Bank of Cyprus Holdings PLC · CSECY:BOCH
Bank of Cyprus — FY2017 Earnings Presentation
65 slides from Bank of Cyprus's earnings presentation, Feb 27, 2018
Slide 1: Preliminary Group Financial Results for the year ended 31 December 2017
Bank of Cyprus Group Preliminary Group Financial Results for the year ended 31 December 2017 The financial information included in this presentation is not audited by the Group’s external auditors. This financial information is presented in Euro (€) and all amounts are rounded as indicated. A comma
Slide 2: FY2017 - Highlights
FY2017 - Highlights Continued • Eleven consecutive quarters of organic NPE reduction Progress on • NPEs reduced by €2.2 bn (or 20%) yoy to €8.8 bn (down by 41% since December 2014) Balance Sheet • NPE ratio at 47%; NPE coverage at 48% rising to 51% after IFRS 9 First Time Adoption (FTA) Repair • Con
Slide 3: Track record of delivery against KPIs - clear path to achieving Targets
Track record of delivery against KPIs - clear path to achieving Targets Progress of Key Financial Indicators since 2014 2018 Medium Term € bn Dec 2014 Dec 2017 Δ change Target6 Guidance6 Total Assets 26.8 23.6 (11.9%) a ~ €23 bn >€25 bn New lending 0.21 2.2 10xa Deposits 13.2 17.8 +35.5% a ELA 7.4 -
Slide 4: Group Loan Portfolio and Asset Quality
Group Loan Portfolio and Asset Quality 4
Slide 5: Continued organic NPE reduction
Continued organic NPE reduction €2.2 bn NPE reduction in 2017; down 41% since 2014 €1.4 bn 90+DPD1 reduction in 2017; down 45% since 2014 1 1 NPEs (€ bn) NPEs ratio 90+DPD (€ bn) 90+DPD ratio 63% 62% 60.0% 53% 50% 60% 55% 50.0% 41% 47% 37% 50% 40.0% 12.7 15.0 14.0 11.3 40% 30.0% 30% 11.0 8.3 20.0% 6
Slide 6: Core NPE risk at €7.2 bn down by 37% since 2015 and 54% covered
Core NPE risk at €7.2 bn down by 37% since 2015 and 54% covered Forborne NPEs no arrears Impaired no arrears NPEs Retail NPEs Group NPEs Core NPEs SMEs NPEs • Reduced by €4.2 bn or 37% since Dec 2015 Corporate NPEs • Coverage increased by 18 p.p. to 54% since Dec 2015 €14.0 bn • Continuing to explor
Slide 7: c.€3 bn NPE outflows in FY2017 leading to €2.2 bn NPE reduction
c.€3 bn NPE outflows in FY2017 leading to €2.2 bn NPE reduction Outflows of NPEs on curing and exits (€ bn) Cyprus operations 1 € bn Exit dates for non core NPEs5 4 0.50 Curing of restructured loans DFAs & DFEs €1.6 bn forborne NPEs with no arrears2,3 Write offs and non contractual write offs Other
Slide 8: NPE provision coverage at 48% rising to 51% post IFRS 9 FTA
NPE provision coverage at 48% rising to 51% post IFRS 9 FTA NPE coverage ratio at 51% post IFRS 9 FTA1 NPE total coverage at 115% when collateral included 90+DPD provision coverage NPEs provision coverage Loan loss reserves Tangible Collateral 2 61% 115% 114% 109% 54% 48% 41% 51% 67% 66% 48% 68% 41%
Slide 9: New lending of €2.2 bn in FY2017, up by 53% yoy
New lending of €2.2 bn in FY2017, up by 53% yoy FY2017– Total New Lending of €2.2 bn (Group) Tourism & Trade core sectors Contribution to 9M2017 Real GDP growth in p.p. (total 3.8%) 578 Cyprus UK Construction 1.2 1,653 Tourism, trade and transport 1.2 Public, education & health 0.4 Industry 0.4 >98%
Slide 10: Good progress on REMU sales
