Bank of Cyprus Holdings PLC · CSECY:BOCH
Bank of Cyprus — H1 2019 Earnings Presentation
54 slides from Bank of Cyprus's earnings presentation, Aug 27, 2019
Slide 1: Group Financial Results for the six months ended 30 June 2019
Bank of Cyprus Group Group Financial Results for the six months ended 30 June 2019 The financial information included in this presentation is neither reviewed nor audited by the Group’s external auditors. The Interim Condensed Consolidated Financial Statements for the six months ended 30 June 2019 h
Slide 2: 1H2019 - Highlights
1H2019 - Highlights • Total Capital ratio of 18.1%1,2 pro forma for the disposal of investment in CNP (17.8%1 as reported) Good Capital • CET1 ratio of 15.2%1,2 pro forma for the disposal of investment in CNP (14.9%1 as reported) Position • Project Helix completed, adding 140 bps to capital in 2Q201
Slide 3: Capital strengthened with Helix completion
Capital strengthened with Helix completion CET1 ratio at 15.2%1,4; Total capital ratio at 18.1%1,4 18.1% 1.3% 14.9% 15.2% 1.6% (0.1%) 0.3% 13.4% 1.4% 0.5% (0.3%) 1,2 1,2 4 CET1 Operating Loan credit Helix RWAs CET 1 Disposal of CNP CET 1 1,2 AT1 T2 Total Capital 31 Mar 2019 profitability losses (org
Slide 4: €10.7 bn NPE reduction since peak
€10.7 bn NPE reduction since peak 78% reduction of Net NPEs since peak (Dec 14) Net NPEs Gross NPE ratio LLR Group (€ bn) Sale of BOC UK reduced • €10.7 bn NPE reduction performing loans by €1.8 bn; since 2014, of which 63% 62% increased NPE ratio by 5 p.p. c.€8.0 bn organic 60.0% 55% 47% 47% 46% •
Slide 5: Good NPE outflows & low inflows in 2Q2019, leading to €300 mn net organic reduction
Good NPE outflows & low inflows in 2Q2019, leading to €300 mn net organic reduction Quarterly NPE outflows of €374 mn Cyprus operations (€ bn) Curing of restructured loans DFAs & DFEs Write offs and non contractual write offs Other (Interest / Collections / Change in balances) 0.04 (0.05) (0.17) (0.
Slide 6: Core NPE risk at €3.65 bn, 55% covered
Core NPE risk at €3.65 bn, 55% covered € bn NPEs no impairment, no arrears1 % of Gross Loans 13.97 Forborne, NPEs, no arrears but impaired Coverage 1.97 0.64 Exit dates for non core NPEs €0.66 bn NPEs with no arrears1 8.80 € bn No impairments no arrears 7.47 No arrears but Impaired 1.35 0.27 0.87 0.
Slide 7: Clear strategy for further NPE reduction
Clear strategy for further NPE reduction Net organic reduction of €300 mn on in 2Q2019 in line with target of c.€200 mn reduction per quarter Non Core NPEs Group NPEs (€ bn) • Close monitoring of redefaults & quality of restructurings 4.31 ESTIA1 (see slides 8 & 27) Non Core 0.66 • Resolution of por
Slide 8: ESTIA- Government scheme launching in September 2019
ESTIA- Government scheme launching in September 2019 Clear definition of socially protected borrowers, acting as enabler against non- ESTIA eligible borrowers Expected to facilitate decrease of stickier & socially sensitive component of NPEs (residential collateral) Timeline Jul Sep Oct Nov Dec
Slide 9: Foreclosures becoming an important tool in NPEs resolution
Foreclosures becoming an important tool in NPEs resolution Foreclosure commenced3 Foreclosure Law: • The July 2018 foreclosure law amendments have expedited no. of properties the process and limited options to frustrate execution Including Helix assets Excluding Helix assets • Recently, the Parliame
Slide 10: REMU: €1.02 bn sales of 1,284 properties since set-up in Jan 2016
