenic Bank’, its wholly- dictated by a Memorandum of Understanding (MoU), owned subsidiary bank in Russia, to Russian investors. concluded in March 2013, between the Cyprus Government, European Stability Mechanism and the Representative Offices International Monetary Fund. The Group operates a total of four Representative Offices: 2. The March 2013 events necessitated the enforcement two in Russia (Moscow and St. Petersburg), one in Ukraine of strict restrictive measures on local and international (Kiev) and one in South Africa (Johannesburg). The banking transactions. However, it should be noted that principal activities of these offices are the representation all restrictive measures placed on local transactions have and promotion of the Bank’s interests and the monitoring now been lifted, as well as all the restrictive measures of international business developments in these related to the movement of capital abroad. countries, including the broader region in which they operate. 3. New lending was limited during 2014. This was mainly attributed to the sharp increase of banks’ non-performing Developments in the Cypriot economy, as well as current loans and the priority given by banks towards the conditions in Ukraine and the crisis in Russia, require management/reduction of this problematic portfolio. the right management approach, special attention and In addition, there are still delays observed in the overall the provision of accurate information to the customers restarting of the real economy which would create new of the Bank. The role of the Representative Offices is of lending needs for companies and individuals. particular importance in this process since they have to take all necessary measures to provide accurate 4. The economy has limited sources of recovery and information to the markets in which they operate, in growth. The service sector has been severely hit by the addition to the representation, promotion and protection economic crisis whereas other industry development of the Bank’s interests in those markets. sectors, such as construction, are stagnant and amidst a restructuring/consolidation phase. In the energy sector, Representative Office Of South Africa the recent positive results of the underwater drilling tests The Representative Office of South Africa continued its in the exclusive economic zone of Cyprus create limited successful operation for the 17th consecutive year. but optimistic long-term prospects for the exploitation The office offers consultative banking services to the of natural gas reserves. The tourism sector also has a extensive Greek and Cypriot communities in South Africa positive future outlook which, however, is in doubt, and contributes significantly to the Hellenic Bank Group’s mainly due to the recent devaluation of the Russian international profile and to attracting new clientele. rouble and the economic sanctions imposed on Russia The office also plays a significant role in the social and as a result of the ongoing political and military crisis in cultural life of the Greek community of South Africa. Ukraine. These two developments have adversely affected the purchasing power of incoming tourism from Russia.
HEAD OFFICE SUPPORT SERVICES 5. The Hellenic Group is exposed to various legal risks created by the complexity and plethora of its regulatory Group Risk Management and legislative obligations. Consequently, there is a The financial and economic environment in Cyprus considerable impact on the Bank’s overall operations during 2014 continued to be rather stagnant as a result due to the frequent changes in legislation, regulations of the ongoing repercussions of the dramatic March and supervisory directives which govern financial 2013 events which caused unprecedented changes in the institutions. Moreover, delays are observed in the general economic system and a loss of confidence in the enactment of MoU-imposed legislation which is expected country’s reliability. A summary is provided hereinbelow to facilitate the banks’ fiscal consolidation and establish
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proper debt recovery and collection procedures. In visible risk of further deterioration of the loan book this respect, special reference should be made to the and an increase in the non-performing loans portfolio long-awaited foreclosure and insolvency bills which will and capital provisions. To a significant extent, this apply to both physical persons and legal entities. Pending increased risk is also attributed to the enforcement the enactment of these bills to laws, ambiguity and of a series of Directives issued by the Supervisory uncertainty exist regarding their final provisions and their Authorities which aim to better regulate banks’ actual repercussions can therefore not be safely assessed operations on an entirely new, stricter basis. or quantified. Credit Risk Management Impact/Developments on Hellenic Bank Group Credit Risk Management constitutes one of the • Sale of the Group’s Russian Subsidiary, a development fundamental pillars in banks’ operations and is of vital which increases concentration risk with all the importance to their long-term robustness. The Group Group’s income sources emanating only from employs various policies of detection, assessment, domestic (Cyprus) operations. At this point, it must monitoring and management/mitigation of credit be noted that Hellenic Bank’s Branch Network in risk in both the Loan and Treasury books. The Group Greece was sold to Piraeus Bank in March 2013, simultaneously engages in frequent and ongoing revision following the transnational understanding between and redrafting of these policies on the basis of its strategic Cyprus and Greece and within the framework of the objectives and emerging developments in the local and agreement for international funding with Troika. This international economies. development deprived the possibility of diversifying the Group’s income from Greek operations and taking (a) Loan Book advantage of a possible future recovery of the Greek The Group’s Credit Risk Management Department closely economy. monitors and assesses the composition, quality and performance of the Loan portfolio and takes pre-emptive • Successful completion of the share capital increase by and/or corrective action when deemed necessary. The raising €204 million and covering 92% of the set Department pinpoints appropriate action to be taken by target. As a result, the Group’s Common Equity Business Units in order to improve the quality of the loan Tier 1 Ratio on 30th September 2014, following the portfolio and mitigate credit risk. The Department reviews conversion of the Contingent Convertible Securities write-off recommendations and credit proposals routed 1 into shares, reached 12,8%, thus significantly in line with predetermined criteria. The assessment exceeding the corresponding minimum regulatory involves the identification of credit risks involved and ratio. the recommendation of risk mitigants. It monitors high- risk accounts and formulates recommendations on the • Hellenic Bank participated in the Asset Quality Review creation of provisions for doubtful borrowers in line with (AQR) test as at 31 December 2014, which was established procedures. conducted by the European Central Bank (ECB) in order to thoroughly assess loan facilities and their At frequent time intervals, sensitivity analysis/ stressed respective securities, as well as the adequacy of scenarios are conducted to detect possible deterioration provisions for insolvent borrowers. of the loan portfolio, increased probability of default and reduction of security coverage due to the ongoing • In co-operation with the European Banking Authority decrease in collateral values. The results are taken into (EBA), stress tests were also conducted as part of an account for the initiation of corrective action, including overall assessment by the ECB ahead of the takeover capital retention under Pillar 2 for covering possible of supervision of the Eurozone’s banking and other losses. financial institutions by the Single Supervisory Mechanism (SSM). This procedure was successfully Developments during 2014 completed in late October 2014. • Deterioration of the Loan portfolio resulting in a significant increase of default rates and the number of • Despite the recent improvement of certain financial restructured accounts in all business sectors and fiscal indicators, the persistent stagnation (corporate/commercial, retail), with a particular observed in the real economy is causing an adverse emphasis on medium and large corporate entities impact on Hellenic Group’s business activity and, engaged in construction, real estate development and consequently, on its operational results. There is trade.
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A significant part of the loan portfolio is secured non-performing exposures which will replace the by mortgages of immovable property (83% of total existing Central Bank of Cyprus Directive. The Bank securities), as well as other charges/debentures on is in the process of implementing the new EBA immovable and other assets. The Group is exposed to Standard. It is likely that the stricter provisions of the impact from decreasing security values, especially these specifications will lead to a further increase of immovable property which may possibly not be easily NPLs. sold or foreclosed due to low investor interest. • Provisions were recorded for approximately 46% • Within the framework of restructuring the of non-performing facilities. Provisions are limited banking sector, the Central Bank of Cyprus issued to a certain extent due to the existence of tangible the Directive on Loan Origination Processes and security. A further drop in property prices may, Processes of Reviewing Existing Loans which requires however, create a need for additional provisions. a significantly increased package of financial and other information to be submitted by borrowers • In early 2014, the Central Bank of Cyprus issued a and guarantors as regards their economic situation, new Directive on Loan Impairment and Provisioning irrespective of the loan amount involved. The new Procedures based on the International Financial procedure causes delays in the procedures for new Reporting Standards (IFRS) used in the preparation lending, rescheduling and restructuring of facilities. of the financial statements of Authorised Credit Institutions (ACIs). The new Directive states that • The Directive on Arrears Management of 2013 was impairment occurs when there is objective evidence enforced, setting a structured framework for arrears for impairment as a result of the existence of one or management and establishing a code of conduct more ‘trigger events’ which are expected to have an between the Bank and borrowers in financial distress. impact on the estimated future cash flows of a credit The Directive also clearly defines the parameters facility. The amount of impairment shall be measured for the co-operation of banks in cases of multiple as the difference between the carrying amount of the creditors. In line with the Directive, the Arrears credit facility and the present value of the discounted Management Unit was put into operation in early projected future cash flows. As from December 2014, 2014 in order to handle account restructuring which the Bank is fully compliant with the provisions of this falls within the Directive’s framework. Directive.
The Arrears Management Directive is currently under • There is a possible risk for loss of income following the revision by the Central Bank. The final amendments Amendment of the Liberalisation of the Interest Rate to its provisions may necessitate the introduction and Related Matters Law of 1999 which was put into of new Bank procedures to achieve full compliance, effect on 9th September 2014 and prohibits banks a development which may affect the Bank’s ability to unilaterally increase the interest margin of loans. for immediate and efficient handling of borrowers Moreover, as of the effective date of this Amendment, requesting restructuring, as well as effecting the interest on arrears can no longer exceed 2% for limitations to the solutions offered, thus affecting the all existing facility and loan agreements. The above Bank’s results. provisions may lead to under-pricing of default/credit risk and may therefore cause a reduction in the Bank’s • As from September 2013, the Central Bank of Cyprus net interest income and affect the Group’s overall Directive on Non Performing and Restructured profitability and financial results. Credit Facilities is in effect, which provides that, if a facility fulfils the criteria for being classified as non- • In January 2015, the Swiss franc appreciated performing, it will be classified as such, regardless considerably against the euro and other major of whether that facility is fully tangibly secured. As a currencies. In light of the fact that the Group’s loan result of the above Directive and further deterioration book includes loans in Swiss francs, the change in its of the economic environment, as at 31 December exchange rate against the euro has led to an increase 2014, Non-Performing Loans (NPLs) increased of euro-equivalent loans held in Swiss francs which significantly to 56,57% of the total portfolio on a may necessitate an increase in provisions. However, it Group level. must be stressed that the percentage of loans in Swiss francs is small compared to the Bank’s entire loan • The European Banking Authority (EBA) has issued portfolio. the final specifications relating to forbearance and
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(b) Treasury Book the Bank. Particular emphasis was placed on the close • The Bank’s Treasury portfolio remains positioned monitoring of the evolution of deposits, the changes in mostly in countries and/or banking institutions with a deposit sources, as well as on the structural changes with good credit rating. However, the Hellenic Bank Group regards to deposit type and maturity. is greatly exposed to Cypriot Government Bonds. The non-tradability of these bonds restricts the effective The Department also monitored the Bank’s compliance management of this risk. In July 2013, the Bank’s with the regulatory liquidity ratios and the changes in its Board of Directors decided to accept the exchange of internal liquidity ratios, proposing actions and measures existing Cypriot bonds amounting to €155,4 million for their improvement. By the end of 2014, the Bank with new longer-term bonds. There remains the managed to maintain very satisfactory liquidity ratios, risk that a possible future exchange may negatively which were well within the regulatory limits. At the same affect the Group’s results, depending on the terms time, it managed a significant increase in its deposit base, of the exchange which may, amongst others, involve which reflected its customers’ confidence. devaluation of the bonds’ face value and/or a decrease in the interest rate. Utilising its excess liquidity, the Bank invested in high quality sovereign and supranational foreign currency • The Department closely monitored international bonds. Taking this into consideration, the Department market developments in 2014, as well as possible continuously monitored the market risks emanating from fluctuations in the credit rating of the Bank’s positions in financial instruments and derivatives. On the counterparties and the countries in which they are other hand, the equity portfolio and foreign currency based. Consequently, the Department proceeded positions remained at low levels throughout the year. in the reduction or retraction of the credit limits of countries and/or financial institutions. In addition, During the year, the Department also monitored on a the Department submitted a number of reports and regular basis developments in the area of interest rate suggestion memos, based on which decisions were risk. The Bank’s participation in the ECB’s Targeted Longer- made and corrective measures taken in order to Term Refinancing Operations (TLTROs) in December - mitigate credit risk. through which it secured low-cost financing amounting to €236 million - affected the Group’s Net Present Value • Due to the prevailing situation in Cyprus under the sensitivity with regards to interest rate changes. As a Memorandum of Understanding, as well as the overall result of this, interest rate risk remained low at the end of uncertainty which existed in the interbank market the year. during 2014, a decrease in the limits extended to the Bank by certain credit institutions was observed, a The Department also participated in ECB’s stress development which restricted the counterparties with testing exercise which was part of the Comprehensive which the Group’s Treasury Service (GTS) transacts. Assessment of carried out for EU’s systemic banks. The aim of this exercise was the assessment of the resilience • Additionally, some correspondent banks with which of credit institutions to adverse economic developments. the Group transacts or provide the Continuous Linked With regards to market risk, the Group’s positions which Settlement (CLS) system have requested additional are exposed to price risk were all evaluated. collateral in the form of pledged cash in order to reduce the credit risk of the exposures that they Furthermore, during the year, the Bank completed its maintain with the Bank. This development arose Internal Capital Adequacy Assessment Process (ICAAP), mostly as a result of the problems faced by the which aims to examine the risks that are related to the Cypriot economy and not necessarily due to a lack of Bank’s operations, the complexity of its activities and the trust towards the Hellenic Bank Group. risks emanating from the structure of its balance sheet. ICAPP included an assessment of liquidity risk, interest Market and Liquidity Risk Management rate risk in the banking book, and price risk. The year 2014 was another remarkably difficult year, especially after the March 2013 events which marked Finally, throughout the year, the Department participated developments in Cyprus. In this environment, Group actively in the functioning of the Asset and Liability Market and Liquidity Risk Management focused primarily Committee (ALCO), with frequent reports regarding the on the assessment, monitoring and management of monitored risks and suggestions for risk mitigation or risk liquidity risk, a critical area for the future course of management, thus facilitating ALCO in reaching important
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decisions. Through all these means, the Department The increased demands of the institutional and regulatory contributed significantly in the effective management of framework have increased the cost of compliance for the market and liquidity risks in the Group. Group and the volume of work for the Unit itself.
Operational Risk Management The Group Compliance Unit categorises its operations In 2014, the Group Operational Risk Division into two distinct areas. The first area deals with the (OpeR) continued to face the consequences of the combatting of money laundering and terrorist financing. banking crisis, as indeed did the other services. An This area is of particular importance given the great important operational issue for Hellenic Bank was the emphasis placed on the subject internationally. Both the recapitalisation process and the subsequent changes economic crisis and international developments have kept in ownership, senior management and administration. the risk of money laundering at high levels. As a result, OpeR co-ordinated the necessary actions for the relevant the Unit has intensified its efforts to improve the fight insurance coverage of the Group, including the more against money laundering by taking specific actions, systemic negotiation during renewal of annual contracts. such as: Other important issues that concerned OpeR included the • The training of personnel of both the Unit and other organisational and other internal changes which stemmed Departments on anti-money laundering issues from regulatory obligations, such as the operation of the • The improvement and upgrading of the Bank’s Arrears Management Division. automated transaction monitoring systems • The continuous communication with and supervision of The Group’s increased operational risk management Business Units requirements are being addressed by taking steps to improve OpeR’s productivity and effectiveness, as well as The Group Compliance Unit’s second area of responsibility increasing the number of its personnel. It should be noted is to ensure compliance with all other laws and directives that progress has been made in the better utilisation of affecting the Group. Particular emphasis has been placed the OpeR Liaison Officers and closer co-operation with on this area in 2014 in order to ensure that the Unit is in a the Bank’s related Units, consequently increasing its position to continue to fulfil its obligations. effectiveness. In the context of further improving OpeR’s efficiency, replacement of its electronic system is also Group Operations being planned. In 2014, the Group Operations Division mainly focused on the following two activities: It should be noted that the identification and monitoring a. The support and fulfilment of projects and needs of Group operational risks has further improved through which arose from the Bank’s Business Plan, and the implementation of the ‘Risk Control Self-Assessment b. Compliance with regulatory obligations. & Annual Plan’ procedures in other Units of the Bank while simultaneously updating and automating Key Risk In relation to the first activity (i.e. the Business Plan), the Indicators. Division’s main achievements in 2014 were: i. The continued focus on re-engineering through During 2014, OpeR continued to contribute to various automation, implementation of new systems, Group projects, evaluate operational procedures, manage upgrading and improvement of existing systems, risk control measures and take initiatives towards the simplification of procedures, centralisation and improvement of operational risk management. specialisation. The benefits of this project are systematically measured as a decrease in man-days. Group Compliance Unit In an effort to give a further push to re-engineering The Group Compliance Unit is responsible for the and with an objective of obtaining even better results continuous review of the institutional and regulatory in the coming years, a separate Re-engineering Team framework in which the Group operates, the identification was formed under the umbrella of the Organisation of weaknesses in the Group’s compliance with this and Methods Department towards the end of 2014. framework and the formulation of suggestions to resolve ii. The reduction of costs through the receipt of these weaknesses. quotations and negotiation of existing contracts, which led to a reduction in expenses such as printing, The prolonged difficulties within the overall local archiving, rents, mobile telephony, supplies, etc. economy and especially the banking sector continued to iii. The continuation of the Group’s Energy Management pose significant challenges to the Group Compliance Unit. Policy whereby another five branches were renovated
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based on its energy standards, increasing the number of of the Group’s Three-Year Strategic Plan and, Annual branches and buildings that are certified as Green Offices Business Plan, as well as monitoring progress on the to 17. This objective was upgraded in 2014 with the work implementation of set targets. The Division is also done towards implementing an Energy Management responsible for co-ordinating the various Divisions and System according to the ISO 50001:2011 international Units so that their targets are met. At the same time, it standard. Certification was achieved early in 2015, making aims to bolster the relationship between Units to ensure Hellenic Bank Group pioneers in this field. At the same a path of smooth and fruitful co-operation in line with the time, efforts to reduce energy consumption led to a strategy set by the Board of Directors. considerable reduction of approximately 26% in kWh and approximately 37% in the related cost since 2012, thus The Economic Studies Department’s main objective contributing to the effort to reduce expenses. is to monitor domestic and international economic developments and brief the Bank’s Management and Much like the previous year, 2014 was especially personnel, as well as its clients, on these developments. demanding where implementation and compliance with The Department is also responsible for authoring reports, various regulatory requirements were concerned. This articles and commentaries on various economic issues, second activity consumed a considerable amount of as well as carrying out statistical analyses of economic the Division’s time and resources in order to implement data and statistics and presenting the results to the Bank’s systems and procedures and to issue instructions and Management, staff and clients. circulars. For instance, it implemented practices, systems and procedures which related to the SEPA Direct Debit 2014 was a year of readjustment after the rapid and Scheme, the Artemis Data Exchange Mechanism, the unprecedented developments that took place in 2013 Foreign Account Tax Compliance Act (FATCA), Basel III which radically altered the financial environment, and provisions, as well as circulars relating to arrears particularly the banking sector. Under the new conditions, management, dispute resolution, new credit facilities, the Group mobilised immediately, setting the following loan origination, etc. strategic priorities: • Safeguarding / Preservation of capital Assessing the new conditions and regulatory environment • Effective management / containment of Non- and aiming to address them with greater efficiency, in Performing Loans 2014 the Division proceeded in creating a new Data • Preservation of liquidity Analysis, Management and Quality Division whose activities were significant in completing obligations such To safeguard its capital, the Bank further enhanced its as the year’s Asset Quality Review (AQR) and Stress Tests. capital base by successfully raising €204 million. This amount greatly exceeded the capital need of €105 million Group Strategic Development And Economic Studies indicated by the ‘adverse scenario’ of the Comprehensive The Group Strategic Development and Economic Studies Assessment by the European Central Bank (ECB) and the Division is responsible for, amongst others, preparation European Banking Authority (Stress Tests).
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Regarding the effective management/ containment of offered a six-month placement, as well as the required Non-Performing Loans, the Bank proceeded in creating a training, to perform their duties whilst they assist in the specialised team for the management of loans in arrears, completion of the Bank’s projects. with a focus on debt restructuring for viable customers. At the same time, all front-line Business Units focused on the With regard to the training of employees, greater handling of problematic customers. emphasis was placed on issues primarily related to the restructuring of loans, negotiations and handling credit Regarding liquidity, the Bank’s relevant indicators facilities, debt recovery, new regulations and systems, as improved significantly in 2014. In addition, a significant well as specialised subjects related to the requirements increase in deposit balances was also observed during the of the Supervisory Authorities. The primary objective was year, thus resulting in the Bank having significant amounts to enhance their knowledge and improve their skills in deposited in the ECB. areas that are associated with the requirements of the legislative and regulatory framework, as well as in areas The Group simultaneously focused on attracting new that remain inextricably connected to the Group’s vision customers, as well as providing financial support to and values. households and businesses. In this context, the Bank entered into an agreement with the European Investment Within the context of the Law on Establishing a Bank to secure cheap liquidity, in order to be able to grant General Framework of Information and Consultation business loans with favourable terms. of Employees, the Bank’s Management met with the employees’ representatives (the Cyprus Union of Bank Taking into consideration all of the above and being fully Employees) with the purpose of their information and aware of the prevailing economic environment, a new consultation on issues that concern all employees of Four-Year Plan for the 2015-2018 period was prepared in the Group. During the meeting, the Group’s financial December 2014, as well as the Annual Business Plan for results were presented and discussed, as well as the 2015. The Group, recapitalised and strengthened, is now adverse economic conditions in the banking system and in a position to assume an even more important role in the economy in general, including restrictions on the the economic activities of the Cypriot market. movement of capital, the Group’s strategic direction, developments in economic indicators, assessments by Group Human Resources international firms and Troika, and the measures taken The goals of the Human Resources Division for 2014 by the Bank to comply with its obligations towards the were directly linked to the Group’s Business Plan: further Supervisory Authorities. reduction of operational costs and compliance with its institutional and regulatory obligations towards the 2014 saw implementation of the first phase of the Supervisory Authorities. new Human Resources Management System, which will further help improve productivity through the In this context, the Division proceeded in implementing implementation of new processes, automation and the Group’s new organisational structure, the technological upgrading. establishment of new Divisions/Units, the review of Policies and Procedures, the conclusion of a new The Group’s human resources at the end of 2014 Collective Agreement for the period 2014-2016 (which amounted to 1.423 persons, of which 1.406 (98,8%) were brought significant benefits for the Bank, with an employed in Cyprus and the rest in the Representative annualised reduction of 12% in the payroll cost), and Offices abroad. As far as the educational level of staff is an announcement of vacant positions to meet staff concerned, 49% are university graduates, 25% of whom requirements. have also completed post-graduate studies. Additionally, 21% are college graduates and almost 50% of the In addition to addressing staff requirements through remainder are holders of professional qualifications. new recruitment, the Bank, for the second consecutive year, participated in the Human Resource Development Authority’s (HRDA) ‘Scheme for the Placement of CORPORATE SOCIAL RESPONSIBILITY Unemployed Young Tertiary-Education Graduates in Companies and Organisations for the Purpose of Hellenic Bank’s Corporate Social Responsibility Acquiring Work Experience’. Through this Scheme, a programme focuses on the areas of Society, Education, significant number of young unemployed graduates are Health and Research, as well as on initiatives for the Environment, the Arts and Culture.
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In a period of economic recession, and with the problems of this project, branches have received the Green Offices caused by the financial crisis still evident in the Cypriot certification. society, the Bank has been participating in certain initiatives aimed at offering support and alleviating Additionally, the Bank’s programme for collecting and social problems by helping families and social groups recycling household batteries, in partnership with A.F.I.S. and covering the needs of vulnerable sections of the Cyprus Ltd, is still active through its branches. population. The Bank also continues to successfully support the In this context, the Bank has established the ‘We Promote ‘Eco-Schools’ programme in partnership with the CYMEPA Goodness’ initiative, which, during the Christmas holiday environmental organisation. School projects included season, granted the wishes of children whose families the participation of students in printmaking workshops are facing financial difficulties. Through a purpose-built in collaboration with the Hambis Printmaking School, website, children nominated other children who would the ‘Sea and the Environment’ seminar organised in otherwise have been unable to receive the present they partnership with the ‘Thalassa’ Municipal Museum in were dreaming of. Flouris and Diamando, Hellenic Bank’s Ayia Napa and a workshop on theatrical plays about the mascots, made sure the nominated children got the Environment organised by CYMEPA and the Ministry of presents they longed for and turned their wishes into Education and Culture, with the support of the city of reality. Larnaca.
Participation In Volunteering In 2014, various Bank departments carried on with ARTS AND CULTURE their campaigns, fundraising and other charity events, collecting money, food and other goods which were then offered to municipal councils, associations and other Hellenic Bank Cultural Centre bodies. For example, basic foodstuff was provided to the Hellenic Bank promotes and supports the Arts and Culture Social Solidarity grocery shop of Lakatamia Municipality, and the Bank’s Cultural Centre helps showcase the work coupons were offered to the Paphos Regional Committee of noteworthy artists. Thanks to the involvement and of Large Families and support was given to the ‘Vagoni contribution of the two Centres in Limassol and Paphos, Agapis’ Charity Organisation, which aims to help cultural events are organised and staged. vulnerable sections of the population. Additionally, the Group’s personnel participated in blood donation events Group cultural activities in 2014 focused mainly on which are organised every year in partnership with the the visual arts, helping promote the work of painters Blood Bank. and engravers. The Centre hosted and supported an exhibition featuring the great artist Stelios Votsis, entitled Health and Research ‘Honouring Stelios Votsis: a Journey Through his Artistic Trajectory.’ The Group supports the scientific work of certain organisations carrying out research in health and human 2014 also saw the Group continue its collaboration with welfare issues. printmaker Hambis and the Hambis Printmaking Centre and, as part of this long partnership, the Group presented In 2014, for the third consecutive year, the Group offered and promoted a publication entitled ‘Margarita A. a scholarship to a doctorate student of the Cyprus Tsangaris, The Complete Artistic Works’. This publication School of Molecular Medicine at the Cyprus Institute of presents the paintings and writings of painter Margarita Neurology and Genetics. A. Tsangaris.
Environment In 2014, backing for innovative events continued with The Group’s Environmental Policy aims to mitigate support for a musical/visual activity entitled ‘Play Me, I’m the environmental effects both inside and outside the Yours: Nicosia 2014’, where established artists decorated organisation and to develop an effective corporate ten pianos which were placed in central locations in attitude on key environmental issues. Nicosia. The pianos were later donated to children’s The Group’s achievements in 2014 include the ongoing homes, hospitals and rehabilitation centres. conversion of its branches to environmentally-friendly locations, an initiative that was launched in 2013. As part
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The Bank’s Cultural Centre hosted the renowned efforts to regain trust and restabilise the financial ‘Volcanoes, the life of Earth’ exhibition, presenting system. Regarding the management of problematic geological maps, stones and minerals of Cyprus, old loans, the number of Non-Performing Loans (NPLs) books, prints, Neapolitan gouaches from private remains very high in spite of the extensive restructuring collections and photographs regarding the volcanic already implemented. The latest developments in the geology of Cyprus. modernisation of the legislation on insolvency will be a key factor in dealing with strategic defaults and, The Group continues with its Corporate Social consequently, in the direct and effective management of Responsibility programme whilst it implements its the increased stock of NPLs. strategy for an upgraded presence in the country’s financial market, based on the belief that the growth The currently better-than-expected course of the Cypriot of the economy and the banking system must be economy and the subsequent prospects for recovery accompanied by social welfare and development. create a positive climate which helps boost the economy. Structural reforms in the public sector and the completed restructuring of credit institutions are the starting point CYPRUS’ ECONOMIC ENVIRONMENT for overcoming the crisis. The key to regaining the trust of Cypriot society and foreign investors regarding the potential offered by the country’s modern economic Economic Developments in 2014 environment is to unwaveringly continue with the strict The Cypriot economy remained weakened in 2014 but implementation of the Cyprus Economic Adjustment did show some improvement compared to 2013. The Programme. percentage change in real GDP was at -2,3%, despite initial projections included in the revised macroeconomic Cyprus Economic Prospects for 2015 adjustment programme (October 2014) which expected Regarding the economy’s prospects for recovery, a economic activity to shrink further. number of challenges lie ahead in 2015. These prospects are, however, expected to improve to a satisfactory level According to the Labour Force Survey, the annual rate of if all the provisions of the Memorandum for Cyprus are unemployment in 2014 marginally increased to 16,1%, adhered to. Substantial progress has been made so far in compared to 15,9% the previous year. Furthermore, the the Programme’s implementation. annual rate of inflation fell sharply by 0,3%. Fully restoring the credibility of the financial sector is a The economy’s better-than-expected performance great challenge. A key factor for stabilising the system will was mainly driven by relative improvements in specific be the restriction of the increasing trend of NPLs. Reform indicators of the real economy, thus demonstrating of the government bill on insolvency and the adoption the Cypriot economy’s great stamina. The economy’s of new policies for strategic growth and for battling performance, combined with the good progress made unemployment will be invaluable tools in that direction. in the restructuring of the banking sector, allowed the In addition, the complete lifting of controls on transferring Cypriot authorities to further relax restrictions on cross- funds abroad greatly help to restore the financial system’s border capital movements in a climate of renewed trust. credibility.
Cyprus’ successful return to the international markets and Structural reforms to improve public finance and the currently satisfactory implementation of the Fiscal strengthen institutions are the only way to economic Adjustment Programme – resulting in the achievement recovery and the gradual restoration of trust in every of fiscal targets with considerable margins – resulted in sector. Recent positive developments should not lead international credit rating agencies upgrading the Cypriot to a relaxation of the efforts for economic reform. The economy, providing encouraging signs for its recovery. successful implementation of structural reforms requires patience and persistence, without any rushed decisions Great efforts have also been made in the financial sector in order to dispense with the Memorandum. On the to restore and stabilise the system. The Comprehensive contrary, more and longer-lasting efforts are necessary to Assessment of the Asset Quality Review (AQR) and the end the recession and put the economy back on track for capital adequacy of the Cypriot systemic banks under sustainable growth. extreme scenarios were successfully completed. The Assessment’s results boost the Cypriot banking system’s
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ANALYSIS OF SHAREHOLDERS 31/12/2014
1,5% Number of Shares 4% 1% Category of Shareholders Percentage % Number of Shareholders 0,5% 8% COMPANIES 7.902.946.462 84,97 646 PRIVATE INDIVIDUALS 731.948.805 7,87 25.174 CHURCH INSTITUTIONS 388.403.817 4,18 32 INSURANCE COMPANIES 163.038.155 1,75 19 85% PROVIDENT FUNDS 66.569.271 0,72 81 STAFF 48.067.410 0,52 987 Total Capital 9.300.973.920 100% 26.939 Issued Capital 9.300.973.920 16,1 1,1 15,9 0,5 - 1,9 - 2,3 - 5,4 - 2,3 12,1 2,082 2,013 1,927 3,3 1,749 1,549 7,9 2,4 1,493 2,4 6,5 5,5 0,3 - 0,3 - 0,4 09 10 11 12 13 14 09 10 11 12 13 14 09 10 11 12 13 14 09 10 11 12 13 14 GDP GROWTH RATE (At Constant Prices/ INFLATION UNEMPLOYMENT INCOME FROM TOURISM Percentage Points) (Percentage Points) (Percentage Points) (€ million)
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30 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 Every move we make is a seal of reliability, every move we make is on the path towards development
31 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 HELLENIC BANK PUBLIC COMPANY LIMITED REPORT OF THE BOARD OF DIRECTORS
The Board of Directors submits to the shareholders The total expenses for the year ended 31 December 2014 its annual report together with the audited financial decreased by 6% on an annual basis mainly due to the statements for the year ended 31 December 2014. decrease of staff costs by 16%.
Activities and Branch Network Impairment losses and provisions to cover credit risk in The principal activity of the Group during 2014 continued the income statement for the year ended 31 December to be the provision of a wide range of banking and 2014, which included provisions to cover credit risk financial services, including financing, investment, relating to contractual commitments and guarantees insurance services, as well as custodian and factoring of €22,5 million, amounted to €304,4 million showing a services. decrease of €6,4 million from the corresponding amount of 2013. The Bank provides banking and financial services through its branches in Cyprus and maintains Representative On 5 June 2014, Hellenic Bank, within its continuous Offices in Moscow, Johannesburg, Saint Petersburg efforts for efficient management of available resources, and Kiev. Until the 4th of June 2014, the Bank provided capital planning and active management of risk and of risk banking and financial services in Russia through the weighted assets disposed 100% of the share capital of its Group’s subsidiary bank Limited Liability Company wholly owned subsidiary bank in Russia, Limited Liability Commercial Bank ‘Hellenic Bank’. Company Commercial Bank ‘Hellenic Bank’. The gain from the disposal was €3,0 million. On 5 June 2014, the Bank disposed 100% of the share capital of the wholly owned Russian subsidiary bank, The total assets of the Group amounted to €7,6 billion, Limited Liability Company Commercial Bank ‘Hellenic increased by 18% on an annual basis. Bank’. Customer deposits increased by 15% from December Summary of Group’s Results 2013, reaching the amount of €6,3 billion (December The Group’s profit from ordinary operations before 2013: €5,5 billion), while the total of the Group‘s cash impairment losses and provisions to cover credit risk for and placements with Central banks and with other banks the year ended 31 December 2014 amounted to €157,9 increased by 71% and amounted to €3,3 billion at 31 million, increased by 22% compared to €129,5 million December 2014 (December 2013: €1,9 billion) further for 2013 due to the increase in net income as well as the strengthening the comfortable liquidity of the Group. decrease in expenses. The Group’s loss after recognising impairment losses and provisions to cover credit risk and The total gross loans and advances to customers taxation for the year ended 31 December 2014 amounted amounted to €4,4 billion, remaining at the same levels of to €118,4 million compared to loss of €158,4 million for December 2013. the year 2013. Loss attributable to the shareholdres of the parent company for the year ended 31 December 2014 The ratio of gross loans and advances to deposits was amounted to €118,6 million, compared to €190,9 million 69,4% in December 2014, while the ratio of net loans and loss for the year 2013 which included the loss from advances to deposits was 50,8%. The corresponding ratios discontinued operations following the sale of the Branch as at 31 December 2013 were 79,7% and 64,6%. Network in Greece (BNG) of €28,8 million. The ratio of non-performing loans to gross loans and The net interest income of the Group for the year advances including suspended interest not recognised ended 31 December 2014, amounted to €204,1 million in the income statement was 56,6% (December 2013: compared to €187,2 million for the year ended 31 45,7%). At the same time, the ratio of total impairment December 2013 increased by 9%, due to the significant losses on loans and advances including suspended decrease of 35% in interest expense, despite the decrease interest to total non-performing loans and advances of 9% in interest income. (including suspended interest) was 47,5% (December 2013: 41,4%). Non-interest income increased by 3% following the 4% increase in net fee and commission income and the 6% Accumulated impairment losses on loans and advances increase in net gain on disposal and revaluation of foreign including suspended interest not recognised in the currencies and financial instruments while other income income statement, amounted to €1,2 billion as at 31 has decreased by 2%. December 2014 (December 2013:€0,8 billion) which
32 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 corresponds to 26,9% of the total gross loans and 2014 Rights Issue advances (December 2013: 18,9%). Results of the pan-European Central Bank’s Comprehensive Assessment Exercise (Stress Tests) Share Capital The total number of fully paid shares at 31 December The European Central Bank (ECB) and the European 2014 amounted to 9.300.973.920 shares of nominal value Banking Authority (EBA) on the 26th of October 2014 €0,01 each (December 2013: 2.688.753.691 shares of published the results of the Asset Quality Review (AQR) nominal value €0,01 each). Details on the development of and the Stress Tests (together the ‘Comprehensive the share capital are analysed in Note 34 of the financial Assessment’) for 130 banks across the Eurozone, including statements. Hellenic Bank (‘the Bank’ or ‘the Group’). The results of the ‘Baseline Scenario’ of the stress test confirmed During 2014, under the provisions of the Prospectus the business model of Hellenic Bank while the ‘Adverse dated 30 September 2013, within the implementation Scenario’ calculated the capital that the Bank should raise framework of the issue terms of Convertible Capital to be able to handle unexpected future losses. The capital Securities 1( CCS 1) and Convertible Capital Securities actions of the Bank reduced the initial capital gap of 2(CCS 2), and as a result of the formation of the Common €277 million, as shown in the ‘Adverse Scenario’, to €105 Equity Tier 1 ratio of the Group and the Bank as at 31 million. December 2013, 30 June 2014 and 30 September 2014 being below the minimum required supervisory ratio, As a result of the above, the Board of Directors of the CCS 1 of a total value of €85.873.871, €15.106.520 and Bank decided at a meeting held on the 31st of October €23.804.161 were mandatorily and irrevocably converted 2014 to increase the share capital of the Bank by €221 to shares, on 28 February 2014, 29 August 2014 and 26 million via a Rights Issue to the existing shareholders October 2014 respectively, so that the lower of the two, of the Bank after securing the necessary approvals by Common Equity Tier 1 Ratio of the Bank and the Group is the competent authorities. According to the provisions increased to the minimum required supervisory ratio. A of the Prospectus issued on the 14th of November total of 1.247.846 thousand shares of the Bank resulted 2014, the Rights were issued and allotted to all existing from the conversions. shareholders at the ratio of one (1) Right to every one (1) Ordinary Share held on the Record Date. Every two In addition, the capital base of the Group was further (2) Rights exercised were converted to three (3) new strengthened through the 2014 Rights Issue. A total of Ordinary Shares of the Bank of nominal value €0,01 each 5.364.374.709 new shares have resulted and €201 million with an Exercise Price of €0,0375 for every New Share. capital raised, through the exercise of Rights under the provisions of the Prospectus dated 14 November 2014. On 12 December 2014, the Bank completed the first phase of its share capital increase, raising €201 million There are no restrictions on the transfer of the Bank’s and on the 28th of January 2015 the Bank concluded ordinary shares, other than the provisions of the Banking the 2014 Rights Issue by raising additional €3 million Law of Cyprus which require Central Bank’s of Cyprus through the shares allotment that corresponded approval prior to acquiring shares of the Company in to the unexercised Rights not allotted through the excess of certain thresholds and the requirements of the Presubscription phase. The capital raised more than Directive on Insider Dealing and Market Manipulation, covers the capital need of €105 million, and further which relates to transactions with related parties. enhances the capital base of the Bank and enables it to take advantage of the growth opportunities in a On 31 December 2014 the subsidiary company of the recovering of the Cypriot economy (see Note 47). Group, Pancyprian Insurance Ltd held shares of the Bank. These shares are presented in the consolidated statement Since November 2014, Hellenic Bank is included of changes in equity and specifically to Own Shares among the significant European banks that are directly Reserve. supervised by the European Central Bank.
The Bank does not have any shares in issue which carry Loan Capital special control rights. As a result of the conversions made during 2014, the CCS1 amounted to €1.597 million while CCS2 remained at €128.070 million. All developments in the loan capital
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for the year 2014 are described in Note 33 of the financial Following the 1% decrease on the rate of all the existing statements. loans priced on the Bank’s base rate, with effect from 1st of March 2015, the Bank announced new rate Capital Adequacy reductions on new housing loans, as well as on loans for The Capital Adequacy Ratio of the Group as at 31 purchase of residential plots and cars. The rates on new December 2014 was 18,2% (Bank: 18,1%), the Tier 1 housing loan will benefit from an additional decrease Ratio was 16,2% (Bank: 16,1%) and the Common Equity of 0,35%. Specifically, and in an effort of the Bank to Tier 1 (CET1) Ratio was 13,4% (Bank: 13,3%), calculated provide households with a breathing space, the rate for in accordance with new Legislation and Directive of the the ‘Foundation’ Housing loan scheme will start from EU concerning the minimum requirements for credit 3,4%, while the rate for the purchase of land from 3,75% institutions (Capital Requirement Regulation (CRR)/Capital with a prospective for further reduction in cases where Requirement Directive (CRD IV) dated 26 June 2013, the construction of a residence will follow. Recently the which came into effect at 1 January 2014, and according Bank announced a loan scheme in cooperation with to the relevant circulars of the Central Bank of Cyprus, the European Investment Bank with loans for Cypriot under Pillar 1. Businesses at a rate starting from 3%. In addition the Bank announced that it has lowered the base rate by As at 31 December 2014, the Group’s risk weighted assets 1% for non –performing loans as well as the credit card amounted to €4,0 billion. interest rate for all card types by 1%. These measures have already had a discernible impact on the market as Dividend there is a significant increase in the number of new loan The Board of Directors of the Bank does not propose applications since the start of the year. the payment of dividend for the year 2014 at the shareholders’ Annual General Meeting. No dividend Risk Management payment was proposed for the year 2013. The Group is exposed to a variety of risks, the most important of which are described and analysed in Strategic Scope and Objectives and Recent Note 49 of the financial statements. The management Developments and monitoring of risks is centralised under a uniform Management which covers the entire range of the Group’s Based on the conditions prevailing in the financial operations. environment the strategic targets of the Group include effective management of non-performing loans and the growth of the loan portfolio, while safeguarding its capital Agreements with Members of the Board of adequacy ratios and preserving its sound liquidity. Directors or the Staff of the Bank In case of a premature and non-justified termination of The Group, following its recapitalization, is in a position the contract, by the Bank, of the Executive Member of the to assume a more active role and using its comfortable Board/Chief Executive Officer of the Bank, compensation liquidity, intends to finance sound businesses and is paid, according to the contract agreements. A more households, within the recently implemented lending detailed reference is made to the remuneration policy regulations issued by the Central Bank. report for 2014.
A number of challenges lies ahead in 2015 with regards Corporate Governance Statement the economy’s prospects for growth. However, the The Corporate Governance Code published by the Cyprus recovery prospects are associated with the successful Stock Exchange (4th Edition Revised – April 2014), the enforcement of the Economic Adjustment Programme, ‘Code’, has been fully adopted by the Bank’s Board of which will improve the country’s competitiveness and Directors. allow its return to the international markets for raising finance. The Board of Directors recognises the importance of implementing sound Corporate Governance based on Within this labyrinthine landscape, Hellenic Bank insists the Code in combination with the mandate and practices and continues its dynamic growth as the only systemic followed by the various Committees of the Board of bank in Southern Europe which neither its depositors Directors in order to achieve the target for maximization have suffered any losses of funds through ‘haircut’, nor of the shareholders’ investment. burdened taxpayers to cover capital shortfalls.
34 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 The Corporate Governance Code is publicly available on Extraordinary General Meeting. The Board of Directors the Cyprus Stock Exchange (CSE) website www.cse.com.cy. has determined the Cyprus Red Cross as the charity to which the net amount of sale was entirely distributed. Information on Members of the Board of Directors retiring and being eligible for re-election, as well as on Shareholders Holding More Than 5% of the Share the composition and operation of the Bank’s Board of Capital Directors and its committees are set out in section B of Shareholders holding more than 5% of the share capital the Report on Corporate Governance. of the Bank are presented in Note 42 of the financial statements. Any amendments to the Articles of Association of the Company are only valid if approved by a Special Preparation of Periodic Reports Resolution at an Extraordinary General Meeting of the The Group has in place an effective internal audit system, shareholders. the adequacy of which is evaluated at least annually by the Board of Directors and in more frequent intervals Details of restrictions in voting rights and special control by the Board’s Audit Committee, in respect of financial rights in relation to the shares of the Bank are set out in and operational systems as well as for compliance with the share capital section above. any risk management regulations that may arise. The adequacy of the Internal Audit System secures the validity The Board of Directors may issue share capital if there is of financial data and compliance with relevant legislation sufficient authorised capital which has not been issued and aims to ensure the management of risks while and as long as the new shares to be issued are offered providing reasonable assurance that no loss will incur. first to the existing shareholders, pro-rata to their percentage holding in the Bank’s share capital. In the The Group’s internal audit and risk management event that a share capital increase requires an increase in systems incorporate effective procedures aiming at the the authorized share capital or if the new shares will not identification and prevention of errors, omissions or be offered to existing shareholders, the approval of the fraud that could result in material misstatements during shareholders at a General Meeting must be obtained. The the preparation of financial statements and relevant Board of Directors may also propose to a General Meeting disclosures included in the periodic reporting provided of the shareholders a share buyback scheme. by the Group based on Part II of the Transparency Requirements Law (Securities admitted to trading on a At an Extraordinary General Meeting of the Bank held on Regulated Market) Laws of 2007 up to 2014. the 27th of February 2015, were discussed and approved, amongst others, a proposal for the consolidation and Events After the Reporting Period division (reverse split) of its share capital with a ratio Events after the reporting period are disclosed in Note 50 of 50:1, a proposal for the issue of shares of nominal of the financial statements. value € 0,50 each, of a value up to €200.000 to the Chief Executive Officer of the Bank as part of his variable remuneration package and a proposal authorizing the Board of Directors Board of Directors to issue and allot in its sole and The members of the Board of Directors at 31 December unfettered discretion, up to 18.776.000 ordinary shares 2014 were the following: of nominal value €0,50 each in order to take advantage of any capital raising opportunities that may arise. The issue Irena A. Georgiadou price of such shares shall be not less than €1,875 and the Non Executive Chairwoman authorisation will be valid for a period of 12 months. Marinos S. Yannopoulos Executive Member of the Board On 9 March 2015 the Bank announced the conclusion of Dr Evripides A. Polykarpou the distribution of the fractions of the ordinary shares of Non Executive Member of the Board Hellenic Bank Public Company Ltd arising on consolidation and division (reverse split) of the issued share capital Marianna Pantelidou Neophytou of the Bank. The total net proceeds of sale are €19.433 Non Executive Member of the Board and were not to be distributed to shareholders but were Ioannis A. Matsis granted to charity following a special resolution of the Non Executive Member of the Board
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David Whalen Bonanno Mr Vassos Y. Komodromos was appointed Member of Non Executive Member of the Board the Board on 18 February 2014, was appointed Chief Dr Andreas G. Charitou Independent Director on 17 July 2014 and resigned on 23 Non Executive Member of the Board December 2014. Christodoulos A. Hadjistavris Mr Ioannis A. Matsis, Mrs Marianna Pantelidou Non Executive Member of the Board Neophytou and Dr Andreas G. Charitou were Members of Georgios Fereos the Board throughout the year 2014. Non Executive Member of the Board Mr Bert Pijls was appointed as Chief Executive Officer on During 2014 there were the following changes in the 12 January 2015 and Executive Member of the Board on Board of Directors of the Bank: 16 January 2015.
Dr Andreas P. Panayiotou was Non Executive Chairman Reference to Directors’ emoluments, fees and of the Board of Directors until the 28th of May 2014. Mrs compensation is made in Note 41 of the financial Irena A. Georgiadou was ellected Member of the Board of statements. Directors on 28 May 2014 and appointed Non Executive Chairwoman on 8 July 2014. In accordance with the company’s Articles of Association, Messrs Bert Pijls, David Whalen Bonanno, Marinos S. Mr Kyriacos J. Koushos was Non Executive Vice Chairman Yannopoulos and Dr Andreas G. Charitou will retire, and of the Board of Directors from the 13th of January 2014 being eligible, will offer themselves for re-election. The until the 28th of May 2014. He did not offer himself for vacancies so created will be filled by election. re-election at the 40th Annual General Meeting on 28 May 2014 and therefore resigned from the Board on 28 May 2014. Directors’ Interest in the Share Capital of the Company Mr Marinos S. Yannopoulos was elected Member of The percentage shareholdings in the Bank’s share capital the Board of Directors on 28 May 2014 and was Non owned by Members of the Board of Directors are shown Executive Vice Chairman from the 17th of July 2014 in Note 40 to the financial statements. until the 9th of September 2014. He was Chief Executive Officer/Executive Member of the Board for the period On behalf of the Board of Directors, from the 9th of September 2014 until the 8th of January 2015. Irena A. Georgiadou Chairwoman On 28 May 2014 Messrs David Whalen Bonanno, Georgios Nicosia, 31 March 2015 Fereos, Christodoulos A. Hadjistavris and Dr Evripides A. Polykarpou were elected Members of the Board.
Mr Charalambos P. Panayiotou resigned from the Board on 14 January 2014.
Messrs Kyriakos E. Georgiou, Marios M. Michaelides, Georgios K. Pavlou and Adonis E. Yiangou did not offer themselves for re-election at the 40th Annual General Meeting on 28 May 2014, and resigned from the Board on 28 May 2014.
On 1 September 2014 Mr Makis Keravnos resigned from his position as Chief Executive Officer/Executive Member of the Board.
Mr Ioannis Ch. Charilaou resigned from the Board on 23 December 2014.
36 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 HELLENIC BANK GROUP ANNUAL REPORT 2014 37 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 REPORT OF THE BOARD OF DIRECTORS ON CORPORATE GOVERNANCE FOR THE YEAR 2014
38 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 Each one of our visions opens a window to the future
39 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 REPORT OF THE BOARD OF DIRECTORS ON CORPORATE GOVERNANCE FOR THE YEAR 2014
Introduction meetings and all necessary documentation related to The Board of Directors of Hellenic Bank Public the meeting is provided so that they have adequate time Company Limited (‘the Company‘) fully adopted the to review it. The Members of the Board hold positions Code of Corporate Governance, which was published on the boards of directors of other companies as noted by the Cyprus Stock Exchange (4th revised edition – in their curricula vitae, published in the Corporate April 2014), hereinafter referred to as ‘the Code’. In Governance Report for the year they offer themselves compliance with the provisions included in the Code’s for re-election. Their participation in other boards allows introduction, the Board of Directors of the Company (‘the them to devote the necessary time and attention to their Board‘) incorporates the present Report on Corporate duties as Members of the Board of the Company. Governance in the Company’s 2014 Annual Report. The Company Secretary and the Compliance Officer with Part A the Code of Corporate Governance provide information The Company states that the full implementation of and advisory services to the Members of the Board the Code’s principles constitutes the Company’s policy related to board procedures and the Code. and that it had already taken the initiative of applying many of these principles well before the establishment of the Code. The Board believes that correct corporate (1) Independent Non-Executive Directors in 2014 governance, based on the Code, in conjunction with the • Dr Andreas P. Panayiotou, Chairperson (Resigned on terms of reference and the practices followed by the 28 May 2014.) various Board Committees, constitutes a fundamental • Irena A. Georgiadou, Chairperson (Elected on 28 May factor in achieving the corporate goal of maximising 2014 and appointed Chairperson on 8 July 2014.) shareholder value. The Board acknowledges that there • Kyriacos J. Koushos, Vice Chairperson (Elected Vice is an on-going process of formulating principles of Chairperson on 13 January 2014, did not offer himself corporate governance based on both international and for re-election at the 40th Annual General Meeting local conditions. As such, the Board continually follows a on 28 May 2014 and therefore retired from the Board policy of reviewing and readjusting the various aspects of of Directors on 28 May 2014.) corporate governance accordingly. • Marinos S. Yannopoulos, Vice Chairperson (Elected on 28 May 2014, Vice Chairperson from 17 July 2014 Part B until 9 September 2014, Independent until 9 The Company confirms that it has complied with the September 2014.) provisions of the Code. • Marianna Pantelidou Neophytou • Dr Andreas G. Charitou In light of the above, the following confirmations and • Ioannis A. Matsis reports are made: • Marios M. Michaelides (Did not offer himself for re-election at the 40th Annual General Meeting on The Board of Directors 28 May 2014 and therefore retired from the Board of The Company is governed and controlled by the Board Directors on 28 May 2014.) of Directors, which operates on the basis of the Code, • Ioannis Ch. Charilaou (Independent Non-Executive the relevant Companies, Stock Exchange and Business Director until 1st June 2014, resigned from the Board of Credit Institutions laws and the Company’s Articles of Directors on 23 December 2014.) of Association. On 31st December 2014, the Board was • Georgios K. Pavlou (Did not offer himself for re- composed of eight non-Executive Directors and one election at the 40th Annual General Meeting on 28 Executive Director, all of whom have the appropriate May 2014 and therefore retired from the Board of qualifications and broad relevant experience. The Directors on 28 May 2014.) Board’s composition as at 31st December 2014, as well • Kyriakos E. Georgiou, Senior Independent Director as the changes in the composition and distribution of (Elected Senior Independent Director on 13 January responsibilities of the Board throughout the year and up 2014, did not offer himself for re-election at the to the date of the present Report, appear in the Directors’ 40th Annual General Meeting on 28 May 2014 and Report for the year 2014. therefore retired from the Board of Directors on 28 May 2014.) During 2014, the Board of Directors held forty meetings. • David Whalen Bonanno (Elected on 28 May 2014.) In all instances, it is ensured that all Members of the • Vassos Y. Komodromos, Senior Independent Director Board are duly informed in writing of forthcoming Board (Appointed on 18 February 2014, appointed Senior
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Independent Director on 17 July 2014, resigned from Upon the appointment of Mr Marinos S. Yannopoulos as the Board of Directors on 23 December 2014.) Chief Executive Officer on 9 September 2014, a position • Dr Evripides A. Polykarpou, Senior Independent which he held until 8 January 2015, the independence Director (Elected on 28 May 2014 and appointed criterion A.2.3.(c) of the Code – executive member of Senior Independent Director on 27 January 2015.) the Board of Directors – was not fulfilled and therefore, • Georgios Fereos (Appointed on 28 May 2014, from 9 September 2014, Mr Marinos S. Yannopoulos is Independent until 23 February 2015.) no longer considered to hold the position of Independent • Christodoulos A. Hadjistavris (Elected on 28 May Non-Executive Director of the Company. 2014.) • Adonis E. Yiangou (Appointed on 3 February 2014, Upon the employment of Mr Georgios Fereos by the did not offer himself for re-election at the 40th Annual Company on 24 February 2015 the independence General Meeting on 28 May 2014 and therefore criterion A.2.3.(d) of the Code – employee of the retired from the Board of Directors on 28 May 2014.) Company – was not fulfilled and therefore, from 24 February 2015, Mr Georgios Fereos is no longer Note considered to hold the position of Independent Based on the independence criteria listed in the Directive Non-Executive Director of the Company. on the Assessment of the Fitness and Probity of the Members of the Management Body and Managers of Authorised Credit Institutions of 2014 of the (3) Executive Directors in 2014 Central Bank of Cyprus, which differ from those in the • Makis Keravnos, Director / Chief Executive Officer Corporate Governance Code, Messrs Kyriacos J. Koushos, (Resigned on 1st September 2014.) Marianna Pantelidou Neophytou, Ioannis Ch. Charilaou, • Marinos S. Yannopoulos, Director / Chief Executive Christodoulos A. Hadjistavris and David Whalen Bonanno Officer (Chief Executive Officer from 9 September were not or are not independent. 2014 until 8 January 2015.)