Good progress on REMU sales c.€400 mn sales5 agreed in FY2017 and Jan 2018; REMU profit of €30 mn in FY2017 Sales contract prices5 (€ mn) Total sale 26 agreements • Execution of disposal of €393 mn 53 58 CyREIT shares underway; CyREIT size is €180 mn 472 313 properties sold in Cyprus & SPA signed fo
Slide 11: Capital and Funding Position
Capital and Funding Position 11
Slide 12: Capital ratios remain adequate
Capital ratios remain adequate 9.2% of capital deployed to de risking since Dec 14 Organic capital rebuild expected through operating profitability min SREP requirement 1.9% 7.4% (9.2%) COR 2018 <1.0% >13% (1.4%) 14.0% 12.7% 12.7% 9.5% 9.375% CET 1 Operating RWA reduction Provisions Other 1 CET 1 (t
Slide 13: Capital and solvency position after IFRS 9 FTA
Capital and solvency position after IFRS 9 FTA The impact of IFRS 9 is expected to be manageable and within the Group’s capital plans1 Gross Loans3 Provisions3 € bn € bn Stage 1 5.2 0.07 Opening position 1 Jan 2018 31 Dec 2017 Transitional Δ change Arrangements2 Stage 24 4.8 0.13 Equity €2.6 bn €2.3
Slide 14: Fully compliant with all liquidity requirements
Fully compliant with all liquidity requirements €535 mn increase in deposits during 4Q2017; compliance with LCR including add-on1 requirement as at 1 Jan 2018 €1.3 bn increase in deposits in FY2017 Minimum Liquidity ratio 31 Dec 2017 Surplus required (€ bn) Time deposits Savings accounts Current & d
Slide 15: Operating Performance
Operating Performance Bank of Cyprus of Cyprus Fed
Slide 16: Balance sheet de-risking results in a smaller but safer loan book
Balance sheet de-risking results in a smaller but safer loan book • €110 mn reduction in Interest Income on loans in FY2017, only €24 mn from Performing book Interest income on loans: Performing vs. Legacy 2 2 € mn (pre FTP1) Performing Legacy 3 Performing Legacy 3 231 217 203 204 200 17.1 195 180 1
Slide 17: Risk adjusted yield will rise as Legacy book reduces
Risk adjusted yield will rise as Legacy book reduces Performing Additional Group Legacy Provisions • Performing Book is expected to FY2017 FY2017 FY2017 FY2017 grow and to increasingly drive Interest Income on Group results 420 325 745 loans (€ mn) (pre FTP)1 Provisions2 • Legacy book revenues 4 (29
Slide 18: NIM is pressured by otherwise individually positive actions for the Group
NIM is pressured by otherwise individually positive actions for the Group A Total Assets (€ bn) B AIEA3 mix (% Total) C Effective yield on assets & cost of funding 1 2 Performing Legacy Performing1 Legacy 2 Liquids Performing Legacy NIM (bps) Liquid Non int-producing Effective yield 4 4 Liquid Cost
Slide 19: Focus on revenue generation and total income target
Focus on revenue generation and total income target NIM down by 13% in 2017 but Total Income down by 6% Total income (€ bn) NIM (bps) FY2016 NIM 347 FY2017 363 355 NIM 302 335 337 333 338 350 286 300 FY2016 FY2017 257 €963 mn €907 mn 250 200 244 238 235 246 233 237 223 214 150 100 1Q2016 2Q2016 3Q20
Slide 20: Non interest income up 17% yoy, with recurring income up 9% yoy
Non interest income up 17% yoy, with recurring income up 9% yoy Analysis of Non Interest Income (€ mn) – Quarterly Net FX gains/(losses) & Net gains/(losses) on other financial instruments, and other income. Gains/(losses) from revaluation and disposal of investment properties and on disposal of sto