REMU: €1.02 bn sales of 1,284 properties since set-up in Jan 2016 €270 mn sales at a profit of €16 mn in 1H2019 Asset disposal strategy tackles both value and volume of assets €123 mn in the pipeline Sales contract prices4 (€ mn) Sales contract prices4 (€ mn) 99 331 575 2793 €123 mn Pipeline Total S
Slide 11: NPE Coverage at 50%
NPE Coverage at 50% Quarterly CoR 1 at 1.23% NPE total coverage at 119% when collateral included Quarterly Cost of Risk - Group 2 Quarterly Cost of Risk - Group (excluding Helix) Loan loss reserves Tangible Collateral 123% 122% 119% 118% 115% 109% 1.44% 70% 70% 1.23% 69% 70% 67% 0.93% 68% 1.18% 1.08
Slide 12: Excluding Helix, Total Income of €177 mn for 2Q2019
Excluding Helix, Total Income of €177 mn for 2Q2019 Net Interest Income (NII) Non Interest Income € mn 189 176 177 156 85 74 92 71 104 102 85 85 4Q2018 1Q2019 1Q2019 2Q2019 Including Helix Excluding Helix1 • Total income of €177 mn in 2Q2019 compared to €156 mn for 1Q2019 on the same basis, up by 14
Slide 13: New lending of €548 mn in 2Q2019
New lending1 of €548 mn in 2Q2019 97% of new exposures2 in Cyprus since 2016 are performing New lending to core sectors driving GDP growth Retail Other Retail Housing SME Corporate New lending Cyprus (€ mn) – 1H2019 New Lending (Cyprus) (€ mn) Private individuals 284 563 563 548 Trade 265 486 456 Re
Slide 14: Balance sheet de-risking results in a smaller but safer loan book
Balance sheet de-risking results in a smaller but safer loan book Net Loans: Performing vs Legacy Interest Income on Loans (excluding Helix): Performing vs Legacy € bn Performing Legacy € mn (pre FTP) Performing Legacy 17.15 Sale of BOC UK - 15.62 €1.8 bn net loans 14.55 42% 7.19 109 104 5.64 12.04
Slide 15: Profitability
Risk adjusted yield will rise as Legacy book reduces Performing Legacy Group Excluding Helix 1H2019 1H2019 1H2019 • Performing Book is expected to Interest Income on loans (€ mn) grow and to increasingly drive 1511 54 205 Group results (pre FTP) • Legacy book revenues Loan credit losses (€ mn) (1) (
Slide 16: Deposits at €16.4 bn at quarter end, broadly flat qoq
Deposits at €16.4 bn at quarter end, broadly flat qoq 1 Cyprus deposits (€ bn) Cyprus non-IBU Cyprus IBU Cyprus deposits by passport origin2 Liquidity Minimum 30 Jun Surplus 16.85 16.84 ratio required 2019 16.11 16.48 16.30 16.38 4% 5% 3% 3.81 3.70 3.46 4.00 3.54 4.00 LCR 100% 253% €3,844 mn 21% (Gr
Slide 17: Drivers of NIM
Drivers of NIM Total Assets (€ bn) AIEA mix (% Total) Effective yield on assets & cost of funding Performing Legacy Liquids Non int-producing Performing Legacy Liquids 1 Performing Legacy NIM 1 3 Liquids 2 Cost of funding (bps) Effective yield AIEA €18.1 bn €18.2 bn €18.2 bn €18.1bn 221 227 188 189
Slide 18: Non interest income of €92 mn in 2Q2019
Non interest income of €92 mn in 2Q2019 Analysis of Non Interest Income (€ mn) – Quarterly Net FX gains/(losses) & Net gains/(losses) on other financial instruments, and other income Net fee and commission Recurring income % Gains/(losses) from revaluation and disposal of investment properties and o
Slide 19: Total Expenses
Total Expenses Cost to Income Ratio (C/I ratio)1,3 C/I ratio excluding Helix C/I ratio (as reported) 62% 59% • C/I ratio1 at 59% for 1H2019 excluding Helix, compared to 56% 62% for 1Q2019 on the same basis, principally reflecting the 49% 50% increased non-interest income in 2Q2019 56% 42% 47% • Staf
Slide 20: Income Statement
Income Statement € mn (comparables adjusted for Helix) 1H20191 1H20181,2,3 2Q20191 1Q20191 qoq% yoy% Key Highlights Net Interest Income 170 166 85 85 1% 3% Non interest income 163 179 92 71 29% -9% • NII flat qoq at €85 mn qoq Total income 333 345 177 156 14% -4% • Non-Interest Income at €92 mn for