From 1st January 2015 until the date of this Report: (2) Non-Independent Non-Executive Directors in 2014 • Bert Pijls, Director / Chief Executive Officer (Appointed • Charalambos P. Panayiotou (Resigned on 14 January Chief Executive Officer on 12 January 2015 and 2014.) Executive Director on 16 January 2015.) • Ioannis Ch. Charilaou (Non-Independent Non-Executive Director from 1st June 2014 until his At least 50% of the Board of Directors (excluding the resignation on 23 December 2014.) Chairperson) consists of Independent Non-Executive • Marinos S. Yannopoulos (Non-Independent Non- Directors. Executive Director from 9 January 2015.) • Georgios Fereos (Non-Independent Non-Executive Director from 24 February 2015.) (4) Chief Executive Officer • Makis Keravnos (Resigned on 1st September 2014.) A relevant ‘Confirmation of Independence‘ based on • Marinos S. Yannopoulos (From 9 September 2014 until the minimum independence criteria in accordance with 8 January 2015.) provision A.2.3. of the Code is signed by each of the • Bert Pijls (From 12 January 2015.) Independent Non-Executive Directors and is submitted to the Cyprus Stock Exchange together with the present Report on Corporate Governance. (5) Application of best possible practices of Corporate and Internal Governance in the Upon completion, on 1st June 2014, of a period of nine Company during 2014 years since the appointment of Mr Ioannis Ch. Charilaou to the Board, the independence criterion A.2.3.(h) of the 2014 Economic Developments and 2014 Rights Issue Code – maximum tenure on the Board – was not fulfilled and therefore, from 1st June 2014 until his resignation On 26 October 2014, the European Central Bank and on 23 December 2014, Mr Ioannis Ch. Charilaou was no the European Banking Authority published the results longer considered to hold the position of Independent of the Asset Quality Review (AQR) and the Stress Tests Non-Executive Director of the Company. (together the Comprehensive Assessment) for 130 banks
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across the Eurozone, including Hellenic Bank. The results through a procedure it would determine, at a price of at of the ‘Baseline Scenario‘ of the Stress Tests confirmed least equal to the Exercise Price, i.e. €0,0375 per New the business model of the Company while the ‘Adverse Share, provided that the allotment of such New Shares Scenario’ calculated the capital that the Company should did not result in such investor holding equal or in excess raise to be able to handle unexpected future losses. The of 30% of the issued share capital of the Company upon capital actions of the Company reduced the initial gap of completion of the Issue. €277 million, based on the ‘Adverse Scenario’, to €105 million. On 12 December 2014, the Company announced the successful completion of the first phase of its share As a result of the above, the Board of Directors of capital increase, raising €201 million, which more than the Company decided at a meeting held on the 31st covered the capital need of €105 million resulting from of October 2014 to increase the share capital of the the ‘Adverse Scenario’ of the Comprehensive Assessment Company by approximately €221 million with a Rights of the European Central Bank and the European Banking Issue to the existing shareholders of the Company after Authority, based on the Asset Quality Review and the securing the necessary approvals by the competent Stress Tests, and further enhanced its capital base. authorities. On 28 January 2015, the Company announced that it According to the provisions of the Prospectus issued on had successfully concluded the share capital increase 14 November 2014, the Subscription Rights were issued that commenced in November 2014, raising €204 and allotted to all existing shareholders at the ratio of million and covering 92% of the target set in an adverse one (1) Subscription Right to every one (1) Ordinary Share and challenging economic and investing environment. held on the Record Date. Every two (2) Subscription Rights Specifically, as mentioned above, €201 million were exercised were converted to three (3) new Ordinary raised in the first phase of the capital increase (through Shares of the Company of nominal value €0,01 each the Subscription and Presubscription phase), and €3 with Exercise Price €0,0375 for every New Share. The million were raised through the shares allotment that Holders of Subscription Rights who exercised all of their corresponded to the unexercised Rights, not allotted Subscription Rights in time, could concurrently with through the Presubscription phase. All arising issued the exercise of their Subscription Rights, exercise their shares have been listed and are traded on the Cyprus Presubscription Right to acquire any New Unsubscribed Stock Exchange. Shares, i.e. shares that corresponded to the unexercised Subscription Rights, at a price equal to the Exercise Price, As a result of the above developments as well as of i.e. €0,0375 per New Share, provided that the exercise the conversion, during 2014, of the Convertible Capital of such Holder’s Subscription Rights and Presubscription Securities 1 into new fully paid ordinary shares, in Right did not result in such investor holding equal or in accordance with the Prospectus dated 30 September excess of 30% of the issued share capital of the Company 2014, the percentage of Shareholders holding more than after completion of the issue of shares pursuant to the five per cent of the Company’s issued share capital as at Subscription Rights and Presubscription Right. New Shares 31st March 2015 are as follows: issued pursuant to a Presubscription Right were allocated on a pro rata basis, to those holders that exercise them, CPB FBO THIRD POINT HELLENIC RECOVERY FUND LP 26,73% up to 100% of the number of New Shares corresponding WARGAMING PUBLIC COMPANY LTD 26,21% to the Subscription Rights exercised by such Holder. If the DEMETRA INVESTMENT PUBLIC LTD 10,59% Presubscription Right was in excess of the aforementioned limit of 100%, then satisfying the excess percentage over On 3 December 2014, the Company announced that the 100% was at the discretion of the Board. Board had decided that the Company would proceed with the initiation of the necessary proceedings for the The Company had the right, at any time within 30 working Dual Listing of Company’s securities at the Athens Stock days from the last date of exercise of Subscription Rights Exchange. and the exercise of the Presubscription Right to issue all or part of the New Shares that corresponded to On 2 April 2015 the Company announced that the Board, the unexercised Subscription Rights that had not been after considering the uncertainties in the economic covered during the exercise of the Presubscription Right. environment in Greece, re-examined its decision to The Board of Directors of the Company could allot, at initiate the necessary procedures for the Dual Listing of its discretion, such New Shares, in Cyprus and abroad, the Company’s securities at the Athens Stock Exchange
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and decided to suspend, for the time being, the said implementation of the decisions of the Eurogroup and procedures for the Dual Listing. the Memorandum of Understanding for the Financial Assistance of Cyprus and take the necessary possible During 2014 and 2015 until the date of this Report various measures for the management of any negative impact on actions were taken in compliance with the directives the Group’s operations that arise from the newly-formed of the Central Bank of Cyprus on the ‘Framework of business and economic environment. Principles of Operation and Criteria of Assessment of Banks’ Organizational Structure, Internal Governance Group Risk Management, the Board Risk Management and Internal Control Systems of 2006 to 2012’ which Committee and the Board of Directors, in cooperation was in force, and the Governance and Management with Executive Management, continue to actively pursue Arrangements Directive of 2014 issued by the Central the evaluation and management of all related risks, Bank of Cyprus which came into force on 8 August particularly in view of the financial crisis. 2014, taking into consideration the Code of Corporate Governance published by the Cyprus Stock Exchange (3rd The Secretariat of the Board of Directors of the Company, revised edition – September 2012 and 4th revised edition into which the Department of Corporate Governance - April 2014). / Compliance was incorporated following the issuance by the Central Bank of Cyprus of the Governance and Board of Directors Management Arrangements Directive of 2014, in co- During 2014 and at the beginning of 2015 ten Directors operation with the Chairperson of the Board of Directors, resigned and seven new Directors were appointed to the the Chief Executive Officer, the Company Secretary and Board as shown in the Directors’ Report for the year 2014. the Compliance Officer with the Code of Corporate Governance, confirm compliance with the relevant During 2014 and 2015 until the date of this Report the laws, regulations and directives, the implementation of following new Policies were approved by the Board of best possible practices of Corporate Governance within Directors: the Company and the application of an adequate and a) Arrears Management Strategy (24 February 2014) transparent framework of internal governance. b) Arrears Management Unit Policy (24 February 2014).
The following existing Policies were revised: (6) Remuneration Policy Report a) Remuneration Policy (6 November 2014) The Remuneration Policy Report was prepared by b) Capital Policy (2nd Issue) (7 April 2014). the Board of Directors following a proposal by the Remuneration Committee in accordance with Appendix In late 2014 and early 2015, a major revision of the Terms 1 of the Code. It is presented in the Annual Report of the of Reference of the Board of Directors and of the Terms Company after the present Board of Directors’ Report of Reference of the Board Committees was undertaken, in on Corporate Governance (page 58). The Remuneration view of the issue of new Directives by the Central Bank of Policy Report will be presented to the Annual General Cyprus, the Governance and Management Arrangements Meeting of Shareholders for approval. Directive of 2014 and the Assessment of the Fitness and Probity of the Members of the Management Body and Information on the remuneration / fees of the Members Managers of Authorized Credit Institutions Directive of of the Board of Directors and the Chief Executive Officer 2014. The Terms of Reference of the Board of Directors for the year 2014 is disclosed in the notes to the Accounts and the Terms of Reference of the Board Committees contained in this Annual Report (Note 41) as well as in the are still in compliance with the relevant provisions of the Remuneration Policy Report itself. Code of Corporate Governance.
Other Matters (7) Going Concern At the Extraordinary General Meeting of the Shareholders The Board of Directors states that the Company intends to held on 27 February 2015, it was decided, inter alia, that continue to operate on a going concern basis for the next for the purpose of modernizing the existing articles of twelve months. association of the Company, the said articles be amended and replaced by new Articles of Association. The Board of Directors and the Group’s Management closely monitor the developments regarding the
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(8) Internal Control System System), the Members of the Board of Directors The Board of Directors confirms that the Company has confirm that they have reviewed the adequacy of the an effective internal control system, the adequacy of Internal Control Systems of the Company as well as the which is reviewed by the Board at least once a year. procedures for verification of correctness, accuracy and It is also reviewed on a more regular basis by the validity of information disseminated to investors. Audit Committee, both with respect to financial and operational systems as well as compliance systems for the The Board also confirms that, to its knowledge, management of risks, which might occur and which fall no violation in the Stock Exchange Legislation and within the competencies, duties and responsibilities of Regulations has occurred, except in cases already the Asset and Liability Management Committee and the reported to the relevant authorities (where this applies). Risk Management of the Group. The Group Internal Audit reports directly to the Audit Committee and the Board of Directors itself. It consists of 30 persons and is headed by (10) External Auditors – Provision C.2.2. of the Mrs. Niki Nicolaidou – Hadjixenophontos (B.Sc. Honours Code in Financial Services, M.B.A., A.C.I.B., F.C.C.A.). All the In 2014 Messrs KPMG, external auditors of the Company, Internal Audit functions are carried out in accordance offered other services except auditing e.g. tax services, with the Internal Audit Manual. No Internal Audit function general and specialized advisory services, review of was outsourced in 2014. various returns, training seminars, etc. Their objectivity and independence are ensured in the following ways: In this context, all Group operational management units are suitably staffed and committed to the introduction (a) Non-auditing services are offered by different and operation of appropriate control systems according to companies / departments of the KPMG Group in their respective business and responsibilities. Within this accordance with the professional code of certified framework, the above mentioned management units: accountants / auditors (‘Chinese Walls’).
• Operate on the basis of a specific organisational (b) The KPMG team that carries out the external audit of structure and allocation of responsibilities; the Company does not participate in offering any other • Prepare and monitor the implementation of the services except auditing. strategic and business plans and annual budgets; • Follow written procedures, receive and disseminate (c) The offer of non-auditing services is carried out by a information and advice through circulars and training tendering process except where these are considered to programmes; be of minor importance. • Adopt a policy of adequate segregation of duties in order to avoid a conflict of interest wherever this is Messrs KPMG have confirmed in writing to the Company deemed necessary; that the offering of the above mentioned services does • Apply, at branch level, performance evaluation and not affect their independence and objectivity. The measurement models based on specific targets; external auditors do not offer internal audit services to • Are supported by appropriate software and hardware the Company. systems; • Are subject to regular internal and external audits. (11) Credit Facilities to Directors The adequacy of the internal control system safeguards Information as to credit facilities provided to Company the Group’s and its customers’ assets, as well as the Directors (and related parties) or to its subsidiary or validity of the financial data and overall compliance with associated company Directors is to be found in the existing laws. It aims towards the management and not relevant notes to the Financial Statements contained the complete removal of risks, providing reasonable within the present Annual Report (Note 41). It is but not absolute assurance that no major loss will be confirmed that all such transactions were carried out incurred. within the normal course of the Company’s business, under normal commercial and employment terms and with transparency. Furthermore, it is confirmed that all (9) Confirmation in Accordance with the Provision relevant cases of Bank facilities to Company Directors C.2.1. of the Code and its subsidiary company Directors are forwarded for In relation to paragraph (8) above (Internal Control approval to the Board, after the relevant proposal of
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the Board’s Audit Committee. During this procedure the David Whalen Bonanno interested Member of the Board neither participates nor (From 8 July 2014) is present. Christodoulos A. Hadjistavris (From 8 July 2014) Dr Evripides A. Polykarpou (From 8 July 2014) (12) Code of Corporate Governance Compliance Officer (c) Nominations / Internal Governance Committee The Company has appointed on 20 February 2015 Mrs Chairperson: Dr Andreas P. Panayiotou Eleni Christodoulidou as Compliance Officer with the (Until 28 May 2014) Code of Corporate Governance, replacing Mrs Maria Irena A. Georgiadou Vovides-Iliescu who has been appointed as Assistant (From 8 July 2014) Company Secretary. Members : Kyriacos J. Koushos (From 20 January 2014 until 28 May 2014) Marianna Pantelidou Neophytou (From 20 January 2014) (13) Board Committees Marios M. Michaelides The following Board Committees operate within the (From 20 January 2014 until 8 July 2014) Company: Ioannis Ch. Charilaou (From 20 January 2014 until 28 August 2014) (a) Audit Committee Vassos Y. Komodromos (From 24 February 2014 until 23 December 2014) Chairperson: Dr Andreas G. Charitou (From 20 January 2014) Georgios K. Pavlou (Until 20 January 2014) Members : Ioannis Ch. Charilaou (Until 23 December 2014) Charalambos P. Panayiotou (Until 14 January 2014) Ioannis A. Matsis (From 20 January 2014) Dr Evripides A. Polykarpou (From 8 July 2014 until 26 February 2015) Marianna Pantelidou Neophytou (From 20 January 2014 until 8 July 2014) David Whalen Bonanno (From 8 July 2014) Adonis E. Yiangou (From 11 February 2014 until 28 May 2014) Georgios K. Pavlou (d) Risk Management Committee (Until 20 January 2014) Chairperson: Ioannis Ch. Charilaou Kyriakos E. Georgiou (Until 23 December 2014) (Until 20 January 2014) Ioannis A. Matsis Georgios Fereos (From 27 January 2015) (From 8 July 2014 until 26 February 2015) Members : Marianna Pantelidou Neophytou Marinos S. Yannopoulos (From 20 January 2014) (From 17 July 2014 until 9 September 2014) Ioannis A. Matsis Christodoulos A. Hadjistavris (From 20 January 2014) (From 8 July 2014) Marios M. Michaelides Dr Evripides A. Polykarpou (From 20 January 2014 until 28 May 2014) (From 26 February 2015) Dr Andreas G. Charitou (From 20 January 2014) (b) Remuneration Committee Adonis E. Yiangou (From 11 February 2014 until 28 May 2014) Chairperson: Ioannis A. Matsis (From 20 January 2014 until 8 July 2014) Charalambos P. Panayiotou (Until 14 January 2014) Irena A. Georgiadou (From 8 July 2014) Kyriakos E. Georgiou (Until 20 January 2014) Members : Kyriacos J. Koushos (From 20 January 2014 until 28 May 2014) Georgios K. Pavlou (From 20 January 2014 until 28 May 2014) Dr Andreas G. Charitou (From 20 January 2014 until 8 July 2014) Georgios Fereos (From 8 July 2014 until 26 February 2015) Kyriakos E. Georgiou (Until 28 May 2014) Marinos S. Yannopoulos (From 17 July 2014 until 9 September 2014) Georgios K. Pavlou (From 20 January 2014 until 28 May 2014) Vassos Y. Komodromos The terms of reference of the above Committees are (From 24 February 2014 until 23 December 2014) based both on the relevant provisions of the Code
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pertaining to them and the relevant guiding Directives other Officers involved. The Committee’s suggestions and of the Central Bank of Cyprus. They are published in the Group’s Remuneration Policy take into consideration paragraph 14 below while those of the Remuneration the relevant responsibilities, workload, qualifications, Committee are in the Remuneration Policy Report. Within know-how, academic background, experience, individual the framework of the provisions of the Code concerning performance, remuneration of comparable positions relations with shareholders, the Chairpersons of these in the market, especially in areas where the Group is Committees are available to answer any questions at active, remuneration at other levels in the Group as well the Annual General Meeting at which all shareholders as non-financial criteria e.g. compliance with applicable are encouraged to participate. The Chairpersons and rules and procedures. The Committee’s aim is to attract Members of the Committees periodically submit reports and retain good quality officers at Executive and General or proposals to the Board of Directors following meetings Management levels, in order to better serve the interests of the corresponding Committees, depending on the of the Group as well as those of its shareholders and subjects being addressed. other stakeholders.
The Audit Committee meets on its own before the Each year, the Remuneration Committee proposes to announcement of the quarterly results to review the the Board of Directors the Annual Remuneration Policy Financial Statements and specifically, the extent and Report, as part of the Annual Report of the Company, sufficiency of provisions for debts which may be doubtful which is submitted to the shareholders’ Annual General of collection, as well as the adequacy of the Internal Meeting for approval. The Committee also reviews Control System. It then proceeds with the relevant and approves the Information disclosed on the Annual suggestions to the Board. The Audit Committee also Remuneration of the Members of the Board, which is meets on its own (without the presence of members of prepared by Group Financial Management for inclusion in the Executive Management) to review matters which are the notes to the annual accounts of the Company and the its responsibility. Additionally, it participates in meetings Remuneration Policy Report itself. with the Executive Management of the Company and Internal Audit, in order to review issues which arise The Nominations / Internal Governance Committee from the financial accounts, various special reports is engaged in selecting fit and proper individuals for or investigations or the Annual Report of the Internal appointment as Board Members of the Company or its Audit of the Company and its subsidiary companies. The subsidiaries, either for positions extraordinarily vacated Committee makes recommendations or suggestions to or after the retirement of Board Directors, in accordance the Board of Directors on issues under its jurisdiction. The with the Company’s policy regarding retirement age. The Committee is assisted by the respective Audit Committees Committee then submits its suggestion to the Board of of three of the Bank’s subsidiary companies – Hellenic Directors of the Company concerned for its decision. The Bank (Investments) Ltd, Pancyprian Insurance Ltd and decision applies for the period from the appointment date Hellenic Alico Life Insurance Company Ltd. During 2014, of the new Member to the next shareholders’ General the Audit Committee held twenty eight meetings, six Meeting, when the Directors so appointed, if eligible, may of which were held jointly with the Risk Management offer themselves for re-election. New Board Members are Committee. The Committee’s Chairperson has university briefed by the Executive Officer responsible for ensuring degrees in Business Administration / Accounting (B.Sc., compliance with the Code of Corporate Governance and M.Sc. and Ph.D.), is holder of a professional Accounting by other high-ranking officers, regarding the provisions diploma (Certified Management Accountant, CMA, USA) of the Code as well as on broad issues in relation to the and he is a University Professor of Finance & Accounting. organisational structure, procedures, strategic planning, One of the Members of the Committee is a qualified the Company’s practices in general and those of the Board Accountant. and its Committees in particular. The Committee also has the responsibility of implementing the Group’s policies The Remuneration Committee meets whenever it is on internal governance. The Nominations / Internal necessary to fix or review the remuneration of Executive Governance Committee meets whenever issues arise that and non-Executive Members of the Board of Directors, are within its jurisdiction. the Chief Executive Officer and the officers reporting directly to the Chief Executive Officer. After considering The Risk Management Committee assists the Company’s all relevant parameters and data, it makes relevant Board of Directors in fulfilling its responsibilities and recommendations to the Board for making decisions, in obligations concerning the recognition, measurement, the absence of the Executive Member of the Board or monitoring and effective management of all the
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Group’s risks (credit, interest-rates, operational, market, 2. Composition and Term-in-Office of Members of the liquidity, foreign exchange, capital and other). Amongst Audit Committee other duties, the Committee prepares and submits The Board appoints at least three and up to seven non- proposals for approval to the Board. Where applicable, Executive Directors as Members of the Committee. The it evaluates the principles, the framework and policies of majority of the Members of the Committee must be undertaking and managing all forms of risk and the use independent non-Executive Members of the Board. of capital that corresponds to the business objectives of the Company, the Group and/or each subsidiary The Audit Committee as a whole should have: company separately. It also recommends to the Board (a) Recent and relevant practical experience in the area the assignment of approval authority (which concerns of financial markets or professional experience directly the undertaking of risks) to the Executive Management, linked to financial markets activity; and General Management and other approving groups, as (b) Knowledge of the Group’s broader business well as the approval of new products or services that environment, including information systems and the Group intends to introduce. The Risk Management technology. Committee meets whenever issues arise that are within its jurisdiction. Members of the Committee must not hold any other posts or positions or conduct transactions which could be considered to be in conflict with the Terms of Reference (14) Terms of Reference of the Board of Directors’ of the Committee. Committees (except the Remuneration Committee) Members of the Committee cannot participate in more Terms of Reference of the Audit Committee than two (2) committees, including the Audit Committee. 1. Establishment / Mission The Audit Committee was established to ensure Hellenic The Chairperson of the Committee shall be independent Bank Public Company Limited (‘the Company’) complies and have specialist knowledge and experience in the with the Directives published by the Central Bank of application of accounting principles and internal control Cyprus in accordance with the provisions of the Business processes and will be appointed by the Board. of Credit Institutions Laws. The Chairperson of the Board shall not be a Member of The primary mission of the Committee is to ensure the Audit Committee. the fulfilment, in a reliable and effective manner, of the obligations imposed on the Company by the The term-in-office of the Members of the Committee is abovementioned Directive, the compliance with the decided by the Board. relevant provisions of the Code of Corporate Governance issued by the Cyprus Stock Exchange and to review and 3. Meetings of the Committee challenge, where necessary, Group policies, practices, The Committee holds meetings, at least quarterly, controls and actions and judgement of the management which, where appropriate, must coincide with important team that contribute to the sound management and financial reporting dates. In emergency or crisis situations, conduct of the operations and activities of the Company. the Committee may convene via teleconferencing for decision-taking. The next integral number of one half of The Audit Committee is responsible for assisting the Board the Members comprises a quorum. of Directors (‘the Board’) in the effective monitoring of the activities and operations of the Group. The Committee invites regularly to its meetings the Head of the Group Internal Audit Unit and any officers of the In order to accomplish its mission, the Committee Group, whose opinion it considers necessary for the best has under its direct monitoring and control the Group conduct of its duties and compliance. Internal Audit Unit, which is independent of the Executive Management and accountable to the Committee. The Chairperson of the Committee must ensure that no other person is present, including other Members of the The Committee has adequate access to the internal Board, unless formally invited to attend for a specific control units and with the approval of the Board, it item(s) on the agenda. Any such person is present only obtains independent professional advice whenever it during the discussion of the specific item and leaves deems this necessary. the meeting room immediately after, without any participation in the decision-making process.
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The Company Secretariat must be closely involved in the appointment, compensation, terms and scope of the preparation of the meeting’s agenda and ensure engagement and substitution or rotation of the approved it is distributed, including supporting papers where Auditor and other external Auditors of the Group. relevant, at least three (3) business days in advance of the meeting. 5.2.2 It monitors and ensures the independence and effectiveness of the Auditors, including: The Committee reports regularly to the Board and (a) Seeking from the Auditors information about the the Company Secretariat ensures that minutes of policies and procedures for maintaining independence the Committee’s meetings and decisions are kept in and compliance with relevant requirements, at least on an accordance with Paragraph 7(4) of the Governance and annual basis, Management Arrangements Directive of 2014 of the (b) Seeking reassurance that the Auditors and their Central Bank of Cyprus, which it circulates to the Board. staff have no family, financial, employment or business It also submits its annual and periodical reports of its relationship with the Company (other than in the normal activities to the Board, as it deems advisable. course of business), (c) Taking account of the Audit Firm’s Partners rotation The Committee liaises and holds meetings with the policy. external Auditors at least once a year to discuss matters arising from their audit findings. 5.2.3 It oversees the relationship between the Group and its Auditors. 4. Decision-making Process 4.1 The Committee is authorized by the Board to: 5.2.4 It evaluates the extent and effectiveness of the (a) Investigate any activity within its Terms of Reference, audits and examines ways to better co-ordinate the (b) Seek any information and clarifications from any audit effort to ensure complete coverage, avoidance of employee of the Company. All employees are required to overlapping work and the best use of available audit co-operate with any request made by this Committee. resources (cost effectiveness).
4.2 The decisions of the Committee are taken by voting. In 5.2.5 It evaluates the comments and proposals of the case of a tie, the Chairperson has the casting vote. the Auditors with regard to the management of the Group, the preparation and presentation of its Financial 5. Duties and Responsibilities Statements and the monitoring of their application. The duties and responsibilities of the Committee are the following: 5.2.6 It monitors the volume, nature and extent of non- auditing services provided by: 5.1 Financial Statements 5.1.1 It monitors the integrity, accuracy and reliability (a) The Auditors at Group level, aiming to maintain the of the Group’s quarterly and annual financial reporting balance between objectivity and the value added by the process and Financial Statements, as well as any formal services offered. announcements relating to the Group’s financial (b) In the case where non-auditing services are offered performance. to a subsidiary or affiliated company of the Bank and the volume is such that it downgrades the objectivity of 5.1.2 It assesses the adequacy of the provisions in line their audits, the Committee informs the corresponding with accounting policies and standards and submits a Committee (where it exists) of the subsidiary company or relevant report to the Board of Directors and the Risk its Board of Directors. Management Committee on a quarterly basis. (c) The Committee is informed, at least once a year, by Group Finance, about the nature, extent and fees for non- 5.1.3 It monitors the establishment of accounting policies auditing services or other advisory duties of the Auditors. and practices, paying particular attention to the following: (a) Changes to critical accounting policies and practices, 5.2.7 It prepares annually a report in which the auditing (b) Decisions requiring a significant element of judgement, and non-auditing services are recorded by category, time (c) Unusual transactions and how these are disclosed. and fees paid to the Auditors. This report is submitted to the Board, along with the relevant comments of the 5.2 External Audit Committee. 5.2.1 It submits proposals to the Board regarding
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5.3 Internal Audit 5.3.10 It ensures that the Group Internal Audit Unit has adequate resources and appropriate standing within the 5.3.1 It approves and evaluates the Internal Audit Company. Charter. 5.4 Compliance 5.3.2 The Group Internal Audit Unit submits its annual 5.4.1 It assesses and monitors the independence, audit plan and budget to the Audit Committee for adequacy and effectiveness of the Group Compliance review and approval, ensuring appropriate coverage, Unit. prioritisation and flexibility to adapt to variations in response to developments. Any changes that are likely to 5.4.2 It submits to the Board its recommendations on the be made to the audit plan or the budget during the year appointment and replacement of the Head of the Group must also be approved by the Committee. Compliance Unit.
5.3.3 It submits to the Board its recommendations on the 5.4.3 It assesses, on an annual basis, the performance of appointment and replacement of the Head of the Group the Head of the Group Compliance Unit and submits his/ Internal Audit Unit. her annual appraisal to the Board.
5.3.4 It assesses, on an annual basis, the performance of 5.4.4 It advises the Board, drawing on the work of the Head of the Group Internal Audit Unit and submits the Group Compliance Unit, on the adequacy and his/her annual appraisal to the Board. effectiveness of the Framework for Business Conduct.
5.3.5 It assesses and monitors the independence, 5.4.5 It advises the Board, drawing on the work of the adequacy and effectiveness of the Group Internal Audit Group Compliance Unit and external Auditors, on the Unit. adequacy and effectiveness of the Compliance Framework (including the Compliance Monitoring Programme and 5.3.6 It monitors and assesses, on an annual basis, the Compliance Policies). adequacy and effectiveness of the Group’s internal control systems and information systems, based on reports of 5.4.6 The Group Compliance Unit submits its annual audit the Group Internal Audit Unit and the observations and plan and budget to the Audit Committee for approval, comments of the external Auditors and the competent ensuring that they are sufficiently flexible to adapt to supervisory authorities. variations in response to developments.
5.3.7 It reviews the quarterly and annual reports 5.4.7 It reviews the quarterly and annual compliance submitted by the Group Chief Internal Auditor, which are reports submitted by the Head of the Group Compliance subsequently submitted to the Board. Unit, which are subsequently submitted to the Board.
5.3.8 It submits to the Board reports regarding the 5.4.8 It ensures that the Group Compliance Unit has following: adequate resources. (a) Proposals for addressing any weaknesses of the internal control systems and information systems, which 5.5 Miscellaneous Issues have been identified based on reports of the Group 5.5.1 It assigns to the Group Internal Audit Unit or to Internal Audit Unit and the observations and comments independent experts, following the authorisation of the of the external Auditors and the competent supervisory Board, the investigation of any matters which fall within authorities. its mission and responsibilities. (b) Matters relating to the independence and smooth execution of the audit work carried out by the Group 5.5.2 It requests information from Management on Internal Audit Unit. the significant risks to which the Group is exposed; 5.3.9 (a) It confirms that the Company assigns the it evaluates the measures taken by the Management assessment of the adequacy of the Internal Control and the Board to minimise these risks and submits System, on an individual and consolidated base, to its recommendations for the improvement of those external Auditors who have the necessary experience. measures. (b) It evaluates the findings of the above assessment and proposes corrective measures to the Board. 5.5.3 It investigates any other important data,
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information or facts that concern and influence the It identifies any weaknesses or gaps in the loans performance and operation of the Company or its restructuring process and it subsequently informs the compliance with the laws and regulations that govern it. Management and the Board on further action as it considers necessary. 5.5.4 It oversees that Senior Management takes the necessary corrective actions in a timely manner to 5.5.11 It carries out a self-assessment and reports to address control weaknesses, non-compliance with the Board its conclusions and recommendations for policies, laws and regulations and other weaknesses improvements and changes in relation to the structure, identified by external Auditors, the Group Internal Audit the responsibilities and the work of the Committee. and Compliance Units and the supervisory authorities. 5.5.12 The Chairperson of the Committee will be 5.5.5 Following a decision of the Audit Committee, the available for personal, telephone, electronic or written Chairperson of the Audit Committee convenes a joint communication, upon request of the Company’s meeting with the Members of the Audit Committee of shareholders, regarding issues concerning the work of a subsidiary company to discuss and study any matters the Committee. He/She will also be available to answer concerning that company as may be deemed necessary. any questions raised during the Annual General Meeting or any other informative meeting of the Company’s 5.5.6 The Committee has the responsibility for examining shareholders. any significant transactions, of any nature, carried out by the Bank and/or its subsidiary companies, in which 5.5.13 Information regarding the structure and work a Member of the Board, the Chief Executive Officer, a of the Committee will also be included in the Annual Senior Executive, the Company Secretary, the Auditor Corporate Governance Report of the Board of Directors of or a major shareholder of the Company (who directly Hellenic Bank Public Company Limited. or indirectly holds more than 5% of the issued share capital of the Company or its voting rights) has, directly 6. Validity and amendments of the Terms of Reference or indirectly, any significant interest, so as to ensure that these transactions are carried out within the framework The Terms of Reference are reviewed regularly, at of the Company’s normal commercial practices (at arm’s least annually, to ensure continuing appropriateness. length). The reviews must be documented and include, where necessary, recommendations to the Board on revisions The above definition includes the Members of the Board so as to reflect any new practices that may be adopted of subsidiary companies. by the Group. These may include organisational restructuring, Directives of the Central Bank of Cyprus, 5.5.7 It prepares, with the assistance of the Compliance amendments in the relevant legislation, new Directives Officer with the Corporate Governance Code, the Report of the Securities and Exchange Commission or new of the Board of Directors on Corporate Governance to be Regulations of the Cyprus Stock Exchange which are included in the Group’s Annual Report. added to the Code.
5.5.8 It discusses with the Management the policy for the The Board is responsible for any addition or amendment management and assessment of business risk, including to the Terms of Reference. the main financial risks of the Group, and the measures that are taken by the Board for their monitoring and 7. Code of Corporate Governance mitigation. The external Auditors and the Head of the Group Internal Audit Unit may also be invited to this Notwithstanding the above, the Audit Committee will meeting. function strictly within the framework of the relevant provisions of the Code of Corporate Governance, as 5.5.9 It handles any eponymous or anonymous reports determined in Chapter C of the Code. by employees, submitted in the context of the Group’s formal relevant policy. Terms of Reference of the Risk Management Committee 5.5.10 It assesses the adequacy and effectiveness of the appeals process, based on reports of the Appeals 1. Role of the Risk Management Committee Committee, and of the Appeals Committee itself. The Risk Management Committee was established
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to ensure that Hellenic Bank Public Company Limited The majority of Committee Members shall comprise a (‘the Company’) complies with the requirements of quorum. A majority of Committee Members shall be the Business of Credit Institutions Laws, the relevant considered to be the next integral number of one half of Central Bank of Cyprus’ Directives and the Cyprus Stock the Members. In the case of a tie, the Chairperson has the Exchange’s Code of Corporate Governance. casting vote.
The role of the Committee is to assist the Board of The Company Secretariat must be closely involved in Directors (‘the Board’) to fulfil its responsibilities and the preparation of the meeting’s agenda and ensure it obligations concerning the identification, measurement, is distributed, including any supporting papers where monitoring and effective management of all Group risks relevant, at least three (3) business days in advance of the (credit and counterparty, concentration, foreign exchange, meeting. interest, liquidity and solvency, operational, legal as well as the capital adequacy of all Group subsidiary The Company Secretariat must ensure minutes of companies). the Committee’s meetings and decisions are kept in accordance with Paragraph 7(4) of the Governance and 2. Composition of the Risk Management Committee Management Arrangements Directive of 2014 of the The Committee is appointed by the Board and consists Central Bank of Cyprus and circulate them to the Board. of three to seven non-Executive Directors with sufficient knowledge and experience in the Risk Management The Committee has the approval of the Board to obtain sector. The majority of the Members of the Committee independent professional advice whenever it deems this must be independent non-Executive Members of the necessary. Board. The Committee may formally invite to any of its meetings, Members of the Risk Management Committee can be for a specific item or items on the agenda, any person members of only one other Board Committee. who may contribute towards the effective conduct of its business. The Chairperson of the Committee is appointed by the Board. 4. Duties and Responsibilities of the Risk Management Committee The term-in-office of the Members of the Committee is The Committee shall carry out the duties set out below: decided by the Board. Framework and Policies The Board can, during the term-in-office of the 4.1 Define and submit to the Board for approval: Committee: (a) replace any Member of the Committee, (i) the principles which should govern risk management; including the Chairperson; and (b) fill positions in the (ii) the framework for undertaking all forms of risk and Committee which are vacated, for any reason. the use of capital that would correspond to the business objectives of the Company, Group and/or each subsidiary Committee Members shall not hold any other posts separately; or positions or conduct transactions which could be (iii) the policy of the Group with regard to the limits and considered to be in conflict with the Terms of Reference pricing of undertaking Group risks. of the Committee. 4.2 Cultivate an internal environment of risk Committee Members shall have appropriate knowledge, management, which will govern the business decision- skills and expertise to fully understand and monitor the making processes across the activities and/or Units of the risk strategy and the risk appetite of the Company. Group and its subsidiaries.
3. Meetings / Decision-making Process of the Risk Risk Appetite / Risk Strategy Management Committee 4.3 Advise and develop recommendations for the The Committee shall meet whenever necessary Board on the Group’s overall current and future risk and at least twice every quarter. In emergency or appetite and strategy, taking into account relevant legal crisis situations, the Committee may convene via and regulatory requirements, capacity for risk and the teleconferencing for decision-taking. financial and risk profile of the Company.
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4.4 Assist the Board in overseeing the effective management and information security frameworks and implementation of the risk strategy by senior propose improvements where necessary; management including: (ii) the adequacy and robustness of information and (i) The development of mechanisms to ensure material communication systems to enable identification, exposures that are close to or exceed approved risk limits measurement, assessment and reporting of risk in a are managed and, where necessary, mitigated in an timely and accurate manner and ensure the adequate effective and timely manner; protection of the Company’s confidential and proprietary (ii) The identification and escalation of breaches in risk information; limits and of material risk exposures in a timely manner; (iii) the adequacy of provisions and effectiveness of (iii) Submit proposals and recommendations for strategies and policies with respect to maintaining, on corrective actions whenever weaknesses are identified in an ongoing basis, amounts, types and distribution of implementing the risk strategy. both internal capital and own funds, adequate to cover the risks of the Company. The advice on the adequacy 4.5 Review whether prices of liabilities and assets offered of provisions should be on a risk basis and not on an to clients take fully into account the Company’s business accounting point of view. model and risk strategy. Where prices do not properly reflect risks in accordance with the business model and 4.13 Review and approve the budgets of the Group risk strategy, the Committee shall present a remedy plan Risk Management and Information Security Functions, to the Board. ensuring that they are sufficiently flexible to adapt to variations in response to developments. Capital 4.6 Review and recommend to the Board for approval, the Management Information Group’s Internal Capital Adequacy Assessment Process 4.14 Determine the nature, the amount, the format and (ICAAP) and the Group’s Stress Testing Process. the frequency of the information which it is to receive on the risk situation of the Company and for each type of risk Liquidity and each business unit. The Committee must: 4.7 Review and recommend to the Board for approval, the (i) approve metrics or a process to satisfy itself that the Group’s Internal Liquidity Adequacy Assessment Process risk reports and information it receives are accurate, (ILAAP). comprehensive and depict an appropriate view of the Company’s risk profile; Remuneration (ii) ensure that risk parameters and risk models developed 4.8 Review whether incentives provided by the and used to quantify them are subject to periodic remuneration system take into consideration risk, capital, independent validation. liquidity and the likelihood and timing of earnings. 4.15 Consider and evaluate: Control Functions (i) the quarterly reports submitted by the Head of the 4.9 Assess and monitor the independence, adequacy Group Risk Management Function within two months and effectiveness of the Group Risk Management and from the end of each quarter and inform the Board Information Security Functions, including carrying out accordingly; the annual appraisal of the Heads of the Group Risk (ii) the annual report submitted by the Head of the Group Management and Information Security Functions and Risk Management Function within two months from the submit the relevant reports to the Board. end of each year and submit it to the Board, accompanied by the Committee’s assessment of the report; 4.10 Submit to the Board recommendations for the (iii) the relevant reports from the Group Internal Audit appointment or removal of the Heads of the Risk Unit, subsidiary Boards and/or Risk Committees, and Management and Information Security Functions. the regulators and oversee that corrective measures are 4.11 Approve the parameters used in the preparation of implemented where these are necessary. the provisions by the Group Risk Management Function. Evaluation of Risks 4.12 Advise the Board, drawing on the work of the 4.16 The Committee shall evaluate the risks that are Audit Committee, Group Risk Management Function, related to the involvement of the Group in new markets, Information Security Function and external Auditors, on: new companies or business ventures and shall submit its (i) the adequacy and effectiveness of the risk recommendations to the Board.
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4.17 The Risk Management Committee shall work with of three to six exclusively non-Executive Directors. The the Audit Committee of the Board to ensure that a global majority of the Members of the Committee must be view is taken in the management of risk. independent non-Executive Members of the Board.
Committee Governance Members of the Nominations / Internal Governance 4.18 The Committee shall review its Terms of Reference Committee can be members of only one other Board regularly, at least annually, to ensure continuing Committee. appropriateness. The reviews must be documented and include, where necessary, recommendations to the Board The Chairperson of the Committee is appointed by the on revisions. Board.
4.19 The Committee shall conduct a self-assessment The term-in-office of the Members of the Committee is and report its conclusions and recommendations for decided by the Board. improvements and changes to the Board. Committee Members shall not hold any other posts 4.20 The Chairperson of the Committee shall be or positions or conduct transactions which could be available for personal, telephone, electronic or written considered to be in conflict with the Terms of Reference communication, which shareholders of the Company of the Committee. may request, regarding issues concerning the work of the Committee. He/She will also be available to answer 3. Meetings / Decision-making Process of the any questions during the Annual General Meeting or any Nominations / Internal Governance Committee meeting for the purposes of briefing the shareholders of The Committee shall meet whenever necessary and at the Company. Information concerning the structure and least three times a year. work of the Committee will also be given in the Annual Corporate Governance Report of the Board of Directors of The majority of Committee Members shall comprise Hellenic Bank Public Company Limited. a quorum. A majority of Committee Members shall be considered to be the next integral number of one Terms of Reference of the Nominations / Internal half of the Members, provided the Chairperson of the Governance Committee Committee is present. In the case of a tie, the Chairperson shall have the casting vote. 1. Role of the Nominations / Internal Governance Committee The Company Secretariat must be closely involved in The Nominations / Internal Governance Committee was the preparation of the meeting’s agenda and ensure it established to ensure that Hellenic Bank Public Company is distributed, including any supporting papers where Limited (‘the Company’) complies with the requirements relevant, at least three (3) business days in advance of the of the Business of Credit Institutions Laws, the relevant meeting. Central Bank of Cyprus’ Directives and the Cyprus Stock Exchange’s Code of Corporate Governance. The Company Secretariat must ensure minutes of the Committee’s meetings and decisions are kept in The primary role of the Committee is to prepare proposals accordance with Paragraph 7(4) of the Governance and for the Board of Directors (‘the Board’) regarding the Management Arrangements Directive of 2014 of the selection of individuals for nomination as Members of Central Bank of Cyprus and circulate them to the Board. its Board or the Boards of subsidiary companies of the Group, either to fill extraordinarily vacated or vacant seats The Committee has the approval of the Board to obtain or after the retirement of a Member in accordance with independent professional advice whenever it deems the retirement policy due to age. The Committee is also this necessary. responsible for the development, implementation and oversight of policies of internal governance arrangements The Committee may formally invite to any of its meetings, within the Group. for a specific item or items on the agenda, any person who may contribute towards better conduct of its 2. Composition of the Nominations / Internal business. Governance Committee The Committee is appointed by the Board and consists
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4. Duties and Responsibilities of the Nominations / c) Consider candidates on merit and against objective Internal Governance Committee criteria, as defined in the relevant policy, with due regard The Committee shall carry out the duties set out below to the benefits of diversity, taking care that appointees for the Bank and its subsidiaries: will have sufficient time to devote to the position.
Board Evaluation 4.8 In its recommendation to the Board to appoint a 4.1 Assess at least annually, the structure, size, candidate, the Committee shall include a description of composition and performance of the Board and make the role and responsibilities for a particular appointment, recommendation with regard to any changes to the expected time commitment; and state the companies in Board. which a candidate for Board membership is not allowed to participate because of conflict of interest, as well as the 4.2 Evaluate regularly and at least annually, the skills, information the candidate should have at his/her disposal knowledge, experience, diversity and expertise of before being appointed as a Member of the Board. Members of the Board of Directors and those of the Group’s subsidiary companies, individually and 4.9 Prior to the appointment of a Director, the proposed collectively, reporting accordingly to the Board. appointee shall be required to disclose any other business interests that may result in a conflict of interest and be Board Succession Plans required to report any future business interests that could 4.3 Review periodically and at least annually, succession result in a conflict of interest. plans for the Board to ensure on the one hand that successions occur smoothly and an appropriate balance Fitness and Probity of diversity, skills and experience is maintained, and on 4.10 At least annually, conduct Fitness and Probity the other hand the progressive renewal of the Board, evaluation of each Member of the Board, based on reporting accordingly to the Board. the relevant criteria defined in the Directive on the Assessment of Fitness and Probity of Members of the Policies Management Body and Managers of Authorized Credit 4.4 Define, for the approval by the Board, and periodically Institutions of 2014 of the Central Bank of Cyprus and review policies for: report the outcome of such evaluations to the Board. a) Appointment of Board Members, including the necessary qualifications that an individual should possess 4.11 If at any given time, persons who hold the post of an in order to serve as a member of the Board of Directors of independent Director do not satisfy or seem not to satisfy any of the Group’s companies; and any of the independence criteria due to developments, b) Board diversity, including a target representation of the then the Board must address the issue immediately and underrepresented gender and how to reach and maintain proceed with the necessary remedial measures, including this target. removing the said Member from the Board or redefining his/her role in the Board and/or appointing a new 4.5 Review periodically and at least annually, the independent Director. The time period for implementing policy for selection, development, appointment and all necessary remedial measures should not exceed one replacement of senior management and Heads of Group (1) month. The said Member should be released from any Control Functions and make recommendations to the of his/her duties as an independent Member of the Board Board. from the date the non-compliance with the independence criteria is identified. 4.6 Review periodically the policy for recruitment, rotation and promotion of staff, reporting accordingly to Control Functions the Board of the Company. 4.12 Review periodically, and at least annually, in collaboration with the Audit and Risk Management Board Appointments Committees, the composition, authority and 4.7 Identify, evaluate and recommend, for the approval independence of the Group Control Functions, reporting by the Board, candidates to fill Board vacancies. In accordingly to the Board of the Company. identifying candidates the Committee shall: a) Consider candidates from a wide range of Internal Governance Arrangements backgrounds; 4.13 Ensure effective internal governance arrangements b) Pay due regard to the Fitness and Probity are in place and evaluate the extent of compliance with requirements; and
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the policies of internal governance as approved by the of shareholders, financial analysts, members of the Board. Stock Exchange and representatives of the media. More specifically, regarding the Annual General Meeting, there Committee Governance is complete compliance with the relevant provisions of 4.14 The Committee shall review its Terms of Reference the legislation, the Company’s Articles of Association and regularly, at least annually, to ensure continuing the Code. The shareholders also have the opportunity to appropriateness. The reviews must be documented and communicate, regarding matters that concern them, with include, where necessary, recommendations to the Board the Secretariat of the Company and the Investor Relations on revisions. Officer, Mrs Elena Neophytou (tel. 22500794).
4.15 The Committee shall conduct a self-assessment and report its conclusions and recommendations for (16) Rotating Directors eligible for Re-Election improvements and changes to the Board. Members of the Board retire on a rotating basis or retire according to the relative articles of the Company’s Annual General Meeting Articles of Association and the relevant provisions of the 4.16 The Chairperson of the Committee shall be Companies Law and the Code (at least every three years). available for personal, telephone, electronic or written The retiring Directors, who are eligible and will offer communication, which shareholders of the Company themselves for re-election at the Annual General Meeting may request, regarding issues concerning the work of of the Shareholders on 27 May 2015, are the following the Committee. He/She shall also be available to answer (brief curriculum vitae included): any questions during the Annual General Meeting or any meeting for the purposes of briefing the shareholders of (a) Dr Andreas G. Charitou, Professor of Finance & the Company. Information concerning the structure and Accounting, University of Cyprus work of the Committee shall also be given in the Annual Born on 22 November 1958. Studied Business Corporate Governance Report of the Board of Directors of Administration / Accounting at the Economic University Hellenic Bank Public Company Limited. of Athens (B.Sc.) and at the Pennsylvania State University in the United States (M.Sc., Ph.D.). Holder of the Reporting to the Central Bank of Cyprus professional title of Certified Management Accountant 4.17 The Annual Evaluation Reports referred to in (C.M.A., U.S.A.). Was also an active member of the Paragraphs 4.1, 4.2 and 4.10 shall be submitted to the American Institute of Certified Public Accountants and Central Bank of Cyprus within three (3) months of the end holder of the Professional Ethics for CPAs Certificate. of every year. Taught at the Pennsylvania State University in the U.S.A. and at the University of Toronto in Canada. Currently a 5. Code of Corporate Governance Professor of Finance & Accounting at the University of It is understood that the Nominations / Internal Cyprus and in charge of the Doctoral Programmes (Ph.D.) Governance Committee will operate strictly within the and the Postgraduate M.B.A. Programme. Served as framework of the relevant provisions of the Code of Chairman of the Department of Business Administration Corporate Governance, as determined in Chapter A of the and Vice Dean of the School of Economics and Code. Management at the University of Cyprus.