Slide 21: Total Expenses
Total Expenses Cost to Income Ratio (C/I ratio) Cost to Income ratio Cost to Income ratio excluding special levy on banks and SRF contibution 46% 46% 47% • C/I ratio at 47% for FY2017, compared to 45% for 45% 42% 42% 9M2017, reflecting lower Interest Income 41% 41% 43% 44% 41% 42% 39% 40% 40% 39% 1Q
Slide 22: FY2017 profitability impacted by additional provisions
FY2017 profitability impacted by additional provisions (FY) € mn FY2017 FY2016 4Q2017 3Q2017 qoq % Key Highlights yoy% Net Interest Income 583 686 129 138 -7% -15% • The NII and NIM for 4Q2017 Non interest income 324 277 85 85 1% 17% amounted to €129 mn and 2.57% respectively, compared to Total inco
Slide 23: Guidance
Guidance Bank of Cyprus of Cyprus Fed
Slide 24: Target and Guidance
Target and Guidance Dec- Medium Term Type Key performance indicators 2018 2017 Guidance4 Target 4 NPEs ratio 47% <40%, ~ €2 bn organic reduction <25% Asset quality NPEs coverage ratio 48% >50% >50% Cost of Risk1 4.0%2 <1.0% <1.0% CET1 ratio 12.7% >13%3,6 >13%3,6 Capital Total capital ratio 14.2% >15
Slide 25: Key Information and Contact Details
Key Information and Contact Details Credit Ratings: Standard & Poor’s Global Ratings: Long-term issuer credit rating: Assigned at B/B on 23 October 2017 (positive outlook) Short-term issuer credit rating: Assigned at B/B on 23 October 2017 Fitch Ratings: Long-term Issuer Default Rating: Affirmed to
Slide 26: Appendix – Macroeconomic overview
Appendix – Macroeconomic overview 26
Slide 27: Cypriot economy on a sustainable growth path
Cypriot economy on a sustainable growth path GDP growth of 3.9% seasonally adjusted in 3Q2017 Falling unemployment rate Real GDP growth (%) Unemployment rate 18.0% 15.9% 16.1% 16.0% 14.9% 2010 2011 2012 2013 2014 2015 2016 1Q2017 2Q2017 3Q2017 4Q2017 2018E 3.8% 4.0% 4.1% 3.9% 3.6% 3.0% 14.0% 13.0% 1
Slide 28: Economic activity has been broadly based with main drivers tourism and construction
on the back of improving macro fundamentals Economic activity has been broadly based Tourism arrivals (mn) Tourism Revenues with main drivers tourism and construction 4.00 3.7 Contribution to growth of real GVA 2017Q1- € bn % of GDP Q3 in percentage points (total 3,8%) 3.50 3.2 14.0% 13.0% 1.2 1.2 3
Slide 29: Appendix – Additional asset quality slides
Appendix – Additional asset quality slides 29
Slide 30: Movement of NPEs within business lines following RRD reorganisation
Movement of NPEs within business lines following RRD reorganisation Reporting as at 31 December 2017 includes transfers within RRD1 business lines following an internal reorganisation of RRD1 in 4Q2017 Group NPEs Total € bn 8.8 8.8 Forborne No impairments 1.3 Movement of NPEs 1.3 No arrears1,2 withi
Slide 31: Eleven consecutive quarters of improving credit quality trends
Eleven consecutive quarters of improving credit quality trends High correlation between formation of problem loans & economic cycle Quarterly change of 90+ DPD (€ mn) 90+ DPD (€ bn) Slow deterioration Economic crisis Stabilisation Recovery 13.0 13.0 13.0 12.8 12.8 12.7 12.6 12.6 • €1.4 bn or 17% 12.