Slide 21: Key Information and Contact Details
Key Information and Contact Details Credit Ratings: Standard & Poor’s Global Ratings: Long-term issuer credit rating: Affirmed at “B+” on 30 July 2019 (stable outlook) Short-term issuer credit rating: Affirmed at “B” on 30 July 2019 Fitch Ratings: Long-term Issuer Default Rating: Affirmed at “B-" on
Slide 22: Appendix – Macroeconomic overview
Appendix – Macroeconomic overview 22
Slide 23: Recovery of the Cypriot economy continues
Recovery of the Cypriot economy continues … GDP increased by 3.9% in 2018, and by 3.4% and 3.2% Unemployment rate dropped to 7.4% in 1Q2019 SA compared respectively in 1Q2019 and 2Q2019 with a yearly average unemployment rate of 8.4% for FY2018 18.0 8.0 460 16.0 6.0 14.0 440 3.9 3.7 4.0 12.0 3.5 420
Slide 24: … driven by tourism, professional services and construction activity
… driven by tourism, professional services and construction activity Economic activity has been broadly based with Tourism arrivals (mn) Tourism: % changes yoy main drivers tourism and construction 3.9 Total arrivals (% change) Total receipts (% change) 3.7 Arts & Oher 19.8 3.2 0.4 4.8 0.4 Public, E
Slide 25: Appendix – Additional asset quality slides
Appendix – Additional asset quality slides As from 1 January 2018 and following IFRS 9 implementation, the Bank’s disclosure in relation to the loan portfolio quality is based on Non Performing Exposures (NPEs), in line with the EBA standards and ECB NPEs Guidance to the banks. Exposures that meet t
Slide 26: The legislative framework positively supports organic delivery and the sale of NPEs
The legislative framework1 positively supports organic delivery and the sale of NPEs • The July 2018 foreclosure law amendments1 have expedited the process and limited options to frustrate execution • Recently the Parliament has voted through certain changes to that law which, in the most part, seek
Slide 27: ESTIA - Government scheme for the resolution of NPEs backed by Primary Residence
ESTIA- Government scheme for the resolution of NPEs backed by Primary Residence • Eligible loans to be restructured to lower of contractual and Open Market Value (OMV) (on balance sheet solution) • Government to subsidise 1/3 of instalment, provided certain eligibility criteria1 are met: • Borrowers
Slide 28: Restructuring efforts continue; re-default levels stable
Restructuring efforts continue; re-default levels stable Quarterly evolution of restructuring activity (€ bn) (Cy operations) Restructured loans Write offs & non contractual write offs DFAs 0.79 0.12 0.52 3 0.40 0.07 0.37 0.37 0.31 0.28 0.29 0.05 0.10 0.08 0.06 0.14 0.13 0.16 0.12 0.27 0.16 0.13 0.1
Slide 29: Fair value of collateral and adequacy of loan credit losses
Fair value of collateral and adequacy of loan credit losses NPE Coverage at 50% Fair value of collateral and credit enhancements 30 Jun 2019 Quarterly Credit losses of customer loans (€ mn) Loans and advances to customers NPEs coverage (excluding Helix) (€ mn) 52% 52% 52% 53% Cash 434 51% 52% Securi
Slide 30: Continuous progress across all segments (Cy operations)
Continuous progress across all segments (Cy operations) Focus shifts to Retail and SME after intense Corporate attention Transfers within business lines during 4Q2018 2 Corporate Dec 17 3.68 1 Jun 2019 IFRS 9 adjustments (0.23) Inflows 0.41 0.18 Exits 3.01 (1.03 ) Dec 18 3.01 NPE ratio NPEs (Cy) €4.