Was a Member of the Board of Directors of the Cyprus (15) Part D of the Code which refers to the Securities and Exchange Commission (2000-2001) Relations of the Company with its Shareholders and Member of the Board of Directors (2003-2005) of Hellenic Bank Group announces its financial results every the Audit Committee and the Corporate Governance quarter. Committee of the Cyprus Stock Exchange. From April 2009 to October 2013 was an Independent Non- The Board of Directors of the Company utilises the Executive Member of the Board of Directors of the occasions of the announcements of the quarterly or Cooperative Central Bank and served as Chairman interim results, as well as of the Annual General Meeting of the Risk Management Committee and Member of of the Shareholders itself for organising analytical the Remuneration & Appointments Committee of the presentations of the Financial Statements. These are Company. Was appointed by the Council of Ministers usually undertaken by the Group Chief Financial Officer as an Expert of the Inquiry Committee on the Cyprus and the Company’s Executive Management for the benefit Economy. Member of the Disciplinary Committee of the Institute of Certified Public Accountants of Cyprus.
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Appointed Member of the Board of Directors of Hellenic (d) Henricus Lambertus (Bert) Pijls, Chief Executive Officer, Bank on 24 December 2013. Chairman of the Audit Hellenic Bank Group Committee and Member of the Risk Management Born on 27 December 1965 in Nijmegen, Netherlands. Studied Committee of the Company’s Board of Directors. Business Administration (B.B.A.) at Nijenrode University, Breukelen, Netherlands and International Management (b) Marinos S. Yannopoulos, Banker (M.I.M.) at the American Graduate School of International Born on 7 August 1953. Graduated from the Athens Management (Thunderbird), Phoenix, Arizona, United States College and studied Economics (B.A.) at the American of America. College of Greece (Deree College), Industrial Economics (M.A.) at the University of Sussex in the United Kingdom Commenced his career in 1990 in Citigroup, where for the and Business Administration (M.B.A.) at the University of following ten years he worked in the positions of Financial Manchester also in the United Kingdom. Analyst, Assistant Branch Manager, Sales & Service Manager, District Director, Managing Director and Marketing Director Commenced his career in 1978, as Internal Auditor in Germany, Belgium and the USA. In 1999 took over as working for five years in Exxon in London and Rome. Executive Vice President, Strategic Planning of the New York- Afterwards, worked for ten years in Chase Manhattan, in based Internet Financial Services start-up Moneyunion Inc. A the Treasury Department in New York and then in Milan year later, he moved to Egg Banking Plc as a Banking Product and Frankfurt as Country Treasurer and Capital Markets Director in London and in 2002 as a Programme Director in Executive. Returned to Greece in 1991 to take over as Paris. Joined American Express in 2004 as Vice President, General Manager of the Ionian Bank. Served as Chief International Personal and Small Business Lending in London. Financial Officer, Member of the Board of Directors and Returned to Citigroup in 2005 as Country Business Manager, the Executive Committee of Alpha Bank from 1994 until Consumer & SME in the Czech Republic then in 2008 became 2010. Subsequently became Deputy Managing Director CEO, Egg Banking Plc and Managing Director, Consumer (until February 2014) and Member of the Board of Banking UK and in 2011 Managing Director, Business Directors of CHIPITA S.A. based in Athens. Development & Re-engineering, EMEA Consumer. In 2012, joined British Gas / Centrica as Managing Director, Customer Elected Member of the Board of Directors of Hellenic Services & Commercial until June 2014. Bank on 28 May 2014 and Vice Chairman of the Board on 17 July 2014, an office from which he resigned on 9 Since 12 January 2015 holds the position of Chief Executive September 2014 upon his appointment as Chief Executive Officer of the Hellenic Bank Public Company Limited Officer of the Hellenic Bank Public Company Limited Group, being the first Company CEO to receive verification Group for a period of four months. and approval of the newly established European Single Supervisory Mechanism (SSM). (c) David Whalen Bonanno, Investment Banker Born on 14 December 1981 in Glen Cove, New York. Appointed Member of the Board of Directors of Hellenic Studied Psychology (B.A.) at Harvard University in the Bank on 16 January 2015 and also Chairman of the Board of United States of America. Directors of Pancyprian Insurance Limited on 17 March 2015 and Hellenic Alico Life Insurance Company Limited on 25 Commenced his career in 2004 in the Financial Advisory February 2015. Firm Rothschild Inc. as an Analyst in the Restructuring Group and afterwards, as from 2006, worked in the private investment firm Cerberus Capital Management Nicosia, 31 March 2015 L.P. as an Associate in the Private Equity and Distressed Investment Group. In 2008 took over as Managing Director of the Investment Fund Third Point LLC. In charge of the long-term equity investments of Third Point Hellenic Recovery Fund in Greece and Cyprus. Elected Member of the Board of Directors of Hellenic Bank on 28 May 2014. Member of the Nominations / Internal Governance and Remuneration Committees of the Company’s Board of Directors.
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Introduction Members : Kyriacos J. Koushos The Board of Directors of Hellenic Bank Public Company (From 20 January 2014 until 28 May 2014) Limited (‘the Company’), in compliance with the Dr Andreas G. Charitou (From 20 January 2014 until 8 July 2014) provisions of the Code of Corporate Governance, Kyriakos E. Georgiou published by the Cyprus Stock Exchange (4th revised (Until 28 May 2014) edition - April 2014) and particularly Appendix 1 of the Georgios K. Pavlou Code, incorporates the present Remuneration Policy (From 20 January 2014 until 28 May 2014) Report in the Company’s 2014 Annual Report. The Vassos Y. Komodromos Company’s 2014 Annual Report has been published in the (From 24 February 2014 until 23 December 2014) Company’s website. David Whalen Bonanno (From 8 July 2014) Christodoulos A. Hadjistavris Remuneration Committee (From 8 July 2014) The Remuneration Committee meets whenever it Dr Evripides A. Polykarpou is necessary to fix or review the remuneration of (From 8 July 2014) Executive and non-Executive Members of the Board of Directors (‘the Board’), the Chief Executive Officer and The terms of reference of the Remuneration Committee the officers reporting directly to the Chief Executive appear below: Officer. After considering all relevant parameters and data, it makes relevant recommendations to the Board for making decisions, in the absence of the Terms of Reference of the Remuneration Committee Executive Member of the Board involved or other officers involved. The Committee’s suggestions and the 1. Role of the Remuneration Committee Group’s Remuneration Policy take into consideration The Remuneration Committee was established to ensure the relevant responsibilities, workload, qualifications, that the Company complies with the requirements of know-how, academic background, experience, individual the Business of Credit Institutions Laws, the relevant performance, remuneration of comparable positions Central Bank of Cyprus’ Directives and the Cyprus Stock in the market, especially in areas where the Group is Exchange’s Code of Corporate Governance. active, remuneration at other levels in the Group as well as, non-financial criteria e.g. compliance with applicable The primary role of the Committee is to define and rules and procedures. The Committee’s aim is to attract recommend for approval by the Board the Remuneration and retain good quality officers at Executive and General Policy, including pensions and variable compensation, Management levels in order to better serve the interests and the Remuneration Principles for the Group that are of the Group as well as, those of its shareholders and aligned to the Group’s strategic objectives and values. other stakeholders. Also, the Committee prepares proposals for the approval by the Board on the remuneration packages, including Each year, the Remuneration Committee proposes to retirement and other benefits, of Executive and non- the Board of Directors the Annual Remuneration Policy Executive Members of the Board, as well as of the Chief Report, as part of the Annual Report of the Company, Executive Officer and his/her direct reports. which is submitted to the shareholders’ Annual General Meeting for approval. The Committee also reviews 2. Composition of the Remuneration Committee and approves the Disclosure of Information Regarding The Committee is appointed by the Board and consists the Remuneration of the Directors, which is prepared of three to six exclusively non-Executive Directors who by Group Financial Management for inclusion in the shall exercise competent and independent judgment on notes to the annual accounts of the Company and the remuneration policies and practices. The majority of the Remuneration Policy Report itself. Members of the Committee must be independent non- Executive Members of the Board. The Remuneration Committee consists of the following Board Members: Members of the Remuneration Committee can be members of only one other Board Committee. Chairperson: Ioannis A. Matsis (From 20 January 2014 until 8 July 2014) Irena A. Georgiadou The Chairperson of the Committee is appointed by the (From 8 July 2014) Board.
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The term-in-office of the Members of the Committee is The Committee will take into consideration factors such decided by the Board. as the relevant responsibilities, workload, qualifications, know-how, academic background, experience, individual Committee Members shall not hold any other posts performance, remuneration of comparable positions in or positions or conduct transactions which could be the market, especially in areas where the Group is active, considered to be in conflict with the Terms of Reference remuneration in other levels of the Group and non- of the Committee. financial criteria e.g. compliance with applicable rules and procedures. It will also consider the need to attract and 3. Meetings / Decision-making Process of the retain the most suitable Directors (Executive and non- Remuneration Committee Executive) / Senior Executives in the Company. The Committee shall meet whenever necessary and at least twice a year. 4.2 During the formulation of the above-mentioned proposals, the Committee should take care so that: The majority of Committee Members shall comprise a (a) these proposals are consistent with the relevant legal quorum. A majority of Committee Members shall be and regulatory requirements; and considered to be the next integral number of one half of (b) the performance-related systems: the Members provided that the Chairperson is present. In - should not extend any benefits before the gains the case of a tie, the Chairperson has the casting vote. expected by the Company materialise in a satisfactory degree The Company Secretariat must be closely involved in - should not include non-Executive Members of the Board the preparation of the meeting’s agenda and ensure it among the beneficiaries is distributed, including any supporting papers, where - should specify targets and evaluation criteria so that relevant, at least three (3) business days in advance of the the remuneration of the Company Executives is properly meeting. aligned with the long-term interests of the shareholders, investors, other stakeholders and the public interest, the The Company Secretariat must ensure minutes of Company’s business objectives and strategies and its risk the Committee’s meetings and decisions are kept in policy. accordance with Paragraph 7(4) of the Governance and Management Arrangements Directive of 2014 of the 4.3 During the preparation of its proposals, the Central Bank of Cyprus and circulate them to the Board. Committee shall provide the opportunity to the Chairperson and the Chief Executive Officer to express The Committee has the approval of the Board to obtain an opinion with regard to its proposals concerning the independent professional advice whenever it deems this salaries of other Executive Board Members. It should necessary. also have access to professional advice, both internal and external. The Committee may formally invite to any of its meetings, for a specific item or items on the agenda, any person Remuneration Policy who may contribute towards better conduct of its 4.4 The Committee shall ensure that staff members, who business. are involved in the design, review and implementation of the remuneration policies and practices, have relevant 4. Duties and Responsibilities of the Remuneration expertise and are capable of forming independent Committee judgment on the suitability of the remuneration policies and practices, including their suitability for risk management. Remuneration Framework 4.1 The Committee shall submit to the Board, within 4.5 The Committee shall assist, through relevant studies terms of reference agreed upon and without the presence / proposals, the Board in fulfilling its duties in approving of the party interested in their evaluation, proposals and periodically reviewing the Principles that govern the concerning the framework and level of remuneration Group Remuneration Policy and the Policy itself and in (including fixed pay, performance-related pay, bonuses, overseeing the latter’s implementation. pension rights and any compensation payments, share options, etc.) of Executive and non-Executive Members of 4.6 In addition to setting the Remuneration Policy, the the Board, the Chief Executive Officer and his/her direct Committee shall: reports.
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a. Determine and periodically review target and measures the Company Secretariat in cooperation with the Group’s to be applied for variable compensation, liaising with the Legal Advisors, in accordance with Appendix 3 of the Code Risk Management Committee of the Board as necessary; of Corporate Governance, and concern possible plans for and the remuneration of Members of the Board in the form of b. Set budget for annual staff increases. shares, share warrants or share options.
Remuneration of Non-Executive Members of the Board Job Descriptions 4.7 In relation to the level of remuneration of the non- 4.14 The Committee shall review and approve, where Executive Members of the Board, the Committee shall this is deemed necessary, the Job Descriptions (roles, take the following into consideration: responsibilities, main duties, powers, etc.) of the a. The available time that the Members have to prepare Executive Members of the Board, the Chief Executive for attending meetings, Officer and his/her direct reports. b. The responsibilities assumed by each Member, c. The non-correlation of remuneration to the profitability Committee Governance of the Company; and 4.15 The Committee shall review its Terms of Reference d. The non-participation in any insurance or pension plan. at least annually, to ensure continuing appropriateness. The reviews must be documented and include, where Readjustment of Benefits necessary, recommendations to the Board on revisions. 4.8 The Committee shall submit to the Board proposals for the determination of each readjustment of benefits 4.16 The Committee shall conduct a self-assessment of the Members of the Board, the Chief Executive Officer and report its conclusions and recommendations for and his/her direct reports, being sensitive to the terms improvements and changes to the Board. of remuneration and conditions of employment at other levels of the Group. Annual General Meeting 4.17 The Chairperson of the Committee shall be External Advice available for personal, telephone, electronic or written 4.9 The Committee shall, when using the services of a communication, which shareholders of the Company consultant to obtain information on market standards for may request, regarding issues concerning the work of remuneration systems, ensure that this consultant does the Committee. He/She will also be available to answer not also give advice to the Human Resources Department any questions during the Annual General Meeting or or the Executive Members of the Board. any meeting for the purposes of briefing shareholders of the Company. Information concerning the structure and Control Functions work of the Committee will also be given in the Annual 4.10 The Committee shall directly oversee the Corporate Governance Report of the Board of Directors of remuneration of the senior officers in the Group Control Hellenic Bank Public Company Limited. Functions. 5. Code of Corporate Governance Remuneration Reports / Statements It is understood that the Remuneration Committee will act 4.11 The Committee shall prepare, for submission to the strictly within the framework of the relevant provisions Board, the Annual Remuneration Policy Report, which will of the Code of Corporate Governance, as determined in comprise part of or be attached to the Annual Report of Chapter B of the Code. the Company.
4.12 The Committee shall review and approve the Annual Directors’ Remuneration Policy Remuneration Statement, prepared by Group Finance The Board of Directors, following relevant for inclusion in the Company’s annual Accounts or in recommendation of the Remuneration Committee, the notes to the annual Accounts, in accordance with recognising the significant increase of the responsibilities Appendix 2 of the Code of Corporate Governance and the undertaken and the workload of the Board of relevant Cyprus Central Bank’s Directives / Guidelines. Directors, as well as of its Committees, arising due to the increased regulatory requirements including the 4.13 The Committee shall review and approve the content numerous responsibilities arising from Governance and of any resolutions submitted for approval at the General Management Arrangements Directive 2014 issued by the Meeting of the shareholders, which will be prepared by Central Bank of Cyprus, the time commitment required by
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the Members of the Board of Directors to devote to the The Chairperson of the Board received annual fees and Company for board matters and for matters of the Board’s hospitality expenses of €55.359, the Vice Chairperson Committees, the substantial risks based on the conditions annual fees €25.629 and each Member €10.252. The prevailing in the financial environment that the Group Chairpersons of the Audit and Risk Management is operating and the desire to attract and retain Board Committees received €6.834 annual fees and each Members with high qualifications, expertise, experience, Member €5.126. The Chairpersons of the Remuneration academic background and performance, decided to and Nominations / Internal Governance Committees propose to the Extraordinary General Meeting of the received annual fees €2.563 and each Member €1.709. Shareholders an increase in the remuneration of the Members of the Board of Directors and the remuneration of the Members of the Board’s Committees. Remuneration Policy for the Executive Directors / Chief Executive Officer The Extraordinary General Meeting of the Shareholders The Executive Director / Chief Executive Officer Mr. B. Pijls held on 27 February 2015 approved an Ordinary is compensated with a remuneration package based on Resolution by which it was decided that the remuneration a contract whose terms are compliant with the relevant of the Members of the Board of Directors for the year provisions of the existing Code of Corporate Governance 2015 be fixed as follows: and the Governance and Management Arrangements Directive of 2014 of the Central Bank of Cyprus. The (i) Chairperson: €140.000 remuneration package includes a non-variable annual (ii) Vice-Chairperson: €50.000 salary and variable remuneration. (iii) Senior Independent Director: €50.000 (iv) Board Members: €45.000 The non-variable annual salary is paid monthly and takes into consideration his knowledge, experience, Furthermore, the Extraordinary General Meeting of the academic background and expertise, his leadership skills Shareholders approved an Ordinary Resolution by which which would set an example for the Group in order to it was decided that the remuneration of the Members of create an inextricable corporate culture which promotes the following Committees of the Board of Directors for ethos, integrity and quality in every way and in all the year 2015 be fixed as follows: manifestations of the organisation’s professional and social contribution. In addition, it takes into consideration (i) Chairperson of the Audit Committee: €45.000 the offered services, the time devoted to the Group and (ii) Chairperson of the Risk Management Committee: the scope of undertaken responsibilities, the benefits €45.000 and remuneration of officials in corresponding positions (iii) Chairperson of the Remuneration Committee: €15.000 in other comparable organisations and the market at (iv) Chairperson of the Nominations / Internal Governance the specific moment in time when the contract was Committee: €15.000 prepared. His remuneration package also includes fringe (v) Member of the Audit Committee: €20.000 benefits such as participation in a medical and accident (vi) Member of the Risk Management Committee: plan for the employee and his family, life and permanent €20.000 disability insurance and accident cover whilst on the (vii) Member of the Remuneration Committee: €10.000 Company’s business as per the Company’s policy, use of (viii) Member of the Nominations / Internal Governance a company car, payment by the Company of all expenses Committee: €10.000. in connection with such use and payment of expenses by the Company in relation to the provision to him of tax In addition, according to Article 88 of the Company’s advisory services. Articles of Association, the Board of Directors may also be paid all travelling, hotel and other expenses In addition, the Executive Director / Chief Executive properly incurred by them in attending and returning Officer may be entitled to be paid additional variable from meetings of the Directors or in connection with the performance related remuneration, which will be business of the Company. agreed upon the signing of a relevant Schedule to his employment contract. The variable remuneration For 2014, the following Remuneration Policy was applied will be in line with the provisions of the Company’s which was approved during the Shareholders’ Annual Remuneration Policy, applicable legislation, the General Meeting on 28 May 2014: regulations of the Central Bank of Cyprus and/or the European Central Bank, the Governance and Management
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Arrangements Directive of 2014 issued by the Central lieu of notice will include all remuneration, additional Bank of Cyprus and the Corporate Governance Code. remuneration and fringe benefits the employee enjoyed during his employment. In relation to the variable remuneration of the Executive Director / Chief Executive Officer, the Extraordinary In the event that the employment contract is terminated General Meeting of the Shareholders of the Company, by the Company, prior to its expiry, for any lawful reason held on 27 February 2015 resolved the following: requiring that the Company gives the employee notice, or following a decision by the Central Bank of Cyprus or That the Board of Directors (or a duly authorised the European Central Bank of the employee’s unfitness, committee of the Board of Directors) be authorised to pursuant to relevant directives and/or laws and/or exercise all powers of the Company to issue and allot regulations for reasons other than those that do not to the Chief Executive Officer of the Company up to require notice under Law 24/1967 or where the employee €200.000 worth of ordinary shares of the Company of ceases to be a Member of the Board of the Company nominal value of €0,50 (the ‘New Shares’) for every by the requirement of any competent supervisory and/ twelve months of his employment as Chief Executive or regulatory authority and/or body, the Company Officer, as the Board of Directors may, in its sole and will give to the employee 6 months’ paid notice. Such unfettered discretion determine; provided that: notice and any payment in lieu of notice will include all (i) such New Shares shall form part of the Chief Executive remuneration, variable remuneration and fringe benefits Officer’s variable remuneration package; the employee enjoyed during his employment. (ii) the issue of such New Shares will be based upon such performance criteria as the Board of Directors of the On 1st September 2014, the contract of employment Company may, from time to time, determine and the New between Mr. M. Keravnos Executive Director / Chief Shares shall be issued in a manner which is consistent Executive Officer and the Company was terminated with the provisions of the Governance and Management by mutual consent. The two parties agreed to a Arrangements Directive of 2014 issued by the Central consideration for the termination of the contract of Bank of Cyprus, as the same may be amended from time employment, in cash and in kind, amounting in total to time; to €393.097 as per the provisions of his employment (iii) the issue price per New Share shall be equal to the contract. The Company also paid to the abovementioned higher of (a) the nominal price per New Share and (b) the Executive Director / Chief Executive Officer the total average closing price of one ordinary share of nominal amount of his accrued rights. value of €0,50 of the Company, at the Cyprus Stock Exchange, over the month of December of the year in The Executive Director / Chief Executive Officer whose respect of which the performance of the Chief Executive contract of employment was terminated by mutual Officer will be assessed, and the relevant issue of New consent on the 1st of September 2014, was rewarded Shares shall be made as a result of such assessment; and with a remuneration package based on a contract with (iv) the above-mentioned authority shall expire on the terms which were compliant with the relevant provisions date being five years from and including the date of the of the Code of Corporate Governance in force. The resolution unless extended by the general meeting of the remuneration package included non-variable annual shareholders of the Company. salary, paid monthly which took into consideration the related responsibilities, the workload, qualifications, The Executive Director / Chief Executive Officer’s contract expertise, academic background, experiences as well as has a five-year duration and can be renewed for a further the remuneration of comparable positions in the market period of five years, if the Company provides to the and particularly in the sectors where the Company was employee a written request to renew the agreement at active, aiming to attract and retain high caliber people. least twelve months prior to its expiry. In such case the Also, the remuneration package included hospitality contract will be renewed on the same terms other than expenses, health, life and accident insurance coverage, salary, which will be re-negotiated between the parties. use of company car (in accordance with the relevant In the case of early and unjustified termination of the regulations that were in force concerning managers) and contract by the Company, the Company shall pay to him participation to a defined-benefit retirement scheme. as compensation for the termination of the employment, the equivalent of twelve months salaries and shall provide The contract of employment between the Executive to him notice, the period of which shall be determined Director / Chief Executive Officer which was terminated in accordance with Law 24/1967. Any payment in by mutual consent on the 1st of September 2014 had
62 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 REMUNERATION POLICY REPORT FOR THE YEAR 2014
a duration of five years, renewable six months before whether the results and the performance in the year its expiry (pursuant to a decision of the Board of under evaluation serve the long-term interests of the Directors according to the recommendations of relevant Group, Committees of the Board of Directors). In the event of (b) The individual performance of the Executive, premature and unjustified contract termination by the (c) Non-financial criteria e.g. compliance with applicable Company (which could occur any time within its duration) rules and procedures, a compensation would be paid, the amount of which (d) The basic principles regarding the Group would reach up to a maximum amount equal to two Remuneration Policy as they have been published in the annual salaries. The said compensation would be equal Company’s website. to the remaining salaries until the expiry of the contract if the remaining time period was less than two years. The remuneration policy for the Members of the Board/ Chief Executive Officer, as described above, was codified On 9 September 2014, Mr. M. Yannopoulos was appointed for the first time in the Group Remuneration Policy as Chief Executive Officer until the appointment of a which was approved by the Board of Directors following new Chief Executive Officer. His remuneration package a proposal by the Remuneration Committee on 25 included non-variable monthly salary, a return ticket February 2010, on the basis of the provisions of the from Greece to Cyprus per week, bed and breakfast amending Directive of the Central Bank ‘Framework of accommodation and travelling expenses for business Principles of Operation and Criteria of Assessment of purposes. The duration of his contract was for three Banks’ Organisational Structure, Internal Governance and months and it could be renewed by mutual consent of Internal Control Systems’ (October 2009). the parties and upon such terms as agreed between the parties. The Board of Directors had, at any time during The remuneration policy for the Members of the Board/ the duration of the contract, the right to terminate it. Chief Executive Officer was amended and incorporated In such case, the Company was under the obligation to in the Group Remuneration Policy, which was approved pay to him all arrears of salary. In addition, if at any time by the Board of Directors as recommended by the during his employment he was convicted of any offence Remuneration Committee on 28 February 2012, based involving fraud or dishonesty or was in breach of the on the revision of the 3rd Edition of the Corporate terms of the employment contract or committed any act Governance Code as published by the Cyprus Stock of bankruptcy, the Company had the right to terminate his Exchange in March 2011. Further amendment followed employment forthwith, without notice or payment in lieu based on the Directive of the Central Bank of Cyprus for of notice. At the expiration of the contract, it was agreed the ‘Calculation of the Capital Requirements and Large in writing to renew the contract for a further period Exposures of Banks of 2006 to 2011’ and the Guidelines of one month and it was agreed that if during the one of the Committee of European Banking Supervisors on month period the approval of the Central Bank of Cyprus Remuneration Policies and Practices, which was approved or any other supervisory authority was obtained, for the by the Board of Directors as recommended by the appointment of Mr. Bert Pijls as Chief Executive Officer Remuneration Committee on 5 November 2012. Further of the Company, the contract would automatically be amendment of the Group Remuneration Policy followed terminated. All the provisions of the original employment on 6 November 2014. contract remained into force. The contract of employment of Mr. Yannopoulos expired on 8 January 2015. The abovementioned policy is still under review. During 2015 it is expected to be amended based on The changes in the cumulative retirement benefits of the the provisions of the Governance and Management Executive Directors for the year are disclosed in note 41 to Arrangements Directive of 2014 of the Central Bank of the Accounts contained in this Annual Report. Cyprus, the Regulatory Technical Standard described (EU) No 604/2014 and the new Guidelines of the European For the determination of the variable remuneration of Banking Authority on Remuneration Policies and Practices the Executive Members of the Board of Directors, the which are expected to be published and implemented Board, on the basis of the recommendations of the during 2015. Remuneration Committee, takes into account: The Group Remuneration Policy is reviewed annually by (a) The Group results, taking into account the economic / the Board of Directors, further to recommendation by financial conditions of the market in which these results the Remuneration Committee, in order to ensure that it were achieved and the risks assumed. It is also examined is in line with the Group’s current strategic targets and
HELLENIC BANK GROUP ANNUAL REPORT 2014 63 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 REMUNERATION POLICY REPORT FOR THE YEAR 2014
to prevent the introduction of incentives which lead to excessive risk assumption. The Policy is also evaluated in order to determine whether it corresponds to the prevailing conditions of the market and the Group and whether these justify the Policy’s review. The review is conducted with the participation of the Group’s Human Resources and the Group’s internal control functions such as Internal Audit, Risk Management and Compliance Services.
Related to the Remuneration Policy for the Members of the Board, the Chief Executive Officer and other Senior Managers for 2014 is the disclosure of information in the notes to the Accounts contained in this Annual Report (Note 41) as well as the analytical Disclosure of Information Regarding the Remuneration of the Directors for the year 2014 shown below.
The Board of Directors submits this Remuneration Policy Report to the Annual General Meeting of the Shareholders and unanimously recommends its approval.
Nicosia, 31 March, 2015
64 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 REMUNERATION POLICY REPORT FOR THE YEAR 2014
DISCLOSURE OF INFORMATION REGARDING THE REMUNERATION OF DIRECTORS FOR THE YEAR 2014 Remuneration Assessment of Remuneration and benefits the value of for from Remuneration the benefits Consideration participation companies in the form that are Annual increase for in the Board of Total of the same of profit and/ considered Total in the total terminating Remuneration Directors and remuneration Group of or bonus to form remuneration retirement the contract of for services its Committees for services companies distribution remuneration and benefits benefits employment € € € € € € € € € Executive Directors Marinos S. Yannopoulos 93.333 9.915 103.248 0 0 12.134 115.382 0 0 Makis Keravnos 255.667 6.825 262.492 917 0 20.582 283.991 49.859 393.097 349.000 16.740 365.740 917 0 32.716 399.373 49.859 393.097
Non-Executive Directors Irena A. Georgiadou 0 28.494 28.494 0 0 1.989 30.483 0 0 Dr Evripides A. Polykarpou 0 7.781 7.781 0 0 0 7.781 0 0 Ioannis A. Matsis 0 21.157 21.157 0 0 0 21.157 0 0 Marianna Pantelidou Neophytou 0 19.104 19.104 2.219 0 0 21.323 0 0 Dr Andreas G. Charitou 0 22.380 22.380 0 0 0 22.380 0 0 David Whalen Bonanno 0 7.781 7.781 0 0 0 7.781 0 0 Georgios Fereos 0 11.095 11.095 0 0 0 11.095 0 0 Christodoulos A. Hadjistavris 0 9.438 9.438 2.165 0 0 11.603 0 0 Dr Andreas P. Panayiotou 0 21.676 21.676 2.917 0 1.652 26.245 0 0 Kyriakos E. Georgiou 0 7.148 7.148 3.459 0 0 10.607 0 0 Adonis E. Yiangou 0 6.179 6.179 0 0 0 6.179 0 0 Kyriacos J. Koushios 0 11.015 11.015 0 0 0 11.015 0 0 Vassos Y. Komodromos 0 11.479 11.479 1.517 0 0 12.996 0 0 Marios M. Michaelides 0 6.526 6.526 1.872 0 0 8.398 0 0 Charalambos P. Panayiotou 0 609 609 122 0 0 731 0 0 Georgios K. Pavlou 0 6.882 6.882 4.646 0 0 11.528 0 0 Ioannis Ch.Charilaou 0 22.694 22.694 3.417 0 3.417 29.528 0 0
0 221.438 221.438 22.334 0 7.058 250.830 0 0
Total 349.000 238.178 587.178 23.251 0 39.774 650.203 49.859 393.097
HELLENIC BANK GROUP ANNUAL REPORT 2014 65 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 66 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 HELLENIC BANK GROUP AUDITOR’S REPORT AND FINANCIAL STATEMENTS
68 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HELLENIC BANK PUBLIC COMPANY LIMITED 70 CONSOLIDATED INCOME STATEMENT 71 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 72 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 73 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 75 CONSOLIDATED STATEMENT OF CASH FLOWS 76 INCOME STATEMENT 77 STATEMENT OF COMPREHENSIVE INCOME 78 STATEMENT OF FINANCIAL POSITION 79 STATEMENT OF CHANGES IN EQUITY 81 STATEMENT OF CASH FLOWS 82 NOTES TO THE FINANCIAL STATEMENTS 189 DECLARATION BY THE MEMBERS OF THE BOARD OF DIRECTORS AND THE BANK OFFICIALS RESPONSIBLE FOR THE DRAFTING OF THE FINANCIAL STATEMENTS 190 BOARDS OF DIRECTORS OF THE GROUP’S MAIN SUBSIDIARY COMPANIES 191 OFFICES AND BRANCH NETWORK 196 SHAREHOLDER INFORMATION AND INVESTOR RELATIONS
67 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HELLENIC BANK PUBLIC COMPANY LIMITED
Report on the Consolidated and Bank’s Separate Financial Statements of HELLENIC BANK PUBLIC COMPANY LIMITED
We have audited the consolidated financial statements of HELLENIC BANK PUBLIC COMPANY LIMITED (the ‘Bank’) and its subsidiaries (the ‘Group’) and the Bank’s separate financial statements on pages 70 to 188, which comprise the consolidated statement of financial position of the Group and the statement of financial position of the Bank as at 31 December 2014, the consolidated income statement, consolidated statements of comprehensive income, changes in equity and cash flows of the Group and the income statement and statements of comprehensive income, changes in equity and cash flows of the Bank for the year then ended, and a summary of significant accounting policies and other explanatory information.
BOARD OF DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The Board of Directors is responsible for the preparation of consolidated and Bank’s separate financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.
AUDITORS’ RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated and Bank’s separate financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated and separate financial statements of the Bank are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and separate financial statements of the Bank. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation of consolidated and separate financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated and separate financial statements of the Bank.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the consolidated and the Bank’s separate financial statements give a true and fair view of the financial position of the Group and the Bank as at 31 December 2014, and of their financial performance and their cash flows for the year then ended in accordance with the International Financial Reporting Standards as adopted by the EU and the requirements of the Cyprus Companies Law, Cap. 113.
Report on Other Legal and Regulatory Requirements
Pursuant to the requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Law of 2009 and 2013, we report the following:
• We have obtained all the information and explanations we considered necessary for the purposes of our audit. • In our opinion, proper books of account have been kept by the Bank. • The consolidated and separate financial statements are in agreement with the books of account, to the extent that it appears from the examination by us of these books. • In our opinion, and to the best of our information and according to the explanations given to us, the consolidated and separate financial statements give the information required by the Cyprus Companies Law, Cap. 113, in the manner so required. • In our opinion, the information given in the Report of the Board of Directors on pages 32 to 36 is consistent with the con solidated and separate financial statements.
68 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 Pursuant to the requirements of the Directive DI190/2007/04 of the Cyprus Securities and Exchange Commission, we report that a corporate governance statement has been made for the information relating to paragraphs (a), (b), (c), (f) and (g) of article 5 of the said Directive, and it forms a special part of the Report of the Board of Directors.
Other Matter
This report, including the opinion, has been prepared for and only for the Bank’s members as a body in accordance with Article 34 of the Auditors and Obligatory Audits of Annual and Consolidated Financial Statements Law of 2009 and 2013 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to.
Constantinos N. Kallis, FCA Certified Public Accountant and Registered Auditor for and behalf of
KPMG Limited Chartered Accountants and Registered Auditors
Esperidon 14, 1087 Nicosia
Nicosia, 31 March 2015
HELLENIC BANK GROUP ANNUAL REPORT 2014 69 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 HELLENIC BANK GROUP CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013 Note €’000 €’000 Continuing Operations Interest income 4 288.029 316.558 Interest expense 5 (83.891) (129.402) Net interest income 204.138 187.156
Fee and commission income 6 63.657 61.662 Fee and commission expense 7 (4.933) (5.100) Net fee and commission income 58.724 56.562
Net gains on disposal and revaluation of foreign currencies and financial instruments 8 17.938 16.903 Other income 9 18.203 18.667 Total net income 299.003 279.288
Staff costs 10 (75.318) (89.419) Depreciation and amortisation 23,24 (5.260) (5.383) Administrative and other expenses 11 (60.550) (54.978)
Total expenses (141.128) (149.780)
Profit from ordinary operations before impairment losses and provisions to cover credit risk 157.875 129.508 Impairment losses and provisions to cover credit risk 12 (304.397) (310.810) Loss before taxation (146.522) (181.302) Taxation 13 28.118 22.898 Loss for the year from continuing operations (118.404) (158.404)
Discontinued Operations Profit/(loss) from discontinued operations after taxation 14 822 (31.505) Loss for the year (117.582) (189.909)
(Loss)/profit attributable to: Shareholders of the parent company from continuing operations (119.412) (159.395) Shareholders of the parent company from discontinued operations 822 (31.505) Non-controlling interests 1.008 991 Loss for the year (117.582) (189.909)
Basic loss per share (cent) 15 (3,2) (10,6) Basic loss per share (cent) from continuing operations 15 (3,2) (8,9)
The notes on pages 82 to 188 form an integral part of the financial statements.
70 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 HELLENIC BANK GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013 Note €’000 €’000
Loss for the year (117.582) (189.909)
Other comprehensive income Other comprehensive expenses not to be reclassified in the income statement in subsequent periods
Deficit on revaluation of land and buildings (6.152) --
Taxation relating to components of other comprehensive income 13 1.421 (102)
(4.731) (102)
Other comprehensive income to be reclassified in the income statement in subsequent periods
Surplus on revaluation of available for sale equity and debt securities 1.821 4.620
Amortisation of revaluation of reclassified debt securities available for sale (1.430) 131
Transfer to the income statement on impairment of investments in equity and debt securities available for sale -- 604 391 5.355
Other comprehensive (expenses)/income for the year net of taxation (4.340) 5.253 Total comprehensive expenses for the year net of taxation (121.922) (184.656)
Total comprehensive (expenses)/income for the year net of taxation attributable to: Shareholders of the parent company from continuing operations (123.825) (154.325) Shareholders of the parent company from discontinued operations 822 (31.505) Non-controlling interests 1.081 1.174 (121.922) (184.656)
The notes on pages 82 to 188 form an integral part of the financial statements.
HELLENIC BANK GROUP ANNUAL REPORT 2014 71 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 HELLENIC BANK GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2014
2014 2013 Note €’000 €’000 Assets Cash and balances with Central Banks 16 2.175.599 1.003.020 Placements with other banks 17 1.122.058 921.719 Loans and advances to customers 18 3.221.055 3.563.949 Debt securities 19 779.726 645.465 Equity securities 21 9.319 8.343 Property, plant and equipment 23 97.715 123.662 Intangible assets 24 19.683 18.865 Tax receivable 40 75 Assets of subsidiary company held for sale 25 4.546 -- Deferred tax 26 52.471 24.697 Other assets 27 69.351 74.152 Total assets 7.551.563 6.383.947
Liabilities Deposits by banks 28 70.760 47.362 Amounts due to Central Banks 29 236.014 -- Customer deposits and other customer accounts 30 6.345.948 5.513.272 Tax payable 5.260 5.265 Deferred tax liability 31 1.345 4.406 Liabilities of subsidiary company held for sale 25 1.044 -- Other liabilities 32 115.399 110.192 6.775.770 5.680.497 Loan capital 33 181.448 304.629
Equity Share capital 34 93.010 26.888 Reserves 496.977 367.600 Equity attributable to shareholders of the parent company 589.987 394.488 Non-controlling interest 4.358 4.333 Total equity 594.345 398.821 Total liabilities and equity 7.551.563 6.383.947 Contingent liabilities and commitments 36 730.941 806.094
The consolidated financial statements have been approved by the Board of Directors on 31 March 2015.
Ι. A. Georgiadou B. Pijls Dr A.G.Charitou A. Rouvas Chairwoman of Board Chief Executive Member of Board Group Chief Financial of Directors Officer of Directors Officer
The notes on pages 82 to 188 form an integral part of the financial statements.
72 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 -- -- Total €’000 (1.604) (1.056) (5.842) (4.340) 594.345 201.164 124.784 398.821 (117.582) ------73 Non- 4.358 1.008 4.333 €’000 (1.056) interest controlling controlling ------Total €’000 (4.413) (1.604) (5.842) 589.987 201.164 124.784 394.488 (118.590) ------€’000 (1.604) (1.604) reserve Own shares Own shares ------(331) (633) €’000 36.561 41.938 (4.413) reserve (Note 35) (Note Revaluation Revaluation ------39 39 €’000 reserve Translation Translation ------331 633 €’000 reserve Revenue Revenue (297.345) (179.719) (118.590) ------€'000 Share Share (5.842) reserve reserve 499.057 147.520 112.306 245.073 premium premium ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT COMPANY OF THE PARENT SHAREHOLDERS TO ATTRIBUTABLE ------€'000 capital capital reserve 260.269 260.269 of share of share Reduction Reduction ------€'000 Share Share capital 93.010 53.644 12.478 26.888 Issue of shares from the exercise the exercise from Issue of shares 34) (Note of rights Other comprehensive income Other comprehensive Dividend paid Issue of shares conversion from Issue of shares 34) of CCS1(Note Shares held by Subsidiary held by Shares of the Group company (Loss)/profit for the year for the (Loss)/profit 31 December 2014 Transfer of excess depreciation on depreciation of excess Transfer surplus revaluation due reserve revenue to Transfer disposal of property to with shareholders Transactions in equity recognised Total comprehensive (expenses)/ comprehensive Total of net the year for income taxation Balance 1 January 2014 HELLENIC BANK GROUP OF CHANGES IN EQUITY STATEMENT CONSOLIDATED THE YEAR ENDED 31 DECEMBER 2014 FOR purposes, analysis segmental 22) which, for (see Note Ltd Company Insurance Life Hellenic Alico of the Group, the 27,5% of subsidiary company represents interest The non-controlling Services. is included in the Cyprus insurances statements. part of the financial an integral 188 form 82 to on pages The notes
HELLENIC BANK GROUP ANNUAL REPORT 2014 73 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 -- -- Total €’000 5.253 (4.861) 398.821 103.454 484.884 (189.909) ------991 183 Non- 4.333 3.159 €’000 interest controlling controlling -- -- Total €’000 5.070 (4.861) 394.488 103.454 481.725 (190.900) ------(346) 5.070 €’000 41.938 37.214 reserve (Note 35) (Note Revaluation Revaluation ------39 39 €’000 reserve Translation Translation ------346 €’000 10.835 reserve Revenue Revenue (179.719) (190.900) ------€'000 Share Share 82.763 (4.861) reserve reserve 245.073 167.171 premium premium ------€'000 capital capital reserve 260.269 260.269 of share of share ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT COMPANY OF THE PARENT SHAREHOLDERS TO ATTRIBUTABLE Reduction Reduction ------€'000 Share Share capital 20.691 26.888 266.466 (260.269) Issue of shares (Note 34) (Note Issue of shares Reduction in Nominal Value of Share Capital Capital Value of Share in Nominal Reduction 34) (Note Expenses from increase in authorised share in authorised share increase Expenses from and loan capital and issue of shares capital 31 December 2013 Total comprehensive (expenses)/income for the for (expenses)/income comprehensive Total of taxation net year year for the (Loss)/profit income Other comprehensive in recognised with shareholders Transactions equity Transfer of excess depreciation on revaluation revaluation on depreciation of excess Transfer surplus Balance 1 January 2013 HELLENIC BANK GROUP OF CHANGES IN EQUITY STATEMENT CONSOLIDATED THE YEAR ENDED 31 DECEMBER 2013 FOR statements. part of the financial an integral 188 form 82 to on pages The notes
74 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 HELLENIC BANK GROUP CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013 Note €’000 €’000 Cash flow from operating activities Group loss for the year (117.582) (189.909) Depreciation of property, plant and equipment and amortisation of intangible assets 23,24 5.260 5.383 Loss on disposal of property, plant and equipment 38 23 Loss on disposal and revaluation of investment in debt and equity securities 583 1.046 (Reversal of impairment loss)/impairment loss on dept securities, on equity securities and on investments in subsidiary companies 8 (1.066) 111 Impairment of property 11 9.334 5.305 Income from investments in debt and equity securities (18.860) (19.842) Interest expense on loan capital 1.000 12.358 Ιimpairment losses and provisions to cover credit risk 12 304.397 310.810 (Gain)/loss from disposal of discontinued operations, after taxation 14 (2.955) 43.571 Taxation 13 (28.118) (22.898) Operating profit before working capital changes 152.031 145.958 Decrease in loans and advances to customers and other assets 51.617 320.389 Increase/(decrease) in customer deposits and other customer accounts and other liabilities 817.614 (1.642.301) (Increase)/decrease in placements with other banks (53.596) 2.572 (Increase)/decrease in deposits with Central Banks (7.699) 47.347 Increase in amounts due to Central Banks 236.014 -- Increase/(decrease) in deposits by banks 23.398 (4.113) Net cash from/(used in) operating activities before taxation 1.219.379 (1.130.148) Tax paid (393) (1.897) Net cash flow from/(used in) operating activities 1.218.986 (1.132.045)
Cash flow from investing activities Disposal of discontinued operations, net of cash disposed of 5.247 (90.542) Income from investments in debt and equity securities 18.860 19.842 Net (additions)/disposals/maturity of investment in debt and equity securities (124.892) 300.440 Additions of property, plant and equipment (3.865) (2.710) Additions of intangible assets (2.401) (1.222) Proceeds from disposal of property, plant and equipment 1.376 77 Net cash flow (used in)/from investing activities (105.675) 225.885
Cash flow from financing activities Expenses from increase in authorised capital and issue of shares and loan capital (5.842) (4.861) Proceeds from the issue of share capital 201.164 103.454 Proceeds from the issue of loan capital -- 1 Interest paid on loan capital (1.000) (12.358) Net cash flow from financing activities 194.322 86.236
Net increase/(decrease) in cash and cash equivalents 1.307.633 (819.924) Effect of exchange rate fluctuations on cash and cash equivalents 4.049 1.391 Cash and cash equivalents at the beginning of the year 1.815.741 2.634.274 Cash and cash equivalents at the end of the year 39 3.127.423 1.815.741
The notes on pages 82 to 188 form an integral part of the financial statements.
HELLENIC BANK GROUP ANNUAL REPORT 2014 75 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 HELLENIC BANK PUBLIC COMPANY LIMITED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013 Note €’000 €’000 Continuing Operations Interest income 4 288.610 318.057 Interest expense 5 (84.648) (131.869) Net interest income 203.962 186.188
Fee and commission income 6 62.305 60.206 Fee and commission expense 7 (2.549) (2.278) Net fee and commission income 59.756 57.928
Net gains on disposal and revaluation of foreign currencies and financial instruments 8 17.290 8.118 Other income 9 6.325 1.933 Total net income 287.333 254.167
Staff costs 10 (69.715) (82.743) Depreciation and amortisation 23,24 (5.126) (5.224) Administrative and other expenses 11 (59.865) (52.148)
Total expenses (134.706) (140.115)
Profit from ordinary operations before impairment losses and provisions to cover credit risk 152.627 114.052 Impairment losses and provisions to cover credit risk 12 (304.397) (309.711) Loss before taxation (151.770) (195.659) Taxation 13 28.504 23.533 Loss for the year from continuing operations (123.266) (172.126)
Discontinued Operations Loss from discontinued operations after taxation 14 -- (28.742) Loss for the year (123.266) (200.868)
Basic loss per share (cent) 15 (3,3) (11,2) Basic loss per share (cent) from continuing operations 15 (3,3) (9,6)
The notes on pages 82 to 188 form an integral part of the financial statements.
76 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 HELLENIC BANK PUBLIC COMPANY LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013 Note €’000 €’000
Loss for the year (123.266) (200.868)
Other comprehensive income Other comprehensive expenses not to be reclassified in the income statement in subsequent periods
Deficit on revaluation of land and buildings (5.937) --
Taxation relating to components of other comprehensive income 13 1.423 (98)
(4.514) (98)
Other comprehensive income to be reclassified in the income statement in subsequent periods
Surplus on revaluation of available for sale equity and debt securities 1.555 3.954
Amortisation of revaluation of reclassified debt securities available for sale (1.430) 131
Transfer to the income statement on impairment of investments in equity and debt securities available for sale -- 604 125 4.689
Other comprehensive (expenses)/income for the year net of taxation (4.389) 4.591 Total comprehensive expenses for the year net of taxation (127.655) (196.277)
Total comprehensive expenses for the year net of taxation attributable to: Shareholders of the parent company from continuing operations (127.655) (167.535) Shareholders of the parent company from discontinued operations -- (28.742) (127.655) (196.277)
The notes on pages 82 to 188 form an integral part of the financial statements.
HELLENIC BANK GROUP ANNUAL REPORT 2014 77 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 HELLENIC BANK PUBLIC COMPANY LIMITED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2014
2014 2013 Note €’000 €’000 Assets Cash and balances with Central Banks 16 2.175.598 1.000.719 Placements with other banks 17 1.119.732 898.457 Loans and advances to customers 18 3.221.055 3.554.502 Debt securities 19 773.123 648.753 Equity securities 21 9.259 8.343 Investments in subsidiary companies 22 41.104 70.322 Amounts due from subsidiary companies 4.206 5.600 Property, plant and equipment 23 90.807 105.924 Intangible assets 24 4.823 3.408 Deferred tax asset 26 52.470 23.966 Other assets 27 37.656 38.649 Total assets 7.529.833 6.358.643
Liabilities Deposits by banks 28 70.760 47.358 Amounts due to Central Banks 29 236.014 -- Customer deposits and other customer accounts 30 6.345.948 5.511.864 Amounts due to subsidiary companies 42.795 38.923 Tax payable 5.070 5.079 Deferred tax liability 31 1.107 2.530 Other liabilities 32 65.056 57.339 6.766.750 5.663.093 Loan capital 33 181.468 306.253
Equity Share capital 34 93.010 26.888 Reserves 488.605 362.409 Total equity 581.615 389.297 Total liabilities and equity 7.529.833 6.358.643
Contingent liabilities and commitments 36 730.941 806.075
The financial statements have been approved by the Board of Directors on 31 March 2015.
Ι. A. Georgiadou B. Pijls Dr A.G. Charitou A. Rouvas Chairwoman of Board Chief Executive Member of Board Group Chief Financial of Directors Officer of Directors Officer
The notes on pages 82 to 188 form an integral part of the financial statements.
78 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 -- -- Total €’000 (4.389) (5.975) 389.297 124.784 201.164 581.615 (123.266) ------(331) (633) €’000 38.952 33.599 (4.389) reserve (Note 35) (Note Revaluation Revaluation ------67 67 €’000 reserve Translation Translation ------331 633 €’000 reserve Revenue Revenue (181.952) (123.266) (304.254) ------€'000 Share Share (5.975) reserve reserve 245.073 112.306 147.520 498.924 premium premium ------€'000 capital capital reserve 260.269 260.269 of share of share Reduction Reduction ------€'000 Share Share capital 26.888 12.478 53.644 93.010 Expenses from issue of shares issue of shares Expenses from Issue of shares from the conversion of CCS1 the conversion from Issue of shares 34) (Note Issue of shares from the exercise of rights of rights the exercise from Issue of shares 34) (Note Other comprehensive income Other comprehensive revaluation on depreciation of excess Transfer surplus Balance 1 January 2014 net the year for expenses comprehensive Total of taxation the year Loss for disposal of due to reserve revenue to Transfer property Transactions with shareholders recognised recognised with shareholders Transactions in equity HELLENIC BANK PUBLIC COMPANY LIMITED HELLENIC BANK PUBLIC COMPANY OF CHANGES IN EQUITY STATEMENT THE YEAR ENDED 31 DECEMBER 2014 FOR statements. part of the financial an integral 188 form 82 to on pages The notes 31 December 2014
HELLENIC BANK GROUP ANNUAL REPORT 2014 79 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 -- -- Total €’000 4.591 (4.861) 486.981 103.454 389.297 (200.868) ------(271) 4.591 €’000 34.632 38.952 reserve (Note 35) (Note Revaluation Revaluation ------67 67 €’000 reserve Translation Translation ------271 €’000 18.645 reserve Revenue Revenue (200.868) (181.952) ------€'000 Share Share 82.763 (4.861) reserve reserve 167.171 245.073 premium premium ------€'000 capital capital reserve 260.269 260.269 of share of share Reduction Reduction ------€'000 Share Share capital 20.691 26.888 266.466 (260.269) Loss for the year Loss for Other comprehensive income Other comprehensive Reduction in Nominal Value of Share Capital Capital Value of Share in Nominal Reduction 34) (Note Expenses from increase in authorised share in authorised share increase Expenses from and loan capital and issue of shares capital Issue of shares (Note 34) (Note Issue of shares Balance 1 January 2013 Total comprehensive expenses for the year net net the year for expenses comprehensive Total of taxation Transfer of excess depreciation on revaluation revaluation on depreciation of excess Transfer surplus Transactions with shareholders recognised recognised with shareholders Transactions in equity HELLENIC BANK PUBLIC COMPANY LIMITED HELLENIC BANK PUBLIC COMPANY OF CHANGES IN EQUITY STATEMENT THE YEAR ENDED 31 DECEMBER 2013 FOR statements. part of the financial an integral 188 form 82 to on pages The notes 31 December 2013
80 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 HELLENIC BANK PUBLIC COMPANY LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013 Νοte €’000 €’000 Cash flow from operating activities Bank loss for the year (123.266) (200.868) Depreciation of property, plant and equipment and amortisation of intangible assets 23,24 5.126 5.224 Loss on disposal of property, plant and equipment 24 27 Loss on disposal and revaluation of investments in debt and equity securities 643 1.046 Impairment loss on debt securities, on equity securities and on investments in subsidiary companies 8 1.332 12.210 Impairment of property 11 9.162 5.294 Income from investment in debt and equity securities (22.683) (21.039) Interest expense on loan capital 1.021 12.440 Impairment losses and provisions to cover credit risk 12 304.397 309.711 Loss from disposal of subsidiary 11 2.679 -- Loss from discontinued operations 14 -- 43.571 Taxation 13 (28.504) (23.533) Operating profit before working capital changes 149.931 144.083 Decrease in loans and advances to customers and other assets 50.509 316.157 Increase/(decrease) in customer deposits and other customer accounts and other liabilities 819.335 (1.636.613) Increase in placements with other banks (54.819) (4.004) (Increase)/decrease in deposits with Central Banks (7.749) 47.304 Increase/(decrease) in deposits by banks 23.402 (4.095) Decrease in amounts due from subsidiary companies 1.394 4.598 Increase in amounts due to Central Banks 236.014 -- Increase/(decrease) in amounts due to subsidiary companies 3.872 (702) Net cash from/(used in) operating activities before taxation 1.221.889 (1.133.272) Tax paid (9) (1.168) Net cash flow from/(used in) operating activities 1.221.880 (1.134.440)
Cash flow from investing activities Increase in investment in subsidiary (300) -- Proceeds from disposal of subsidiary 24.441 -- Disposal of discontinued operations, net of cash disposed of -- (90.542) Income from investments in debt and equity securities 22.683 21.039 Net (additions)/disposals/maturity of investments in debt and equity securities (124.513) 305.985 Additions of property, plant and equipment (3.811) (2.666) Additions of intangible assets (2.343) (1.156) Proceeds from disposal of property, plant and equipment 1.380 53 Net cash flow (used in)/ from investing activities (82.463) 232.713
Cash flow from financing activities Expenses from increase in authorised capital and issue of shares and loan capital (5.975) (4.861) Proceeds from the issue of share capital 201.164 103.454 Proceeds from the issue of loan capital -- 1 Interest paid on loan capital (1.021) (12.440) Net cash flow from financing activities 194.168 86.154 Net increase/(decrease) in cash and cash equivalents 1.333.585 (815.573) Cash and cash equivalents at the beginning of the year 1.791.663 2.607.236 Cash and cash equivalents at the end of the year 39 3.125.248 1.791.663
The notes on pages 82 to 188 form an integral part of the financial statements.