Slide 32: Restructuring efforts continue; re-default level stable
Restructuring efforts continue; re-default level stable Quarterly evolution of restructuring activity (€ bn) (Cy operations) 1 2 Restructured loans Write offs & non contractual write offs DFAs 2.2 2.0 0.3 1.3 0.4 0.4 0.3 1.1 0.8 0.9 0.9 0.7 1.50 0.2 0.7 0.8 1.33 1.26 0.2 0.2 0.5 0.2 0.2 0.1 0.20.1 0
Slide 33: NPE provision coverage at 48% rising to 51% post IFRS 9 FTA
NPE provision coverage at 48% rising to 51% post IFRS 9 FTA NPE coverage at 51% after IFRS 9 FTA Quarterly CoR at 1.1% in line with medium term target Quarterly Provisions for impairment of customer loans (€ mn) Quarterly Cost of Risk - Group (excluding additional provisions in 2Q17)2 NPEs provision
Slide 34: Continuous progress across all segments
Continuous progress across all segments Reporting as at 31 December 2017 includes transfers within RRD1 business lines following an internal reorganisation of RRD1 in 4Q2017 Focus shifts to Retail and SME after intense Corporate attention NPEs (Cy) €8.47 bn transfers within business lines during 4Q2
Slide 35: Gross loans by Geography and by Customer Type
Gross loans by Geography and by Customer Type Reporting as at 31 December 2017 includes transfers within RRD1 business lines following an internal reorganisation of RRD1 in 4Q2017 Gross loans by geography 31 December 2017 (%) 2 Cyprus UK Other countries Total (€ bn) 8.6% 1.8% 21.85 21.08 20.60 20.13
Slide 36: NPEs by Geography and by Customer Type
NPEs by Geography and by Customer Type Reporting as at 31 December 2017 includes transfers within RRD1 business lines following an internal reorganisation of RRD1 in 4Q2017 NPEs by geography 31 December 2017 (%) 13.33 2 Cyprus UK Other countries Total 12.49 0.06 0.63 0.57 (€ bn) 0.05 11.03 10.37 0.5
Slide 37: NPE provision coverage at 46%; Total coverage (Cy) at 115%
NPE provision coverage at 46%; Total coverage (Cy) at 115% Reporting as at 31 December 2017 includes transfers within RRD1 business lines following an internal reorganisation of RRD1 in 4Q2017 Adequate NPE total coverage when collateral is included (Cyprus operations) Loan loss reserves Tangible Col
Slide 38: Asset Quality - 90+ DPD analysis
Asset Quality- 90+ DPD analysis (€ mn) Dec-17 Sep-17 Jun-17 Mar-17 Dec-16 A. Gross Loans after Fair value on Initial recognition 18,087 18,532 18,693 19,142 19,202 Fair value on Initial recognition 668 721 812 869 928 B. Gross Loans 18,755 19,253 19,505 20,011 20,130 B1. Loans with no arrears 11,150
Slide 39: Organic 90+ DPD reduction continues as inflows are stabilised
Organic 90+ DPD reduction continues as inflows are stabilised Additional tools resolve long outstanding loan portfolios (Cyprus operations) FY2016: 90+ DPD net reduction : c.€2.8 bn FY2017: 90+ DPD net reduction : c.€1.2 bn 0.56 (1.58) (1.09) (0.74) 0.84 (0.87) 10.63 (0.90) (0.28) 7.78 6.57 Dec 2015
Slide 40: 90+ DPD provision coverage at 61%
90+ DPD provision coverage at 61% Reporting as at 31 December 2017 includes transfers within RRD1 business lines following an internal reorganisation of RRD1 in 4Q2017 22 p.p.2 coverage ratio increase since 1Q2014; over €2.7 bn additional provisions 3 Quarterly Provisions for impairment of customer
Slide 41: 90+ DPD by Geography and business line
90+ DPD by Geography and business line Reporting as at 31 December 2017 includes transfers within RRD1 business lines following an internal reorganisation of RRD1 in 4Q2017 90+ DPD by Geography (€ bn) 90+ DPD ratios by Geography 2 2 Cyprus UK Other countries Cyprus UK Other countries 10.29 100% 100%
Slide 42: Further Analysis of 90+ DPD by Business Line
Further Analysis of 90+ DPD by Business Line1 Reporting as at 31 December 2017 includes transfers within RRD2 business lines following an internal reorganisation of RRD2 in 4Q2017 90+ DPD by business line (€ bn) Corporate SMEs Housing Consumer Credit 3 RRD-Major Corporations RRD- Corporates RRD-SMEs
Slide 43: Analysis of Loans and 90+ DPD ratios by Business Line
Analysis of Loans and 90+ DPD ratios by Business Line1 Reporting as at 31 December 2017 includes transfers within RRD2 business lines following an internal reorganisation of RRD2 in 4Q2017 Gross loans by business line (€ bn) 31.03.16 30.06.16 30.09.16 31.12.16 31.03.17 30.06.17 30.09.17 31.12.17 % o
Slide 44: Analysis of Loans and 90+ DPD ratios by Economic Activity
Analysis of Loans and 90+ DPD ratios by Economic Activity Gross loans by economic activity (€ bn) 31.03.16 31.06.16 30.09.16 31.12.16 31.03.17 30.06.17 30.09.17 31.12.17 % of % of total 11% 11% 3% 4% 7% 7% 15% 12% 16% 17% 35% 36% 7% 7% 6% 6% total 7.25 7.17 7.11 7.09 7.03 6.88 6.83 6.77 3.92 3.43 3.