Slide 31: Gross loans & NPEs by Customer Type
Gross loans & NPEs by Customer Type Gross loans by customer type (€ bn) Total 20.13 18.75 2.09 15.90 15.88 2.06 4.22 13.15 13.07 4.17 1.79 1.86 4.35 4.07 4.07 1.82 1.85 3.51 2.98 2.88 4.07 4.07 2.30 2.15 9.47 9.01 7.06 7.07 4.96 5.00 1 Dec-16 Dec-17 Dec-18 Mar-19 Mar-19 Jun-19 pro-forma for Helix Re
Slide 32: NPE coverage and Total coverage by segment (Cy)
NPE coverage and Total coverage by segment (Cy) Coverage and collateral maintained post Helix Cyprus operations 1 Loan loss reserves Tangible Collateral Corporate €0.8 bn SME €0.9 bn Retail-Housing €1.5 bn Retail-Other €1.0 bn Total Cyprus €4.2 bn 127% 125% 123% 123% 123% 123% 122% 122% 119% 118% 11
Slide 33: Asset Quality- NPEs analysis
Asset Quality- NPEs analysis (€ mn) Jun-19 Mar-19 Dec-18 Sep-18 Jun-18 A. Gross Loans after Fair value on Initial recognition 12,782 15,437 15,438 15,721 17,798 Fair value on Initial recognition 290 445 462 480 514 B. Gross Loans 13,072 15,882 15,900 16,201 18,312 B1. Loans with no arrears 8,565 8,4
Slide 34: Analysis of gross loans and NPE ratio by Economic Activity
Analysis of gross loans and NPE ratio by Economic Activity Gross loans by economic activity (€ bn) % of total 31.12.17 31.12.18 31.03.19 30.06.19 11% 3% 8% 7% 10% 47% 8% 6% 6.77 6.47 6.41 6.13 3.20 2.34 1.95 1.90 1.85 2.04 1.83 1.61 1.59 1.46 1.35 1.27 1.26 1.25 1.20 1.39 1.31 1.08 1.07 0.91 0.91 0.
Slide 35: Rescheduled Loans for the Cyprus Operations
Rescheduled Loans for the Cyprus Operations Rescheduled Loans by customer type (€ bn) Retail housing Retail consumer SMEs Corporate 7.4 6.3 1.7 5.9 5.6 5.4 1.4 4.8 4.7 0.6 1.4 1.3 1.3 1.7 0.6 0.5 1.1 0.5 0.5 1.2 3.1 1.3 1.3 0.5 1.3 1.2 0.5 1.0 0.9 1.1 3.4 3.0 0.5 2.7 2.5 2.4 2.2 2.1 0.6 0.9 31.12.16
Slide 36: Gross loans and allowance for expected loan credit losses by IFRS 9 stage
Gross loans and allowance for expected loan credit losses by IFRS 9 stage 31 Mar 2019 Gross Loans (€ bn) 30 Jun 2019 Pro forma for 31 Mar 2019 qoq % Helix Stage 1 6.02 6.28 6.30 -4% • Net reclassification of c.€500 mn gross loans from Stage 1 to Stage 2 in 2Q2019, Stage 2 1 2.74 2.26 2.31 21% due to
Slide 37: Properties managed by REMU
Properties managed by REMU REMU focus now on sales (Group) BV (€ mn) Investment Properties 126 (92) (10) 1,548 1,530 (6) 103 118 1,427 1,430 Properties managed by 1 Additions Sales Impairment loss Transfer to non-current Properties managed by 1 REMU as at 01 Jan 2019 assets and disposal REMU as at 3
Slide 38: REMU – the engine for dealing with foreclosed assets
REMU – the engine for dealing with foreclosed assets Book Value Sales of €62 mn for the 2Q2019 (Group) Book Value sales by type (Group) BV (€ mn) BV (€ mn) Hotels Commercial Residential Land 110 8 71 17 64 62 60 55 17 40 42 92 30 50 28 1 2 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018 3Q2018 4Q2018 1Q20
Slide 39: Appendix – Additional financial information
Appendix – Additional financial information 39
Slide 40: Consolidated Balance Sheet
Consolidated Balance Sheet 31.12.2018 % 31.12.18 % Assets (€ mn) 30.06.19 (restated) change Liability and Equity (€ mn) 30.06.19 (restated) change Cash and balances with Deposits by banks 532 432 23% 5,262 4,610 14% Central Banks Loans and advances to Funding from central banks 830 830 - 403 473 -15
Slide 41: Core Cypriot business
Core Cypriot business Market shares1 Strong market shares in resident and non-resident deposits Loans new basis Deposits Residents Non-residents 45.4% 47.1% 41.3% 37.5% 37.1% 38.6% 37.3% 38.8% 38.3% 38.2% 37.2% 35.8% 35.1% 36.0% 34.7% 34.7% 32.8% 31.1% 34.1% 35.3% 34.4% 34.0% 29.5% 31.5% Dec 16 Dec
Slide 42: Income Statement bridge for 1H2019
Income Statement bridge1 for 1H2019 Underlying Helix Investment in associate Tax related Statutory € mn Other basis Portfolio classified as HFS items Basis Net interest income 170 34 - - - 204 Net fee and commission income 75 6 - (6) - 75 Net foreign exchange gains and net gains on financial instrum