HELLENIC BANK GROUP ANNUAL REPORT 2014 81 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 HELLENIC BANK GROUP NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014
1. INCORPORATION AND PRINCIPAL ACTIVITY
Hellenic Bank Public Company Ltd (the ‘Bank’) was incorporated in Cyprus and is a public company in accordance with the provisions of the Companies Law Cap. 113, the Cyprus Stock Exchange Laws and Regulations and the Income Tax Laws. The Bank’s registered office is located at 200, Corner of Limassol and Athalassa Avenues, 2025 Strovolos, P.O. Box 24747, 1394 Nicosia.
The principal activity of the Group is the provision of a wide range of banking and financial services, which include financial, investment and insurance services, as well as custodian and factoring services.
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these financial statements, and have been applied consistently by Group companies.
2.1. Basis of preparation
(a) Going concern principle The consolidated financial statements have been prepared on a going concern basis. Despite recent developments in the economic environment in Cyprus and the capital restructuring of the Bank as mentioned in Notes 46, 47 and 48 of the financial statements, the Board of Directors and the Group’s management believe that the Bank and the Group have the ability to continue their operations as a going concern.
(b) Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. In addition, the financial statements have been prepared in accordance with the requirements of the Cyprus Companies Law, Cap.113, the Cyprus Stock Exchange Laws and Regulations and the Transparency Requirements (Securities Admitted to Trading on a Regulated Market) Law.
(c) Basis of measurement The financial statements have been prepared on the historical cost basis, except for the following which are measured at fair value: • available for sale financial assets • financial instruments at fair value through profit or loss • derivative financial instruments
Properties for own use are measured at revalued amount.
(d) Functional and presentation currency The financial statements are presented in Euro, which is the main functional currency of the Bank that most faithfully represents the economic effects of the underlying transactions and activities of the Group entities.
2.2. Adoption of new and revised International Financial Reporting Standards (IFRS) and interpretations
During the current year, the Group adopted all the changes to International Financial Reporting Standards (IFRS) which are relevant to its operations and are effective for accounting years/periods beginning on 1 January 2014. This adoption did not have a material effect on the financial statements of the Group. ΛΟΓΙΣΤΙΚΕΣ ΠΟΛΙΤΙΚΕΣ (συνέχεια) 2.3. Standards and interpretations that are not yet effective
The following Standards, Amendments to Standards and Interpretations have been issued but are not yet effective for annual periods beginning on 1 January 2014. The Board of Directors expects that the adoption of these financial reporting standards in future periods will not have a material effect on the financial statements of the Group, with the exception of IFRS 9: ‘Financial Instruments’ for which at present stage, the Group is considering the implications of the adoption of this standard to the financial statements. The Group does not intend to adopt the following prior to their effective date.
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(i) Standards and Interpretations adopted by the EU
IAS 19 (Amendments) ‘Employee Benefits’ (effective for annual periods beginning on or after 1 July 2014).
This amendment introduces important changes to the recognition and measurement of defined benefit plans and post-retirement benefits (elimination of the corridor method) as also to the disclosures of all employees’ benefits. The basic changes relate to the recognition of actuarial profits and losses, the recognition of the service cost/curtailments to the measurement of pensions, the required disclosures for the treatment of expenses and taxes which relate to defined benefit plans and distinction between short and long term benefits. The Group is currently evaluating the impact of the standard on its financial statements.
Improvements to IFRSs 2010-2012 (effective for annual periods beginning on or after 1 July 2014).
In December 2013, the International Accounting Standards Board issued Annual Improvements to IFRSs 2010-2012 Cycle, a collection of amendments to IFRSs, in response to eight issues addressed during the 2010-2012 cycle. The amendments reflect issues discussed by the International Accounting Standards Board during the project cycle that began in 2010, and that were subsequently included in the exposure draft of proposed amendments to IFRSs, Annual Improvements to IFRSs 2010-2012 Cycle (published in November 2012). The Group is currently evaluating the impact of the improvements on its financial statements.
Improvements to IFRSs 2011-2013 (effective for annual periods beginning on or after 1 July 2014).
In December 2013, the International Accounting Standards Board issued Annual Improvements to IFRSs 2011-2013 Cycle, a collection of amendments to IFRSs, in response to four issues addressed during the 2011-2013 cycle. The amendments reflect issues discussed by the International Accounting Standards Board during the project cycle that began in 2011, and that were subsequently included in the Exposure Draft of proposed amendments to IFRSs, Annual Improvements to IFRSs 2011-2013 Cycle (published in November 2012). The Group is currently evaluating the impact of the improvements on its financial statements.
(ii) Standards and Interpretations not adopted by the European Union
IFRS 14 ‘Regulatory Deferral Accounts’ (effective for annual periods beginning on or after 1 January 2016).
IFRS 14 permits an entity which is a first-time adopter of International Financial Reporting Standards to continue to account, with some limited changes, for ‘regulatory deferral account balances’ in accordance with previous accounting policies, both on initial adoption of IFRS and in subsequent financial statements. The group is currently evaluating the impact of the standard on its financial statements.
Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception (effective for annual periods beginning on or after 1 January 2016).
In December 2014, the International Accounting Standards Board issued narrow-scope amendments to IFRS 10, IFRS 12 and IAS 28. These amendments introduce clarifications to the requirements when accounting for investment entities, while they provide relief in particular circumstances, which will reduce the costs of applying the Standards. The group is currently evaluating the impact of the standard on its financial statements.
Amendment to IFRS 11 ‘Accounting for acquisitions of Interests in Joint Operations’ (effective for annual periods beginning on or after 1 January 2016).
The amendment clarify that same general accounting concept is applied in accounting for business combinations or the acquisition of additional interests in joint operations that result in retaining joint control. The additional interest acquired in the joint operation should be measured at fair value. The previously acquired interest in the joint operation should not be remeasured. The Group is currently evaluating the impact of the standard on its financial statements.
Amendments to IAS 1: Disclosure Initiative (effective for annual periods beginning on or after 1 January 2016).
Amendments to IAS 1: Disclosure Initiative address the disclosure requirements in existing Standards and develop principles for disclosures in the notes in the financial statements. The Group is currently evaluating the impact of the standard on its financial statements.
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Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective for annual periods beginning on or after 1 January 2016).
The amendments aim to address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The Group is currently evaluating the impact of the standard on its financial statements.
IAS 27 (Amendments) ‘’Equity method in separate financial statements’’ (effective for annual periods beginning on or after 1 January 2016).
The Amendments allow entities to account for their investments in subsidiaries, joint ventures and associates under the equity method in their separate financial statements. The Group is currently evaluating the impact of the standard on its financial statements.
IAS 16 and IAS 41 (Amendments) ‘’Bearer plants’’ (effective for annual periods beginning on or after 1 January 2016).
The amendments bring bearer plants, which are used solely to grow produce, into the scope of IAS 16 so that they are accounted for in the same way as property, plant and equipment. The Group does not expect the adoption of these amendments in future periods to have a material effect on its consolidated financial statements.
IAS 16 and IAS 38 (Amendments) ‘’Clarification of acceptable methods of depreciation and amortisation’’ (effective for annual periods beginning on or after 1 January 2016).
The amendments to IAS 38 ‘Intangible Assets’ establish the presumption that the use of revenue-based methods to calculate the amortisation of intangible assets is not appropriate. This presumption can only be rebutted when revenue and the consumption of the economic benefits embodied in an intangible asset are highly collarated or when the intangible assets used as a measure of revenue. The amendments to IAS 16 ‘Property, plant and equipment’ clarify that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate for Property, Plant and Equipment. The Group does not expect the adoption of these amendments in future periods to have a material effect on its consolidated financial statements.
Annual Improvements to IFRSs 2012–2014 Cycle (effective the latest as from the commencement date of its first annual period beginning on or after 1 January 2016).
Annual Improvements to IFRSs 2012–2014 Cycle was issued by the IASB on 25 September 2014, a collection of amendments to IFRSs, in response to four issues addressed during the 2012-2014 cycle. The amendments reflect issues identified by the IASB during the project cycle that began in 2012, and that were subsequently included in the Exposure Draft of proposed amendments to IFRSs, Annual Improvements to IFRSs 2012-2014 Cycle (published in September 2014). The issues addressed in this cycle include the following: IFRS 5 ‘Changes in methods of disposal’, IFRS 7 ‘Servicing contracts’ and applicability of the amendments to IFRS 7 to condensed interim financial statements, IAS 19 ‘Discount rate’ and IAS 34 ‘Disclosure of information elsewhere in the interim financial report’. The Group is currently evaluating the impact of the standard on its financial statements.
IFRS 15 ‘’Revenue from contracts with customers’’ (effective for annual periods beginning on or after 1 January 2017).
The new standard may have a significant effect on how and when entities will recognise revenue from contracts with customers. IFRS 15 replaces the IAS 11 ‘Construction contracts’, IAS 18 ‘Revenue’, IFRIC 13 ‘Customer Loyalty Programmes’, IFRIC 15 ‘Agreements for the Construction of Real Estate’, IFRIC 18 ‘Transfers of Assets from Customers’ and SIC-31 ‘Revenue - Barter Transactions Involving Advertising Services’. The standard provides a single, principles based model to be applied to all contracts with customers and two approaches to the recognition of revenue: at a point in time or over time. The Group is currently evaluating the impact of the standard on its financial statements.
IFRS 9 ‘Financial Instruments’ (the International Accounting Standards Board decided temporarily to request the application of this standard for annual periods beginning on or after 1 January 2018).
On 24 July 2014, the International Accounting Standards Board (IASB) published the final version of IFRS 9 ‘Financial
84 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Instruments’ which will replace the requirements of IAS 39 ‘Financial Instruments: Recognition and Measurement’. IFRS 9 abolishes the four categories of classification of financial instruments and financial assets are classified under one of the three measurement categories: amortised cost, fair value through other comprehensive income and fair value through profit or loss. The new standard is effective for periods beginning on or after 1 January 2018 with early adoption permitted, if the Group decides so, subject to its adoption by the competent EU bodies. IFRS 9 changes significantly the way impairment losses are calculated, since it involves losses in relation to events that have occurred, as well as part of losses that are expected to occur in the future (expected credit loss). Particular criteria are established to determine for which loans expected credit losses that may occur in the next 12 months will be recognised and for which loans expected credit losses that may occur by the final payment of these loans will be recognised. The Group is currently evaluating the impact of the standard on its financial statements.
2.4. Basis of consolidation
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Business combinations are accounted for by applying the acquisition method. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Any goodwill which may arise is tested annually for impairment.
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
Associates are entities in which the Group has significant influence, but not control, over their financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 per cent of the voting power of another entity. Associates are accounted for in the consolidated financial statements using the equity method.
Intra-group balances, and income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
Non-controlling interest relates to that portion of the profit or loss and net assets of a subsidiary, attributable to equity interests that are not owned directly or indirectly by the Group. The profits or losses attributable to non-controlling interest are disclosed on the face of the income statement as allocation of the profit or loss for the period. Non-controlling interest is presented on the face of the statement of financial position, within equity, separately from equity attributable to shareholders of the parent.
2.5. Investments in subsidiaries and associates
Investments in subsidiaries and associates are presented at cost in the Bank’s statement of financial position less provision for impairment, where applicable.
2.6. Foreign currency
(a) Foreign currency transactions Transactions in foreign currencies are translated into the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated into the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated into the functional currency at the exchange rate at the date when the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of a financial liability designated as the hedging instrument in a hedge of the net investment in a foreign operation or in a qualifying cash flows hedge, which are recognised directly in equity.
(b) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into the Group’s presentation currency (Euro) at exchange rates at the statement of financial position date. The income and expenses of foreign operations are translated into Euro using the average exchange rates for the year. Exchange differences arising on translation of foreign operations are recognised directly in the translation reserve within equity. When a foreign operation is disposed of, the cumulative amount of the exchange differences recognised in equity and relating to that foreign operation is reclassified to profit or loss when the gain or loss on disposal is recognised.
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2.7. Turnover
Group turnover includes interest income, fee and commission income, net gains or losses on disposal and revaluation of foreign currencies and financial instruments and other income.
2.8. Interest income and expense
Interest income and expense are recognised in the income statement using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial asset or liability to the net carrying amount of the financial asset or liability.
Interest income on impaired loans and advances, which corresponds to the amount of the impairment loss (see Note 3.1), is suspended and is recognised in the income statement upon collection. This interest is transferred to a temporary income suspension account which is included in the accumulated impairment losses on the value of loans and advances.
2.9. Fee and commission income and expense
Fee and commission income and expense is recognised in the income statement on an accruals basis, as the related services are performed.
2.10. Dividend income
Dividend income is recognised when the Group’s right to receive payment is established.
2.11. Income from hire purchase and leasing activities
Income from hire purchase and leasing activities recognised in the income statement is calculated in a systematic manner on the basis of instalments falling due, in order to produce a constant periodic rate of return on the net investment outstanding.
Hire purchase and leasing debtors are included in loans and advances to customers in the consolidated statement of financial position, net of unearned charges attributable to future instalments.
2.12. Employee retirement benefits
The Group operates plans for the provision of staff retirement benefits. The total number of staff employed in Cyprus and covered by the provisions of the new collective agreement between the Cyprus Bankers Employers Association and the Cyprus Union of Bank Employees participates in a defined contribution plan in Provident Funds. The defined benefit plan (retirement bonus plan) which covered 98% of the staff, ended on 31 December 2011 as a result of the agreement signed on 12 January 2012 between the Cyprus Bankers Employers Association and the Cyprus Union of Bank Employees. Under the agreement, as of 1st January 2012, the employer pays a monthly contribution to the Provident Fund of 14% on the basic salary plus any automatic indexation. Additionally, the Group paid to the Provident Fund for each eligible member of the staff, the accumulated rights to retirement gratuity based on the retirement plan benefit which was applicable until the 31st December 2011. Under the new collective agreement signed on 17 March 2014, the Bank with effect from 1 January 2014 proceeded with a reduction of the monthly contribution to the Provident Fund from 14% to 9% for the years 2014 and 2015, to 9.5% for 2016 and 11.5% for 2017.
The Group provided defined retirement benefits to its permanent employees in Greece up to 26 March 2013 on which date the Sale and Transfer Agreement of certain assets and deposits of the Branch Network in Greece to Piraeus Bank SA was signed.
The defined retirement benefits which were in the form of lump sum payments, for the permanent staff of the Group in Greece, were estimated by reference to the employee’s salary and length of service on retirement. The cost of providing retirement benefits was borne exclusively by the Group and was estimated annually using the actuarial Projected Unit Credit Method.
The differences between the assumptions used and reality or other variations caused the creation of actuarial gains/ losses which were depreciated over the average remaining working lives of the employees and recognised in the income statement.
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For the defined contribution plans, the Group has no further obligations of payment once contributions are paid. The contributions are recognised as cost of staff benefits when benefits are due. Prepaid contributions are recognised as an asset to the extent that cash refund or a reduction in future payments exists.
2.13. Income tax
Income tax expense comprises current and deferred tax. It is recognised in the income statement to the extent that it relates to items recognised directly in reserves or the statement of comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised on temporary differences arising between the carrying amounts of assets and liabilities in the financial statements and their tax base. Deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax asset arising from taxable losses is recognised, based on estimates of the Bank’s management in respect to its profitability. These estimates are based on available information including historical data, improved macroeconomic estimates, the reduction in deposit rates, the stabilization of the non-performing loans and the work development. Therefore it is likely that the Bank will make future taxable profits against which they these assets can be used.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the tax rates and laws that have been enacted or substantively enacted by the reporting date.
Tax assets and liabilities are offset when they relate to income taxes arising from the same tax authority which permits the entity to make or receive a single net payment, and the Group intends either to settle taxes on a net basis or to realise the asset and settle the obligation simultaneously.
2.14. Special Levy
According to the ‘Special Levy on Credit Institutions Law of 2011’, passed on 14th April 2011, a special levy, for the years 2011 and 2012, was imposed on credit institutions at the rate of 0,095% on qualifying deposits held by each credit institution at 31st December of the year preceding the year of taxation. The amendments passed on 21st December 2012, provided, among other, for the elimination of the restriction on the two year force of the relevant law and for the increase of the special levy tax to 0,11%. With an amendment of the Law, published in the official Gazette on 29th April 2013, the special levy tax rate increased to 0,15%. Based on a new amendment of the Law published in the official Gazette on the 26th July 2013, the special levy was calculated for the year 2013, on a quarterly basis at the rate of 0,0375% on the deposits of Credit Institutions at 31st December 2012, 31st March, 30th June and 30th September of the year. As from 1st January 2014 the special levy tax is charged on the deposits at 31 December of the previous year at the rate of 0,15%.
On 22 March 2013, the Law on the Establishment and Operation of the Deposit Protection and Resolution of Credit and Other Institutions Scheme, as well as for relevant matters, was enacted and the Law on the Establishment and Operation of the Independent Financial Stability Fund of 2011, which was applicable from 1st of January 2013, was repealed.
Based on the provisions of the new Law, two Funds are operated (the Deposit Protection and Resolution of Credit and Other Institutions) whose funds are made up of:
1. The Deposit Protection Fund – transfer of the total of the account, in which the contributions of the credit institutions were deposited, based on the provisions of article 34 of the Banking Operations Law. Regular or extraordinary contributions to be imposed by the Management Committee of the Fund, loans, income from investments, donations and other income. 2. The Resolution of Credit and Other Institutions Fund – transfer of 25/60 of total revenue from the imposition of special levy, original or extraordinary contributions to be imposed by the Management Committee of the Fund, amounts derived from possible sanctions imposed on the affected institutions, loans, income from investments, donations and other income.
2.15. Financial instruments
(a) Recognition The Group initially recognises loans and advances to customers, customer deposits and loan capital issued on the date at
HELLENIC BANK GROUP ANNUAL REPORT 2014 87 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
which they are originated. All other financial assets and liabilities are initially recognised on the trade date at which the Group becomes a party to the contractual provisions of the instrument.
(b) Derecognition The Group derecognises a financial asset when the contractual rights to the cash flows expire, or when it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest or obligation in transferred assets that is created or retained by the Group is recognised as a separate asset or liability.
The Group derecognises a financial liability when its contractual obligation is discharged, cancelled or expired.
(c) Offsetting Financial assets and liabilities are set off and the net amount is presented in the statement of financial position only when the Group has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions.
(d) Initial measurement A financial asset or financial liability is measured initially at fair value plus (for an item not subsequently measured at fair value through profit or loss) transaction costs that are directly attributable to its acquisition or issue.
(e) Amortised cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.
(f) Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.
The Group measures the fair value of an instrument using the quoted price in an active market, when available for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the main factors that market participants would take into account in pricing a transaction.
The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price, i.e. the fair value of the consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.
If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price.
Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Group on the basis of the net exposure to either market or credit risk are measured on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio- level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio.
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The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid.
The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.
(g) Derivatives Derivatives include mainly forward contracts, interest rate and currency swaps, credit default swaps, futures and options.
Derivatives are recognised and measured at fair value. When their fair value is positive, derivatives are included in other assets and when their fair value is negative they are included in other liabilities. Changes in the fair value of derivatives are recognised in the income statement in net gains/(losses) on disposal and revaluation of foreign currencies and financial instruments.
(h) Financial Assets The Group has classified its financial assets that comprise of loans and advances to customers, investments in debt securities and investment in equity securities, under the following four categories. Investment securities are classified in these categories upon their initial recognition based on their characteristics and the purpose for which they were acquired.
(i) Held to maturity Held to maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity.
After initial measurement, held to maturity investments are measured at amortised cost using the effective interest method less provisions for impairment.
Sale or reclassification of a more than insignificant amount of held to maturity investments not close to their maturity, will result in the reclassification of all held to maturity investments as available for sale, and prevent the Group from classifying investment securities as held to maturity for the current and the following two financial years.
(ii) At fair value through profit or loss Financial instruments at fair value through profit or loss are analysed in two categories:
Instruments held for trading: include financial instruments acquired or incurred principally for the purpose of selling or repurchasing them in the near term or which are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking.
Instruments designated as at fair value through profit or loss upon initial recognition: include financial instruments initially designated in this category when this designation results in more relevant information, because either:
• it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; or • a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the Group’s key management personnel.
The changes in fair value of financial instruments at fair value through profit or loss are recognised in profit or loss.
(iii) Available for sale Available for sale investments are non-derivative financial assets that are designated as available for sale or are not classified under another category of financial assets. Available for sale investments may be held for an undetermined period of time or may be sold in response to changes in market risks or liquidity requirements.
Subsequent to initial recognition, available for sale investments are measured at fair value and changes therein, other than impairment losses are recognised directly in equity. When an investment is sold or impaired, the cumulative gain or loss previously recognised in equity is recognised in profit or loss.
(iv) Loans and receivables Loans and advances to customers and investments classified as loans and receivables are non-derivative financial assets
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with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell immediately or in the near term.
Loans with renegotiated terms Loans with renegotiated terms represent clients’ facilities that have been restructured in accordance with the Directive of the Central Bank of Cyprus (CBC) to the credit institutions for the Definition of Non-Performing Loans and Restructured Credit Facilities, which applied as of 1st July 2013. Under the Directive, restructuring of a client’s facilities covers any action that changes the terms and/or conditions of the client’s facilities in order to deal with existing or expected difficulties of the client to service the facilities in accordance with the existing repayment schedule.
Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method less provisions for impairment losses (see Note 3.1, 3.3).
(i) Loan capital Loan capital is initially measured at the fair value of the consideration received minus transaction costs that are directly attributable to the issue of the loan capital. Subsequently it is measured at amortised cost using the effective interest method, in order to amortise the difference between the cost and the redemption value, over the period to the earliest date that the Bank has the right to redeem the loan capital.
(j) Convertible bonds On issuance of compound financial instruments that contain both liability and equity elements, these are accounted for separately, as financial liabilities and equity respectively. When the initial carrying amount of a compound financial instrument is allocated to its equity and liability components, the equity component is assigned the residual amount after deducting from the fair value of the instrument, as a whole, the amount separately determined for the liability component. On initial recognition, the fair value of the liability component is the present value of the contractually determined stream of future cash flows discounted at the rate of interest applied at that time by the market to instruments of comparable credit status and providing substantially the same cash flows, on the same terms, but without the conversion option.
No gain or loss arises from initially recognising the components of the instrument separately. The liability component is subsequently measured at amortised cost using the effective interest rate method in order to amortise the difference between the nominal value and the carrying value at inception until it is extinguished on conversion or redemption. The equity component is not subsequently remeasured.
(k) Convertible Capital Securities (CCS) CCS are perpetual financial instruments issued by the Bank. They have no maturity date and can be converted to shares during the conversion periods upon their holder’s decision. The Bank may, at its discretion, at any time, and taking account its financial position as well as its solvency, cancel the interest payment on a non-cumulative basis. Any cancellation of interest payment will be final and will no longer be payable by the Bank.
The Bank, in applying the provisions of the Prospectus dated 30 September 2013, may, at its sole discretion, redeem the CCS at par, including accrued interest, excluding any cancelled interest, the whole or part of CCS 1 or/and CCS 2. In case of a redemption of part of the CCS1 or/and CCS2, the redemption will occur for all holders of CCS 1 or/and CCS 2 in proportion to the CCS1 or/and CCS 2 they hold.
The CCS will be mandatorily converted into Bank’s ordinary shares, if an Emergency of Capital or a Viability Event occurs, as defined by the Prospectus dated 30 September 2013.
(l) Customer deposits and other customer accounts Subsequent to initial recognition, customer deposits and other customer accounts are measured at amortised cost using the effective interest method, except for certain deposits linked to derivatives that the Group has elected to classify as financial liabilities at fair value through profit or loss. Any changes in fair value in respect of deposits designated as at fair value through profit or loss are recognised in the income statement.
2.16. Impairment
(a) Financial assets At the end of each reporting period the Group assesses whether there is any objective evidence that financial assets not carried at fair value through profit or loss are impaired.
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Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that loss event has an impact on the future cash flows of the asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that the borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
(i) Loans and advances to customers The Group reviews its loan portfolio, for evidence of impairment loss from past events, at both individual and collective basis. Significant loans are assessed at an individual basis. Significant loans individually assessed and found not to be impaired as well as non-significant loans are then collectively evaluated for impairment losses. These loans are grouped based on similar credit risk characteristics and evaluated for impairment. Impairment losses on the various groups are calculated on a collective basis. In assessing collective impairment the Group uses historical trends of the probability of default demonstrated by the relevant groups with similar risk characteristics.
Impairment loss on loans and advances to customers is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows discounted at the loan’s original effective interest rate. Losses are recognised in the income statement and accumulated in an impairment loss reserve as stated in Note 3.1.
When a subsequent event causes the amount of the provision for impairment loss to decrease or amounts are collected from impaired loans, the decrease in impairment loss is reversed through profit or loss.
(ii) Held to maturity investments and investments classified as loans and receivables If there is objective evidence that an impairment loss on held to maturity investments and investments classified as loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the investment’s original effective interest rate. The amount of the loss is recognised in profit or loss and the carrying amount of investments is reduced.
For investments in debt securities, the principal indication of impairment is the downgrading of the credit rating of the issuer.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed in profit or loss.
(iii) Available for sale investments When there is objective evidence that an available for sale investment is impaired, the cumulative loss that had been recognised in equity is reclassified from equity to profit or loss. The amount of the cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that investment previously recognised in profit or loss.
For investments in debt securities, the principal indication of impairment is the downgrading of the credit rating of the issuer. For investments in shares the main evidence of impairment is a significant or prolonged decline in the fair value below its cost. Generally, the Group considers that a reduction of 20% below cost is significant and a period of nine months is prolonged. However in special cases a smaller decrease or a shorter period may be objective evidence of impairment.
If, in a subsequent period, the fair value of an impaired available for sale debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss will be reversed, with the amount of the reversal recognised in profit or loss. Impairment losses recognised in profit or loss for impaired available for sale equity securities are not reversed through profit or loss but are recognised in equity.
(b) Non-financial assets The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
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An impairment loss is recognised if the carrying amount of an asset or its cash generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
The loss from impairment of goodwill is not reversible. The loss from impairment of other non-financial assets is reversible only to the extent that the carrying value does not exceed net carrying value that the financial asset would have if the impairment loss was not recognised.
2.17. Property, plant and equipment
Land and buildings are initially recognised at cost and are subsequently measured at fair value less subsequent accumulated depreciation and impairment losses. Fair value is determined from market-based valuations undertaken by professionally qualified valuers. Plant and equipment is measured at cost less accumulated depreciation and accumulated impairment losses.
Cost includes all expenditure that is directly attributable to the acquisition of the asset.
Depreciation for property, plant and equipment is recognised in profit or loss on a straight line basis over the estimated useful lives of the assets. Land is not depreciated.
The depreciation rates used are as follows: Buildings 2% Leasehold improvements 20% Plant and equipment 10% to 25%
Depreciation methods, useful lives and residual values are reassessed at each reporting date.
Gains and losses on disposal of property, plant and equipment, that are determined as the difference between the net disposal proceeds and the carrying amount of the asset, are included in the income statement when the item is derecognised.
2.18. Property revaluation reserve
Any surplus arising on the revaluation of land and buildings is credited to the property revaluation reserve that is included in equity. If, after a revaluation, the depreciation charge is increased, then an amount equal to the increase (net of deferred taxation), is transferred annually from the property revaluation reserve to revenue reserves. Upon disposal of revalued property, any relevant accumulated revaluation surplus which remains in the property revaluation reserve is also transferred to revenue reserves.
2.19. Intangible assets
GOODWILL
Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired entities at the date of acquisition. When the excess is negative (negative goodwill) is recognised immediately in profit or loss.
Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses. The carrying amount of goodwill is reviewed for impairment at least on an annual basis.
COMPUTER SOFTWARE
Computer software is measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful life of the software estimated at five years.
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2.20. Cash and cash equivalents
Cash and cash equivalents include cash and unrestricted balances with Central Banks, investment in debt securities, placements with other banks and repurchase agreements, with original maturities of less than three months.
Cash and cash equivalents are presented in the statement of financial position at amortised cost.
2.21. Share capital
The difference between the issue price of share capital and its nominal value is recognised in the share premium reserve.
When subsidiaries of the Group acquire shares of the parent company, the fair value of these treasury shares is shown in revenue reserves included in equity. Any gain or loss on disposal of these shares is recognised in equity.
Expenses incurred from increase of authorised capital and issue of share capital are directly recognised in equity in the same year.
2.22. Derivatives and hedge accounting
The Group designates certain derivatives held for risk management purposes as hedging instruments in qualifying hedging relationships. Hedging relationships are classified as fair value hedges or cash flow hedges. A hedging relationship qualifies for hedge accounting if the following conditions are met:
(a) Existence of formal documentation describing the derivative and the hedging objectives, as well as the specific hedged item.
(b) Existence of documented risk management strategy according to which the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk throughout the financial reporting periods for which the hedge was designated.
(c) Maintenance of reliable monitoring systems and verification of the high continuous effectiveness of the hedging derivative.
For fair value hedges, changes in the fair value of the derivative are recognised in the income statement together with changes in the value of the hedged item attributable to the hedged risk.
For cash flow hedges, the effective portion of changes in the fair value of the derivative is recognised directly in equity. The amount recognised in equity is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same income statement line as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss.
If the hedge no longer meets the criteria for hedge accounting the relevant adjusting entries are made and hedge accounting is discontinued.
For the remaining derivatives where the criteria are not satisfied in order to qualify for hedge accounting or which are held for trading, the accounting policies for financial instruments held for trading are applied. Several of the derivatives have been acquired with the intention of hedging interest rate or foreign currency risks. Certain derivative transactions, while providing effective economic hedges under risk management, do not qualify for the use of hedge accounting. These derivatives are included under other assets or liabilities, with any changes in their fair value recognised in the income statement for the year.
These include derivatives held for offsetting interest rate or other risks, in relation to other assets and liabilities that are selectively designated as at fair value through profit or loss and which do not qualify for the use of hedge accounting.
The Group also hedges the foreign currency risk that derives from the translation to Euro of the net position of its foreign subsidiaries by maintaining an open foreign exchange position. All exchange differences resulting from the translation of the open foreign exchange position are recognised in the translation reserve.
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2.23. Repurchase agreements
Repurchase agreements represent agreements with Central Banks. Cash received under the agreements, including accrued interest, is recognised as a liability on the statement of financial position. The relevant debt securities disposed to be repurchased at a future date are not derecognised from the statement of financial position. The difference between the sales price and repurchase price is recognised as interest expense over the duration of the agreement using the effective interest rate method.
2.24. Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is the person or group that is responsible for allocating resources to and assessing the performance of the operating segments of the Group.
For management purposes, during 2014 the Group was organised into three operating segments, as follows: banking and financial services, insurance services and Russia.
Management monitors the operating results of the Group’s operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss before taxation which is measured in the same manner as in the consolidated financial statements.
For each reportable segment interest income is reported net of interest expense, since the majority of the segments’ revenues is from interest. Also, the chief operating decision-maker primarily relies on net interest revenue for assessing segment’s performance and making decisions about resource allocation to segment.
Transfer prices between segments are on an arm’s length basis in a manner similar to transactions with third parties. Balances and transactions between segments are eliminated on consolidation.
2.25. Investment in properties
The Group, in its normal course of business, acquires properties in debt satisfaction, which are held either directly or by entities set up and controlled by the Group for the sole purpose of managing these properties. In addition, the Group owns property which is no longer used in operations and that it intends to sell.
These properties are recognised in the Group’s consolidated financial statements and are included in Other assets, reflecting the substance of these transactions. Investment in properties is measured at cost, including transaction costs. Subsequent to initial recognition, investments in properties are measured in original cost less provisions for impairment which are recognised in the income statement.
Gain or loss from disposal of investments in properties, is the difference between the net amount of the disposal and the carrying value of the financial asset and is recognised in the income statement when the asset is disposed.
2.26. Provisions for litigation or arbitration
Provisions for litigation or arbitration are recognised when: (a) the Group has a present obligation (legal or constructive) as a result of a past event, (b) an outflow of resources embodying economic benefits to settle the obligation is probable and (c) a reliable estimate of the amount of the obligation can be made.
The Group obtains legal advice on the value of the provision of specific claims and arbitration.
The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the facts and circumstances of any litigation or arbitration proceedings.
Where the effect of the time value of money is material, the amount of the provision is the present value of the estimated future expenditures expected to be required to settle the obligation.
When a separate liability is measured, the most likely outcome may be considered the best estimate of the liability.
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2.27. Provisions to cover credit risk resulting from commitments and guarantees
The Group enters into various contingent liabilities. These include salaries and guarantees on acceptance, financial guarantees, loan limits approved but not used utilised, non-disbursed amount of loans and other liabilities. Although these liabilities are not recognised in the consolidated statement of financial position, they expose the Group to credit risk. To cover the credit risk a provision is calculated and recognised in οther liabilities in the consolidated statement of financial position with a corresponding charge in the consolidated income statement under ‘Impairment losses and provisions to cover credit risk’.
2.28. Discontinued operations
The Group presents discontinued operations in a separate line in the consolidated income statement if an entity or a component of an entity has been disposed of or is classified as held for sale and a) represents a separate major line of business or geographical area of operations, b) is part of an autonomous plan to dispose of a separate major line of business or of a geographical location of operations, or c) is a subsidiary acquired exclusively with intend to sale. Net profit from discontinued operations includes the net total of operating profit and loss before tax from discontinued operations (including net gain or loss on sale before tax) and discontinued operations tax expense.
2.29. Non-current assets held for sale
The Group classifies non-current assets as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. The condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. When the Bank is committed to a sale plan involving loss of control of a subsidiary, the total assets and liabilities of that subsidiary are classified as held for sale, regardless of whether non-controlling interest in its former subsidiary after the sale is retained. Non-current assets for sale classified as held for sale are measured at the lower of their carrying amount and fair value less cost to sell. Impairment losses on initial classification and gains or losses from subsequent measurement are recognised in the income statement. Non-current assets held for sale are not depreciated once they have been classified under this category.
2.30. Comparatives
Comparatives presented in the financial statements are restated, where considered necessary, to conform with changes in the presentation of the current year.
3. USE OF ESTIMATES AND JUDGEMENTS
The preparation of financial statements requires management to make use of judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances and the results of which form the basis of making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
The accounting policies that are deemed critical to the Group’s results and financial position and which involve significant estimates and judgements are set out below:
3.1. Provision for impairment of loans and advances to customers
The Group reviews the loans and advances to customers to assess whether impairment losses should be recognised in the income statement and accumulated in an impairment loss reserve.
The Group assesses whether there is objective evidence of impairment of the loan portfolio on an individual and collective basis.
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Indicatively, the following events may be considered by the Group as an evidence of impairment. However, one event alone may not constitute evidence of impairment while the absence of a specific event does not preclude the existence of impairment:
1) Credit facilities classified as non-performing 2) Restructured credit facilities included in performing loans and advances 3) Significant and sustained reduction of total income/future cash flows of the borrower 4) Apparent deterioration of the debt servicing capacity of the borrower 5) The possibility of the debtor’s insolvency 6) Significant reduction in the value of collateral 7) Credit facilities which are partly provided 8) Credit facilities with internal credit rating that represents high credit risk 9) Credit facilities which are pending renewal, violating the relevant credit policy of the Bank 10) Macroeconomic indications that may affect the expected future cash flows of the borrowers such as increase in unemployment rates and decline in real estate prices.
The loan portfolio which is assessed on an individual basis includes loans beyond specific significance limits as well as loans to groups of connected persons under paragraph 11 of the Central Bank of Cyprus Directive on Loan Impairment and Provisioning Procedures (February 2014).
The amount of impairment loss on the value of loans and advances to customers which are examined on an individual basis, is measured as the difference between the carrying amount of the loan and the present value of estimated future cash flows discounted at the original effective interest rate of the loan, whereas in cases where the interest rate of the loan is variable, the original effective interest rate is measured with reference to the initial margin and the current variable interest rate. The estimated future cash flows are based on assumptions about a number of factors and therefore the actual losses may be different.
To determine the amount of impairment loss on the value of loans and advances to customers, judgment is involved regarding the amount and timing of estimated future cash flows. In particular, the time frame and the net recoverable amount of the recovered collateral, which mainly includes land and buildings, are considered among other important factors in calculating the amount of impairment loss. Assumptions are made about future changes in property prices, as well as the time horizon of collateral liquidation, the tax and recovery costs and subsequent selling costs of the collateral.
Loans and advances assessed on an individual basis and for which no impairment loss is recognised are assessed on a collective basis for losses that have been incurred but not yet identified. Loans and advances that were below the materiality threshold were assessed on a collective basis for probable losses.
For the calculation of impairment loss on a collective basis, loans and advances are grouped based on similar credit risk characteristics and appropriate models are applied that take into account the recent historical loss experience of each group with similar credit risk characteristics adjusted for current conditions using appropriate probabilities of default and loss given default. Restructured facilities are classified in separate group with higher risk parameters.
These calculations include estimates and the use of judgment to supplement, assess and adjust accordingly the historical information and past experience events which determine the parameters and calculation of impairment losses as at the reporting date.
Accumulated impairment losses of the Group’s loans and advances are inherently uncertain due to their sensitivity to economic and credit conditions of the environment in which the Group operates. Conditions are affected by many factors with a high degree of interdependency and there is not one single factor to which these conditions are particularly sensitive. It is possible that the actual conditions in the next financial year to differ significantly from the assumptions made during the current year, so that the carrying amount of loans and advances to be adjusted significantly.
3.2. Impairment of goodwill and investments in subsidiaries
The process of identifying and evaluating impairment of goodwill and investments in subsidiaries is inherently uncertain because it requires significant Management judgement in making a series of estimates, the results of which are highly sensitive to the assumptions used. The review of impairment represents management’s best estimate of the factors below.
Firstly, significant Management judgement is required in estimating the future cash flows of the acquired entities.
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The values are sensitive to the cash flows projected for the periods for which detailed forecasts are available, and to assumptions regarding the long-term pattern of sustainable cash flows thereafter. The cash flow forecasts are compared with actual performance and verifiable economic data in future years. However, the cash flow forecasts necessarily and appropriately reflect Management’s view of future business prospects. Additionally, the cost of capital used to discount its future cash flows, can have a significant effect on the entity’s valuation.
Any impairment of goodwill of the acquired entities affects the Group’s results while any impairment of investments in subsidiaries affects the Bank’s results.
3.3. Fair value of investments
The best evidence of fair value of investments is a quoted price in an actively traded market. If the market for a financial instrument is not active, a valuation technique is used. The majority of valuation techniques employed by the Group use only observable market data and thus the reliability of the fair value measurement is relatively high. The Group uses only models with unobservable inputs for the valuation of non listed investments. In these cases, the Group takes into account, amongst others, the net positions of the entities in which the investment has been made, as well as estimates of the Group’s Management to reflect uncertainties in fair values resulting from the lack of data and significant adverse changes in technology, market, economic or legal environment in which the entity operates.
3.4. Impairment of available for sale investments
Available for sale investments in equity securities are impaired when there has been a significant or prolonged decline in their fair value below cost. In such a case, the total loss previously recognised in equity is recognised in the consolidated income statement. The determination of what is significant or prolonged requires judgement by Management. The factors which are taken into account in these estimates include the percentage reduction in the cost or impaired cost, as well as the net positions of the entities.
Available for sale investments in debt securities are impaired when there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the investment and the loss event (or events) has an impact on the estimated future cash flows of the investment. The identification of impairment requires judgment by management. An individual assessment of impairment is carried out on bonds whose fair value as at the date of the financial position has significantly decreased as well as the issuer has been downgraded.
3.5. Fair value of properties and impairment of investment in properties
Volatility in the global financial system is reflected in the real estate markets with a significant reduction in the volume of property transactions. Under these circumstances, the degree of uncertainty is greater than that which exists in a more active market for determining the market value of properties.
The properties held by the Group for own use, are measured at fair value less accumulated depreciation and impairment losses. The fair value is determined from valuations carried out by professionally qualified valuers based on market conditions for their existing use and is carried out at regular intervals so that the carrying amount is not materially different from the fair value.
Properties held for sale by the Group, which are not presented at fair value, are measured at cost which includes any transaction costs, less any provision for impairment. The calculation of the provision for impairment is determined based on estimates made by professional valuers based on market conditions.
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3.6. Taxation
The Group is subject to corporation tax in the countries in which it operates. Estimates are required in determining the provision for corporation taxes as at the date of the financial position. The Group recognises corporation tax liabilities for transactions and assessments whose tax treatment is uncertain. Where the final tax is different from the amounts initially recognised in the income statement, such differences will impact the tax expense, the tax liabilities and deferred tax assets or liabilities of the period in which the final tax is agreed with the relevant tax authorities.
Deferred tax assets are recognised by the Group in respect of tax losses to the extent that it is probable that future taxable profits will be available against which the losses can be utilised. Judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits, together with future strategies. These variables have been established on the basis of significant management judgement and are subject to uncertainty. It is possible that the actual future events could be different from the assumptions made, resulting in a material adjustment to the carrying amount of deferred tax assets.
The recognition of deferred tax asset arising from taxable losses is based on estimates of the Bank’s management in respect to its profitability. These estimates are based on available information including historical data, improved macroeconomic estimates, the reduction in deposit rates, the stabilization of the non-performing loans and the work development. Therefore it is probable that the Bank will have future taxable profits against which these assets can be used.
4. INTEREST INCOME
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Interest income from cash and balances with Central Banks 707 360 707 360 Interest income from placements with other banks 5.371 4.195 5.114 3.921 Interest income from loans and advances to customers 263.935 292.243 264.420 292.849 Interest income from debt securities 15.324 16.466 15.663 17.586 Interest income from other financial instruments 2.692 3.294 2.706 3.341 288.029 316.558 288.610 318.057
Interest from loans and advances to customers include interest on the recoverable amount of impaired loans and advances amounting to €93,8 million (2013: €56,3 million).
5. INTEREST EXPENSE
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Interest expense on deposits by other banks 1.322 1 1.329 28 Interest expense on deposits by Central Banks 14 -- 14 -- Interest expense on customer deposits and other customer accounts 75.332 109.116 75.884 111.047 Interest expense on loan capital 1.000 12.404 1.021 12.440 Interest expense on other financial instruments 6.223 7.881 6.400 8.354 83.891 129.402 84.648 131.869
98 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 6. FEE AND COMMISSION INCOME
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Banking fees and commissions 58.939 56.788 60.832 58.972 Commissions from insurance operations 2.965 2.837 -- -- Asset management fees 1.524 1.288 1.473 1.234 Other fees and commissions 229 749 -- -- 63.657 61.662 62.305 60.206
7. FEE AND COMMISSION EXPENSE
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Banking fees and commissions 2.192 1.933 2.192 1.933 Commissions for insurance operations 2.399 2.851 -- -- Other fees and commissions 342 316 357 345 4.933 5.100 2.549 2.278
HELLENIC BANK GROUP ANNUAL REPORT 2014 99 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 8. NET GAINS ON DISPOSAL AND REVALUATION OF FOREIGN CURRENCIES AND FINANCIAL INSTRUMENTS
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Gain on disposal and revaluation of foreign currencies 15.081 14.286 16.891 17.600 Gain/(loss) on disposal of debt securities and other financial instruments: Instruments available for sale 53 (387) 53 (387) Instruments held for trading (500) (160) (500) (160) Surplus on revaluation of debt securities and other financial instruments: Instruments held for trading 2.251 3.063 2.251 3.063 Gain/(loss) on disposal of equity securities: Instruments available for sale -- 244 -- 244 Instruments held for trading -- (106) -- (106) (Deficit)/surplus on revaluation of equity securities: Instruments held for trading (2) 107 (62) 107 Changes in fair value of financial instruments in fair value hedges: Hedged items (509) (831) (509) (831) Hedging instruments 498 798 498 798 Reversal of impairment loss/(impairment loss) on equity securities and debt securities: Instruments available for sale 1.066 (111) 1.066 287 Impairment loss of investments in subsidiaries -- -- (2.398) (12.497) 17.938 16.903 17.290 8.118
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 (Impairment loss)/reversal of impairment loss on debt securities, on equity securities and on investments in subsidiary companies: Listed investments -- (531) -- (253) Unlisted investments 1.066 420 (1.332) (11.957) 1.066 (111) (1.332) (12.210)
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 (Impairment loss)/reversal of impairment loss on debt securities, on equity securities and on investments in subsidiary companies: Equity securities -- (1.169) -- (771) Debt securities 1.066 1.058 1.066 1.058 Investment in subsidiary companies -- -- (2.398) (12.497) 1.066 (111) (1.332) (12.210)
100 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 8. NET GAINS ON DISPOSAL AND REVALUATION OF FOREIGN CURRENCIES AND FINANCIAL INSTRUMENTS (continued)
The gain on disposal and revaluation of foreign currencies of the Group results from the exchange of monetary assets denominated in foreign currency at the reporting date and the realised gains/(losses) on foreign currency transactions that were settled during the year.
The Group’s gain on disposal and revaluation of foreign currencies includes charge of €88 thousand (2013: credit of €674 thousand) which is the net ineffective part of the hedging of the net investment.
9. OTHER INCOME
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Dividend income 376 35 4.336 113 Income from insurance operations 15.884 16.872 -- -- Other income 1.943 1.760 1.989 1.820 18.203 18.667 6.325 1.933
10. STAFF COSTS
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Staff remuneration 70.605 80.679 65.267 74.511 Provident Fund Contributions 4.713 8.740 4.448 8.232 75.318 89.419 69.715 82.743
Based on an agreement made before the Department of Labour Relations between the Cyprus Bankers Employers’ Association and the Cyprus Union of Bank Employees, concerning the three year period from 2014 to 2016, signed on 17 March 2014, salary reductions were decided, effective as of 1st March 2014. Based on the 2013 Voluntary Early Retirement Scheme, 165 employees retired during the months of June to September 2013.
The Group operates plans for the provision of staff retirement benefits. The total number of staff employed in Cyprus is under collective agreements between the Cyprus Bankers Employers Association and the Cyprus Union of Bank Employees and participates in a defined contribution plan in Provident Funds. As a result of an agreement signed on 12 January 2012 between the Cyprus Bankers Employers Association and the Cyprus Union of Bank Employees, the employer paid, as of 1st January 2012, a monthly contribution to the Provident Fund of 14% on the basic salary plus any automatic indexation. Based on the above mentioned collective agreement signed on 17 March 2014, the Bank proceeded as of 1st January 2014, in a reduction of the monthly contribution to the Provident Fund from 14% to 9% for the years 2014 and 2015, to 9,5% for 2016 and to 11,5% for 2017.
During the year, an amount of €50 thousand (2013: €75 thousand) charged to the income statement relates to a defined benefit plan.
On 31 December 2014, the number of staff employed by the Group was 1.423 (December 2013: 1.396 employees) and by the Bank was 1.314 (December 2013: 1.255 employees). The number of staff employed by the Group on 31 December 2013 included 34 employees who were employed by the former subsidiary company of the Bank, Limited Liability Company Commercial Bank ‘Hellenic Bank’.
HELLENIC BANK GROUP ANNUAL REPORT 2014 101 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 11. ADMINISTRATIVE AND OTHER EXPENSES
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Provision for impairment of land and buildings and assets available for sale 9.334 5.305 9.162 5.294 Operating leases of land and buildings 2.258 2.213 2.230 2.174 Repairs and maintenance 5.627 5.057 5.552 5.014 Auditors’ fees and lawyers’ and other professional expenses 2.231 1.674 2.049 1.524 Loss on disposal of subsidiary -- -- 2.679 -- Cost of audit by Central Bank of Cyprus 483 361 483 361 Special Levy Tax 8.286 9.443 8.286 9.443 Advisory Services 9.858 -- 9.858 -- The 2013 Voluntary Early Retirement Scheme compensations -- 9.635 -- 9.157 Other administrative expenses 22.473 21.290 19.566 19.181 60.550 54.978 59.865 52.148
SPECIAL LEVY ON CREDIT INSTITUTIONS
According to the ‘Special Levy on Credit Institutions Law of 2011’, passed on 14th April 2011, a special levy, for the years 2011 and 2012, was imposed on credit institutions at the rate of 0,095% on qualifying deposits held by each Credit Institution at 31st December of the year preceding the year of taxation. The amendments passed on 21st December 2012, provided, among other, for the elimination of the restriction on the two year force of the relevant law and for the increase of the special levy tax to 0,11%. With an amendment of the Law, published in the official Gazette on 29th April 2013, the special levy tax rate increased to 0,15%. Based on a new amendment of the Law published in the official Gazette on the 26th July 2013, the special levy was calculated for the year 2013, on a quarterly basis at the rate of 0,0375% on the deposits of Credit Institutions at 31st December 2012, 31st March, 30th June and 30th September of the year. As from 1st January 2014 the special levy tax is charged on the deposits at 31 December of the previous year at the rate of 0,15%.
ADVISORY SERVICES
During 2014 the Board of Directors of the Bank proceeded with the appointment of international advisory firms, with a cost of €9,9 million, to provide advisory services on matters in accordance with its competency.
THE 2013 VOLUNTARY EARLY RETIREMENT SCHEME COMPENSATIONS
Following the decision of the Board of Directors, the Group addressed to all permanent staff members the 2013 Voluntary Early Retirement Scheme which had the form of voluntary retirement. With the completion of the Scheme, which expired on 2nd August 2013, the total compensation paid to staff members of the Group who voluntarily chose to enter the 2013 Voluntary Early Retirement Scheme amounted to €9,6 million.