Slide 45: Rescheduled Loans for the Cyprus Operations
Rescheduled Loans for the Cyprus Operations Reporting as at 31 December 2017 includes transfers within RRD1 business lines following an internal reorganisation of RRD1 in 4Q2017 Rescheduled Loans by customer type (€ bn) Rescheduled Loans (€ bn) Retail housing Retail consumer SMEs Corporate 8.3 8.1 7
Slide 46: REMU – the engine for dealing with foreclosed assets
REMU – the engine for dealing with foreclosed assets REMU focus now on sales (Group) € mn BV1 (258) 520 (48) 1,641 1,427 2 Stock as at 01 Jan 17 Additions Sales Impairment loss & other movement Stock as at 31 Dec 2017 Property stock split as at 31 December 2017 – on boarded at conservative carrying
Slide 47: REMU converts foreclosed assets to cash
REMU converts foreclosed assets to cash Book Value Sales ~€450 mn achieved since REMU established Book Value sales by type (Group) (Group) Hotels Commercial Residential Land € mn FY16: €166 mn FY17 & YTD18 : €282 mn € mn 12 BV1 BV1 100% 80 80% 110 24 282 60% 56 64 60 48 46 2 3 40% 40 166 16 20% 8 0%
Slide 48: Rescheduled Loans – Asset Quality
Rescheduled Loans – Asset Quality € ‘000 United Cyprus Greece Russia Romania Total Kingdom 31 December 2017 Neither past due nor impaired 3,158,894 - - 5,383 79 3,164,356 Past due but not impaired 1,218,160 - - 2,354 - 1,220,514 Impaired 1,895,892 338 70,595 2,149 18,170 1,987,144 Total 6,272,946 33
Slide 49: Fair value of collateral and credit enhancements held by the Group
Fair value of collateral and credit enhancements held by the Group 31 Dec 2017 Loans and advances to customers (€ mn) Cash 339 Securities 275 Letters of credit / guarantee 259 Property 21,803 Other 748 Surplus collateral (10,369) Net collateral 13,055 49
Slide 50: Reconciliation of 90+ DPD to NPEs Cyprus Operations
Reconciliation of 90+ DPD to NPES Cyprus Operations (€ bn) (Dec 17) 0.2 0.1 0.2 0.7 8.5 0.7 0.4 6.6 6.2 €1.9 bn with arrears Impaired -no Total 90+ DPD with forbearance re-forborne within Forborne >30+ Contagion effect Other NPEs >90+DPD arrears measure<90+ 2 years DPD reclassification DPD adjustmen
Slide 51: Appendix – Additional financial information
Appendix – Additional financial information 51
Slide 52: Consolidated Balance Sheet
Consolidated Balance Sheet % % Assets (€ mn) change 31.12.17 31.12.16 Liability and Equity (€ mn) change 31.12.17 31.12.16 Cash and balances with Deposits by banks 14% 495 435 125% 3,394 1,506 Central Banks Funding from central banks 9% 930 850 Loans and advances to 10% 1,193 1,088 banks Repurchase
Slide 53: Income Statement Review
Income Statement Review € mn FY2017 FY2016 4Q2017 3Q2017 qoq % (FY) yoy% Net Interest Income 583 686 129 138 -7% -15% Net fee and commission income 180 167 47 45 5% 8% Insurance income net of insurance claims 50 44 11 14 -23% 13% Core income 813 897 187 197 -5% -9% Other income 94 66 27 26 7% 41% To
Slide 54: Analysis of Interest Income and Interest Expense
Analysis of Interest Income and Interest Expense Analysis of Interest Income 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 Loans and advances to customers 231 217 203 204 195 200 180 170 Loans and advances to banks and central banks 2 4 5 (2) 5 3 2 2 Investments available-for-sale 3 2 2 3
Slide 55: Core Cypriot business
Core Cypriot business Strong market shares maintained Strong market shares in resident and non-resident deposits Loans Deposits Residents Non-residents 38.8% 39.4% 39.1% 39.5% 39.2% 38.7% 37.9% 37.3% 35.8% 36.8% 34.5% 35.3% 32.2% 31.1% 26.7% 30.1% 30.9% 31.5% 32.3% 32.8% 29.5% 29.5% 31.3% 27.0% 31.1