Slide 43: Analysis of Interest Income and Interest Expense
Analysis of Interest Income and Interest Expense Analysis of Interest Income (€ mn) 1Q20191,2 2Q20192 Loans and advances to customers 104 101 Loans and advances to banks and central banks 2 2 Investments available-for-sale - - Investment at amortised costs 3 3 Investments FVOCI 5 5 Investments class
Slide 44: Cyprus: Income Statement by business line for 1H2019
Cyprus: Income Statement by business line1 for 1H2019 Excluding Helix Consumer SME Corporate International Wealth & Total € mn RRD REMU Insurance Treasury Other Banking Banking Banking Banking Markets Cyprus Net interest income/(expense) 80 20 60 18 4 (2) (7) 0 (1) 2 174 Net fee & commission income
Slide 45: Risk Weighted Assets – Regulatory Capital
Risk Weighted Assets – Regulatory Capital Risk weighted assets by Geography (€ mn) Reconciliation of Group Equity to CET 1 € mn 30.06.19 31.12.17 31.12.18 31.03.19 Helix 30.06.19 Group Equity per financial statements 2,471 Cyprus 16,011 15,070 15,113 (1,452) 13,680 Russia Less: Intangibles (43) 27 2
Slide 46: Buffer to MDA Restrictions Level & Distributable Items
Buffer to MDA Restrictions Level & Distributable Items1 Maximum Distributable Amount for BOCH Distributable Items at Bank and BOCH level Pro Forma2 CET1 Ratios (Pro forma for CNP) 15.2% • Distributable Items amount to: 420 bps - Bank: c.€0.4bn and c. 11.0% - BOCH: c.€0.7bn Unfilled 0.5% AT1 + T2 cap
Slide 47: Analysis of Deposits
Analysis of Deposits Deposits by Currency (€ bn) 30 June 2019 (%) 17.85 16.84 16.30 16.38 0% 16.51 0.17 8% 0.22 0.11 0.10 0.11 2% 2.11 0.29 0.29 1.69 0.28 1.74 1.48 1.38 1.30 2.20 90% 12.40 13.83 14.96 14.53 14.69 1 Dec-16 Dec-17 Dec-18 Mar-19 Jun-19 EUR USD GBP Other Currencies Deposits by Type (€
Slide 48: Reduction in Overseas Non-Core Exposures
Reduction in Overseas Non-Core Exposures Overseas non-core exposures (€ mn) Russia: Net exposure Romania: Net exposure Serbia: Net exposure UK: Net exposure Greece: Net exposure • The Group continues its efforts for further 518 deleveraging and disposal of non-essential assets and operations in Gree
Slide 49: Appendix – Glossary & Definitions
Appendix – Glossary & Definitions 49
Slide 50: Glossary & Definitions
Glossary & Definitions Allowance for expected credit Allowance for expected credit losses to cover credit risk on loans and advances to customers comprise: (i) allowance for ECL on loans and advances to losses on loans and customers, (ii) the fair value adjustment on initial recognition of loans and
Slide 51: Glossary & Definitions
Glossary & Definitions Effective yield Interest Income on Loans/Average Net Loans Effective yield of liquid Interest Income on liquids after hedging, over average liquids (Cash and balances with central banks, placements with banks and bonds). Historical information assets has been adjusted to take
Slide 52: Glossary & Definitions
Glossary & Definitions Net Proceeds Proceeds after selling charges and other leakages Net interest margin is calculated as the net interest income (annualised) divided by the quarterly average interest earning assets adjusted for the respective NIM interest earning assets of any discontinued operati
Slide 53: Glossary & Definitions
Glossary & Definitions The NSFR is calculated as the amount of “available stable funding” (ASF) relative to the amount of “required stable funding” (RSF), on the basis of Basel III NSFR standards. Its calculation is a SREP requirement. The European Banking Authority (EBA) is working on finalising th
Slide 54: Glossary & Definitions
Glossary & Definitions Total expenses comprise staff costs, other operating expenses and the special levy and contribution to the Single Resolution Fund. It does not include ‘advisory and other restructuring costs-excluding discontinued operations and NPE sale (Helix)’ or any restructuring costs. ‘A