AUDITORS’ FEES, LAWYERS’ AND OTHER PROFESSIONAL EXPENSES
The auditors’ fees, lawyers’ and other professional expenses include the total fees for statutory auditors and other audit firms for audit and other professional services provided to the Group both in Cyprus and abroad and are analysed as follows:
102 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 11. ADMINISTRATIVE AND OTHER EXPENSES (continued)
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Audit of annual accounts 199 253 113 168 Assurance services 37 32 17 10 Tax advisory 105 104 72 99 Other non-audit services 662 290 495 128 1.003 679 697 405
The profit/(loss) from discontinued operations after tax includes an amount of €44 thousand relating to the audit of annual accounts and the corresponding amount for the year ended 31 December 2013 amounts to €88 thousand. The profit/(loss) for the year ended 31 December 2013 also included an amount of €2 thousand relating to other non-audit services.
12. IMPAIRMENT LOSSES AND PROVISIONS TO COVER CREDIT RISK
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Impairment losses on the value of loans and advances (Note 18) 281.934 310.810 281.934 309.711 Provisions to cover credit risk for contractual commitments and guarantees (Note 32) 22.463 -- 22.463 -- 304.397 310.810 304.397 309.711
13. TAXATION
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Corporation tax 362 592 -- -- Taxes withheld at source 26 39 -- -- Deferred tax (28.506) (23.529) (28.504) (23.533) (28.118) (22.898) (28.504) (23.533)
According to the Income Tax Law 118(I)/2002-2013 as implemented from the 1st of January 2013, the Bank’s profit and that of its subsidiaries in Cyprus, is subject to corporation tax at the rate of 12,5%. Taxable profits are not subject to defence fund contribution.
In accordance with article 13 of the Income Tax Law 118(I)/02, any tax losses of the Group companies in Cyprus which are not offset against taxable profits of other Group companies in Cyprus, are carried forward and offset against future taxable profits. Based on an amendment to the Income Tax Law issued on the 21st December 2012, tax losses for the years from 2006 onwards can be carried forward and set off only against taxable profits for the next five years.
Profits earned from subsidiaries and permanent establishment abroad are subject to taxation at the rates applicable in the country in which the operations are carried out.
HELLENIC BANK GROUP ANNUAL REPORT 2014 103 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 13. TAXATION (continued)
For the calculation of the tax for the year, the tax benefits expected to result in the Group are taken into account, pursuant to the provisions of Articles 9, 10, 13 and 36(3) of the Income Tax Law 118(I)/2002-2013.
Companies that do not distribute 70% of their profits after tax, as these profits are defined by the Special Contribution for the Defence of the Republic Law, during the two years following the end of the assessment to which the profits refer, will be deemed to have contributed this amount as dividend. Special contribution for defence at 20% for the years 2012 and 2013 and at 17% for 2014 and after will be payable on such deemed dividends to the extent that the shareholders (individuals and companies), at the end of the period of two years from the end of the fiscal year to which the profits refer, are Cyprus tax residents. The amount of this deemed dividend distribution is reduced by any actual dividend already distributed for the year to which the profits refer. The special contribution for defence is paid by the Company on behalf of the shareholders.
Reconciliation of taxation based on taxable income and taxation based on accounting profits
2014 2013 The Group €’000 €’000 Group loss before taxation (146.522) (181.302)
Taxation based on applicable tax rates (18.315) (22.663) Expenses non tax deductible 6.470 34.143 Non taxable income (16.096) (27.779) Tax effect of losses from overseas operations (362) (6.822) Other taxation 185 223 Taxation for the year (28.118) (22.898)
2014 2013 The Bank €’000 €’000 Bank loss before taxation (151.770) (195.659)
Taxation based on applicable tax rates (18.971) (24.457) Expenses non tax deductible 6.450 31.400 Non taxable income (15.620) (23.653) Tax effect of losses from overseas operations (363) (6.823) Taxation for the year (28.504) (23.533)
Taxation recognised in other comprehensive income:
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Deferred taxation on property revaluation 1.421 (102) 1.423 (98)
104 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 14. PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS AFTER TAXATION
According to the provisions of the International Financial Reporting Standard 5, ‘Non-Current assets held for sale and discontinued operations’, the results for the year ended 31 December 2014 refer to the comparable Group results for the year ended 31 December 2013 which have been adjusted to reflect the reclassification of the Branch Network in Greece (BNG) from continuing operations to discontinued operations on the 26 March 2013, the sale of the Bank’s subsidiary company in Russia, Limited Liability Company Commercial Bank ‘Hellenic Bank’, on the 5th of June 2014 and the sale of the Bank’s subsidiary company, Borenham Holding Limited, on the 6th of February 2015.
On 26th March 2013, the Bank, as a result of a transnational understanding of the governments of Greece and Cyprus, at the demand of Troika and according to the instructions of the Ministry of Finance and the Central Bank, consented to the sale of its Branch Network in Greece (BNG) to Piraeus Bank SA (PB) with immediate effect.
On 5 June 2014, the Bank disposed 100% of the share capital of the Bank’s wholly owned subsidiary bank in Russia, Limited Liability Company Commercial Bank ‘Hellenic Bank’. The sale was at arm’s length basis with Russian Investors as counterparties, after obtaining the necessary approvals from the Central Bank of Cyprus.
The Bank’s subsidiary Borenham Holdings Limited owned 100% of the share capital of the Russian company Limited Liability Company ‘Format Invest’, owner of the building facilities of the former Bank’s subsidiary in Russia Limited Liability Company Commercial Bank ‘Hellenic Bank’. The Bank as at 31 December 2014 was at advance stage of negotiations with an investor for the disposal of its subsidiary company Borenham Holdings Ltd and the disposal was completed on 6 February 2015.
The effect of the discontinued operations on the Group’s results is presented below and is analysed by company at the points (i) (Greece segment), (ii) and (iii) (Russia segment) as follows:
Year ended 31 December 2014 2013 Note €’000 €’000 Discontinued operations Turnover 1.367 12.537
Net interest income 991 4.912 Net income from fees, commissions, net gains on disposal and revaluation of foreign currencies and financial instruments and other income 198 1.163
Total net income 1.189 6.075 Total expenses (3.398) (8.432) Loss from ordinary operations before impairment losses and provisions to cover credit risk (2.209) (2.357) Impairment losses and provisions to cover credit risk 18 -- 6.260 (Loss)/profit before taxation (2.209) 3.903 Taxation 76 8.163 (Loss)/profit after taxation (2.133) 12.066 Profit on disposal of subsidiary company 2.955 -- Loss on disposal of the Branch Network in Greece -- (43.571) Profit/(loss) for the year 822 (31.505) Basic profit/(loss) per share (cent) 15 0,02 (1,7)
HELLENIC BANK GROUP ANNUAL REPORT 2014 105 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 14. PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS AFTER TAXATION (continued)
(i) GREECE SEGMENT- BRANCH NETWORK IN GREECE
Year ended 31 December 2014 2013 Note €’000 €’000 Discontinued operations Turnover -- 10.111
Net interest income -- 3.163 Net income from fees, commissions, net gains on disposal and revaluation of foreign currencies and financial instruments and other income -- 1.154
Total net income -- 4.317 Total expenses -- (4.279) Profit from ordinary operations before impairment losses and provisions to cover credit risk -- 38 Impairment losses and provisions to cover credit risk 18 -- 6.260 Profit before taxation -- 6.298 Taxation -- 8.506 Profit after taxation -- 14.804 Loss on disposal of the Branch Network in Greece -- (43.571) Loss for the year -- (28.767)
The loss on disposal of the BNG arose from the sale of BNG’s assets and liabilities to Piraeus Bank SA under the agreement signed on 26th March 2013 which constitutes the difference between the net payable amount and the carrying amount of net liabilities transferred, as follows:
€’000 Assets Cash 11.542 Loans and advances to customers 571.830 Property, plant and equipment 1.291 Total Assets 584.663 Liabilities Deposits and other customer accounts 631.367 Other liabilities 302 Total Liabilities 631.669
Net Liabilities 47.006 Disposal consideration 27.990 Negative Difference between the assets and liabilities acquired, calculated based on the sale agreement (118.567) Net Payable Amount (90.577) Loss on disposal of the Branch Network in Greece (43.571)
106 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 14. PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS AFTER TAXATION (continued)
(ii) RUSSIA SEGMENT -LIMITED LIABILITY COMPANY COMMERCIAL BANK ‘HELLENIC BANK’
Year ended 31 December 2014 2013 €’000 €’000 Discontinued operations Turnover 1.286 2.744
Net interest income 992 2.405 Net income from fees, commissions, net gains on disposal and revaluation of foreign currencies and financial instruments and other income 117 327
Total net income 1.109 2.732 Total expenses (1.119) (2.929) Loss before taxation (10) (197) Taxation 76 (436) Profit/(loss) after taxation 66 (633) Profit on disposal of subsidiary company 2.955 -- Profit/(loss) for the period/year 3.021 (633)
The profit arose from the sale of the assets and liabilities of the subsidiary under the agreement signed, which constitutes the difference between the net payable amount and the carrying amount of net liabilities transferred, as follows:
€’000 Assets Cash and balances with Central Banks 853 Placements with other banks 18.061 Loans and advances to customers 12.435 Property, plant and equipment 170 Intangible assets 553 Deferred tax asset 769 Other assets 115 Total Assets 32.956 Liabilities Deposits and other customer accounts 1.464 Deferred tax liability 107 Other liabilities 663 Loan capital 9.236 Total Liabilities 11.470 Net Assets 21.486 Disposal consideration 24.441 Profit on disposal of subsidiary company 2.955
HELLENIC BANK GROUP ANNUAL REPORT 2014 107 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 14. PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS AFTER TAXATION (continued)
(iii) RUSSIA SEGMENT - BORENHAM HOLDINGS LIMITED
Year ended 31 December 2014 2013 €’000 €’000 Discontinued operations Turnover 81 (318)
Net interest income (1) (656) Net income from fees, commissions, net gains on disposal and revaluation of foreign currencies and financial instruments and other income 81 (319)
Total net income/(expense) 80 (975) Total expenses (2.279) (1.224) Loss before taxation (2.199) (2.199) Taxation -- 94 Loss for the year after taxation (2.199) (2.105)
The total effect of the discontinued operations on the Bank’s results is presented as follows and is analysed by company at point (i)
(i) GREECE SEGMENT-BRANCH NETWORK IN GREECE
Year ended 31 December 2014 2013 Note €’000 €’000 Discontinued operations Turnover -- 10.135
Net interest income -- 3.163 Net income from fees, commissions, net gains on disposal and revaluation of foreign currencies and financial instruments and other income -- 1.179 Total net income -- 4.342 Total expenses -- (4.279) Profit from ordinary activities before impairment losses and provisions to cover credit risk -- 63 Impairment losses and provisions to cover credit risk 18 -- 6.260 Profit before taxation -- 6.323 Taxation -- 8.506 Profit after taxation -- 14.829 Loss from the sale of the Branch Network in Greece (BNG) -- (43.571) Loss for the year -- (28.742) Basic loss per share (cent) 15 -- (1,6)
108 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 14. PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS AFTER TAXATION (continued)
The effect of the discontinued operations on the Consolidated Statement of Cash Flows was as follows:
The Group The Bank Year ended Year ended 31 December 31 December 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Cash flows used in discontinued operations Net cash from/(used in) operating activities 10.424 (73.190) -- (74.668) Net cash from/(used in) investing activities 5.247 (90.542) -- (90.542) Net cash flows for the year 15.671 (163.732) -- (165.210)
15. BASIC (LOSS)/EARNINGS PER SHARE
The Group The Bank Year ended Year ended 31 December 31 December 2014 2013 2014 2013 Basic loss per share Loss attributable to shareholders of the parent company (€ thousand) (118.590) (190.900) (123.266) (200.868) Average number of shares in issue during the year (thousand) 3.688.670 1.800.296 3.688.670 1.800.296
Basic loss per share (cent €) (3,2) (10,6) (3,3) (11,2)
The Group The Bank Year ended Year ended 31 December 31 December 2014 2013 2014 2013 Basic loss per share from continuing operations Loss attributable to shareholders of the parent company (€ thousand) from continuing operations (119.412) (159.395) (123.266) (172.126) Average number of shares in issue during the year (thousand) 3.688.670 1.800.296 3.688.670 1.800.296
Basic loss per share (cent €) from continuing operations (3,2) (8,9) (3,3) (9,6)
HELLENIC BANK GROUP ANNUAL REPORT 2014 109 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 15. BASIC (LOSS)/EARNINGS PER SHARE (continued)
The Group The Bank Year ended Year ended 31 December 31 December 2014 2013 2014 2013 Basic profit/(loss) per share from discontinued operations Profit/(loss) attributable to shareholders of the parent company (€ thousand) from discontinued operations 822 (31.505) -- (28.742) Average number of shares in issue during the year (thousand) 3.688.670 1.800.296 3.688.670 1.800.296 Basic profit/(loss) per share (cent €) from discontinued operations 0,02 (1,7) -- (1,6)
For the calculation of the basic loss for the year ended 31 December 2013, the average number of shares issued is adjusted in accordance with the IAS to take into account the issue of shares during 2014.
16. CASH AND BALANCES WITH CENTRAL BANKS
On 31 December 2014, cash and balances with Central Bank include the deposit to the European Central Bank (ECB) amounting to €2.075 million (2013: €925 million). On 31 December 2014 the Group and the Bank maintained minimum amounts of liquidity as determined by the Central Bank of Cyprus amounted to €61.829 thousand (Group 2013: €54.353 thousand) (Bank 2013: €54.303 thousand).
17. PLACEMENTS WITH OTHER BANKS
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Other placements with banks 912.260 701.102 910.535 680.124 Interbank accounts 209.798 220.617 209.197 218.333 1.122.058 921.719 1.119.732 898.457
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 On demand 313.358 447.212 312.757 444.960 Within three months 700.389 414.044 698.792 393.182 Between three months and one year 379 551 251 403 Between one year and five years 107.932 59.570 107.932 59.570 Over five years -- 342 -- 342 1.122.058 921.719 1.119.732 898.457
On 31st December 2014, an amount of €115.053 thousand (2013: €61.843 thousand) is pledged as collateral on placements with other banks, being common practice among financial institutions.
110 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 18. LOANS AND ADVANCES TO CUSTOMERS
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Trade 719.609 725.391 719.609 725.391 Construction and Real Estate 1.165.871 1.131.140 1.165.871 1.131.139 Manufacturing 233.974 255.152 233.974 255.152 Tourism 246.046 241.167 246.046 241.167 Other Sectors 750.922 726.031 750.922 720.423 Retail 1.288.660 1.315.285 1.288.660 1.307.085 4.405.082 4.394.166 4.405.082 4.380.357 Accumulated Impairment losses (1.184.027) (830.217) (1.184.027) (825.855) 3.221.055 3.563.949 3.221.055 3.554.502
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 On demand 2.156.585 1.874.894 2.156.585 1.870.531 Within three months 71.346 96.337 71.346 95.692 Between three months and one year 249.045 293.196 249.045 291.429 Between one year and five years 972.608 1.053.501 972.608 1.046.467 Over five years 955.498 1.076.238 955.498 1.076.238 4.405.082 4.394.166 4.405.082 4.380.357 Accumulated Impairment losses (1.184.027) (830.217) (1.184.027) (825.855) 3.221.055 3.563.949 3.221.055 3.554.502
The geographical analysis of the Group’s and the Bank’s total net loans and advances is as follows:
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Cyprus 3.221.055 3.554.502 3.221.055 3.554.502 Russia -- 9.447 -- -- 3.221.055 3.563.949 3.221.055 3.554.502
HELLENIC BANK GROUP ANNUAL REPORT 2014 111 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 18. LOANS AND ADVANCES TO CUSTOMERS (continued)
Accumulated impairment losses on the value of loans and advances
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Impairment losses on an individual basis 1 January Provision reserve 598.996 537.823 594.634 534.555 Temporary income suspension account 164.833 185.387 164.833 185.389 763.829 723.210 759.467 719.944 Net write-offs of loan impairment losses (5.242) (6.657) (5.231) (6.657) Net write-offs of suspended income losses (1.059) (7.500) (1.059) (7.500) Sale of BNG -- (318.763) -- (318.763) Suspended income for the year – Continuing operations 80.227 47.034 80.227 47.034 Suspended income for the year – Discontinued operations -- 3.888 -- 3.888 Charge for the year – Continuing operations 296.970 333.113 296.970 332.014 Charge for the year – Discontinued operations -- (6.260) -- (6.260) Transfer to other assets/other liabilities (4.621) -- (270) -- Exchange difference 3.470 (4.236) 3.470 (4.233) 369.745 40.619 374.107 39.523 31 December Provision reserve 889.573 598.996 889.573 594.634 Temporary suspension income account 244.001 164.833 244.001 164.833 1.133.574 763.829 1.133.574 759.467 Impairment losses on a collective basis 1 January 66.388 88.691 66.388 88.691 Transfer to other assets/other liabilities (899) -- (899) -- Charge for the year – Continuing operations (15.036) (22.303) (15.036) (22.303) 50.453 66.388 50.453 66.388 Total impairment losses at 31 December 1.184.027 830.217 1.184.027 825.855
RESULTS OF THE ASSET QUALITY REVIEW
From November 2013 until October 2014 Hellenic Bank had undergone a Comprehensive Assessment, which included the Asset Quality Review (AQR). In December 2014, the European Central Bank (ECB) provided to the Bank the quantitative and qualitative results resulting from the asset quality review for the implementation of corrective actions and preventive or/and accounting adjustments. In relation to the quantitative results, the Bank during 2014 had proactively identified a significant amount of provisions that was above the level of the supplementary provisions of the results of the asset quality review. In relation to the qualitative results, Hellenic Bank during 2014 began a series of programs that aimed to improve its policies and procedures, in order for the Bank to improve its ability to manage better the quality of its portfolio. Most issues identified during the asset quality review had already been included in the implementation of these programs. For most of the issues that arose, the Bank, from December 2014, was already in compliance with the requirements of the ECB. For those issues that there were still differences, deadlines have been agreed with the ECB for corrective measures that need to be taken.
112 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 18. LOANS AND ADVANCES TO CUSTOMERS (continued)
The most important requirement of ECB was that Hellenic Bank to revise before 31 March 2015, its practise on the calculation of provisions as part of the comprehensive assessment according to the requirements of IAS 39, and according with the Directive of Central Bank of Cyprus for Provisions. After the publication of the Directive by the Central Bank of Cyprus for the Loan Impairment Policy and the Procedures for Performing Provisions (February 2014), the Bank had already started a program with the assistance of external advisors, that allowed it to be in compliance with the above requirement.
19. DEBT SECURITIES
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Securities held for trading 1.882 1.962 1.882 1.962 Securities held to maturity 56.330 121.561 52.296 131.188 Securities classified as loans and receivables 323.963 328.165 323.963 328.165 Securities available for sale 397.762 195.054 395.193 188.715 779.937 646.742 773.334 650.030 Provisions for impairment (211) (1.277) (211) (1.277) 779.726 645.465 773.123 648.753
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Listed securities 769.760 636.605 763.157 630.266 Unlisted securities 9.966 8.860 9.966 18.487 779.726 645.465 773.123 648.753
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Within three months 84.412 92.433 84.412 92.433 Between three months and one year 199.739 74.557 199.739 74.557 Between one year and five years 351.756 300.868 345.153 298.564 Over five years 143.819 177.607 143.819 183.199 779.726 645.465 773.123 648.753
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Reportable segment: Governments 546.366 394.649 543.797 392.344 Banks 215.396 214.889 211.362 220.482 Other sectors 17.964 35.927 17.964 35.927 779.726 645.465 773.123 648.753
HELLENIC BANK GROUP ANNUAL REPORT 2014 113 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 19. DEBT SECURITIES (continued)
MOVEMENT OF PROVISION FOR IMPAIRMENT IN VALUE OF INVESTMENT IN DEBT SECURITIES:
The Group and the Bank 2014 2013 €’000 €’000 Securities Securities available available for sale for sale Provisions for impairment Balance 1 January 1.277 2.335 Reversal of provision (1.066) (1.058) Balance 31 December 211 1.277
On 31st December 2013, within the normal practices of treasury management, there were no investments in bonds pledged as collateral to third parties.
During 2014, the Group participated in a targeted long term refinancing operation (TLTROs) of the European Central Bank (see Note 29). By participating in TLTROs, at 31 December 2014 the Bank received an amount of €236 million funds from ECB, placing debt securities as collateral with a total market value less any impairments, imposed by the ECB, being equal to the total funding received from ECB.
20. RECLASSIFICATION OF DEBT SECURITIES
On the 1st of January 2009, the Group proceeded with a review of its intention for the holding of debt securities and consequently of its policy for classifying them under the various categories. As a result of this review, a number of debt securities, which were included in the held for trading and available for sale categories, were reclassified to the held to maturity and loans and receivables categories. For the years 2010 to 2014 there has been no other reclassification of debt securities in other categories.
RECLASSIFICATION OF INVESTMENTS HELD FOR TRADING
In accordance with the provisions of the amended IAS 39 and considering the rare circumstances arising as a result of the international financial crisis and its continuing effects on the global economy, the Group identified the investments in debt securities that it did not intend to trade in on the 1st of January 2009. These investments were reclassified from the held for trading to the held to maturity category.
On 31st December 2014, all Securities held for trading reclassified as held to maturity, had expired.
RECLASSIFICATION OF AVAILABLE FOR SALE INVESTMENTS
In accordance with the provisions of the amended IAS 39, the Group has reclassified certain available for sale debt securities to loans and receivables, in view of the fact that there was no active market for these debt securities and the Group did not have the intention to sell these securities in the foreseeable future.
The carrying amount and fair value of the reclassified debt securities is presented below:
114 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 20. RECLASSIFICATION OF DEBT SECURITIES (continued)
1 January 31 December 2009 2014 Carrying amount Carrying Fair and fair value amount value €’000 €’000 €’000 Available for sale debt securities reclassified as loans and receivables 247.140 234.594 230.432
Had the Group not reclassified the available for sale debt securities to loans and receivables on the 1st of January 2009, the Group’s equity would have included losses from change in fair value of these debt securities of €16.708 thousand that would have been included in the revaluation reserve for available for sale investments.
In addition, on the 1st of January 2009, the Group reclassified certain available for sale debt securities, that it intends to hold to maturity, to the held to maturity category. The carrying amount of these debt securities transferred on the 1st of January 2009 amounted to €1.018.653 thousand. On 31st December 2014 the carrying value of these remaining bonds amounted to €6.525 thousand (31 December 2013: €46.008 thousand).
As a result of the above decision, for the year ended 31st December 2014, an amount of €1.430 thousand (2013: €131 thousand), being amortisation of revaluation of reclassified debt securities available for sale, was transferred from the investment revaluation reserve to the income statement.
21. EQUITY SECURITIES
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Securities at fair value through profit or loss Securities held for trading Listed securities 525 527 465 527
Securities available for sale Listed securities 8.842 8.271 8.564 7.992 Unlisted securities 12.500 11.612 11.617 10.730 Provisions for impairment (12.548) (12.067) (11.387) (10.906) 8.794 7.816 8.794 7.816 9.319 8.343 9.259 8.343
HELLENIC BANK GROUP ANNUAL REPORT 2014 115 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 21. EQUITY SECURITIES (continued)
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Concentration by sector: Securities at fair value through profit or loss Securities held for trading Banks 60 ------Other sectors 465 527 465 527 525 527 465 527
Securities available for sale Banks 4 -- 4 -- Other sectors 8.790 7.816 8.790 7.816 8.794 7.816 8.794 7.816 9.319 8.343 9.259 8.343
Unlisted securities available for sale include the Group’s and the Bank’s investment in JCC Payment Systems Ltd of €4.408 thousand (2013: €4.314 thousand).
In determining the fair value of the Bank’s investment in the unlisted company JCC Payment Systems Ltd a valuation method based on the company’s equity was used.
MOVEMENT OF PROVISION FOR IMPAIRMENT IN THE VALUE OF INVESTMENT IN SHARES:
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Provisions for impairment Balance 1 January 12.067 18.925 10.906 18.165 Provisions for impairment for the year - Continuing operations -- 1.169 -- 771 Exchange difference 481 (154) 481 (154) Reversal due to disposal -- (7.873) -- (7.876) Balance 31 December 12.548 12.067 11.387 10.906
116 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 22. INVESTMENTS IN SUBSIDIARY COMPANIES
Investments in subsidiary companies represent the cost of acquisition of shares or the cost of incorporation/investment net of any provision for impairment of investment, where applicable, in the following subsidiary companies:
The Bank Country of Number of operation and Ownership shares 2014 2013 registration % (thousand) €’000 €’000 Hellenic Bank (Investments) Ltd Cyprus 100 3.750 4.309 6.407 Hellenic Bank Trust and Finance Corporation Ltd Cyprus 100 50 94 94 Pancyprian Insurance Ltd Cyprus 99,99 15.700 32.423 32.423 Hellenic Alico Life Insurance Company Ltd Cyprus 72,50 725 1.239 1.239 Hellenic Insurance Agency Ltd Greece 99,50 600 19 19 Hellenic Insurance Agency Ltd Cyprus 100 50 85 85 Limited Liability Company Commercial Bank ‘Hellenic Bank’ Russia ------27.120 Borenham Holdings Limited Cyprus 100 5.000 2.935 2.935 41.104 70.322
On 5 June 2014, the Bank disposed 100% of the share capital of the wholly owned subsidiary bank in Russia, Limited Liability Company Commercial Bank ‘Hellenic Bank’. The sale was at arm’s length basis with Russian Investors as counterparties, after obtaining the necessary approvals from the Central Bank of Cyprus (see Note 14).
The Bank’s subsidiary Borenham Holdings Limited owned 100% of the share capital of the Russian company Limited Liability Company ‘Format Invest’, owner of the building facilities of the former Bank’s subsidiary in Russia Limited Liability Company Commercial Bank ‘Hellenic Bank’. During 2013 the Bank proceeded with an impairment of the investment in Borenham Holdings Limited of €7.389 thousand. The Bank as at 31 December 2014 was at advance stage of negotiations with an investor for the disposal of its subsidiary company Borenham Holdings Ltd and the disposal was completed on 6 February 2015 (see Note 14).
At 31 December 2014, the Group reviewed for any impairment of the investments in its subsidiary companies calculating the estimated values of the companies based on the future cash flows that are discounted to their present value using a pre-tax discount rate that reflects current market estimates of time value of money and the risks specific to the investments. As a result the Group proceeded with an impairment of the investment in Hellenic Bank (Investments) Ltd of €2,1 million.
On 11 March 2015, the general trade register of the professional Chamber of Athens, approved the decision to dissolve and liquidate the company Hellenic Insurance Agency Ltd.
HELLENIC BANK GROUP ANNUAL REPORT 2014 117 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 23. PROPERTY, PLANT AND EQUIPMENT
Land and Plant and buildings equipment Total 2014 2014 2014 The Group €΄000 €΄000 €΄000 Cost or valuation 1 January 114.374 57.408 171.782 Additions 1 3.865 3.866 Disposals/transfers -- (2.956) (2.956) Transfer to assets of subsidiary held for sale (5.048) (1) (5.049) Transfer to assets held for sale (573) -- (573) Disposal of subsidiary -- (925) (925) Deficit on revaluation of land and buildings (16.828) -- (16.828) Exchange difference (3.951) (40) (3.991)
31 December 87.975 57.351 145.326
Land and Plant and buildings equipment Total 2014 2014 2014 The Group €΄000 €΄000 €΄000 Depreciation 1 January 2.115 46.005 48.120 Charge for the year - Continuing operations 1.233 3.088 4.321 Charge for the year - Discontinued operations 241 66 307 Disposals/transfers -- (1.086) (1.086) Disposal of subsidiary -- (755) ( 755) Transfer to assets held for sale (18) -- (18) Transfer to assets of subsidiary company held for sale (674) (1) (675) Revaluation of land and buildings (2.138) -- (2.138) Exchange difference (434) (31) (465) 31 December 325 47.286 47.611
Net book value 31 December 87.650 10.065 97.715
118 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 23. PROPERTY, PLANT AND EQUIPMENT (continued)
Land and Plant and Total buildings equipment 2013 2013 2013 The Group €΄000 €΄000 €΄000 Cost or valuation 1 January 110.343 97.134 207.477 Additions 12 3.573 3.585 Disposals/transfers 22.699 (25.630) (2.931) Transfer to assets held for sale (16.720) -- (16.720) Disposal of Branch Network in Greece -- (17.541) (17.541) Revaluation of land and buildings (576) -- (576) Exchange difference (1.384) (128) (1.512) 31 December 114.374 57.408 171.782
Land and Plant and Total buildings equipment 2013 2013 2013 The Group €΄000 €΄000 €΄000 Depreciation 1 January 858 60.141 60.999 Charge for the year – Continuing operations 1.166 3.242 4.408 Charge for the year – Discontinued operations 208 190 398 Disposals/transfers -- (1.106) (1.106) Disposal of Branch Network in Greece -- (16.379) (16.379) Exchange difference (117) (83) (200) 31 December 2.115 46.005 48.120 Net book value 31 December 112.259 11.403 123.662
Land and Plant and Total buildings equipment
2014 2014 2014 The Bank €΄000 €΄000 €΄000 Cost or valuation 1 January 96.059 53.898 149.957 Additions -- 3.811 3.811 Deficit on revaluation of land and buildings (14.888) -- (14.888) Disposals/transfers -- (2.902) (2.902) 31 December 81.171 54.807 135.978
HELLENIC BANK GROUP ANNUAL REPORT 2014 119 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 23. PROPERTY, PLANT AND EQUIPMENT (continued)
Land and Plant and Total buildings equipment 2014 2014 2014 The Bank €΄000 €΄000 €΄000 Depreciation 1 January 1.086 42.947 44.033 Charge for the year 1.171 3.027 4.198 Revaluation of land and buildings (2.013) -- (2.013) Disposals/transfers -- (1.047) (1.047) 31 December 244 44.927 45.171 Net book value 31 December 80.927 9.880 90.807
Land and Plant and Total buildings equipment 2013 2013 2013 The Bank €΄000 €΄000 €΄000 Cost or valuation 1 January 90.079 93.478 183.557 Additions -- 3.544 3.544 Transfer to assets held for sale (16.720) -- (16.720) Disposal of Branch Network in Greece -- (17.541) (17.541) Disposals/transfers 22.700 (25.583) (2.883) 31 December 96.059 53.898 149.957 Depreciation 1 January -- 57.232 57.232 Charge for the year 1.086 3.169 4.255 Disposal of Branch Network in Greece -- (16.379) (16.379) Disposals/transfers -- (1.075) (1.075) 31 December 1.086 42.947 44.033 Net book value 31 December 94.973 10.951 105.924
Land and buildings were revalued at 31 December 2014, by independent qualified valuers on a market value basis for their existing use.
The cost and net book value on a historic cost basis of the freehold land and buildings stated at valuation at 31 December 2014 amounted to €70.880 thousand (2013: €70.879 thousand) and €64.452 thousand (2013: €65.152 thousand) respectively for the Group, and to €66.923 thousand (2013: €66.923 thousand) and €60.537 thousand (2013: €61.238 thousand) respectively for the Bank.
The cost of branches under renovation and the cost of buildings under construction, included under plant and equipment at 31 December 2014 amounted to €738 thousand (2013: €1.616 thousand) for the Group and the Bank.
At 31 December 2014 the value of the revalued freehold land not subject to depreciation amounted to €30.196 thousand (2013: €37.150 thousand) for the Group and €29.067 thousand (2013: €35.749 thousand) for the Bank.
120 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 24. INTANGIBLE ASSETS
Computer Goodwill Total software 2014 2014 2014 The Group €΄000 €΄000 €΄000 Cost 1 January 20.877 26.421 47.298 Additions 2.401 -- 2.401 Disposal of subsidiary (1.043) -- (1.043) Exchange difference (43) -- (43) 31 December 22.192 26.421 48.613
Amortisation or impairment losses 1 January 16.836 11.597 28.433 Charge for the year – Continuing operations 939 -- 939 Charge for the year – Discontinuing operations 67 -- 67 Disposal of subsidiary (490) -- (490) Exchange difference (19) -- (19) 31 December 17.333 11.597 28.930 Net book value 31 December 4.859 14.824 19.683
Computer Goodwill Total software 2013 2013 2013 The Group €΄000 €΄000 €΄000 Cost 1 January 24.176 26.578 50.754 Additions 2.587 -- 2.587 Disposals/transfers (1.372) -- (1.372) Disposal of Branch Network in Greece (4.387) (157) (4.544) Exchange difference (127) -- (127) 31 December 20.877 26.421 47.298
Amortisation or impairment losses 1 January 20.010 11.741 31.751 Charge for the year – Continuing operations 975 -- 975 Charge for the year – Discontinuing operations 135 -- 135 Disposals (8) -- (8) Disposal of Branch Network in Greece (4.229) (144) (4.373) Exchange difference (47) -- (47) 31 December 16.836 11.597 28.433 Net book value 31 December 4.041 14.824 18.865
HELLENIC BANK GROUP ANNUAL REPORT 2014 121 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 24. INTANGIBLE ASSETS (continued)
Computer Goodwill Total software 2014 2014 2014 The Bank €΄000 €΄000 €΄000 Cost 1 January 19.432 1.291 20.723 Additions 2.343 -- 2.343 31 December 21.775 1.291 23.066 Amortisation or impairment losses 1 January 16.024 1.291 17.315 Charge for the year 928 -- 928 31 December 16.952 1.291 18.243 Net book value 31 December 4.823 -- 4.823
Computer Goodwill Total software 2013 2013 2013 The Bank €΄000 €΄000 €΄000 Cost 1 January 22.688 1.448 24.136 Additions 2.503 -- 2.503 Disposal of Branch Network in Greece (4.387) (157) (4.544) Disposals/transfers (1.372) -- (1.372) 31 December 19.432 1.291 20.723 Amortisation or impairment losses 1 January 19.292 1.435 20.727 Charge for the year 969 -- 969 Disposal of Branch Network in Greece (4.229) (144) (4.373) Disposals (8) -- (8) 31 December 16.024 1.291 17.315 Net book value 31 December 3.408 -- 3.408
On 31 December 2014, the Group assessed whether there is any impairment of goodwill arising on the acquisition of Pancyprian Insurance Ltd, by calculating the estimated fair value of the company, based on the future cash flows discounted to their present value using a pre-tax discount rate that reflects current market estimates of the time value of money and the risks specific to the investments. As a result of this assessment, no impairment of goodwill arose.
The goodwill for the Bank included goodwill related to the branch network in Greece.
122 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 25. ASSETS/LIABILITIES OF SUBSIDIARY COMPANY HELD FOR SALE
The Bank’s subsidiary Borenham Holdings Limited owned 100% of the share capital of Russia company Limited Liability Company ‘Format Invest’, owner of the building facilities of the former Bank’s subsidiary in Russia Limited Liability Company Commercial Bank ‘Hellenic Bank’. The Bank as at 31 December 2014 was at advance stage of negotiations with an investor for the disposal of its subsidiary company Borenham Holdings Ltd and the disposal was completed on 6 February 2015. The consideration price for the subsidiary was €4,7 million.
According to the provisions of the IFRS 5, ‘Non-Current assets held for sale and discontinued operations’, all assets and liabilities of the subsidiary companies held for sale have been reclassified and are presented in total in the face of Consolidated Statement of financial position under the category Asset/Liabilities of subsidiary companies held for sale.
At 31 December 2014 assets and liabilities of the subsidiary company Borenham Holdings Limited included in the consolidated statement of financial position were as follow:
€’000
Assets
Placements with other banks 59 Property, plant and equipment 4.374 Tax Receivable 22 Other assets 91 Total assets 4.546 Liabilities Deferred tax liability 978 Other liabilities 66 Total liabilities 1.044
26. DEFERRED TAX ASSET
Deferred taxation arose as follows:
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Property revaluation differences and differences between depreciation and capital allowances 159 225 158 218 Tax losses 52.312 24.456 52.312 23.748 Other temporary differences -- 16 -- -- 52.471 24.697 52.470 23.966
HELLENIC BANK GROUP ANNUAL REPORT 2014 123 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 26. DEFERRED TAX ASSET (continued)
Movement of Deferred taxation:
The Group Effect on income Effect on Effect on statement- Balance revaluation income Discontinued Balance 1 January reserve statement operations 31 December 2014 €’000 €’000 €’000 €’000 €’000 Property revaluation differences and differences between depreciation and capital allowances 225 -- (60) (6) 159 Tax losses 24.456 -- 28.566 (710) 52.312 Other temporary differences 16 -- -- (16) -- 24.697 -- 28.506 (732) 52.471
The Group Effect on income Effect on Effect on statement- Balance revaluation income Discontinued Balance 1 January reserve statement operations 31 December 2013 €’000 €’000 €’000 €’000 €’000 Property revaluation differences and differences between depreciation and capital allowances 617 -- (209) (183) 225 Tax losses 1.223 -- 23.233 -- 24.456 Impairment losses and provisions to cover credit risk 14.880 -- -- (14.880) -- Other temporary differences 510 -- (36) (458) 16 17.230 -- 22.988 (15.521) 24.697
The Bank Effect on income Effect on Effect on statement- Balance revaluation income Discontinued Balance 1 January reserve statement operations 31 December 2014 €’000 €’000 €’000 €’000 €’000 Property revaluation differences and differences between depreciation and capital allowances 218 -- (60) -- 158 Tax losses 23.748 -- 28.564 -- 52.312 23.966 -- 28.504 -- 52.470
124 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 26. DEFERRED TAX ASSET (continued)
The Bank Effect on income Effect on Effect on statement- Balance revaluation income Discontinued Balance 1 January reserve statement operations 31 December 2013 €’000 €’000 €’000 €’000 €’000 Property revaluation differences and differences between depreciation and capital allowances 616 -- (215) (183) 218 Tax losses -- -- 23.748 -- 23.748 Impairment losses and provisions to cover credit risk 14.880 -- -- (14.880) -- Other temporary differences 458 -- -- (458) -- 15.954 -- 23.533 (15.521) 23.966
The recognition of deferred tax asset arising from tax losses is based on the forecasts of the Bank’s Management for profitability. These forecasts are based on the available evidence, including the historical data, improved macroeconomic forecasts/estimates, the reduction in deposit rates, the stabilisation of non performing loans and of the development work and are estimated at 12,5% tax rate. Therefore, it is probable that the Bank may realise future taxable gains against which the deferred tax assets may be used.
The tax losses relate to the same jurisdiction with the deferred tax asset.
Deferred tax assets have not been recognised in relation to the following data, as it not probable that future taxable profit will be available against which the Group may utilize the benefits in relation to the fact that they can be transferred and set off to the taxable profits only of the following five years, based on an amendment of the Income Tax Law published on 21 December 2012.
2014 €’000 Tax losses ending 2016 19.721
27. OTHER ASSETS
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Prepaid expenses 1.653 885 1.647 704 Fair value of derivatives (Note 37) 11.070 7.168 11.070 7.173 Assets held to cover liabilities of unit linked funds 13.176 12.662 -- -- Debtors and other receivables 43.452 53.437 24.939 30.772 69.351 74.152 37.656 38.649
HELLENIC BANK GROUP ANNUAL REPORT 2014 125 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 27. OTHER ASSETS (continued)
The debtors and other receivables include assets held for sale amounting to €21.437 thousand (2013: €23.834 thousand) for the Group and €20.078 thousand (2013: €22.858 thousand) for the Bank. Assets held for sale consist of assets from customers’ debt settlement amounting to €8.165 thousand (2013: €11.021 thousand) for the Group and €7.257 thousand (2013: €10.045 thousand) for the Bank, and properties which are no longer used by the Group and the Bank for their operations and which they intend to sell, amounting to €13.273 thousand (2013: €12.813 thousand) and €12.820 thousand (2013: €12.813 thousand).
The movement of assets from customers’ debt settlement on 31 December 2014 is presented as follows:
Banking & Insurance Financial services Services Total €΄000 €΄000 €΄000 1 January 2014 10.045 976 11.021 Impairment losses (2.788) (68) (2.856) 31 December 2014 7.257 908 8.165
During 2014, the Group’s assets held for sale were revalued by independent professional valuers based on open market value for their existing use. The fair value of these assets for the Group amounted to €22.315 thousand (2013: €25.133 thousand) and for the Bank €20.955 thousand (2013: €24.093 thousand).
During 2014 the Bank disposed a shop classified in the category assets held for sale. Due to the current economic situation the Group has not proceeded with any other disposal of assets held for sale.
Assets held to cover liabilities of unit linked funds comprise of:
The Group 2014 2013 €’000 €’000 Deposits 2.273 1.748 Government bonds 313 1.776 Equity securities 10.590 9.138 13.176 12.662
28. DEPOSITS BY BANKS
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Interbank accounts 58.623 39.173 58.623 39.169 Cheque clearing 12.137 8.189 12.137 8.189 70.760 47.362 70.760 47.358
126 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 28. DEPOSITS BY BANKS (continued)
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 On demand 51.008 33.649 51.008 33.649 Within three months 4.462 4.682 4.462 4.682 Between three months and one year 15.290 9.027 15.290 9.027 Over 5 years -- 4 -- -- 70.760 47.362 70.760 47.358
On 31 December 2014, an amount of €6.110 thousand (2013: €730 thousand) is pledged as collateral on deposits by banks, being common practise among financial institutions.
29. DEPOSITS BY CENTRAL BANKS
The Group and the Bank 2014 2013 €’000 €’000 Between one and five years 236.014 --
On 5 June 2014, in pursuing its price stability mandate, the Governing Council of the European Central Bank (ECB) decided to introduce measures to enhance the functioning of the monetary policy transmission mechanism by supporting lending to the real economy. One particular measure announced by the ECB in relation to achieving this objective, was the decision of ECB to conduct a series of targeted longer-term refinancing operations (TLTROs) over a period of two years. In implementing this plan, the Governing Council aims to support bank lending to the non-financial private sector, meaning households and non-financial corporations, to the Eurozone member states. This measure does not propose to deal with lending to households for the purposes of house purchases.
Under the scheme, banks were entitled to an initial borrowing allowance equal to 7% of a specific part of their loans in two parts, in September and December 2014. After this, additional amounts could be borrowed in further TLTROs, depending on the evolvement of the banks’ eligible lending activities in excess of bank-specific benchmarks.
The additional borrowing allowance is limited to three times the difference between the net lending from 30 April 2014 and the benchmark at the time it is claimed. According to the requirements of the ECB, the Banks that borrow under the TLTROs and fail to achieve their benchmarks as at 30 April 2016 will be required to pay back their borrowings in full in September 2016, while on the contrary, all TLROs will mature in September 2018.
According to ECB the interest rate for the remaining six targeted longer-term refinancing operations (TLTROs) will be equal to the interest rate of the Euro system’s main refinancing operations prevailing at the time of each TLTRO transaction separately. The annual interest rate for the amount that has been granted to the Bank is 0,15% for the entire duration of the program and is payable upon the expiry of the program and the capital repayment.
The Bank participates in the program for the amount of €236 million and a number of eligible debt securities have been used as collateral (see Note 19).
HELLENIC BANK GROUP ANNUAL REPORT 2014 127 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 30. CUSTOMER DEPOSITS AND OTHER CUSTOMER ACCOUNTS
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Demand deposits 2.940.691 2.211.361 2.940.691 2.209.953 Savings deposits 408.631 347.977 408.631 347.977 Notice deposits 194.246 233.265 194.246 233.265 Time deposits 2.802.380 2.720.669 2.802.380 2.720.669 6.345.948 5.513.272 6.345.948 5.511.864
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 On demand 3.366.940 2.560.536 3.366.940 2.559.128 Within three months 1.383.310 1.886.402 1.383.310 1.886.402 Between three months and one year 1.561.577 1.032.831 1.561.577 1.032.831 Between one year and five years 34.121 33.503 34.121 33.503 6.345.948 5.513.272 6.345.948 5.511.864
The geographical analysis of the Group’s and the Bank’s total customer deposits and other customer accounts is as follows:
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Cyprus 6.345.948 5.511.864 6.345.948 5.511.864 Russia -- 1.408 -- -- 6.345.948 5.513.272 6.345.948 5.511.864
31. DEFERRED TAX LIABILITY
Deferred taxation arose as follows:
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Property revaluation differences and differences between depreciation and capital allowances 1.340 4.379 1.099 2.522 Other temporary differences 5 27 8 8 1.345 4.406 1.107 2.530
128 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 31. DEFERRED TAX LIABILITY (continued)
Movement of Deferred taxation:
The Group Transfer to Effect on liabilities of income Effect on subsidiary statement- Balance revaluation company held Discontinued Balance 1 January reserve for sale operations 31 December 2014 €’000 €’000 €’000 €’000 €’000 Property revaluation differences and differences between depreciation and capital allowances 4.379 (1.421) (1.516) (102) 1.340 Other temporary differences 27 -- -- (22) 5 4.406 (1.421) (1.516) (124) 1.345
The Group Effect on income Effect on Effect on statement- Balance revaluation income Discontinued Balance 1 January reserve statement operations 31 December 2013 €’000 €’000 €’000 €’000 €’000 Losses from permanent establishment 23.528 -- -- (23.528) -- Property revaluation differences and differences between depreciation and capital allowances 4.437 102 (160) -- 4.379 Other temporary differences 940 -- (39) (874) 27 28.905 102 (199) (24.402) 4.406
The Bank Effect on income Effect on Effect on statement- Balance revaluation income Discontinued Balance 1 January reserve statement operations 31 December 2014 €’000 €’000 €’000 €’000 €’000 Property revaluation differences and differences between depreciation and capital allowances 2.522 (1.423) -- -- 1.099 Other temporary differences 8 ------8 2.530 (1.423) -- -- 1.107
HELLENIC BANK GROUP ANNUAL REPORT 2014 129 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 31. DEFERRED TAX LIABILITY (continued)
The Bank Effect on income Effect on Effect on statement- Balance revaluation income Discontinued Balance 1 January reserve statement operations 31 December 2013 €’000 €’000 €’000 €’000 €’000 Losses from permanent establishment 23.528 -- -- (23.528) -- Property revaluation differences and differences between depreciation and capital allowances 2.424 98 -- -- 2.522 Other temporary differences 882 -- -- (874) 8 26.834 98 -- (24.402) 2.530
32. OTHER LIABILITIES
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Retirement benefit plans -- 4.917 -- 4.917 Fair value of derivatives (Note 37) 11.700 16.103 11.700 16.113 Accrued expenses 14.396 4.447 13.973 3.909 Liabilities of unit linked funds 13.176 12.662 -- -- Provisions to cover credit risk relating to contractual commitments and guarantees 22.463 -- 22.463 -- Other accounts payable 53.664 72.063 16.920 32.400 115.399 110.192 65.056 57.339
Other accounts payable for the Group and the Bank include provisions for pending litigation or cases subject to arbitration proceedings amounting to €1.601 thousand (2013: €1.069 thousand).
130 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 33. LOAN CAPITAL
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Tier 1 Capital Convertible Capital Securities 1 1.577 124.758 1.597 126.382 Convertible Capital Securities 2 128.070 128.070 128.070 128.070 129.647 252.828 129.667 254.452
Tier 2 Capital Non-Convertible Bonds 2016 41.801 41.801 41.801 41.801 Non-Convertible Bonds 2018 10.000 10.000 10.000 10.000 51.801 51.801 51.801 51.801
181.448 304.629 181.468 306.253
Full details/terms of issue of the Bonds and Securities of the Bank are included in the Prospectus and the Supplementary Prospectuses of each issue.
Tier 1 Capital
CONVERTIBLE CAPITAL SECURITIES 1 (CCS 1)
The Convertible Capital Securities 1 are perpetual securities with no maturity date. Under the terms of their issue, they bear an annual fixed interest rate of 11% which is payable on a quarterly basis at the end of each Interest Payment period. Interest payment dates are set to be the 31st of March, 30th of June, 30th of September and 31st of December.
The Bank may, at its sole discretion, partially or fully cancel the interest payment on non-cumulative basis at any time considered necessary or desirable and for any reason, for an unlimited time period and without any restriction to the Bank.
The interest payment will be paid by the Available Distributable Items of the Bank.
Without this affecting the right of the Bank on cancelling the interest payment at its sole discretion, as mentioned above, the mandatory cancellation of the interest payment will apply in cases where:
(i) the Bank does not possess the necessary Available Distributable Items for such an interest payment on CCS 1, or (ii) the Bank or the Group is in breach of applicable laws, regulations, requirements, guidelines and policies regarding the Bank’s or the Group’s capital requirements, or (iii) there is a requirement by the Central Bank of Cyprus at its sole discretion, as the supervisory authority, to cancel all or part of an interest payment.
Interest cancellation will not constitute an event of default, will not impose any restrictions on the Bank and will not grant the right to CCS 1 holders to apply for the liquidation or resolution of the Bank. The Bank may use any cancelled interest payment without restrictions in order to fulfil its obligations, as they fall due.
The CCS 1 are unsecured and subordinated obligations of the Bank and at their issuance are classified as Tier I capital securities in accordance with the Directive of Capital Requirements and Large Exposures (as amended, revised or replaced) and any relevant European Union Directives and Regulations as applied in Cyprus or any other requirements that may apply.
HELLENIC BANK GROUP ANNUAL REPORT 2014 131 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 33. LOAN CAPITAL (continued)
The rights and claims of CCS 1 holders:
(i) are subordinated to the claims of the Bank’s creditors, which are:
• depositors or other creditors whose claims are not subordinated to claims of the depositors,
• creditors whose claims are subordinated, except those whose claims rank pari passu with the claims of CCS 1 holders,
• Bank bondholders that are classified as Capital Tier II (Tier 2), whose claims are subordinated,
• holders of securities that are issued or guaranteed by the Bank and ranked in higher priority than the CCS 1
(ii) Rank pari passu with the claims of other existing issues of the Bank (Capital Securities 2003 and NCPCS) and any other future bond and other securities issues of the Bank that are classified as Tier I, excluding ordinary shares.
(iii) They have priority only in respect of the Bank’s Shareholders.
Under the provisions of the Prospectus dated 30 September 2013 the Bank may, at its sole discretion, redeem, at par including accrued interest, excluding any cancelled interest, the total or part of the CCS 1, on 31 October 2018 or on any interest payment date after that date, provided that the financial situation and/or the solvency of the Bank and/or the Group are not adversely affected by such a redemption and after approval by the Central Bank of Cyprus or other competent supervisory authority. In case of redemption of part of the CCS 1, the redemption will apply for all holders of CCS 1 in proportion to the CCS 1 they hold.
The CCS 1 are also redeemable at the sole discretion of the Bank, during or after their issue (after approval of the Central Bank of Cyprus or other competent supervisory authority and given that events or conditions referred to in (i) or/and (ii) below, as applicable, could not reasonably be anticipated by the Bank at the time of the issue of CCS 1 and deemed by the Central Bank of Cyprus that such changes in (i) below are considered almost certain), in whole and not part of, at par including accrued interest not cancelled:
(i) where as a result of any change or proposed change in Laws or Regulations of the Republic of Cyprus, the relevant Directives, Regulations or Laws in relation to the Credit Institutions or change or proposed change in the application or official interpretation, the CCS 1 cease to be considered:
(a) Tier I Capital and/or
(b) appropriate funds for inclusion in the calculation of capital requirements as defined by Troika (as long as the Hellenic Bank or the Group is required to maintain Common Equity Tier 1 ratio equal to or greater than 9%).
(ii) If the Bank shall not be entitled to claim any deduction in the calculation of tax liabilities in Cyprus with respect to any interest payment on the next interest payment date or if the amount of any deduction for the Bank would be greatly reduced.