Slide 56: Income Statement bridge for FY2017
Income Statement bridge for FY2017 € mn Underlying basis Reclassification Statutory Basis Net interest income 583 583 Net fee and commission income 180 180 Net foreign exchange gains and net gains on other financial instruments 49 49 Insurance income net of insurance claims 50 50 Net gains from reva
Slide 57: Cyprus: Income Statement by business line for FY2017
Cyprus: Income Statement by business line for FY2017 Consumer SME Corporate International Wealth & Total € mn RRD REMU Insurance Other Banking Banking Banking Banking Markets Cyprus Net interest income 214 50 100 66 10 131 (18) 1 (7) 547 Net fee & commission income 50 10 14 67 3 13 - (5) 20 172 Othe
Slide 58: Careful Expansion of BOC UK operations
Careful Expansion of BOC UK operations Gross loans and customer deposits Loans by sector at 31 December 2017 Gross loans (£ bn) 4% 1% 1.41 Corporate 1.32 15% 1.24 SMEs 1.09 0.93 Consumer credit 0.83 80% 0.74 Housing Jun 2015 Dec 2015 Jun 2016 Dec 2016 Jun 2017 Sep 2017 Dec 2017 Core operating profit
Slide 59: Risk Weighted Assets – Regulatory Capital
Risk Weighted Assets – Regulatory Capital Risk weighted assets by Geography (€ mn) Equity and Regulatory Capital (€ mn) 31.12.16 31.03.17 30.06.17 30.09.17 31.12.17 31.12.16 31.03.17 30.06.17 30.09.17 31.12.17 Cyprus 17,554 17,336 16,128 16,098 16,011 Russia 1451 33 32 30 27 Shareholders’ equity 3,0
Slide 60: Analysis of Deposits by Currency and by Type
Analysis of Deposits by Currency and by Type Deposits by Currency 31 December 2017 (%) Total EUR USD GBP Other Currencies EUR USD GBP Other currencies (€ bn) 17.85 0.9% 17.31 16.51 16.54 16.58 0.17 15.64 0.18 11.8% 0.22 0.15 0.14 2.11 14.75 0.20 1.98 14.13 1.69 1.69 1.81 0.24 1.63 1.76 1.74 0.16 2.1
Slide 61: Analysis of Deposits by Sector and cost of deposits
Analysis of Deposits by Sector and cost of deposits Deposits by customer Sector Total Corporate SME Retail (€ bn) 17.31 17.85 16.51 16.54 16.58 15.64 14.75 14.13 10.31 8.59 8.98 9.06 9.73 9.36 8.43 8.15 0.75 0.80 0.80 0.87 0.90 0.91 0.70 0.74 6.30 6.73 6.68 6.35 6.68 6.63 5.28 5.58 Mar-16 Jun-16 Sep
Slide 62: BOC - Main performance indicators
BOC - Main performance indicators Ratios Group FY2017 Net Interest Margin 3.02% Performance Cost to income ratio 47% Loans to deposits 82% 90+ DPD / 90+ DPD ratio €6,905 mn (37%) 90+ DPD coverage 61% Asset Quality Cost of risk (annualised) 4.0%1 Provisions / Gross Loans 22.4% Transitional Common Equ
Slide 63: Reduction in Overseas Non-Core Exposures
Reduction in Overseas Non-Core Exposures Overseas non-core exposures1 (€ mn) Russia: Net exposure Romania: Net exposure Serbia: Net exposure Greece: Net exposure • In addition, at 31 December 2017, there were €168 mn2 of overseas exposures in Greece (€169 mn as at 30 September 2017) not identified a
Slide 64: Non-Performing Loans definition
Non-Performing Loans definition Non-Performing Exposures (NPEs) –as per the EBA definition: In 2014 the European Banking Authority (EBA) published its reporting standards on forbearance and non-performing exposures (NPEs). According to the EBA standards, a loan is considered a non-performing exposur
Slide 65: Disclaimer
Disclaimer Certain statements, beliefs and opinions in this presentation are forward-looking. Such statements can be generally identified by the use of terms such as “believes”, “expects”, “may”, “will”, “should”, “would”, “could”, “plans”, “anticipates” and comparable terms and the negatives of suc