All CCS 1 redeemed by the Bank will be cancelled and will not be reissued or resold. The Bank shall cease to have any obligations in regards to any CCS 1 that may be cancelled.
On 9 December 2013, in accordance with the above provisions, and at its sole discretion, the Bank announced the mandatory cancellation of the interest payment as a result of the inexistence of the required Available Distributable Items for such interest payment. The mandatory cancellation of interest payment will be valid unless the Bank warns the holders of the CCS 1 otherwise.
Any redemption of CCS 1 will be subject to prior approval from the Central Bank of Cyprus, as the supervisory authority and/or any other competent authority.
The CCS 1 will mandatorily and irrevocably be converted into ordinary shares, if any of the following occur:
(a) The Common Equity Tier 1 ratio of the Bank or the Group after 31st October 2013 or if this date is amended by the Central Bank of Cyprus, after this new date, has decreased, or remained below 9% (as long as Hellenic Bank or the Group is required, by the Central Bank of Cyprus, to maintain its Common Equity Tier 1 ratio equal to or greater than 9%).
132 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 33. LOAN CAPITAL (continued)
(b) The Common Equity Tier 1 ratio of the Bank or the Group at any time decreases or remains below the applicable percentage required, by the Central Bank of Cyprus, to be maintained by the Bank or the Group with maximum ratio of Common Equity Tier 1 of 9%.
(c) The Common Equity Tier 1 ratio of the Bank or the Group is decreased below 5,125%.
(d) If any Non Viability Event occurs for the Bank or the Bank may be subject to state aid measures.
The conversion amount will be, as applicable, (i) the amount required to restore the Common Equity Tier 1 ratio of the Bank and/or the Group to 5,125% and/or to 9% (for the latter, as long as Hellenic Bank or the Group is required to maintain the Common Equity Tier 1 ratio equal to or greater than 9%) and/or the applicable ratio that is required, at any time, from the Central Bank of Cyprus with maximum ratio of Common Equity Tier 1 Capital of 9% or (ii) the amount required so that Hellenic Bank is considered viable by the Central Bank of Cyprus, in each case up to the entire nominal amount of CCS 1. Any conversion will apply pro rata to the outstanding balance of CCS 1.
In accordance with the provisions of the Prospectus dated 30 September 2013: The CCS 1 will be converted into new fully paid ordinary shares of Hellenic Bank at the ‘Mandatory Conversion Price’, which will be equal to the higher of:
(i) the Mandatory Reported Market Price, i.e. the average closing price of the last five days of trading of the shares of the Bank on the CSE prior to conversion with 20% discount,
(ii) the minimum conversion price of €0,10 and,
(iii) the nominal value of the Bank’s ordinary shares.
The CCS 1 holders may voluntarily convert them into new fully paid ordinary shares of the Bank, at predetermined periods each year at the ‘Voluntary Conversion Price’, which will be equal to the higher of:
(i) the Voluntary Reported Market Price, i.e. the average closing price of the last five days of trading of the shares of the Bank on the CSE prior to conversion with 20% discount,
(ii) the minimum conversion price of €0,15 and,
(iii) the nominal value of the Bank’s ordinary shares.
On 28 February 2014, under the provisions of the Prospectus dated 30 September 2013, within the implementation framework of the issue terms of CCS 1 and as a result of the formation of the Common Equity Tier 1 ratio of the Group and the Bank being below the minimum required supervisory ratio of 9%, CCS 1 of a total value of €85.873.871 were mandatorily and irrevocably converted, without any obligation to obtain the consent of the CCS 1 holders, to shares so that the lower of the two, Common Equity Tier 1 Ratio of the Bank and the Group is increased to 9%.
Furthermore, on 29 August 2014 and on 26 October 2014 and as a result of the Common Equity Tier 1 Ratio of the Group and the Bank being below the minimum required supervisory ratio of 8%, as set by the Central Bank’s circular dated 29 May 2014, CCS 1 of total value of €15.106.520 and €23.804.161 respectively, were mandatorily and irrevocably converted to shares so that, the lower of the two, Common Equity Tier 1 Ratio of the Bank and the Group is increased to 8%.
The mandatory conversion was applied pro rata to the outstanding balance of CCS 1 for each investor on the conversion date and the mandatory Conversion Price of CCS 1 to shares was set at €0,10. All CCS 1 that have been converted into shares were automatically cancelled and any right or obligation derived from the Prospectus ceased to be valid.
An amount of €20 thousand is eliminated on consolidation.
The CCS 1 are listed on Cyprus Stock Exchange.
CONVERTIBLE CAPITAL SECURITIES 2 (CCS 2)
The Convertible Capital Securities 2 are perpetual securities with no maturity date. Under the terms of their issue, they bear an annual fixed interest rate of 10% which is payable on a quarterly basis at the end of each Interest Payment period.
HELLENIC BANK GROUP ANNUAL REPORT 2014 133 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 33. LOAN CAPITAL (continued)
Interest payment dates are set to be the 31st of March, 30th of June, 30th of September and 31st of December. The Bank may, at its sole discretion, partially or fully cancel the interest payment on non-cumulative basis at any time considered necessary or desirable and for any reason, for an indefinite time period and without any restriction to the Bank.
The interest payment will be paid by the Available Distributable Items of the Bank.
Without this affecting the right of the Bank on cancelling the interest payment at its sole discretion, as mentioned above, the mandatory cancellation of the interest payment will apply in cases where:
(i) the Bank does not possess the necessary Available Distributable Items for such an interest payment on CCS 2, or (ii) the Bank or the Group is in breach of applicable laws, regulations, requirements, guidelines and policies regarding the Bank’s or the Group’s capital requirements, or (iii) there is a requirement by the Central Bank of Cyprus at its sole discretion, as the supervisory authority, to cancel all or part of an interest payment.
Interest cancellation will not constitute an event of default, will not impose any restrictions on the Bank and will not grant the right to CCS 2 holders to apply for the liquidation or resolution of the Bank. The Bank may use any cancelled interest payment without restrictions in order to fulfil its obligations, as they fall due.
CCS 2 were offered (the ‘CCS 2 Voluntary Conversion Proposal’) to the holders of the following securities: • Bonds due 2016 (ISIN CY0140040110), issued under the issuance terms of the Prospectus dated 11 May 2006, • Bonds due 2018 issued on 1 September 2008, • Bonds due 2019 (ISIN CY0140940111) issued on 11 March 2009 under the issuance terms included in the Prospectus dated 18 May 2009 and, • Capital securities (ISIN CY0048940114) issued on 18 April 2003 under the issuance terms of the Prospectus dated 7 November 2003.
The CCS 2 are unsecured and subordinated obligations of the Bank and at their issuance are classified as Tier I capital securities in accordance with the Directive of Capital Requirements and Large Exposures (as amended, revised or replaced) and any relevant European Union Directives and Regulations as applied in Cyprus or any other requirements that may apply.
The rights and claims of CCS 2 holders:
(i) are subordinated to the claims of the Bank’s creditors, which are:
• depositors or other creditors whose claims are not subordinated to claims of the depositors,
• creditors whose claims are subordinated, except those whose claims rank pari passu with the claims of CCS 2 holders,
• Bank bondholders that are classified as Capital Tier II (Tier 2), whose claims are subordinated,
• Holders of securities that are issued or guaranteed by the Bank and their rank is higher of the rank of CCS 2.
(ii) Rank pari passu with the claims of other existing issues of the Bank (Capital Securities 2003 and NCPCS) and any other future bond and other securities issues of the Bank that are classified as Tier I, with the exception of the ordinary shares.
(iii) They have priority only in respect of the Bank’s Shareholders.
Under the provisions of the Prospectus dated 30 September 2013 the Bank may, at its sole discretion, redeem, at par including accrued interest, excluding any cancelled interest, the total or part of the CCS 2, on 31 October 2018 or on any interest payment date after that date, provided that the financial situation and/or the solvency of the Bank and/or the Group are not adversely affected by such a redemption and after approval by the Central Bank of Cyprus or other competent supervisory authority. In case of redemption of part of the CCS 2, the redemption will apply for all holders of CCS 2 in proportion to the CCS 2 they hold.
The CCS 2 are also redeemable at the sole discretion of the Bank, during or after their issue (after approval of the Central Bank of Cyprus or other competent supervisory authority and given that events or conditions referred to in (i) or/and (ii) below, as applicable, could not reasonably be anticipated by the Bank at the time of the issue of CCS 2 and deemed by the Central Bank of Cyprus that such changes in (i) below are considered almost certain), in whole and not part of, at par
134 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 33. LOAN CAPITAL (continued) including accrued interest not cancelled: (i) where as a result of any change or proposed change in Laws or Regulations of the Republic of Cyprus, the relevant Directives, Regulations or Laws in relation to the Credit Institutions or change or proposed change in the application or official interpretation, the CCS 2 cease to be considered:
(a) Tier I capital and/or
(b) appropriate funds for inclusion in the calculation of capital requirements as defined by Troika (as long as the Hellenic Bank or the Group is required to maintain Common Equity Tier 1 ratio equal to or greater than 9%).
(ii) if the Bank shall not be entitled to claim any deduction in the calculation of tax liabilities in Cyprus with respect to any interest payment on the next interest payment date or the amount of any deduction for the Bank would be significantly reduced.
All CCS 2 redeemed by the Bank will be cancelled and will not be reissued or resold. The Bank shall cease to have any obligations in regards to any CCS 2 that may be cancelled.
On 9 December 2013, in accordance with the above provisions, and at its sole discretion, the Bank announced the cancellation of the interest payment as a result of inexistence of the required Available Distributable Items for such interest payment. The mandatory cancellation of interest payment will be valid unless the Bank warns the holders of the CCS 2 otherwise.
Any redemption of CCS 2 will be subject to prior approval from the Central Bank of Cyprus, as supervisory authority or/and any other competent authority.
The CCS 2 will mandatorily and irrevocably be converted into ordinary shares, if any of the following occur:
(a) The Common Equity Tier 1 ratio of the Bank or the Group after 31st October 2013 or if this date is amended by the Central Bank of Cyprus, after this new date, has decreased, or remained below 9% (as long as Hellenic Bank or the Group is required, by the Central Bank of Cyprus, to maintain its Common Equity Tier 1 ratio equal to or greater than 9%).
(b) the Common Equity Tier 1 ratio of the Bank or the Group at any time decreases or remains below the applicable percentage required, by the Central Bank of Cyprus, to be maintained by the Bank or the Group with maximum ratio of Common Equity Tier 1 of 9%.
(c) The Common Equity Tier 1 ratio of the Bank or the Group is decreased below 5,125%.
(d) If any Non Viability Event occurs for the Bank or the Bank may be subject to State Aid measures.
The conversion amount will be, as applicable, (i) the amount required to restore the Common Equity Tier 1 ratio of the Bank and/or the Group to 5,125% and/or to 9% (for the latter, as long as Hellenic Bank or the Group is required to maintain the Common Equity Tier 1 ratio equal to or greater than 9%) and/or the applicable ratio that is required, at any time, from the Central Bank of Cyprus with maximum ratio of Common Equity Tier 1 Capital of 9% or (ii) the amount required so that Hellenic Bank is considered viable by the Central Bank of Cyprus, in each case up to the entire nominal amount of CCS 2. Any conversion will apply pro rata to the outstanding balance of CCS 2.
In accordance with the provisions of the Prospectus dated 30 September 2013: The CCS 2 will be converted into new fully paid ordinary shares of Hellenic Bank at the ‘Mandatory Conversion Price’, which will be equal to the higher of:
(i) the Mandatory Reported Market Price, i.e. the average closing price of the last five days of trading of the shares of the Bank on the CSE prior to conversion with 20% discount,
(ii) the minimum conversion price of €0,05 and,
(iii) the nominal value of the Bank’s ordinary shares.
HELLENIC BANK GROUP ANNUAL REPORT 2014 135 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 33. LOAN CAPITAL (continued)
The CCS 2 holders may voluntarily convert them into new fully paid ordinary shares of the Bank, at predetermined periods each year at the ‘Voluntary Conversion Price’, which will be equal to the higher of:
(i) the Voluntary Reported Market Price, i.e. the average closing price of the last five days of trading of the shares of the Bank on the CSE prior to conversion with 20% discount,
(ii) the minimum conversion price of €0,15 and,
(iii) the nominal value of the Bank’s ordinary shares.
The CCS 2 are listed on Cyprus Stock Exchange.
Further to the announcement of Hellenic Bank Public Company Ltd dated 31 October 2014, concerning the decision of the Board of Directors of the Bank for the issue of shares via rights issue and based on the provisions of the Prospectus dated 30 September 2013 (‘the Prospectus’) part IV/B/III paragraph 10 C1 and part IV/C/III paragraph 11 C1, the minimum price of mandatory conversion of the CCS1 is readjusted from €0,10 to €0,08, the minimum price of voluntary conversion of the CCS1 was readjusted from €0,15 to €0,13 as well as the minimum price of mandatory conversion of the CCS2 was readjusted from €0,05 to €0,04 and the minimum price of voluntary conversion of the CCS2 was readjusted from €0,15 to €0,13. These readjustments became effective from 18 November 2014, the date of the first CSE session that the shares of Hellenic Bank traded ex-rights.
Tier 2 Capital
For the purposes of the calculation of the capital base, the following bonds are considered as Tier 2 Capital.
NON-CONVERTIBLE BONDS 2016
The 2016 Bonds were issued in three different series and will mature on the 1st of July 2016, irrespective of the date of issue. Under the terms of issue, (Prospectus dated 11 May 2006, Supplementary Prospectus dated 7 June 2006, Second Supplementary Prospectus dated 1 November 2006, Third Supplementary Prospectus dated 12 December 2006 and Fourth Supplementary Prospectus dated 5 April 2007), the Bank has the right to redeem the Bonds 2016 on any interest payment date after the 1st of July 2011. The Bonds which resulted from all issues are listed on the Cyprus Stock Exchange.
Bonds 2016 are not secured and in the event of the Bank’s liquidation their repayment follows in priority the claims of depositors and other creditors. They have, however, priority over Shareholders and Capital Securities holders.
Bonds 2016 bear interest at a floating rate reviewed at the beginning of each interest payment period and applicable to that specific period. According to the Bonds’ terms of issue, if the Bonds were not redeemed by the Bank, the current interest rate was the 3-month Euribor plus 0,80% until the 1st of July 2011 and the 3-month Euribor plus 1,50% after the 1st of July 2011. Interest is payable quarterly in cash at the end of each interest period. For the period from the 1st of January 2014 to 31 March 2014 the interest rate was set at 1,79% per annum, for the period from the 1st of April 2014 to 30 June 2014 the interest rate was set at 1,81% per annum, for the period from the 1st of July 2014 to 30 September 2014 the interest rate was set at 1,71% per annum, while for the period from the 1st of October 2014 to 31 December 2014 the interest rate was set at 1,58% per annum.
With the absorption of the operations of Athena Cyprus Company Ltd on 28 June 2010, an amount of €854 thousand, which related to an investment of Athena Cyprus Public Company Ltd in Bonds 2016, had been undertaken by the Bank and is eliminated on consolidation.
Pursuant to the Prospectus, dated 30 September 2013 and upon completion of the Plan (see Note 47), among others, CCS 2 of total value of €20.881.785 were issued to exchange the Non-Convertible Bonds 2016 (ISIN CY0140040110), to the holders who had accepted the CCS 2 Voluntary Exchange Proposal.
On the 2nd of November 2013, all Non-Convertible Bonds 2016 that were converted into CCS 2 were automatically cancelled and the Bank ceased to have any obligations in respect of them.
136 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 33. LOAN CAPITAL (continued)
NON CONVERTIBLE BONDS 2018
On the 1st of September 2008, the Bank proceeded with the issue of Bonds 2018 amounting to €10.000.000. The Bonds have a maturity date 31 August 2018 and form part of the Bank’s Tier 2 Capital.
Interest on Bonds 2018 is payable in cash every three months, at the end of each interest period. Bonds 2018 bear interest at a floating rate equal to the 3-month Euribor rate applicable at the beginning of each interest period, plus 1,75%. Under the terms of issuance of the bond if the bonds were not redeemed by the Bank after the 1st of September 2013, they would bear an additional interest of 1%. Consequently the interest rate applicable subsequent to the 1st of September 2013 is equal to the 3-month Euribor plus 2,75%.
Bonds 2018 are not secured and in the event of the Bank’s liquidation their repayment follows in priority the claims of depositors and other creditors. They have, however, priority over Shareholders and Capital Securities holders. Bonds 2018 are not listed on the Cyprus Stock Exchange.
34. SHARE CAPITAL
The Group and the Bank 31 December 31 December 2014 No. of shares 2013 No. of shares €’000 (thousand) €’000 (thousand) Authorised 51.600 million shares of €0,01 each 516.000 51.600.000 516.000 51.600.000
The Group and the Bank 31 December 31 December 2014 No. of shares 2013 No. of shares €’000 (thousand) €’000 (thousand) Issued Fully paid shares
1 January 26.888 2.688.753 266.466 619.689 Transfer to the Reduction of Share Capital Reserve -- -- (260.269) -- Issue of shares from exercise of Rights 53.644 5.364.375 -- -- Issue of shares from conversion of Non Convertible Capital Securities 12.478 1.247.846 -- -- Issue of new shares -- -- 20.691 2.069.064 Total issued share capital 93.010 9.300.974 26.888 2.688.753
HELLENIC BANK GROUP ANNUAL REPORT 2014 137 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 34. SHARE CAPITAL (continued)
At the Extraordinary General Meeting of the Shareholders of Hellenic Bank Public Company Ltd held on Wednesday, 14th of August 2013, within the framework of the Capital Enhancement Plan of the Group (‘Plan 2013’), the following resolutions relating to the share capital were unanimously approved:
• That the authorised share capital of the Bank, which amounted to €516.000.000 and was divided into 1.200.000.000 ordinary shares of nominal value €0,43 each, as well as the issued share capital of the Bank, which amounted to €266.466.364,60 divided into 619.689.220 ordinary and fully paid shares of nominal value €0,43 each, be reduced to €12.000.000 divided into 1.200.000.000 ordinary shares of nominal value €0,01 each (authorised) and to €6.196.892,20 divided into 619.689.220 ordinary and fully paid shares of nominal value €0,01 each (issued) and that this reduction is carried out with the reduction of the nominal value of every ordinary share from €0,43 each to €0,01 each and the transfer of the difference that will emerge from the reduction to a reserve under the name ‘reserve from reduction of capital’ pursuant to the provisions of article 64(1)(e) of the Companies’ Law (Chapter 113). Following the aforementioned reduction, the authorised capital of the Bank will increase to €516.000.000, which will be divided into 51.600.000.000 ordinary shares of nominal value €0,01 each.
• That, provided that the above resolution is approved by the Court, the Board of Directors of the Bank is authorised to issue and allocate such number of shares of nominal value €0,01 each from the authorised share capital that will be available to the Bank after the capital increase to achieve raising of capital of total of €168.000.000 and to dispose it as follows:
(i) Shares of nominal value €0,01 each on a pro rata basis to existing Shareholders of the Bank with a sale price per share (the ‘Disposal Price to the Shareholders’) at the sole discretion of the Board of Directors, which will not be lower of the nominal value and that the aforementioned offer is expanded to the holders of Non-Cumulative Convertible Capital Securities of Indefinite Duration issued by the Bank based on the issue terms included in the Prospectus dated 17 September 2010 and pursuant to Paragraph 7(c) of the issue terms included in Part II of the Prospectus dated 17 September 2010 of the Non-Cumulative Perpetual Capital Securities (NCPCS) for the absorbance of capital of up to €168.000.000.
(ii) Any shares that will not be undertaken by the existing Shareholders and holders of the NCPCS within the framework of the disposal mentioned above may be disposed by the Board of Directors at its sole discretion at a disposal price per share not lower than the ‘Disposal Price to the Shareholders’.
On the 14th August 2013, the Nicosia District Court approved the special resolution for the reduction of the nominal value of the share capital and the resolution for increase of the authorised share capital.
On the 1st of November 2013 the Bank’s Board of Directors completed the evaluation of the applications received within the framework of the Plan 2013, pursuant to the Prospectus dated 30 September 2013 and the implementation of the provisions of Article 5B of the Restructuring of Financial Organizations Law (N.200(I)/2011, as amended), securing capital of €358 million.
Specifically, the Board of Directors, pursuant to the Prospectus dated 30 September 2013, decided to issue the following titles:
1. Issue of 66.578.740 new shares of nominal value €0,01 each at the price of €0,05 each to the existing Shareholders and the holders of the Non-Cumulative Perpetual Capital Securities, who have submitted an application.
2. Issue of 2.002.485.731 new shares of nominal value €0,01 each at the price of €0,05 each to other investors.
A total number of 2.069.064.471 shares arising from the 2013 Plan have been listed and are traded on the Cyprus Stock Exchange.
On 28 February 2014, under the provisions of the Prospectus dated 30 September 2013, within the implementation framework of the issue terms of CCS 1 and CCS 2, and as a result of the formation of the Common Equity Tier 1 ratio of the Group and the Bank being below the minimum required supervisory ratio of 9%, CCS 1 of a total value of €85.873.871 were mandatorily and irrevocably converted, without any obligation to obtain the consent of the CCS 1 holders, to shares so that the lower of the two, Common Equity Tier 1 Ratio of the Bank and the Group is increased to 9%.
On 29 August 2014 and on 26 October 2014 and as a result of the Common Equity Tier 1 Ratio of the Group and the Bank being below the minimum required supervisory ratio of 8%, as set by the Central Bank’s of Cyprus circular dated
138 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 34. SHARE CAPITAL (continued)
29 May 2014, CCS 1 of total value of €15.106.520 and €23.804.161 respectively, were mandatorily and irrevocably converted to shares so that, the lower of the two, Common Equity Tier 1 Ratio of the Bank and the Group is increased to 8%.
The mandatory conversion was applied pro rata to the outstanding balance of CCS 1 for each investor on the conversion date and the mandatory Conversion Price of CCS 1 to shares was set at €0,10. All CCS 1 that have been converted into shares were automatically cancelled and any right or obligation derived from the Prospectus ceased to be valid. A total of 1.247.845.520 ordinary shares of the Bank resulted from the conversion.
A total of 5.364.374.709 shares resulted during 2014 from the exercise of Rights according to the provisions of the Prospectus dated 14 November 2014 under the restructuring and strengthening of the capital base plan of the Bank (see Note 48).
All shares resulted from the mandatory conversion and from the exercise of Rights have been listed and are traded on the Cyprus Stock Exchange.
At 31 December 2014, 9.300.973.920 fully paid shares were in issue, with a nominal value of €0,01 each (2013: 2.688.753.691 shares with a nominal value €0,01 each).
35. REVALUATION RESERVES
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Property revaluation reserve 1 January 35.793 36.241 32.583 32.952 Deficit on revaluation of land and buildings (6.152) -- (5.937) -- Deferred taxation on property revaluation 1.421 (102) 1.423 (98) Transfer to revenue reserve (964) (346) (964) (271) 30.098 35.793 27.105 32.583
Revaluation reserve of available for sale securities 1 January 6.145 973 6.369 1.680 Revaluation of equity securities 665 (86) 665 (86) Revaluation of debt securities 1.083 4.523 890 4.040 Amortisation of revaluation of reclassified debt securities (1.430) 131 (1.430) 131 Impairment losses on equity securities transferred to the income statement -- 604 -- 604 6.463 6.145 6.494 6.369 Total revaluation reserves 31 December 36.561 41.938 33.599 38.952
The revaluation reserve of available for sale securities at 31 December 2014 consists entirely of revaluation to fair value gains.
HELLENIC BANK GROUP ANNUAL REPORT 2014 139 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 36. CONTINGENT LIABILITIES AND COMMITMENTS
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Contingent liabilities Acceptances and endorsements 812 771 812 771 Guarantees 213.374 229.974 213.374 229.974 214.186 230.745 214.186 230.745 Commitments Undrawn formal standby facilities 472.638 502.870 472.638 502.870 Undisbursed loan amounts 36.339 63.622 36.339 63.603 Other commitments 7.778 8.857 7.778 8.857 516.755 575.349 516.755 575.330
730.941 806.094 730.941 806.075
CAPITAL COMMITMENTS
At 31 December 2014, the Group’s and the Bank’s commitments for capital expenditure, not recognised in the statement of financial position, amounted to €7.871 thousand (December 2013: €5.103 thousand).
OTHER COMMITMENTS
At 31 December 2014, the Group’s and the Bank’s commitments for expenditure regarding advisory services, not recognised in the income statement, amounted to €2.605 thousand.
37. DERIVATIVES
The Group uses the following derivative instruments:
Foreign currency forwards: represent agreements for the purchase or sale of foreign currencies settled at a future date.
Options: represent contracts for future purchase or sale, at a predetermined value of a financial ‘product’, offering the right, but not the obligation, to one of the two parties to request by the other party the fulfilment of the agreement during a certain period of time or on a specific date.
Interest rate swaps: represent agreements where one stream of future interest payments is exchanged for another based on a predetermined notional amount and time periods.
140 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 37. DERIVATIVES (continued)
The Group and the Bank Nominal value Fair value Other Other assets liabilities €’000 €’000 €’000 At 31 December 2014 Foreign currency forwards 226.585 6.533 1.383 Options 30.985 180 180 Interest rate swaps 202.042 4.357 10.137 459.612 11.070 11.700
The Group Nominal value Fair value Other Other assets liabilities €’000 €’000 €’000 At 31 December 2013 Foreign currency forwards 259.732 1.803 2.665 Options 38.004 226 226 Interest rate swaps 190.513 5.139 13.212 488.249 7.168 16.103
The Bank Nominal value Fair value Other Other assets liabilities €’000 €’000 €’000 At 31 December 2013 Foreign currency forwards 259.732 1.808 2.675 Options 38.004 226 226 Interest rate swaps 190.513 5.139 13.212 488.249 7.173 16.113
38. HEDGE ACCOUNTING
The Group’s policy is to hedge the risks arising from its exposure to fluctuations of interest rates, credit ratings and foreign exchange rates.
Fair value hedging
Interest rate swaps, where the Group exchanges fixed rate with floating rate of interest, are used as fair value hedges for fixed interest rate debt securities classified as available for sale.
HELLENIC BANK GROUP ANNUAL REPORT 2014 141 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 38. HEDGE ACCOUNTING (continued)
The fair value of hedging instruments used for hedging interest rate risk is shown below:
The Group and the Bank Nominal value Fair value Other Other assets liabilities €’000 €’000 €’000 At 31 December 2014 Interest rate swaps with fixed interest rate payments 8.237 -- 314
At 31 December 2013 Interest rate swaps with fixed interest rate payments 7.251 -- 776
39. CASH AND CASH EQUIVALENTS
The Group The Bank 2014 2013 2014 2013 €’000 €’000 €’000 €’000 Cash and balances with Central Banks 2.129.910 965.030 2.129.909 962.779 Placements with other banks 997.513 850.711 995.339 828.884 3.127.423 1.815.741 3.125.248 1.791.663
40. DIRECTORS’ INTEREST IN THE SHARE CAPITAL OF THE BANK
According to the Cyprus Securities and Stock Exchange Regulations and in accordance with the requirements of the Directive DI190/2007/04 para. 4 of the Cyprus Securities and Exchange Commission, the Bank is required to disclose the percentage shareholdings in the Bank’s share capital owned by members of the Board of Directors, their spouses, or/and relatives by blood up to first degree and companies in which they control directly and indirectly at least 20% of the voting rights at 31 December 2014 and the respective percentages of five (5) days prior to the date of approval of the financial statements by the Board.
31 December 2014 23 March 2015 Direct Indirect Direct Indirect participation participation Total participation participation Total I. A. Georgiadou ------Dr A. G. Charitou ------D. W. Bonanno ------M. S. Yannopoullos ------Dr. E. A. Polycarpou ------G. Fereos ------M. Pantelidou - Neophytou 0,0001% -- 0,0001% 0,0001% -- 0,0001% I. A. Matsis -- 0,0013% 0,0013% -- 0,0013% 0,0013% Ch. A. Hadjistavris ------
142 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 41. RELATED PARTY TRANSACTIONS
MEMBERS OF THE BOARD OF DIRECTORS AND CONNECTED PERSONS
Connected persons include the spouse and minor children and companies in which Directors hold, directly or indirectly, at least 20% of the voting rights at a general meeting.
31 December 31 December 2014 2013 €’000 €’000
Loans and advances 4 842
Tangible securities 5 1.326
Deposits 1.990 449
Additionally, at 31 December 2014, there were contingent liabilities and commitments in respect of Members of the Board of Directors and their connected persons in the form of documentary credits, guarantees and unused limits amounting to €18 thousand which did not exceeded 1% of the Bank’s net assets (December 2013: €114 thousand).
For the year ended 31 December 2014 there was no interest income in relation to Members of the Board of Directors and their connected persons (December 2013: €45 thousand), while interest expense in respect of Members of the Board of Directors and their connected persons amounted to €9 thousand (December 2013: €6 thousand).
Emoluments and fees of members of the Board of Directors
31 December 31 December 2014 2013 €’000 €’000 Emoluments and fees of members of the Board of Directors: Emoluments and benefits in executive capacity 382 486 Employer’s contributions for social insurance, etc 30 30 Retirement benefits 50 97 Amounts paid on termination 393 -- Total emoluments for Executive Directors 855 613 Fees 270 285
On the 1st of September 2014, the contract of employment between the Executive Director/Chief Executive Officer and the Company was terminated by mutual consent. The two parties agreed to a consideration for the termination of the contract of employment, in cash and in kind, amounting in total to around €393 thousand. The Company also paid to the Executive Director/Chief Executive Officer the total amount of his accrued rights.
Other transactions with members of the Board of Directors and related parties
On 2nd October 2013, Mr. Iacovos G. Iacovou submitted his resignation from the Board of Directors of the Bank. Mr. Iacovos G. Iacovou, holds an indirect interest in the companies Iacovou Brothers (Constructions) Ltd and Iacovou Brothers Technical Constructions (Hellas) S.A.
HELLENIC BANK GROUP ANNUAL REPORT 2014 143 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 41. RELATED PARTY TRANSACTIONS (continued)
On 13 July 2007 a sale contract was signed between the company Iacovou Brothers (Constructions) Ltd and Hellenic Bank Public Co Limited for the acquisition of a plot in Larnaca. The plot was transferred to Hellenic Bank Public Company Ltd on 19 December 2007 and on 11 January 2008 the amount of €769 thousand was paid to Iacovou Brothers (Constructions) Ltd in respect of the acquisition of the relevant plot. On the same date an agreement was signed with the same company for the construction of a five-floor building on the above-mentioned plot. The building includes a ground floor, a mezzanine and two underground parking spaces and is used for the operations of the Bank in Larnaca. The transaction was based on market values and the total amount in accordance to the agreement for the construction of the building and the agreement for additional work was €5.986 thousand including VAT and the cost of the plot. The construction of the building has been completed. During the year ended 31 December 2013, €237 thousand (including VAT) were paid, being the amount of the final settlement between the Bank and the company Iacovou Brothers (Constructions) Ltd.
The sales of insurance policies by the Group’s subsidiary, Pancyprian Insurance Ltd, to members of the Board and their connected persons as defined above, amounted to €7 thousand, while the sales of insurance policies by the Group’s subsidiary, Hellenic Alico Life Insurance Company amounted to €3 thousand.
KEY MANAGEMENT PERSONNEL WHO ARE NOT DIRECTORS AND THEIR CONNECTED PERSONS
Key management personnel are those persons who have the authority and the responsibility for the planning, management and control of the Banks’ operations, directly or indirectly. The Group, according to the provisions of IAS 24 considers as key management personnel the General Managers of the Bank who were not Directors, the members of the Asset and Liability Committee (ALCO) as well as management personnel who refer directly to the Chief Executive Officer.
Connected persons include spouses, minor children and companies in which the key management personnel who were not Directors hold, directly or indirectly, at least 20% of the voting rights at a general meeting.
31 December 31 December 2014 2013 €’000 €’000
Loans and advances 592 523
Tangible securities 160 158
Deposits 6.269 6.210
Emoluments of key management personnel of the Group
The emoluments of key management personnel are for the period they were not Directors.
31 December 31 December 2014 2013 €’000 €’000 Emoluments of key management personnel who were not Directors: Salaries and other short term benefits 1.441 1.459 Employer’s contributions for social insurance etc 187 158 Retirement benefits 128 198 1.756 1.815
144 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 41. RELATED PARTY TRANSACTIONS (continued)
In addition, on 31 December 2014, there were commitments to key management personnel who were not Directors and their connected persons amounting to €441 thousand (December 2013: €386 thousand).
Interest income in relation to key management personnel and their connected persons for the year ended 31 December 2014 amounted to €13 thousand (December 2013: €22 thousand), while interest expense in relation to key management personnel and their connected persons amounted to €194 thousand (December 2013: €141 thousand).
The sales of insurance policies by the Group’s subsidiary, Pancyprian Insurance Ltd, to key management personnel and their connected persons, as defined above, amounted to €18 thousand while the sales of insurance policies by the Group’s subsidiary, Hellenic Alico Life Insurance Company amounted to €30 thousand.
SHAREHOLDERS WITH SIGNIFICANT INFLUENCE AND THEIR CONNECTED PERSONS
Pursuant to the provisions of IAS 24, related parties are considered, among others, the Shareholders who have significant influence to the Bank or/and hold directly or indirectly more than twenty percent (20%) of the nominal value of the issued capital of the Bank.
Connected persons include the entities controlled by Shareholders with significant influence as they are defined above.
31 December 31 December 2014 2013 €’000 €’000
Loans and advances -- 79.500
Tangible securities 50 88.870
Deposits 26.680 5.338
An amount of €20,3 million of the deposits of Shareholder with significant influence is blocked as collateral for the granting of loans to its employees. The loans to the employees of the Shareholder with significant influence were granted at an arm’s length basis.
In addition, on 31 December 2014, there were contingent liabilities and commitments in relation to Shareholders with significant influence and connected persons in the form of documentary credits, guarantees and unused limits amounting to €50 thousand (December 2013: €13.925 thousand).
Interest income in relation to Shareholders and connected persons for the year ended 31 December 2014 amounted to €1 thousand (December 2013: €5.657 thousand), while the corresponding interest expense amounted to €63 thousand (December 2013: €476 thousand).
Other transactions with Shareholders with significant influence and their connected persons
During the year ended 31 December 2014, purchases of goods and services by Shareholders with significant influence as defined above, amounted to €381 million (December 2013: €427 million). In addition, the sales of insurance policies by the Group’s subsidiary, Pancyprian Insurance Ltd, to Shareholders with significant influence and connected persons as defined above, amounted to €0,5 million.
On 31 December 2014, Shareholders with significant influence and their connected persons had in their possession Convertible Capital Securities 2 (CCS 2) amounting to €15,7 million.
In addition, the commissions received for transactions with CSE, by the Group’s subsidiary, Hellenic Bank (Investments) Ltd, from Shareholders with significant influence and their connected persons as defined above, amounted to €15 thousand.
HELLENIC BANK GROUP ANNUAL REPORT 2014 145 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 41. RELATED PARTY TRANSACTIONS (continued)
All transactions with members of the Board of Directors, key management personnel, Shareholders with significant influence and their connected persons are at an arm’s length basis. Regarding the key management personnel, facilities have been granted based on current terms as those applicable to the rest of the Group’s personnel.
42. SHAREHOLDERS HOLDING MORE THAN 5% OF THE SHARE CAPITAL
According to the Cyprus Securities and Stock Exchange Regulations and pursuant to the requirements of the Directive DI190/2007/04 para. 4 of the Cyprus Securities and Exchange Commission, the following Shareholders owned five (5) percent or more of the nominal value of the Bank’s issued share capital at 31 December 2014:
CPB FBO Third Point Hellenic Recovery Fund LP (CΥ) 26,98% Wargaming Public Company Limited 26,46% Demetra Investment Public Ltd 10,69% Senvest International L.L.C. and Senvest Master Fund,L.P. 5,03%
On 31 December 2014 Shareholders holding more than 5% of the share capital, had in their possession CCS 1 amounting to €201,4 thousand, CCS 2 amounting to €27,8 million and Non Convertible Bonds 2016 amounting to €1,6 million.
Pursuant to the requirements of the Directive DI190/2007/04 of the Cyprus Securities and Exchange Commission, the Bank is required to disclose the percentage of Shareholders who held at least five (5) percent of the nominal value of the issued capital, five (5) days prior to the date of approval of the financial statements by the Board.
CPB FBO Third Point Hellenic Recovery Fund LP (CΥ) 26,73% Wargaming Public Company Limited 26,21% Demetra Investment Public Ltd 10,59%
Five (5) days prior to the date of approval of the financial statements by the Board, Shareholders holding more than 5% of the share capital, had in their possession CCS1 amounting to €23,4 thousand and CCS 2 amounting to €15,7 million.
43. FAIR VALUE
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.
The Group measures the fair value of an instrument using the quoted price in an active market, when available, for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the main factors that market participants would take into account in pricing a transaction.
Fair value of financial instruments
The table below presents the analysis of financial instruments measured at fair value on the basis of the three-level hierarchy by reference to the source of data used to derive the fair values. The levels of hierarchy of fair value are as follows: • Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: Data other than quoted prices included within level 1 that is observable for the asset or liability, either directly or indirectly. • Level 3: Import data for the asset or liability that is not based on observable market data (non- observable import data).
146 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 43. FAIR VALUE (continued)
31 December 2014 Level 1 Level 2 Level 3 Total €΄000 €΄000 €΄000 €΄000 Financial assets Derivatives: Foreign currency forwards -- 6.533 -- 6.533 Options -- 180 -- 180 Interest rate swaps -- 4.357 -- 4.357 -- 11.070 -- 11.070 Other financial assets at fair value through profit or loss Debt securities: Government ------Banks 286 -- -- 286 Other issuers 1.596 -- -- 1.596 Equity securities 525 -- -- 525 2.407 -- -- 2.407 Investments available for sale Debt securities: Government 213.309 2.569 -- 215.878 Banks 155.339 -- 9.966 165.305 Other issuers 14.995 -- 1.373 16.368 Equity securities 1.514 -- 7.280 8.794 385.157 2.569 18.619 406.345 Total 387.564 13.639 18.619 419.822
31 December 2014 Level 1 Level 2 Level 3 Total €΄000 €΄000 €΄000 €΄000 Financial liabilities Derivatives: Foreign currency forwards -- 1.383 -- 1.383 Options -- 180 -- 180 Interest rate swaps -- 10.137 -- 10.137 Total -- 11.700 -- 11.700
HELLENIC BANK GROUP ANNUAL REPORT 2014 147 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 43. FAIR VALUE (continued)
31 December 2013 Level 1 Level 2 Level 3 Total €΄000 €΄000 €΄000 €΄000 Financial assets Derivatives: Foreign currency forwards -- 1.803 -- 1.803 Options -- 226 -- 226 Interest rate swaps -- 5.139 -- 5.139 -- 7.168 -- 7.168 Other financial assets at fair value through profit or loss Debt securities: Government -- 50 -- 50 Banks 47 268 -- 315 Other issuers 1.597 -- -- 1.597 Equity securities 527 -- -- 527 2.171 318 -- 2.489 Investments available for sale Debt securities: Government 57.983 2.304 -- 60.287 Banks 100.271 -- 8.860 109.131 Other issuers 22.338 -- 2.021 24.359 Equity securities 942 -- 6.874 7.816 181.534 2.304 17.755 201.593 Total 183.705 9.790 17.755 211.250
31 December 2013 Level 1 Level 2 Level 3 Total €΄000 €΄000 €΄000 €΄000 Financial liabilities Derivatives: Foreign currency forwards -- 2.665 -- 2.665 Options -- 226 -- 226 Interest rate swaps -- 13.212 -- 13.212 Total -- 16.103 -- 16.103
148 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 43. FAIR VALUE (continued)
The table below presents the analysis of financial instruments categorized at level 3 hierarchy:
Level 3 2014 2013 €΄000 €΄000 1 January 17.755 16.722 Losses recognised in consolidated income statement in the category ‘Net losses on disposal and revaluation of foreign currencies and financial instruments’ 269 347 Repayments (413) (718) Losses recognised in consolidated statement of comprehensive income in the category ‘Surplus on revaluation of available for sale equity and debt securities’ 1.008 1.404 31 December 18.619 17.755
For the valuation at fair value of the investments in equity securities which are classified as Level 3, a valuation method based on the company’s equity at which the investment in shares is held as well as estimates of the management of the Group have been used. Investments in debt securities, classified in Level 3, were valued using unobservable data that reflect however the assumptions that market participants would make to assess an asset or a liability, based on the best available information under current conditions.
On 31 December 2014 the fair value of investments in debt securities classified in the category ‘Assets held to maturity’ and which are not measured at fair value amounted to €56.716 thousand for the Group and to €52.690 thousand for the Bank and have been classified at level 1. Also the fair value of investments in debt securities classified in the category ‘Loans and receivables’ and which are not measured at fair value, amounted to €317.121 thousand for the Group and the Bank and have been classified at level 2.
The fair value of loans and advances to customers not measured at fair value on 31 December 2014 amounted to €3.202 million for the Group and the Bank and have been classified at level 3.
44. SEGMENTAL ANALYSIS
For management purposes, during 2014, the Group was organized into three operating segments based on a combination of geographical areas and services, as follows:
• Cyprus banking and financial services segment - principally provided banking and financial services in Cyprus, including financial and investment services as well as custodian and factoring services. It also includes the results of the Group’s Subsidiary company in Greece ‘Hellenic Insurance Agency Ltd’. • Cyprus insurance services segment - principally provided life and general insurance services in Cyprus. • Russia segment - principally provided banking services through the Bank’s subsidiary in Russia until the date of disposal (see Note 14).
For management purposes, during 2013, the Group was organized into four operating segments based on a combination of geographical areas and services, as follows:
• Cyprus banking and financial services segment - principally provided banking and financial services in Cyprus, including financial and investment services as well as custodian and factoring services. • Cyprus insurance services segment - principally provided life and general insurance services in Cyprus. • Greece segment- principally provided banking services through the branch network in Greece • Russia segment - principally provided banking services through the Bank’s subsidiary in Russia.
The table presents income, expenses, impairment losses and provisions to cover credit, profit/(loss) and certain asset and liability information regarding the Group’s operating segments.
HELLENIC BANK GROUP ANNUAL REPORT 2014 149 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827
-- 2013 €'000 6.172 57.188 16.786 19.321 (6.030) 426.327 192.068 127.151 (93.102) (59.080) (177.399) (304.550) 5.985.126 6.383.947
Total 2014 €'000 6.267 58.741 17.997 18.325 (5.634) 389.194 205.129 155.666 (76.098) (22.463) (62.794) (148.731) (281.934) 6.957.218 7.551.563
------139 (12) (37) (37) 2013 (164) €'000 (6.012) (426.532) (425.750)
------79 (8) 2014 €'000 Intersegment Intersegment (7.566) (4.033) (3.962) (3.962) (43.380) (44.069) transactions/balances
-- -- 86 19 73 922 (98) 2013 (534) €'000 2.879 18.393 43.677 (1.598) (3.224) (2.021) (3.224)
-- -- Russia 16 59 31 123 208 2014 (779) (374) €'000 1.553 5.167 4.546 (2.992) (2.245) (2.992)
-- -- 693 754 (14) 2013 (137) (113) €'000 3.163 6.246 8.360 6.260 10.266 (2.084) (2.290) 388.410
------Greece 2014 €'000
-- 52 2013 (278) (154) €'000 1.620 6.448 7.547 21.209 16.972 86.976 52.728 (2.126) (5.947) (2.540) (1.099)
-- -- 60 83 850 2014 (131) €'000 7.227 7.227 19.839 15.934 86.832 50.838 (1.288) (5.061) (3.137) Services Insurance
-- Cyprus 2013 €'000 1.857 6.047 17.182 58.547 (5.229) 397.985 186.363 122.879 (83.473) (52.368) (186.832) (309.711) 6.670.684 5.952.127
services 2014 €'000 6.301 6.153 17.878 60.021 (5.129) 375.368 204.071 155.393 (70.258) (57.491) (22.463) Banking & Financial (149.004) (281.934) 7.504.254 6.944.593 (continued)
expenses and other 44. ANALYSIS SEGMENTAL on disposal and gains/(losses) Net currencies of foreign revaluation and financial instruments Turnover income Other Net interest income interest Net income/(expense) and commission fees Net costs Staff of and amortisation Depreciation and & equipment plant property, of intangibles amortisation (Loss)/profit before taxation before (Loss)/profit Capital expenditure on property, on property, expenditure Capital and & equipment plant intangibles Administrative Total assets Total liabilities Total Profit/(loss) from ordinary ordinary from Profit/(loss) impairment before operations cover to losses and provisions risk credit risks credit cover to Provisions commitments contractual for and guarantees losses on the value Impairment of loans and advances
150 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 ------€΄000 €΄000 Other 47.362 70.760 304.629 921.719 181.448 236.014 5.865.263 5.513.272 1.924.739 1.003.020 6.834.170 6.345.948 2.175.599 3.297.657 1.122.058 ------7.816 8.794 €΄000 €΄000 193.777 201.593 406.345 397.551 Instruments sale for available ------€΄000 €΄000 328.165 323.963 3.892.114 3.563.949 3.545.018 3.221.055 Instruments and receivables classified as loans
------€΄000 €΄000 56.330 56.330 121.561 121.561 Instruments maturity held to
------776 527 314 525 1.962 9.657 7.168 1.882 €΄000 €΄000 16.103 15.327 11.700 11.386 13.477 11.070 or loss profit through value fair at Instruments 776 314 8.343 7.168 9.319 €΄000 €΄000 15.327 47.362 11.386 70.760 11.070 304.629 921.719 645.465 181.448 236.014 779.726 5.881.366 5.513.272 3.563.949 1.003.020 6.845.870 6.149.664 6.345.948 2.175.599 1.122.058 7.318.827 3.221.055 Carrying Amount
The Group 31 December 2013 31 December 2014 Loan Capital accounting hedge for Derivatives accounts deposits and other customer Customer customers to Loans and advances securities Equity Assets Assets Banks with Central Cash and balances Derivatives Liabilities banks Deposits by Derivatives with other banks Placements securities Debt Loan Capital accounting hedge for Derivatives accounts deposits and other customer Customer Derivatives Banks Central due to Amounts with other banks Placements Assets Banks with Central Cash and balances OF FINANCIAL INSTRUMENTS 45. CATEGORISATION Liabilities banks Deposits by securities Equity customers to Loans and advances Derivatives securities Debt
HELLENIC BANK GROUP ANNUAL REPORT 2014 151 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 ------€΄000 €΄000 Other 47.358 70.760 306.253 898.457 181.468 236.014 5.865.475 5.511.864 1.899.176 1.000.719 6.834.190 6.345.948 2.175.598 3.295.330 1.119.732
------7.816 8.794 €΄000 €΄000 187.438 195.254 403.776 394.982 Instruments sale for available
------€΄000 €΄000 328.165 323.963 3.882.667 3.554.502 3.545.018 3.221.055 Instruments and receivables classified as loans
------€΄000 €΄000 52.296 52.296 131.188 131.188 Instruments maturity held to
------776 527 314 465 1.962 9.662 7.173 1.882 €΄000 €΄000 16.113 15.337 11.700 11.386 13.417 11.070 or loss profit through value fair at Instruments 776 314 8.343 7.173 9.259 €΄000 €΄000 15.337 47.358 11.386 70.760 11.070 306.253 898.457 648.753 181.468 236.014 773.123 5.881.588 5.511.864 3.554.502 1.000.719 6.845.890 6.117.947 6.345.948 2.175.598 1.119.732 7.309.837 3.221.055 Carrying Amount
The Bank 31 December 2013 31 December 2014 Loan Capital accounting hedge for Derivatives accounts deposits and other customer Customer customers to Loans and advances securities Equity Assets Banks with Central Cash and balances Derivatives Liabilities banks Deposits by Derivatives with other banks Placements securities Debt Loan Capital accounting hedge for Derivatives accounts deposits and other customer Customer Derivatives Banks Central due to Amounts with other banks Placements Assets Banks with Central Cash and balances Liabilities banks Deposits by securities Equity customers to Loans and advances (continued) OF FINANCIAL INSTRUMENTS 45. CATEGORISATION Derivatives securities Debt
152 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 46. ECONOMIC ENVIRONMENT
ECONOMIC ENVIRONMENT AND GROUP OPERATIONS IN CYPRUS
The Comprehensive Assessment of the Asset Quality Review (AQR) and the capital adequacy, under extreme scenarios, of the Cypriot systemic banks has been successfully completed. The assessment’s results boost the efforts for the Cypriot banking system to regain the public’s trust and to become stable once again. The fact that the Cypriot economy has been better than expected so far and the prospects for recovery create a positive climate that helps boost the economy. The structural reforms in the public sector, and the completed restructuring of credit institutions, are the starting point for overcoming the crisis.
Economic activity kept falling in the 4th quarter of 2014, albeit at a lower rate, showing a further de-escalation of the recession. The percentage change in the real GDP in the fourth quarter was estimated at -2%, compared to the corresponding period of 2013. The annual percentage change in real GDP is estimated at -2,3%.
In the construction sector, during the period from January to December 2014, domestic sales of cement in tonnes fell by 15,4% compared to the same period of 2013. Also, during the period from January to December 2014, 4.933 building permits were issued, which was 7,6% less than those issued in the same period last year. The total area size of these permits was reduced by 24,9%. The negative performance of the industry and processing sectors in the past few years continued, unlike the service sector, which showed some improvement. Property sales in 2014 recorded an increase for the first time since 2010, according to Land Registry data. According to the figures, the deeds of sale recorded an annual increase of 20% reaching 4.527 against 3.767 in 2013. Furthermore, applications for company registrations in Cyprus increased in 2014, according to new figures by the Registrar of Companies and Official Receiver amounting to 11.189 versus 10.878 in 2013 which corresponds to a 2,9% increase.
The developments in the tourism sector in the first six months of the year have been encouraging with arrivals rising by 6% compared to the same period last year. In that same period, revenue from tourism rose by 11,6% compared to the first six months in 2013. For the last six months of the year, tourist arrivals decreased marginally by 1,3% compared with the same period year. Over the same period, tourism revenue fell by 10%, due to the reduced per capita spending.
The fiscal balance recorded a surplus of €68 million in 2014 versus €844 million deficit in 2013, despite the unfavorable macroeconomic environment. New figures announced by the Ministry of Finance indicate,that the budget balance improved by € 911,6 million compared to last year due to increased revenues and reduced costs.
Based on the latest Eurostat data, the labour market is showing signs of stabilisation. The unemployment rate estimated for December 2014 is 16,1%. Despite the reduced/(restrained) unemployment rate, figures for youth unemployment (32,8% in Q4 of 2014-despite the significant reduction during last year) and long-term unemployment (7,8% in Q4 2014) are particularly concerning. Τhe harmonised Index for the January - December 2014 period was 0,3% lower compared to the same period of 2013.
On 24 October 2014, the Standard and Poor’s agency upgraded the credit rating of domestic and foreign long-term debt from B to B+ due to the good fiscal performance achieved. In addition on 27 March 2015, the agency upgraded the outlook for Cyprus to positive and affirmed its long-term and short-term debt. The Fitch agency upgraded the outlook of Cyprus from stable to positive and affirmed its long-term foreign and local currency Issuer Default Ratings at B-. Finally, ratings agency Moody’s upgraded the rating of Cypriot bonds from Caa3 to B3 and revised the economy’s outlook from positive to stable.
On 26 October 2014, the European Central Bank (ECB) announced the results of the Comprehensive Assessment of the 130 most significant credit institutions in the euro zone, prior to the inception of the Single Supervisory Mechanism (SSM) for Eurozone banks and other credit institutions. The assessment results show that the Cyprus banking system is returning to a healthy and strong basis and is ready to actively support the recovery of the Cypriot economy. The SSM will greatly help restore the trust in the banking system as it aims to ensure the stability and soundness of the system by regularly auditing the credit institutions based on uniform rules followed by all participating countries.
In its autumn report published in October 2014 on the progress of the global economy, the International Monetary Fund improved its macroeconomic forecast for the Cypriot economy. Specifically, the new forecast for 2014 shows a smaller reduction of the Cyprus GDP to 3,2%, instead of the 4,2% figure initially estimated. Also, according to the report, the economy is expected to return to a positive growth rate around 0,4% in 2015.
On the other hand, the delayed implementation of the structural reforms under the Memorandum of Understanding, the discussions about abandoning the Memorandum before the Economic Adjustment Programme has been completed,
HELLENIC BANK GROUP ANNUAL REPORT 2014 153 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 46. ECONOMIC ENVIRONMENT (continued)
the economic uncertainty in Greece – although the risks of contagion to the Cypriot economy are now significantly lower than three years ago – and the negative outlook of the Russian economy may jeopardise the Cypriot economy’s efforts to end the recession within 2015. Fully restoring the credibility of the financial sector is one of the greatest challenges. A key factor for the system’s stability will be to restrict the increasing trend of non-performing loans. The reform by the government bill on insolvency and the adoption of new policies for strategic growth and for battling unemployment will be invaluable tools in that direction. With regard to exogenous challenges, the increased geopolitical tensions in the Middle East and Eastern Mediterranean could trigger adverse spillovers to economic confidence, tourism and consequently to the aggregate economic activity. Also, the potential repatriation of Russian businesses will adversely affect the international business services sector of Cyprus.
Nevertheless, some upside risks to the outlook are also present. The accommodative monetary policy stance, announced recently by the ECB, is expected to improve the liquidity of the domestic banking system with positive effects on the real economy. However, eligibility for the ECB’s expanded asset purchase program is conditional on a positive review of the country’s economic adjustment program. In addition, robust growth in the United Kingdom combined with the weakening of the euro against the British pound could benefit tourism.
The structural reforms in the public and financial sector must go on unobstructed, and without any rushed decisions, in order to dispose of the Memorandum. The recovery prospects demand a quick and precise implementation of all measures under the reform plan so that the economy of Cyprus will immediately regain its competitiveness. The only way out of the recession and into sustainable growth of the Cyprus economy is the precise and immediate implementation of the Cyprus Economic Adjustment Programme.
CONSEQUENCES OF THE RECENT DEVELOPMENTS
Regardless of the prospects for economic recovery the challenges for 2015 remain in the business financial and supervisory environment and introduce uncertainty and subjectivity in the estimates of Management and Board of the Bank, regarding the expected cash flows in relation to the environment of the impairment of financial and non-financial assets of the Bank.
The Management and Board of Directors of the Bank have assessed whether any impairment losses are considered necessary for financial assets carried at amortized cost, by examining the economic situation and prospects of these assets at 31 December 2014. Impairment losses on loans and advances to customers are determined using the model ‘loss events’ required by the International Accounting Standard 39 ‘Financial Instruments: Recognition and Measurement’. This standard requires the recognition of impairment losses on loans and advances to customers arising from past events and does not allow the recognition of impairment losses that could result from future events, regardless of the likelihood of such future events.
Based on the assessment made, the Group recognised impairment losses as presented in these Financial Statements.
The strategic targets of the Group, after the successful capitalisation, is the effective management of non-performing loans and the increase of loan portfolio, the safeguarding of capital adequacy ratios and ensuring sound liquidity.
47. RESTRUCTURING AND STRENGTHENING OF THE CAPITAL BASE PLAN 2013
Following the completion of the due diligence test of loan portfolios of financial institutions operating in Cyprus, including Hellenic Bank, performed by the company Pacific Investment Management Company LLC (PIMCO), following the instructions of the Central Bank of Cyprus, the Central Bank of Cyprus has defined the capital needs of the financial institutions involved in the test and which, according to the Central Bank of Cyprus, should have been raised either from private sources or state aid with funds from Troika’s Financial Sector Reform Program (‘Program’) that have already been committed.
According to the Central Bank of Cyprus and on the basis of the extreme scenario of PIMCO’s due diligence and after the sale of the Branch Network in Greece, the capital need that the Bank was required to meet by 31 October 2013 was €294 million.
The Board of Directors of the Bank, at its meetings on 11 July 2013 and 18 July 2013, decided to enhance the capital base of the bank via a Restructuring and Capital Base Enhancement Plan (‘Plan’) with an aim of raising private funds to meet the amounts and structure set by the Plan to satisfy its capital needs.
154 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 47. RESTRUCTURING AND STRENGTHENING OF THE CAPITAL BASE PLAN 2013 (continued)
The actions planned based on the Plan, included the increase of the authorised share capital of the Company, the reduction of the nominal value of the issued share capital, the transfer of the difference that emerged from the reduction to a special reserve account from the reduction of capital pursuant to the provisions of article 64(1)(e) of the Companies’ Law (Chapter 113), the issue of new ordinary shares to the existing Shareholders, to the holders of Non-Cumulative Convertible Perpetual Capital Securities and to new investors, the issue of Convertible Capital Securities (CCS 1) which were offered for optional exchange to the holders of the Non-Cumulative Convertible Perpetual Capital Securities and the issue of Convertible Capital Securities (CCS 2) which was offered for optional exchange to the holders of Capital Securities and to the bondholders of the Bank and to new investors.
For this purpose, at an Extraordinary General Meeting of the Shareholders of Hellenic Bank Public Company Limited held on Wednesday, 14th August 2013 which was attended, either by proxy or in person, by Shareholders holding 51,77% of the issued share capital of the Bank, a series of resolutions was approved unanimously. These have been posted on the official website of the Bank (www.hellenicbank.com).
On the 1st of November 2013 the Bank’s Board of Directors completed the evaluation of the applications received within the framework of the Restructuring and Capital Enhancement Plan, pursuant to the Prospectus dated 30 September 2013 and the implementation of the provisions of Article 5B of the Restructuring of Financial Organizations Law (N.200(I)/2011, as amended), securing capital of €358 million.
The capital raised by the Bank, despite the unfavourable conditions of the market and the prevailing uncertainty, exceeds by €64 million the imposed, by the extreme scenario of Pimco, capital deficit of €294 million and form a Core Tier 1 Ratio of more than 9%, giving at the same time new boost and dynamic to the Group, securing its autonomous course.
Specifically, the Board of Directors, pursuant to the Prospectus dated 30 September 2013, decided to issue the following titles:
• Issue of 66.578.740 new shares of nominal value €0,01 each at the price of €0,05 per share to the existing Shareholders and the holders of the Non-Cumulative Convertible Perpetual Capital Securities (NCPCS), who have submitted an application.
• Issue of 2.002.485.731 new shares of nominal value €0,01 each at the price of €0,05 per share to other investors.
• Issue of Convertible Capital Securities 1 (CCS 1) of total value of €126.382.231 to exchange all Non-Cumulative Convertible Perpetual Capital Securities (ISIN CY0141470118) issued by the Bank pursuant to the issue terms included in the Prospectus dated 17 September 2010 (NCPCS), based on the provisions of Article 5B.
• Issue of Convertible Capital Securities 2 (CCS 2) of total value of €90.000.000 to exchange all Bonds 2019 (ISIN CY0140940111) issued on 11 March 2009 and the terms of issue of which are included in the Prospectus dated 18 May 2009 based on the provisions of Article 5B.
• Issue of CCS 2 of total value of €17.187.512 to exchange all Capital Securities (ISIN CY0048940114) issued on 18 April 2003 and the terms of issue of which are included in the Prospectus dated 7 November 2003 based on the provisions of Article 5B.
• Issue of CCS 2 of total value of €20.881.785 to exchange Bonds 2016 (ISIN CY0140040110) issued pursuant to the terms of issue of the Prospectus dated 11 May 2006 based on the CCS 2 Voluntary Exchange Proposal.
• Issue of CCS 2 of total value of €750 to other investors.
On the 2nd of November 2013, all NCPCS were converted into CCS 1, the Bonds 2019, the Capital Securities and the Bonds 2016 whose holders participated in the voluntary conversion of CCS 2, were converted into CCS 2 and after the publication in two national newspapers they were automatically cancelled and the Bank ceased to have any obligations in respect of these.
All titles that have arisen from the Plan are listed and traded on the Cyprus Stock Exchange.
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RESULTS OF THE PAN-EUROPEAN COMPREHENSIVE ASSESSMENT EXERCISE (STRESS TESTS)
On the 26th of October 2014, the European Central Bank (‘ECB’) and the European Banking Authority (‘EBA’) published the results of the Asset Quality Review (‘AQR’) and the Stress Tests (together the ‘Comprehensive Assessment’) for 130 banks across the Eurozone, including Hellenic Bank (‘the Bank’ or ‘the Group’). The results of the ‘Baseline Scenario’ of the stress test confirmed the business model of Hellenic Bank while the ‘Adverse Scenario’ calculated the capital that the Bank should raise to be able to handle unexpected future losses. The capital actions of the Bank reduced the initial gap of €277 million, based on the ‘Adverse Scenario’, to €105 million.
As a result of the above, the Board of Directors of the Bank decided at a meeting held on the 31st of October 2014 to increase the share capital of the Bank by €221 million via a Rights Issue to the existing Shareholders of the Bank after securing the necessary approvals by the competent authorities.
According to the provisions of the Prospectus issued on the 14th of November 2014, the Rights were issued and allotted to all existing Shareholders at the ratio of one (1) Right to every one (1) Ordinary Share held on the Record Date. Every two (2) Rights exercised were converted to three (3) new Ordinary Shares of the Bank of nominal value €0,01 with an Exercise Price of €0,0375 for every New Share. The Holders of Subscription Rights who exercised all of their Subscription Rights in time could, concurrently with the exercise of their Subscription Rights, exercise their Presubscription Right to acquire any New Unsubscribed Shares, i.e. shares that correspond to the unexercised Subscription Rights, at a price equal to the Exercise Price, i.e. €0,0375 per New Share, provided that the exercise of such Holder’s Subscription Rights and Presubscription Right did not result in such investor holding equal or in excess of 30% of the issued share capital of the Bank after giving effect to the issue of shares pursuant to the Subscription Rights and Presubscription Right. New Shares issued pursuant to a Presubscription Right were allocated on a pro rata basis, to those holders that exercise them, up to 100% of the number of New Shares corresponding to the Subscription Rights exercised by such Holder. If the Presubscription Right is in excess of the aforementioned limit of 100%, then satisfying the excess percentage over 100% will be at the discretion of the Board.
The Bank had the right, at any time within 30 working days from the Last Date of Exercise of Subscription Rights and the exercise of the Presubscription Right to issue all or part of the New Shares that correspond to the unexercised Subscription Rights that have not been covered during the exercise of the Presubscription Right. The Board of Directors of the Bank could allot, at its discretion, such New Shares, in Cyprus and abroad, through a procedure it would determine, at a price of at least equal to the Exercise Price, i.e., €0,0375 per New Share, provided that the allotment of such New Shares does not result in such investor holding equal or in excess of 30% of the issued share capital of the Bank upon completion of the Issue.
On 12 December 2014, the Bank announced the successful completion of the first phase of its share capital increase, raising €201 million, which more than cover the capital need of €105 million resulting from ‘Adverse Scenario’ of the Comprehensive Assessment of the European Central Bank and the European Banking Authority, based on the Asset Quality Review and the Stress Tests, and further enhances its capital base.
On 28 January 2015, the Bank announced that it has successfully concluded the share capital increase that commenced in November 2014, raising €204 million and covering by 92% of the target set in an adverse and challenging economic and investing environment. Specifically, as mentioned above, €201 million raised in phase 1 of the capital increase (through the Subscription and Presubscription phase), and €3 million raised through the shares allotment that correspond to the unexercised Rights, not allotted through the Presubscription phase.
As a result of the above, the issued and fully paid share capital of the Bank becomes 9.388.395.900 Ordinary Shares of nominal value €0,01 each. All issued shares are listed on the Cyprus Stock Exchange.
49. RISK MANAGEMENT
Introduction and overview
The Group has exposure to the following risks from its use of financial instruments:
• Credit risk • Liquidity risk • Market risks • Operational risks
156 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the management of Group´s capital.
Group Risk Management
The management and monitoring of all Group risks is centralised under a single division to which the following specialised risk management Departments report:
• Group Credit Risk Management • Group Market and Liquidity Risks Management • Group Operational Risks Management
These Departments report to the Group Risk Management Division, which is administratively independent from other units with executive authority and reports to the Board of Directors, through the Risk Management Committee, as well as to the Chief Executive Officer.
The Departments cover all risk aspects across the Group’s operations and are intensively working towards the Bank fully conforming to the provisions of the Accord of Basel III as well as the Directives of the regulatory authorities. The basic aim of Management is the adoption of sophisticated methods and systems for the evaluation and management of risks undertaken by the Group.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer and/or other counterparty to a financial instrument fail to meet their contractual obligations. This risk principally arises from lending, trade finance activities and treasury operations. The management of credit risk is one of the most important chapters in the Group’s operation and is essential for its long term soundness.
GROUP CREDIT RISK MANAGEMENT
Group Credit Risk Management is responsible for formulating and regularly reviewing the credit policy and other appropriate policies and procedures for detecting, evaluating, measuring and observing/controlling credit risk, based on the strategic objectives of the Group as defined by the Board of Directors as well as the economic and other developments in the local and international economy. The effective management of credit risk is an important tool in the efforts to mitigate the effects of the acute economic crisis, which continues to negatively affect the Group’s financial results as a consequence of the increased non-performing loans and impairment losses and provisions to cover credit risk as well as reduced profitability.
During 2014, the Department continued to participate in various ways in the crisis management after the March 2013 events with the active participation and coordination in the implementation/application of the relevant Directives of the Supervisory Authority under the provisions of the Memorandum of Understanding. Emphasis is given to measuring the effectiveness of arrears management procedures and the efficiency of the restructuring solutions agreed with the customers. In addition, the Department participates to the preparation of regular reports to the Central Bank of Cyprus and to the Single Supervisory Mechanism (SSM) which Hellenic Bank Group has joined in November 2014.
To ensure the effectiveness of credit risk management, there is a regular assessment of the Group’s credit and other policies and monitoring of the compliance of the relevant service/business lines with these policies. Group Credit Risk Management issues directions to the various service/business lines based on the Group’s credit risk appetite for specific market segments’ operations, as well as specific banking products and, whenever considered necessary, restrictions/limits are set regarding the undertaking of additional credit risk.
Group Risk Management is responsible for the process of formation of provisions for impairment losses. The recommendations for proceeding or not with provisions for impairment losses on credit facilities which are individually assessed are made by the business units. The recommendations are submitted to the Group Credit Risk Management which evaluates them and accordingly it validates them or differentiates them. For all those credit facilities that are not individually assessed for impairment of value, a collective assessment is made using the appropriate probability of default and loss-given default rates. The Quantitative Risk Assessment Department applied models for calculating the probability of default for each credit facilities’ category and for measuring the loss-given default. The models’ parameters are revisited on a regular basis. Upon completion of the above procedures the Group Risk Management submits its suggestions for
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individual as well as collective impairments for approval to the impairment losses Committee and subsequently to the relevant Committee of the Board of Directors.
In order to protect the interests of the Group, the significant and/or sudden changes in the parameters that shape credit risks are identified (world market developments/events, diversification of economic aggregates, credit ratings changes, reclassifications of countries etc) and all necessary measures/implementation of actions within the framework of credit risk management are taken. Stress tests are conducted at regular time intervals, both in relation to the possible deterioration in asset quality as well as the possible impairment in the value of specific collaterals (with special emphasis on the value of mortgaged properties).
To achieve the above, sophisticated systems are employed to evaluate existing/potential borrowers’ creditworthiness and to measure credit risk based on quantitative and qualitative criteria:
1. For the Retail sector, a credit risk assessment system is applied for the evaluation of the creditworthiness of customers and the measurement of credit risk (Credit Scoring). This system covers credit cards and other retail lending products.
2. For the Commercial and Corporate sectors, an internal credit rating system (Credit Rating) is applied which classifies companies into credit rating bands, thus assisting both in the assessment of the credit worthiness of a company and in the rationalisation of pricing requirements according to the risk undertaken, while taking into account each company’s financial position and various qualitative criteria relating to the company as well as the market in which it operates.
3. For Treasury, there is a centralised management of exposures to countries, financial institutions and other counterparties. Limits are defined based on the Credit Limits Model, which is primarily based on the credit standing of the country and counterparty as determined by international credit assessment institutions while also taking into account their international classification regarding the assets and the country risk in which they are resident.
Exposure to Credit Risk
Impaired loans and advances Represent the loans and advances for which the Group determines that there is evidence for impairment as a result of one or more loss events occurring after initial recognition and which have an impact on the estimated future cash flows (see Note 3.1). These loans and advances are classified at Grade 3 (High Risk) based on the Group’s credit risk assessment system.
Loans with renegotiated terms due to the deterioration of the financial position of the customer are usually considered impaired, if the Group determines that, according to the loan contractual terms, non-repayments of the total principal and contractual interest due is possible.
Non-impaired loans and advances The loans and advances which were not found to be impaired, are presented in risk categories based on the credit risk assessment system of the Group. The risk categories are as follows:
GRADE 1 (LOW RISK): An immediate ability to repay the credit facility is assumed.
GRADE 2 (MEDIUM RISK): The probability of indirect recovery of the credit facility is assumed.
GRADE 3 (HIGH RISK): The debtor presents a higher risk compared to Grade 1 and 2 on the existence of direct and indirect recovery of the credit facility.
Past due but not impaired loans Represent non impaired loans and advances for which the contractual interest or principal repayments are past due and the Group determines that there is no objective evidence of impairment by taking into account, amongst other factors, the value of available collateral.
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Loans with renegotiated terms Loans with renegotiated terms represent clients’ facilities that have been restructured in accordance with the Directive of the Central Bank of Cyprus (CBC) to the credit institutions for the Definition of Non-Performing Loans and Restructured Credit Facilities, which applied as of 1st July 2013.
According to the Directive, a restructured non-performing facility remains classified as non-performing as follows:
• For six months following the commencement of the new amortization repayment schedule of capital installments in relation to credit facilities with modifications in their amortization repayment schedule, while for credit facilities with gradual increase of the installment amount, the facility remains non-performing for six months following the first month at which the highest installment is due. Exceptions to the above rules are cases where the modified repayment schedule provides for a lump sum payment on maturity of 20% or higher of the outstanding balance (as at the date of restructuring). For these cases, the facility remains non-performing until its maturity.
• For six months following the restructuring in relation to overdrafts. After the six months, overdraft accounts will be classified as performing only if their credit turnover (excluding credits relating to cheques returned unpaid and credits relating to disbursement of loans) is equal to or higher than the interest charged for the above-mentioned period.
After the lapse of the above-mentioned period for the classification of restructured facilities as non-performing, the facility is classified as non-performing only if it fulfils the criteria for the classification of non-performing facilities according to the said Directive.
Forbearance measures are any actions taken by the Bank, which involve the modification of the terms and/or conditions of a credit facility and aim to address existing or foreseeable difficulties of the borrower to meet the current repayment schedule. Such actions usually include the extension of the maturity of the loan and changing the timing of the interest payments.
Loans with forbearance measures have arisen as a result of adverse changes in the financial condition of a number of customers, resulting in the inability to repay the facilities according to the original terms of the agreement. As a result, the Bank considers amending the terms of the agreement to offer customers more favorable terms in order to facilitate the repayment of their debts and therefore minimise the Bank’s final loss.
A loan with forbearance measures is considered restructured when one or more of the following signs of weakness in repaying the debt appear:
(a) Substantial delay (as determined by the Central Bank of Cyprus) over 60 days, which existed at the time of the restructuring.
(b) Material deterioration of the financial results of the customer (reduction of income/profit/turnover/increase of expenses, etc.).
(c) Existence of events that adversely affect the financial condition of the customer such as bankruptcy of a debtor of the customer, destruction of plant or goods of the customer by fire or other cause, dismissal from work etc.
(d) Repetitive material delays of 30 days and over in the servicing of the loan, that negatively impact on the customer’s conduct of account.
(e) Substantial deterioration of the credit rating of the customer.
(f) Existence of other overdue debts to the Bank.
Prerequisite for taking forbearance measures is the existence of customer repayment ability i.e. the customer is viable. The Bank’s Forbearance Policy includes the terms and conditions on which the Bank determines whether or not a renegotiated repayment schedule shall be granted.
The forbearance measures to be taken and their duration thereof are determined on the basis of specific customer information, based on the prevailing economic conditions and in accordance with relevant legislation or regulatory Directives.
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The monitoring of forborne loans is performed by both, Business Units and the Credit Risk Management Department.
Every effort is taken for the proper assessment of the new repayment schedule on the basis of the forbearance measures, in order to avoid a new default.
Collateral On the basis of the Group’s policy, the amount of credit facilities granted should be based on the repayment capacity of the relevant counterparties. Furthermore, policies are applied for the hedging and mitigation of credit risk through the holding of collateral. These policies define the types of collateral held and the methods for estimating its fair value.
The main collateral held by the Group includes mortgage interests over property, pledging of cash, government and bank guarantees, charges over business assets as well as personal and corporate guarantees.
The financial effects of collaterals are calculated in accordance with the Group’s Loan Policy, taking into account, among others, the forfeit value of collaterals and are limited to the fair value of loans covered. The financial effects of collateral for loans and advances classified as individually impaired at 31st December 2014 amounted to €1.340.768 thousand (2013: €917.662 thousand), while for loans and advances past due but not impaired amounted to €282.657 thousand at 31st December 2014 (2013: €566.408 thousand).
Impaired Investments Impaired Investments represent investments in bond securities for which there is objective evidence that they have been impaired as a result of one or more events that occurred after initial recognition. These events include significant financial difficulty of the issuer, interest or capital payment default and increased probability of bankruptcy or financial reorganisation of the debtor.
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Exposure to credit risk
Based on the above categories Group’s loans and advances to customers, placements with other banks and debt securities are as follow:
Loans and advances to Placements with other Debt customers banks securities 2014 2013 2014 2013 2014 2013 €’000 €’000 €’000 €’000 €’000 €’000 Carrying amount 3.221.055 3.563.949 1.122.058 921.719 779.726 645.465 Impaired: Grade 3 (high risk) 2.368.793 1.591.171 -- -- 9.921 9.881 Provisions for impairment (1.133.574) (763.829) -- -- (211) (1.277) Carrying amount 1.235.219 827.342 -- -- 9.710 8.604 Of which loans with renegotiated terms 543.352 398.539 ------Past due but not impaired: Grade 1 (low risk) 134.951 192.503 ------Grade 2 (medium risk) 189.182 409.130 ------Grade 3 (high risk) 30.734 41.539 ------Carrying amount 354.867 643.172 ------Past due comprises: 0+ up to 30 days 103.286 127.391 ------30+-60 days 84.875 116.026 ------60+-90 days 66.712 95.307 ------90 days + 99.994 304.448 ------Carrying amount 354.867 643.172 ------Of which loans with renegotiated terms 77.917 247.259 ------Neither past due nor impaired: Grade 1 (low risk) 1.210.810 1.490.404 1.122.058 921.719 770.016 636.861 Grade 2 (medium risk) 442.972 647.666 ------Grade 3 (high risk) 27.640 21.753 ------Carrying amount 1.681.422 2.159.823 1.122.058 921.719 770.016 636.861 Of which loans with renegotiated terms 479.576 717.023 ------
Balances after individual impairment 3.271.508 3.630.337 1.122.058 921.719 779.726 645.465 Collective impairment (50.453) (66.388) ------Total carrying amount 3.221.055 3.563.949 1.122.058 921.719 779.726 645.465
HELLENIC BANK GROUP ANNUAL REPORT 2014 161 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
The movement of the net carrying amount of the Group’s impaired loans and advances to customers is as follow:
2014 2013 €’000 €’000 1 January 827.342 496.207 Transfer to non- impaired loans and advances during the year (76.206) (2.844) Net movement of impaired loans and advances (97.877) (60.447) 653.259 432.916 Loans and advances classified as impaired loans and advances during the year 581.960 553.963 Movement on disposal of the BNG -- (159.537) 31 December 1.235.219 827.342
Group’s net loans and advances with renegotiated terms are analysed below:
2014 2013 €’000 €’000 Trade 83.361 135.676 Construction and Real Estate 482.698 564.255 Manufacturing 35.828 58.625 Tourism 48.351 92.607 Other sectors 306.271 304.840 Retail 144.336 206.818 1.100.845 1.362.821
The financial effects of collaterals held relating to loans with renegotiated terms for the Group, at 31 December 2014 amounted to €1.144 million (2013: €1.298 million).
CONCENTRATION OF CREDIT RISK
The Group monitors concentration of credit risk by sector and by geographic location.
The concentration by geographic location for loans and advances to customers is measured based on the geographical position of the customer. The concentration by geographic location for investments and placements with other banks is based on the geographical position of the risk country of the issuer of the security and counterparty respectively.
162 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
The analysis of concentration of credit risk at the reporting date is shown below:
Loans and advances Placements with Investments to customers other banks in bonds 2014 2013 2014 2013 2014 2013 Concentration by sector: €’000 €’000 €’000 €’000 €’000 €’000 Carrying amount 3.221.055 3.563.949 1.122.058 921.719 779.726 645.465
Businesses 3.116.422 3.078.881 ------Individuals 1.288.660 1.315.285 ------Banks -- -- 1.122.058 921.719 215.608 216.166 Government ------546.366 394.649 Other ------17.963 35.927 4.405.082 4.394.166 1.122.058 921.719 779.937 646.742 Provisions for impairment (1.184.027) (830.217) -- -- (211) (1.277) 3.221.055 3.563.949 1.122.058 921.719 779.726 645.465
Businesses in the above table include trade, construction and real estate, manufacturing, tourism and other companies as disclosed in Note 18.
Loans and advances Placements with Investments to customers other banks in bonds 2014 2013 2014 2013 2014 2013 Concentration by geographical location: €’000 €’000 €’000 €’000 €’000 €’000 Carrying amount 3.221.055 3.563.949 1.122.058 921.719 779.726 645.465
Eurozone 4.242.346 4.213.241 321.177 280.558 469.053 476.332 Other European countries 152.148 170.002 749.357 558.641 112.060 82.248 America 770 701 45.203 76.154 192.892 82.881 Oceania -- -- 860 622 -- -- Asia 344 331 4.803 4.337 -- -- Middle East 3.633 3.762 566 1.387 5.932 5.281 Africa 5.841 6.129 92 20 -- -- 4.405.082 4.394.166 1.122.058 921.719 779.937 646.742 Provisions for impairment (1.184.027) (830.217) -- -- (211) (1.277) 3.221.055 3.563.949 1.122.058 921.719 779.726 645.465
HELLENIC BANK GROUP ANNUAL REPORT 2014 163 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
At 31 December 2014, the analysis of debt securities and bonds by Moody’s credit rating is as follows:
Debt Securities 2014 2013 €’000 €’000 Aaa 350.340 197.534 Aa1 29.925 17.266 Aa3 22.919 10.045 A1 5.932 20.278 A3 -- 5.003 Baa1 to B3 358.045 64.523 Ca 22 45 Caa1 & Caa2 9.710 -- Caa3 2.569 330.519 Unrated 264 252
779.726 645.465
During 2014, the Cypriot Government Bonds were upgraded to a rating of B3 from a rating of Caa3 as at 31 December 2013.
Non-Performing Loans According to the Directive of the Central Bank of Cyprus (CBC) to the credit institutions for the Definition of Non-Performing Loans and Restructured Credit Facilities, which applied as of 1st of July 2013, loans and advances to customers are considered non-performing when: • they present past due balances or are in excess for a period of more than ninety days, • they have been restructured and at the time of restructuring were classified as non-performing or presented past due balances for a period of more than 60 days (with the exception of loans and advances which on 15th March 2013 were performing, were restructured between 18th March 2013 and 30th September 2013 and the restructuring did not provide for a lump sum payment of 20% or higher of the loan or for a grace period over 12 months for interest payment and over 24 months for principal payment), • they have been restructured two or more times in an 18 month period (with the exception of loans and advances fully secured with cash).
According to the CBC directive on Loan Impairment and Provisioning Practices (February 2014), the credit institutions are obliged to announce Tables A and B as presented below. On 17 February 2015, CBC issued a circular amending the relevant tables and the presentation for the year ended 31 December 2014 is based on the amended tables.
Tables A and B include non-performing loans, which at 31 December 2014 amounted at €2.494 million (December 2013: €2.007 million). At 31 December 2014 the financial effects of collaterals on non-performing loans amounted at €1.451 million.
164 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827
-- 1.694 6.133 €΄000 12.464 35.078 34.948 261.325 275.123 316.334 exposures of which on non-performing measures forbearance -- with of which exposures 2.153 6.714 €΄000 12.464 39.397 34.948 267.613 281.955 328.066
-- €΄000 95.707 65.989 90.067 14.324 339.847 712.221 779.403 of which 1.133.574 exposures losses Impairment Cumulative non-performing 49 €΄000 95.707 70.257 44.446 76.262 90.067 15.132 126.621 358.644 244.235 213.895 104.743 738.718 810.202 1.184.027
-- 9.811 €΄000 50.122 19.386 134.789 101.598 718.281 738.139 892.314 exposures of which on non-performing measures forbearance -- with of which exposures €΄000 14.630 93.165 57.453 255.489 183.231 1.049.766 1.104.238 1.417.180
-- €΄000 95.341 35.958 260.835 267.875 683.002 105.238 667.541 381.701 183.677 169.084 254.509 loan portfolio Total of which 1.695.501 1.775.116 2.494.076 exposures non-performing 2.339 €΄000 94.368 179.389 628.972 516.108 230.564 835.018 684.424 316.750 287.219 539.337 1.438.292 2.633.884 2.870.083 4.405.082 consumption for of which: Credit loans mortgage of which: Residential 6. Other sectors Households 5. Manufacturing sector By 1. Construction trade 2. Wholesale and retail activities estate 3. Real service activities and food 4. Accommodation estate real of which: Commercial Enterprises of which: Small and Medium-sized Non-financial corporations Non-financial Other financial corporations Other financial General Governments General Loans and advances* 49. (continued) RISK MANAGEMENT Analysis of loan portfolio from banking services according to the counterparty sector as at 31 December 2014 as sector counterparty to the banking services according from portfolio of loan Analysis Α Table institutions. and credit banks central to *Non including loans and advances
HELLENIC BANK GROUP ANNUAL REPORT 2014 165 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 €΄000 37.119 52.882 38.614 27.931 60.349 33.680 10.788 49.067 55.129 882.155 357.202 104.649 123.466 107.328 152.391 550.001 186.185 184.040 575.335 234.086 200.406 226.265 770.445 2.007.491 facilities credit Non performing Total €΄000 93.662 99.967 95.390 63.603 75.763 36.202 50.794 28.520 42.059 96.770 55.408 904.470 180.572 207.015 106.277 216.977 597.057 194.950 131.149 880.768 495.211 444.417 218.208 2.382.295 -- -- 7.053 €΄000 43.730 32.878 43.814 17.901 39.428 57.281 38.478 27.388 13.394 29.743 81.445 74.392 68.263 42.572 21.308 382.091 132.510 111.258 205.712 192.280 780.083 Restructured facilities credit facilities credit Performing €΄000 48.062 60.784 62.463 82.066 38.109 25.125 48.375 22.808 43.741 28.520 42.059 54.198 34.100 522.379 163.285 105.719 391.345 155.522 101.406 688.488 413.766 370.025 149.945 1.602.212 restructured facilities credit Non €΄000 64.133 84.474 39.308 91.126 537.774 311.664 217.128 213.605 137.086 369.368 381.135 279.430 116.485 114.377 191.498 729.297 644.823 444.473 151.899 825.853 facilities 1.786.625 1.147.058 1.456.103 4.389.786 credit Total property: 49. (continued) RISK MANAGEMENT 1. Credit facilities to corporate legal entities legal corporate to facilities 1. Credit Construction and motorcycles vehicles of motor repair trade, Wholesale and retail service activities and food Accommodation Activities Estate Real Manufacturing Other sectors 2. Credit facilities to retail legal entities legal retail to facilities 2. Credit and motorcycles vehicles of motor repair trade, Wholesale and retail Construction Activities Estate Real Manufacturing service activities and food Accommodation Other sectors individuals to private facilities 3. Credit of immovable the purchase/construction for facilities Credit (a) Owner occupied other purposes (b) For Consumer loans cards Credit accounts Current sole traders to Facilities Credit (1+2+3) facilities 4. Total Provisions Analysis of loan portfolio from banking services according to lending transaction performance status as at 31 December 2013 as status performance lending transaction to banking services according from portfolio of loan Analysis A Table
166 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827
losses 2.912 6.300 9.280 €΄000 91.108 48.583 95.316 105.145 Cumulative Impairment
Non loans €΄000 10.150 14.910 22.340 178.409 152.774 125.459 178.960 performing households Loans to €΄000 59.463 62.706 90.954 331.952 225.097 347.769 320.351
32 111 167 losses 7.895 3.942 1.002 1.983 €΄000 Cumulative Impairment
35 81 Non 959 loans 5.797 2.673 4.875 €΄000 21.538 performing 495 1.952 9.717 €΄000 other financial corporations Loans to 12.121 11.330 20.685 38.068
losses 5.411 €΄000 26.870 26.481 204.943 152.479 202.687 191.331 Cumulative Impairment
Non loans €΄000 12.057 76.640 69.084 367.934 347.144 497.892 404.365 performing €΄000 corporations non-financial Loans to 52.124 143.233 614.987 134.111 558.652 723.726 643.250
losses 8.355 €΄000 33.281 35.928 314.030 202.064 299.986 290.334 Cumulative Impairment
Non loans €΄000 22.242 91.631 92.383 526.505 475.276 681.727 604.312 performing loan portfolio Total €΄000 112.082 207.891 234.782 852.205 917.751 1.064.762 1.013.270
Loan origination date 49. (continued) RISK MANAGEMENT at 31 December 2014 as date on the basis of loan origination portfolio* of loan Analysis Β Table Within 1 year 1 - 2 years 2 - 3 years Over 10 years 3 - 5 years 5 - 7 years 7 - 10 years governments. general to *Non including loans and advances or restructured. either new each account, for date loan origination as the contractual is defined date Loan origination
HELLENIC BANK GROUP ANNUAL REPORT 2014 167 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827
6.420 8.560 €΄000 86.528 14.404 24.710 30.248 35.941 Provisions 9.679 €΄000 15.954 44.616 38.510 65.947 57.058 109.485 – Other Loans facilities credit Non performing €΄000 individuals private to facilities Credit facilities 55.743 68.179 67.933 102.546 162.124 168.930 101.351 credit Total
239 679
2.588 5.243 €΄000 11.630 12.961 55.760 Provisions 198 1.878 8.800 €΄000 38.864 14.433 40.293 129.620 facilities credit Non performing property of immovable the purchase/construction for €΄000 individuals private to facilities Credit 11.586 35.954 69.300 33.653 facilities 117.555 172.620 288.629 credit Total €΄000 15.287 18.904 28.261 63.655 106.033 158.049 139.753 Provisions €΄000 36.645 52.828 99.629 278.593 185.407 259.644 519.410 facilities credit Non performing entities legal to facilities Credit €΄000 facilities 165.103 162.003 273.687 528.568 318.948 542.001 943.373 credit Total €΄000 21.946 28.143 45.253 99.995 149.242 249.820 231.454 Provisions €΄000 46.522 70.660 153.045 384.833 383.562 706.088 262.781 Loans Total facilities credit Non performing €΄000 facilities 232.432 266.136 445.533 870.118 737.778 504.436 credit Total 1.333.353
Loan origination date: 49. (continued) RISK MANAGEMENT at 31 December 2013 as date banking services on the basis of loan origination from portfolio of loan Analysis Β Table Within 1 year 1 - 2 years 2 - 3 years other purposes. or for occupation owner for include facilities property of immovable the purchase/construction individuals for private to facilities Credit individuals. private to granted facilities individuals - Other loans include all other credit private to facilities Credit or restructured. either new each account, for date loan origination as the contractual is defined date Loan origination 3 - 5 years Over Over 10 years 5 - 7 years 7 - 10 years
168 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
GROUP’S EXPOSURE IN COUNTRIES OF THE EUROZONE, THE EUROPEAN UNION AND OTHER COUNTRIES WITH HIGH CREDIT RISK
The Group closely monitors developments in the international markets so that any measures needed to reduce credit risk are promptly taken.
The monitoring of exposure in countries of high risk is centralized through systems that fully and on an ongoing basis cover all material exposures to these countries such as interbank placements, debt securities, other investments, etc. Also, maximum acceptable levels are specified according to the rankings of the countries and taking into account their credit ratings, political, economic and other factors.
For the classification of a country as ‘High Risk’ country, the credit ratings of the countries, the bond implied ratings which incorporate information about credit spreads of government bonds as well as other available financial data of the countries, are primarily considered.
Some of the debt securities listed in the table below, based on the three level hierarchy depending on the significance of the inflows used to determine fair value, are classified in Level 2 and 3.
The analysis of concentration of credit risk in countries of the Eurozone, the European Union and other countries with high credit risk at the reporting date is shown below:
HELLENIC BANK GROUP ANNUAL REPORT 2014 169 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 -- 22 179 (34) (50) Total (211) (587) 2.545 2.569 1.373 1.957 €΄000 20.989 20.989 14.256 13.914 323.963 317.121 3.105.089 3.105.089 3.468.098 (1.145.180) ------6.180 6.180 6.180 €΄000 Ukraine (1.915) ------(4) 387 387 387 Egypt €΄000 ------€΄000 Slovenia ------94 94 (7) 871 871 965 €΄000 Hungary ------20 20 (1) 837 837 857 Spain €΄000 ------99 99 (4) 680 680 (50) Italy 4.000 3.948 4.727 €΄000 ------992 992 (211) 9.710 €΄000 Ireland 10.000 10.702 (1.068) ------22 716 716 (587) 8.070 8.070 1.373 1.957 €΄000 Greece 10.181 (25.537) ------179 256 256 (34) 2.545 2.569 €΄000 Cyprus 17.885 17.885 323.963 317.121 3.089.247 3.089.247 3.434.099 (1.116.644) At 31 December 2014 At Assets held for trading held for Assets Bonds Government value) (fair Carrying value Derivatives value) (fair Carrying value Bank Bonds value) (fair Carrying value Assets classified as loans and receivables classified as loans and Assets bonds Government (amortised cost) Carrying value value Fair Deposits in other banks (amortised cost) Carrying value value Fair Loan and advances to customers to Loan and advances (amortised cost) Carrying value losses impairment Accumulated value Fair Assets held for sale held for Assets Bonds Government Nominal value value) (fair Carrying value reserve value of the fair amount Accumulated Bank bonds Nominal value value) (fair Carrying value reserve value of the fair amount Accumulated losses impairment Accumulated Total book value book value Total reserve value of the fair amount Accumulated (amortised cost) Carrying value Other bonds Nominal value 49. (continued) RISK MANAGEMENT
170 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 45 50 Total (300) (204) 1.340 2.545 2.304 2.021 3.060 €΄000 45.071 45.071 14.256 12.654 (1.277) (1.044) 328.165 275.024 (738.349) 3.477.428 3.477.428 3.869.078 ------5.278 5.278 5.278 €΄000 Ukraine (1.377) ------414 414 414 Egypt €΄000 3 3 ------22 25 €΄000 Slovenia ------445 445 113 113 558 €΄000 Hungary ------34 34 936 936 970 Spain €΄000 ------(3) 328 328 Italy (204) 1.953 1.953 4.000 3.794 6.075 €΄000 ------(828) 1.195 1.195 8.604 9.799 €΄000 Ireland 10.000 (1.277) ------23 454 454 2.021 3.060 €΄000 Greece 11.537 11.537 14.035 (1.044) (25.498) ------50 256 256 (300) 1.340 2.545 2.304 €΄000 Cyprus 42.908 42.908 328.165 275.024 (710.643) 3.456.901 3.456.901 3.831.924 At 31 December 2013 At Derivatives value) (fair Book value Assets held for trading held for Assets Bonds Government value) (fair Book value Assets classified as loans and receivables classified as loans and Assets bonds Government (amortised cost) Book value Bank Bonds value) (fair Book value value Fair Deposits in other banks (amortised cost) Book value value Fair Loan and advances to customers to Loan and advances (amortised cost) Book value losses impairment Accumulated value Fair Assets held for sale held for Assets Bonds Government Nominal value value) (fair Book value reserve value of the fair amount Accumulated Bank bonds Nominal value value) (fair Book value losses impairment Accumulated reserve value of the fair amount Accumulated (amortised cost) Book value Other bonds Nominal value reserve value of the fair amount Accumulated Total book value Total 49. (continued) RISK MANAGEMENT
HELLENIC BANK GROUP ANNUAL REPORT 2014 171 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
Market and Liquidity Risks
GROUP MARKET AND LIQUIDITY RISK MANAGEMENT
The Assets and Liabilities Management Committee (ALCO) is responsible for implementing the policy of the Bank’s Board of Directors regarding the risks and profitability arising from the Group’s assets and liabilities. Group Market and Liquidity Risk Management is responsible for the monitoring and management of Group market and liquidity risks within the framework of risk policies and limits defined by ALCO.
The Group’s approach towards market and liquidity risk management is to concentrate these risks for all Group business units under the Group Treasury Department. The Group Treasury Department manages risks using a framework of activities and limits approved by ALCO. Group Risk Management is responsible for developing policies and procedures for managing the risks and for the daily monitoring of their implementation. These policies and procedures are reviewed at regular time intervals and are approved by ALCO.
Liquidity Risk
Liquidity risk is the risk of decrease in profits or capital, arising from a weakness of the Bank to meet its immediate obligations, without incurring additional costs. The Group’s approach in managing liquidity risk is to ensure, to the extent possible (considering that the main role of the Bank as an intermediary is to accept short term deposits and grant long term loans), that there is adequate liquidity in order to satisfy its obligations, when they arise, under ‘normal’ circumstances as well as under stress conditions, without the Group incurring any additional costs.
The Group currently operates mainly in Cyprus. The management of the liquidity of the Group’s banking units (including compliance with regulatory limits), is undertaken by the Group Treasury Department and is locally effected depending on the conditions prevailing in the various markets.
The Group places emphasis on the maintenance of stable customer deposits, as they represent one of its basic funding sources. This is mainly achieved through the maintenance of good and long standing relationships of trust with customers and through competitive and transparent pricing strategies.
Regular stress testing scenarios are performed to simulate extreme conditions and the appropriate measures are taken whenever necessary.
The liquidity risk of banking units is monitored daily by Group Market and Liquidity Risk Management. At Group level, the liquidity of the euro is being monitored separately, as well as the liquidity of all foreign currencies, lumped together.
In managing liquidity risk for the euro, the Group calculates and monitors, among other ratios, the liquid assets ratio required by the Central Bank Directive on Prudential Liquidity in Euro. According to the Directive, the liquid assets ratio of the Bank should always be equal to or greater than 20%. Liquid assets comprise of cash, interbank deposits and debt securities.
The liquid assets ratio for the euro was as follows: 2014 2013 % % At 31 December 44,14 28,86 Average for the year 35,72 24,52 Maximum percentage for the year 46,21 28,92 Minimum percentage for the year 28,52 20,54
172 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
At Group level, the liquidity of all foreign currencies is being monitored on an aggregate basis. According to the relevant Directive of the Central Bank of Cyprus on Prudential Liquidity in foreign currency, the Bank needs to maintain 70% of its total foreign currency deposits in highly liquid assets.
The liquid assets ratio in foreign currency was as follows:
2014 2013 % % At 31 December 87,47 77,17 Average for the year 76,78 76,85 Maximum percentage for the year 87,47 80,90 Minimum percentage for the year 70,72 73,04
The ratio is calculated based on items expressed in all foreign currencies other than euro.
The tables below present the undiscounted cash flows of the Group’s liabilities based on their remaining contractual maturity dates.
Analysis of financial liabilities based on their remaining contractual maturity at 31 December 2014
Between Gross three nominal Within months Between Over Carrying (inflows)/ On three and one one and five amount outflows demand months year five years years €΄000 €΄000 €΄000 €΄000 €΄000 €΄000 €΄000 Financial liabilities Deposits by banks 70.760 70.775 51.007 4.478 15.290 -- -- Deposits with Central Bank 236.014 237.370 ------237.370 -- Customer deposits and other customer accounts 6.345.948 6.372.411 3.504.591 1.205.677 1.496.823 165.320 -- Derivatives 11.700 - Cash inflows (64.551) (688) (63.863) ------Cash outflows 65.934 689 65.245 ------Taxation payable 5.260 5.260 5.260 ------Deferred tax liability 1.345 1.345 ------1.345 -- Liabilities of subsidiary company held for sale 1.044 1.044 -- 1.044 ------Other liabilities 103.699 104.733 81.032 6.759 14.366 1.930 646 Loan capital 181.448 183.476 -- 230 708 52.891 129.647 6.957.218 6.977.797 3.641.891 1.219.570 1.527.187 458.856 130.293
HELLENIC BANK GROUP ANNUAL REPORT 2014 173 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
Analysis of financial liabilities based on their remaining contractual maturity at 31 December 2013
Between Gross three nominal Within months Between Over Carrying (inflows)/ On three and one one and five amount outflows demand months year five years years €΄000 €΄000 €΄000 €΄000 €΄000 €΄000 €΄000 Financial liabilities Deposits by banks 47.362 47.506 33.650 4.822 9.030 -- 4 Customer deposits and other customer accounts 5.513.272 5.534.157 2.701.593 1.670.687 1.018.079 143.798 -- Derivatives 16.103 - Cash inflows (131.768) -- (131.768) ------Cash outflows 134.409 -- 134.409 ------Taxation payable 5.265 5.265 5.265 ------Deferred tax liability 4.406 4.406 ------2.767 1.639 Other liabilities 94.089 94.079 71.842 11.974 6.238 2.769 1.256 Loan capital 304.629 307.916 -- 86.130 789 54.043 166.954 5.985.126 5.995.970 2.812.350 1.776.254 1.034.136 203.377 169.853
The assets of the Group which are considered liquid according to the instructions of the Central Bank of Cyprus for the calculation of Prudential Liquidity in euro and in foreign currency at 31 December are as follows:
2014 2013 €΄000 €΄000 Cash and balances with Central Banks 2.175.599 1.003.020 Placements with other banks 985.248 805.461 Investments in bonds 396.398 448.746 Investment in shares 1.224 882 3.558.469 2.258.109
An amount of €115.053 thousand (2013: €61.843 thousand) has been pledged as collateral on placements with other banks, being common practice among financial institutions (see Note 17). In addition during 2014, the Group participated in a targeted long term refinancing operation (TLTROs) of the European Central Bank (see Note 29). By participating in TLTROs, at 31 December 2014 the Group received an amount of €236 million funds from ECB, placing debt securities as collateral with a total market value, less any impairments set by the ECB being equal to the total funding received.
The Group has the ability to raise liquidity through the mechanisms of the European Central Bank.
174 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827
------€΄000 Bank’s 23.448 23.448 eligible Central of which
European 9.083 €΄000 425.702 282.051 of Carrying amount assets unencumbered 2.432.698 3.917.832 7.067.366
------The Bank €΄000 Bank’s eligible Central 347.420 347.420 of which
European -- -- 638 €΄000 114.409 347.420 462.467 assets encumbered of Carrying amount
------€΄000 Bank’s 23.448 23.448 eligible Central of which
European 9.319 €΄000 432.305 298.716 of Carrying amount assets unencumbered 2.432.833 3.915.923 7.089.096
------The Group €΄000 Bank’s eligible Central 347.420 347.420 of which
European -- -- 638 €΄000 114.409 347.420 462.467 assets encumbered of Carrying amount 2014: 31 December at assets and unencumbered encumbered the presents below table 49. (continued) RISK MANAGEMENT Loans on demand instruments Equity other Loans and advances than loans on demand securities Debt The Total assets Total Other assets
HELLENIC BANK GROUP ANNUAL REPORT 2014 175 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
Market Risks
Market risks are derived from the change in the value of the Group’s statement of financial position and the uncertainty in the stream of future earnings, resulting from changes in market conditions (volatility in foreign exchange, interest rates and stock exchange prices).
The Group has defined its strategy and methods of continuous monitoring for the control of market risk undertaking and the prudential management of these risks. More specifically, this is achieved mainly through the implementation of open position and stop loss limits.
The table below presents the distribution of assets and liabilities that are subject to market risk between trading and non-trading portfolios:
The Group The Bank Carrying Trading Non-trading Carrying Trading Non-trading amount portfolios portfolios amount portfolios portfolios 31 December 2014 €’000 €’000 €’000 €’000 €’000 €’000 Assets Cash and balances with Central Banks 2.175.599 -- 2.175.599 2.175.598 -- 2.175.598 Derivatives 11.070 11.070 -- 11.070 11.070 -- Placements with other banks 1.122.058 -- 1.122.058 1.119.732 -- 1.119.732 Loans and advances to customers 3.221.055 -- 3.221.055 3.221.055 -- 3.221.055 Debt and equity securities 789.045 2.347 786.698 782.382 2.347 780.035 7.318.827 13.417 7.305.410 7.309.837 13.417 7.296.420
The Group The Bank Carrying Trading Non-trading Carrying Trading Non-trading amount portfolios portfolios amount portfolios portfolios 31 December 2014 €’000 €’000 €’000 €’000 €’000 €’000 Liabilities Derivatives 11.386 11.386 -- 11.386 11.386 -- Derivatives held for risk hedging 314 -- 314 314 -- 314 Deposits 6.652.722 -- 6.652.722 6.652.722 -- 6.652.722 Loan capital 51.801 -- 51.801 51.801 -- 51.801 Subordinated loan capital 129.647 -- 129.647 129.667 -- 129.667 6.845.870 11.386 6.834.484 6.845.890 11.386 6.834.504
176 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
The Group The Bank Carrying Trading Non-trading Carrying Trading Non-trading amount portfolios portfolios amount portfolios portfolios 31 December 2013 €’000 €’000 €’000 €’000 €’000 €’000 Assets Cash and balances with Central Banks 1.003.020 -- 1.003.020 1.000.719 -- 1.000.719 Derivatives 7.168 7.168 -- 7.173 7.173 -- Placements with other banks 921.719 -- 921.719 898.457 -- 898.457 Loans and advances to customers 3.563.949 -- 3.563.949 3.554.502 -- 3.554.502 Debt and Equity securities 653.808 2.489 651.319 657.096 2.489 654.607 6.149.664 9.657 6.140.007 6.117.947 9.662 6.108.285
The Group The Bank Carrying Trading Non-trading Carrying Trading Non-trading amount portfolios portfolios amount portfolios portfolios 31 December 2013 €’000 €’000 €’000 €’000 €’000 €’000 Liabilities Derivatives 15.327 15.327 -- 15.337 15.337 -- Derivatives held for hedging 776 -- 776 776 -- 776 Deposits 5.560.634 -- 5.560.634 5.559.222 -- 5.559.222 Loan capital 51.801 -- 51.801 51.801 -- 51.801 Subordinated loan capital 252.828 -- 252.828 254.452 -- 254.452 5.881.366 15.327 5.866.039 5.881.588 15.337 5.866.251
FOREIGN EXCHANGE RISK
Foreign exchange risk arises from the undertaking of an open position in one or more foreign currencies. Group Market and Liquidity Risk Management monitors foreign currency positions on an ongoing basis within the risk management framework and limits set by the Assets and Liabilities Management Committee (ALCO) and the regulatory authority. Within this framework, there are nominal limits (by currency, in total, during the day, end of day), gain/loss limits and Value at Risk (VaR) limits. The regulatory limits for open positions during working hours exceed the limits for open positions during non-working hours.
VaR methodology is an important tool for the monitoring of foreign exchange risk. With this methodology, the Group calculates the maximum possible loss that may be incurred as a result of changes in market conditions, with a confidence level of 99% and over a one day period, based on the historical data of foreign exchange rate parities over a period of one year.
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The table below presents VaR figures for the Group’s foreign exchange risk:
2014 2013 €΄000 €΄000 At 31 December 13 10 Average for the year 8 11 Maximum amount for the year 13 24 Minimum amount for the year 6 1
The limitations of the VaR methodology are derived from the fact that the historical data used in the calculation may not be indicative of future events.
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Analysis of assets and liabilities by currency at 31 December 2014
British Swiss Other Euro US Dollar pound Rouble Franc currencies Total €΄000 €΄000 €΄000 €΄000 €΄000 €΄000 €΄000 Assets Cash and balances with Central Banks 2.170.968 2.238 1.908 189 98 198 2.175.599 Placements with other banks 58.244 885.352 98.258 58.804 130 21.270 1.122.058 Loans and advances to customers 2.936.820 98.281 6.245 -- 158.826 20.883 3.221.055 Debt securities 393.848 355.953 29.925 ------779.726 Equity securities 6.711 2.608 ------9.319 Property, plant and equipment 97.715 ------97.715 Intangible assets 19.683 ------19.683 Tax receivable 40 ------40 Assets of subsidiary company held for sale ------4.546 -- -- 4.546 Deferred tax asset 52.471 ------52.471 Other assets 57.932 11.237 ------182 69.351 Total assets 5.794.432 1.355.669 136.336 63.539 159.054 42.533 7.551.563
Liabilities Deposits by banks 51.584 11.648 -- 7.468 -- 60 70.760 Amounts due to Central Banks 236.014 ------236.014 Customer deposits and other customer accounts 4.670.167 1.453.074 135.952 55.582 12.800 18.373 6.345.948 Tax payable 5.260 ------5.260 Deferred tax liability 1.345 ------1.345 Liabilities of subsidiary company held for sale ------1.044 -- -- 1.044 Other liabilities 104.354 10.393 320 -- -- 332 115.399 5.068.724 1.475.115 136.272 64.094 12.800 18.765 6.775.770 Loan capital 181.448 ------181.448
Equity Share capital 93.010 ------93.010 Reserves 496.977 ------496.977 Equity attributable to Shareholders of the parent company 589.987 ------589.987 Non-controlling interest 4.358 ------4.358 594.345 ------594.345 Total liabilities and equity 5.844.517 1.475.115 136.272 64.094 12.800 18.765 7.551.563
Total position (50.085) (119.446) 64 (555) 146.254 23.768 Nominal value of foreign currency derivatives 49.997 118.635 -- -- (146.279) (22.353)
Net currency position (88) (811) 64 (555) (25) 1.415
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Analysis of assets and liabilities by currency at 31 December 2013
British Swiss Other Euro US Dollar pound Rouble Franc currencies Total €΄000 €΄000 €΄000 €΄000 €΄000 €΄000 €΄000 Assets Cash and balances with Central Banks 996.742 2.336 1.580 2.199 15 148 1.003.020 Placements with other banks 71.093 696.525 90.746 35.428 1.946 25.981 921.719 Loans and advances to customers 3.217.325 125.914 5.608 1.816 188.250 25.036 3.563.949 Debt securities 435.268 200.499 9.698 ------645.465 Equity securities 5.880 2.463 ------8.343 Property, plant and equipment 113.669 -- -- 9.993 -- -- 123.662 Intangible assets 18.251 -- -- 614 -- -- 18.865 Tax receivable 40 -- -- 35 -- -- 75 Deferred tax asset 23.967 -- -- 730 -- -- 24.697 Other assets 66.184 7.525 14 190 -- 239 74.152 Total assets 4.948.419 1.035.262 107.646 51.005 190.211 51.404 6.383.947
Liabilities Deposits by banks 43.713 3.440 72 4 133 -- 47.362 Customer deposits and other customer accounts 4.175.768 1.143.736 107.546 51.042 11.064 24.116 5.513.272 Tax payable 5.265 ------5.265 Deferred tax liability 2.767 -- -- 1.639 -- -- 4.406 Other liabilities 97.046 10.031 -- 211 2.665 239 110.192 4.324.559 1.157.207 107.618 52.896 13.862 24.355 5.680.497 Loan capital 304.629 ------304.629
Equity Share capital 26.888 ------26.888 Reserves 367.600 ------367.600 Equity attributable to Shareholders of the parent company 394.488 ------394.488 Non-controlling interest 4.333 ------4.333 398.821 ------398.821 Total liabilities and equity 5.028.009 1.157.207 107.618 52.896 13.862 24.355 6.383.947
Total position (79.590) (121.945) 28 (1.891) 176.349 27.049 Nominal value of foreign currency derivatives 85.264 120.809 -- (4.435) (176.116) (25.522)
Net currency position 5.674 (1.136) 28 (6.326) 233 1.527
INTEREST RATE RISK
Interest rate risk arises as a result of timing differences on the interest rate repricing of assets and liabilities.
Interest rate risk is initially managed through the monitoring of the interest rate gaps by currency, by time interval and in total (gap analysis).
Group Market and Liquidity Risk Management monitors interest rate positions on a continuous basis, within the risk management framework and limits set by the Assets and Liabilities Management Committee (ALCO).
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Analysis of assets and liabilities based on their contractual repricing or maturity dates at 31 December 2014
Between Between three Within one and months Between Non-interest one three and one one and Over five bearing month months year five years years Total €΄000 €΄000 €΄000 €΄000 €΄000 €΄000 €΄000 Assets Cash and balances with Central Banks 54.909 2.120.690 ------2.175.599 Placements with other banks 15.557 1.106.501 ------1.122.058 Loans and advances to customers -- 2.570.039 409.898 232.880 7.661 577 3.221.055 Debt securities -- 76.657 62.938 209.277 285.895 144.959 779.726 Equity securities 9.319 ------9.319 Property, plant and equipment 97.715 ------97.715 Intangible assets 19.683 ------19.683 Tax receivable 40 ------40 Assets of subsidiary company held for sale 4.546 ------4.546 Deferred tax asset 52.471 ------52.471 Other assets 69.351 ------69.351 Total assets 323.591 5.873.887 472.836 442.157 293.556 145.536 7.551.563
Liabilities Deposits by banks -- 66.385 4.375 ------70.760 Amounts due to Central Banks ------236.014 -- 236.014 Customer deposits and other customer accounts -- 4.144.793 677.910 1.498.230 24.601 414 6.345.948 Tax payable 5.260 ------5.260 Deferred tax liability 1.345 ------1.345 Liabilities of subsidiary company held for sale 1.044 ------1.044 Other liabilities 115.399 ------115.399 123.048 4.211.178 682.285 1.498.230 260.615 414 6.775.770 Loan capital 129.647 -- 51.801 ------181.448 Total liabilities 252.695 4.211.178 734.086 1.498.230 260.615 414 6.957.218 Total position 70.896 1.662.709 (261.250) (1.056.073) 32.941 145.122 594.345 Nominal value of interest rate derivatives -- 8.763 16.002 7.000 (29.765) (2.000) -- Net position 70.896 1.671.472 (245.248) (1.049.073) 3.176 143.122 594.345
HELLENIC BANK GROUP ANNUAL REPORT 2014 181 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
Analysis of assets and liabilities based on their contractual repricing or maturity dates at 31 December 2013
Between Between three one and months Between Non-interest Within one three and one one and Over five bearing month months year five years years Total €΄000 €΄000 €΄000 €΄000 €΄000 €΄000 €΄000 Assets Cash and balances with Central Banks 38.149 964.871 ------1.003.020 Placements with other banks 19.151 882.568 20.000 ------921.719 Loans and advances to customers -- 2.783.648 464.625 295.930 19.547 199 3.563.949 Debt securities -- 54.966 98.421 78.503 242.024 171.551 645.465 Equity securities 8.343 ------8.343 Property, plant and equipment 123.662 ------123.662 Intangible assets 18.865 ------18.865 Tax receivable 75 ------75 Deferred tax asset 24.697 ------24.697 Other assets 74.152 ------74.152 Total assets 307.094 4.686.053 583.046 374.433 261.571 171.750 6.383.947
Liabilities Deposits by banks -- 43.058 4.304 ------47.362 Customer deposits and other customer accounts -- 3.663.932 859.836 977.576 11.928 -- 5.513.272 Tax payable 5.265 ------5.265 Deferred tax liability 4.406 ------4.406 Other liabilities 110.192 ------110.192 119.863 3.706.990 864.140 977.576 11.928 -- 5.680.497 Loan capital 253.607 -- 51.022 ------304.629 Total liabilities 373.470 3.706.990 915.162 977.576 11.928 -- 5.985.126 Total position (66.376) 979.063 (332.116) (603.143) 249.643 171.750 398.821 Nominal value of interest rate derivatives -- -- 67.082 4.000 (64.082) (7.000) -- Net position (66.376) 979.063 (265.034) (599.143) 185.561 164.750 398.821
In addition to monitoring interest rate gaps, interest rate risk management is carried out mainly by monitoring the sensitivity of the Group’s economic value (net present value) and net interest income under various interest rate change scenarios. ALCO is regularly informed about the magnitude of interest rate risk and makes decisions for the management of the risk based on this information. Scenario calculations for interest rate changes consider both parallel and non-parallel shifts of the yield curve. Additionally, analyses based on stress testing scenarios are also performed.
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The table below presents the impact on net interest income and Group’s economic value (net present value) from reasonably possible changes in interest rates:
Net Interest Net Present Income Value €’000 €’000 2014 +100 basis points 36.978 (1.594) -100 basis points1 (36.978) 1.594
Net Interest Net Present Income Value €’000 €’000 2013 +100 basis points 26.568 (10.601) -100 basis points1 (26.568) 10.601
(Note 1: Under the current circumstances, interest rate reduction by 100 basis points is theoretical since market interest rates in most currencies in which the Group holds a position are at very lower levels.)
PRICE RISK
Price risk is derived from the undertaking of an open position in equities, bonds or derivatives. The Group manages this risk through policies and procedures of setting and monitoring open position limits, stop loss limits on trading positions, as well as concentration limits by issuer.
The table below presents the impact on financial results and own funds (including the impact from changes in net profits) from reasonably possible changes in equity prices which are traded on stock exchanges:
2014 2013 Net Own Net Own profits Funds profits Funds €’000 €’000 €’000 €’000 +15% change in index 79 227 79 141
-15% change in index (79) (227) (79) (141)
HELLENIC BANK GROUP ANNUAL REPORT 2014 183 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
Operational risk
Operational risks are the risks of direct or indirect losses arising from a wide range of factors associated with procedures, staff, technology and infrastructure as well as external factors, such as those arising from legal requirements and compliance with laws and regulations.
The Group has adopted the principles and provisions set out in the guidelines of the Directives of the Central Bank of Cyprus, the European Union, Basel III as adopted by the EU and the Committee for European Banking Supervisors (CEBS).
The Group has developed a strong framework for the management of operational risks, taking into account the risk appetite and tolerance for operational risk. The annual insurance coverage held by the Group, which is regarded as an effective tool for mitigating operational risks, is also being considered.
The Group Operational Risk Management, together with the business lines, is responsible for the identification, detection, measurement, assessment, monitoring, control, mitigation of risk exposures and potential risks, aiming for an effective management of risks. The Group Operational Risk Management informs on regular intervals the Management and Risk Committee of the Board of Directors of the risks the Group faces.
The ‘Risk Control Self Assessment’ project is being implemented where departments, with the cooperation of the Group Operational Risk Management, identify and assess potential risks. Internal integrated controls and measures for monitoring risks are also assessed. After the assessment, collection of Basic Risk Indicators is agreed for the monitoring of the identified risks.
An internal system for the recording of operational risks and events related to operational risks has been developed and is implemented. Events recorded, other than operational risks, are related to losses, errors, near misses and system failures or interruptions.
Generally, risk management is done by the various business lines of the Group in their day to day activities.
Other means used include labs, control lists, internal and external audit reports, basic risk indicators and the risk record’s register. Meetings and discussions with colleagues in various departments are held, as well as internal controls that are embedded in the daily operations of departments are also being carried out.
Great importance is also given on management of procedures, staff training, setting of limits, design of contingency plans and recovery of operations and in general in adapting a culture of managing of operational risks in the whole Group.
Capital management
Until the 4th November 2014, the lead supervisory authority that set and monitor capital requirements for the Group,was the Central Bank of Cyprus (CBC). According to the European Council’s Regulation (EC) 1024/2013, specific tasks concerning policies relating to the prudential supervision of credit institutions have been assigned to the European Central Bank. Since 4 November 2014 the ECB has taken on full responsibility for the supervision of important credit institutions in participating Member States, including the Group, with the help of the local supervisory authorities. The CBC, as part of its supervisory role, has adopted the recommendations of Basel Committee and the European Directives on banking supervisory matters.
As from 1 January 2014, the European Parliament’s and Council’s Directive 2013/36/EU (CRD IV) and the Regulation No. 575/2013 (CRR) of 26 June 2013 became effective comprising the European regulatory package designed to transpose the new capital, liquidity and leverage standards of Basel III into the European Union’s legal framework. The Regulation 575/2013 (CRR) establishes the prudential requirements for capital, liquidity and leverage that entities need to abide by and is immediately binding on all European Union Member States. The Directive 2013/36/EU (CRD IV) governs access to deposit-taking activities, internal governance arrangements including remuneration, board composition and transparency. Unlike the Regulation 575/2013 (CRR), the Directive 2013/36/EU (CRD IV) must be transposed into national law and national regulators, such as the Central Bank of Cyprus, can impose additional capital buffer requirements. The Regulation 575/2013 (CRR) introduces significant changes in the prudential and regulatory regime applicable to banks including amended minimum capital adequacy ratios, changes to the definition of capital, the calculation of risk-weighted assets and the introduction of new measures relating to leverage, liquidity and funding. The CRR permits a transitional period for certain of the enhanced capital requirements and certain other measures, such as the leverage ratio, which are not expected to be fully implemented until 2018.
The CBC has determined the extent of phasing-in of the transitional provisions relating to Common Equity Tier 1 deductions and, on 29 May 2014, set the minimum Common Equity Tier 1 capital ratio at 8%. The CBC imposes additional capital requirements (Pillar 2 add-ons), taking also into account the provisions of the Directive no.2013/36/EU (CRD IV) and of the Regulation 575/2013(CRR).
The Directive of the Central Bank of Cyprus to credit institutions for the purpose of harmonization with the European Union Directives on the Calculation of Capital Requirements and Large Exposures of 2007 to 2011 (Basel II) was in force until 31 December 2013.
184 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
Basel II comprises of three Pillars: • Pillar 1 – Minimum capital requirements • Pillar 2 – Supervisory review process • Pillar 3 – Market discipline PILLAR 1 – MINIMUM CAPITAL REQUIREMENTS
Pillar 1 sets forth the guidelines for calculating the minimum capital requirements to cover the credit risk, the market risk and the operational risk.
The Group has at first adopted the Standardised Approach for the calculation of the minimum capital against credit risk. Under this approach, exposures are classified in specified classes and are weighed using specific weights, depending on the class the exposures belong to and their credit rating. Also, Basel III suggests two methods for the recognition of collateral, the Simple Approach and the Comprehensive Approach. The Group has applied the Comprehensive Approach, as this enables the fairer recognition and more accurate estimation of the Group’s collateral.
Regarding market risk, the Group has adopted the Standardised Approach, according to which the minimum capital requirement is estimated by adding together the capital requirements of positions on interest rates, equity and debt securities, foreign exchange and derivatives derived from the Trading Portfolio using predefined models, by risk category.
The Group uses the Basic Indicator Approach for the calculation of the capital requirements for operational risk. According to the Basic Indicator Approach, the operational risk capital requirement is estimated using a specific percentage on the average sum of gross income on a three year basis.
The Group’s policy is to maintain a strong capital base, in order to maintain investor, creditor and market confidence and support the future development of the Group’s operations. The Central Bank of Cyprus requires the maintenance of a specific total capital ratio in relation to the risks undertaken by the Bank.
During 2014, within the implementation framework of the issue terms of CCS 1 and CCS 2, as per the provisions of the Prospectus dated 30 September 2013, and as a result of the formation of the Common Equity Tier 1 ratio of the Group and the Bank as at 31 December 2013, 30 June 2014 and 30 September 2014 being below the minimum required supervisory ratio, CCS 1 of a total value of €85.873.871, €15.106.520 and €23.804.161 were mandatorily and irrevocably converted to shares, on 28 February 2014, 29 August 2014 and 26 October 2014 respectively, so that the lower of the two, Common Equity Tier 1 (CET 1) Ratio of the Bank and the Group is increased to the minimum required supervisory ratio. A total of 1.247.846 thousands ordinary shares of the Bank resulted from these conversions.
In addition, the Group’s capital base was further strengthened through the 2014 Rights Issue. The exercise of the rights issue, under the provisions of the Prospectus dated 14th of November 2014, resulted into the issuance of 5.364.374.709 shares. On 12 December 2014, the Bank successfully completed the first phase of its share capital increase, by raising an amount of €201 million, more than covering the capital need of €105 million required by the ‘Adverse Scenario’ of the Comprehensive Assessment released by the European Central Bank (ECB) and the European Banking Authority (EBA), based on the results of the Asset Quality Review (AQR) and the Stress Tests, and simultaneously further enhancing its capital base (see Note 48).
The Capital Adequacy Ratio of the Group as at 31 December 2014 was 18,2% (Bank: 18,1%), the Tier 1 Ratio was 16,2% (Bank: 16,1%) and the Common Equity Tier 1 Ratio was 13,4% (Bank: 13,3%).
The Group’s regulatory capital based on the Directive is analysed as follows:
• Common Equity Tier 1, which includes share capital, share premium reserve, reduction of share capital reserve, revenue reserve including the loss of current year, the revaluation reserve (revaluation reserve of investment in debt securities, revaluation reserve of investment in equity securities and property revaluation reserve) and the translation reserve. The carrying amount of intangible assets, direct holdings of Common Equity Tier 1 instruments, securitization positions and deferred tax assets that rely on future profitability are deducted in arriving at Common Equity Tier 1 capital. Additionally other transitional adjustments are added back. • Additional Tier 1 capital, which includes hybrid instruments, composed by CCS 1 and CCS 2. The direct holdings of Additional Tier 1 instruments are deducted from Additional Tier 1 capital. Additionally other transitional adjustments are added or deducted. • Tier 2, which includes subordinated loan capital. The direct holdings of additional Tier 2 instruments are deducted from Tier 2 capital. Additionally, the general credit risk adjustments up to the amount of 1,25% of the weighted exposure of credit risk are added back, while other transitional adjustments are added or deducted.
HELLENIC BANK GROUP ANNUAL REPORT 2014 185 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
According to article 470(2) of the European Directive 575/2013 which is in force from 1st of January 2014, the Bank applies the exemption from deductions from Common Equity Tier 1, significant investments in financial entities including investments in subsidiary companies which operate in the insurance sector, Pancyprian Insurance Ltd, Hellenic Alico Life Insurance Company Ltd, Hellenic Insurance Agency Ltd (Greece) and Hellenic Insurance Agency Ltd (Cyprus) in addition to deferred tax liabilities that rely on future profitability and result from temporary differences which in total are equal or lower than the 15% of the relevant Common Equity Tier 1 instruments of the Bank.
The table below presents the position of the Group’s regulatory capital as at 31 December 2014:
20141 €’000 Own funds Common Equity Tier 1 (CET1) 539.453 Additional Tier 1 (AT1) 113.928 Tier 1 (Τ1) 653.381 Tier 2 (T2) 80.850 Total regulatory capital 734.231
Risk weighted assets Credit risk 3.480.105 Market risk 7.300 Operational risk 537.625 Total risk exposure amount for credit valuation adjustments (CVA) 1.788 Total risk weighted assets 4.026.818
Common Equity Tier 1 ratio 13,4% Tier 1 ratio 16,2% Capital adequacy ratio 18,2%
(1) Based on CRD IV (Basel III) principles effective from 1 January 2014
As at 31 December 2013, the Group’s regulatory capital based on Basel II was analysed as follows: • Core Tier 1 capital, which includes the share capital, share premium reserve, reduction of share capital reserve, revenue reserve and the translation reserve. The carrying amount of intangible assets was deducted in arriving at Core Tier 1 capital. • Original own funds, which included Core Tier 1 capital, the Convertible Capital Securities 1 (CCS 1) and the Convertible Capital Securities 2 (CCS 2). • Supplementary own funds, which included subordinated loan capital and revaluation reserves (revaluation reserve of investment in debt securities, revaluation reserve of investment in equity securities and property revaluation reserve). • Deductions from original own funds (50%) and supplementary own funds (50%), included the carrying amount of investments which the bank held in (subsidiaries) insurance undertakings within the concept of Article 2 of the Insurance Services and Other Related Issues Laws of 2002 to 2005 as well as Securitization exposures.
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The table below presents the position of the Group’s regulatory capital as at 31 December 2013:
20132 €’000 Own funds Core Tier 1 capital 340.599 Less: Participation in insurance companies and securitization exposures (17.894) Total core Tier 1 capital 322.705
Original own funds 577.157
Supplementary own funds 68.989 Less: Participation in insurance companies and securitization exposures (17.894) Total supplementary own funds 51.095
Total original and supplementary own funds 628.252 Less: Participation in insurance companies and other regulatory adjustments --
Total own funds 628.252
Risk weighted assets Credit risk 3.849.575 Market risk 11.250 Operational risk 538.313 4.399.138 Core Tier 1 ratio 7,3% Tier 1 ratio 13,1% Capital adequacy ratio 14,3%
(2) Based on Basel II principle which were in force until 31 December 2013
PILLAR 2 – SUPERVISORY REVIEW PROCESS
Pillar 2 includes rules to ensure that adequate capital is in place to support any risk exposures of the Group and requires appropriate risk management, reporting and governance policies. Under Pillar 2, the Bank conducts stress tests, presenting different balance sheet positions to negative changes scenarios, in order to identify weaknesses that may, under the circumstances, expose the Bank at risk. The intensity and breadth of scenarios depends on idiosyncratic factors relevant to the mixture and the concentration of the assets of the Bank.
Banks are assessing internally their capital needs relative to their risks within the framework of Internal Capital Adequacy Assessment Process (ICAAP). This process is supervised and evaluated by the Central Bank of Cyprus. Due to the conducting of the pan-European ‘Comprehensive Assessment’ exercise the Bank performed a compact ICAAP exercise to assess risks that have not been covered by that exercise and estimate possible capital requirements PILLAR 3 – MARKET DISCIPLINE
Pillar 3 sets out required disclosures to allow market participants, having a full picture of the risk profile of the Group, to assess key pieces of information relevant to the capital structure, risk exposures, risk assessment processes and hence the capital adequacy of the Group.
HELLENIC BANK GROUP ANNUAL REPORT 2014 187 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 49. RISK MANAGEMENT (continued)
Based on Part 8 ‘Disclosure by Institutions’ of the Regulation (EU) No. 575/2013 (CRR) the banks disclosed, among others, information relating to their objectives and risk management policies, the composition of Common Equity Tier 1, Additional Tier 1 and Tier 2 Capital, their compliance with minimum capital requirements, the internal capital adequacy assessment process, the remuneration policy and recruitment and staff evaluation processes.
The Group is fully in compliance with the requirements of the Regulation (EU) No. 575/2013 (CRR) regarding the disclosure of the Pillar 3 report, based on the Basel III principles as adopted by the European Union.
50. EVENTS AFTER THE REPORTING PERIOD
FUNDING OF CYPRIOT BUSINESSES IN COLLABORATION WITH THE EUROPEAN INVESTMENTS BANK Within the framework of its policy to support Cypriot enterprises, the Bank has reached an agreement with the European Investment Bank (‘EIB’) to receive an amount of €35 million, along with an additional amount of €35 million from the Bank’s own funds (total amount of €70 million) will be allocated for the financing of eligible investment projects located in Cyprus in the sectors of industry, tourism and other services to be undertaken by Small and Medium-sized enterprises and Medium-capitalisation Companies with a favourable interest rate. Part of the total amount of €70 million will be used for the support of enterprises that participate in the program ‘Jobs for Youth’ of the EIB. 2014 RIGHTS ISSUE Under the provisions of the Prospectus dated 14 November 2014, the Bank had the right, at any time within 30 working days from the Last Date of Exercise of Subscription Rights and the exercise of the Presubscription Right to issue all or part of the New Shares which correspond to the unexercised Subscription Rights that had not been covered during the exercise of the Presubscription Right, and the Board of Directors of the Bank to allot, at its discretion, such New Shares, in Cyprus and abroad, through a procedure it will determine, at a price at least equal to the Exercise Price, that is €0,0375 per New Share, provided that the allotment of such News Shares would not result in such investor holding equal or in excess of 30% of the issued share capital of the Bank upon completion of the Issue. The Bank announced on 28 January 2015, in accordance with the above provision, that an amount of €3 million was raised through the shares allotment that corresponded to the unexercised Rights not allotted through the Presubscription phase. SCHEME OF THE CENTRAL BANK OF CYPRUS TO REDUCE INTEREST RATES The Bank announced on 13 February 2015 that it supports the efforts of the Central Bank of Cyprus to reduce the cost of money, by reducing the interest rates. In this context, the Bank has proceeded with the reduction of its basic interest rate by 1%.
As a result, the savings will be significant for all the customers of the Bank with mortgaged and other loans which are based on the basic interest rate of Hellenic Bank. The reduction will provide a relief to households, cheaper money to businesses and contribute significantly to the real economy.
The Board of Directors of the Central Bank of Cyprus (CBC), at the meeting held on 16 February 2015 decided to proceed with the differentiation of the maximum deposit rate, as specified in the formula for calculating the additional capital requirements of banks, with a decrease of one percentage point. EXTRAORDINARY GENERAL MEETING At the Extraordinary General Meeting of the Shareholders of the Bank which was held on 27 February 2015, amongst others, it was discussed and approved the consolidation and division (reverse split) of the share capital with a ratio of 50:1, the proposal for the issue of shares to the Chief Executive Officer of the Bank as part of his variable remuneration package and a proposal authorising the Board of Directors to issue and allot up to 18.776.000 ordinary shares (post the effect of consolidation and the reverse split) in order to take advantage of any capital raising opportunities that may arise within a period of 12 months. The issue price of such shares shall not be less than €1,875. It was also decided that the fractions of ordinary shares, arising on reverse split would be aggregated and sold in the market. The net proceeds from the sale, which amounted to €19.433, were distributed to Cyprus Red Cross.
Following the approval of the relevant Special Resolution by the Extraordinary General Meeting the issued share capital of the Hellenic Bank Public Company Ltd, has been consolidated (readjustment of shares’ nominal value from €0,01 to €0,50) and based on the provisions of the Prospectus dated 30 September 2013 part ΙV/Β/ΙΙΙ paragraph C1(i) and part ΙV/C/ΙΙΙ paragraph C1(i), the Minimum Price of mandatory conversion of the CCS1 is readjusted from €0,08 to €4,00, the Minimum Price of voluntary conversion of the CCS1 is readjusted from €0,13 to €6,50 as well as the Minimum Price of mandatory conversion of the CCS2 is readjusted from €0,04 to €2,00 and the Minimum Price of voluntary conversion of the CCS2 is readjusted from €0,13 to €6,50. These readjustments are effective from 27 February 2015.
188 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 DECLARATION BY THE MEMBERS OF THE BOARD OF DIRECTORS AND THE BANK OFFICIALS RESPONSIBLE FOR THE DRAFTING OF THE FINANCIAL STATEMENTS
In accordance with article 9(3)(c) and (7) of the 2007 Law on Transparency Requirements (Securities Listed for Trading on a Regulated Market), we the Members of the Board of Directors and the Bank officials responsible for the drafting of the financial statements of Hellenic Bank Public Company Ltd (the ‘Bank’) for the year ended 31 December 2014, confirm that to the best of our knowledge:
(a) the annual financial statements presented in pages 70 to 188:
(i) have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union and the provisions of article (9), paragraph (4) of the Law, and
(ii) give a true and fair view of the assets and liabilities, the financial position and the profits or losses of Hellenic Bank Public Company Ltd and of the entities included in the consolidated financial statements, as a whole and
(b) the report of the Board of Directors provides a fair review of the developments and performance of the business as well as the position of Hellenic Bank Public Company Ltd and of the entities included in the consolidated financial statements, as a whole, together with a description of the major risks and uncertainties that they face.
Members of the Board of Directors
Irena A. Georgiadou Non Executive Chairwoman
Marinos Yiannopoulos Non Executive Member of the Board
Dr Evripides A. Polycarpou Non Executive Member of the Board
Marianna Pantelidou Neophytou Non Executive Member of the Board
Ioannis A. Matsis Non Executive Member of the Board
David Whalen Bonanno Non Executive Member of the Board
Dr Andreas G. Charitou Non Executive Member of the Board
Christodoulos A. Hadjistavris Non Executive Member of the Board
Georgios Fereos Non Executive Member of the Board
Bert Pijls Executive Member of the Board
Company official responsible for the drafting of the financial statements Antonis Rouvas, Group Chief Financial Officer
Nicosia, 31 March 2015
HELLENIC BANK GROUP ANNUAL REPORT 2014 189 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 BOARD OF DIRECTORS OF THE GROUP’S MAIN SUBSIDIARY COMPANIES
HELLENIC BANK (INVESTMENTS) LTD Marios M. Michaelides (Appointed on 21 May 2014) Charalambos P. Panayiotou, Chairman (Resigned on 14 January 2014) Socrates Demetriou (Appointed on 21 May 2014) George Chr. Mavroudis Petros Arsalides, Secretary Kyriakos E. Georgiou (Resigned on 13 February 2015) (Resigned on 28 May 2014) Kyriacos Volis, Secretary Marinos Athanassiades (Appointed on 13 February 2015) George C. Koutsos Nicos S. Raftis HELLENIC ALICO LIFE INSURANCE COMPANY LTD (Resigned on 7 April 2014) Bert Pijls, Chairman Kyriacos Kyriakides (Appointed Member on 20 February 2015, elected Chairman (Appointed on 6 June 2014) on 25 February 2015) Eliodoros Eliodorou Marianna Pantelidou Neophytou (Resigned on 5 February 2015) (Appointed Member on 9 May 2014, Chairwoman from 26 May 2014 until 25 February 2015) Theognosia Apostolidou, Secretary Makis Keravnos, Chairman (Resigned on 9 April 2014) HELLENIC BANK TRUST & Michael Hatzidimitriou, Vice-Chairman FINANCE CORPORATION LTD Antonis I. Karpasitis Eliodoros Eliodorou, Chairman (Resigned on 5 February 2015) Georgios K. Pavlou Marios P. Christoforides Stavros Kremmos (Resigned on 26 February 2014) Marinos Athanassiades Eliodoros Eliodorou Christiana Konomou, Secretary (Resigned on 5 February 2015) Christos Antoniou (Appointed on 9 May 2014) PANCYPRIAN INSURANCE LTD Maria H. Vovides, Secretary Bert Pijls, Chairman (Appointed Member on 24 February 2015, Chairman from 17 March 2015) Ioannis Ch. Charilaou, Vice-Chairman LLC CB ‘HELLENIC BANK’ (Russia) (Vice-Chairman from 17 March 2015, Chairman until 17 March 2015) Hellenic Bank disposed 100% of its share capital Thanos Michael on 5 June 2014. (Retired on 7 May 2014) Iacovos C. Constantinides Andreas Panteli (Did not offer himself for re-election at the Annual General Meeting on 7 May 2014 and therefore retired from the Board of Directors)
Eliodoros Eliodorou (Resigned on 6 February 2015) George Iacovou Vassos Υ. Komodromos (Appointed on 21 May 2014, resigned on 23 December 2014) Christodoulos Hadjistavris (Appointed on 21 May 2014) Petros Arsalides (Appointed on 24 February 2015)
190 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 OFFICES AND BRANCH NETWORK
HEAD OFFICE AGLANTZIA BRANCH Corner Limassol Avenue & 200 Athalassa Avenue Aglantzia Ave. & 3 Angelou Vlachou, 2025 Strovolos, 2108 Nicosia P.O.Box 24747, 1394 Nicosia Tel: 22 501 622, Fax: 22 444 130 SWIFT/BIC: HEBA CV 2Ν [email protected] [email protected] Tel: 22 500000, Fax: 22 500050 Website: http://www.hellenicbank.com KENNEDY BRANCH E-mail: [email protected] 30 Kennedy Ave. & 25th March, Service Line: 8000 99 99 1087 Nicosia For calls from abroad: ++357 22 743 843 Tel: 22 501 404, Fax: 22 875 307 [email protected]
NICOSIA DISTRICT LATSIA BRANCH 79Α Αrch. Makarios III Ave., 2223 Latsia, Nicosia PERSONAL BANKING DIVISION Tel: 22 501 413, Fax: 22 488 345 ELEFTHERIA SQUARE BRANCH [email protected] 1 Evagorou Ave., Mitsis Building 1, Eleftheria Sq., 1065 Nicosia DIGHENI AKRITA MAIN BRANCH SWIFT/BIC: ΗΕΒΑCY2N NIC 92 Digheni Akrita Ave. & Kritis, Tel: 22 501 000, Fax: 22 501 088 1061 Nicosia [email protected] SWIFT/BIC: ΗΕΒΑCY2N NIC Tel: 22 500 500, Fax: 22 500 560 KOKKINOTRIMITHIA BRANCH [email protected] 8C Gr. Afxentiou, 2660 Kokkinotrimithia ACROPOLI BRANCH Tel: 22 501 362, Fax: 22 835 428 53 Acropoli Ave. & Thermopylon St. [email protected] Strovolos, 2012 Nicosia Tel: 22 501 425, Fax: 22 319 112 AGIOS DHOMETIOS BRANCH acroρο[email protected] 112 Gregoriou Afxentiou St., 2364 Nicosia AGIOS ANTONIOS BRANCH Tel: 22 501 453, Fax: 22 771 354 Corner 12Α Evgenias & Ant. Theodotou St. [email protected] & Klimentos, 1061 Nicosia Tel: 22 501 442, Fax: 22 433 490 ATHALASSA BRANCH [email protected] 173 Athalassa Ave., Strovolos, 2025 Nicosia STROVOLOS AVE BRANCH Tel: 22 501 800, Fax: 22 501 990 Strovolos Ave. & 56 Ayia Marina St., [email protected] 2018 Nicosia Tel: 22 501 463, Fax: 22 316 153 DEMOSTHENI SEVERI BRANCH [email protected] 15 Demostheni Severi Ave., 1080 Nicosia KAKOPETRIA BRANCH Tel: 22 501 332, Fax: 22 667 813 45 Arch. Makarios III Ave., [email protected] 2810 Kakopetria Tel: 22 501 472, Fax: 22 923 461 KANTARA BRANCH [email protected] 18 Kantara Ave., 1037 Nicosia PRODROMOS BRANCH Tel: 22 501 392, Fax: 22 435 500 25 Prodromos St., [email protected] 1095 Nicosia
Tel: 22 501 487, Fax: 22 676 881 [email protected]
HELLENIC BANK GROUP ANNUAL REPORT 2014 191 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 OFFICES AND BRANCH NETWORK
STAVROU BRANCH CORPORATE BANKING DIVISION 71 Stavrou Ave., NICOSIA CORPORATE CENTER 2035 Strovolos, Nicosia 173 Athalassa Ave., Tel: 22 501 501, Fax: 22 491 057 2025 Nicosia [email protected] Tel: 22 501 893, Fax: 22 501 996 cοrροratenicο[email protected]οm PLATY BRANCH 100Α Kyrenia Ave., Platy, INTERNATIONAL BUSINESS UNIT Aglantzia, 2114 Nicosia ATHALASSA INTERNATIONAL BUSINESS CENTER Tel: 22 501 514, Fax: 22 331 504 173 Athalassa Ave., 2025 Nicosia, [email protected] Tel: 22501888, Fax 22 501995 [email protected] TSERIOU BRANCH Corner Tseriou Ave.& Naxou 1, ELEFTHERIA SQUARE INTERNATIONAL BUSINESS CENTER 2043 Nicosia 1 Evagorou Ave., Mitsis Building 1, Eleftheria Sq., 1st floor, Tel: 22 501 521, Fax: 22 327 299 1065 Nicosia [email protected] Tel: 22501700, Fax 22 663 168 [email protected] DHALI BRANCH 1A Arch. Makarios III St., 2540 Dhali, Nicosia Tel: 22 501 532, Fax: 22 524 780 LIMASSOL DISTRICT [email protected] PERSONAL BANKING DIVISION LAKATAMIA BRANCH ARCH MAKARIOS Ill AVE. BRANCH 18 Arch. Makarios III Ave., 131 Arch Makarios III Ave.& loannis Polemis St., 2324 Kato Lakatamia, Nicosia 3021 Limassol Tel: 22 501 541, Fax: 22 320 986 Tel: 25 502 300, Fax: 25 731 031 [email protected] [email protected]
ENGOMI BRANCH AKROTIRI BRANCH 3 Aheon & Agamemnonos, RAF Station Shopping Centre, Princess St., 2413 Engomi, Nicosia 3771 Akrotiri Tel: 22 501 563, Fax: 22 358 029 Tel: 25 502 810, Fax: 25 952 588 [email protected] [email protected]
AMPHIPOLEOS BRANCH AGIOS GEORGIOS BRANCH 20 Amphipoleos St, 2 Promachon Eleftherias Ave., 2025 Nicosia 4103 Limassol Tel: 22 501 324, Fax: 22 311 433 Tel: 25 502 801, Fax: 25 310 638 [email protected] [email protected]
BUSINESS SERVICES DIVISION GLADSTONOS & PH. KOLAKIDES BRANCH 52 Gladstonos Ave. & Ph. Ko¬lakides St., NICOSIA BUSINESS CENTER 3022 Limassol 173 Athalassa Ave., 2025 Nicosia, P.O.Box 56588, 3308 Limassol P.O.Box 24747, 1394 Nicosia Tel: 25 502 032, Fax: 25 502 097 Tel: 22 501 824, Fax: 22 501 991 115 [email protected] @hellenicbank.com [email protected] PAPHOS ST. BRANCH 15 Paphos St., 3052 Limassol Tel: 25 502 844, Fax: 25 570 974 [email protected]
192 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 COURT SQUARE BRANCH BUSINESS SERVICES DIVISION Arch Makarios III Ave. & Grivas Dhigenis, GLADSTONOS & PH. KOLAKIDES BUSINESS CENTER 3105 Limassol Corner 52 Gladstonos & Ph. Kolakides St., 3022 Limassol Tel: 25 502 604, Fax: 25 376 288 P.O.Box 56588, 3308 Limassol [email protected] Tel: 25 502 002, Fax: 25 502 081 [email protected] YERMASOYIA BRANCH 54 George A’ St., ARCH. MAKARIOS III BUSINESS CENTER Old Rd. Limassol - Nicosia, 131 Arch. Makarios III Ave. & loannis Polemis, 4047 Limassol 3021 Limassol P.O.Box 51474, 3505 Limassol Tel: 25 502 863, Fax: 25 326 121 Tel: 25 502 405, Fax: 25 502 494 [email protected] [email protected]
MUNICIPAL MARKET BRANCH CORPORATE BANKING DIVISION Corner George Gennadios & 23 Hadjiloizi St., LIMASSOL- PAPHOS CORPORATE CENTER 3041 Limassol 131 Arch. Makarios III Ave.& loannis Polemis, Tel: 25 502 873, Fax: 25 373 121 3021 Limassol [email protected] Tel: 25 502 396/2407, Fax 25 502478 [email protected] MESA YITONIA BRANCH Arch. Makarios III Ave & INTERNATIONAL BUSINESS DIVISION 43Ε St. Lenas, 4003 Limassol LIMASSOL INTERNATIONAL BUSINESS CENTER Tel: 25 502 881, Fax: 25 753 864 131 Arch. Makarios III Ave. & loannis Polemis, [email protected] 3021 Limassol Tel: 25 502 400, Fax: 25 502 485 FRANKLIN ROUSVELT BRANCH [email protected] Corner 108 Franklin Rousvelt & Avanas, 3011 Limassol Tel: 25 502 890, Fax: 25 573 696 [email protected] LARNACA DISTRICT
AYIA PHYLA BRANCH PERSONAL BANKING DIVISION Corner 222 Ayia Phyla Ave & Ag.Ilarionas St ZENONOS KITIEOS BRANCH 3116 Limassol 2 Zenonos Kitieos St., Tel: 25 502 511, Fax: 25 730 181 P.O.Box 40434, 6304 Larnaca [email protected] SWIFT/BIC: ΗΕΒΑCY2N LAR Tel: 24 503 000, Fax: 24 654 366 KATO POLEMIDIA BRANCH [email protected] 105 Nicos Pattichis Ave., Kato Polemidia, 4155 Limassol DHEKELIA BRANCH Tel: 25 502 523, Fax: 25 731 570 Amenities Village, katopο[email protected] 6370 Dhekelia Tel: 24 503 351, Fax: 24 723 539 ACADEMIA BRANCH [email protected] 17 Spyros Kyprianou St., Linopetra, 4040 Limassol ARCH. MAKARIOS III BRANCH Tel: 25 502 837, Fax: 25 314 985 86 Arch. Makarios III Ave., [email protected] 6017 Larnaca Tel: 24 503 310, Fax: 24 636 387 [email protected]
HELLENIC BANK GROUP ANNUAL REPORT 2014 193 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 OFFICES AND BRANCH NETWORK
NICOS PATTICHIS AVE. BRANCH INTERNATIONAL BUSINESS DIVISION Corner Mystras & United Nations 6042 Larnaca LARNACA INTERNATIONAL BUSINESS CENTER Tel: 24 503 373, Fax: 24 655 141 3-7 Arch. Makarios III Ave., 6016 Larnaca [email protected] P.O.Box 40434, 6304 Lamaca Tel: 24 503 480, Fax: 24659101/24625187 SPYROS KYPRIANOU AVE. BRANCH [email protected] Corner 92 Spyros Kyprianou Ave. & Averof St. 6052 Larnaca Tel: 24 503 413, Fax: 24 669 590 FAMAGUSTA DISTRICT [email protected] PERSONAL BANKING DIVISION DIONYSOU AVE. BRANCH KAPPARIS BRANCH Dionysou & 1 Socratous St., 2 Kapparis Ave., Pyla Tourist Area, 7081 Larnaca 5290 Paralimni, Famagusta Tel: 24 503 420, Fax: 24 644 323 Tel: 23 504 380, Fax: 23 740 228 [email protected] [email protected] LIVADIA BRANCH SOTIRA BRANCH 43Β Petrakis Kyprianou St., 6 Heroon St., 5390 Sotira, Famagusta 7060 Livadia, Larnaca Tel: 23 504 391, Fax: 23 829 120 Tel: 24 503 441, Fax: 24 662 744 [email protected] [email protected] PARALIMNI BRANCH DROMOLAXIA BRANCH 85, 1st April St., 2 Eleftheria Ave., 5281 Paralimni, Famagusta Tel: 23 504 300 7020 Dromolaxia Fax: 23 827 045/820 780 Tel: 24 503 452, Fax: 24 425 190 [email protected] drοmο[email protected]οm TEFKROU ANTHIA BRANCH PHANEROMENI BRANCH 7 Tefkrou Anthia St., 120 Phaneromeni Ave., P.O.Box 30091, 6031 Larnaca 5330 Ayia Napa, Famagusta Tel: 24 503 461, Fax: 24 654 740 Tel: 23 504 345, Fax: 23 722 636 [email protected] [email protected]
BUSINESS SERVICES DIVISION DHERYNIA BRANCH LARNACA BUSINESS CENTER 4 Demokratias St., Corner Mystras & United Nations 6042 Larnaca, 5380 Dherynia, Famagusta P.O.Box 51474, 6304 Larnaca Tel: 23 504 355, Fax: 23 730 188 Tel: 24 503 000, Fax: 24 650 040 [email protected] [email protected] MONASTIRAKI AREA BRANCH CORPORATE BANKING DIVISION Arch. Makarios III Ave. & LARNACA & FAMAGUSTA CORPORATE CENTER Misiaouli & Kavazoglou Corner Mystras & United Nations 6042 Larnaca, 5330 Ayia Napa P.O.Box 51474, 6304 Larnaca Tel: 23 504 375, Fax: 23 723 406 Tel: 24 503 000, Fax: 24 656 919 [email protected] [email protected] ORMIDHIA BRANCH 15 Demokratias St., 7530 Ormidhia Tel: 24 503 470, Fax: 24 722 782 [email protected]
194 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 BUSINESS SERVICES DIVISION POLIS CHRYSOCHOUS BRANCH FAMAGUSTA BUSINESS CENTER 85, 1st April Ave., 37 Arch. Makarios III Ave., 5280 Paralimni, P.O.Box 33011, 8820 Polis Chrysochous 5310 Paralimni, Famagusta Tel: 26 505 191, Fax: 26 322 370 Tel: 23 504 300, Fax: 23 827 045 [email protected] [email protected] YEROSKIPOU BRANCH Corner Arch. Makarios III Ave. & Vasilis Michaelides St. PAPHOS DISTRICT 8200 Yeroskipou Tel: 26 505 220, Fax: 26 964 622 yeroskipου@hellenicbank.com PERSONAL BANKING DIVISION ELLADOS AVE BRANCH COURT AREA BRANCH Ellados Ave. & Xinaridou Rd., 31 N. Nicolaides Ave., 8020 Paphos 8011 Paphos Tel: 26 505103, Fax: 26 953 077 Tel: 26 505 231, Fax: 26 931 878 [email protected] [email protected] TOMBS OF THE KINGS BRANCH 28 Tombs of the Kings Ave., BUSINESS SERVICES DIVISION Kato Paphos, 8046 Paphos PAPHOS BUSINESS CENTER Tel: 26 505 122, Fax: 26 946 920 6 Danaes Ave., 8042 Paphos [email protected] Tel: 26 505 167, Fax: 26 942 228 businesspafos@ hellenicbank.com PEYIA BRANCH Platia Vrysi ton Pegiotisson 8560 Peyia SUBSIDIARY COMPANIES MAIN Tel: 26 505 131, Fax: 26 621 786 OFFICES [email protected] HELLENIC BANK (INVESTMENTS) LTD LYCEUM KYKKOU BRANCH Corner Limassol Avenue & 200 Athalassa Avenue ΕΙ. Venizeloς & 33 N. Nicolaides Ave., 2025 Strovolos, 8021 Paphos P.O.Box 24747, 1394 Nicosia Tel: 26 505 151, Fax: 26 949 677 Orders: 22 500 14 [email protected] Tel: 22 500 100, Fax: 22 500070 [email protected] [email protected] DANAE AVE. BRANCH 6 Danaes Ave., 8042 Paphos PANCYPRIAN INSURANCE CO. LTD Tel: 26 505 160, Fax: 26 964 262 66 Grivas Dhigenis Ave., Pancyprian Bldg, 1080 Nicosia, [email protected] P.O.Box 24747, 1394 Nicosia Tel: 22 743 743, Fax: 22 677 656 APOSTOLOS PAVLOS AVE. BRANCH www.pancyprianinsurance.com 27 Apostolos Pavlos Ave., [email protected]οm P.O.Box 60074, 8046 Paphos Tel: 26 505 616, Fax: 26 945 483 HELLENlC ALlCO LIFE INSURANCE COMPANY LTD [email protected] 66 Grivas Dighenis Ave. 3rd Floor 1080 Nicosia, P.O.Box 20672, 1662 Nicosia NICODEMOS MYLONAS BRANCH Tel: 22 501 581, Fax: 22 450 750 6 Nicodemos Mylonas St., www.hellenicalico.com [email protected] P.O.Box 60200, 8126 Paphos Tel: 26 505 010, Fax: 26 941 484 [email protected]
HELLENIC BANK GROUP ANNUAL REPORT 2014 195 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 OFFICES AND BRANCH NETWORK
HELLENIC BANK TRUST & SHAREHOLDER INFORMATION FINANCE CORPORATION LTD Corner Limassol & 200 Athalassa Avenue, The Shareholders may contact the Shares & Bonds 2025 Strovolos, Registry Department for matters relating to the P.O.Box 24747, 1394 Nicosia Company’s registered securities, certificates, Tel: 22 500 611 / 500 823, interest on Bonds and Capital Securities. Fax: 22 500 084 [email protected] SHARES & BONDS REGISTRY DEPARTMENT
Corner Limassol Avenue & 200 Athalassa Avenue REPRESENTATIVE OFFICES 1st Floor 2025 Strovolos SOUTH AFRICA - JOHANNESBURG P.O.Box 24747, 1394 Nicosia, Cyprus Sandton Square, Telephones: 22 500 649 - 50, Fax: 22 500 065 Corner Fifth & Maude Streets, E-mail: [email protected] 4th Floor, West Tower, Sandton 2146, South Africa P.O.BOX 783392 Sandton, 1HB, 2146, South Africa Tel: +27 11 7830155/6, Fax: +27 11 7830157 [email protected] INVESTOR RELATIONS
RUSSIA - MOSCOW Institutional investors, brokers, investment houses and 15 Savvinskaya Nab, Savvinskaya Office Bldg - other investment analysts may direct their enquiries Japan House, Moscow 119435, Russia relating to the recent developments, the financial results Tel: +7 (495) 7929958/88 / 89 Fax: +7 (495) 7929985 and the strategy of the Group to the Investor Relations hellenicbank@sovintel ru [email protected] Department.
RUSSIA - ST. PETERSBURG Corner Limassol Avenue & 200 Athalassa Avenue 23 Professors Popova St. 5th Floor Office 311, 197376 St. Petersburg, Russia 2025 Strovolos Tel: +7 (812) 3130300, Fax: +7(812)3130400 P.O. Box 24747, 1394 Nicosia, Cyprus [email protected] Telephone: 22 500 794, Fax: 22 500 077 E-mail: [email protected] UKRAINE - KIEV 8 Rybalska St. 1st Floor, Kyiv 01011, Ukraine Tel: +38 044 288 7210, Fax: +38 044 288 7209 [email protected]οm
HEAD OFFICE Corner Limassol Avenue & 200 Athalassa Avenue, 2025 Strovolos P.O. Box 24747, 1394 Nicosia, Cyprus Telephone: 22 500 000, Fax: 22 500 050
Website: www.hellenicbank.com
E-mail Address: [email protected]
Service Line tel: 8000 99 99
196 HELLENIC BANK GROUP ANNUAL REPORT 2014 WorldReginfo - e0ea437b-086a-4d6c-ad3e-a7498478f827 DESIGN AND LAYOUT: GNOMI COMMUNICATION CONSULTANTS PRINTING AND BINDING: CASSOULIDES MASTERPRINTERS
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